Renewable Energy Group, Inc.
Q2 2014 Earnings Call Transcript

Published: 5 Aug 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to the Renewable Energy Group Incorporation’s Second Quarter 2014 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 call is being recorded. I would like to now introduce your host for today’s conference, Todd Robinson. Sir, you may begin.

[Todd Robinson:]

Thank you. Good afternoon, everyone, and welcome to our second quarter 2014 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 second quarter 2014 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 deck slide, which will appear automatically with the webcast, but you will need to advance the slides manually as we prompt you. For those of you dialing-in, the slides can be downloaded along with the earnings press release in the Investor Relations section of our website. Turning to Slide 2, we would like to advise you that some of the information discussed on this conference call will contain forward-looking statements. These statements involve risks, uncertainties and assumptions that are difficult to predict, and such forward-looking statements are not a guarantee of performance. The company’s actual results could differ materially from those contained in such statements. Several factors could cause or contribute to those differences. These factors are described in detail in the Risk Factors; and other sections of our annual report on Form 10-K and quarterly reports on Form 10-Q, which are on file with the SEC. These forward-looking statements speak only as of the date of this call. The company undertakes no obligation to publicly update any forward-looking statements based on new information or revised expectations. Today’s discussion also includes non-GAAP financial measures. We believe these metrics will help investors assess the operating performance of our core business. Please see the press release for a reconciliation of the non-GAAP measures to the most comparable GAAP measure. With that, let me now turn the call over to our President and Chief Executive Officer, Dan Oh.

[Dan Oh:]

Thank you, Todd, and thank you, everyone, for joining the call. Before we jump directly into the quarterly discussion, I want to talk a bit about our strategy. Please turn to Slide 3. Our business model is to innovate and add value to fuel and chemical production via the renewable waste and lower carbon feedstocks we process. We believe that we increase the likelihood of success by doing this generally within the existing business patterns and frameworks of the traditional oil and gas and oleochemicals industries. Our feedstocks are renewable, waste and lower carbon materials. Our physical products are primarily drop-in replacements with minimum market size in its pricing [ph] and patterns of behavior, and we distribute primarily as a wholesale business-to-business enterprise, using the existing petroleum industry structure. We are regularly creating new platforms to grow our business according to the roadmap that we have laid out. We created Life Sciences to develop our chemicals business, and we recently created Synthetic Fuels to enter renewable diesel and other potential markets. We started Energy Services to develop a distribution channel that creates demand for our renewable fuels by distributing both, neat and blended diesel and heating oil. On Slide 4, you can see the broader market opportunity available to us. In the near-term, we are expanding our target market beyond this limit to include chemicals. These are large addressable markets and based upon our skills and expertise, investment by REG to compete in them is appropriate. Please advance to Slide 5. Our ability to utilize a broad array of feedstocks and technologies to create valuable products, leveraging our core functional groups of manufacturing, sales and marketing and supply chain management give us a distinct advantage over our competitors that do not have these capabilities. Fundamentally, we must continually serve our investors and customers by being durable, reliable and profitable. Our business has been evolving in exciting ways over the years, but our core strategy is unchanged. Today, we see many opportunities to move up the value chain. We can do more in sourcing feedstock, move further into industrial biotechnologies and expand our reach outside the United States. For now, as it on strategy, I hope this provides a good baseline understanding of our business, and more importantly, we are strategically positioning REG for the future. Please turn to Slide 7, where I will review the highlights of the quarter. Later, Chad will provide more details on our financial results. This has been a growth-oriented quarter for REG. We executed several transactions during the quarter to acquire the Dynamic Fuels’ plants in Geismar, Louisiana, which has been renamed REG Geismar, as well as substantially all of the assets of Syntroleum Corporation. To briefly recap, on May 30, we raised $144 million through a convertible debt issuance that resulted in approximately $139 million in net proceeds after fees. On June 3, we acquired substantially all of the assets of Syntroleum Corporation. These include a 50% ownership interest in Dynamic Fuels and an IP estate with 186 patents issued or pending. On June 6, we acquired the remaining 50% interest in Dynamic Fuels from Tyson Foods. Dynamic Fuels, now REG Geismar, LLC is the obligor on $100 million of Gulf Opportunities Zone Bonds, which were issued in 2008 in connection with the building of the Dynamic Fuels’ biorefinery, and we supplied a new $101 million letter of credit from Bank of America to provide credit support for those bonds. Chad will provide more details on all these separate transactions a bit later on the call. The completion of this series of transactions launched us into the renewable diesel market, as well providing technology for other potential markets. As shown back on Slide 6, one leg of our growth strategy is to expand into the production of additional advanced biofuels, renewable chemicals and related products and services. This acquisition demonstrates execution towards that strategy. REG now owns a renewable diesel biorefinery with a 75 million gallon per year nameplate capacity, as well as an intellectual property estate that includes patents, technology and trade know-how related to the production of renewable diesel and related products, as well as Fischer-Tropsch’s hydrocarbon transformation. The Geismar plant has been in standby mode since December 2012, and after it went through some mechanical improvements and installation of the new catalyst bed. Dynamic Fuels was working through various technology and organizational issues, which we felt were solvable as completed the deal. We are applying our technical and operational expertise to wrap up the technology modifications and are positioned to ramp up production in a reasonable timeframe. While we will not offer a precise time schedule, we do expect to be producing renewable diesel in the next few months as part of the startup phase. We have already begun shipping to the plant feedstock in anticipation of the startup production. Chad will address the CapEx budget for Geismar later. With the addition of renewable diesel in our product line up, we are now able to serve new and existing customers with a more diverse line of products, whether our customer needs are driven by geography, end-user requirements, state or local incentives, or other reasons, we have improved our position to meet those needs through this recent activity. As we look back over the past six months, we are pleased with our progress, and the key element of our growth strategy, the expansion of our product lines. REG Life Sciences continues its product development in specialty chemicals in anticipation of a new product launch. There is a multitude of potential products that we believe we can produce efficiently by our microbes after the appropriate genetic engineering. We’re in the process of determining the most attractive markets for us in terms of margins, competition, growth prospects and demand. While we will not offer precise timeline at the moment, we are optimistic that you will see us generating revenue from renewable specialty chemicals in 2015. Renewable diesel and renewable chemicals will layer new opportunities on top of our existing biodiesel business, which remains the core of our operation. Biomass based diesel market continues to be impacted by delays and finalizing the 2014 RVO. The industry appears to be producing at a rate that assumes this number will not go lower, and may increase slightly. We believe that is a reasonable assumption. We are likewise optimistic that the EPA will resume growth in 2015 in the biodiesel RVO. Our industry is contributors to this country’s food and energy security, and proved in 2013 and the first half of 2014 its ability to produce greater volumes of low-carbon advanced biofuel. Now let me touch quickly on operational details in our core business. Please turn to Slide 9. We continue with the technology upgrades at our biorefineries at Newton and Mason City. Both are progressing on time and on budget. We’re also preparing to improve and reinforce our Danville biorefinery. We acquired some adjacent land and cancelled an existing land lease. The city also approved the rezoning of the land for industrial use. To conclude, our activity this quarter resulted in our assets surpassing $1 billion. This is a result of work that began years ago. This historic milestone similar to the 1 billion gallon sold milestone we achieved in April this year is a testament to the successful execution of our strategy. Let me now turn the call over to our CFO, Chad Stone, to review our financial results in more detail. Chad?

[Chad Stone:]

Thank you, Dan. Please advance to Slide 10. First, I want to review some of the financial details related to the Dynamics Fuels’ acquisition, which encompasses all the assets purchased from Syntroleum and the purchase of the remaining 50% interest from Tyson. This is a complex series of transaction and was a significant focus of activity during the quarter. On June 3, Syntroleum shareholders approved the asset sale to REG. The transaction was built in just shy of 3.5 million shares of REG stock being issued to Syntroleum Corporation as consideration. On closing, we took the possession of substantially all of the assets and hired most of the employees of Syntroleum. Then on June 6, in a separate transaction, we bought Tyson’s 50% interest in Dynamic Fuels, paying $16.5 million in cash, and repaying $13.5 million of Dynamic Fuels’ indebtedness owed to Tyson. We also agreed to pay up to $35 million in future contingent payments to Tyson tied to sales volumes at the Geismar biorefinery over a period of up to 11.5 years. REG Geismar is the obligor on a $100 million of GO Zone Bonds, and after the quarter end on July 8, we have obtained a $101 million letter of credit from the Bank of America to support the GO Zone Bonds. The letter of credit is secured by $101 million certificate of deposit funded with our convertible bond proceeds. We wanted to keep the GO Zone Bonds in place by providing this substitute letter of credit, due to the attractive financing structure with a coupon that floats with daily LIBOR and was 4 basis points at June 30. In late May, we priced the convertible debt offering of $143,757,000 gross proceeds. Those bonds have a maturity date of June 15, 2019, offer a 2.75% coupon and have a conversion price of $13.26. In order to reduce potential dilution, we also purchased the cap call instrument from the underwriters. And from our perspective, the cap call effectively raises the conversion price to $16.02. Now let’s review our financial results on Slide 11. You can find our – first, you could find our reconciliation of adjusted EBITDA to GAAP net income on Slide 20 of the presentation, and it’s also in the earnings release. Total adjusted EBITDA for the second quarter was $5.7 million. The breakout is as follows. First, biomass based diesel generated $8.4 million of EBITDA, that was offset by investments into Life Sciences of $2.6 million and into Energy Services of $100,000. Expenses for Life Sciences are recorded in R&D within the SG&A expense. During the quarter, we sold 77 million gallons of biodiesel, including a record month for June, where we sold 29 million gallons. We believe the market has absorbed the excess inventory built up at the end of 2013, and we also believe that demand is improving, as we move through the seasonally strong second and third quarters. Gallons sold increased to 11% year-over-year to 77 million, meanwhile average B100 sales price per gallon decreased 21% to $3.67. This quarter, we generated revenues of $333 million, a 13% year-over-year decrease, and the decrease in revenues was due to lower selling price and lower RIN prices, which more than offset the increase in gallons sold. Sales of separated RIN inventory were $23 million, down from $34 million in the second quarter of last year. Feedstock prices peaked in May in this quarter then began declining though the quarter end. Soybean oil prices was a catalyst to bring down the overall feedstock market, with exception having been choice white grease, which historically has been a discount to soybean oil. In the second quarter, choice white grease traded at a premium to soybean oil on an as-converted, basis which is still the case today. The PED virus continues to impact the supply of available choice white grease, and some industry analysts have projected a 4% year-over-year reduction this year as a result of that virus. For the second quarter, our risk management expense was $2.7 million. And we mentioned in the past, our risk management strategy is to protect our cash margins on a daily basis to balance our position. Due to accounting rules, we mark-to-market the risk management contracts which resulted in GAAP hedge gains and losses, that may not match the period of the margins we are protecting. The risk and management impact is reflected in our cost of goods sold. There is a one-time expense of $1.9 million and this is for the land acquisition and lease cancellation agreement in Danville, and that’s included in SG&A expense. Now turning over to the balance sheet on Slide 14. Liquid assets, which include cash, cash equivalents and marketable securities, decreased $10 million to $126 million at the end of the quarter, from $136 million at the beginning of the quarter. We also have the $101 million of restricted cash resulting from the CDs supporting the letter of credit related to the GO Zone Bonds down in long-term assets. For the quarter, significant uses of cash included $20 million invested in PP&E, $30 million of cash to Tyson, $3 million of term debt repayment, $101 million allocated to the CD booked as restricted cash and $12 million for the cap call. Items increasing our cash balance included the $139 million of net proceeds from the convertible note, and a $17 million increase in the Wells Fargo revolver. Accounts receivable increased by $17 million from the first quarter, and DSO was 13 days. The increase in receivables was basically due to an increase in demand. Inventory decreased $24 million during the quarter to 20 days of sales, and the majority of the inventory reduction was a result of working down winter storage. Our total debt increased during the quarter as a result of the issuance of the convertible notes in the GO Zone Bonds at REG Geismar. At the end of second quarter, our term debt was $250 million. This is practically $150 million, wining out the $100 million restricted cash. Our debt today is 27% of capitalization as of June 30, I should say, up 5% before closing the transactions in the second quarter. We invested $20 million in cash in the capital expenditures for improvements and upgrades to the fleet. This was mainly for the Mason City and Newton projects we’ve disclosed previously, as well as storage and logistics investments. Going forward, we currently have $45 million of remaining board-approved CapEx that we expect to spend over the next 12 months. With respect to REG Geismar, we expect to spend approximately $15 million of CapEx over the next 12 months, and a small portion of this would be allocated for start-up with the rest for longer term needs. Now, let me turn the call back to Dan to discuss the outlook. Dan?

[Dan Oh:]

Thanks Chad. We would like to provide the following financial guidance for the third and fourth quarters of 2014, as shown on Slide 16. Our guidance incorporates several assumptions. First, we estimate the forward spread between feedstock and biodiesel prices. Second, we are providing guidance as if the Blenders Tax Credit will not be reinstated in 2014.However we have positioned ourselves the benefit if it is reinstated. Finally, keep in mind that our growing business now includes investments in renewable diesel, energy services and renewable chemicals. You can see the initial impact from these investments in our increasing assets on our balance sheet. Over time, our investment is also reflected in recurring R&D and business building related expenses that affect our cumulative adjusted EBITDA. As we complete our start-up at Geismar and are generating sales from renewable diesel, naphtha and LPG, we should see returns on investment. Life Sciences will be a continuing R&D investment for our pipeline of products in sales. Our guidance for adjusted EBITDA is the same for the third and fourth quarters. For our core biodiesel business, we are forecasting $0 million to $10 million adjusted in EBITDA, and for our new investments, we are forecasting $10 million to $15 million, negative adjusted EBITDA from our P&L investment. In the aggregate, our adjusted EBITDA guidance is breakeven to $15 million in negative EBITDA. In the third quarter, we expect to sell between 75 million and 85 million gallons of biomass waste diesel. For the fourth quarter, we expect to sell between 70 million and 80 million gallons of biomass waste diesel, which includes some renewable diesel. Now, I would like to turn the call over to the operator for the question-and-answer segment of our call.

[Operator:]

Thank you. (Operator Instructions) And our first question comes from Brett Wong from Piper Jaffray. Your line is now open.

[Brett Wong:]

Hi guys. Thanks for taking my question. First, the figure we’re all probably wondering and we’ll ask you, but if you can provide any color into your expectations for the 2014 RVO, anything that you guys are hearing with your team out there in Washington?

[Dan Oh:]

Yes, it’s Dan here. Well, we have reverted too soon. We’ll hear it, because that’s what we continue to hear out of the EPA. That said, we do think it soon. It’s in the next 30 days or so. And there has been enough deliberation that when the initial numbers announced, it’s probably going to be the number, because you’d expect that the federal government will coordinated that, even though there may be a time between EPA proposal and OMB approval work in current. We think it’s going to go up. We’re not sure how much. I think there has been a lot of positive and indicative commentary out of anyone presenting, but it’s going up, but it’s not there how much it will go up, but we expect to feel it [ph].

[Brett Wong:]

Great. Thanks Dan, and can you talk to or provide us a composition of your feedstock in the quarter? Just kind of wondering if you’ve made any adjustments from where you basically have operated that?

[Dan Oh:]

Brett, we don’t give real precise on that, but as you can imagine when you saw attractive soybean oil prices, we probably were using a little bit more of that at certain plants, but we don’t give the exact breakdown.

[Brett Wong:]

All right, fair enough. And can you just maybe provide a little bit of more context around your CapEx expectations for REG Geismar? You mentioned the $15 million over the next 12 months, plus a small amount of that for the start-up. I am wondering what is going to go into that start-up? What’s that for, [indiscernible] operations that you guys are familiar and have experienced with? And then, what the kind of maintenance or ongoing CapEx is after that?

[Chad Stone:]

So Brett, this is Chad. Just generally what we wanted to disclose that basically at 12-month window, we’re expecting approximately $15 million. Some of that you’d probably consider just normal startup and ramp-up procedures to take a plant from an idle state to ramp it back up. As Dan mentioned, the feedstock has been heading down there. Then there are some longer lead times, where we would like to make some long-term improvements or changes that we’ve talked before about improving pre-treatment to allow broader mix to the feedstocks and different things, but aside from that, you’ve got the immediate upfront start-up, which is a fraction and then some bigger longer lead time items.

[Dan Oh:]

And of all that’s in logistics [ph].

[Chad Stone:]

Yes.

[Brett Wong:]

Okay. And since you had a bit more time with the facilities now since the close, any risks that you guys are seeing in being able to kind of surprise that up beyond what you were seeing before?

[Dan Oh:]

Well, there are two risks. First one is simply market and the spreads that are afforded in the market. That’s something the entire industry manages through. On the facility side, we have not been surprised by anything. So we’ve not been through whole start-up as you go through and work through all those items. There may be unknowns that we haven’t seen yet, but so far we’ve not been surprised and are moving ahead as planned.

[Brett Wong:]

Great. Thanks a lot guys.

[Chad Stone:]

Thanks Brett.

[Operator:]

Thank you. And our next question comes from Craig Irwin from Wedbush Securities. Your line is now open.

[Craig Irwin:]

Thank you, and good evening, and congratulations on solid performance in a very busy quarter. Dan, my first question that I wanted to ask is about REG Geismar. Can you maybe discuss with us similarities to the Seneca facility, the issues that you saw many years ago, when you bought Seneca. How you were able to send in your construction teams and remediate the asset and bring it back online. Should we look at that as sort of a roadmap that REG is going to follow with REG Geismar? Do you see similar issues and problems at that facility? And then, just a detailed question on Geismar. You mentioned the catalyst bed was replaced. Is this a CapEx that already landed on REG’s cash flow, or is this something that’s pending? And if you could clarify for us, at the beginning of last year, Syntroleum had identified a $7.2 million investment for the catalyst itself, and if you could clarify whether or not that’s already been replaced as well? Thanks.

[Dan Oh:]

Thanks Craig, I’ll try to answer in reverse order, but the $15 million in general CapEx that will be applied over the next year does not include, because it was already done, the catalyst change out. So we’ve been able to study and look at that. We feel good about the work that was done. That will be part of the start-up procedure as we work through. Then the broader question, while the back-end processes are different at Seneca and Geismar, the opportunities and these operate with high-acid raw materials, the metallurgy, the logistics improvements, the pre-treatment all these other things are quite frankly very similar, and complexities both around the river system, both – we’re not connected to large volume logistics. So as we get into the facility and we improve and grow its capability, I think we’ll be able to tack it in similar ways whether it be logistics or taking our expertise around different cocktails of high-acid raw materials and impurities, and then applying what today is a much stronger and more vibrant commercial system to support it through supply chain management for chemical sales [ph]. It’s a much broader and larger business. So, I am certainly hopeful that we’ll be on accelerated plan versus Seneca, which took a few years to get done, but we’ll have to work through it. The plant has not operated for 18 months, but the reality is we have the IP, we have a combined and stronger engineering team, the folks who help develop it, the folks who help run it in our team together. We feel pretty good and pretty confident to bidding on the issue that we can bring it up.

[Craig Irwin:]

Great. And then an another question of clarification. So in your financial guidance, you said $10 million to $15 million for new investments in adjusted EBITDA. Can you clarify for us, whether or not there is any non-Geismar Syntroleum operations that you are continuing to fund? And if there are any other significant investments in there, their incremental that maybe would shed light on where you’re planning to focus for the future?

[Dan Oh:]

Yes, I’ll let Chad answer it. Highest level, the super majority of our revenue is coming from biodiesel. And what we’re trying to do is help people understand what the core biodiesel business is doing in light of current market, and then look at the expense investment in light of new accounting rules around Life Sciences and Geismar, and to a small amount, our growing distribution business, but go ahead Chad.

[Chad Stone:]

Yes, Dan, I agree with that. Just to add to that and clarify, Craig, that guidance also still includes the Life Sciences investment, roughly $3 million to $4 million per quarter of carrying costs, in addition to the Geismar and renewable diesel investments.

[Dan Oh:]

And I would add that expense is going directly into discovery and development and research, that is in direct support of product development right now. So we’re not really carrying any business. They are taking that expense, so they convert it into the future pipeline right now. And we’re pleased with what we’ve found to be the case in our Life Sciences investment. We have been investing in bringing up the facility in Florida in support of small scale and sample production. And we consider all of those activities on track, but we’re still not disclosing the pipeline right now.

[Craig Irwin:]

Great. And then my last question, if I may. The 2015 revenue from specialty chemicals, can you discuss what the gating factors will be for that initial revenue production? Do we need to see something completed at the facility in Florida? Do we need to see formal announcement of an executed contract? Is there any specific R&D that needs to likely be wound up, and if you could bring that out for us, that would be very helpful?

[Dan Oh:]

Craig thanks. I’ll keep it at a high level. We invested in, and are confident in our Life Sciences business in what we thought we were getting, which is a business that had spend a lot of time and learned a great deal and developed real capabilities around esters and fatty alcohols in a much broader ability to develop across a wider range of product families. And the most likely areas to produce products are in the ester and fatty alcohols. And we’ve shared in our investor presentation and we have investment presentations coming up, a chart that shows that at current trigger prices, trigger being the main feedstock for the fermentation, lower-volume, high-value specialty chemicals are the most likely products that’ll be coming out. And in general, our Florida facility is in a position to be able to process different variations of those chemicals. It just gets down to the downstream refining. So ultimately we’re looking towards that range of small-volume high-value products. We’re very interested in having a wide array of products in that zone in using our multi-feedstock, multi-product focus to produce chemicals. So we’re working on a business development basis with opportunities that may not be announced before the revenue. It may well be the case that we announce revenue as we announce the quarterly release. It simply depends on the markets we’ll be entering and we’ll share that as we get closer.

[Craig Irwin:]

Thanks again. Congratulations again on the strong results.

[Dan Oh:]

Thank you.

[Chad Stone:]

Thanks Craig.

[Operator:]

Thank you. (Operator Instructions) One moment for questions. And our next question comes from Katja Jancic from Sidoti & Company. Your line is now open.

[Katja Jancic:]

Hi guys. I just have one question. Chad, you mentioned that there was a one-time charge of $1.9 million included in the SG&A, if I am not mistaken?

[Chad Stone:]

Yes, that’s right.

[Katja Jancic:]

So excluding that, your SG&A was around $13.7 million. Is this a run rate we can use or should we increase that, considering that you are going to be investing into research and development?

[Chad Stone:]

I think that’s the right way to think of it. We are – we continue to grow, and you see that line item growing in a manageable way as we do that. We want to grow in a leveraged way, but that’s the right way to think of the quarterly run rate. And any other slight ramp-up throughout the year that we’ve given guidance on would assume kind of modest growth in SG&A.

[Dan Oh:]

Yes. And I think when you’re saying leverage, you’re referring to leveraging expertise and scaling on the expertise that we’re building.

[Chad Stone:]

That’s right.

[Dan Oh:]

Yes. So as we identify pipeline and product opportunities, we would expect to increase our team and support of that work, but we are doing that in a disciplined manner.

[Katja Jancic:]

Okay. Thank you so much.

[Chad Stone:]

Thank you.

[Operator:]

Thank you. And our next question comes from John Quealy from Canaccord. Your line is now open.

[John Quealy:]

Hi good afternoon. Do you hear me?

[Dan Oh:]

Hi John.

[Chad Stone:]

Yes.

[John Quealy:]

Thanks. First congrats on the quarter. A question on the inventory side. How many gallons in the inventory right now – I’m just trying to put together if you needed to get more sales on the back half of the year. How much do you have in inventory you can sell right now?

[Dan Oh:]

We probably run between 10 million and 16 million gallons. We’ve reduced – you probably saw us at peak inventory levels at the end of last quarter with what we had on hand. We’ve gone down I believe about 10 million gallons.

[John Quealy:]

Yes. And then just the availability of third-party, the 10 million gallons in the quarter, if you had to, what do you think that addressable population is that we needed to get more third-party gallons?

[Chad Stone:]

I think that’s what we found attractive to us, so that number isn’t the same from quarter-to-quarter, but it’s been – we don’t think there was lot more or we don’t think that there wasn’t anything marginal there. That was just kind of a reasonable expectation I would say.

[Dan Oh:]

John, I think the market has elasticity if the spreads are there. So we do have working capital, I think that we could inform third-party, but as you get closer towards the end of the year, people start to get committed. So there’ll be some flexibility, but it’s not going to be wide open sort of thing in anyway.

[John Quealy:]

Okay, great. Thanks. And then Dan, I know you guys – and Chad you gave good guidance on the adjusted EBITDA number including LS9 and Geismar. Can you talk through your comfort with those, sort of, estimates? Have you gone through everything? Are there anything surprises lurking, or that’s a pretty tight cash used number?

[Chad Stone:]

Yes, I mean we’ve done a detailed analysis. We’ve closed on the transactions and have gotten inside, and have detailed thorough estimates. We always generally think of a reasonable range, but we’ve basically forecasted at a detailed level there.

[Dan Oh:]

John, we’re comfortable.

[John Quealy:]

Great guys. Sounds good. Good luck.

[Dan Oh:]

Thank you.

[Operator:]

Thank you. (Operator Instructions) One moment for questions. And our next question comes from Louis Navarro [ph] from Private Investor. Your line is now open.

[Louis Navora [ph]:]

Good afternoon, gentlemen, and thank you for the great items and congratulations again for your brilliant dollar milestone in revenue and gallons as well this year. My question involves our United States Navy. Just before REG Geismar were entitled the plants, they produced products that the navy demonstrated in their [indiscernible] 2012 out in the Pacific, and they had a successful exhibition of using the fuel there. And then the Geismar plant went idle. Recently [Technical Difficulty] some leadership in the navy published that they maybe requesting purchase orders for the same biofuels that came at Geismar as early as January of this coming year. Has there been any communications with the United States Navy regarding their efforts for converting their entire fleet enterprise-wide by 2020? They referred to it as the latest Great Green Fleet [ph].

[Dan Oh:]

On the one hand, the Navy is a DoD leading organization in terms of ensuring that they’ve got many different sources of energy to run the fleet and also be environmentally focused. And they have announced initiatives publicly to encourage the continuing usage of fuel. So yes, they’ve got processes out there that are ongoing. We don’t comment about any bidding we may or may not be doing. It would be inappropriate for us to do as a participant in the marketplace.

[Louis Navora [ph]:]

Okay. Thank you.

[Chad Stone:]

Thank you.

[Operator:]

Thank you. And our next question comes from Craig Irwin from Wedbush Securities. Your line is now open.

[Dan Oh:]

Craig, are you still there?

[Operator:]

If your phone is mute Craig, please unmute it.

[Craig Irwin:]

Yes, sorry about that. A couple of quick follow-up questions. Chad, can you share with us the contribution from REG Life Sciences in the quarter. What the operating expense run rate was that you saw in the second quarter?

[Chad Stone:]

Sure. Yes, it was, on an expense basis, basically $2.9 million of expense. On a impact to EBITDA, it was the $2.6 million that I mentioned.

[Craig Irwin:]

Okay, excellent. And then, Dan, in your prepared comments, you mentioned that you bought the land next to the Danville facility and had it successfully rezoned for commercial use. Can you share with us what your plans are with the land, whether or not this is tank farm, some other production area, or this is a strategic acquisition for longer term opportunities?

[Dan Oh:]

Right now, it’s a opportunity that we’ve taken advantage of in terms – quite frankly for a few years, Craig. We’ve been assembling pieces of ground in that area, and we got a large enough mass of land to go to the City of Danville and the community in which we live there. And they were all very supportive of REG continuing operations. So what we’ve gained is the ability to incrementally improve the facility. It might be a tank, it might be something else or to do something larger in the future, we’re still determining what’s appropriate, but we now have the flexibility to at least strengthen and make even more competitive what already is a great plant. And we’re pretty excited about that, but we’ve got no announced plans right now.

[Craig Irwin:]

Great. Thanks again for taking my questions.

[Operator:]

Thank you. And our next question comes from Ryan Greener from Carlson Capital. Your line is now open.

[Ryan Greener:]

Hi guys. Great quarter. Just a quick question. I hopped down way [ph], so apologies if it’s already been already asked, but curious to know your thoughts on whether or not there could be an impact on industry fundamentals with the report fire at the Diamond Green diesel facility? Thanks.

[Dan Oh:]

Yes, we were very sad to hear about the fire, and we’ve got very good friends involved in the organization and across the board there. So we don’t really know anything other than what’s been in the press. I think it would be inappropriate for us to comment right now, we don’t know. And we need all the advanced biofuel we can get. So I am hopeful that they’ll be back up on line soon. I don’t know anything else.

[Ryan Greener:]

Great, thanks.

[Operator:]

Thank you. And I am showing no further questions. I would like to now turn the call back over to Dan for closing remarks.

[Dan Oh:]

Thank you operator. Thank you for all your participation on today’s call and for your continued support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Before we conclude, Todd, is going to mention some upcoming conference appearances for REG. Todd?

[Todd Robinson:]

Thanks Dan. We have five separate conference appearances coming up in the next two weeks, which are elaborated on Slide 17 and 18. Each one is invitation only. So please contact the sponsors if you want to attend and/or schedule a one-on-one meeting with us. All of the formal presentations will be webcast and available in the Investor Relations section of our website. Thank you all again. This concludes our call. You may now disconnect.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone have a wonderful week.