Renewable Energy Group, Inc.
Q2 2017 Earnings Call Transcript
Published:
- Operator:
- Good day, ladies and gentlemen. Welcome to the Renewable Energy Group, Inc., Second 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] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Todd Robinson, Treasurer. Sir, you may begin.
- Todd Robinson:
- Thank you, Andrew. Good afternoon, everyone, and welcome to our second quarter 2017 earnings conference call. With me today is our Interim President and Chief Executive Officer, Randy Howard; our Chief Financial Officer, Chad Stone; Brad Albin, our Vice President of Manufacturing; and Gary Haer, our Vice President of Sales and Marketing. I want to take a minute to introduce Randy since this will be the first interaction with him for some of you, while others have met Randy over the years at Investor Conferences or other REG events. Randy has been on the REG Board of Directors since 2007 and he is intimately familiar with the company, its leadership and the opportunities and challenges before us. He is an energy industry veteran, having served at Unocal Corporation for 33 years. His responsibilities covered a number of functional areas that are directly relevant to REG operations today, including refining, logistics, supply chain and trading. His experience spans multiple geographies, including the U.S., Asia, Europe and South America. With his broad experience and knowledge of REG, the Board felt he was ideally suited to take the reins and accelerate the performance aspirations we outlined in June at our Analyst and Investor Day. Let me cover a few housekeeping items before I turn the call over to Randy. First, I would like to remind everyone that this call is being webcast and is available at the Investor Relations section of our Web site at regi.com. A replay will be available on our Web site 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 Web site. 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 and 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 turn the call over to our Interim President and Chief Executive Officer, Randy Howard. Randy?
- Randy Howard:
- Thank you, Todd, and thank you, everyone, for joining the call. As Todd mentioned, this will be my first exposure to many of you. I look forward to meeting and speaking with all of you in the near future and would courage you to be in touch as appropriate. I intend to enhance our communications with our shareholders and welcome your questions and comments. I also want to emphasize that under my tenure as CEO, I am focused, as Todd said, on moving full speed ahead to pursue our strategic plan, grow our business and improve our returns. We outlined that strategy at the June Analyst and Investor Day and nothing has changed in that regard. The strategy remains sound and reflects the collective thinking of the Board of Directors and the senior leadership. We are focused on executing that strategy successfully. Before I move on to results and operating highlights, I want to take a moment to thank Dan Oh for his service to the company. When Dan joined, we were a single plant operation in Ralston, Iowa. We are now the industry leader, generating over $2 billion in annual revenue. The employees, our suppliers, customers owe Dan a debt of gratitude. We wish him the very best in his future endeavors. Now let's turn to this quarter's results. At the Analyst and Investor Day, we emphasized the ability of our current business platform to generate $150 million, or more in annual adjusted EBITDA. We remain on track to demonstrate that earnings power in 2017. That earnings power assumes a retroactive reinstatement of the Biodiesel Tax Credit or BTC on the same terms. We are confident that the BTC or something equivalent will be reinstated as it has every other time it lapsed. As you can see on Slide 4, this quarter, we generated approximately $20 million of adjusted EBITDA without the BTC. We estimate that we will have generated approximately $78 million of adjusted EBITDA if the BTC is retroactively reinstated. $20 million of positive adjusted EBITDA in a quarter without the tax credit in effect is a really solid quarter. Generally, in periods when the tax credit is not in effect, our adjusted EBITDA is closer to breakeven, $78 million of adjusted EBITDA on a single quarter would represent the best quarter in the company's history. Additionally, first half adjusted EBITDA of $118 million, assuming a retroactive reinstatement of the BTC, would represent the best first half in our history as well. Therefore, we are well on our way toward our financial goal of exceeding $150 million of adjusted EBITDA for the full year. I will discuss our outlook in detail later in the call. We performed well on all key metrics. We sold 160 million gallons, generated $530 million of revenue, we produced 117 million gallons, including 14 million gallons of renewable hydrocarbon diesel at our Geismar plant. Geismar is performing well. Following on the 103% capacity utilization in quarter one, the plant continued to run well. As previously announced, we began our catalyst turnaround on June 19. We completed the turnaround timely and came back up on July 16. We took advantage of the downtime to make some other high return upgrades. For instance, we upgraded one of our reactors and made additional improvements to the hydrogen compressor. Geismar is now back to running over nameplate. Within our biodiesel fleet, we continue to run efficiently at high capacity utilization. The biodiesel fleet produced at 92% of nameplate capacity for the second quarter and achieved 13 new weekly, monthly or quarterly production records. These production records are the result of our relentless focus on continuous improvement and optimization. I am pleased we are seeing results from the high return capital invested in these plants to improve their profitability. Additionally, our current expansion and upgrade project at Ralston is progressing well and on track to be completed near year end. At the Analyst Day, we emphasized a number of near term market dynamics that could meaningfully improve our market conditions. Those included the National Biodiesel producer trade coalition case against biodiesel imports from Argentina and Indonesia, a possible switch of the BTC to a domestic production incentive and EPA's RVO announcements. Now turning to Slide 7. On the trade case, we continue to expect a favorable decision from the Department of Commerce by August 22. On the switch to a domestic production incentive, we continue to believe this sensible tax reform will receive favorable treatment in D.C., given the emphasis on reform that supports U.S. jobs, fair trade and infrastructure development. Regarding the RVO proposal, we were disappointed that the EPA did not propose an increase for biomass-based diesel for 2019. However, the stable RVO they denounced is sufficient for us to grow our business. We will continue our efforts to educate the White House and the EPA on why it is good policy to continue to increase biomass-based diesel RVO. Last week, you may have read the D.C. Court of Appeals rule that the 2014 through 2016 ethanol RVOs should not have been reduced and that the EPA should not have used waiver authority based on inadequate supply. We believe this is generally a positive development for biomass-based diesel. We were very pleased to see big wins in our 3 largest markets; California, Illinois and Minnesota. In a bipartisan fashion, California recently extended its carbon reduction program for 10 years. This includes the Low Carbon Fuel Standard, or LCFS. This placed REG's strength as a low carbon, waste-based, biomass-based diesel producer. Illinois extended biodiesel sales tax exemption for B11 and higher blends through 2023. And in Minnesota, the state certified a summertime minimum blend of B20 beginning May 1, 2018, increasing the existing B10 seasonal blend. These 3 affirmations and extensions of key state policies are positive growth indicators for us. Finally, before turning the call over to Chad for the financial update, I want to provide a brief update on Life Sciences. The strategic review of the business is now fully underway. We continue to advance product developments with the support of partner agreements. Let me now turn the call over to Chad for the financial update, and then, I will return to discuss our guidance and outlook. Chad?
- Chad Stone:
- Thank you, Randy. Let's turn to Slide 8 to review our financial results. We were within the guidance range for the second quarter and as you evaluate our results, recall that the Biodiesel Tax Credit expired at the end of last year. As it happened in the past, the industry is operating as if the BTC will be reinstated and transactions are being negotiated on the basis that any tax credit or incentive will be shared between us and our customers. Going forward, we will provide estimates of the net benefit impact to us. If the BTC is not reinstated or a domestic production incentive implemented, our reported results will of course be unchanged. Our net loss was $34.8 million. The loss was largely due to the $32.5 million non-cash expense recognized from the change in the fair value of the convertible debt conversion liability. The increase in this liability is largely due to the increase in our stock price during the quarter. Excluding this expense, our net loss would have been $2.3 million or $0.06 per share. Total adjusted EBITDA was $20 million, up from $8 million last year. The second quarter 2017 adjusted EBITDA result was at the high-end of our guidance range despite a tight margin environment. The main [indiscernible] adjusted EBITDA was the last of the BTC. Recall, as Randy mentioned, should the tax credit be retroactively reinstated on the same term as in the past, the net benefit for our second quarter activity is estimated to be approximately $58 million. For the first 6 months, the net benefit from the retroactive reinstatement is estimated to be approximately $98 million. Shifting to sales. We sold 160 million gallons of fuel during the quarter, which was within our guidance range. We sold 7% more gallons of fuel in the quarter than last year. And gallons sold include 116 million REG-produced gallons in North America, 16 million gallons from third parties, 18 million gallons of petroleum-based diesel as well as 10 million gallons produced by our operations in Germany. During the quarter, we produced 117 million total gallons. Our average B100 sales price per gallon decreased $0.41 per gallon or 12.5% to $2.86 per gallon in the quarter. This was mainly due to the tax credit lapse as well as surging imports. The higher volume and reduced sales price resulted in revenue of $535 million, a decrease of 4%. We recorded risk management gains of $9.8 million compared to a loss of $30.5 million in the same period last year. The fluctuation in risk management gains and losses between periods was mainly due to price volatility in energy markets in those periods. The risk management gains this year are reflective of a decline in energy prices throughout the quarter. As a reminder, our risk management practices are designed to protect cash margin on price-indexed biomass-based diesel supply contracts and as such any gains and losses in risk management are designed to be largely offset by a loss or gain in our margins. SG&A expenses were $22.8 million in Q2 compared to $20.9 million in the prior year period. Based on gallons sold, SG&A expenses were $0.14 per gallon this quarter compared to $0.13 per gallon in Q2 2016. The increase year-over-year was primarily due to costs associated with growth, international expansion and integration of our European operations. R&D expenses were $3.2 million in the quarter, down from $4.4 million in the same quarter last year as a result of our efforts to improve performances at Life Sciences. As I mentioned, we recorded a non-cash expense from the change in the fair value of the convertible debt conversion liability of $32.5 million in the quarter compared to a gain of $13.4 million in the prior year period. We continue to expect our annual effective tax rate to be between 5% and 8% in 2017. And recall, our low effective tax rate is due to the large deferred tax assets resulting from the BTC tax treatment. Our deferred tax asset was $340 million at year end as we disclosed in our 10-K. Now let's turn to the balance sheet on Slide 10. In the quarter, cash and cash equivalents increased by $5 million, receivables were up by $8 million, inventory decreased by $35 million and accounts payable increased by $5 million. The balance outstanding on our line of credit increased by $47 million as we increased production. On a scale basis, DSO declined to 11 in Q2 from 13 days in Q1 and inventory decreased to 24 days from 38 days in the prior quarter, which is a normal seasonal pattern. The carrying value of our term debt at the end of Q2 2017 is $250 million and overall our term debt is 28% of capital. Turning to cash flow. Year-to-date, we used $1 million of cash in operations. Net cash used in investing activities was $32 million to fund ongoing capital expenditures largely for Ralston, Seneca, New Boston and Madison as well as Ralston and Geismar. Net cash from financing activity was $4 million during the quarter. For modeling purposes, budgeted capital expenditures for the remainder of 2017 are planned to be $30 million to $40 million, and this is aimed mainly at upgrades to our facilities at Ralston and Geismar. As a reminder, at Ralston, we do have a $20 million financing for the expansion and upgrades. Our average interest rate on our debt is 4%. Now, I'll turn the call back to Randy to discuss our outlook. Randy?
- Randy Howard:
- Thanks Chad. I would like to share a few thoughts before providing guidance. One of our investor relations goals is to provide as much clarity as possible. This includes clarity on the natural variability of our business. Having been an integral part of this business for a long time, I have personally concluded that this is a business that is best to view over periods longer than a single quarter's performance. There are many factors that create volatility in our quarterly earnings but do not reflect the company's true underlying performance and long-term earnings power. These include risk management swings, timing of recognition of BTC benefits and inventory builds and draw-downs resulting from the seasonal nature of our business. As a result, I believe it is more appropriate to evaluate the business on an annual cycle. As you can see on Slide 14, our trailing 12-month adjusted EBITDA is trending up. I think this will be a key way to track our performance going forward. On a daily basis, we carefully manage the business in an effort to maximize profitability. However, due to accounting rules and factors I just mentioned, profitability can appear lumpy over shorter time periods. With that as a backdrop, I would like to share that our first half adjusted EBITDA exceeded our expectations. Based on historical experience, it is difficult to generate positive EBITDA margins when the BTC is lapsed. In such period, biomass-based diesel tends to be sold with tight margins at a time of delivery, combined with tax credit sharing in anticipation of the credit being reinstated. We expected 2017 to reflect that prior experience, but instead, we were pleased to have achieved positive adjusted EBITDA in the first half. We generated over $20 million while building a potential tax benefit of an estimated -- to be nearly $98 million. We do expect the tight margin environment to continue into the second half and therefore expect our adjusted EBITDA to be breakeven to slightly negative. We will continue to build our contingent tax credit benefit. I want to mention that in July, we settled our business interruption insurance claim with respect to Geismar. Final amount at $7.6 million will not be recognized until the third quarter and is included in our guidance. Thus, the total adjusted EBITDA for the third quarter should be in a range of positive $8 million to negative $7 million without the tax credit, as you can see on Slide 15. We estimate our BTC benefit for that period would be $50 million to $60 million and we expect to sell between 155 million to 170 million gallons. Again, assuming the expected reinstatement of the BTC, we believe our 2017 full year adjusted EBITDA will be in the range of $160 million to $200 million. 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] And our first question comes from Brett Wong with Piper Jaffray. Your line is now open.
- Brett Wong:
- Hey, guys. Thanks for taking my question. Randy, welcome, looking forward to working with you. First, I wanted to dig into the trade case. I know we're still waiting until later this month for an update, but I wanted to see if you could talk about feedstock availability if imports occur. But I know you talked a bit about this, you talked to them about it at the Investor Day. But, I wanted to kind of see your thoughts around feedstock availability and the potential or how you view kind of import tariffs on feedstock like soybean and canola and how that kind of impacts producers here if the trade case is positive, like you guys are expecting.
- Randy Howard:
- Yes. Let me just add a couple of things. I think you were a little hard to hear, but let me see if I can -- your question really regards to what the feedstock availability looks like in the case -- with the anticipation of the trade case, will back down imports to the U.S. Is that...
- Brett Wong:
- Yes. Yes. That's spot on. And just your thoughts around import tariffs on feedstock.
- Randy Howard:
- Yes. I mean, right now, we continue to see feedstock availability. That has not been a problem for us. So, we don't see any problem in certainly ramping up our facilities to meet any added demand that the imposition of countervailing duties might have on the imported barrels -- I mean, gallons. Sorry, I'm still in the barrel world. Anyway, the -- but the thing I would add is imports through the first half of this year have been twice what they were last year. So, that's one of the reasons our margins are so low. And that inventory of import overhang continues in our market and is one reason why our guidance is what it is for the third quarter. So, we do expect positive outcome from that trade case. But relative to kind of the immediate market reaction there is that overhang of existing products still in the market.
- Brett Wong:
- And that product that's been imported has been coming from Argentina specifically?
- Randy Howard:
- Yes, primarily Argentina. Again, there's been a -- let's just say they're trying to get everything in under the wire. So, there's been a lot of imports especially the second quarter and actually continuing through July.
- Chad Stone:
- And just to add to that, Brett, we saw strong imports from Indonesia last year. We haven't seen any shipments this year from Indonesia.
- Brett Wong:
- Great. Thanks for that color guys. And then, I wanted to ask thoughts around the postponed EU vote last week around Argentina's challenge to the EU antidumping duties there. And if there is the potential for gallons to potentially flow back into the EU from Argentina and Indonesia.
- Randy Howard:
- Well, we were certainly watching that as it affects our European operation margins. Obviously, they were pleased that the EU delayed that. So, we will continue to watch it. We don't have anything else to report at this time. So, as I heard you, that was delayed and didn't go the -- didn't go against us earlier.
- Brett Wong:
- Right. And I mean, if gallons are flowing back into the EU, obviously, you kind of have to segregate some of the things that are happening on the macro, right, take away kind of our trade case, assuming that -- without that at the moment. But you -- that would be kind of a net benefit though for the REGI platforms, correct?
- Randy Howard:
- Absolutely, yes. Certainly, as we say, leveling the playing field with imports is a huge benefit to us.
- Brett Wong:
- Okay, great. And then, just one last one from me and I'll pass it long, but little bit maybe of a higher-level question. And Randy, I know you're just getting into your new role. Granted, you were relatively active before the day-to-day operations, but you mentioned being focused on the strategy that was laid out at the Investor Day. But, can you maybe talk to kind of your top priorities, if you see them right now? And, again, I know you've only been there a month or in that [indiscernible] month, but just your kind of initial thoughts.
- Randy Howard:
- Sure. I'd be happy to. First, I would say that -- let's just say my walk in the door assumptions have all been confirmed. I've got a great senior team. And one of the top priorities that they're all focused on and I am as well, is to maximize and optimize our business. I see many actionable items in the short-term that can improve our business. We are a business now that has scale and just a lot of optimization stuff that's beginning to happen and I'm very encouraged by that. I'm also encouraged by the fact that we have a good RHD renewable diesel growth strategy that includes both the short-term capacity and upgrades, mid-term opportunities to increase the capacity at Geismar even further and then long-term renewable diesel opportunities that we're looking at. So, it's nice to come in and be able to take that and begin to develop that quickly. So I think, like I said, I'm pleased with what I've seen. I do see opportunities. And I'm just excited that the senior team is getting after them. So I think you'll see some results as we go.
- Brett Wong:
- Thanks a lot. Thanks so much.
- Randy Howard:
- Thank you.
- Operator:
- Thank you. And our next question will come from Craig Irwin with Roth Capital. Your line is now open.
- Craig Irwin:
- Good evening, and thanks for taking my questions. So, first thing I want to ask about is the duties determination that we're expecting on the 22nd from Commerce. Can you say whether or not you think a 90-day look-back will have a practical impact on the market? And is this something where you have certain assumptions you can share with us on the guidance that you put together, or is this less likely to have an impact given the rush from Argentinian imports to jam those tanks before they get their final cutoff?
- Chad Stone:
- Yes. Craig, its Chad. You're right. On August 22, the Department of Commerce is going to come out with their determination on the countervailing duties and we're actually waiting that. As Randy said, we're optimistic about the outcome. And then, you may have noticed that the National Biodiesel producers trade coalition that testified in front of the International Trade Committee on this hearing recently also filed critical circumstances basically saying, look, we're seeing accelerated dumping of this product prior to August 22. So, if you look at the shipment lineup, it's actually accelerated. And to Randy's point, it's doubled what we've seen last year. So it does appear to us that it's been accelerated. That's why the critical circumstances petition was filed. It hit -- if you think of a look-back from August 28, like it goes back to the end of May, clearly, there have been a lot of scheduled and actual shipments over that time period that would be subject to that 90-day look-back. The other thing to think of is the countervailing duties is set to level the playing field against these unfairly subsidized imports. And then, in October, the next big milestone is we support the Department of Commerce to come out with a determination on antidumping penalties and that will penalize for the dumping. So that being said, people are clearly sending shipments even though they'd be at risk if the 90-day look-back is enforced and we're on our side, petitioning and pushing strongly for that.
- Craig Irwin:
- Okay. So, if we're in the camp that a 90-day look-back is probable, is there a general formula that commerce uses to calculate the duties that will be charged and the cash deposits that will be required? And is there a per gallon estimate that we can sort of do some back of the envelope math on for estimating what must get in some of these other aggressive importers are doing as they jam their tanks for a last hurrah?
- Chad Stone:
- Sure. I guess, the way you can think about it, is in our petition, in the coalition petition, was that these were unfairly subsidized by 23%. So, back throughout that period, let's say the gallons were $3 per gallon. That's about $0.69 and $0.70 per gallon countervailing duty from that perspective.
- Randy Howard:
- And you're right. Roughly, I think it's a week after the determination the cash deposits begin.
- Craig Irwin:
- Great. Thank you for that So, just to change subjects, where the things I was most excited about at the Analyst Day was the discussion of your longer term investments in renewable hydrocarbon diesel. I think you laid out almost $750 million in projects. Geismar is obviously working really well for you today. There's opportunities to expand there. And you outlined some opportunities maybe for other plants on the horizon. Can you share with us more discrete milestones that we should be looking for as we look at your intermediate and longer term growth plans; what would you see as the most important items to make a positive decision as far as making these individual investments? And I know that there's a lot of flexibility in how you finance assets like these. Maybe if you could discuss the portfolio of financing options that would be available for you to build these plants.
- Randy Howard:
- I'll do my best. We are just in the early -- actually, beginning engineering stages of the first step at Geismar. We have line of sight of that and hope to be able to be in a position early next year to let you have some real critical milestones on the first level of expansion. That's what we referred to as our short-term growth. We obviously hope to finance that out of the blenders tax credit funds that come our way and I think that's really what they're designed for. Those incentives give us the opportunity to grow to meet the market and to develop the infrastructure at Geismar. So, I think that's the first step. The second step, which would double the capacity at Geismar is probably where we're looking next. Again, developing a -- we just recently purchased the land that gives us the capability to do that. It's a brownfield site, meaning, you can move quickly. And it's not model 1. So the ability to project finance doubling of Geismar, I believe is feasible. We'll -- again, we'll look at different options when we get there. But, the fact that we'll have a good operating performance, we'll have an existing plant, I do believe project financing will be available. The longer term development of renewable hydrocarbon diesel at other sites on the West Coast during the Midwest, those would be the third leg and we're looking at a variety of options for those.
- Craig Irwin:
- Great. Thanks again for taking my questions.
- Operator:
- Thank you. [Operator Instructions] Our next question comes from John Quealy with Canaccord Genuity. Your line is now open.
- John Quealy:
- Hi. Good afternoon folks, and welcome Randy as well. Just a macro question, if you could, as the first question on the RVO and the interplay there with the advanced category and the biomass-based category. If you don't mind, maybe a little armchair quarterback on what happened and what you think is going through the comment period this fall?
- Randy Howard:
- Well, I think -- thank you for that question. Obviously, we're disappointed in the fact that they did not increase 2019 volumes. I think, though, when you look -- when we look at the decision and we see the basis that underpins their proposal, they did not recognize that the diesel market is growing in the United States and needs additional diesel and we have the ability to supply it. There certainly were concerns about feedstock and we have continued as an industry to provide information to the EPA that feedstock availability is not an issue. So I think in the comment periods, it's just really opened and it goes through August 31. We've already seen a lot of people that have -- that represent the feedstock suppliers step in and be able to let the EPA know that there are -- is plenty of feedstock. The thing that really, really was strange was the side of the fact that the increased RVO would hurt energy security, which is -- it couldn't be further from the truth. We see, obviously, the continued growth in our industry as the answer to introduce security. So I think at the end of the day, after the comments are given, as in the past, I think EPA will reach the right decision on the RVO. And so we've seen this before in the past. These are not new arguments. So, I think that's the best thing we can say as we read this. So, hope that answers your question.
- Chad Stone:
- I'll add, John. As a reminder, in the past, the proposed numbers have been lower than they had been ultimately finalized before. And of course, the NBB and we and many others are advocating that we're going to push back hard with our arguments. We sent a team of folks down to the RVO hearing earlier this week. The National Biodiesel Board sent a whole contingent of folks, consultants, producers. There was -- to touch again on your comment and on Brett's earlier comment on feedstock availability, there was just tremendous testimony on how abundant feedstock actually is by people in our team that look at supply chain as well as -- I think of Alan Weber of MARC-IV and other people that basically are looking at abundant, looking at yields year-over-year relative to historical yields and abundancy of feedstock. So, we're going to continue to fight hard and advocate for higher RVOs over the years and why that's good for us, both in advanced biofuel and biomass-based diesel. And another reminder is that these are minimums. We've always surpassed the biomass-based diesel category. I think it's every single year we've exceeded that category. And again, we play in that advanced biofuel category. So...
- John Quealy:
- Okay. That's very helpful. Chad, while I have you, the mark-to-market on the -- $32 million in the mark-to-market, how do we think about that moving forward in the model? Obviously, it was much bigger than, I think, history, but how should we think about that?
- Chad Stone:
- So first and foremost, I reiterated the non-cash expense, right? So it's -- and if you remember, in the early days, before we cleaned up our preferred stock, we had an embedded derivative, a liability that when we were theoretically or actually more valuable or if our share price increased, we saw an offsetting loss because of that embedded derivative. This is the exact same type accounting, except it's associated with that convertible derivative. It's also tied into being able to settle that in cash, which is what we intend to over time, and needing to get shareholder approval to allow us to -- if we choose to issue equity or cash. But our intention is to issue cash. That being said, as we value of -- you saw our share prices increase over the quarter, of course. That meant that the derivative in that liability increased in an offsetting loss. That helped or was that too convoluted?
- John Quealy:
- Yes. No, that was helpful. And then maybe last, Randy, just in terms of you stepping into the role off the Board. Can you talk to us about conversations with the supply chain, with end customers? Obviously, you're senior your team has been there for quite some time, but if you just talk about the qualitative aspects of leading REGI and how that's interfaced with your third-party constituents?
- Randy Howard:
- It's going great. Like I said, I've got a great team. We've seen no negative effects at all on the market side or the feedstock side. I think everybody is excited that we hope to accelerate great growth and that means they'll come along with us. So I think that's exciting.
- John Quealy:
- Okay. And then, my last question just based on Craig's early question on the upgrading on the renewable diesel side in Geismar. Just again, remind us on the milestones on what would make you go ahead and flip the switch and do a much more expansive initiative over there. As you know, Diamond Green is underway with theirs. Are you going to wait to see how that works out and how the market shakes out market supply? But, just remind us what milestones we should look at around that decision point. Thank you guys.
- Randy Howard:
- Yes. I mean, I think the milestone for us is we're already in the preliminary engineering. And so we need to get that done to evaluate the timing on when we move forward, obviously, how much it costs. And it'd be certainly great to have the BTC in our pocket or at least to pay for it. So -- but those are the key milestones.
- Chad Stone:
- And I'll add to that. Of course, there are certain things that are manageable that we're doing right now. Of course, support from the trade case is a big milestone that will support continued investments across the platform. But, again, there's some of the early phase things you saw in our Analyst Day discussion we can do now. Some of the assets you saw us buy pre-auction that are real good new assets that could be worked on or things that we could do. Some of the bigger things, obviously to Craig's question on financing, we've got attractive return profile. You can imagine there's lot of actions going on. They're probably early to discuss. But, again, attractive return profiles, return of the tax credit would certainly give us cash equity. But, there's certainly other things we can pursue too.
- John Quealy:
- Great. Thanks guys.
- Chad Stone:
- Thanks.
- Operator:
- Thank you. I'm showing no further questions. I would now like to turn the call back to Mr. Randy Howard for further remarks.
- Randy Howard:
- Thank you, operator. To wrap up, I'm excited to be leading REG during a period of great promise. We are executing to plan and with the goal of realizing over $150 million in adjusted EBITDA this year. At our Geismar RHD plant, we are operating efficiently and profitably while planning for growth as we just discussed. We continue to maximize and optimize our biodiesel fleet. And in Energy Services, we are steadily growing our ability to capture downstream margin. Underpinning this effort, we see market dynamics improving. Before we close, Todd is going to mention upcoming investor events for REG. Todd?
- Todd Robinson:
- Thanks, Randy. As noted on Slide 16, next Monday, August 7, we will present and host meetings at the Jefferies Industrials Conference in New York City. Following that, on Wednesday, August 9, we will present and host meetings at the Canaccord Growth Conference in Boston. Finally, on Tuesday, August 15, we will host meetings at the Piper Agricultural Symposium in Minneapolis. Attendance at these conferences is invitation only. So please contact your respective sales representative if you want to attend or schedule one-on-one meetings with us. Thank you all again. This concludes the call and you may now disconnect.
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