RENEWABLE ENERGY GROUP, INC.
The following discussion and analysis should be read in conjunction with our
consolidated financial statements and notes thereto that appear elsewhere in
this report. This discussion contains forward-looking statements reflecting our
current expectations that involve risks and uncertainties. Actual results may
differ materially from those discussed in these forward-looking statements due
to a number of factors, including those set forth in the section entitled "Risk
Factors" and elsewhere in this report.
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We are one ofNorth America's largest producers of advanced biofuels focused on providing cleaner, lower carbon transportation fuels. We utilize a nationwide production, distribution and logistics system as part of an integrated value chain model designed to convert natural fats, oils and greases into advanced biofuels. We believe our fully integrated approach, which includes acquiring feedstock, operating biorefineries, distributing fuel through a network of terminals, and managing biorefinery facility construction and upgrades, positions us to serve the market for cleaner transportation fuels. In addition to our acquisition of Keck Energy inSeptember 2018 , we opened our first REG branded fueling station inJuly 2019 adjacent to our biorefinery inSeneca, Illinois to serve a variety of customers from trucking fleets and local diesel vehicle owners. InJune 2020 , we entered into an agreement with a third party pursuant to which it agreed to exclusively sell REG branded fuels at certain of its cardlock locations. InOctober 2021 , we entered into a long-term agreement with GoodFuels, a leading supplier of sustainable marine biofuels and global producer and supplier of renewable fuels, for the supply and development of sustainable marine biofuel solutions for the global shipping industry. InNovember 2021 , we entered into a partnership withCanadian Northern Railway to test bio and RD blends for their locomotive fleet. InDecember 2021 , we acquired Amber Resources, aCalifornia -based distributor of biobased diesel, petroleum diesel and lubricants. This acquisition will help enable us to access a larger network of end customers. These are part of our downstream strategy, which is focused on three important objectives: margin expansion across the value chain, including by directing production to the most profitable geographies; realization of higher biodiesel values through blends of biodiesel into petroleum and RD; and increased demand for our biodiesel via sales of 100% pure biodiesel, or B100, to end consumers. InOctober 2020 , we announced our plan to expand the effective capacity of ourGeismar, Louisiana biorefinery. TheGeismar project involves both an improvement project for the existing operations at the site as well as the capacity expansion. TheGeismar project is expected to take total annual site production from 90 million to 340 million gallons, enhance existing operations and improve operational reliability and logistics. The expansion is expected to be mechanically complete in 2023 with full operations in early 2024. We have received all required permits to proceed with construction and officially broke ground to start the construction process in the fourth quarter of 2021. The capital cost for theGeismar project is estimated to be$950 million and is funded with a combination of cash on hand, marketable securities, borrowings under our credit facilities, and proceeds from our public offering of common stock that closed inMarch 2021 and proceeds from our issuance of Green Notes that closed onMay 20, 2021 , as discussed below. In addition, in connection with the expansion we have entered into a long-term marine terminal lease for terminal and logistics services that will require a separate capital outlay. We have also agreed to construction contracts for large parts of the work associated with the improvements and expansion. There can be no guarantee that we will be able to complete this project in a timely manner or increase the capacity of our biorefinery atGeismar, Louisiana on time, at our estimated budget, or at all. The improvements and expansion are subject to a number of conditions and risks. OnMarch 19, 2021 , we completed an equity offering pursuant to which we sold 5,750,000 shares of common stock to various underwriters at a price of$67.00 per share before underwriting discounts and commissions. The net proceeds from the offering were$365.3 million . We currently intend to use the net proceeds from this offering for working capital and other general corporate purposes, which may include the repayment of our existing indebtedness and the funding of capital expenditures, including capital expenditures related to the improvements and expansion of ourGeismar, Louisiana biorefinery. OnMay 20, 2021 , we completed the sale and issuance of$550.0 million aggregate principal amount of our Green Notes. We recorded$14.6 million in legal, professional and underwriting fees related to the issuance of the Green Notes. We currently intend to use the net proceeds from this offering for capital expenditures related to the improvements and expansion of itsGeismar, Louisiana biorefinery. We believe that the execution of these strategies will enable us to expand our margins, diversify sources of profitability, manage our business through varying market conditions, and increase shareholder value. InSeptember 2021 , we announced the closure of theHouston, Texas biorefinery. Production at this facility ceased inNovember 2021 . TheHouston plant's nameplate capacity was 35 mmgy. As a result, we now own and operate a network of 11 biorefineries. Nine biorefineries are located inthe United States and two inGermany . Ten biorefineries produce biodiesel and one produces RD. Our eleven bio-based diesel production facilities have an aggregate nameplate production capacity of 470 million gallons per year ("mmgy"). We are a lower carbon bio-based diesel producer. We primarily produce our bio-based diesel from a wide variety of low carbon feedstocks, including distillers corn oil, used cooking oil and inedible animal fat. We also produce bio-based diesel from virgin vegetable oils, such as soybean oil or canola oil, which tend to be higher in price. We believe our ability to process a wide variety of feedstocks at most of our facilities provides us with a cost advantage over many bio-based diesel producers, particularly those that rely primarily on higher cost virgin vegetable oils. We also sell petroleum-based heating oil and diesel fuel, which enables us to offer a variety of fuel products to a broader customer base. We sell heating oil and ultra-low sulfur diesel, or ULSD, at terminals throughout the northeasternUnited States , as well as BioHeat® blended heating fuel at one of these terminal locations. In 2018, we expanded our sales of biofuel blends to 33 --------------------------------------------------------------------------------
Midwest and
InMay 2019 , we sold the core assets ofREG Life Sciences that comprised our Renewable Chemicals segment. As a result, the former Renewable Chemicals segment and the operations of the Renewable Chemicals segment have been classified as discontinued operations for all periods covered by this report.
The table below reflects our gallons sold during the years ended 2021 and 2020 (totals may not foot due to rounding).
Gallons sold (millions)
Year ended Year ended December
December 31, 2021 31, 2020REG-produced bio-based diesel:
Biodiesel - United States 348.0 375.2
Biodiesel - International 41.0 50.1
RD 74.0 76.4
463.0 501.7Third party bio-based diesel:
Biodiesel 22.5 20.9
RD 57.6 39.8
80.1 60.7
Petroleum-based diesel 78.2 88.1
Total 621.3 650.5
Our businesses are organized into three reportable segments - the Bio-based Diesel segment, the Services segment and Corporate and Other.
Bio-based Diesel Segment
Our Bio-based Diesel segment includes:
•the operations of the bio-based diesel production refineries as included in Item 2 of Part I of this document;
•purchases and resales of bio-based diesel, the renewable portion of sales of biodiesel and RD blended with petroleum-based diesel, RINs and LCFS credits (each as defined herein), and raw material feedstocks acquired from third parties; and
•incentives received from federal and state programs for renewable fuels.
We derive a small portion of our revenues from the sale of co-products of the
bio-based diesel production process. In 2021 and 2020, our revenues from the
sale of co-products were less than five percent of our total Bio-based diesel
segment revenues. During 2021 and 2020, revenues from the sale of
petroleum-based heating oil and diesel fuel acquired from third parties, along
with the sale of these items further blended with biodiesel produced by our
facilities or purchased from third parties, were approximately 5% of our total
revenues for both periods.
In accordance with EPA regulations, we generate 1.5 to 1.7 RINS, for each gallon
of bio-based diesel we produce. RINs are used to track compliance with the RFS2,
using the EPA moderated transaction system, or EMTS. RFS2 allows us to attach
between zero and 2.5 RINs to any gallon of bio-based diesel we sell. When we
attach RINs to a sale of bio-based diesel gallons, a portion of our selling
price for a gallon of bio-based diesel is generally attributable to RFS2
compliance, but no cost is allocated to the RINs generated by our bio-based
diesel production because RINs are a form of government incentive and not a
result of the physical attributes of the bio-based diesel production. In
addition, RINs, once obtained through the production and sale of gallons of
bio-based diesel, may be separated by the acquirer and sold separately. We
regularly obtain RINs from third parties for resale, and the value of these RINs
is reflected in "Prepaid expenses and other assets" on our Consolidated Balance
Sheet. At each balance sheet date, this RIN inventory is valued at the lower of
cost or net realizable value and resulting adjustments are reflected in our cost
of goods sold for the period. The cost of RINs obtained from third parties is
determined using the average cost method. Because we do not allocate costs to
RINs generated by our bio-based diesel production, fluctuations in the value of
our RIN inventory represent fluctuations in the value of RINs we have obtained
from third parties.
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The value of RINs significantly decreased during the first quarter of 2019 and
remained relatively low through the first half of 2020. The prices of RINs
started to move up in the second half of 2020 in part due to the 10th Circuit
Court of Appeals ruling invalidating the process the EPA had been using to grant
SREs. In 2021, RIN prices increased rapidly due to continued support to not
issue more SREs and the significant increase in feedstock and ULSD prices.
The table below summarizes our RINs balances available to be sold and the median
closing price per RIN at
Quantity OPIS Median Closing Price per RIN
December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020
Bio-based diesel RINs 31,702,718 3,962,710 $ 1.51 $ 1.02
Advanced biofuels RINs 684,773 817,464 $ 1.51 $ 1.02
We generate LCFS credits for our low carbon fuels when our qualified low carbon
fuels are imported into states that have adopted an LCFS program and sold for
qualifying purposes. As a result, a portion of the selling price for a gallon of
bio-based diesel sold into an LCFS market is also attributable to LCFS
compliance. Like RINs, LCFS credits that we generate are a form of government
incentive and not a result of the physical attributes of the bio-based diesel
production. Therefore, no cost is allocated to an LCFS credit when it is
generated, regardless of whether the LCFS credit is transferred with the
bio-based diesel produced or held by us. LCFS prices in 2020 were high relative
to historic prices throughout the year, only declining for short periods of
time. We believe these high prices were largely attributable to growing demand
for LCFS credits. During 2021, prices began to decline for California LCFS
credits as the supply of these type of LCFS credits began to match the demand
for the credits resulting in a market correction of prices, while Oregon LCFS
credit prices remained relatively consistent.
The below table summarizes the approximate amounts of our LCFS credits available
to be sold and the median closing price per LCFS credit at December 31, 2021 and
2020 according to OPIS:
Quantity OPIS Median Closing Price per LCFS Credit
December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020
California LCFS 18,690 2,618 $ 149.75 $ 199.00
Oregon LCFS 797 8,967 $ 124.00 $ 123.00
Services Segment
Our Services segment, which primarily provides services to our Bio-based Diesel Segment, includes:
•bio-based diesel facility management and operational services, whereby we provide day-to-day management and operational services to bio-based diesel production facilities; and
•construction management services, whereby we act as the construction management and general contractor for the construction of bio-based diesel production facilities.
Corporate and Other Segment
Our Corporate and Other segment includes:
•trading activities related to petroleum-based heating oil and diesel fuel, including the petroleum portion of sales of biodiesel and RD blended with petroleum-based diesel;
•corporate activities, which consist of corporate office expenses such as compensation, benefits, occupancy and other administrative costs, including management service expenses; and
•income/(expense) activities not associated with the reportable segments, such as corporate general and administrative expenses and shared service expense.
Impact of COVID-19 on Our Business
InMarch 2020 , theWorld Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets. In response to the outbreak and business disruption, we have prioritized the health and safety of our employees. We have established aCOVID-19 Emergency Response Team ("ERT") to monitor the health of our employees and mitigate the infection risk of our employees. Based on input from the ERT, we have implemented several initiatives in response to the COVID-19 35 -------------------------------------------------------------------------------- pandemic, such as a remote workplace requirements for all office and administrative employees, social distancing protocols for our production employees and any visitors to our facilities, and additional paid time off for employees as needed in order to deal with health or family issues related to COVID-19. As more states, counties and schools have been re-opening and with the continued successful distribution of COVID-19 vaccines, we do not anticipate having to curtail or cease our operations due to COVID-19 in the foreseeable future. Market demand for fuels was significantly impacted by COVID-19 in 2020, with significant signs of recovery in 2021. There continues to be economic activity and loosening of restrictions as more of theU.S. population gets vaccinated. We are optimistic that theU.S. economy is rebounding from the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business remains uncertain and difficult to predict, as the duration and severity of the global pandemic evolves and variant strains of COVID-19 arise. We cannot estimate the duration and severity of the COVID-19 pandemic, or its overall impact on our business. We continue to monitor the impact of the COVID-19 pandemic and will adjust our operations, as necessary. We believe we have sufficient cash on hand, our investments in short-term marketable securities and the cash available to us to manage the anticipated impact of COVID-19 on our business operations for the foreseeable future. We do not currently plan or anticipate any changes to our workforce due to COVID-19.
For a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see Part I, Item 1A. "Risk Factors."
Factors Influencing Our Results of Operations
The principal factors affecting our results of operations and financial conditions are the market prices for bio-based diesel and the feedstocks used to produce bio-diesel, as well as governmental programs designed to create incentives for the production and use of cleaner renewable fuels.
Governmental programs favoring bio-based diesel production and use
Bio-based diesel has historically been more expensive to produce than petroleum-based diesel. The bio-based diesel industry's growth has largely been the result of federal and state programs that require or incentivize the production and use of bio-based diesel, which allows bio-based diesel to be price-competitive with petroleum-based diesel.
The RFS2 bio-based diesel requirement was implemented in 2010, stipulating volume requirements for the amount of bio-based diesel and other advanced biofuels that must be utilized inthe United States each year. Under RFS2, Obligated Parties, including petroleum refiners and fuel importers, must show compliance with these standards. Currently, biodiesel and RD satisfy three categories of anObligated Party's annual renewable fuel required volume obligation, or RVO-bio-based diesel, advanced biofuel and renewable fuel. The final or proposed RVO targets for the bio-based diesel and advanced biofuels volumes for the years 2017 to 2022 as set by the EPA are as follows: 2017 2018 2019 2020 2021 2022** 2.00 billion 2.10 billion 2.10 billion 2.43 billion 2.43 billion Bio-based Diesel gallons gallons gallons gallons gallons 2.76 billion gallons 4.28 billion 4.29 billion 4.92 billion 4.63 billion 5.20 billion Total Advanced Biofuels RINs* RINs* RINs* RINs*, ** RINs*, ** 5.77 billion RINs* *Ethanol equivalent gallons **Proposed RVO The federal biodiesel mixture excise tax credit, or the BTC, has historically provided a$1.00 refundable tax credit per gallon to the first blender of bio-based diesel with petroleum-based diesel fuel. The BTC became effectiveJanuary 1, 2005 , but sinceJanuary 1, 2010 it has been allowed to lapse and then been reinstated a number of times. The BTC was retroactively reinstated onDecember 20, 2019 for the fiscal years 2018 and 2019. The BTC was also extended throughDecember 31, 2022 . As a result of this history of retroactive reinstatement of the BTC, we and many other bio-based diesel industry producers have adopted contractual arrangements with customers and vendors specifying the allocation and sharing of any retroactively reinstated incentive. The reinstatement of the 2018 and 2019 BTC resulted in an$483 million net benefit to our net income for the year endedDecember 31, 2019 . The BTC net benefit was allocated to the corresponding quarterly non-GAAP adjusted earnings before interest, taxes, depreciation, and amortization ("Adjusted EBITDA") when the business giving rise to the retroactive credit was conducted. For the years endedDecember 31, 2019 and 2018, the reinstatement of the 2018 and 2019 BTC resulted in a net benefit to our Adjusted EBITDA of$254 million and$229 million , respectively.
Bio-based diesel and feedstock price fluctuations
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Our operating results generally reflect the relationship between the price of
bio-based diesel, including credits and incentives and the price of feedstocks
used to produce bio-based diesel.
Bio-based diesel is a cleaner low carbon, renewable alternative to
petroleum-based diesel fuel and is primarily sold to the end user after it has
been blended with petroleum-based diesel fuel. Bio-based diesel prices have
historically been heavily influenced by petroleum-based diesel fuel prices.
Accordingly, bio-based diesel prices have generally been impacted by the same
factors that affect petroleum prices, such as crude oil supply and demand
balance, worldwide economic conditions, wars and other political events, OPEC
production quotas, changes in refining capacity and natural disasters.
Regulatory and legislative factors also influence the price of bio-based diesel.
LCFS credits, established by the California Low Carbon Fuel Standard regulation,
which is a rule designed to reduce greenhouse gas emissions associated with
transportation fuels used in California and the Oregon Clean Fuel Program, which
requires a 10% reduction of the average carbon intensity of Oregon's
transportation fuels from 2015 levels by 2025, has had an increasing impact on
our bio-based diesel pricing. In addition, bio-based diesel RIN pricing, a value
component that was introduced via RFS2 in July 2010 , has had a significant
impact on our bio-based diesel pricing. The following table shows for 2019, 2020
and 2021 the high and low average monthly contributory value of RINs, as
reported by OPIS, to the average B100 spot price of a gallon of biodiesel, as
reported by OPIS in terms of dollars per gallon.
[[Image Removed: regi-20211231_g4.jpg]]
At the beginning of 2021, the value of RINs, as reported by OPIS, to the average
B100 spot price of a gallon of biodiesel was $1.48 per gallon. The value of RINs
to the average B100 spot price of a gallon of biodiesel grew to $2.26 per gallon
at the end of December 2021 . It reached a high of $3.07 per gallon of biodiesel
in June 2021 and a low of $1.40 per gallon in January 2021 . D4 RIN values
trended higher throughout 2021, supported by D6 RIN values in which the D4
category can be used to satisfy an Obligated Party's D6 RIN obligation along
with an increase in feedstock pricing relative to ULSD as seen in the heating
oil to soybean oil ("HOBO") spread. During 2020, RINs were negatively impacted
by the overall decrease in demand for transportation fuels due to COVID-19,
which translated into reduced volume obligations for Obligated Parties under the
RFS. We enter into forward contracts to sell RINs and we use risk management
position limits that are intended to manage RIN exposure.
During 2021 and 2020, feedstock expense accounted for 87% and 80% of our direct
production cost, respectively. Methanol expense accounted for 3% and 3%,
respectively, and chemical catalysts for 2% and 3%, respectively of our costs of
goods sold.
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Feedstocks for bio-based diesel production, such as distillers corn oil, used
cooking oil, inedible animal fat, canola oil and soybean oil are commodities and
market prices for them will be affected by a wide range of factors unrelated to
the price of bio-based diesel and petroleum-based diesel. There are a number of
factors that influence the supply and price of our feedstocks, such as the
following: bio-based diesel demand; export demand; government policies and
subsidies; weather conditions; ethanol production; cooking habits and eating
habits; number of restaurants near collection facilities; hog/beef/poultry
supply and demand; palm oil supply; soybean meal demand and/or production, and
crop production both in the U.S. and South America . Increasing production of
bio-based diesel and, particularly recent and prospective expansion of RD
capacity, and the development of alternative fuels and renewable chemicals also
put pressure on feedstock supply and availability to the bio-based diesel
industry. The bio-based diesel industry may have difficulty procuring feedstocks
at economical prices if competition for bio-based diesel feedstocks increases
due to newly added production capacity.
During 2021 and 2020, 78% and 65% of the feedstocks used in our operations, respectively, were comprised of distillers corn oil, used cooking oil and inedible animal fats with the remainder coming from virgin vegetable oils.
The recent increase in CME Soyoil Futures price has correlated with an increase in price for all of our feedstocks. This has increased the cost of producing bio-based diesel at our refineries. The graph below illustrates the spread between the cost of producing one gallon of biodiesel made from soybean oil to the cost of producing one gallon of biodiesel made from the specified low carbon feedstock for the periodJanuary 2019 toDecember 2021 . The results were derived using assumed conversion factors for the yield of each feedstock and subtracting the cost of producing one gallon of biodiesel made from each respective low carbon feedstock from the cost of producing one gallon of biodiesel made from soybean oil. [[Image Removed: regi-20211231_g5.jpg]] (1)Used cooking oil prices ("UCO") are based on the monthly average of the daily low sales price of C.I. adjustedGulf of Mexico yellow grease as reported by The Jacobsen for the period ofJanuary 1, 2019 throughJune 30, 2019 . The prices fromJuly 1, 2019 throughDecember 31, 2021 are based on the monthly average of the daily low sales price ofGulf of Mexico used cooking oil (based on 8.5 pounds per gallon). (2)Distillers corn oil ("DCO") prices are reported as the monthly average of the daily distillers' corn oil market values delivered toIllinois as reported by The Jacobsen (based on 8.2 pounds per gallon). (3)Choice white grease ("CWG") prices are based on the monthly average of the daily low prices ofMissouri River choice white grease as reported by The Jacobsen (based on 8.0 pounds per gallon). (4)Soybean oil (crude) ("SBO") prices are based on the monthly average of the daily closing sale price of the nearby soybean oil contract as reported by CBOT (based on 7.5 pounds per gallons). Our results of operations generally will benefit when the spread between bio-based diesel prices and feedstock prices widens and will be harmed when this spread narrows. The following graph shows feedstock cost data for choice white grease and soybean oil on a per gallon basis compared to the per gallon sale price data for biodiesel, and the spread between biodiesel and each of soybean oil and choice white grease fromJanuary 2019 toDecember 2021 . 38 -------------------------------------------------------------------------------- [[Image Removed: regi-20211231_g6.jpg]] (1)Biodiesel prices are based on the monthly average of the midpoint of the high and low prices of B100 (Chicago SME) as reported by OPIS. (2)Soybean oil (crude) prices are based on the monthly average of the daily closing sale price of the nearby soybean oil contract as reported by CBOT (based on 7.5 pounds per gallon). (3)Choice white grease prices are based on the monthly average of the daily low price ofMissouri River choice white grease as reported by The Jacobsen (based on 8.0 pounds per gallon). (4)Distiller corn oil prices are based on the monthly average of the daily low price ofIllinois distillers corn oil as reported by the Jacobsen (based on 8.2 pounds per gallon) (5)Spread between biodiesel price and choice white grease price. (6)Spread between biodiesel price and soybean oil (crude) price. (7)Spread between biodiesel price and distillers corn oil price. During 2021, NY Harbor ULSD prices ranged from a low of$1.46 per gallon at the start of January to a high of$2.59 per gallon in October with an average price for the year of$2.07 per gallon. COVID Omicron variant severely shocked the market in November into mid-December, but by late December demand destruction concerns abated and employment numbers continued to improve. Despite these indications, OPEC+ has remained at its set re-supply level rather than increase supply, andU.S. shale producers continue to slowly add new oil well rigs. Commodity prices have broadly rallied and relatively higher levels of inflation have supported the broader commodity asset class. In November, the EPA released proposed RVO with a 2022 increase in biomass based diesel demand providing support for 2022 D4 RIN values. TheU.S. biodiesel prices increased significantly during 2021. The averageU.S. biodiesel price, as indicated by the Chicago SME B100 price reported by OPIS, was$5.23 per gallon for 2021. During 2021, B100 prices reached a high of$6.15 in June and a low of$3.72 in January. CBOT soybean oil prices ranged from a low of$0.42 per pound in January to a high of$0.72 per pound in June with an average price for the year of$0.58 per pound. The soybean complex rebounded from the November Omicron variant scare and ended the year higher as South American dry weather raised concerns about production andthe United States faced a lysine shortage for animal feed, creating demand for soybean meal. Choice white grease prices ranged from a low of$0.30 in January to a high of$0.64 per pound in August with an average price for the year of$0.49 per pound. 39 --------------------------------------------------------------------------------
Risk Management
The profitability of producing bio-based diesel largely depends on the spread between prices for feedstocks and bio-based diesel, including incentives, each of which is subject to fluctuations due to market factors and each of which is not significantly correlated. Adverse price movements for these commodities directly affect our operating results. We attempt to protect cash margins for our own production and our third-party trading activity by entering into risk management contracts that mitigate the impact on our margins from price volatility in feedstocks and bio-based diesel. We create offsetting positions by using a combination of forward fixed-price physical purchases and sales contracts on feedstock and bio-based diesel and risk management futures contracts, swaps and options primarily on the New York Mercantile Exchange NY Harbor ULSD and CBOT Soybean Oil; however, the extent to which we engage in risk management activities varies substantially from time to time, and from feedstock to feedstock, depending on market conditions and other factors. In making risk management decisions, we utilize research conducted by outside firms to provide additional market information in addition to our internal research and analysis. Distillers corn oil, used cooking oil, inedible animal fat, canola oil and soybean oil are the primary feedstocks we used to produce bio-based diesel in 2019, 2020 and 2021. We utilize several varieties of inedible animal fat, such as beef tallow, choice white grease and poultry fat derived from livestock. There is no established futures market for these low carbon feedstocks. The purchase prices for low carbon feedstocks are generally set on a negotiated flat price basis or spread to a prevailing market price reported by theUSDA price sheet or The Jacobsen. Our efforts to risk manage against changing prices for distillers corn oil, used cooking oil and inedible animal fat have involved entering into futures contracts, swaps or options on other commodity products, such as CBOT soybean oil and New York Mercantile Exchange NY Harbor ULSD. However, these products do not always experience the same price movements as low carbon feedstocks, making risk management for these feedstocks challenging. We manage feedstock supply risks related to bio-based diesel production in a number of ways, including, where available, through long-term supply contracts. The purchase price for soybean oil under these contracts may be indexed to prevailing CBOT soybean oil market prices with a negotiated market basis. We utilize futures contracts, swaps and options to risk manage, or lock in, the cost of portions of our future feedstock requirements generally for varying periods up to one year. Our ability to mitigate our risk of falling bio-based diesel prices is limited. We have entered into forward contracts to supply bio-based diesel. However, pricing under these forward sales contracts generally has been indexed to prevailing market prices, as fixed price contracts for long periods on acceptable terms have generally not been available. There is no established derivative market for bio-based diesel inthe United States . Our efforts to hedge against falling bio-based diesel prices generally involve entering into futures contracts, swaps and options on other commodity products, such as diesel fuel and New York Mercantile Exchange NY Harbor ULSD. However, price movements on these products are not highly correlated to price movements of bio-based diesel. We generate 1.5 to 1.7 bio-based diesel RINs for each gallon of bio-based diesel we produce and sell. We also obtain RINs from third party transactions which we hold for resale. There is no effective established futures market for bio-based diesel RINs, which severely limits the ability to risk manage the price of RINs. We enter into forward contracts to sell RINs, and we use risk management position limits to manage RIN exposure, however, pricing under those forward contracts generally has been indexed to prevailing market prices as fixed price contracts for long periods have generally not been available. As a result of our strategy, we frequently have gains or losses on derivative financial instruments that are conversely offset by losses or gains on forward fixed-price physical contracts on feedstocks and bio-based diesel or inventories. Gains and losses on derivative financial instruments are recognized each period in operating results while corresponding gains and losses on physical contracts are generally not recognized until quantities are delivered or title transfers which may be in the same or later periods. Our results of operations are impacted when there is a period mismatch of recognized gains or losses associated with the change in fair value of derivative instruments used for risk management purposes at the end of the reporting period but the purchase or sale of feedstocks or bio-based diesel has not yet occurred and thus the offsetting gain or loss will be recognized in a later accounting period. We had risk management gains of$2.4 million from our derivative financial instrument trading activity for the year endedDecember 31, 2021 , compared to risk management gains of$36.9 million for the year endedDecember 31, 2020 . Changes in the value of these futures or swap instruments are reflected in current income or loss, generally within our cost of goods sold. In general, risk management gains and losses resulting from fluctuations in feedstock and energy prices are largely offset by an inverse gain or loss on physical product purchases and sales. Increasing importance of RD RD is made from the same renewable resources as biodiesel but uses a different production process. The result is a renewable fuel that is chemically identical, and a drop-in replacement, to petroleum diesel. RD is a relatively new fuel but has 40 -------------------------------------------------------------------------------- quickly become popular because it reduces emissions and delivers strong performance. RD can also be blended with biodiesel. Our proprietary blend of RD and biodiesel which we call REG Ultra Clean® captures the best properties of the two fuels. RD has become an increasingly significant part of our business. RD carries a premium price to biodiesel as a result of a variety of factors including the ability to blend it with petroleum diesel seamlessly, better cold weather performance, and because it generates more RINs on a per gallon basis. Our RD production facility inGeismar, Louisiana generated a significant portion of our adjusted EBITDA in 2020 and in 2021. We experienced two fires at this facility in 2015 that each resulted in the plant being shut down for a certain period of time. If production at this facility were interrupted again due to a fire or a global pandemic such as COVID-19, it would have a disproportionately significant and material adverse impact on our results of operations and financial condition.
Seasonality
Our operating results are influenced by seasonal fluctuations in the demand for bio-based diesel. Our biodiesel sales tend to decrease during the winter season due to reduced blending concentrations to adjust for performance during colder weather. Colder seasonal temperatures can cause the higher cloud point biodiesel we make from inedible animal fats to become cloudy and eventually gel at a higher temperature than petroleum-based diesel, RD, or lower cloud point biodiesel made from soybean oil, canola oil or distillers corn oil. Such gelling can lead to plugged fuel filters and other fuel handling and performance problems for customers and suppliers. Reduced demand in the winter for our higher cloud point biodiesel can result in excess supply of such higher cloud point biodiesel and lower prices for such biodiesel. In addition, most of our biodiesel production facilities are located in colder Midwestern states in proximity to feedstock origination, and our costs of shipping can increase as more biodiesel is transported to warmer climate geographies during winter. To mitigate some of these seasonal fluctuations, we have upgraded ourNewton andDanville biorefineries to produce distilled biodiesel from low-cost feedstocks, which has improved cold-weather performance. RIN prices may also be subject to seasonal fluctuations. The RIN is dated for the calendar year in which it is generated, commonly referred to as the RIN vintage. Since 20% of the annual RVO of anObligated Party can be satisfied by prior year RINs, most RINs must come from biofuel produced or imported during the RVO year. As a result, RIN prices can be expected to decrease as the calendar year progresses if the RIN market is oversupplied compared to that year's RVO and increase if the market is undersupplied. See chart below for comparison between actual RIN generation and RVO level for advanced biofuel as set by the EPA. RIN Generation (Advanced Finalized RVO level for Estimated Advanced Biofuel Year Biofuel) Advanced Biofuel RVO Exempted due to SREs 2017 4.23 billion RINs 4.28 billion RINs* 0.40 billion RINs 2018 4.34 billion RINs 4.29 billion RINs* 0.32 billion RINs 2019 4.87 billion RINs 4.92 billion RINs* ** 2020 5.28 billion RINS 4.63 billion RINs*, *** ** 2021 5.67 billion RINS 5.20 billion RINs*** ** * Ethanol equivalent gallons ** Not yet determined *** Proposed amount
Industry capacity, production and imports
Our operating results are influenced by our industry's capacity and production, including in relation to RFS2 production requirements. Bio-based diesel production and/or imports, as reported by EMTS, were 2.65 billion gallons in 2019, 2.88 billion gallons in 2020, and 3.09 billion gallons in 2021. According to theU.S. Energy Information Administration , the amount of imported biodiesel gallons qualifying under RFS2 increased from 423.7 million gallons in 2019 to approximately 476.4 million gallons in 2020. The amount of imported biodiesel was at approximately 552.6 million gallons throughNovember 30, 2021 .
Components of Revenues and Expenses
Continuing Operations:
We derive revenues in our Bio-based Diesel segment from the following sources:
41
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•sales of biodiesel and RD produced at our facilities, including RINs and LCFS
credits, transportation, storage and insurance costs to the extent paid for by
our customers;
•resale of finished bio-based diesel, RD, RINs and LCFS credits acquired from third parties, and raw material feedstocks acquired from others;
•revenues from our sale of petroleum-based heating oil and ultra-low sulfur diesel, or ULSD, acquired from third parties, along with the sale of these petroleum-based products further blended with bio-based diesel;
•sales of glycerin, other co-products of the bio-based diesel production process; and
•incentive payments from federal and state governments, including the BTC, and from the USDA Advanced Biofuel Program.
We derive revenues in our Services segment from the following sources - primarily internal:
•fees received from operations management services that we provide for bio-based diesel production facilities, typically based on production rates and profitability of the managed facility; and
•amounts received for services performed by us in our role as general contractor and construction manager for upgrades and repairs to our bio-based diesel production facilities.
Cost of goods sold for our Bio-based Diesel segment includes:
•with respect to our production facilities, expenses incurred for feedstocks, catalysts and other chemicals used in the production process, leases, utilities, depreciation, salaries and other indirect expenses related to the production process, and, when required by our customers, transportation, storage and insurance; •with respect to fuel and RINs acquired from third parties, the purchase price of bio-based diesel and RINs on the spot market or under contract, and related expenses for transportation, storage, insurance, labor and other indirect expenses;
•adjustments made to reflect the lower of cost or market values of our finished goods inventory, including RINs acquired from third parties;
•expenses from the purchase of petroleum-based heating oil and ULSD acquired from third parties; and
•changes during the applicable accounting period in the market value of derivative and hedging instruments, such as exchange traded contracts, related to feedstocks and commodity fuel products.
Cost of goods sold for our Services segment includes:
•with respect to our facility management and operations activities, primarily salary expenses for the services of management employees for each facility and otherswho provide sourcing, marketing and various administrative functions; and •with respect to our construction management services activities, primarily our payments to subcontractors constructing the production facility and providing the bio-based diesel processing equipment, and, to a much lesser extent, salaries and related expenses for our employees involved in the construction process.
Selling, general and administrative expense consists of expenses generally involving corporate overhead functions at our domestic and international offices, and research and development activities.
Impairment of property, plant and equipment represents non-cash impairment charges of certain property, plant and equipment items.
Other income (expense), net is primarily comprised of the gain (loss) on debt extinguishment, gain on lease termination, interest expense, interest income and other non-operating items. Discontinued Operations: There was no activity classified as discontinued operations for the fiscal year endedDecember 31, 2021 or 2020. Net loss from discontinued operations for the fiscal year endedDecember 31, 2019 was attributable to costs that primarily relate to certain pre-existing contractual agreements and legal and professional fees related to the disposition and wind-down of our Life Sciences operations.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of 42 -------------------------------------------------------------------------------- these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, equities, revenues and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for judgments we make about the carrying values of assets and liabilities that are not readily apparent from other sources. Because these estimates can vary depending on the situation, actual results may differ from the estimates.
We believe the following critical accounting policies affect our more significant judgments used in the preparation of our consolidated financial statements:
Income Taxes
Our income tax provision, deferred income tax assets and liabilities, and liabilities for unrecognized tax benefits represent the Company's best estimate of current and future income taxes to be paid. We are subject to income taxes in theU.S. and several non-U.S. jurisdictions. Our annual effective tax rate is based on income tax laws, statutory tax rates, taxable income levels and tax planning opportunities available in various jurisdictions where we operate. These tax laws are complex and require significant judgment to determine the consolidated provision for income taxes. Changes in tax laws, statutory tax rates, and estimates of our future taxable income levels could result in actual realization of deferred taxes being materially different from amounts provided for in the consolidated financial statements. Deferred income taxes represent temporary differences between the tax and the financial reporting basis of assets and liabilities, which will result in taxable or deductible amounts in the future. Deferred tax assets also include loss carryforwards and tax credits. We assess deferred tax assets on an individual jurisdiction basis, and are regularly assessed for the likelihood of recoverability from estimated future taxable income, reversal of deferred tax liabilities and tax planning strategies. To the extent we determine that it is more likely than not a deferred income tax asset will not be realized based on an assessment of positive and negative evidence including historical earnings, future taxable income that incorporates prudent and feasible tax planning strategies, and the scheduled reversals of deferred tax assets and liabilities, a valuation allowance is established. The recoverability analysis of the deferred income tax assets and the related valuation allowances requires significant judgment and relies on estimates. Changes in tax statutes, the timing of deductibility of expenses or expectations for future performance could result in material adjustments to our valuation allowances, which would increase or decrease tax expense. The indefinite reinvestment in the earnings of non-US subsidiaries assertion is determined by management's judgment about and intentions concerning future investment in operations. Management's judgment is that we are not indefinitely reinvested in the undistributed earnings of our non-US subsidiaries atDecember 31, 2021 . The assertion regarding undistributed non-US earnings does not have a material impact on our consolidated financial statements.
Revenue Recognition
Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. We have generally a single performance obligation in our arrangements with customers. We believe for most of our contracts with customers, control is transferred at a point in time, typically upon delivery to the customers. When we perform shipping and handling activities after the transfer of control to the customers (e.g., when control transfers prior to delivery), they are considered as fulfillment activities, and accordingly, the costs are accrued for when the related revenue is recognized. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. We generally expense sales commissions when incurred. We record these costs within selling, general and administrative expenses. Revenues associated with governmental incentive programs are recognized when the amount to be received is determinable, collectability is reasonably assured and the sale of product giving rise to the incentive has been recognized. Our revenue from governmental incentive programs is generally comprised of amounts received from the USDA Advanced Biofuel Program, or the USDA Program, and the biodiesel tax credit. In connection with the biodiesel tax credit, we file a claim with the Internal Revenue Service for a refund of excise taxes each week for gallons we have blended to B99.9 and sold. The biodiesel tax credit provided a$1.00 refundable tax credit per gallon. 43 --------------------------------------------------------------------------------
Results of Operations
Fiscal years ended
Set forth below is a summary of certain financial information (dollars in
thousands and gallons in millions except per gallon data) for the periods
indicated:
Twelve Months Ended
December 31,
2021 2020
Gallons sold 621.3 650.5
Average bio-based diesel price per gallon $ 4.46 $ 2.91
Revenues $ 3,244,050 $ 2,137,148
Costs of goods sold 2,874,157 1,868,794
Gross profit 369,893 268,354
Selling, general and administrative expenses 140,511 119,302
Gain on disposal of property, plant and equipment (1,462)
(205)
Impairment of property, plant and equipment 7,359
22,404
Income from operations 223,485
126,853
Other income (expense), net (24,145)
1,889
Income tax benefit (expense) 14,479 (5,929) Net income 213,819 122,813 Effects of participating share-based awards (2,128)
(2,398)
Net income available to common stockholders
Results of Operations: Revenues. Our total revenues increased$1.1 billion , or 52%, to$3.2 billion for the year endedDecember 31, 2021 , from$2.1 billion for the year endedDecember 31, 2020 . The significant increase in revenue was primarily attributable to a substantial increase in the average bio-based diesel price per gallon. In 2021, ULSD prices averaged$2.07 per gallon, compared to$1.25 per gallon in 2020. The significant increase in ULSD prices resulted from general market optimism and improving demand stemming from the easing of lockdown measures inthe United States and internationally, particularly when compared to 2020 where prices hit historical lows due to the onset of the COVID-19 pandemic and strict lockdowns and only slowly recovered. RIN values trended higher throughout 2021 along with an increase in feedstock pricing relative to ULSD values as seen in the heating oil to soybean oil spread. As a result of these factors, our average selling price significantly increased by$1.55 , or 53%, in 2021 compared to 2020. Sales of LCFS credits and separated RINs were$158.9 million and$355.5 million for the year endedDecember 31, 2021 compared to$131.3 million and$129.7 million for the year endedDecember 31, 2020 . The increase in total revenues was partially offset by a decrease in total gallons sold of 29.2 million gallons, or 4%, from 2021 compared to 2020, as a result of our focus on product mix and optimization of gallons sold. The increase in the average sales price contributed to a$1.0 billion increase in revenues for the year endedDecember 31, 2021 , when applied to the number of gallons sold in 2020. The increase in RIN prices also positively affected separated RIN sales resulting in a revenue increase of$225.8 million , or an increase of 174% for the year endedDecember 31, 2021 , compared to 2020. The decrease in gallons sold for the year endedDecember 31, 2021 , accounted for a revenue decrease of$130.2 million , using the average selling price for bio-based diesel for the current period. Also negatively affecting revenues was the$14.5 million decrease in government incentives revenue in 2021, caused by lower BTC revenues due to lower gallons sold. Costs of goods sold. Our costs of goods sold increased$1.0 billion , or 54%, to$2.9 billion for the year endedDecember 31, 2021 , from$1.9 billion for the year endedDecember 31, 2020 . Costs of goods sold as a percentage of revenues were 89% and 87% for the years endedDecember 31, 2021 and 2020, respectively. The increase in costs of goods sold was primarily driven by significantly higher feedstock costs in the year endedDecember 31, 2021 compared to 2020, as described below. The increase was also driven by lower risk management gains of$2.4 million for the year endedDecember 31, 2021 , compared to gains of$36.9 million in 2020. We experienced significantly higher costs across all of our feedstocks in the year endedDecember 31, 2021 . Average prices for low carbon feedstocks used in our production process for the years endedDecember 31, 2021 andDecember 31, 2020 , were$0.52 and$0.29 per pound, respectively. Average soybean oil costs for the years endedDecember 31, 2021 andDecember 31, 2020 were$0.60 and$0.32 per pound, respectively. Average canola oil costs for the years endedDecember 31 , 44 -------------------------------------------------------------------------------- 2021 andDecember 31, 2020 were$0.62 and$0.32 per pound, respectively. Average distillers corn oil costs were$0.52 and$0.27 per pound, respectively, for the years endedDecember 31, 2021 andDecember 31, 2020 . Selling, general and administrative expenses. Our selling, general and administrative, or SG&A, expenses increased$21.2 million , or 18%, to$140.5 million for the year endedDecember 31, 2021 , compared to$119.3 million for the year endedDecember 31, 2020 . As a percentage of revenues, our SG&A expenses were 4.3% and 5.6% for 2021 and 2020, respectively. The$21.2 million increase year over year resulted primarily from higher employee related compensation and benefits and legal and professional expenses. Impairment of property, plant and equipment. In 2021, we recorded a property, plant and equipment impairment of approximately$7.4 million , related to certain biodiesel property, plant and equipment as the carrying amounts of these assets were deemed not recoverable given the assets' deteriorating physical conditions identified during the period. During 2020 we recorded$22.4 million , of which$19.0 million relates to certain equipment that we determined will not be used in future RD production expansions. The remaining impairment was related to impairment charges against certain biodiesel property, plant and equipment as the carrying amounts of these assets were deemed not recoverable given the assets' economic obsolescence identified during the period. Other income (expense), net. Other expense was$24.1 million for the year endedDecember 31, 2021 , compared to other income of$1.9 million for the year endedDecember 31, 2020 . Other income (expense) is primarily comprised of interest expense, interest income, gain (loss) on debt extinguishment, gain on termination, and other non-operating items. In 2021, we had interest expense of$21.9 million primarily due to the issuance of our Green Notes, compared to interest expense of$7.9 million for the same period in 2020. We also had a$4.4 million loss on debt extinguishment and in 2021 compared to a$1.8 million gain on debt extinguishment in the same period in 2020. We had a gain on lease termination for the year ended ofDecember 31, 2020 of$4.5 million . Income tax benefit (expense). Income tax benefit recorded during the year endedDecember 31, 2021 was$14.5 million , compared to an income tax expense of$5.9 million for the year endedDecember 31, 2020 , the change for which is primarily resulting from the$6.1 million release of a valuation allowance in a non-US jurisdiction due to a change in judgement about our ability to realize the benefit of deferred tax assets, and the$13.1 million release of a valuation allowance in the US due to the recording of deferred tax liabilities in the acquisition of Amber Resources that will offset future deferred tax assets. AtDecember 31, 2021 andDecember 31, 2020 , we had net deferred income tax assets of approximately$394.4 million and$381.2 million , respectively, with a valuation allowance of$392.9 million and$387.8 million , respectively. As a result, our effective tax rate was (7.3)% and 4.6% for the years endedDecember 31, 2021 and 2020, respectively. Effects of participating share-based awards. Effects of participating restricted stock units was$2.1 million and$2.4 million for the years endedDecember 31, 2021 and 2020, respectively.
Fiscal years ended
Set forth below is a summary of certain financial information (dollars in thousands and gallons in millions except per gallon data) for the periods indicated:
45
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Twelve Months Ended
December 31,
2020 2019
Gallons sold 650.5 700.3
Average bio-based diesel price per gallon (ASP with BTC net
benefit allocated to the corresponding period of
$
2.91
Revenues from continuing operations$ 2,137,148 $ 2,625,216 Costs of goods sold from continuing operations 1,868,794 2,111,324 Gross profit from continuing operations 268,354 513,892 Selling, general and administrative expenses 119,302 118,209 Gain on disposal of property, plant and equipment (205) - Impairment of property, plant and equipment 22,404 12,208 Income from operations 126,853 383,475 Other income (expense), net 1,889 (11,550) Income tax benefit (expense) (5,929) 570 Net income from continuing operations 122,813 372,495 Net loss from discontinued operations - (9,667) Net income 122,813 362,828
Effects of participating share-based awards on continuing operations
(2,398) (8,238)
Net income from continuing operations available to common stockholders
$ 120,415 $ 364,257 Net loss from discontinued operations available to common stockholders $ -$ (9,667) Continuing Operations: Revenues. Our total revenues decreased$488.1 million , or 19%, to$2.1 billion for the year endedDecember 31, 2020 , from$2.6 billion for the year endedDecember 31, 2019 . Due to the retroactive reinstatement of the BTC inDecember 2019 for the 2018-2019 periods, in the fourth quarter of 2019, we recognized$490.6 million of BTC government incentives revenue net of sharing with customers,$227.9 million of which was attributable to sales in 2018 and$262.7 million of which was attributable to sales in 2019. In contrast, 2020 total revenues only included the 2020 BTC. The decrease in total revenues was also driven by a decrease in total gallons sold of 49.8 million gallons, or 7%, and a decrease in average selling price including the BTC allocation to the period in which the gallons were sold of$0.30 . Sales of LCFS and separated RINs were$131.3 million and$129.7 million for the year endedDecember 31, 2020 as compared to$106.5 million and$98.3 million for the year endedDecember 31, 2019 offset the overall decrease in biomass-based diesel revenues in 2020. Biomass-based diesel revenues including government incentives decreased$487.8 million , or 19%, to$2.1 billion during the year endedDecember 31, 2020 , from$2.6 billion for the year endedDecember 31, 2019 . The decrease in revenues was largely attributable to the recognition in the fourth quarter of 2019 of BTC revenue relating to operations in both 2019 and 2018, while 2020 only included BTC revenue related to 2020 operations. Gallons sold decreased 49.8 million, or 7%, to 650.5 million during the year endedDecember 31, 2020 , compared to 700.3 million during the year endedDecember 31, 2019 . The decrease in gallons sold for the year endedDecember 31, 2020 accounted for a revenue decrease of$144.9 million using 2020 average sales pricing. Our average biomass-based diesel sales price per gallon including the BTC net benefits decreased$0.71 , or 20%, to$2.91 during the year endedDecember 31, 2020 compared to$3.62 during the year endedDecember 31, 2019 . When allocating the BTC net benefits to the period in which the associated gallons were sold, our average biomass-based diesel sales price decreased$0.30 , or 9%, compared to$3.23 for 2019. This decrease was mainly due to the lower energy prices in 2020 as a result of the COVID-19 pandemic andOPEC production policies. The decrease in average sales price with allocated BTC net benefits from 2020 to 2019 contributed to a$210.1 million revenue decrease when applied to the number of gallons sold during 2019. Costs of goods sold. Our costs of goods sold decreased$242.5 million , or 11%, to$1.9 billion for the year endedDecember 31, 2020 , from$2.1 billion for the year endedDecember 31, 2019 . Costs of goods sold as a percentage of revenues were 87% and 80% for the years endedDecember 31, 2020 and 2019, respectively. Biomass-based diesel costs of goods sold as a percentage of revenues increased in 2020 mainly due to a 7% decrease in gallons sold as well as an increase in average costs for feedstocks. Average low carbon feedstocks prices for the years ended 46 --------------------------------------------------------------------------------December 31, 2020 andDecember 31, 2019 , were$0.29 and$0.26 per pound, respectively. Average soybean oil costs for the years endedDecember 31, 2020 andDecember 31, 2019 were$0.32 and$0.31 per pound. We recorded risk management gains of$36.9 million from our derivative financial instrument activity in 2020, compared to risk management losses of$28.9 million for 2019, contributing to a reduction in the overall costs of goods sold. Our risk management gains and losses are directly impacted by any volatility in the energy and commodities market. Selling, general and administrative expenses. Our selling, general and administrative, or SG&A, expenses increased$1.1 million , or 1%, to$119.3 million for the year endedDecember 31, 2020 , compared to$118.2 million for the year endedDecember 31, 2019 . As a percentage of revenues, our SG&A expenses were 5.6% and 4.5% for 2020 and 2019, respectively. The increase year over year was driven largely by lower total revenues in 2020. Impairment of property, plant and equipment. We recorded a property, plant and equipment impairment in 2020 of approximately$22.4 million , of which$19.0 million relates to certain equipment that we determined will not be used in future RD production expansions. In addition, we recorded impairment charges against certain biodiesel property, plant and equipment as the carrying amounts of these assets were deemed not recoverable given the assets' economic obsolescence identified during the period. During 2019, we recorded a$12.2 million impairment charge mainly due to the closure of theNew Boston refinery . Other income (expense), net. Other income was$1.9 million for the year endedDecember 31, 2020 , compared to other expense of$11.6 million for the year endedDecember 31, 2019 . Other income (expense) is primarily comprised of interest expense, gain on debt extinguishment, gain on lease termination, and other non-operating items. In 2020, we had a gain on lease termination of$4.5 million related to the termination of a terminal lease at our non-operationalNew Orleans facility compared to the absence of lease terminations in 2019. We also had a$1.8 million gain on debt extinguishment and in 2020 compared to a$0.5 million gain on debt extinguishment, a difference of$1.3 million . The$14.3 million net increase in other income (expense) in 2020 was primarily due to the items noted above as well as lower interest expense of$5.3 million between the periods. Income tax benefit (expense). Income tax expense recorded during the year endedDecember 31, 2020 was$5.9 million , compared to income tax benefit of$0.6 million for the year endedDecember 31, 2019 , with the increase in expense primarily resulting from additional tax expense incurred in connection with the repurchase of a greater amount of our 2016 convertible debt in 2020 compared to repurchases in 2019, and taxable profits in our foreign operations. AtDecember 31, 2020 and 2019, we had net deferred income tax assets of approximately$381.2 million and$343.9 million , respectively, with a valuation allowance of$387.8 million and$350.9 million , respectively. As a result, our effective tax rate was 4.6% and 0.2% for the years endedDecember 31, 2020 and 2019, respectively. Effects of participating share-based awards. Effects of participating restricted stock units was$2.4 million and$8.2 million for the years endedDecember 31, 2020 and 2019, respectively. Discontinued Operations: For the year endedDecember 31, 2020 , there was no activity classified as discontinued operations. Net loss from discontinued operations for the year endedDecember 31, 2019 of$9.7 million was attributable to the research and development activities at theREG Life Sciences business and costs to sell the business.
Non - GAAP Financial Measures
Adjusted EBITDA
Earnings before interest, taxes, depreciation and amortization ("EBITDA") and
Adjusted EBITDA are not measures of financial performance under GAAP. We use
EBITDA and EBITDA adjusted for certain additional items, identified in the table
below, or Adjusted EBITDA, as a supplemental performance measure. We present
EBITDA and Adjusted EBITDA because we believe they assist investors in analyzing
our performance across reporting periods on a consistent basis by excluding
items that we do not believe are indicative of our core operating performance.
In addition, we use Adjusted EBITDA to evaluate, assess and benchmark our
financial performance on a consistent and a comparable basis and as a factor in
determining incentive compensation for our executives.
47
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Year ended Year ended
(In thousands) December 31 , December 31 ,
1Q-2021 2Q-2021 3Q-2021 4Q-2021 2021 1Q-2020 2Q-2020 3Q-2020 4Q-2020 2020
Net income (loss) $ 39,222 $ 79,516 $ 42,467 $ 52,614 $ 213,819 $ 74,667 $ (1,685) $ 22,663 $ 27,168 $ 122,813
Adjustments:
Interest expense 1,117 4,271 8,619 7,942 21,949 2,946 1,664 1,544 1,757 7,911
Income tax (benefit)
expense 1,633 2,250 652 (19,014) (14,479) 1,331 1,630 1,046 1,922 5,929
Depreciation 10,915 11,088 11,098 10,329 43,430 8,934 9,103 9,388 9,890 37,315
Amortization of intangible
and other assets 671 918 876 1,010 3,475 353 318 591 510 1,772
EBITDA 53,558 98,043 63,712 52,881 268,194 88,231 11,030 35,232 41,247 175,740
Gain on sale of assets - (39) - (1,423) (1,462) - (187) - (18) (205)
(Gain) loss on debt
extinguishment 1,922 2,527 - - 4,449 (1,172) (619) (18) - (1,809)
Gain on lease termination - - - - - - (4,459) - - (4,459)
Interest income (652) (399) (424) (592) (2,067) - (550) (777) (898) (2,225)
Other (income) expense,
net (1,440) (543) (258) 2,055 (186) 304 (1,665) (817) 870 (1,308)
Impairment of assets 822 916 3,498 2,123 7,359 - - 19,256 3,148 22,404
Executive severance - 663 - - 663 - - - - -
Stock compensation expense 1,844 1,962 1,964 2,227 7,997 1,367 2,611 1,811 1,909 7,698
Adjusted EBITDA $ 56,054 $ 103,130 $ 68,492 $ 57,271 $ 284,947 $ 88,730 $ 6,161 $ 54,687 $ 46,258 $ 195,836
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 our
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
our results as reported under GAAP. Some of these limitations are:
•Adjusted EBITDA does not reflect our cash expenditures or the impact of certain cash charges that we consider not to be an indication of our ongoing operations;
•Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital requirements;
•Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our 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 our 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 our industry, may calculate these measures differently than we do, limiting their usefulness as a comparative measure.
Liquidity and Capital Resources
Our principal sources of liquidity are existing cash balances, marketable securities, cash generated by our operations and our ability to borrow under our revolving credit facilities, or such other credit facilities as we may be able to obtain from time to time. Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness and making capital expenditures. Our cash requirements will also depend on capital expenditures in connection with future facility projects, such as our announced capacity expansion of ourGeismar, Louisiana biorefinery and expenditures in connection with future acquisitions of assets or businesses that are complementary to our operations or part of our growth strategies. OnMarch 19, 2021 , we completed an equity offering pursuant to which we sold 5,750,000 shares of common stock to various underwriters at a price of$67.00 per share before underwriting discounts and commissions. The net proceeds from the offering were$365.3 million . We currently intend to use the net proceeds from this offering for working capital and other general corporate purposes, which may include the repayment of our existing indebtedness and the funding of capital expenditures, including capital expenditures related to the improvements and expansion of ourGeismar, Louisiana biorefinery. 48 -------------------------------------------------------------------------------- OnMay 20, 2021 , we completed the sale and issuance of$550.0 million aggregate principal amount of our Green Notes. We recorded$14.6 million in legal, professional and underwriting fees related to the issuance of the Green Notes. We currently intend to use the net proceeds from the Green Notes for capital expenditures related to the improvements and expansion of ourGeismar, Louisiana biorefinery. Sources of liquidity. AtDecember 31, 2021 and 2020, the total of our cash and cash equivalents and marketable securities was$956.2 million and$354.0 million , respectively. AtDecember 31, 2021 , we had total assets of$2,558.9 million , compared to$1,461.4 million atDecember 31, 2020 . AtDecember 31, 2021 , we had term debt before debt issuance costs of$550.0 million , compared to term debt before debt issuance costs of$67.0 million atDecember 31, 2020 . Our debt has terms which may subject us to various financial covenants. We were in compliance with all financial covenants associated with the borrowings as ofDecember 31, 2021 .
Our term debt (in thousands) is as follows:
December 31, 2021 2020 5.875% Senior Secured Green Notes, due 2028$ 550,000
$ -
4.00% Convertible Senior Notes,
- 47,057
REG Ralston term loan, variable interest rate of LIBOR plus
2.25%, due in
- 13,241
- 6,665
Other - 14
Total debt before debt issuance costs $ 550,000 2036 Convertible Senior Notes
In the first half of 2021, we received notices of conversions related to the 2036 Convertible Senior Note in total principal amounts of$59.6 million . We elected to settle the respective principal balance of$59.6 million in cash and settle the conversion premium by issuing 4,684,263 shares of common stock from treasury stock. The 2036 Convertible Senior Notes were fully converted as ofJune 2021 and all obligations thereto have been satisfied and discharged. During 2020, we used the remaining$67.8 million under our 2019 Program to repurchase$27.8 million principal amount and approximately$8.1 million under our 2020 Program to repurchase$2.2 million principal amount of the 2036 Convertible Senior Notes, reflecting the conversion premium, after tax impact, of$52.7 million and gains on debt extinguishment of$1.8 million .
In addition, we had revolving debt (in thousands) as follows:
2021 2020
Amount outstanding under lines of credit $ - $ -
Maximum available to be borrowed under lines of credit
OnSeptember 30, 2021 , the Company amended the M&L and Services Revolver in order to increase the maximum commitment under the M&L and Services Revolver from$150.0 million to$250.0 million subject to an accordion feature which allows the subsidiary borrowers to request commitments for additional revolving loans in an aggregate amount not to exceed$50.0 million (prior toSeptember 30, 2021 ) and$100.0 million (on and afterSeptember 30, 2021 ). Availability under this credit agreement is subject to a borrowing base and if availability is less than 10% of the maximum commitment, ($15.0 million prior to giving effect to the amendment and$25.0 million after giving effect to the amendment), then the subsidiary borrowers are required to maintain a fixed charge coverage ratio of at least 1.0 to 1.0. Prior to giving effect to this amendment, as ofDecember 31, 2020 , the subsidiary borrowers would not have been able to satisfy that fixed charge coverage ratio if availability was less than 10% of the maximum commitment.
Cash flow. The following table presents information regarding our cash flows and
cash, cash equivalents and restricted cash for the years ended
49
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Year Ended
December 31,
2021 2020 2019
(in thousands)
Cash provided from (used in) operations $ (16,241) $ 543,430 $ (46,708)
Cash provided from (used in) investing activities (369,309) (333,910) 5,670
Cash provided from (used in) financing activities 799,626 (175,114) (32,052)
Net change in cash, cash equivalents and restricted cash
414,076 34,406 (73,090)
Cash, cash equivalents and restricted cash end of
period $ 501,871 $
88,218
In 2021, we used$16.2 million of cash for operations, compared to$543.4 million provided from operations in 2020 and$46.7 million used in operations in 2019. Cash used in operations for 2021 was primarily driven by a$235.5 million build in inventory, compared to a build of$47.9 million in 2020, and a draw of inventory of$7.2 million in 2019. The cash used in operations in 2021 was partially offset by net income from continuing operations of$213.8 million , compared to net income of$122.8 million in 2020, and$372.5 million in 2019. In 2020, cash provided from operating activities was impacted by a reduction of accounts receivables of$715.7 million largely due to the receipt of cash related to the 2018 and 2019 BTC, compared to the large accounts receivable build of$786.2 million in 2019, primarily due to the receivables related to the 2018 and 2019 BTC. In 2020, the cash provided from operations was partially offset by a reduction of accounts payable of$266.7 million , also largely related to the payments to vendors and customers for BTC sharing agreements. This was compared to the large build of accounts payable of$279.4 million in 2019 related to the sharing agreements for the BTC. We had cash used in investing activities of$369.3 million ,$333.9 million and cash provided from investing activities of$5.7 million for 2021, 2020 and 2019, respectively. In 2021, the cash used was due primarily to the net marketable securities purchases of$193.3 million , compared to net purchases of$270.5 million in 2020 and net maturities of$51.1 million . Cash paid for property plant and equipment of$99.5 million in 2021 compared to$63.6 million in 2020, and$42.5 million in 2019. Contributed to the cash used in 2021 was the cash paid for the acquisition of Amber Resources of$76.5 million , compared to no cash paid for acquisitions for 2020 or 2019. We had net cash flows provided from financing activities of$799.6 million in 2021, cash used in financing activities of$175.1 million and$32.1 million for 2020 and 2019, respectively. Cash provided from financing activities in 2021 was primarily due to cash received from the net proceeds of$535.4 million from the Green Notes issuance inMay 2021 and$365.3 million from the equity offering inMarch 2021 . Partially offsetting the cash flows provided from financing activities in 2021 and the primary driver for the cash used in financing activities for 2020 and 2019 was repayments on debt of$78.0 million in 2021,$92.3 million in 2020 and$80.4 million in 2019. In 2020, cash used in financing activities was also driven by the net repayments on revolving lines of credit of$77.0 million compared to net borrowings on the lines of credit in 2019 of$62.9 million . Capital expenditures: During 2021, our capital expenditures were$99.5 million involving various plant optimization projects and theGeismar improvement and expansion. During 2020, our total capital expenditures were$63.6 million involving various project, the majority of which were at theEmden (Germany ),Seneca , andGeismar facilities. InOctober 2020 , we announced that we plan to expand the effective capacity of ourGeismar, Louisiana biorefinery. TheGeismar project involves both an improvement project for the existing operations at the site and capacity expansion. TheGeismar project is expected to take total annual site production capacity from 90 million to 340 million gallons, enhance existing operations and improve operational reliability and logistics. The improvement and expansion project is expected to be mechanically complete in 2023 with full operations in early 2024. We have received all required permits to proceed with construction and officially broke ground to start the construction process in the fourth quarter of 2021. The capital cost for theGeismar project is estimated to be$950 million , which is financed through a combination of cash on hand and marketable securities resulting from our offerings of common stock that closed inMarch 2021 and proceeds from our issuance of Green Notes that closed inMay 2021 or from borrowings under our credit facilities. In connection with the planned improvements and expansion, we have entered into construction and marine terminal lease agreements with total commitments as ofDecember 31, 2021 of$500.9 million . There can be no guarantee that we will be able to increase the capacity of our biorefinery atGeismar, Louisiana on time, at our estimated budget, or at all. The improvements and expansion are subject to a number of conditions and risks. We estimate that the capital spending for the project will be approximately 15% in 2021, 45% in 2022, with the remainder of spend slated for 2023. At the end ofDecember 2021 , almost all of the long lead equipment for the project had been purchased. In addition, our budgeted capital expenditures for all other projects for 2022 are approximately$90.0 million , which includes investments in low cost, high return projects, environmental, health and safety projects and growth projects. 50 --------------------------------------------------------------------------------
Contractual Obligations:
See Notes 10, 11, 13, and 18 of Item 8 for additional detail related to our contractual obligations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Recent Accounting Pronouncements
For a discussion of new accounting pronouncements affecting us, refer to "Note 2 - Summary of Significant Accounting Policies" to our consolidated financial statements.
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