Fuel Forward: The Digest’s 2019 Enhanced Multi-Slide Guide to Renewable Energy Group

C. J. Warner: Thanks, Chad. Please all now refer to Slide 22 for our guidance. For the second quarter of 2019, we expect ongoing strong underlying performance, with gallons sold in the range of 190 million to 210 million gallons, which is a 10% to 22% increase over the second quarter of 2018. This includes the Geismar planned maintenance turnaround scheduled to take place during May. We do anticipate the margin environment to continue to be challenging in the second quarter due to lower RIN prices in the absence of greater certainty on the federal regulatory front.

In addition, as we noted in our full-year 2018 earnings call back in March, the change in LCFS compliance rules result in the quarterly credit validation period being extended from a 3-month deferral to a 4-month deferral. The net effect of this change is that what we normally would have booked in the second quarter of this year is being pushed into the third quarter. All subsequent quarters will begin to book quarterly at the 4-month deferral period. The resulting one-time impact of the LCFS deferral will occur in the second quarter and is estimated to be in the range of $25 million to $30 million. Recall this is a timing item and not an actual reduction in value.

With that in mind, guidance for adjusted EBITDA for the second quarter is in the range of negative $25 million to negative $10 million. We estimate that second quarter adjusted EBITDA would increase by approximately $63 million if the BTC is reinstated on prior terms for 2019. Therefore, adjusted EBITDA would be in the range of $38 million to $53 million.

To put these numbers in context and to more closely reflect actual performance, we have created a pro forma table on Slide 22. If we add back the one-time LCFS deferral to our guidance, adjusted EBITDA for the quarter would be in the range of breakeven to $20 million. Furthermore, if the BTC is reinstated, our second quarter pro forma adjusted EBITDA with the LCFS deferral added back would be in the range of $63 million to $83 million. This estimate for the second quarter is based on actual performance through last week and takes into account existing forward contracts expected to be fulfilled and existing spot margins through the end of the quarter. Any changes to the ULSD prices, margins, RINs or LCFS credit values, or a level of market volatility through the end of the quarter, could affect actual results.

We have included $10 million of risk management losses in our guidance, which reflects our estimate for the quarter as of April 24 based on the ULSD forward curve. Our full year guidance is increasing slightly with the improved underlying performance. We now estimate that gallons sold will be in the range of 750 million to 775 million and gallons produced to be in the range of 520 million to 550 million.