Renewable Energy Group, Inc.
Q1 2017 Earnings Call Transcript

Published: 5 May 2017

[Operator:]

Good day, ladies and gentlemen and welcome to First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to turn the call over to Todd Robinson, Treasurer. Please go ahead.

[Todd Robinson:]

Thank you. Good afternoon, everyone, and welcome to our first quarter 2017 earnings call. 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 first quarter financial results and recent developments. Before we begin, I would like to remind everyone that 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 slide deck can be downloaded along with the earnings press release in the Investor Relations section of our website. Turning to Slide two, 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 Report 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 call 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 turn now turn the call over to our President and Chief Executive Officer, Dan Oh.

[Daniel Oh:]

Thank you Todd and thank you everyone for joining the call. I want to quickly review our operational achievements and then discuss how the regulatory environment may involve in ways that should be very positive for us. Overall growth was outstanding this quarter, revenue was up 41% and gallons sold grew 25%. We generated $604,000 of adjusted EBITDA which was down from $2 million last year, however last year had the full benefit of the Biodiesel Mixture Excise Tax Credit or BTC being in effect, whereas this year it was not. If the BTC had been in effect with the same terms and we do think the odds of retroactive reinstatement yet again are good, then we estimate that our net income and adjusted EBITDA would have been approximately $40 million higher for this quarter. That amount of profit would represent the best first quarter in REG’s history. And again, I do think the odds are good that we are going to see some version of a reinstatement. The main reason behind our solid results for the quarter is high quality operational execution across the entire business. Most notable was another excellent quarter Geismar, which ran above nameplate for the majority of the quarter and produced over 70 million gallons of renewable hydrocarbon diesel. We are getting exceptional performance from a critical component in the production process, a catalyst bed. By studying our feedstock variability and adjusting accordingly we are able to extend life of the catalyst longer than our original expectations. Obviously longer runs between replacements mean greater utilization and lower cost. This has resulted in postponing the original planned down time to replace catalyst bed which was early this month until the third quarter. With Geismar running smoothly at high output our focus there can now turn to growth. We believe we can meaningfully improve our logistics and expand production that are based on solid execution and the high demand we see for RHD. Therefore this morning we put out a press release regarding the purchase of land at Geismar for the expected expansion and optimization of our RHD facility for $20 million. The transaction includes terminating the leaves [ph] for the current site we are on as well as the acquisition of more than 61 acres adjacent to the plant that we can improve and utilize logistically in support of existing production capacity and for future expansion opportunities. With the recent success of REG Geismar and the growing market demand for renewable hydrocarbon diesel, we believe that now is the right time to evaluate capacity expansion opportunities. The new land at Geismar is one of a number of sites we have been evaluating for extension of our RHD production capacity. Other locations we have evaluated include REG’s Seneca Illinois location and Grays Harbor Washington Plant as well as other west coast locations which are also great opportunities. Another example of our team’s execution is the continuous improvement embodied [ph] and the distillation upgrade we completed last year at our Danville facility. The REG 9000 they still buy diesel, we produce there has better coal [ph] filled properties and can be sold at higher volumes in winter times. Innovating improvement such as this enabled us to produce and sell more this quarter than we did in the first quarter last year. This was a combined effort across the business including new and improved marketing and sales techniques around that product. In our efforts towards continuous improvement, we also just announced that we closed on financing for upto $20 million with First Midwest Bank for the $24 million Ralston plant expansion and that construction is already well underway. Our ability to operationally execute gives us confidence in our near term prospects and our optimism is heightened even further by developments and momentum in the U.S. Regulatory Environment. Although there is a bit of uncertainty because of the number of elements now in play we see substantial upside for us should the issues resolve in the way we think they will. Hope you understand how things look today and how they manifold this year, I want to spend more time than usual on this. Most importantly, we are optimistic about the general support for biofuels under the new administration. The President has publicly reiterated his support for the biofuels industry noting the jobs it creates, the energy, security it promotes, the way it strengthens agriculture and improves our environment. Just last week the President issued a new executive order to promote agriculture and rural prosperity. The order creates a taskforce that will seek ways to among other things further the nation’s energy security by advancing traditional and renewable production – renewable energy production in the rural landscape. I will start with what we view as the largest regulatory influence on our business RFS2. Fortunately the intermediate demand situation for the industry is stable. The D4 RVO for 2017 and 2018 was established last year and we expect the initial 2019 proposal in the next month. RVO growth for biomass-based diesel is increasing steadily. There is much room for higher growth curve as our industry does perform in a great manner; however the direction is still upward. The RVO for the D5 to mass biofuel category that buy diesel can satisfy was increased significantly in 2017 and we expect that 2018 RVO for that category to see robust growth. Moving on from RFS2, the issue of imports is now [Indiscernible] center. An important development in the quarter was the filing of an anti-dumping and countervailing duty complaint against Argentinean and Indonesian bodies imports. These two countries are using unfair differential export taxes to subsidize as exports, thus violating our fair trade statutes. Not surprisingly, those two countries combined market share has rocketed 464% to nearly one third of the market from 2014 to 2016 causing margins for domestic producer to be compressed. As a country and industry we welcome healthy and fair competition, however we cannot standby and take no action when questionable trade practises threaten the domestic industry our society is trying to foster. We expect the U.S. international trade commission to issue a preliminary injury determination tomorrow. If they determine that the U.S. industry was harmed as we believe they should decisions on counter vailing and/on anti-dumping duties would be made in the third or early fourth quarter retroactive to the date of the preliminary determination. Building on that petition, activity around the BTC may also positively impact our industry as enacted. You all know that the BTC last effectively on January 1, 2017 reinstatement may be a bit more complicated than in years past if it becomes part of comprehensive tax reform efforts, however we are quite optimistic about the momentum behind the movement to replace the BTC with a domestic producer incentive. The domestic producer incentive addresses one of the most important issues facing the industry. That imports utilizing incentives in an unexpected manner are taking advantage of that opportunity. The regulatory framework we have today was intended to promote the growth of a domestic industry, instead we have a flood of imported products fulfilling upto a third of demand while our domestic industry is only running at about 65% of capacity. Americans generally support free trade that many now question why federal incentives intended for domestic industry are benefitting foreign producers, many law makers agree. And a bipartisan effort led by Iowa Senator Chuck Grassley in Washington, State Senator Maria Cantwell. 15 Senators recently introduced legislation that we convert the BTC to a domestic producer incentive. The American Renewable Fuel and Jobs Creation Act would enact the $1 per gallon incentive retroactively for this year and go through 2020. An identical bill has been introduced in the house as well. We see great Marriott and the producer incentive arguments and hope this legislation can be enacted in the near future. Another positive development is that just this week; the ETA approved our application to generate de-hybrand [ph] from our production of renewable naptha and LPG running on certain feedstock to Geismar. These products are a bit less than 10% of our production at Geismar, there are a variety of details associated with the approval but in general this increases the value of our production there. In fact, we believe this development could result in an incremental $5 million of revenue and EBITDA this year. Finally, let me mention additional state incentives. Many states have laws incentivizing biomass based diesel. California’s low carbon fuel standard is becoming a particularly effective demand driver for our industry and REG. We are particularly well placed to help California achieve its carbon reduction goals as we are the largest producer of ultra-low carbon biomass based diesel in the U.S. and one of the largest suppliers of biomass based diesel for the California market. During the quarter one overhang on California’s LCFS the so called pro-one case was resolved favourably. We expect the low carbon fuel standard to continue to drive demand on the west coast and enhance REGs profitability. We expect the regulatory environment will be better in the second half of 2017. Meanwhile, the industry continues to operate smoothly and fulfil our national usage requirements bringing to market a cleaner, lower carbon intensity fuel that promotes energy, security and the agricultural industry. That mission remains unchanged and we were glad to deliver this solid performance this quarter as we pursue that mission. Before I turn the call to Chad, I do want to make a quick mention of Life Sciences. As you know Life Sciences is under strategic review, so we cannot comment extensively. We are making good progress, beyond that I cannot really comment on the strategic review process. During this review period we continue to run the business to create bill value and remain on track to achieve our previously announced reduced net investment levels. Let me now turn the call over to Chad for a financial update and then I will return to discuss our guidance and outlook. Chad.

[Chad Stone:]

Thank you, Dan. Before I get started I wanted to take a moment to thank First Midwest Bank for the recent investment and show our confidence in our Ralston expansion. They are our valuable business partner and we appreciate their support. Let’s turn to slide six to review our financial results. Please note you can find a reconciliation of adjusted EBITDA to GAAP net income on Slide 17 of the presentation and in the earnings release. Our financial results were within guidance range and were better than typical for the first quarter. If you evaluate our results we call that the biodiesel tax credit expired at the end of last year. As has happened in the past, the industry operated as if the tax credit would be reinstated and transactions were negotiated on the basis that the credit were incentives would be shared between us and our customers. If the DTC is not reinstated or a domestic producer tax incentive, incentive is not implemented these reported results of course will be unchanged. So first profitability. GAAP net loss was $15.9 million or $0.41 per share. Total adjusted EBITDA was $604 million; this is down from $2.2 million last year. The first quarter of 2017 adjusted EBITDA results was within our guidance range, the main impact on adjusted EBITDA was the lapse of the tax credit and we call as Dan mentioned should the tax credit be retroactively reinstated as in the past, the net benefit improvement for our first quarter activity would be approximately $40 million. Let’s now shift our focus to sales. We sold 122 million gallons of fuel during the quarter, which exceeded the high end of our guidance range. We sold 25% more gallons of fuel than last year. Gallons sold in the quarter include 76 million gallons of biomass-based diesel out of North America, 14 million gallons from third parties, 22 million gallons of petroleum based diesel as well as 10 million gallons from Europe. During the quarter, we produced 97 million gallons. Higher volume and better pricing resulted in revenue of $490 million or an increase of 41% year-over-year. We recorded risk management gains of $8.3 million from our derivative financial instrument activity in the quarter compared to a loss of $4.3 million in the same period last year. Risk management gains this year are reflective of a decline in energy prices throughout the quarter and are generally offset when we deliver product which is often indexed to the price of heating [ph] oil. SG&A expenses were $22.9 million, or 5.5% of revenue in first quarter 2017, compared to $19.8 million, or 6.6% of revenue in the prior year period. The increase was primary due to higher costs associated with growth in the core business, and increase in headcount to support growth and international expansion as well as the seasonality of being spread over lower volumes in the first quarter. R&D expenses were $3.6 million in the quarter, down from $3.9 million in the same quarter last year. We expect our annual effective tax rate to be between 5% and 8% in 2017. The net loss of $15.9 million or $0.41 per share compared to net loss of $6.9 million or $0.16 per diluted share in the same period last year. Now let’s turn to slide nine on the balance sheet. We used our cash and strong receivable collection to build inventory, reduce payables and reduce debt. Cash and equivalents decreased by $34 million and receivables were down by over $100 million. We use those funds to build inventory for the summer selling season by $24 million. We also paid down payables by $30 million and paid our line of credit down $30 million. On a skill [ph] basis DSO declined to 12 from 26 days and inventory increased like we normally see in the winter month to 38 days from 27. The carrying value of our term debt at the end of first quarter 2017 is $217 million with an average interest rate of 3.9% and overall, our term debt is approximately 27% of capital. Turning to cash flow, we generated $22 million of cash from operations. Net cash used in investing activities was $20 million. We used $70 million of cash to fund ongoing capital expenditures, $3 million associated with acquisitions and net cash used in financing activity was $37 million in the quarter. For modelling purposes, our budgeted capital expenditures for the rest of 2017 are approximately $50 million to $60 million; this is aimed mainly at upgrades to our facilities, and is supported in part by financing from First Midwest Bank for the Ralston expansion. Before I turn the call back to Dan, I can’t overemphasize the importance of the trade case that we initiated. We’ve seen over 900 million gallons of imports flood our shores in 2016 and most of it was subsidized. We are extremely motivated and encouraged to close this loophole. Now I’ll turn the call back to Dan to discuss the outlook. Dan?

[Daniel Oh:]

Thanks Chad. Guidance for the second quarter of 2017 is shown on slide 13. Before I discuss the numbers let me review the environment we expect to operate in during Q2. Our guidance incorporates a few assumptions, the most important being a stable margin environment obviously energy and feedstock prices will move, but we cannot predict those market movements for you. Also we cannot predict the timing of when various incentives and supports might change. So we assume a stable regulatory environment for now. Whatever does happen with various incentives we do know that demand will at least be supported by the 2017 RBL which is 2.8 billion galloon equivalents that includes the deepwater biomass-based diesel and the five advanced biofuel categories. This is about equal to 2016 consumption, but about 1 billion gallons over domestic production. Keeping those assumptions in mind, in the second quarter we expect to sell between 155 and 170 million gallons. We are forecasting our adjusted EBITDA to be in the range of $5 million to $20 million, should the BTC be reinstated, we would expect an additional $50 million of upside to that range. Given current economics and the tax credit been retroactively reinstated or reformed we believe full year 2017 could be a record year for both revenue and adjusted EBITDA. Now I would like to turn the call over to the operator for the question-and-answer segment of our call. Operator?

[Operator:]

Thank you. [Operator Instructions] Our first question is from Brett Wong with Piper Jaffray. Your line is now open.

[Brett Wong:]

Hey, guys. Thanks for taking my questions and congratulations on a nice quarter. First, I just wanted to dig into the fundamentals a little bit more Dan, I know you just commented about that in your prepared remarks that [Indiscernible], but whatever color you can talk about in terms of supply, demand, expectation as you look through this quarter and through the year, and I know that there are implications to what imports will look like, but kind of where you see supply demand and the margin profile and if you are just going to just talk about a little bit of pricing and feedstock that would be helpful?

[Daniel Oh:]

Okay. I’ll make a couple of comments and I’ll let Chad weigh in. First of all, when you have a situation like that exist with the Trade Commission, typically once it becomes announced if people think it's going to be valid, its starts to having a drag on movement. And it’s very public hearing process over a month ago and we expect to hear something positive to the complaint tomorrow or very soon. I think what you often find in that world is that things that were committed in contract income and other things tend to not happen. So even though it might be well until the end of the year or even early next year when things are fully adjudicated, my guess is that that will create a drag on inputs which will be supportive of domestic production demand. Also, as we’re moving forward, we see very good demand for fuel and we’re in a nice position going into the summer because our RG9000 distilled product which is a unique product that we now offer in the winter time allows us to sell higher cloud, higher seating, high lubricity [ph] buy diesel in winter time as often as a specification that is better than a soymilk Lester which many people at least historically for marketing reasons tend to look towards [Indiscernible] on the winter. Our distilled product has a great advantage in terms of our cost of goods value customers and the ability to blend it in the wintertime. We sold a lot more fuel in winter, it did not store what we sometimes have stored in the past moving ahead. So, that is one of the reason you saw the power of the utilization and production in the quarter. Chad?

[Chad Stone:]

Yes. I agree with all that. I think we’re entering into an environment where margins are set to improve, Brett, I think the supply and demand backdrop is favourable to us and couple of things I point to are kind of bigger macro things that we’ve lived through and we are seeing – you’ve seen us over the last six years at average about $100 of EBITDA, meanwhile we’ve grown pretty significantly. Big things has happened in the backdrop, drop from 2013 December to 2015 December, the oil complex collapsed, it dropped up 40% two years in a row and we’ve seen that level off since that downturn and been more stable. We’ve grown our nameplate capacity significantly. Typical in the poststar [ph] world we’ve this operate most quarters most year within a 5% to 15% EBITDA margin range, but recently with imports from below 100 million, imports in 2011, 2012 timeframe to over 900 million gallons. You’ve seen our margins compressed to the 4%, 5% kind of the low end of what we think is reasonable. So if you do a guess a positive catalyst with import release at least kind [Indiscernible] campaign to eliminate the subsidy that would be very big factor for the domestic producer and good for us. I also keep my eyes open for the April announcement of how wells that we generated so far for the first one-third of the year. Are we on target to meeting existing of this biofuel category, biodiesel category or people been waiting for something different to change and that might shape up to be a good, I’m watching that very closely in that – I think those are kind of a main things that I’m seeing, it also always good when the weather turns in our industry to experience the higher seasonality of demand of diesel and buy these all renewables, this organic consume throughout the second, third and into the fourth quarter versus what’s typical the slowest quarter first quarter, and to point earlier we continue to have another year of 100 million gallon RBL growth and biomass-based diesel and it growing – it is [Indiscernible] category which is about 2.7 billion biodiesel, biomass-based diesel equivalent gallon opportunity and we proven as an industry we can do that much last year.

[Brett Wong:]

That’s what a great color. Thanks guys. On the RBL which has you commented is coming up, how likely you think that we could see that get pushed out as we have many time in the past given that this is a new administration and I know there’s been supported commentary and actions around bio fuels, but do you see that there is any risk to 2018 and 2019 biodiesel RBLs given the current administration?

[Daniel Oh:]

So, it's a new administration, so there’s certainly a possibility that something to get delay just as they get their systems moving and running. My general belief is that things are going to stay on schedule or very close to schedule. The professional staff that’s stays and runs the administrative area within EPA has long history and has been working through this both Republic and Democratic Republic administrations, and we've seen highly supportive commentary, I think to other private channels as well as public channel, so yes, there is a lot of gossip out there, but practically speaking our RFS2 is fundamental to supportive American agriculture not even talking about environmental benefits or energy benefits. So, it just doesn't seem like the administration based on where a lot of their political support came from should have high interest in creating a lot of dysfunction. And when you step back and look at all that biomass-based diesel, the advanced biofuel category is a long demand product. Diesel is growing globally. We need more diesel. When we put our plants in operation and action we’re adding to the growing demand diesel wall. We’re not in competition with another fuel category has challenges getting out the market and we’re highly fungible. So it's very good interaction normally when we have conversations around it. The other thing I want to point out which is not directly related question but also gets back to margin expansion. As you might have noticed we went back a little bit on M&A over last year not because of anything other than we wanted to make sure that we had a really strong focus on operation excellence we saw head our antenna out for growth product opportunities. We’ve seen many more organic projects coming through now as we optimize the system. We're really focused on holding out winning capabilities and building out. We just see some improvements being more efficient with our system and I think there's margin expansion even within around organization that kind of occur as we start bringing these results forward. And that will strengthen and reduce the overall volatility. But direct the answer, I'm optimistic about the regulatory environment. I hear a lot of things being said the right way in many different channels and I think people understand that this is a special area for support of the ways that created this situation in our administration in terms of who is in charge.

[Brett Wong:]

Great. And then one last one from me. Can you just talk about what drill the decision to pursue expansion at Geismar rather than at Seneca or Grays Harbor as you mentioned in any other existing facility that makes more sense and than doing greenfield expansion or brownfield most often?

[Daniel Oh:]

Yes. So, thanks for that opportunity to clarify. So, just to be really specific, we have not declared publicly that we're going to do an efficient expansion of utilization at Geismar. But it is a very obvious place to do it if all the things fall in places we like them to do as well as state and centers and permitting and other things that you could guess for. We're thinking about right now. We're blessed because of our focus on distribution and tributary favorable aspects for by biodiesel to have water, rail, highway, I don’t only just see some metaphor either RHD or buy diesel within our system. So, at the Grays Harbor, we already have as part of that acquisition, leased land that is directly adjacent to our plant. And of course you could imagine that we thought very hard about that. At Seneca, we acquired an extra 35 acres a couple of years ago, that is tributary to the heart of feedstock in the mid-West and it's right on the Illinois river which does not freeze most all of the time. I could sell to Chicago. All three of this locations are prime places to go and a very logical places and we have a few others of interest too. But at Geismar, we have optimized, we continue to optimize the land acquisition, made great sense to us because that it creates the opportunity to put long-term investment into that facility with our concern about a lease term. It makes it such that we can pretty rapidly come in and improve our logistics. One of the things you've heard us talk about over time is that we have more than one handling in many of the things we do. So, by expanding direct logistics and support of these 75 million gallons of existing capability, we have margin expansion that's a great return right there. Then anything we do for that we'd support additional trains that we could bring to that side. And as you know we also bought a very high discount equipment out of QR and at Geismar, it's a very logical location for that equipment to go in plus more. So, I like a technology, we did suffer too fires. We have gone through this day a really good rigorous processed and showed what we have is of a very high quality in the standard that is the case. And it’s a platform that makes sense to grow.

[Brett Wong:]

Great. Thanks so much, for all the color.

[Daniel Oh:]

Thanks, Brett.

[Operator:]

Our next question is from Craig Irwin with ROTH Capital Partners. Your line is now open.

[Craig Irwin:]

Good evening and thank you for taking my questions. And I also should say congratulations on a very strong quarter. First thing I wanted to ask about is the tax advantage for Argentinian biodiesel exporters, I understand there's about a 25% subsidy that's handed to the parties that are dumping biodiesel in our markets. Can you walk us through the details of this tax advantage that Argentina is pushing to send their biodiesel up to the US market?

[Chad Stone:]

Hey Craig, it's Chad. I will give you a kind of a general sense. So, effectively there is a differential excise tax in place for a much lower tax, if you export biodiesel. So, for example, if there is a 28% or 29% tax on Soya beans or Soya bean oil, about a 5% tax on biodiesel, you effectively have a very strong incentive to export. And there is more production down there, 100s of millions of gallons more of production. So, it's really designed to be an export market. And that after it was blocked from countervailing duties and antidumping from Europe for these subsidies and Peru, they set their size and kind of change course instead of coming into to our coast. And we've seen that ramp up significantly. So, really over the last three years we saw that grow from the inside 464% from two specific countries and in response to that, our industry trade group took on an initiative to pull domestic producers together in a coalition to just add for fair trade level playing field and countervailing duties in antidumping. Again two countries, then we've made good progress, had a hearing and are expecting a vote from the international trade commission to come out tomorrow and be posted on Monday.

[Craig Irwin:]

That's very good to hear. So, my understanding is after we get the posting on Monday, that as little as just a few weeks later, we could see actions from the Department of Commerce and the US ITC to put in place the requirement for cash deposits to accommodate period of tax if that's what eventually are implemented. And there is potential that that cash deposit requirement could have a look back as far back as 90 days. I know that there are cargos on schedule, looking out until June from Argentina but I was just talking to a global commodities trader today. And they had read interview in the trade press about where I discussed this. It doesn't sound like the parties in Argentina are completely aware of this. And I guess your investors obviously wouldn’t be in this, this would be a fairly important part of the potential unfolding of this trade complain. Can you walk us through some of the details mechanically about how this could come into position, whether or not it's a certainty or potentially uncertain thing and how you would see this potentially impact the trade flows from Argentina?

[Chad Stone:]

Yes. I'll talk generally about what we've seen and we've been told and what we believe. I practically when the tax credit lapsed in January, we effectively saw Indonesia start sending their arbitrage window wasn’t hasn’t been working this year. Argentina, when the trade case was announced had a full line up through June of ships on their way here and it was actually when you look year-over-year, first six months of this year versus next year, they'll have exported more this year than last year, but after that once the trade case was announced, it has pretty much had a killing effect on that. Once the ITC and the Department of Commerce come out with their indications, you're right as Dan said second third quarter later this year, they will be assessing potential penalties antidumping countervailing duties and requiring importers of record to put cash deposits on hand and that could go back 90 days, so there is a jeopardy that begins before the final determination is calculated and judged upon. So, with that I think you've got the mechanics down. I think the full case is planned to be result likely first quarter of next year with lots of steps in between and lots of indications of progress throughout. We've seen good progress made on both agencies, both the Department of Commerce moving ahead in the International Trade Commission. No, if I missed anything there Dan that you would highlight?

[Daniel Oh:]

No, just that if we end up with a domestic production incentive that is retroactive, which is certainly smart and proved for the government to do because they're trying to save money from a certain growth agenda's in the US. That would be another item that as the year goes forward and people think that's more likely effective and on the import side more product that may otherwise not have money that they've been using to move stuff across the water to the US. On the other hand, we may see greater supply availability, so people can make a different choice to send raw material that’s compliant with an RFS2, then that would kind of strengthen coastal production. We of course have coastal production assets, I think we would benefit from that. If that's moving ahead and quite frankly those assets were built 10 years ago when the expectation was we would see raw material ferried across.

[Craig Irwin:]

Thank you for that. So, question on the same subject. One of my clients are with under the impression from conversations they'd had with trade attorneys that the exports out of Singapore could potentially be added to the case as an addendum, given very similar mass and obvious dumping from Singapore as well. Can you comment about whether or not mechanically this is feasible or likely and any other color on this subject would be helpful. Thank you.

[Chad Stone:]

So Craig, I think it's a function of industry participation. It takes a certain amount of data to get the complaint done. So, one would need to have the appropriate level of industry participation for that to occur and that's probably all I can say.

[Craig Irwin:]

So, there is one other guy I guess everybody on this call will know who that is. So, then moving on to probably more important near term for financials, given that the momentum is already in for the foreign parties will get pushed back overseas. Geismar, fantastic performance how that had planned. You did have a turnaround this quarter, can you clarify for us how many weeks or how many days it was down for where you saw the adjusted utilization in the quarter. And how you expect this plant to perform during the second calendar quarter, whether or not we should see improved possibility given that there will not be a turnaround.

[Chad Stone:]

Yes. So Craig, thanks for clarifying that. We in fact did not have a turnaround in the quarter because our catalyst there has continued to perform at very high level. And I'm very proud of the team for that work. One of the things that I think our business is known for is through expertise at the use of multi feedstock in various cocktails and ratios and volumes, from anything and any combination that is appropriate under regulatory rules. And we have applied that knowledge down to a six segment type analysis to optimize the supply chain and life of the catalyst and equipment on the side, this is one of the things we thought would be a real synergy when we originally acquired and then improved the technology in the plant and it's proven to be that case. So, bottom line is we are very likely to push the turnaround in the third quarter, we're monitoring essentially get a signal at a certain time and we're ready to do a fast turnaround then often would be three to four weeks at most. But we didn’t do one but are planned to do one in second quarter, we're thinking third quarter, but we're very pleased with the performance and we have a safety stock built in our business, so that when that sort of thing were to happen, it should not affect our customers on a plant trading basis.

[Craig Irwin:]

Great. And then last question I guess is on Geismar as well. So, given the higher sense of the anticipated turnaround in the quarter, was this a key factor and you being above the midpoint in your prior adjusted EBITDA guidance or where there other factors that were a larger impact or larger benefit in the quarter?

[Chad Stone:]

Was definitely key factor because we when we're not running, it's roughly about $2 million of expense a month and it was favorable to us to be running and not have that downtime. Although we do routinely build that into an annual budget because this kind of plant we'll have at least one turnaround a year. So, that help. But quite frankly, when you look that upside of $40 million in our potential maybe likely it just depends on how you think about the incentive, that is directly related to our distillation investments that have occurred over last few years, where we had polishing capabilities to put out a really high quality finished biodiesel that performs at a great level in winter time. So, that is so yes Geismar is helping with our EBITDA in range, but when you think about the upside in that domestic producer incentive that we think will come, at least I think will come, that is because of all these other investments in our plans.

[Daniel Oh:]

One thing I'll just add to that is I think you know that there is some advantage to being able to separate prints at production, like we can do at renewable diesel and capture some downstream margin, that otherwise we have to compete for, so that’s a useful tool at that plant that helps drive some good economics to at the Geismar plant. Yes.

[Craig Irwin:]

Great. Thank you, you answered that and congratulations on the nice quarter there.

[Daniel Oh:]

Thank you.

[Chad Stone:]

Thank you, Craig.

[Operator:]

[Operator Instructions] Our next question is from John Quealy with Canaccord. Your line is now open.

[John Quealy:]

Hey, good afternoon guys. So, a couple of questions just overall in terms of the mix for the quarter. Is this, what's the next veg oil or animal has I imagined skew towards veg oil or?

[Daniel Oh:]

Yes. So, it's typically historically frequently seen us at about an 80, 85 mix with the addition of a very large plant in Grays Harbor that's focused on canola oil, that mix has gone down to the 75% range typically. So, you'll see and all this goes that you'll see it in the report but we typically update that each filing. But it is found some little bit higher to vegetable oil in the past, just because first of all we're using a lot more feedstock in general and so we can blend it in at plants that are multi feedstock and then the Grays Harbor plant being a 100 million gallon nameplate and having run real well excused historical blend you've seen in the past.

[John Quealy:]

Yes, got it. And Chad, on the device at Geismar and I know you talked about, I think it was 5 million topline, 5 million EBITDA, so the remainder of '17 is that what you said?

[Chad Stone:]

Yes. What Dan was really trying to emphasize there is the little things are important, I mean we're filling out paperwork and getting pathways to improve for new feedstock's, more feedstock's at every plant defy the Geismar. So, we remember Geismar will produce roughly 90% 91% renewable diesel and then 9$ is going to be split between naphtha and LPG. Well, if we have the right paperwork on file with the EPA and we've got pathways to improve, then we've done all of our homework and then we sell it into transportation, fuel, or some buyable option. We can also capture a $0.95 defibrin or 1.5 on naphtha depending on these different calculation. But it just, what I think was Dan was trying to emphasize is, those little things are important, they add up and we're trying to do those little things. So yes, what this 5 million plus was given the current pathways available to us today and the feedstock's that we can use, I think if rim prices stay where they are, it's worth more than $5 million.

[John Quealy:]

Great.

[Daniel Oh:]

$5 million for the home one.

[John Quealy:]

But keep it at for the year, -- sorry Dan?

[Daniel Oh:]

I was just going to say that when you have the scale that we do, just a penny on $500 million gallons of production is $5 million. So, whenever we can find a 10th of a penny or a half of penny or penny, it has a substantial impact when it get us across the whole business. That's the kind of power I was trying to talk about of continuous improvement which has always been part of our culture and is an increasing focus in optimize for the total system. And then at the same time, going to your feedstock question. We are growing and developing, we’ve been building business activities like our energy services business where we’re selling diesel, where we’re blending more biodiesel into the diesel, it gives us an opportunity to sell as we slowly grow into that business more fuel at right [ph] price that’s biodiesel typically at a better, much better captured margin. We’re also building, developing which a synergy with the acquisition of our international biodiesel assets, international feedstock acquisition that is super high quality in terms of sustainability compliance and so forth. Other tributaries places like in Isomer [ph] and Grays Harbor in Houston as well as our North Sea plans in Germany. So, these things are building and growing and growing support of the expansion of earnings. You know we’re interested in expanding the business but earnings first.

[John Quealy:]

Okay. Thanks. And Dan, I know you’re not going to comment about what science is, but can you just give us timeframe, what sort of timeframe should we be looking from here on now, heard from you guys on what their strategy review is unveiled in related to items around the corporate structure?

[Daniel Oh:]

Yes. So, my sense is that sometime in that third quarter timeframe we’re going to have a good sense of everything in terms of that world, my team here would probably slap me for saying that, but we’re working hard in many ways to maximize and monetize the value. And what we do have is a good asset. That’s been clarified, kicked, push, tested, we have a good asset. We’re trying to get through good outcome that’s really takes care of our shareholders. And I also have goal and this is not a public announcement, but I have a goal of having some kind of Analyst Day in third quarter to help bring all this stuff together and share things in terms of our move to head strategy.

[John Quealy:]

Okay. That’s helpful. That’s it from me, guys. Thanks.

[Daniel Oh:]

Thanks.

[Operator:]

Thank you. And no showing our further questions I will now like to turn the call back to Dan Oh, CEO for any further remarks.

[Daniel Oh:]

Thank you, operator. And thank you all participating in today’s call and for your continued support. I encourage all of you to go to – Yes, we really do like our company working here and we like our shareholders and I don’t earnings call is something stressful for folks, but I like having this, Chad so go ahead.

[Chad Stone:]

I encourage all of your to go our channel on YouTube and watch the videos we produced for our 10-year anniversary. They often end up looking at our assets, our capabilities and our strategy. Sure of working here, there’s no better way for our shareholders to truly appreciate the value of the asset they own. Each video is shortened direct and can be watched independently. Before we conclude, Todd’s going to make mention of some upcoming investor events, Todd?

[Todd Robinson:]

Thanks, Chad. We’re hosting our annual shareholder meeting on Monday, May 8th at 10 O’clock in our offices here in Ames. The doors will open at 830 for those interested in attending some educational session on our business. On May 16th we will host one-on-one meetings at the Oppenheimer Emerging Growth Conference in New York. On May 18th we will present and host meetings at the BMO, Farm to Market Conference also in New York. And on May 31st we will on a panel and host one-on-one meetings at the Cowen's 45th Annual Technology, Media & Telecom Conference in New York. Lastly, we will host one-on-one meetings on June 21st at the ROTH Cleantech Corporate Access Day in London. Attendance at those conferences is invitation only. So please contact your sales representative if you want to attend or schedule one-on-one meeting with it. Thank you all again. This concludes our call. And you may now disconnect.