Renewable Energy Group, Inc.
Q2 2015 Earnings Call Transcript

Published: 5 Aug 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the Renewable Energy Group Incorporated Second Quarter 2015 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 may be recorded. I would now like to turn the conference over to Todd Robinson. Sir, you may begin.

[Todd Robinson:]

Thank you. Good afternoon, everyone, and welcome to our second quarter 2015 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 2015 financial results and recent developments. Before we begin, I would like to remind everyone that this call is being webcast, and is available at the Investor Relations section of our website at regi.com. A replay will be available on our website beginning later this afternoon. The webcast includes an accompanying slide deck, which will appear automatically with the webcast, but you will need to advance the slides manually as we prompt you. For those of you dialing-in, the slide deck can be downloaded along with the earnings press release in the Investor Relations section of our website. Turning to slide 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 and any forward-looking statements based on new information or revised expectations. Today's discussion will also include 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.

[Daniel Oh:]

Thank you, Todd, and thank you everyone for joining the call. I am going to cover some important developments for our industry, then review the highlights of our quarter, then I will turn the call to Chad for financial details. Before getting into business update I want to comment on important positive regulatory developments that impact our industry and more importantly REG. Let us start on slide three. For many months our industry operated under a cloud of uncertainty as the EPA had not yet finalized 2014 renewable volume obligation or RVO, nor had it proposed a 2015 RVO. That uncertainty was substantially reduced on May 29, when the EPA proposed RVOs for biomass based diesel through 2017. These proposed RVOs were subject to public comment through July 27, and the EPA tends to make a final ruling by November 30, 2015. The 2015 RVO is proposed to grow to 1.7 billion gallons with another 100 million incremental gallons proposed for both 2016 and 2017. While we are sold for a higher level of growth we are okay with the announcement and believe it is positive for our industry. First, uncertainty about demand has reduced substantially. Second, proposed volumes reflect consistent growth. The growth from the original 1.28 [ph] billion gallons proposed RVO for 2014 with a 1.9 billion gallons proposed RVO for 2017 represents a nearly 50% increase. The proposal demonstrates well deserved confidence in our industry to produce drilling volumes of high quality cleaner burning fuel. Third, with RIN [indiscernible] of obviously 20% we anticipate actual usage will be upwards of 2 billion gallons annually as early as 2015. Finally, biomass pays seasonal RINs or D4 RINs can also be used to satisfy the D5 advanced biofuel obligations. So we believe there is additional opportunity to compete there. The D5 RVO has proposed a 2.9 billion gallons for 2015 and rises to a proposed 3.4 billion gallons in 2016. The majority of those gallons are satisfied via D4 RINs and we also compete with sugarcane ethanol in the D5 category. Nonetheless, we expect to benefit from the growing incremental demand created by the D5 RVO. Further, it appears that the EPA has left room to interpret and add further growth for the 2015, 2016 and 2017 RVOs for D4 RINs as the industry continues to prove itself capable. Another major regulatory influence on our industry is the Biodiesel Mixture Excise Tax Credit or BTC. As you know, the BTC was reinstated retroactively for 2014 last December, but not extended into 2015. The industry is generally operating in a way that anticipates that BTC will again be reinstated for this year. By that I mean that transactions are back RIN and policy share [ph] tax credits and margins appear depressed now because spreads assume the additional benefit from the tax credit will be reinstated. There are no guaranties, but we believe that Congress is motivated to move the BTC forward for both 2015 and 2016 to remove it from the issues being debated into the 2016 elections. In fact, two weeks ago the Senate Finance Committee approved a tax extenders package that will reinstate $1 per gallon BTC retroactively for 2015 and the extender through 2016. The next step is for the House of Representatives to address the extenders package. In fact, we believe that overtime, after tax will benefit in Europe from the recent passage of amendments to the Renewable Energy Directive or RED intended to achieve a 10% penetration of renewables and their usage of transportation fuels. The RED limits the contribution of crop based fuels to 7% of the 10% target. In Europe, Petrotec produces biodiesel primarily from used cooking oil, so this law improves their market position over time. We expect to benefit from re-adoption of the low carbon fuel standards in the State of California which is one of the nation's largest transportation fuel markets. The LCFS targets a 10% reduction in carbon intensity in fuels by 2020. The law is being revisited in the wake of some legal and legislative work which should crystallize demand there for lower carbon fuels such as biomass based biodiesel in 2016. Now let us turn to updates on our [indiscernible] production plants starting on slide four. The favorable environment for renewable fuel in the Pacific Northwest as well as California affects biofuel demand up and down the West Coast and creates opportunity for our recently announced acquisition. On Friday we announced that we have entered into an agreement to acquire substantially all of the assets of Imperium Renewables including a 100 million gallon main play capacity modern refinery located in the port of Grays Harbor, Washington. It is one of the largest fires or refineries in terms of main play capacity in the nation. The facility has a deep water port terminal as well as rail access which will allow feedstock and biodiesel to be shipped or railed in and out. Today its primary feedstock has been canola oil from Canada. This finer refinery is a great fit for REG since it expands our production fleet through the West Coast and extensive distribution network and it is a strategically important location. Looking at the rest of our fleet at a glance we continue to work on upgrading and restarting our Geismar, Louisiana biorefinery. We are on track for a restart of the production this quarter with revenues expected in the third quarter and EBITDA contribution in the fourth quarter. The plant has insurance that will cover the cost of repair as well as some of the interruption costs. At our Danville, Illinois biorefinery, we held a groundbreaking ceremony in July on an upgrade project that will add distillation capability, increase pretreating capacity, improved storage and logistics and other enhancements. We expect this project to cost $31 million including up to $12 million financed by Fifth Third Bank. We expect this project to be completed next summer. You may have seen the press release last week from UPS announcing that we among others will be selling renewable hydrocarbon diesel to UPS. We believe this is an indication of growing national interest and the larger scale usage of biomass based diesel. Yesterday, we also announced the expansion of our Ames headquarters complex with the addition of a second building and improvements to our current building in Ames totaling $2.5 million. We are committed to Ames in central Iowa and are excited about the opportunities this project provides. The additional space is needed to support our domestic and international growth. Regarding Petrotec, they previously announced that they will be delisting from the Frankfurt Stock Exchange in October. As you know their financial results are consolidated into our results. Chad will offer additional detail on their financial contribution in the quarter. And lastly regarding Petrotec, you should think of this investment as a platform for further expansion into Europe and internationally. Let me now turn the call over to Chad for a financial update and then I will return to discuss our guidance and outlook. Chad?

[Chad Stone:]

Thank you, Dan. Let's go to our financial results on slide seven. Adjusted EBITDA for the second quarter was $3.3 million, at the high end of our guidance for the quarter and we sold 96 million gallons during the quarter, which includes 4 million gallons from Energy Services as well as gallons in Europe. We produced 73 million gallons this quarter, and with Geismar down we did not produce any renewable hydrocarbon diesel in the second quarter, whereas in the first quarter we produced 10.3 million gallons at Geismar. As I compare the second quarter to 2014, keep in mind that Biodiesel Mixture Excise Tax Credit was retroactively reinstated in 2014 and in our adjusted EBITDA calculation we allocated the net benefit of the credit throughout the year and to the quarters in which the gallons were sold. We believe this provides a better comparison of our performance since the adjusted EBITDA reflects when he BTC was burned. Any analysis of our results should also consider that the BTC is less, but could be retroactively reinstated in the past, but again as it has in the past. As Dan mentioned, high industry margin currently reflects an expectations that the credits will be reinstated this year. You can find the reconciliation of our adjusted EBITDA to GAAP net income on slide 16 in the presentation. For the quarter both volume and pricing improved when compared with the challenging conditions of the first quarter of this year. The pricing was low the year ago period given the continued downward trend in energy prices. As reflected on slide 9, wholesale diesel prices are down 36% from where they were a year ago. We sold 25% more gallons of fuel in the second quarter compared to last year, but our average selling price was 15% lower. Our average B100 selling price did not increase as much as diesel prices with RIN prices playing their intended role by supporting our real life priorities. Energy Services volume increased from 1 million to 4 million gallons in the comparable second quarter and it is $1 million that at the end of June Energy Services current year-to-date EBITDA positive. The higher volume and lower pricing for the quarter resulted in revenue of $374 million, an increase of 12% year-over-year. Improving spreads restored us to positive gross profit of nearly $16 million in the second quarter which is up 5% year-over-year that was much improved sequentially. Gross margin was 4.2%. At the operating expense lines we continue to invest in R&D while controlling other overhead. As planned, R&D spent $4.4 million with 14% sequentially and 36% year-over-year. In contrast, SG&A expense of $15 million was down 8% sequentially although cost 24% year-over-year. The increase versus last year was due to added headcount and professional services in support of domestic and international growth. Operating loss was $4 million a net loss of $2 million or $0.05 per share. Turning to the balance sheet on slide eight, you will see we continued to be in a solid financial position. Days sales outstanding declined to 14 days from 20 at the start of the quarter while inventory days declined to 22 from 44 at the start of the quarter. We moved all of our year end winter storage gallons out as warm weather returned and we expect to sell the remaining first quarter storage gallon here in the third quarter. Cash and marketable securities declined by $115 million while debt was flat in the quarter. But keep in mind we now only distributed the BTC cash selected at the end of the first quarter in accordance to our counter party agreements which explains that decline in cash and marketable securities. Cash balance is a healthy 29% of book value and a portion of our cash balance is intended for the continued support of our share repurchase plan, the recently announced [indiscernible], the Imperium Renewables asset acquisition and other board approved projects and 26% of capital and if you net out the fully cash collateralized bonds that is 18% of capital. During the quarter we spent $16 million on CapEx and $6.5 million in our share repurchase program and as we announced on Friday, we will spend $15 million in cash on the Imperium acquisition plus 1.5 million shares of common stock and either $1.75 million in cash or 175,000 shares with is at our discretion at closing. We also plan to invest $31 million in the Danville upgrade over the next 12 months. To improve our ability to grow our business and improve our liquidity, we also announced in July that we increased our line of credit at Wells Fargo by $20 million to a total borrowing capacity of $60 million. This will be useful in light of our announcement last Friday and at quarter end we had $26.5 million drawn on our lines. Under the Wells Fargo line we've also arranged an incremental $15 million of lender credit capacity so that we can now issue up to $25 million. Umpqua Bank in the Pacific Northwest is also committed to an additional $5 million of financing for future upgrades at Grays Harbor. We’re looking forward to building and growing this new relationship. During the second quarter, we purchased 615,000 shares of our common stock in the open market at an average price of $9.75 per share. Through the second quarter we repurchased $1.2 million shares cumulatively at an average price of $9.65 per share. Through July 31, 2015 we repurchased 1 million and 556,000 shares. Our weighted average interest rate for the quarter was 1.8% and our effective tax rate continued to be between 3% to 5%. Now I'll turn the call back to Dan to discuss the outlook. Dan?

[Daniel Oh:]

Thanks Chad. Guidance for the third quarter of 2015 is shown on slide 13. In the third quarter we expect to sell between 100 million and 110 million gallons. We are forecasting our adjusted EBITDA to be in the range of breakeven to positive 10 million. If the BTC is retroactively reinstated, we report cash in adjusted EBITDA in the range of positive $30 million to $40 million. This guidance is assuming the absence of all [indiscernible] the commodity prices. In the fourth quarter we expect volumes to be slightly lower than the third quarter with lower by diesel accounts offset by increased volume of RHP from guidance department. We believe the expectations of the BTC reinstatements. We'll encourage the industry to continue to produce in spite of this hike the negative margins, if the BTC is retroactively reinstated we expect to have positive adjusted EBITDA for the fourth quarter. 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] Our first question comes from Craig Irwin of ROTH Capital Partners. Your line is now open.

[Craig Irwin:]

Thank you. Thanks again for taking my question. So then Dan, obviously it has been a very busy quarter for you and the rest of the team at REG. Grays Harbor is groundbreaking. New capital program and obviously buying your stock, can you talk to us about how you approach your allocation of capital, whether or not there is specific template that you push things through when you consider something like $31 million upgrade at Danville or allocating cash over to the biorefinery at Grays Harbor and of course the port there and some of the other capital opportunities that you are facing now?

[Daniel Oh:]

Yes, I have to do that correct, thanks for the question. It is probably 3 different things that are going on all at the same time. The first one is, we still are a business, although we have diversification activity underway, our core business at full cash generation comes out biomass based diesel and that is a [indiscernible] and we'll be involved in for a very long time. It is a growth engine in North America and internationally and is our market. So when we look at that world of course we look at regulatory volatility, uncertainty around that and we're now looking at more than one market between North America and Europe. And we're looking at more excellent returns with relatively quick paybacks when we think about the uncertainty that's out there not in the long-term forecast of the industry or our company, but simply in regulatory volatility. We also are looking from a return perspective at our diversification efforts and we're looking at our share price. So, essentially at least every quarter we take a hard look at what we can do to get our returns where we need to be, to allocate capital in a way that is focused on improving the share value and the strength of the business every time and one of the reasons you see us buying shares and think our shares are great value right now and we think about business from a return perspective. And it is part of the mix, it is part of taking care of shareholders and making sure that we're thinking about shareholders in our allocation all the time.

[Craig Irwin:]

Great, thank you for that. I wanted to ask a followup question on the Imperium assets that you bought in Grays Harbor, from the publicly available information it looks like they have a pretty attractive port there, something that can take panamax size unloads. And they have a process going already to significantly increase the size of the capability that they already have. Is it fair to assume that if they are actually permitting for increased capability that they are already getting a pretty good clip of business loading and unloading ships from the port and that that's something that might have synergies to the biofuel's operations at that site?

[Daniel Oh:]

Yes, so we haven’t closed and it is challenging for me to talk about operations and activities are underway. It is an operational facility. It has been profitable and possible in the near term. It is a well run business. One of the things I really like about it is, it has 18 million gallons of terminaling capability on the facility. This is a great base for adjusting some of the facility, notwithstanding the fact that it is a high quality biodiesel operation in a market where they are a major presence that goes down in California and up into Western Canada, and the Pacific Northwest in general. So there is a process underway, that that company has been pursuing to expand its logistics capability. I think it is right to say that primarily, even when things are coming in and out of the water in rail that they've been focused on biodiesel production, or main focus on biodiesel production and we will also expand logistics capabilities over time.

[Craig Irwin:]

Okay, thank you. And then last question if I may, so looking at your guidance adjusted EBITDA if the BTC is reinstated, since like you are looking at 100 million to 110 million gallons in the quarter, but only about $30 million in EBITDA retained or $0.30 a gallon benefit there, has there been any change to the mix of the business that might alter your ability to retain the value of the blenders credit or is it possible that you are being conservative or is there something else maybe that you could explain that has – shifting down from sort of where you've been historically as far as being able to hold on to a stronger piece of the pie?

[Daniel Oh:]

So, it's always hard to answer your questions Craig, because you ask everything. I think the challenge we have in responding directly to your question is, we don’t know if and when BTC will be approved. To the further we go into our quarter, the less it is a direct impact in the immediate negotiation and are more over in line on old history. And there is definitely amongst the constituents a destocking, distribution and production. [Indiscernible] changes as you go through here. So I think we're in a great position to maximize our value out of that, but I don’t know which part of the corner it is going to come in if it comes. What we are trying to clearly see is there is a lot of value there and what we really are working towards, we run the business as if it won't happen but we're looking towards a reinstatement that encompasses next year as well. So we get back to a more routine pricing environment. It will be healthy for the industry and the value chain. We just know what it is and that will make it a much more national negotiation.

[Craig Irwin:]

Thank you and congratulations on the positive EBITDA. I know things started difficult at the beginning of the quarter, it was an impressive result.

[Daniel Oh:]

I think it does point to the growing stream above the platform and I appreciate you calling.

[Operator:]

Thank you. Our next question is coming from [indiscernible] of Piper Jaffray. Your line is now open.

[Unidentified Analyst:]

Hey, good afternoon guys and congrats on the nice beat on the quarter. My first question would be as energy prices have declined in the past few weeks, how are diesel and biodiesel prices looking and have they been more resilient than crude oil and they are comparable to the sector?

[Chad Stone:]

Tyler [ph] this is Chad Stone. I'll take that. You can see the charts on our PowerPoint on slide nine you can see that energy prices have held by, been fractured to very low levels and they've been declining recently. During the second quarter what we saw is, RIN prices adjusting upwards as to I think we help to bind in the prices from falling down too much. More recently, I think and it probably started around the time when you heard of the positive progress on the BTC in the Senate Finance Committee, the RINs have been trailing back down lower. So that is what Dan was referring to when he talked about the tighter margin environment. So, on the one hand the RIN will protect us from crashing energy complex, but the expectation in the tax credit reinstatement we believe is causing the RIN prices to come back down.

[Daniel Oh:]

Yes, this is Dan here. Two things all at the same time, commodity pricing side, one is what's happened wonders, people generally believe it is coming back and the question is about when and then what will the ultimate RVO be for 2015. And there is someone associated around that although we expect that there is no - maintain growth they'd like to but there is a little bit of late bag volume right now on the RIM side and so people see. And you can look at the production that's encouraged by blenders tax credit and understand why some people do would be interested in RIMs feel like they've got a little ribbed away and see what happens. So the market is playing us to do it again.

[Unidentified Analyst:]

Okay, great. And, just a followup on the margins on the BTC side, whether or not the BTC does come back, now I believe you guys said that's the third and fourth quarter would be even a positive if there was not a BTC in place. But would your trading strategy or marketing strategy have to change if that were to happen, I guess would there have to be a change in your kinds of strategy to still achieve positive EBITDA throughout the back half of the year if there was no BTC?

[Daniel Oh:]

We're forecasting as if the BTC does not return until sometimes perhaps the end of the year as we think about this all. I think the market has the belief that it may occur before the end of the year because the Congress has the interest in just clearing the activities issues because of reelection issues around Congress and the President. But we're running our business and contracting on a forward basis and we typically are selling forward 45 and 90 days. In the past I would have said more 90, but in the market we are right now it is little more like 45 to 90 days real time, just time contracting, just we march [ph] our ability to adjust is not satisfactory anyway as we head towards the end of the calendar year. So we're already in the third quarter given a few months we're selling well in the fourth quarter, we're forecasting based on our general expectations and how it is going to turn out without [indiscernible] right now.

[Unidentified Analyst:]

All right, excellent. And looking at this UPS deal, I know you guys can’t say anything specific, but are there more, can we expect to see more developments like these with metros and specific companies in the future to switch to some sort of minimum biodiesel consumption?

[Daniel Oh:]

So, when I think about the UPS deal and this is, I am not talking about EPS and really just talking about the trend. I think it’s speaks to the ever broader distribution of biomass-based diesel throughout the country and it’s the liability and its ability to be where a company of the stature of somebody like UPS needs it all the time. So, we have always sold to metropolitan jurisdictions and specialized trucking companies and other activities like that, but usually it has been through a distributor or other channel who was then selling the diesel to those folks. I do think that you’ll see and this is not a strong prediction, but I do think you are going to see us do more direct transacting because of few things, one we're growing in our breadth. For example breadth and geography, so for example as Grays Harbor comes on line that will give us a much stronger ability to routinely supply the West Coast. We ship out there. We buy and provide an REG set from other folks. We'll have our own fuel there; supplies trends will just be greater. That will make it easier with a contract. And then on the energy services side of the business, as that business grows admittedly from a small base, it allows us to do business with our customers on the diesel side and also sell biodiesel and provide some blended solutions and otherwise we might not have been able to do before. So the strategies are working and converging, but mostly I think you see a call between a fuel, corporations responding to it and now the volumes are large enough that corporations can expect high quality of large locations, so it’s a nice convergence and only a few companies that can think about it and we are one of those.

[Unidentified Analyst:]

Yes, direct contracting certainly would be an exciting development to the story, and looking forward hearing things about that. One more question if I may, just wondering if you could talk about 2Q and looking into 3Q on the farmer selling, we have heard from a lot of grain processers that farmers were more reluctant to sell prior to the run up of above $4 corn, but in your case soybeans are running up a bit. Do you see more ability to contracting the grain very easily throughout the third quarter and throughout the rest of the year given the current fundamentals?

[Daniel Oh:]

So, we are kind of an indirect buyer. We do not buy any grain or livestock. We buy the co-product, byproduct, or waste product that comes out of the chain [ph]. What we still see is the strong part of protein and protein is the morning crush and crush provides ample supply to us as well as livestock fuels right now. I think the thing that is weighing on our complex as we think about with the base biofuel is an energy still as more liquid [indiscernible] Ag products, though they are still catching up. If energy is rising and Ag products are going to rise a little less between we catch up, if energy is dropping, will drop faster, that’s a little bit of margins we see right now. I think it has more to do with that. We are not having any challenge identifying supply, it’s always about the price.

[Unidentified Analyst:]

All right, excellent, thanks for taking all my questions, that’s it from me.

[Operator:]

Thank you. Our next question comes from Katja Jancic of Sidoti & Company. Your line is now open.

[Katja Jancic:]

Hi, Dan can you give us an update regarding REG Life Sciences and development of renewable chemicals?

[Daniel Oh:]

Yes, so we are marching along with our development activities and we are taking a portfolio approach. We are pleased with the development. Sometimes some of the projects take a little while than one would expect, but overall we are generally consistent with what we have been talking about where the platform is depending on the project we are working on somewhere around 9 to 12 months behind where we thought it might have been when we acquired the business. And we are still developing an array of high values, smaller volume products. We are admittedly being quiet about it because these products tend to be in the spaces where there are high value and smaller volume, not a lot of people are making them and we would like to come out and ready came out in terms of the competitive number [ph].

[Katja Jancic:]

Okay, so I might have missed this, but when are you planning to complete the Imperium acquisition?

[Daniel Oh:]

We expect it will close in the second half of August.

[Katja Jancic:]

Second half of August?

[Daniel Oh:]

Yes.

[Katja Jancic:]

So, your guidance already includes the numbers for the acquisition?

[Daniel Oh:]

No, we don’t have any – we don’t have that in the guidance because it’s not closed. If nothing else I find that that is port superstition, so we don’t, it is not over until it is over.

[Katja Jancic:]

Okay, that’s all from me. Thank you, very much.

[Daniel Oh:]

Thank you.

[Operator:]

[Operator Instructions] Our next question comes from the John Quealy of Canaccord Genuity. Your line is now open.

[John Quealy:]

Hey, thanks good afternoon folks. I’m sorry I am jumping on a little late here. Just a couple updates, has anyone talked about Geismar, how is it ramping back online, flat prices, I think you've been generally favorable overall. So, can you talk about how that one is ramping back up and any potential insurance proceeds in terms of timing? And then my second question on Petrotec in Europe how is that overall going? Sorry if these are redundant.

[Daniel Oh:]

Yes, they are not redundant. I will talk about those who had a supplement if you'd like. On Geismar, we are pleased with the development first of all our employees are recovering well. We will look forward to them in back of work. On the facility side it has been marching along steadily on two fronts, one is you may recall last year we began upgrades around just extents, pretreatment, those who continued as regular phase on schedule despite the accident and now the accident we went through all of the work to identify what was necessary to immediate repair and bring back online the facility, we have been doing that. So, we fully expect this facility will be up and running in third quarter and that will be contributing EBITDA in fourth quarter. We are not forecasting EBITDA in the third quarter, because we respect the process that it takes to get again something up often running. We are still confident about it right now, but a facility of that complex can you bring it online, can have some pickups when you do it. They are just natural start up pick-ups of any plan. So we are being conservative as we forecast and it may be exactly the right thing to do just want to everybody bring out of the complex system you just have to careful and make sure that’s right. But, we're on track and that’s the message that you should hear. We understand and we have not yet disclose, but we understand the fall and we have addressed everything appropriately and when it comes online along with the upgrades we expected to do very well. In terms of Petrotec, that business operates independently. It is a public company still and it is still listed and it maintains independence. So we are not exercising control of the business. Of course there is some interaction on a business basis. They are moving ahead on their own plan and they have announced a delisting in October because the management board and shift advisory board have determined that it’s appropriate to do that. It will benefit shareholders because there is a little equity and other reasons that they have disclosed on their own. That is a natural progression. We've stated that we have a goal of acquiring full business, but that not under our control, it’s under a lot of other process activities in Germany whatever sell in shareholders may want to do. So, answer is best case would be probably second quarter next year and we don’t yet know whether that will or might not be a 100% earnings situation. That said, they are performing well in a tough market. Just a tiny bit under breakeven on EBITDA and continuing to work to a prudent company there. We look forward to having that in our steering and arguably that's possible.

[John Quealy:]

And then a couple of follow ups if I could quickly, so back the guys not for a second, so I assume you have very attractive fats and oil prices to refill the tanks down there as we start it back up, will that help margins or is it just going to get chewed out in inventory and process cost and we're never going to see it. Just looking at some of the latest Jacobson data it looks like you are in an advantageous position to refill raw material tanks.

[Daniel Oh:]

Yes, so I don’t think you should look at the Jacobson today and assume that's where price is paid for what's onsite. We are constantly buying, moving and averaging things and we are preparing to bring the facility on line so it is reasonable to think that we were going to have all of it in the market for a period of time. If we're careful enough you can shop this and when you see us forecasting, it is forecasting for a neutrally bizarre situation understanding that the current cost of the facility is substantial and while the insurance will in all practical ways cover the repair, there is interruption cost that will not be covered in full and we are tying that as we think about a negative situation coming into a positive situation for the Geismar.

[John Quealy:]

Yes, that's fair. Okay thanks Dan, thanks guys.

[Daniel Oh:]

Thank you.

[Operator:]

And I am showing no further questions at this time. I would now like to turn the call over to Dan Oh for any further remarks.

[Daniel Oh:]

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, Chad is going to mention some upcoming conference appearances for REG. Chad?

[Chad Stone:]

Thanks Dan. We will present and host meetings at the following conferences; the Jeffries Industrial Conference on Monday, August 10, in New York; the Canaccord Genuity Growth Conference on Wednesday 12, in Boston and the Merrill Lynch Cleantech Conference on 13, back in New York. All of these conferences are by invitation only. So please contact your sales representatives of you want to attend or schedule a one-on-one meeting with us. Our formal presentations will be webcast and available in the Investor Relations section of our website. Thank you all, again. This concludes the call and you may now disconnect.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.