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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549   
Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-35397
RENEWABLE ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)
   
Delaware
 
   
26-4785427
(State of other jurisdiction of
incorporation or organization)
 
   
(I.R.S. Employer
Identification No.)
   
 
   
416 South Bell Avenue
Ames
Iowa
50010
(Address of principal executive offices)
 
   
(Zip code)
(515) 239-8000
(Registrant’s telephone number, including area code)    

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
REGI
NASDAQ Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
   
Large accelerated filer
   
Accelerated filer
x
 
 
 
 
Non-accelerated filer
   
Smaller reporting company
 
 
 
 
 
 
 
 
Emerging growth company




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No   x

As of April 30, 2020, the registrant had 39,048,673 shares of Common Stock outstanding.




TABLE OF CONTENTS
 
 
Page
PART I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
 
 
PART II
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
 
 


3



FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations of future operations, are forward-looking statements. The words "believe," "may," "will," "would," "might," "could," "estimate," "continue," "anticipate," "design," "intend," "plan," "seek," "potential," "expect" and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives, and financial needs. Forward-looking statements include, but are not limited to, statements about:
our financial performance, including expectations regarding revenues, cost of revenues and operating expenses;
changes in governmental programs, policymaking and requirements or encouraged use of biofuels, including RFS2 in the United States, renewable fuel policies in Canada and Europe, and state level programs such as California's Low Carbon Fuel Standard;
our security repurchase programs;
the availability, future price and volatility of feedstocks and other inputs;
the expansion of our distribution network and transportation costs;
the future price and volatility of petroleum;
our liquidity and working capital requirements;
our leasing practices;
anticipated trends and challenges in our business and competition in the markets in which we operate;
our ability to successfully implement our acquisition strategy and integration strategy;
our ability to protect proprietary technology and trade secrets;
our risk management activities;
the industry’s capacity, production and imports;
product performance, in cold weather or otherwise;
seasonal fluctuations in our business;
our current products as well as products we are developing;
our ability to retain and recruit key personnel;
our indebtedness and our compliance, or failure to comply, with restrictive and financial covenants in our various debt agreements;
critical accounting policies and estimates, the impact or anticipated impact of recent accounting pronouncements, guidance or changes in accounting principles and future recognition of impairments for the fair value of assets, including goodwill, financial instruments, intangible assets and other assets acquired;
operating risks and the impact of disruptions to our business including, but not limited to, closures at our plant located in Geismar, Louisiana and the COVID-19 pandemic; and
assumptions underlying or relating to any of the foregoing.
These statements reflect current views with respect to future events and are based on assumptions and subject to risks and uncertainties. We note that a variety of factors, including but not limited to those Risk Factors discussed in Item 1A of Part II of this report, could cause actual results and experience to differ materially from the anticipated results or expectations expressed in our forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Forward-looking statements contained in this report present management’s views only as of the date of this report. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our 10-Q and 8-K reports filed with the Securities and Exchange Commission after the date hereof.

4



PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL INFORMATION
RENEWABLE ENERGY GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share amounts)
   
March 31,
2020
 
December 31,
2019
ASSETS
   

 
   

CURRENT ASSETS:
   

 
   

Cash and cash equivalents
$
188,550

 
$
50,436

Accounts receivable (net of allowance for doubtful accounts of $1,455 and $1,001, respectively)
754,524

 
858,922

Inventories
206,305

 
161,429

Prepaid expenses and other assets
57,390

 
35,473

Restricted cash
3,000

 
3,000

Total current assets
1,209,769

 
1,109,260

Property, plant and equipment, net
592,951

 
584,577

Right of use assets
33,720

 
36,899

Goodwill
16,080

 
16,080

Intangible assets, net
11,665

 
12,018

Other assets
26,154

 
26,515

TOTAL ASSETS
$
1,890,339

 
$
1,785,349

LIABILITIES AND EQUITY
   

 
   

CURRENT LIABILITIES:
   

 
   

Lines of credit
$
159,746

 
$
76,990

Current maturities of long-term debt
64,367

 
77,131

Current maturities of operating lease obligations
15,067

 
15,690

Accounts payable
373,941

 
369,213

Accrued expenses and other liabilities
18,676

 
40,776

Deferred revenue
10,723

 
8,620

Total current liabilities
642,520

 
588,420

Deferred income taxes
7,266

 
6,975

Long-term debt (net of debt issuance costs of $2,353 and $2,783, respectively)
16,808

 
26,130

Long-term operating lease obligations
27,795

 
30,413

Other liabilities
5,027

 
1,505

Total liabilities
699,416

 
653,443

COMMITMENTS AND CONTINGENCIES


 


EQUITY:
   

 
   

Common stock ($.0001 par value; 300,000,000 shares authorized; 39,021,927 and 38,967,079 shares outstanding, respectively)
5

 
5

Common stock—additional paid-in-capital
422,124

 
438,591

Retained earnings
877,645

 
800,792

Accumulated other comprehensive income
(2,545
)
 
(1,994
)
Treasury stock (10,443,370 and 10,403,798 shares outstanding, respectively)
(106,306
)
 
(105,488
)
Total equity
1,190,923

 
1,131,906

TOTAL LIABILITIES AND EQUITY
$
1,890,339

 
$
1,785,349

See notes to condensed consolidated financial statements.

1



RENEWABLE ENERGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)
 
Three months ended
   
March 31, 2020
 
March 31, 2019
REVENUES:
   
 
   
Biomass-based diesel sales
$
406,398

 
$
477,669

Biomass-based diesel government incentives
68,159

 
468

   
474,557

 
478,137

Other revenue
112

 
72

   
474,669

 
478,209

COSTS OF GOODS SOLD:
   
 
   
Biomass-based diesel
367,326

 
490,998

Other costs of goods sold
70

 
3

   
367,396

 
491,001

GROSS PROFIT (LOSS)
107,273

 
(12,792
)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
27,485

 
25,354

INCOME (LOSS) FROM OPERATIONS
79,788

 
(38,146
)
OTHER INCOME (EXPENSE), NET:
   
 
   
Change in fair value of contingent consideration

 
(304
)
Gain (loss) on debt extinguishment
1,172

 
(2
)
Other income (loss)
(304
)
 
854

Interest expense
(2,472
)
 
(4,219
)
   
(1,604
)
 
(3,671
)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
78,184

 
(41,817
)
INCOME TAX BENEFIT (EXPENSE)
(1,331
)
 
430

NET INCOME (LOSS) FROM CONTINUING OPERATIONS
76,853

 
(41,387
)
NET LOSS ON DISCONTINUED OPERATIONS

 
(2,017
)
NET INCOME (LOSS)
$
76,853

 
$
(43,404
)
 
 
 
 
LESS—EFFECT OF PARTICIPATING SHARE-BASED AWARDS ON CONTINUING OPERATIONS
1,553

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS
$
75,300

 
$
(41,387
)
NET LOSS FROM DISCONTINUED OPERATIONS AVAILABLE TO COMMON STOCKHOLDERS
$

 
$
(2,017
)
Basic net income (loss) per share available to common stockholders:
   
 
   
Continuing operations
$
1.93

 
$
(1.11
)
Discontinued operations
$

 
$
(0.05
)
Net income (loss) per share
$
1.93

 
$
(1.16
)
Diluted net income (loss) per share available to common stockholders:
 
 
 
Continuing operations
$
1.72

 
$
(1.11
)
Discontinued operations
$

 
$
(0.05
)
Net income (loss) per share
$
1.72

 
$
(1.16
)
Weighted-average shares used to compute basic net income (loss) per share available to common stockholders:
   
 
   
Basic
38,979,057

 
37,353,352

Weighted-average shares used to compute diluted net income (loss) per share available to common stockholders:
 
 
 
Continuing operations
43,692,155

 
37,353,352

Discontinued operations

 
37,353,352

Net income (loss)
43,692,155

 
37,353,352

See notes to condensed consolidated financial statements.

2



RENEWABLE ENERGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in thousands)
 
Three months ended
 
March 31, 2020
 
March 31, 2019
Net income (loss)
$
76,853

 
$
(43,404
)
Unrealized gains on marketable securities, net of taxes of $0 and $0, respectively

 
(1
)
Foreign currency translation adjustments
(551
)
 
(361
)
Other comprehensive loss
(551
)
 
(362
)
Comprehensive income (loss)
$
76,302

 
$
(43,766
)
See notes to condensed consolidated financial statements.


3



RENEWABLE ENERGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
(in thousands, except share amounts)
   
Company Stockholders’ Equity
   
Common
Stock
Shares
 
Common
Stock
 
Common Stock -
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Treasury
Stock
 
Total
BALANCE, January 1, 2019
37,318,942

 
$
5

 
$
451,427

 
$
427,244

 
$
(1,656
)
 
$
(111,767
)
 
$
765,253

Conversion of restricted stock units to common stock (net of 138,012 shares of treasury stock purchased)
283,339

 

 

 

 

 
(2,760
)
 
(2,760
)
Settlement of stock appreciation rights in common stock (net of 9,888 shares of treasury stock purchased)
16,937

 

 
(12
)
 

 

 
(159
)
 
(171
)
Partial termination of capped call options
(1,087
)
 

 
30

 

 

 
(30
)
 

Convertible debt extinguishment impact

 

 
(152
)
 

 

 

 
(152
)
Stock compensation expense

 

 
1,353

 

 

 

 
1,353

Other comprehensive loss

 

 

 

 
(362
)
 

 
(362
)
Adoption of ASC Topic 842, Leases

 

 

 
(6,516
)
 

 

 
(6,516
)
Net loss

 

 

 
(43,404
)
 

 

 
(43,404
)
BALANCE, March 31, 2019
37,618,131

 
$
5

 
$
452,646

 
$
377,324

 
$
(2,018
)
 
$
(114,716
)
 
$
713,241

BALANCE, January 1, 2020
38,967,079

 
$
5

 
$
438,591

 
$
800,792

 
$
(1,994
)
 
$
(105,488
)
 
$
1,131,906

Conversion of restricted stock units to common stock (net of 25,134 shares of treasury stock purchased)
38,144

 

 

 

 

 
(578
)
 
(578
)
Settlement of stock appreciation rights in common stock (net of 14,438 shares of treasury stock purchased)
16,704

 

 
(5
)
 

 

 
(240
)
 
(245
)
Convertible debt extinguishment impact (net of tax impact of $1,013)

 

 
(17,829
)
 

 

 

 
(17,829
)
Stock compensation expense

 

 
1,367

 

 

 

 
1,367

Other comprehensive loss

 

 

 

 
(551
)
 

 
(551
)
Net income

 

 

 
76,853

 

 

 
76,853

BALANCE, March 31, 2020
39,021,927

 
$
5

 
$
422,124

 
$
877,645

 
$
(2,545
)
 
$
(106,306
)
 
$
1,190,923

 
 
 
 
 
 
 
 
 
 
 
 
 
 

See notes to condensed consolidated financial statements.

4



RENEWABLE ENERGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
Three months ended
   
March 31, 2020
 
March 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
   
 
   
Net income (loss)
$
76,853

 
$
(43,404
)
Net income (loss) from discontinuing operations

 
(2,017
)
Net income (loss) from continuing operations
76,853

 
(41,387
)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
   
 
   
Depreciation expense
8,934

 
9,099

Amortization expense of assets and liabilities, net
4,660

 
4,441

Accretion of convertible note discount
256

 
1,095

Amortization of marketable securities

 
(129
)
Change in fair value of contingent consideration

 
304

(Gain) loss on debt extinguishment
(1,172
)
 
2

Provision for doubtful accounts
456

 
(300
)
Stock compensation expense
1,367

 
1,353

Deferred tax expense
1,034

 
(432
)
Other operating activities
161

 
77

Changes in assets and liabilities:
   
 
   
Accounts receivable, net
104,598

 
(30,516
)
Inventories
(44,881
)
 
(52,009
)
Prepaid expenses and other assets
(28,273
)
 
9,342

Accounts payable
1,688

 
(8,618
)
Accrued expenses and other liabilities
(18,277
)
 
(5,352
)
Operating lease obligations
(4,107
)
 
(3,141
)
Deferred revenue
2,102

 
13,016

Net cash flows provided by (used in) operating activities - continuing operations
105,399

 
(103,155
)
Net cash flows used in operating activities - discontinuing operations

 
(2,770
)
Cash provided by (used in) operating activities
105,399

 
(105,925
)
CASH FLOWS FROM INVESTING ACTIVITIES:
   
 
   
Cash paid for marketable securities

 
(3,478
)
Cash received from maturities of marketable securities

 
37,084

Cash paid for purchase of property, plant and equipment
(9,030
)
 
(8,235
)
Cash paid for investments

 
(57
)
Net cash flows (used in) provided by investing activities - continuing operations
(9,030
)
 
25,314

Net cash flows (used in) provided by investing activities - discontinuing operations

 

Cash (used in) provided by investing activities
(9,030
)
 
25,314

CASH FLOWS FROM FINANCING ACTIVITIES:
   
 
   
Net borrowings on revolving line of credit
82,756

 
84,754

Borrowings on other lines of credit

 
15,649

Repayments on other lines of credit

 
(11,908
)
Cash paid on notes payable
(40,141
)
 
(2,004
)
Cash paid for debt issuance costs

 
(45
)
Cash paid for contingent consideration settlement

 
(3,316
)
Cash paid for conversion of restricted stock units and stock appreciation rights
(823
)
 
(2,931
)
Net cash flows provided by financing activities - continuing operations
41,792

 
80,199

Net cash flows used in financing activities - discontinuing operations

 

Cash provided by financing activities
41,792

 
80,199

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
138,161

 
(412
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, Beginning of period
53,436

 
126,575

Effect of exchange rate changes on cash
(47
)
 
(101
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, End of period
$
191,550

 
$
126,062

(continued)

5




RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
Three months ended
 
March 31, 2020
 
March 31, 2019
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
   
 
   
Cash paid for income taxes
$

 
$
204

Cash paid for interest
$
885

 
$
849

Leased assets obtained in exchange for new operating lease liabilities
$
903

 
$
1,562

 
 
 
 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
   
 
   
Amounts included in period-end accounts payable for:
   
 
   
Purchases of property, plant and equipment
$
6,739

 
$
2,165

(concluded)
   
See notes to condensed consolidated financial statements.



6



RENEWABLE ENERGY GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For The Three Months Ended March 31, 2020 and 2019
(unaudited)
(in thousands, except share and per share amounts)
NOTE 1 — BASIS OF PRESENTATION AND NATURE OF THE BUSINESS
The condensed consolidated financial statements have been prepared by Renewable Energy Group, Inc. and its subsidiaries (the "Company" or "REG"), pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes that the disclosures are adequate to present fairly the financial position, results of operations and cash flows at the dates and for the periods presented. It is suggested that these interim financial statements be read in conjunction with the consolidated financial statements and the notes thereto appearing in the Company’s latest annual report on Form 10-K filed on March 6, 2020. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates.
As of March 31, 2020, the Company owns and operates a network of thirteen biorefineries, with eleven locations in North America and two locations in Europe, which includes twelve operating biomass-based diesel production facilities with aggregate nameplate production capacity of 505 million gallons per year ("mmgy") and one fermentation facility. Ten of these plants are “multi-feedstock capable”, which allows them to use a broad range of lower-cost feedstocks, such as distillers corn oil, used cooking oil and inedible animal fats in addition to vegetable oils, such as soybean oil and canola oil. In August 2019, the Company closed the New Boston, Texas biorefinery, which had a nameplate capacity of 15 mmgy.
The biomass-based diesel industry and the Company’s business have benefited from certain federal and state government programs. The federal biodiesel mixture excise tax credit (the "BTC") was retroactively reinstated on December 20, 2019 for the years 2018 and 2019. The BTC has also been extended through December 31, 2022. The modification of federal and state government programs could adversely affect the financial results of the Company.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies should be read in conjunction with a summary of the significant accounting policies the Company has disclosed in its Annual Report on Form 10-K for the year ended December 31, 2019.

Restricted Cash
The Company segregates certain cash balances as restricted cash that represent those funds required to be set aside by a contractual agreement. The Company classifies restricted cash between current and non-current assets based on the length of time of the restricted use.
As of March 31, 2020 and 2019, current restricted cash was $3,000, representing pledges for outstanding letters of credit issued to support our operations. See the table below for reconciliation of "Cash, Cash Equivalents and Restricted Cash" in the Condensed Consolidated Statements of Cash Flows:
 
March 31, 2020
 
March 31, 2019
Cash and cash equivalents
$
188,550

 
$
123,062

Restricted cash
3,000

 
3,000

Total cash, cash equivalents and restricted cash in the Condensed Statements of Cash Flows
$
191,550

 
$
126,062




7



Accounts Receivable and Subsequent Events
Accounts receivable are carried at invoiced amount less allowance for doubtful accounts. Management estimates the allowance for doubtful accounts based on existing economic conditions, the financial conditions of customers and the amount and age of past due accounts. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are generally written off against the allowance for doubtful accounts only after reasonable collection attempts have been exhausted.
 
March 31, 2020
 
December 31, 2019
Trade accounts receivable from customers (net of allowance for doubtful accounts of $1,455 and $1,001, respectively)
$
169,219

 
$
185,156

BTC receivables from the government
585,305

 
672,627

Other trade receivables

 
1,139

Total
$
754,524

 
$
858,922


Through May 1, 2020, the Company has received $671,740 of the 2018 and 2019 BTC receivable from the federal government.
Renewable Identification Numbers ("RINs")
When the Company produces and sells a gallon of biomass-based diesel, 1.5 to 1.7 RINs per gallon are generated. RINs are used to track compliance with the Renewable Fuel Standard ("RFS2"). RFS2 allows the Company to attach between zero and 2.5 RINs to any gallon of biomass-based diesel. As a result, a portion of the selling price for a gallon of biomass-based diesel is generally attributable to RFS2 compliance. However, RINs that the Company generates are a form of government incentive and not a result of the physical attributes of the biomass-based diesel production. Therefore, no cost is allocated to the RIN when it is generated, regardless of whether the RIN is transferred with the biomass-based diesel produced or held by the Company pending attachment to other biomass-based diesel production sales.
In addition, the Company also obtains RINs from third parties who have separated the RINs from gallons of biomass-based diesel. From time to time, the Company holds varying amounts of these separated RINs for resale. RINs obtained from third parties are initially recorded at their cost and are subsequently revalued at the lower of cost or net realizable value as of the last day of each accounting period. The resulting adjustments are reflected in costs of goods sold for the period. The value of these RINs is reflected in “Prepaid expenses and other assets” on the Condensed Consolidated Balance Sheets. The cost of goods sold related to the sale of these RINs is determined using the average cost method, while market prices are determined by RIN values, as reported by the Oil Price Information Service ("OPIS").

Low Carbon Fuel Standard
The Company generates Low Carbon Fuel Standard ("LCFS") credits for its low carbon fuels or blendstocks when its qualified low carbon fuels are transported into an LCFS market. LCFS credits are used to track compliance with the LCFS. As a result, a portion of the selling price for a gallon of biomass-based diesel sold into an LCFS market is also attributable to LCFS compliance. However, LCFS credits that the Company generates are a form of government incentive and not a result of the physical attributes of the biomass-based diesel production. Therefore, no cost is allocated to the LCFS credit when it is generated, regardless of whether the LCFS credit is transferred with the biomass-based diesel produced or held by the Company.
In addition, the Company also obtains LCFS credits from third-party trading activities. From time to time, the Company holds varying amounts of these third-party LCFS credits for resale. LCFS credits obtained from third parties are initially recorded at their cost and are subsequently revalued at the lower of cost or net realizable value as of the last day of each accounting period, and the resulting adjustments are reflected in costs of goods sold for the period. The value of LCFS credits obtained from third parties is reflected in “Prepaid expenses and other assets” on the Condensed Consolidated Balance Sheet. The cost of goods sold related to the sale of these LCFS credits is determined using the average cost method, while market prices are determined by LCFS values, as reported by the OPIS. At March 31, 2020 and December 31, 2019, the Company held no LCFS credits purchased from third parties.
The Company records assets acquired and liabilities assumed through the exchange of non-monetary assets based on the fair value of the assets and liabilities acquired or the fair value of the consideration exchanged, whichever is more readily determinable.


8



Convertible Debt
In June 2016, the Company issued $152,000 aggregate principal amount of 4% convertible senior notes due in 2036 (the "2036 Convertible Senior Notes"). See "Note 6 - Debt" for a further description of the 2036 Convertible Senior Notes. During the three months ended March 31, 2020 the Company used $25,949 to repurchase $11,008 principal amount of the 2036 Convertible Senior Notes, reflecting conversion premium, after tax impact, of $17,829 as a reduction of Additional Paid-in Capital and gains on debt extinguishment of $1,172 in the Condensed Consolidated Statements of Operations. During the three months ended March 31, 2019 the Company made no repurchases of the 2036 Convertible Senior Notes.
Security Repurchase Programs
In June 2018, January 2019, and February 2020 the Company's Board of Directors approved a repurchase program, of up to $75,000, $75,000 and $100,000, respectively, of the Company's convertible notes and/or shares of common stock (the "2018 Program", "2019 Program", and "2020 Program", respectively). Under these programs, the Company may repurchase convertible notes or shares from time to time in open market transactions, privately negotiated transactions or by other means. The timing and amount of repurchase transactions under each program are determined by the Company's management based on its evaluation of market conditions, share price, bond price, legal requirements and other factors. The 2018 Program has been fully utilized prior to December 31, 2019. The Company made no repurchases of shares of common stock or convertible notes during the three months ended March 31, 2019.
There was no activity under the 2020 Program during the three months ended March 31, 2020. At March 31, 2020, the remaining amounts were $41,847 under the 2019 Program and $141,847 under both programs. The table below sets out the information regarding the activities under the 2019 Program during the three months ended March 31, 2020:
 
Three months ended March 31, 2020
 
Number of shares/ Principal amount in 000's
 
January 2019 Program
2036 Senior Convertible Notes Repurchases
$
11,008

 
$
25,949


Revenue Recognition
The Company generally has a single performance obligation in its arrangements with customers. The Company believes for most of its contracts with customers, control is transferred at a point in time, typically upon delivery to the customers. When the Company performs 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. The Company generally expenses sales commissions when incurred because the amortization period would have been less than one year. The Company records these costs within selling, general and administrative expenses.
The following is a description of principal activities from which we generate revenue. Revenues from contracts with customers are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.
sales of biodiesel and renewable diesel produced at our facilities, including RINs and LCFS credits;
resale of petroleum acquired from third parties, along with the sale of petroleum-based products further blended with biodiesel produced at our wholly owned facilities or acquired from third parties;
sales of separated RINs and LCFS credits;
sales of raw materials, glycerin, and other co-products of the biomass-based diesel production process;
other revenue, including biomass-based diesel facility management and operational services; and
incentive payments from federal and state governments, including the BTC, and from the USDA Advanced Biofuel Program.

Disaggregation of revenue:
All revenue recognized in the income statement, except for Biomass-based diesel Government Incentives, is considered to be revenue from contracts with customers. The following table depicts the disaggregation of revenue according to product line and segment:

9



 
Reportable Segments
Three months ended March 31, 2020
Biomass-based
Diesel
 
Services
 
Corporate
and other
 
Intersegment
Revenues
 
Consolidated
Total
Biomass-based diesel sales, net of BTC related amount due to customers of $0
$
306,552

 
$

 
$

 
$
(25,680
)
 
$
280,872

Petroleum diesel sales

 

 
44,336

 

 
44,336

LCFS credit sales
34,034

 

 

 

 
34,034

Separated RIN sales
15,520

 

 

 

 
15,520

Co-product sales
12,044

 

 

 

 
12,044

Raw material sales
10,954

 

 

 

 
10,954

Other biomass-based diesel revenue
8,638

 

 

 

 
8,638

Other revenues

 
19,533

 

 
(19,421
)
 
112

Total revenues from contracts with customers
$
387,742

 
$
19,533

 
$
44,336

 
$
(45,101
)
 
$
406,510

Biomass-based diesel government incentives
68,159

 

 

 

 
68,159

Total revenues
$
455,901

 
$
19,533

 
$
44,336

 
$
(45,101
)
 
$
474,669

 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2019
Biomass-based Diesel
 
Services
 
Corporate and other
 
Intersegment Revenues
 
Consolidated Total
Biomass-based diesel sales, net of BTC related amount due to customers of $0
$
315,729

 
$

 
$

 
$
(1,617
)
 
$
314,112

Petroleum diesel sales

 

 
83,903

 

 
83,903

LCFS credit sales
36,707

 

 

 

 
36,707

Separated RIN sales
22,463

 

 

 

 
22,463

Co-product sales
8,403

 

 

 

 
8,403

Raw material sales
4,103

 

 

 

 
4,103

Other biomass-based diesel revenue
7,978

 

 

 

 
7,978

Other revenues

 
19,583

 

 
(19,511
)
 
72

Total revenues from contracts with customers
$
395,383

 
$
19,583

 
$
83,903

 
$
(21,128
)
 
$
477,741

Biomass-based diesel government incentives
468

 

 

 

 
468

Total revenues
$
395,851

 
$
19,583

 
$
83,903

 
$
(21,128
)
 
$
478,209



Contract balances:

The following table provides information about receivables and contract liabilities from contracts with customers:
 
March 31, 2020
 
December 31, 2019
Trade accounts receivable from customers
$
169,219

 
$
185,156

Short-term contract liabilities (deferred revenue)
$
(365
)
 
$
(631
)
Short-term contract liabilities (accounts payable)
$
(255,193
)
 
$
(255,193
)



10



The Company receives payments from customers based upon contractual billing schedules; accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities include payments received in advance of performance under the contract, and are realized with the associated revenue recognized under the contract. Significant changes to the contract liabilities during the three months ended March 31, 2020 and 2019 are as follows:
 
January 1, 2020
 
Cash receipts
(Payments)
 
Less: Impact on
Revenue
 
Other
 
March 31, 2020
Deferred revenue
$
631

 
$
9,067

 
$
9,333

 
$

 
$
365

Payables to customers related to BTC
255,193

 

 

 

 
255,193

 
$
255,824

 
$
9,067

 
$
9,333

 
$

 
$
255,558

 
 
 
 
 
 
 
 
 
 
 
January 1, 2019
 
Cash receipts
(Payments)
 
Less: Impact on
Revenue
 
Other
 
March 31, 2019
Deferred revenue
$
300

 
$
28,658

 
$
15,643

 
$

 
$
13,315



Discontinued Operations
Income (loss) from discontinued operations mainly relates to the research and development activities and the sale of REG Life Sciences, the Company's industrial biotechnology business, which had been classified as assets held for sale following the Company's decision to pursue a sale of this business in the fourth quarter of 2018. In May 2019, the sale of REG Life Sciences core assets and business was closed. The wind-down of operations of REG Life Sciences was completed in the fourth quarter of 2019.
New Accounting Standards
On June 16, 2016, the FASB issued ASU 2016-13, which amends the Board's guidance on the impairment of financial instruments. The ASU 2016-13 adds to U.S. GAAP an impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under this new guidance, an entity recognizes as an allowance its estimate of expected credit losses. For public companies, the ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company's adoption of ASU 2016-13 effective January 1, 2020 did not have a material impact on its condensed consolidated financial statements.
On August 28, 2018, the FASB issued ASU 2018-13, which changes the fair value measurement disclosure requirements of ASC 820. ASU 2018-13 eliminates or modifies certain disclosure requirements of ASC 820 and requires new disclosures relating to changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the applicable reporting period. ASU 2018-13 also explicitly requires entities to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. The Company's adoption of ASU 2016-13 effective January 1, 2020 did not have a material impact on its condensed consolidated financial statements.
On December 18, 2019, the FASB issued ASU 2019-12, which affects general principles within ASC 740, Income Taxes. The ASU removes the following exceptions: (1) incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items, (2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, (3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and (4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The ASU also will make changes to franchise tax recognition, consideration of the tax basis recognition of goodwill related to acquisitions, specify tax allocation to subsidiaries, reflecting a change in tax law in the interim period annual effective tax rate computation in the period of enactment, and changes to the employee stock ownership plans and investments. For public business entities, the amendments in ASU 2019-12 are effective for fiscal years beginning December 15, 2020, and interim periods within those fiscal years. The Company is evaluating the impact of the guidance on its condensed consolidated financial statements, but does not expect the impact to be significant.
On January 16, 2020, the FASB issued ASU 2020-01, which clarifies the interaction between Topic 321 (Equity Securities), Topic 323 (Equity Method Investments) and Topic 815 (Derivatives and Hedging). This amendment clarifies that an entity should not consider whether the settlement of a forward contract or exercise of an option is accounted for under Topic 323 or whether the fair value option is in accordance with Topic 825. For public business entities, the amendments in ASU

11



2020-01 are effective for fiscal years beginning December 15, 2020, and interim periods within those fiscal years. The Company is evaluating the impact of the guidance on its condensed consolidated financial statements, but does not expect the impact be significant.
On March 9, 2020, the FASB issued ASU 2020-03, which clarifies and updates various topics specific to the Company such as: (1) Amending Topic 820 to explicitly apply to non-financial items accounted for as derivatives under Topic 815. (2) Improve the understanding of Topic 470 and the alignment of Line-of-Credit arrangements and Revolving-Debt arrangements. (3) Clarification on the determination of a contractual term in a net investment in a lease determined in accordance with Topic 842 and Topic 326. For public business entities, the amendments in ASU 2020-03 are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. The Company is evaluating the impact of the guidance on its condensed consolidated financial statements.
NOTE 3 — INVENTORIES
Inventories consist of the following:
   
March 31, 2020
 
December 31, 2019
Raw materials
$
59,462

 
$
57,818

Work in process
3,930

 
3,605

Finished goods
142,913

 
100,006

Total
$
206,305

 
$
161,429


Inventories are valued at the lower of cost or net realizable value. Cost is determined based on the first-in, first-out method. There were no lower of cost or market adjustments made to the inventory values reported as of March 31, 2020 and December 31, 2019.
NOTE 4 — OTHER ASSETS
Prepaid expense and other assets consist of the following:
   
March 31, 2020
 
December 31, 2019
Commodity derivatives and related collateral, net
$
23,093

 
$
6,140

Prepaid expenses
19,764

 
16,082

Deposits
3,490

 
3,519

RIN inventory
3,590

 
2,137

Taxes receivable
5,697

 
5,115

Other
1,756

 
2,480

Total
$
57,390

 
$
35,473


RIN inventory values were adjusted in the amounts of $0 and $0 at March 31, 2020 and December 31, 2019, respectively, to reflect the lower of cost or net realizable value.
Other noncurrent assets consist of the following:
 
March 31, 2020
 
December 31, 2019
Investments
$
12,731

 
$
19,205

Spare parts inventory
2,610

 
2,610

Catalysts
7,408

 
1,274

Deposits
552

 
552

Other
2,853

 
2,874

Total
$
26,154

 
$
26,515



12



NOTE 5— INTANGIBLE ASSETS
Intangible assets consist of the following:
 
March 31, 2020
 
Cost
 
Accumulated Amortization
 
Net
Raw material supply agreement
$
6,230

 
$
(3,455
)
 
$
2,775

Renewable diesel technology
8,300

 
(3,228
)
 
5,072

Acquired customer relationships
4,747

 
(1,658
)
 
3,089

Trademarks
904

 
(175
)
 
729

Total intangible assets
$
20,181

 
$
(8,516
)
 
$
11,665

 
December 31, 2019
 
Cost
 
Accumulated Amortization
 
Net
Raw material supply agreement
$
6,230

 
$
(3,368
)
 
$
2,862

Renewable diesel technology
8,300

 
(3,089
)
 
5,211

Acquired customer relationships
4,747

 
(1,535
)
 
3,212

Other intangible assets
904

 
(171
)
 
733

Total intangible assets
$
20,181

 
$
(8,163
)
 
$
12,018


The Company recorded intangible amortization expense of $353 for the three months ended March 31, 2020 and $334 for the three months ended March 31, 2019.
The estimated intangible asset amortization expense for the remainder of 2020 through 2026 and thereafter is as follows:
April 1, 2020 through December 31, 2020
$
1,257

2021
1,667

2022
1,676

2023
1,699

2024
1,724

2025
1,651

2026 and thereafter
1,991

Total
$
11,665



13



NOTE 6 — DEBT
The following table shows the Company’s term debt:
   
March 31, 2020
 
December 31, 2019
4.00% Convertible Senior Notes, $78,619 face amount, due in June 2036
$
61,346

 
$
69,668

REG Danville term loan, secured, variable interest rate of LIBOR plus 4%, due in July 2022

 
6,468

REG Ralston term loan, variable interest rate of LIBOR plus 2.25%, due in October 2025
15,296

 
15,980

REG Grays Harbor term loan, variable interest of minimum of 3.5% or Prime Rate plus 0.25%, due in May 2022

 
6,966

REG Capital term loan, fixed interest rate of 3.99%, due in January 2028
6,864

 
6,929

Other
22

 
33

Total term debt before debt issuance costs
83,528

 
106,044

Less: Current portion of long-term debt
64,367

 
77,131

Less: Debt issuance costs (net of accumulated amortization of $877 and $1,139, respectively)
2,353

 
2,783

Total long-term debt
$
16,808

 
$
26,130



2036 Convertible Senior Notes
On June 2, 2016, the Company issued $152,000 aggregate principal amount of the 2036 Convertible Senior Notes in a private offering to qualified institutional buyers. The 2036 Convertible Senior Notes bear interest at a rate of 4.00% per year payable semi-annually in arrears on June 15 and December 15 of each year, beginning December 15, 2016. The notes will mature on June 15, 2036, unless repurchased, redeemed or converted in accordance with their terms prior to such date.

Prior to December 15, 2035, the 2036 Convertible Senior Notes will be convertible only upon satisfaction of certain conditions and during certain periods as stipulated in the indenture. On or after December 15, 2035 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the 2036 Convertible Senior Notes may convert their notes at any time. The 2036 Convertible Senior Notes may be settled in cash, the Company’s common shares or a combination of cash and the Company’s common shares, at the Company’s election. The Company may not redeem the 2036 Convertible Senior Notes prior to June 15, 2021. Holders of the 2036 Convertible Senior Notes will have the right to require the Company to repurchase for cash all or some of their notes at 100% of their principal, plus any accrued and unpaid interest on each of June 15, 2021, June 15, 2026 and June 15, 2031. Holders of the 2036 Convertible Senior Notes will have the right to require the Company to repurchase for cash all or some of their notes at 100% of their principal, plus any accrued and unpaid interest upon the occurrence of certain fundamental changes. The initial conversion rate is 92.8074 common shares per $1,000 (one thousand) principal amount of 2036 Convertible Senior Notes (equivalent to an initial conversion price of approximately $10.78 per common share).

In addition, the 2036 Convertible Senior Notes will become convertible in the subsequent quarter if the closing price of the Company’s common stock exceeds $14.01, 130% of the Convertible Senior Notes’ initial conversion price, for at least 20 trading days during the 30 consecutive trading days prior to each quarter-end date. If the 2036 Convertible Senior Notes become convertible and should the holders elect to convert, the Company’s current intent is to settle the principal amount the 2036 Convertible Senior Notes in cash, with the remaining value satisfied at the Company’s option in cash, stock or a combination of cash and stock. As of March 31, 2020 and December 31, 2019, the early conversion event was met based on the Company's stock price and as a result, the 2036 Convertible Senior Notes have been classified as a current liability on the Company's Condensed Consolidated Balance Sheets at March 31, 2020 and December 31, 2019.

The net proceeds from the offering of the 2036 Convertible Senior Notes were approximately $147,118, after deducting fees and offering expenses of $4,882, which was capitalized as debt issuance costs and is being amortized through June 2036. The debt discount is to be amortized through June 2036. The effective interest rate on the debt liability component was 1.53%.

14



Lines of Credit

The following table shows the Company's lines of credit:
 
March 31, 2020
 
December 31, 2019
Amount outstanding under lines of credit
$
159,746

 
$
76,990

Maximum available to be borrowed under lines of credit
$
40,254

 
$
101,485


The Company's wholly-owned subsidiaries, REG Services Group, LLC and REG Marketing & Logistics Group, LLC, are borrowers under a Credit Agreement dated December 23, 2011 with the lenders party thereto (“Lenders”) and Wells Fargo Capital Finance, LLC, as the agent, (as amended, the “M&L and Services Revolver”). Prior to an amendment in November 2019, the maximum commitment of the Lenders under the M&L and Services Revolver to make revolving loans was $150,000. Following this amendment, the maximum commitment was increased to $200,000 through April 30, 2020, subject to borrowing base limitations and further subject to an accordion feature, which allows the borrowers to request commitments for additional revolving loans in an aggregate amount not to exceed to $50,000, the making of which is subject to customary conditions, including the consent of Lenders providing such additional commitments. After April 30, 2020, the maximum commitment of the Lenders under the M&L Services Revolver will automatically decrease to $150,000.
The maturity date of the M&L and Services Revolver is September 30, 2021. Loans advanced under the M&L and Services Revolver bear interest based on a one-month LIBOR rate (which shall not be less than zero), plus a margin based on Quarterly Average Excess Availability (as defined in the Revolving Credit Agreement), which may range from 1.75% per annum to 2.25% per annum.
The M&L and Services Revolver contains various loan covenants that restrict each subsidiary borrower’s ability to take certain actions, including restrictions on incurrence of indebtedness, creation of liens, mergers or consolidations, dispositions of assets, repurchase or redemption of capital stock, making certain investments, making distributions to the Company unless certain conditions are satisfied, entering into certain transactions with affiliates or changing the nature of the subsidiary’s business. In addition, the subsidiary borrowers are required to maintain a fixed charge coverage ratio of at least 1.0 to 1.0 if excess availability under the M&L and Services Revolver is less than 5% of the total $200,000 of current revolving loan commitments, or $10,000. After April 30, 2020 this threshold will automatically increase to 10% of the reduced $150,000 maximum commitment, or $15,000. The M&L and Services Revolver is secured by the subsidiary borrowers’ membership interests and substantially all of their assets. In addition, the M&L and Services Revolver is secured by the accounts receivable and inventory of REG Albert Lea, LLC, REG Houston, LLC, REG New Boston, LLC, REG Geismar, LLC, and REG Seneca, LLC (collectively, the "Plant Loan Parties") subject to a $40,000 limitation with respect to each of the Plant Loan Parties.
NOTE 7 — DERIVATIVE INSTRUMENTS
The Company enters into New York Mercantile Exchange NY Harbor ULSD ("NY Harbor ULSD" or previously referred to as heating oil), CBOT Soybean Oil (previously referred to as soybean oil) and New York Mercantile Exchange Natural Gas futures, swaps and options ("commodity contract derivatives") to reduce the risk of price volatility related to anticipated purchases of feedstock raw materials and to protect cash margins from potentially adverse effects of price volatility on biomass-based diesel sales where prices are set at a future date. All of the Company’s commodity contract derivatives are designated as non-hedge derivatives and recorded at fair value on the Condensed Consolidated Balance Sheets. Unrealized gains and losses are recognized as a component of biomass-based diesel costs of goods sold reflected in current results of operations. As of March 31, 2020, the net notional volumes of NY Harbor ULSD, CBOT Soybean Oil and NYMEX Natural Gas covered under the open commodity derivative contracts were approximately 65 million gallons, 171 million pounds and 2 million million British thermal units, respectively.

15



The Company offsets the fair value amounts recognized for its commodity contract derivatives with cash collateral with the same counterparty under a master netting agreement. The net position is presented within prepaid and other assets in the Condensed Consolidated Balance Sheets. The following table sets forth the fair value of the Company's commodity contract derivatives and amounts that offset within the Condensed Consolidated Balance Sheets:
   
March 31, 2020
 
December 31, 2019
   
Assets
 
Liabilities
 
Assets
 
Liabilities
Gross amounts of derivatives recognized at fair value
$
29,039

 
$
5,508

 
$
1,633

 
$
4,749

Cash collateral paid (received)
(438
)
 

 
9,256

 

Total gross amount recognized
28,601

 
5,508

 
10,889

 
4,749

Gross amounts offset
(5,508
)
 
(5,508
)
 
(4,749
)
 
(4,749
)
Net amount reported in the condensed consolidated balance sheets
$
23,093

 
$

 
$
6,140

 
$

The following table sets forth the commodity contract derivatives gains and (losses) included in the Condensed Consolidated Statements of Operations:
   
Location of Gain (Loss)
Recognized in income
Three Months 
 Ended 
 March 31, 
 2020