Renewable Energy Group, Inc.
Q4 2014 Earnings Call Transcript

Published: 4 Mar 2015

[Operator:]

Good day ladies and gentlemen. Thank you for standing by. And welcome to the Renewable Energy Group Incorporated Fourth Quarter 2014 Earnings 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 conference over to our host Mr. Todd Robinson. Sir, you may begin.

[Todd Robinson:]

Thank you. Good afternoon, everyone, and welcome to our fourth 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 fourth 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 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 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 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. 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 President and Chief Executive Officer, Dan Oh.

[Dan Oh:]

Thank you, Todd, and thank you everyone for joining the call. Please turn to Slide 3; before we begin discussing our 2014 results, I want to take a minute to look back at some key metrics for the last four years to frame 2014 results. Typical for our history, 2014 was a year of earnings and growth. As you may recall in 2011, we sold 150 million gallons of biomass-based diesel, since then our gallons sold have grown to 287 million gallons in 2014, a 91% increase. Over the last four years, we generated a cumulative $460 million of adjusted EBITDA for an average of $115 million per year. Revenue has been over $1 billion for each of the past three years. Our operational nameplate capacity has grown from 212 million gallons in 2011 to 332 million gallons in 2014 and we have expanded our product offerings. Finally, our net book value increased from $121 million at the end of 2011 to $779 million at the end of 2014. These solid results were delivered along with frequently changing and challenging conditions over those same four years. REG has a track-record of being durable, reliable, and profitable under many challenging market conditions. Now, please turn to Slide 4, I'm going to discuss the full-year of 2014, both our results and the context in which we achieved them. I will then cover some highlights of the fourth quarter and then review the status of key growth initiatives. After that, Chad will provide financial details for the quarter and the year. Our business model has enabled us to grow consistently, invest in both core and adjacent opportunities, maneuver through market challenges and do so profitably. 2014 was a year of considerable market volatility. It was uncertainty in our market caused by the unpublished final RVO, questions around reinstatement of the biodiesel mixture excise tax credit, and a significant drop in oil and fuel prices in the second half of the year. Despite these challenges and in some cases because of them, REG was able to manage our business to deliver strong financial results while investing for the future of our company. To be a bit more granular, the industry in 2014 operated as if the reinstatement of the BTC was likely although was not certain until mid-December. As a result, production that would otherwise have been idle to continue to operate and demand for feedstock persisted. Additionally, not knowing the RVO for 2014 created further market uncertainty. As a result, the margins we were seeing during the year were abnormal. In the end, the tax credit was reinstated and we benefited as we had positioned REG to do so. Keep in mind that REG's biofuel division is a multi-variable spread business. Our experience in managing these variables has enabled us over time to generate consistent EBITDA even as variables such as feedstock costs, rent pricing, and energy prices adjust to market conditions. In order for us to earn a reasonable margin with dropping energy prices, our feedstock prices need to adjust downward or RIN or biodiesel prices need to increase or some combination of these. We did see default RIN prices increase in January to around $1 per RIN, although they have settled back recently to the mid $0.80 range. As I now discuss comparisons, I will call attention to the difference between 2014 and both 2013 and 2012. The market environment in 2012 was similar to 2014, the BTC lapsed and it was not reinstated until the end of the year. And in a similar environment this year, we produced more and earned more than in 2012, which demonstrates improved financial and operating strength. In 2014, we sold 287 million gallons of biomass-based diesel fuel, 52% higher than just two years ago. Revenue was down 15% from 2013 to $1.27 billion as a result of declining energy prices, but up 25% from 2012. With our team and current asset base, we believe we are positioned to be over $1 billion per year revenue-company and are focused on the next significant milestone of $2 billion of revenue per year. Adjusted EBITDA of $108 million was down 27% from 2013 but up 11% from two years ago. Even as we operated our core business profitably in 2014, we invested for growth. As you can see on Slide 5, we made several acquisitions that were all consistent with our growth strategy since our IPO. These acquisitions led to the formation of REG Life Sciences, REG Synthetic Fuels, and REG Geismar, and a majority of stake in German biodiesel producer Petrotec. These all fit our stated strategy to lead with our core biodiesel business and also expand our product lines, technical capabilities, and geographic reach in adjacent and related areas. The most immediate commercial impact of our acquisitions comes from our entry into the renewable hydrocarbon diesel or RHD market. We acquired the Dynamic Fuels plant mid-year and in four months, we restarted the Geismar bio-refinery and produced over 10 million gallons of RHD in the fourth quarter. That plant has a nameplate capacity of 75 million gallons and is already running at over a 90% run rate. There are further upgrades in process, but we are confident that Geismar will continue to ramp in 2015 and become a meaningful contributor to our financial performance. As you may have noticed, a reasonable amount of technology at an RHD plant is similar to biodiesel technology, and the commercial platforms are very similar. At the start of 2014, we acquired LS9, now renamed REG Life Sciences. This acquisition brings a late stage development R&D platform to REG, this enables to utilize simple sugars and glycerin, a co-product from our biodiesel production as feedstock for the biotechnology engineering process they employ. Progress is being made to bring products to market and we still expect revenue from this platform in the second half of 2015. One point of technology connectivity to point out is that LS9 started as a FAME business or Fatty Acid Methyl Ester and bio-diesel is a FAME business as well. We are finding commercialization synergies from our technology teams now working together that came from REG, LS9, and Syntroleum. Late in Q4, we announced a transaction that initiates our international growth with the entry into another attractive market for biomass-based fuels. In late December, we closed on a 69% investment in the German biodiesel producer Petrotec. Petrotec has two refineries with total annual nameplate capacity of 55.5 million gallons. Those refineries predominantly process used cooking oil. Petrotec has bio-diesel technologies that REG understands very well. We have a tender offering process for the remaining 31%. Finally, I want to mention one other strategic initiative on the distribution side, last February we announced the launch of REG Energy Services, which sells petroleum-based heating oil and diesel fuel. We started the year by selling in seven terminals throughout the Northeastern U.S., in the fall. We expanded the business to New York, Minnesota and Iowa. We are now offering biomass-based diesel, fuel blends at 34 terminals throughout the Northeast to Midwest. This business should help us increase distribution and profitability over time. Now, let me quickly mention some of the operating accomplishments of the fourth quarter not already covered. In our core biodiesel business, we finished upgrade projects at Mason City and Newton that improved our feedstock flexibility, a key element of our competitive advantage. The additional technology enables these facilities to process lower cost feedstocks like inedible corn oil, used cooking oil and animal fats. Both projects finished on budget and ahead of schedule. As our corporate governance, I want to quickly comment on two new additions to our Board of Directors. Peter Harding joined our Board in the midst of a distinguished career serving in leadership roles for commodities, trading and asset management businesses. Peter's expertise in several different industries along REG supply chain, most recently, he served as the CEO and a member of the Board of Directors for Westway Group, a liquid storage and liquid animal feed business. Dr. Ted Crosbie was elected to the REG Board of Directors in January. Ted has been a leader in ergonomic research and development at several multinational companies. He helped to establish one of the world's largest plant breeding programs. Ted has also served as Chief Technology Officer for the State of Iowa. Most recently Ted was the Research and Development Head for the Integrated Farming Systems platform at Monsanto. We look forward to working closely with Peter and Ted, REG will certainly benefit from their tremendous experience and expertise. One final comment before I turn the call over to Chad. In 2014, REG achieved 2 billion milestones, two, 1 billion milestones. We celebrated the sale of our 1 billion of gallon of advanced biofuel and we surpassed $1 billion in total assets. Each milestone is a reflection of the growth of REG and the results of hard work on the part of many people internally and externally. Overall, we are finding that our additions of talent, products and technology are beginning to deliver desired outcomes. 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. Now, let's review our financial results on Slide 6. And as I go over the financial results and compare 2014 to 2013, I want to point out that 2013 was a record margin and volume year for both the industry and for REG, so we are up against a very tough comparable. And also in the second half of 2014, we witnessed a pretty dramatic drop in energy prices, oil fell from around $100 a barrel last summer to the mid-40s in December. On December 19, as expected by industry participants the biodiesel mixture excise tax credit was retroactively reinstated for 2014. The total net benefit to us was approximately $95 million with $79 million recognized in 2014 and approximately $16 million deferred to 2015. The gross receivable both in the fourth quarter amount related to credit at the end of the year was approximately $236 million. In our calculation of adjusted EBITDA, we allocated the net benefit of the credit throughout the year to the quarters that the gallons were sold. And you can find our reconciliation of adjusted EBITDA to GAAP net income on Slide 16 of the presentation and in the earnings release. Total adjusted EBITDA for the fourth quarter was $34 million. We sold 74 million gallons of biomass-based diesel including $10.5 million gallons of renewable hydrocarbon diesel from our Geismar refinery. This represents an increase of 2% year-over-year. Biodiesel prices were generally more resilient than the general [49%] [ph] from July 1 to December 31, 2014, compared to the biodiesel spot prices that dropped only 9% as shown on Slide 9. This quarter, we generated revenue of $338 million, a 14% decrease year-over-year as a result of a 29% lower average sales price offset by 2% more gallons sold. Now, turning to full-year results on Slide 7, for the full-year gallons sold increased to 11% to $287 million due to REG guidance now ramping up as well as the completion of upgrades throughout the year. Of the 287 million gallons sold, 42 million gallons were purchased from third-party. We ended the year with 332 million gallons of nameplate capacity an increase of 29% from 2013. Full-year revenue was down 15% from 2013 to $1.3 billion largely driven by the sharp decline in energy prices and our average selling price. Our average B100 price including RINs was $3.62 per gallon in 2014 compared to $4.58 per gallon in 2013. Adjusted EBITDA for the year was $108 million down 27% from 2013 and this translates to an adjusted EBITDA margin of 8.5% for 2014 compared to a 9.9% for 2013. Our term-debt at the end of 2014 was $253 million and of that amount $121 million is the carrying value of our $144 million convertible bond offering we issued in June. $100 million of the GO Zone bonds that were related to the Geismar plant and we also have $30 million of term-debt at the project level. Net of our fully collateralized GO Zone bonds or term-debt is $153 million. For the year, our risk management gains were $62 million. This $0.21 per gallon gain is again a direct result of the dramatic decrease in energy prices that occurred in 2014. As a reminder, we managed risk to protect future cash margins against volatility like you saw in the energy complex in the latter parts of 2014. This large gain does reflect upon some 2015 margin forwarded into the fourth quarter. Selling, general and administrative expenses expanded to 5% of revenue from 3% last year; 1% of the increase is primarily due to increased cost from headcount to support our growth and an increase in depreciation and amortization. While the other 1% is attributable to a lower revenue based in 2014 due to declining energy prices. R&D is now split up separately from SG&A and was $12 million in 2014. For modeling purposes, our average interest rate on term-debt is just less than 2% and we are forecasting an effective rate next year for 3% to 5%. Now, let's turn to the balance sheet on Slide 8, once the tax credit was reinstated, we ran the fleet at a high rate and sold as much inventory as we could investing our cash into working capital. We also invested $60 million in improving production capabilities throughout the year. Cash and cash equivalents and marketable securities decreased by $73 million during the year to $80 million. Accounts receivable were $295 million. Again, the large increase is due to the BTC benefit being recorded in the fourth quarter. Inventory was $98 million or 23 days of sales an increase of $12 million during the year and accounts payable increased by $154 million also the result of booking the BTC. And that's the portion that will be collected and then paid through to customers. Since the BTC was only reinstated for 2014, we were motivated to produce and sell as much available inventory before year-end. Total restricted cash of $118 million included $101 million collateral [elevation] [ph] for the CD supporting the letter of credit for the GO Zone bonds and $10 million in support of the Petrotec tender offer to buy the remaining 31% of shares outstanding. The remaining amount represents letters of credit in support to normal trade activities. For the year, we generated $33 million of cash from operations, net cash from convertible bonds less the cost of the related cap call was $128 million, we used $118 million from restricted cash as I just described; $60 million of cash to fund ongoing CapEx; $46 million associated with acquisitions; $17 million invested in marketable securities; and $3 million to pay down term debt. Debt to capital increased to 25% as a result of our increasing debt as I mentioned previously. However, after netting out the restricted cash supporting the GO Zone bonds the debt-to-capital is 16%. Board approved capital expenditures and investments for the next 12 to 18 months is roughly $60 million, which does include the $15 million Geismar announced upgrades storage expansions, logistics and optimization. We have consolidated Petrotec results with ours as required under U.S. generally accepted accounting principles. However, since we only had 8 days of operations in 2014 after we closed on the investment there is not a meaningful change to the P&L. Petrotec is a publicly listed company in Germany and you can find more information about them on their Web site at www.petrotec.be. Finally, in February, we announced the Board approved a 30 million share repurchase program that we plan to leverage to build value for our shareholders. Now, back to Dan to discuss the outlook. Dan?

[Dan Oh:]

Thanks Chad. We will like to provide the following financial guidance for the first quarter of 2015 as shown on Slide 13. Let me start by saying we are only offering guidance for the first quarter until the RVOs are published and we see relative stability in the energy markets. We believe it's prudent to limit our guidance to a time horizon that's reasonable visibility. In the first quarter, we expect to sell between 50 and 60 million gallons of biomass-based diesel; we are forecasting adjusted EBITDA on a range of negative $10 million to negative $30 million. Let me go over the rationale for our outlook with 5 main points. First, we are forecasting in a very tight margin environment due to the rapid decline in fuel prices. Feedstock prices, RINs and other variables have not yet fully adjusted to lower energy prices, which typically takes time. We do expect those adjustments to occur since demand from our industry influences the prices of various liquids RINs and so forth. Across our industry, we have noticed reduced production, annual maintenance downtime and even outright shutdowns which should help reduce feedstock demand until the current margin environment improves, we believe additional industry-wide production may need to go off-line. Second, the RVO, the industry is waiting the EPAs announcement of the 2014 final and 2015 proposed obligations, clarity on volume obligations will help REG and other producers assess market demand and plant production. In recent public announcements, EPA has indicated [their resort] [ph] to announce the RVOs for 2014, 2015 and 2016 this spring. We see evidence in congress is strong by partition support for RFS, which should help frame the EPA decision process to a conclusion. Third, the BTC was reinstated for 2014, but not yet for 2015, market participants generally incorporate the potential for reinstatement into their operations. In terms of contracts, pricing, spread assumptions and so forth. We reduced our risk by managing our businesses as if the BTC will not be reinstated, but our position to benefit if reinstatement occurs. We have successfully navigated the situation in the past, while the uncertainty is not a deal, we have the capability to manage the situation and run REG profitably over time. Fourth, the first quarter is always lowest in terms of sales volume due to cold weather. Finally, keep in mind, that in comparison to first quarters in years passed, our business now includes investments in renewable diesel, energy services, renewable chemicals and Petrotec. Now, I would like to turn the call over 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 of Piper Jaffray. Please go ahead.

[Brett Wong:]

Hi, gentlemen. Thanks for taking my questions. First, wondering in your guidance, you had mentioned Dan that you are kind of expecting RINs and feedstock costs to appropriate themselves more to the backdrop? Is that embedded in your guidance or what can we think about that?

[ChadStone:]

I think what we are doing is, we are looking at forward curves and current margin environment. But to Dan's point, so it is factoring in that with our expectations for the quarter. But back to Dan's point, the current margin environment, you need to see in order to encourage more production, we are going to need to see a higher sales price, higher RINs, or lower feedstock prices to support production levels.

[Dan Oh:]

Brett, I think that the practical answer is, the quarter is mostly through, and when you look at the end of the quarter, it's challenging in this fast moving market to understand what risk management effects will be. But, the quarter is mostly through.

[Brett Wong:]

Very good. And then on the BTC coming back for 2015, obviously, you are not expecting that. But, do you see any risk to kind of larger tax altercations in congress and maybe the potential that there is more of a tax reform, obviously, if congress can do anything? But, there is more of a tax reform and R&D tax credits are stripped out of kind of the tax extenders builds that have kind of helped out with bringing the BTC back?

[Dan Oh:]

Yes. I'm not optimistic about tax reform occurring. This is already an election year, you can see that even though we are more than 18 months out. You can already see what's happening. If you lived here in Iowa, you would have already seen that out as we do. And I think last year was likely the local prognosticators best year to get anything done and it didn't happen last year. So practically we have to from a business perspective operate as if it's not going to come back. The market is acting as if it's going to, that's in the pricing, so you have seen us do that many times before. And we end up earning a reasonable share of whatever margin returns. And I think right now, we are having the opportunity to continue to improve, we are durable, reliable, and profitable. So I think it's going to stay together. I think you are going to continue to seek long-term support for these kind of programs because they underpin agriculture, [indiscernible]they underpin any environmental benefit. And it's just a choppy congress and that's it.

[Brett Wong:]

Thanks a lot. That's a great color Dan. And then switching over to Geismar, just wondering how long – the run rate you have at 90%? And then, what feedstock you are using there, and if it's still all veg oil when expectations are for capital investments to be able to run lower quality feedstocks?

[Dan Oh:]

Yes. We ran up to 90% for useable periods of time. It's not something that we just touched and came back down from. Plants of this nature tend to run better when they are running at higher utilization rate. So you – because of the catalysts and the temperature and the crushers and all these other activities, it would rather run at a high utilization rate than they not run at a lower rate. Biodiesel plants that you maybe more familiar with are much more variable in the rate and flow in terms of ease of [waning off] [ph]. We are using other than virgin vegetable oil there that's been part of our feedstock mix as we have been working through there. And then as we bring our biodiesel pre-treatment and post-treatment expertise to bear at the facilities, we will be expanding the range and we are in the midst of the investments like that right now.

[Brett Wong:]

Okay. And just one last one from me, switching over to Germany and kind of looking at the acquisition pipeline if you will, just wondering if you are going to continue to look at opportunities in the international markets that's more of a focus now, or kind of adding through the German capacity there, or if you are continuing to look here state side and then what those opportunities might be?

[Dan Oh:]

The really nice thing about now physically being in the European market as we have the two largest most focused markets when it comes to advanced biofuel, the way we are now participating. We can look back and forth and while on one hand there is some complications like currency as we manage and so forth, we don't take that lightly. When we looked at this opportunity, which we looked at for quite a while, we found a business that has similar operating philosophy, operates in English, has the technology we understand very well, we think it's a great base platform and can operate independently in that environment and that's what we are looking for. So we will continue to look at all of our choices; organic growth, completing things that we have not completed or upgrading what we have. We will continue to look in North America where I believe there remain many opportunities to grow simply in the advanced biofuel space. We are also looking in adjacent areas that leverage and connect to capabilities or a commercial platform or people. So we are managing more by predicting forward curves and uncertainty than we are for lack of opportunities. So I think you will see us investing in all those areas that we talked about. And doing it in a manner that we typically do which is something frequently, but when you look back you see a lot gets done like this slide in this presentation. But, we are fairly conservative in terms of how much all wants.

[Brett Wong:]

Very good. Thanks a lot for the color.

[Operator:]

Our next question comes from Craig Irwin of ROTH Capital Partners. Please go ahead.

[Craig Irwin:]

Good evening and congratulations for the strong finish to 2014. I wanted to ask about Geismar as well. You mentioned $10.8 million gallons of hydrocarbon diesel produced in the quarter, can you share with us maybe if Geismar was a factor in your fourth quarter gallons coming in roughly 4 million gallons above the top-end of your guidance range. Or if there were something else maybe was a contributor to the production strikes in the quarter?

[Dan Oh:]

So there are two things. The first is that Geismar performed really well. And it performed in a higher rate, higher volume than we forecast on a conservative basis. So we were pleased with the plant coming online. Secondly, the lapse of blenders credit even though – the renewal and then the non-renewal, so I said lapse, which really was a realization when it wasn't renewed for 2015 created about two weeks for the industry to sell forward. Unlike in 2013 where people prepared for that at the end of 2014, there were a couple of weeks we had inventory, we sold it and that allowed us in a lesser way to also it as some additional sales. But primarily it was the fast response and coming online with Geismar.

[Craig Irwin:]

Great. That's good to hear. Second thing, I was hoping you might be able to clarify for us, if the facility is actually running right now and maybe can you share a little bit more detail with us about the changes that you referenced in your prepared remarks the changes that are ongoing at the facility?

[Dan Oh:]

We are operating there. It is running. And it's meeting much of the intent we have as we look at below the Northern regions having fuel, it's continuing to support our vendor network, it's continuing to support our customers. It's not the only plant running. Many plants are running. And we are – we are selling out of there and continuing to support our logistics exchange and supply chain. In terms of opportunities, it's in a great part of the country where you see confluence of logistics and feedstock that goes down river, exits country out through the Mississippi, a pretty rich diesel distribution area because there is a fair amount of diesel finding the curves down that part of the country. Most of the things that we are focused on right now improve our ability to expand the range of raw material and our ability to connect all logistics that make that region a very good area to operate in. The facility was around and underdevelopment for years and we benefited from many other things that they figured out as we brought them online and improve the techniques and capabilities of that area. Now, we are getting on to many of the things that farm owners intend to do anyway which is connecting logistics, improve things like that, so standard continuous improvement activities to get it up and running that.

[Craig Irwin:]

Thank you for that. I also wanted to ask about REG Life Sciences, can you share with us, if there was any revenue generated from this group in the quarter? Maybe if you could share with us the impact on the P&L and EBITDA or operating profit contribution? And what do you expect as far as the drag on the P&L in 2015, as this group can be less of an investment in 2015 as they start to generate a little bit of income off or a little margin off their programs that they are working on? If you could give us a general update that would be helpful.

[Dan Oh:]

So 2015 was spent on integration, validation of technology and restaffing the team. As companies go through tough periods that company went through some stress. You have to do a little bit of rebuilding. So as we went through that process we invested you see the R&D investment on the board. We think we can get return for that in terms of technology advancement and validating the platform. We were at the end of the year slower on development and we thought we might be in terms of our pipeline when we first did the acquisition but not by a lot. This is a matter of a few quarters as opposed to some thing more than that. So we still think that we are going to end up with emerging revenue at the end of this year. We did not book any revenue in the last quarter. We are sharing results of innovation through things like samples as we are out there interacting with marketplace around things that we think matters. And prioritizing as commercialization companies do the projects that are being done. From a perspective of investment, we think that it will end up being somewhere around $1 million a quarter. It will be a little --

[Chad Stone:]

A month.

[Dan Oh:]

Excuse me a month thank you for that Chad.

[Chad Stone:]

Sure.

[Dan Oh:]

$1 million a month and slowly increasing as we go through the year because you build your teams and your technology as you add, teach and develop. And I think as you get planning factor Craig in terms of million and then kind of slowly growing from there. We like what we have. We like what we see and are pressing that.

[Craig Irwin:]

Great. And then last question if I may, you mentioned the public comments out of EPA, I guess both at the NBB and at the RFA meetings recently, we saw a very constructive comments out of Gina McCarthy and then one of her direct reports as well. I know that White House very often participates in things like this, they have staff that attends. Can you share with us whether there were any constructive comments from people outside of congress more in the executive branch that might also support confidence that we will see everybody do the right thing this year?

[Dan Oh:]

I hear a lot of the constructive comments from all sectors. There is a system that still has to be figured out in terms of checks and balances. So I think ultimately it's checks and balances that are not transparent that occur between the White House and office management budget and EPA and industry and all the industry participants that really should and is likely to get worked out this year. If the market demands it, the market actually is functioning. When you look at RIN prices, you look at volumes that are occurring; you look at RIN prices holding up even as energy prices are declining. We generally have a structure that ought to be supported, should we support it, I think we will be – but there is some choices that people have to make. And I think they are going to be the right direction. When you look at things like the Argentinean [indiscernible] announcement, so now you have as the policy provides for qualifying fuel from overseas as people go through qualification they can bring more product into the country as prices allow. I actually think is positive if that was announced ahead of the RVO. That's volume that now can be accounted for in a variable probabilistic way that calls for the RVOs to be increased. And better that it come up before than after. So I look at it all and I think that it's going to work out. I know I'm an optimist. But, at the same time the administrative process should come to you some form of conclusion and get it back on a better path on the next few months. That said we don't run the process.

[Craig Irwin:]

Thanks again for taking my questions.

[Chad Stone:]

Thank you.

[Operator:]

Our next question comes from Katja Jancic from Sidoti & Company. Please go ahead.

[Katja Jancic:]

Hi. Thank you for taking my questions. You mentioned that there is some of the producers are cutting production or even shutting down, do you see any opportunities for acquisitions and would you be interested in acquiring some of the smaller players?

[Dan Oh:]

Well, I think our history shows that we are acquisitive when the prices are right and the assets fit into our system. And the strength of our balance sheet and our ability to stimulate that things into our plant and manufacturing infrastructure allows us to be acquisitive. All that said, we don't hope that people are going to have trouble and that they end up in our company because they are in trouble. And most of the quality assets that are out there that fit well into our system, our quality assets and what I think is more likely to happen as you know people who have been in this business for a long time who have just decided the time horizon for investment has changed and they need to move on. And we then work out some amicable agreement. We are focused on quality assets that are long-term profitable at a fair relative value. And we need them to be accretive. So that's what we are looking for.

[Katja Jancic:]

Regarding the German acquisition, is that included in your guidance already?

[Dan Oh:]

From what we publicly know and are publicly allowed to talk about we have considered that in the guidance. It's a consolidating activity. But, we don't know everything about that business. So in many ways we learn as the public learns because they are also public reporting business.

[Katja Jancic:]

Okay. That's all for me. Thank you.

[Chad Stone:]

Thanks.

[Operator:]

[Operator Instructions] And our next question comes from John Quealy, Canaccord Genuity. Please go ahead.

[John Quealy:]

Hey, guys, good afternoon. So on the balance sheet just if you don't mind Chad perhaps going through what we have, so we have got $63 million in cash, $236 million in receivables, was the BTC received already in January and for how much?

[Chad Stone:]

Yes. Tax credit – all that accounting occurred in the fourth quarter and we expect what the IRS has disclosed and we will get that later in the year, we haven't collected it yet. But, we have guided in the December balances in receivable.

[John Quealy:]

And I'm sorry did you say how much it was – the BTC?

[Chad Stone:]

The net benefit –

[John Quealy:]

Yes.

[Chad Stone:]

$95 million.

[John Quealy:]

Yes.

[Chad Stone:]

The total gross benefit was $235 million roughly.

[John Quealy:]

Great, great. Okay. And then timing on the Petrotec sort of first half of the year do you think or how do you sort of gauge that?

[Dan Oh:]

That the German acquisition process is different than the U.S. And the initial as you get through the tender process, and I call it a highly protective process from an individual shareholders perspective. It could easily take a year, if prices and shareholders are agreeable force to be in 100% ownership position. We came into this understanding that and are prepared to be patient as we find appropriate pricing.

[John Quealy:]

Okay, Dan. And I'm sorry if you have mentioned this, in terms of the upgradeability of the facilities over there to animal fats and some of the retooling that you are done at your plants here domestically, are they candidates for that and if you were to effectuate the transaction, can you ballpark how much it would cost to do that?

[Dan Oh:]

I will talk in a general category level because it's inappropriate to talk about that specific company strategy. That category of asset that's over in Europe is similar to here in the sense that you have many virgin vegetable oil mostly rape seed focused companies those are very similar in terms of ability to upgrade as we have done here. When you get to things that are more focused on multi-feedstock, some of the rules are a little different by country because of mad cow disease and things like that in the classification of fats. So they talk about category 1 and category 2. And you have different – you have certain processes that are more important to pay on the raw material you will be using. So that's a more specific activity. All that said, I think that the things that we have been looking at and investing in fit very nicely into our philosophy of operating business.

[John Quealy:]

Okay. That's fine. My last financial question and I'm sorry – the buyback, the relative appetite is there a timing or range or what's your completion date would you like to see for that?

[Dan Oh:]

We think about that opportunity as an opportunity to invest. And essentially what we are doing is looking at the market, looking at our other alternatives and people should expect that they will be investing as we see great value in our shares. And we have not put out a specific plan, but there is things that have to be executed that one can't do until you up ended up in the window.

[John Quealy:]

Okay. That's it for me. I will jump back. Thanks.

[Chad Stone:]

Thanks.

[Operator:]

Our next question comes from Ethan Steinberg of SG Capital. Please go head.

[Ethan Steinberg:]

Hi. Thanks for taking the question. Sorry, if I missed this. Was there any assumption for the blenders' credit in that adjusted EBITDA guidance for Q1?

[Dan Oh:]

Now, the guidance assumes with the blenders not being paid. But, we should be in a position that if were to come back in the future that we would benefit retroactively.

[Ethan Steinberg:]

Got it. And then, why such a big range given word in March, I just want to get a handle on what the variables are that would get you to negative $10 million versus negative $30 million?

[Dan Oh:]

Well, those variables that I talked about are sensitive. So for example what's going to happen with energy pricing, if it goes up we will end up having near-term risk management effects at the end of the quarter. We don't hedge accounting so that passes through. If there were to be an announcement as positive or not so positive on RVO that may effect inventories around RINs that are yet to be distributed. There are quite a few factors that can swing. And then if you just look at the total fees of business that's not that wider range compared to revenue.

[Ethan Steinberg:]

Okay. And then why you think RINs have come off from the dollar level that they went to earlier in the year?

[ChadStone:]

Excuse me; partially I think it's really going to be driven by the RVO when you are really going to see more RINs trading at a more firm solid pricing. So I think there is still anticipation around the RVO and I think potentially there is some wait and see involved with that.

[Dan Oh:]

Yes. I think there is a little wait and see, this is Dan, that was Chad speaking. Little wait and see going on now that there is charter around RVO coming out in the next few months. And RIN prices are actually pretty volatile on our private trade basis based on what's happening just with active spreads. So heating oil has been moving a lot, ultra lows have been moving a lot, you see feedstock price is changing. And until you get a little farther into the year even the obligated part is, well, some of them will try and operate on a ratable basis many of them if there is uncertainty in the future, we will just lay back a little bit. So there was initial buying that responded to this spread changing. I think it's actually healthy that hasn't gone back down level it was out before. That's enough to keep the excellent producers from a cost perspective running. And I mean it's a little wait and see.

[Ethan Steinberg:]

Okay. And the last question, I guess visibility is limited, but I just want your opinion on it is, it sounds like you think capacity probably needs to come out or get shut down for now, is there any evidence that is starting to happen as far as those thinking about maybe things getting better or worse from this run rate as we get into Q2?

[Dan Oh:]

I think was earlier last week, it was reported on Opus, ADM put out a press release saying that they had largely moved their [indiscernible] oriented bodies of production to other kind of products they come out of [indiscernible]. That was a significant announcement in terms of a large player making a point. I would expect that many companies are managing their utilization right now as they think about where they are in the cost structure. So when you hear us saying some production has come offline, biodiesel facilities can – you tend to have things run in steps. So your least cost effective are going to be independent veg oil companies that are not connected to a crush. Then you tend to have independent multi-feedstock and then depending on the pricing integrated and folks like us that are actively competing for business because they have different competitive advantages. So coming off of production doesn't mean shutting down pieces of the industry it just means that I got to stop volumes so that this raw material which is made weekly and daily and as to go somewhere because people are making the stuff as a co-product or byproduct. They are making meat products, food products, their primary business as to run, so as bio-diesel and renewable diesel companies' step in and out of the market. They are going to have a reasonable near-term impact because the stuff has to go somewhere and price has to adjust. Now, the complex overall is still affected by energy and RVO.

[Ethan Steinberg:]

Okay. Thank you.

[Chad Stone:]

Thanks Ethan.

[Operator:]

Our next question comes from Craig Irwin of ROTH Capital Partners. Please go ahead.

[Craig Irwin:]

Thanks for taking the follow-up question. So you are obviously aware that there has been a very active dialogue about redistribution of the cash that you generate – some of the really impressive book value generation clearly is showing up in your cash flow and will show up in your cash flow this year on the back-end of the blenders' credit collection. Can you share with us your thought process on how you evaluate potential one-time dividends or formal quarterly dividends versus buybacks versus retaining cash for investment and growth? And whether or not you see any potential changes to the landscape of available projects out there for growth as far as acquisitions or investments in your existing properties?

[Dan Oh:]

We are highly sensitive to shareholder needs and are focused on that. Example of that is the announcement of a shareholder – a share repurchase program which our company when we say we do things tends to them. So that's a way, one of the many ways to create value for shareholders. We think our metrics that we shared earlier show that we were creating value. And as we were looking across all the opportunities we have always tried to be balance when we think about downside protection in terms of a really rock-solid balance sheet because that's the first way to protect shareholders to make sure that we are not getting too far of our skews in terms of making sure that the core assets that we have are safe, functional and being maintained in a way that matters over time. And then making decisions that are appropriate to the risk horizon and I think we have the history of doing pretty fast payback projects. So as we look at all of that we are looking to be responsive and we want to make sure that the market ultimately reflects the value that has been created and it's continuing to be created. And all I can really say Craig is, we are sitting here investing or investing to do accretive projects and some times accretive projects are things like share repurchases.

[Craig Irwin:]

Thanks for taking the question.

[Chad Stone:]

Thank you.

[Operator:]

It concludes our Q&A session. I would now like to turn it back to management for final remarks.

[Chad Stone:]

Thank you, operator and thank you all for participating in 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 Chad. We will be participating in two events coming up next week. First on Tuesday March 10, we will be presenting and hosting Investor Meeting at the ROTH Conference in Orange County. The conference is invitation only. So please contact ROTH, if you want to attend or schedule one-on-one meeting with us. The formal presentation will be webcast and available in the Investor Relations section of our Web Site. In the second half of the week, we will be in Washington DC for ABLC. Dan will deliver the key note address on Thursday morning. Please contact myself or Gary Dvorchak, if you would like to set-up a meeting with us at ABLC. Thank you all again. This concludes the call and you may now disconnect.