Renewable Energy Group, Inc. recently announced its financial results for the second quarter ended June 30, 2016.
Revenues for the quarter were $558.3 million. The Company sold 150.1 million gallons of fuel. Compared to the second quarter of 2015, REG sold 56.2% more gallons of fuel resulting in an increase in revenue of 49.4%. Net income attributable to common stockholders was $6.9 million, compared to a net loss of $2.0 million in the second quarter of 2015.
Adjusted EBITDA for the quarter was $8.1 million. Results for the quarter include a risk management loss of $30.5 million, which reflects the change in market value of various hedging instruments used to protect cash margins in the current and future periods. The majority of this quarter’s risk management charges are associated with improved margins that will be recognized in the third and fourth quarter. Adjusted EBITDA in the second quarter of 2015 was $26.1 million. The prior year period adjusted EBITDA includes $3.6 million of risk management losses, as well as an allocation of the benefit from the retroactive reinstatement of the 2015 Biodiesel Mixture Excise Tax Credit (BTC).
“This was another strong quarter of growth for revenues, gallons produced and gallons sold,” said REG President and CEO Daniel J. Oh. “This growth demonstrates the strength of our core biomass-based diesel operations. We continue to make meaningful progress at REG Life Sciences and we increased our ownership in Petrotec to over 90%. Furthermore, we repurchased more than 4 million shares of REG common stock with proceeds from our recent convertible note offering, which also provided additional working capital.”
Second Quarter 2016 Highlights
All figures refer to the quarter ending June 30, 2016, unless otherwise noted. All comparisons are to the quarter ended June 30, 2015 unless otherwise noted.
REG sold a total of 150.1 million gallons of fuel, an increase of 56.2%. REG produced 114.4 million gallons of biomass-based diesel during the quarter, a 56.3% increase. The average price per gallon sold of biomass-based diesel increased by 2.5% to $3.27 as a result of generally improving conditions.
Revenues were $558.3 million, an increase of 49.4%. The increase is primarily attributable to the increase in gallons sold and that the BTC was in effect in the 2016 period but not in the first half of 2015 (as it was not yet retroactively reinstated), as well as the higher average sales price per gallon.
Gross profit was $24.9 million, or 4.5% of revenues, compared to gross profit of $15.9 million, or 4.3% of revenues. The increase in gross profit was due to the significant increase in gallons sold.
The Company recognized $30.5 million in risk management losses compared to $3.6 million in losses in the second quarter of 2015. The higher losses in the second quarter of 2016 are due to the increase in energy prices in the quarter.
REG recognized $13.4 million in other income due to the change in fair value of the convertible debt conversion liability related to the new convertible bonds issued in the quarter.
Net income attributable to common stockholders was $6.9 million, or $0.16 per share on a fully diluted basis. This compares to a net loss of $2.0 million or $0.05 per share on a fully diluted basis.
In June, the Company issued $152.0 million aggregate principal amount of 4.00% convertible senior notes due 2036. REG used approximately $62.0 million of the net proceeds from the offering to repurchase approximately $63.9 million aggregate principal amount of REG’s outstanding 2.75% convertible senior notes due 2019. In addition, REG used net proceeds from the offering to repurchase 4,060,323 shares of its common stock for $35.1 million, or $8.62 per share.
At June 30, 2016, REG had cash and cash equivalents of $74.1 million, an increase of $27.0 million from the prior year end. This increase was largely the result of the remaining proceeds from the issuance of the new convertible notes as well as collections related to the retroactive reinstatement of the 2015 BTC.
At June 30, 2016, accounts receivable were $97.5 million, or 16 days of sales. Accounts receivable at December 31, 2015 were $310.7 million. The decrease in accounts receivable in the quarter was due to the collections related to the BTC. Inventory was $129.8 million at June 30, 2016, or 22 days of sales, an increase of $44.0 million from the prior year end.
Accounts payable were $83.3 million and $236.8 million at June 30, 2016 and December 31, 2015, respectively. The decrease in accounts payable was mainly driven by payments made to our vendors and customers related to the 2015 BTC.
Adjusted EBITDA is a supplemental performance measure that is not required by, or presented in accordance with, generally accepted accounting principles, or GAAP. Adjusted EBITDA should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as alternatives to cash flows from operating activities or a measure of liquidity or profitability. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for any of the results as reported under GAAP. Some of these limitations are:
- Adjusted EBITDA does not reflect cash expenditures for capital assets or the impact of certain cash uses that we consider not to be an indication of ongoing operations;
- Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital requirements;
- Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on indebtedness;
- Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect cash requirements for such replacements;
- Stock-based compensation expense is an important element of the Company’s long term incentive compensation program, although we have excluded it as an expense when evaluating our operating performance; and
- Other companies, including other companies in the same industry, may calculate these measures differently, limiting their usefulness as a comparative measure.