Renewable Energy Group, Inc.
Q3 2013 Earnings Call Transcript

Published: 6 Nov 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the Renewable Energy Group Inc., Third Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll have a question-and-answer session and instructions will follow at that time. (Operator Instructions). And as a reminder today’s conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today Mr. Jon Schwebach. Sir, you may begin.

[Jon Schwebach:]

Thank you, Marry. Good afternoon everyone, and welcome to our third quarter 2013 earnings conference 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 third 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 them 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. Please turn to slide two. We would like to advise you that some of the information discussed in this conference call will contain forward-looking statements. These statements involve risks, uncertainties and assumptions that can be difficult to predict and such forward-looking statements are not a guarantee of performance. The company’s actual results could differ materially from these statements 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 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. Dan?

[Dan Oh:]

Thank you Jon and thank you everyone for joining the call. We will review the operating highlights of the quarter and then I will turn the call over to Chad Stone to cover financials. As you can see on slide three, the third quarter was an excellent quarter as measured by adjusted EBITDA, gallons produced and gallons sold which are our key metrics. We achieved $49 million in adjusted EBITDA, grew gallons sold by 26% and grew revenue by 42% generating positive cash flow and further strengthening our balance sheet. Going forward you can expect us to further leverage our expertise on a production and marketing to biodiesel as part of our efforts to create new revenue and profit streams. Notwithstanding the strong quarter there has been recently volatility in the biodiesel and RIN markets due to speculations surrounding in 2014 RVOs after a leak throughout EPA document was made public. It is important to note that for most recent NPS monthly data shows the biodiesel industry is producing in excess of 2 billion gallons on annualized basis. With that fact along with future production assets infrastructure, feet stock availability and the economic and environmental benefits biodiesel, we believe robust growth in the biomass-based diesel RVO is a proper course of action for our country. However it could be inappropriate to comment on rumors, speculation for what is not an official final proposal by the EPA. We continue to execute our strategy and are optimistic by the prospects. We have proven to be a durable and reliable company under a variety of industry and economic conditions. Please turn to slide four. During the quarter we continued to invest in increasing and improving our production capacity to meet demand. On the manufacturing front this was the first full quarter multi-feed stock operations with our Albert Lea, Minnesota biorefineries since completion of the upgrades. We are pleased to report it is proven capable of running at or above nameplate capacity on lower cost feedstocks. New Boston, Texas came online at the beginning of the quarter and steadily improving its run rate. As you can see on slide five, during the quarter we closed on a purchase of a 30 million gallon biorefinery in Mason City Iowa. Last week we held a ribbon cutting ceremony to celebrate the official opening of the plant. We also announced and held a ground breaking for $20 million upgrade project to expand REG Mason City's capabilities much like the upgrades we recently completed at Albert Lea. We expect the upgrades of Mason City to enable the facility to transition from virgin vegetable oil to lower cost feedstocks during third quarter 2014 and then to high impurity feedstocks such as inedible corn oil in the first quarter, 2015. We now have eight plants in production with an annual nameplate capacity of 257 million gallons. As we increased our production capacity and capabilities, we are also expanding our distribution network which better enables us to profitably manage a national footprint and to sell more third-party biodiesel in addition to our own product. During the quarter, we added more terminal capacity at New York Harbor, this capacity is useful to meet growing demand in the region. New York City has a requirement for heating oil included 2% biodiesel blend. The New York Legislature recently approved the similar requirement that will be implemented statewide over two years beginning with the 2014 and 15 heating oil seasons. Furthermore, next summer, New York City will start implementing a law requiring the City's fleets to use a 5% biodiesel blend that is scheduled to grow to 20% blend overtime. In addition, the State of Minnesota has published it’s intend to move to a [B-10]summertime blend beginning July 1, 2014. Now I would like to turn the call over to Chad Stone to review our financial results in more detail. Chad?

[Chad Stone:]

Thank you, Dan. Please turn to the financial highlights starting on slide seven. Adjusted EBITDA was $48.9 million for the quarter. Year-to-date we've earned an adjusted EBITDA of $112 million and on a trailing 12 month basis $126 million. This compares to $97 million for the full year 2012 after the pro rata allocation of the retroactive blended tax credit. Gallons sold to 26% year-over-year and 13% over second quarter to 78 million gallon. Year-to-date we’ve sold 186 million gallon. We've produced 56.8 million gallons in the quarter or near 90% of our nameplate capacity. We were able to achieve this high capacity utilization even as we ramped up Albert Lea after the upgrade and brought New Boston online. We sold 61 million gallons of REG produced biodiesel which was 24% year-over-year increase and included the last remaining gallons from winter. We also resold 17 million gallons of third party biodiesel a 31% year-over-year increase. Moving from gallons to dollars, we earned revenues of $458 million which were up 42% year-over-year and 18% over second quarter, while we're always pleased to grow the top-line we are primarily focused on growing adjusted EBITDA and gallons sold. Revenues from the sales of RINs and inventory co-products, feedstock, demurrage and storage were $74 million or 16% of total revenues. Moving on to our key metric, profitability. We generated adjusted EBITDA of $48.9 million in the quarter, this translates into $1.43 per share. This amount compares to adjusted EBITDA of $16.6 million in the third quarter of 2012. Adjusted EBITDA is up 194% year-over-year and 18% over second quarter. And you can find a reconciliation of adjusted EBITDA to GAAP net income on slide 15 of the presentation and within the earnings release. We reported the risk management loss this quarter of $11.2 million or $0.14 per gallon, which goes into the cost of goods sold and reduces gross profit. Our risk management expense for the quarter is a reflection of the increase in heating oil prices and decline in feedstock prices that occurred throughout the quarter that you can see on slide 8. Risk management losses and gains can vary substantially quarter-to-quarter, but proven relatively constant or consistent overtime averaging $0.015 per gallon since 2010 as shown on slide 9. Breaking down our profitability, our gross profit margin was 12.6% along with an operating profit margin of 9.9%. SG&A of $12.7 million was up on an absolute basis, but lower as a percent of revenues compared to both third quarter last year and second quarter this year. We recognized the large income tax benefit this quarter, which increased our net income. On our 2010 and 2011 tax returns, we set the position that payments we received from certain government incentives should not be included in taxable income. Upon audit the IRS agreed with our position and as a result we booked the cumulative $53 million net tax benefit which reflects refunds for past years and a reversal of that corresponding tax expense accruals for this year. At this point there is no guarantees of any additional government incentives tax benefits will be available to us after 2013. This benefit combined with our normal tax liabilities resulted in the $42 million tax benefit that you can see in our income statement. And while this increases our GAAP net income and operating cash flow, it doesn’t affect adjusted EBITDA because it is a tax item. Now turning to the balance sheet on slide 10, you can see that our financial position continue to strengthen in the quarter as a result of our profitable operation, reduction of preferred stock outstanding through conversions and the favorable tax return and I will tell you little bit more about each of these shortly. We ended the quarter with cash and equivalents of $136 million, up $41 million from the start of the quarter and this was done while paying down term debt and investing in production capacity and upgrade. Term debt as of September 30th was $35.5 million. Through the end of the third quarter we have repaid nearly $10 million of principal on our term debt. Year-to-date capital expenditures are $29 million which includes $8.7 million in the third quarter. Our Board has also approved an additional $30 million of investments or improvements to our facilities that are expected to occur over the next 12 to 15 months. Next I wanted to update you on another favorable development in our capital structure that will reduce our future cash obligation. This does not affect current earnings or change our fully diluted earnings per share count [position]. When we went public, our capital structure included 3 million shares of Series B preferred with a fair value of $83 million. The holders of the Series B and under certain circumstances the company are entitled to convert each Series B share into common stock at the rate of two shares of common for each share of preferred plus the prudent unpaid dividend. At September 30th, as a result of conversion, there were 526,000 preferred shares remaining which equates to a fair value of $14.6 million, if not converted before the end, the preferred or redeemable at the auction of each holder in 2015. Keep in mind that the conversion does not impact our fully diluted per share numbers, but the dilution calculation seems full conversion of all Series B. These conversions enhance our cash availability by reducing the need to make future cash redemptions and reduce preferred dividends in the future. Now I would like to turn the call back over to Dan to discuss our outlook, Dan?

[Dan Oh:]

Thanks, Chad. We would like to provide the following financial guidance for the fourth quarter of 2013 as shown on the slide 12. On this call we are only offering guidance for the fourth quarter of 2013 as the 2014 RVO has not yet been proposed by EPA. We expect to update guidance on our fourth quarter earnings call. Please keep in mind that our fourth quarter guidance is based upon a number of assumptions. Foremost, we have seen constant pricing for heating oil, feedstock prices and bodies or RINs, of course these values will change during the remainder of 2013. However we will not attempt to predict for you the level or magnitude of change. In addition our fourth quarter guidance is based on our expectation that we will experience increased demand in the fourth quarter due to the anticipated lapse on December 31 of the Blenders Tax Credit. With this context in mind, we are confirming our previous fourth quarter guidance, meanwhile increasing our expected gallons sold. In the fourth quarter we expect to sell between 65 million and 75 million gallons of biodiesel and we expect adjusted EBITDA to range between $25 million and $40 million for the full year of 2013, based on the midpoint of the expected ranges that would bring us to EBITDA of $145 million and $255 million gallons sold. Please remember the normal seasonal patterns of our business, demand usually strengthens in the summer and is generally weaker in Q4 and Q1. Now I would like to turn the call over to the operator for the question-and-answer segment of our call. Operator?

[Operator:]

Certainly. (Operator Instructions). Our first question comes from Michael Cox from Piper Jaffray. Your line is open.

[Michael Cox:]

Thanks a lot. Congrats on a nice quarter guys. My first question pertains to your cash position. You’ve built up a sizeable cash position on the balance sheet. Could you prioritize the use of this cash. It seems to-date your acquisitions have been relatively smaller in size. Could we expect any more substantial acquisitions or perhaps would initiating a dividend start to make a sense?

[Dan Oh:]

Mike thanks. I appreciate the feedback. We are benefiting from growth in cash right now, at the same time consistent with the strategy that we have been talking about to grow our bodies or business across North America to diversify into other products especially the renewable fuels and renewable chemicals to get into other value chain related areas and to grow internationally. We do feel good about the opportunities that are out there. And expect to be deploying capital and pursuit not only strengthening and reinforcing our ore bodies or business, but in diversification. We do not have any plans for dividend at all.

[Michael Cox:]

Okay. Thank you. And then as you’re starting to prepare for 2014 given the uncertainty around the RVO, could you talk about the planning process from your standpoint and from a production perspective?

[Dan Oh:]

Well, it is disappointing that we have not heard the RVO yet. Certainly our industry has been performing in a very good way and is prepared to support robust RVO, but clearly there is the discussion ongoing. So as we prepare for moving ahead we rely on a few things. The first is we have a very strong business and balance sheet and we think we have a very low cost production position. So we're in a great situation to offer high quality fuel and high quality RINs and we think there will be demand for that in a good way moving ahead. Secondly, we are not offering guidance for first quarter because the markets have to hear what’s going to happen and then there will be some form of equilibrium that adjust based on that. So as you’d expect we're going to different planning scenarios, but we feel good about the business moving ahead and are well positioned in our minds to take advantage of opportunities whether the market gets little weaker or strengthens based on the guidance we gave.

[Michael Cox:]

Okay. That's helpful. And my last question is on feedstock composition. I was wondering if you could provide some detail around maybe bucketing between vegetable oil, fats and greases and inedible corn oil to break it down between those three categories.

[Dan Oh:]

We’ll be a little bit more general as normal Mike, but if we think historically in 2012, we were at the 84% animal fats and other fats and oil versus 16% vegetable oil or soybean oil with the upgrades that we've done on our fleet and the capabilities that we have today you would expect that to be more around to 90% range going forward given the diversion of Albert Lea and other things. And the addition of New Boston.

[Michael Cox:]

Okay. Thanks a lot guys.

[Dan Oh:]

Thanks.

[Operator:]

Thank you. Our next question comes from Craig Irwin from Wedbush. Your line is open.

[Craig Irwin:]

Thank you good evening and congratulations on strong results.

[Dan Oh:]

Thank you.

[Craig Irwin:]

Chad, stronger EBITDA in the quarter above what we are looking for about 17% higher in number. Can you talk a little bit about whether or not you benefited from some of the favorable feedstock moves in the past 90 days maybe helping you increase the throughput on your plans or if there was any specific debottlenecking or if this really is just additional capacity coming on line where as peak summer season rolls through, you have the opportunity to service this kind of volume again in the future.

[Chad Stone:]

Thanks Craig. I think you are right. When you look at feedstock they largely started the quarter much stronger and decline throughout the quarter. We also saw improving energy prices for the first two thirds of the quarter and then a bit of a decline in September. So all those things together with the additional capacity that we have on, broader feedstock capabilities to run these low cost feedstocks, all added to an improvement over forecast and estimates.

[Craig Irwin:]

Great. And the guidance for the fourth quarter $25 million to $40 million in EBITDA with the crashing RIN prices obviously down quite dramatically given the RVO uncertainty can you help us understand if this is driven by feedstock dynamics going to the fourth quarter if maybe there is an inventory of RIN generated in the third quarter I think that you could benefit from in the fourth quarter or is this indicative of your future probable level of profitability the future with similar throughput on your plans?

[Chad Stone:]

Yeah. Craig I think if you look past September 30th into October being referenced the kind of the impact on RINs that we saw from the EPA leak, if you follow the feedstocks we’ve also seen them decline as well. So you see that and then remember we are always selling forward. And from that perspective you have got an average from when we’ve sold to when we actually deliver and recognize. So I think that you see some benefit from that as well.

[Craig Irwin:]

Okay, thanks. And then I actually look forward, I know you are not getting guidance for the first quarter or for 2014 for the full year, but just to talk little bit about the dynamics moving from the fourth quarter to the first quarter. If we were to see modest flows in the RVO not a consistent with the leak, but maybe just a little bit above the leak, would you expect an inventory affect in the first quarter and if we were to see more interesting growth to the RVO consistent with what many of us have looked for when we originally set numbers. Would you expect that inventory effect to have a less material impact in the first quarter? Can you discuss your thought process on how that might come together?

[Dan Oh:]

Hi, Craig it is Dan. I will take a small step. At the highest level that the RFS2 framework has RVOs interacting with each other and biodiesel has a great substitute ability and funds ability as a high quality rent for many different scenarios, so corn ethanol and alike. So it’s really hard to comment because we don’t know what the basket of RVO is going to be. That said I would look to the last time blender’s credit lapsed, we have the expectation based on what we are hearing that it will last at the end of this year and we certainly think it should come back, we don’t know if it will come back, but from a legislative perspective we think it’s important. But when you saw that last time it pull business in the fourth quarter and that had a bit of an overhang in first quarter. That is probably the best thing to look at, when you think about volume displacement moving ahead. When we look backwards, as the RVO, RVOs were set and met in arrears coming into this year, it's a pretty balance world. So it really depends on what happens moving ahead with the basket of RVOs.

[Craig Irwin:]

Excellent. And then last question if I may your firepower on the balance sheet is pretty impressive. North of $135 million in cash and I expect that will climb again quite potentially in the fourth quarter. What are your thoughts on diversification versus consolidation in the biodiesel industry? Do you see interesting targets out there that you would consider, maybe something that would be complimentary to your existing footprint or do you see more opportunity potentially expanding your biodiesel production capabilities to service what we all expect will be a growing RVO?

[Dan Oh:]

Very good. I think the answer is we see both perhaps as real opportunities moving ahead. So, when biodiesel volume demand is increasing and growing in a pretty steady way, of course you can bring on more production, when life gets a little tougher or you have folks that might find that it's a better business putting assets together, you also can find opportunities. And then certainly remain an important asset in the North America and increasingly overseas that makes sense in a global oil and fat and global biofuel and biodiesel complex. Also when we look at our biorefineries switch to their biodiesel plants we got a great coproduct which is glycerin, is an excellent fomentation feedstock, we have excellent logistics we're in the center of biomass generation here in the Hartland and then leveraging our logistics assets to get lots of other things we can do. So we're also absolutely out there looking for diversification opportunities that work with biorefineries that work with our feedstock channel, that work with our value chain and distribution, and also help us replace or support and augment different fractions of accrued barrel of oil. As we do with biodiesel today, there should be other way in the future, I think both the possible view there and you’re right we have an excellent balance sheet, strengthening and we have a very low level of debt and we're in a great position to move ahead.

[Craig Irwin:]

Thanks again for taking my question.

[Operator:]

Thank you. Our next question comes from John Quealy from Canaccord. Your line is open.

[John Quealy:]

Thanks. Hey Dan it’s Jeff for John. Just wondering about a quarter end here would be on Diamond Green facility out there, are you seeing any sort of disrupted impact from that?

[Dan Oh:]

Well the facility is from what we can see from a far advance to a normal start up and work out we hope to do well, the complex needs more biomass-based diesel. In terms of feedstock pricing, well, they must be having some effect, we've generally seen softening in feedstock pricing, so it’s hard to determine what that impact would be. But their quality and company and they are going to continue to do well.

[John Quealy:]

Okay. Thanks.

[Operator:]

Thank you. Our next question comes from Mahavir Sanghavi from UBS. Your line is open.

[Mahavir Sanghavi:]

Yeah. Thanks for taking my question. Congrats on good results Dan and Chad. My question is about in a flat RVO scenario, Dan how should we think about incomings of demand from some of these initiatives you talked about Minnesota and some other states. I’m wondering if you could give us, if you are able to quantify what the incremental demand could be in addition to RVO at the federal level.

[Dan Oh:]

I appreciate the question. Again I think it’s premature for us to comment on any basket effect out of the RVO. What I do want to emphasize is that, there are very significant incentives around the country for these biodiesel that are incremental demand items where our facilities are located in the Midwest in particular in Minnesota, Iowa and Illinois. There are local incentives that really drive local demand where our facilities are extremely efficient logistically and have access to create raw material pools. And increasingly both New England and the West Coast share a great deal about what our industry produces and California with the slow carbon fuel standard is driving, growing volumes that create incentives to produce our kind of biodiesel even with lessening theoretical support out of our [industry]. So there is a great support structure for really good product, the question is just what’s the near-term equilibrium going to move to as we hear the numbers.

[Operator:]

Thank you. Our next question comes from Gavin Riche from Rockwood Investment. Your line is open.

[Unidentified Analyst:]

Good afternoon. Thanks for taking my questions. Can you talk about what the assumption you have there in 4Q ‘13 guidance is for RIN pricing?

[Chad Stone:]

The assumptions for RIN prices are basically flat, I think yesterday they closed at $0.38 they have been hovering around that range, Gavin, so we’re not forecasting them to increase or decrease, but recognize that they are impacted by what feedstock do what the RVO is et cetera.

[Unidentified Analyst:]

Is it possible to breakout what the contribution from RIN was for the third quarter?

[Dan Oh:]

The normal way that we sell biodiesel is on a bundled, in a bundled fashion so it’s not easy to do it that way when you sell a gallon of fuel you’ve got the biodiesel you’ve got a gallon of fuel and we’ve got the compliance component and potentially a state incentive or other things that all get negotiated so it’s not necessarily allocated that way.

[Unidentified Analyst:]

What about the contribution from the Blenders Credit since them?

[Dan Oh:]

Yeah. This is Dan. It’s really when one negotiates a sell price for biofuel biodiesel with RINs included or whatever the mixture is, everyone understands what the revenue opportunities are including Blenders Credit RIN prices in the market and otherwise. So each participant the value chain is pricing with that all. And so to sit here and say biodiesel Blenders Credit is exactly this percentage, it would be an artificial answer. I would also remind folks that we tend to sell forward 30 to 90 days because of our risk management structure where we’re combining together raw material, RIN contracts, biodiesel contracts and so forth. So we tend to have pretty good insight before they come and accept four things like this management changes do that in all features and so forth.

[Unidentified Analyst:]

And then just little more large picture, what impact do you think the [VATs] and the tax credit has on international imports?

[Chad Stone:]

The less on the tax credit naturally creates less opportunity for imported product to arrive, when you think about it for [bodying] extra money to cover transportation over water and recover the extra intermediary and so forth that get involve. So I think you will find that imported products will decline, it’s not our view that it will go away, but it certainly should lessen as the market moves ahead all other things to be nature.

[Unidentified Analyst:]

Well, thank you.

[Operator:]

Thank you, we have a follow-up from Mahavir Sanghavi from UBS. Your line is open.

[Mahavir Sanghavi:]

Yeah. Thanks for taking my follow-up. For Dan, just wanted to make sure about my earlier question, the conclusion I just want to make sure I am right on that is that there is incremental demand in the US on top of the RVO coming from these the local state incentives. Is that fair?

[Dan Oh:]

It's Dan. I think that is fair, it’s sometimes hard to quantify, but I think it's clearly there, especially when you think about local logistics and local incentives, I failed to mention and other significant incentives out there, which is in the State of Texas where we also have facilities. And then the incentives can, like in California also have preferences for kind of raw material we use. And we use a lot of raw material has very good carbon [intensity] scores. So I think when you think about that and also that obligated parties may have a practice of buying a little bit more than they absolutely need to be certain that they are okay. There probably is more demand than any other number you will hear that comes up.

[Mahavir Sanghavi:]

Great. And then just to follow-up on the risk management loss. I'm just wondering if you could give us some more color on and you had a loss in third quarter of last year as well and you have one here. Is there something specific in terms of how quickly the RIN prices are moving or I just want to understand what you are doing or what you could do to minimize this small [treaty]? Thank you.

[Chad Stone:]

Mahavir just to clarify this was unrelated to RIN, this is more in relation to our forward sales and contracts related to sales and feedstock that we protect when we lock in our margin. So in a quarter where you see our margins improving when you see feedstock prices decline our existing financial contracts are going to show loss, the metrics reflected here. So you saw our margins better than expected, but tampered by an offsetting risk management loss because of our financial contracts are reflecting loss when feedstock decline and energy prices increase.

[Dan Oh:]

And it’s Dan, I would add on the RIN side. We didn’t have last year due to seizure of liquidity in the market and inventory value reduction that was substantial. This year we did see RIN prices decline in a quick short way. And we saw because of changes in our risk management practice from learning very slight immaterial inventory devaluation. So we're pleased with that change, markets do change. So it may or may not work again in the future, but it was good progress.

[Mahavir Sanghavi:]

Great. Thank you.

[Operator:]

Thank you. Our next question comes from Don (inaudible) from Citigroup. Your line is open.

[Unidentified Analyst:]

Hi. Thank you. Good evening. I was hoping you could comment on, some comments from Stifel Nicolaus from maybe kind of half ago or so. I had a call, what your website actually looks for like Investor Relations department is trying to speak to somebody’s office and I was able to do is send an email I never heard anything back. Before I ask the question or ask for the comment just want to let you know that certainly I never received anything back. So I was hoping you could comment on it now, I’ll read you if you don’t mind what's the reason that caused have to say downgraded the company, starting they say $8.5 to $10 share stock price. They were saying that they see two risks for Renewable Energy Group’s growth and margins. These are the potential of the 2014, EPA renewable fuel margins are likely to be disappointing and resulting in lower biodiesel production. And at the year-end exploration of the tax credit facilities are in compressed margins for Renewable Energy Group sales, hoping if you comment on what they have to say and hopefully let me just correct them or maybe you agree with what they have to comment on? Thanks.

[Dan Oh:]

What we should do is open the conference line because I think Stifel’s on here too, and we can have an open conversation, but we won’t. Well, first of all I don’t want to get into the activity of commenting on analysis from analysts. The analysts have a job, they have got opinions, they are going to write them, we try to have the same interaction with everybody else we do across the board and I’m not going to confirm and deny what they said. I am disappointed that you called them and you tried to email and we didn’t connect with you and we will connect with you. So apologize for that and what I want to reiterate, are few things that you said earlier which is, we've got a great balance sheet, biodiesel is at least to my personal opinion an excellent business to be in. Our business is in a lower cost production status, we've got great spread and breadth and stand across the market and we have many ways we can grow the business. And to the extend, that the market does become more negative than it is today I hope that we are in the future example of a good company, we’ve got stronger when the market go a little weaker. And if the market does what it should do there is really think that EPA the ORV should have a very robust increase and if not in other categories, in biomass-based diesel. If it does grow that way, we should be in a very good position to take advantage of that. So I am not going to comment on Stifel, but I think we are in a solid and growing and strengthening position which you can see by the evidence in this report.

[Unidentified Analyst:]

Okay. Well that’s great, I was hope that I would have got that comment a week or so ago but now apology accepted hopefully in the future that will get corrected. Could you just what (inaudible) 00

[Dan Oh:]

I think that it’s not appropriate to simply look at government incentives and evaluate those as the profitability of the business understand if you don’t know how a bio refinery in an RFS2 environment might be modeled or how the markets can act that that would be the first read and a very understandable first read. But practically what happens is we have few supply-demand situations, we have a supply-demand situation at around energy and have one around compliance. The biofuel that we create is sold at roughly the price of heating oil or ultimately sold for diesel and the RIN value goes up or down where the supply and demand is in or not balance, it will go up if you need more; it will get down in terms of price if you need less. So that is much like basis on commodities and that RIN price doesn’t go up unless all other incentives that are being considered are not sufficient. The RIN price goes up on negotiated basis to ensure that the fuel is made, it’s distributed, it is consumed, it’s allocated and the tracked and complied through these in a proper way. So the reduction or the increase in incentive is more or less like basis, if the market has the natural margin at the large volume that might be demanded, RINs will go down, if the government’s desire for increasing volumes of biofuel requires RIN value go up, so the entire support industry has profit to take a risk that will occur too. What I often see which is not appropriate is people assume that when RIN price is going up the company is more profitable and when it is going down at west. We have to look first at the underlying spread between cost of goods sold and energy and take into account equivalent basis which is RIN price. We have to similar times speaking about that and other venues public available. So we are happy to spend more time speaking about that and other venues. It’s public unavailable info and would be happy to speak with you.

[Unidentified Analyst:]

Okay, thanks very much.

[Operator:]

Thank you. Our next question comes from Sven Eenmaa from Stifel. Your line is open.

[Sven Eenmaa:]

Yes, hi. Thank you for taking my question. Just a couple of them. First wanted to ask about with regard to demand pulling with the tax credit expiration; are you guys actually seeing that from clients or do you see them already waiting for the next year RVO, before deciding on a purchase decisions?

[Dan Oh:]

This is Dan. Yeah, we're able to manage a large part. And I think the entire industry is likely that have volume pulled forward in the fourth quarter from first quarter. Today, predicting whether we as a company have had a lot of that, I'm not sure. We are competitively priced to get product which will place and it’s easy for people to have access these. So we'll know that answer better in the first quarter, but at the industry level, what the expectation of vendors laps in as the quarter goes on I think you are like, let us see, if more pulled in.

[Sven Eenmaa:]

Okay. And second question, I wanted to ask in terms of feedstock across seasonality, particularly when it comes to fatty assets, animal fat feedstocks. Are you guys seeing any seasonality in that kind of pricing there or do you expect it to just remain steady where it is currently?

[Dan Oh:]

We are seeing some seasonality, it's challenging right now to understand what the main driver is. As you get into deeper, colder weather you tend to see more of a price impact. There are other factors that involve right now, remembering that many of the co-products we use have other substitutes in other crops. So these crops are growing quite well and are predicted to be bumper if not already they’re also putting downward pressure on our raw materials. So I think we're seeing two good effects the industry is not very hard right now.

[Sven Eenmaa:]

Great. And in terms of -- what are your capital commitment for 2014 currently?

[Chad Stone:]

Sven, so what we have talked about, what we talked about earlier is just the $30 million that we've committed in terms of upgrades over the next 12 to 15 months.

[Sven Eenmaa:]

Okay. And lastly a profit question. I know when you guys started the year you had the tax credit share agreement in terms of some of it came through back to you, did you guys receive any tax credit revenues in the third quarter or are you expecting them in the fourth quarter?

[Chad Stone:]

Yeah. We've received the remainder of them in the third quarter.

[Sven Eenmaa:]

Okay. And how much was it?

[Chad Stone:]

I don’t have the specific number but that was, there is none left in the receivables at that point, it was collected largely in second and third quarter.

[Sven Eenmaa:]

Yeah, got it. Great thanks very much.

[Chad Stone:]

Thank you.

[Dan Oh:]

Thank you.

[Operator:]

Thank you. (Operator Instructions). Our next question comes from [Dan Piette from Green L Capital]. Your line is open.

[Unidentified Analyst:]

Hi. I just had a quick question about how to think about the tax rate going forward, was the tax refund that you guys received this quarter in anyway relate blender tax credit?

[Dan Oh:]

It’s related to government incentives and in terms of thinking of the tax rate going forward, we are estimating 3% going forward for this year.

[Unidentified Analyst:]

How do you think about going into ‘14?

[Chad Stone:]

It depends, there is two scenarios. One, I’d say the tax credits [retro] isn’t reinstated. You’ve got one scenario if it’s not reinstated, you’ve got another one, so if it’s reinstated likely 0% and maybe you see something similar to the 3% to 5% in the other scenario.

[Unidentified Analyst:]

Okay. So 3% to 5% top regardless of the scenario going forward, is the right way to think about it?

[Chad Stone:]

For next year I think that would be a good model endpoint.

[Unidentified Analyst:]

Okay. And then one of the question I imagine -- in terms of your guidance going forward, what RIN price are you going, you think it’s coming going forward?

[Chad Stone:]

For the fourth quarter we’ve kept it constant, it’s at $0.38 yesterday, so we’re leaving it constant, there is potential upside potential downside depending on scenarios.

[Dan Oh:]

And we’re not forecasting that.

[Chad Stone:]

Right.

[Unidentified Analyst:]

Okay. So it’s $0.38 yesterday not the $1 from last year?

[Chad Stone:]

Right.

[Unidentified Analyst:]

All right thanks.

[Dan Oh:]

Yeah. It’s current market, when we give our forecast it’s [probably] the day of numbers in the market.

[Unidentified Analyst:]

Okay. Great, thanks.

[Operator:]

Thank you. Our next question is a follow-up from Craig Irwin from Wedbush. Your line is open.

[Craig Irwin:]

Thank you. So just to clarify or maybe ask a question another way that was asked earlier in the call, Dan is it any surprise to you that there is a probable expiry of the Blenders Credit at the end of ‘13? Is it something that you have non-interest slated since January 2nd or is this something we’ve all known about basically all year?

[Dan Oh:]

This is not something that we’ve known about all year however as business starts we’ve seen it last a couple of times in the past. So one has to think in conservative ways and this is personal thing I don’t think there is an objection to the Blenders Credit. The Blenders Credit is a small item the government consider by itself. So to the extent that there is support for any kind of an extenders package it normally has to find ability to attach too and in the politics of our federal government it’s hard to get anything passed at all. So there is still time, it could still happen. There are many things to occur this year. We are prudently giving guidance that if it’s going to elapse it’s certainly not, but we think is the right course.

[Craig Irwin:]

So that’s actually a pleasant surprise I know that you would obviously want it to be renewed given that it does benefit your industry, but when you speak with your industry representation what did they have to say about the regulatory appetite for continued support of Blenders Credit?

[Dan Oh:]

Our first conversation is usually around is very small with respect to the overall budget. It is quite valuable when you think about how it reinforces not only agriculture, but the development of the petroleum distribution industry and the biodiesel industry. And it is something that when it’s been hard to get predictable RVO numbers out is a balancing and smoothing item makes it easier for people to make near-term investments. But practically it’s a small piece legislation attach or something else is not we are going to drive about in terms of what Congress is going to pick up and do. And there is the -- to your election cycles. So I don’t know what is going to happen, but I think if there is an opportunity to get it attached to something at some point that is an uncontroversial bill.

[Craig Irwin:]

Thanks. That’s very encouraging. Thanks for taking my follow-up.

[Operator:]

(Operator Instructions). And sir are no further questions. We have a question from (inaudible) Miller from Deutsche Bank. Your line is open. I would like to turn the conference back to Mr. Dan Oh for closing remarks.

[Dan Oh:]

Before we conclude, I want to highlight some upcoming investor events. On November 15th, Chad Stone will address the CFO Summit in Las Vegas. On November 19th, Chad will present at the Midwest Investment Conference in Cleveland. On December 3rd, I will speak at the Canadian Renewal Fuel Summit in Montreal. And on December 17th we will host one-on-one meetings at the Glober Hunter Securities Industrial and Clean Energy Tech Conference in Chicago. Thank you 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. Thank you.

[Operator:]

Ladies and gentlemen, thank you for participation in today's conference. This does conclude the program. And you may now disconnect at this time.