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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 AvenueAmesIowa50010
(Address of principal executive offices)   (Zip code)

Registrant’s telephone number, including area code: (515239-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $.0001 per shareREGIThe Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
______________________________________
    Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨
    Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x
    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” and “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerx   Accelerated filer
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 has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes    No x

As of June 30, 2020, the aggregate market value of Common Stock held by non-affiliates was $790,373,860.
As of January 31, 2021, 39,334,839 shares of Common Stock of the registrant were issued and outstanding.
______________________________________
Documents Incorporated By Reference
All or a portion of Items 10 through 14 in Part III of this Form 10-K are incorporated by reference to the Registrant’s definitive proxy statement on Schedule 14A, which will be filed within 120 days after the close of the fiscal year covered by this report on Form 10-K, or if the Registrant’s Schedule 14A is not filed within such period, will be included in an amendment to this Report on Form 10-K which will be filed within such 120 day period.



TABLE OF CONTENTS
Page
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.



Cautionary Statement Regarding Forward-Looking Information
This annual report on Form 10-K 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 for 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 business plans and strategies, including, but not limited to, our downstream objectives and undertakings, and
the proposed capacity expansion of our Geismar, Louisiana biorefinery, including financing such expansion;
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 and our marketable securities;
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, 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.

Summary Risk Factors

Our business is subject to numerous risks and uncertainties that could affect our ability to successfully implement our business strategy and affect our financial results. You should carefully consider all of the information in this report and, in particular, the following principal risks and all of the other specific factors described in Item 1A. of this report, "Risk Factors," before deciding whether to invest in our company.

The Renewable Fuel Standard Program, a federal law requiring the consumption of qualifying biofuels, could be repealed, curtailed or otherwise changed, which would have a material adverse effect on our revenues, operating margins and financial condition.
Loss of or reductions in federal and state government tax incentives for biomass-based diesel production or consumption may have a material adverse effect on our revenues and operating margins.
We derive a significant portion of our revenues from sales of our renewable fuel in the State of California primarily as a result of California's Low Carbon Fuel Standard, or LCFS; adverse changes in this law or reductions in the value of LCFS credits would harm our revenues and profits.
We derive a significant portion of our revenues from sales of our renewable fuel in Canada and Europe; adverse changes in the programs requiring the use of renewable and lower carbon fuels or reductions in the value of credits would harm our revenues and profits.
The COVID-19 pandemic may adversely impact our business.
We derive a substantial portion of our profitability from the production of renewable diesel at our plant in Geismar, Louisiana and any interruption in our operations would have a material adverse effect on operations and financial conditions.
Our planned capacity expansion at our Geismar, Louisiana facility will require significant capital expenditures and there is no guarantee that the project will be completed on time or on budget, which could have a negative effect on revenues and operations.
Increased industry-wide production of biodiesel due to potential utilization of existing excess production capacity, announced renewable diesel plant expansions and potential co-processing of renewable diesel by petroleum refiners, could reduce prices for our fuel and increase costs of feedstocks, which would seriously harm our revenues and operations.
Our gross margins are dependent on the spread between biomass-based diesel prices and feedstock costs, each of which are volatile and can cause our results of operations to fluctuate substantially,
Risk management transactions could significantly increase our operating costs and may not be effective.
One customer accounted for a meaningful percentage of revenues and a loss of this customer could have an adverse impact on our total revenues.
Our facilities and our customers' facilities are subject to risks associated with fire, explosions, leaks, and natural disasters, which may disrupt our business and increase costs and liabilities.
In addition to biodiesel and renewable diesel, we store and transport petroleum-based motor fuels. The dangers inherent in the storage and transportation of fuels could cause disruptions in our operations and could expose us to potentially significant losses, costs or liabilities.
Our insurance may not protect us against our business and operating risks.
We operate in a highly competitive industry and expect that competition in our industry will increase.
We are dependent upon one supplier to provide hydrogen necessary to execute our renewable diesel production process and the loss of this supplier could disrupt our production process.
Technological advances and changes in production methods in the biomass-based diesel industry could render our plants obsolete and adversely affect our ability to compete.
Our intellectual property is integral to our business. If we are unable to protect our intellectual property, or others assert that our operations violate their intellectual property, our business could be adversely affected.
Increases in transportation costs or disruptions in transportation services could have a material adverse effect on our business.
We are dependent upon our key management personnel and other personnel, and the loss of these personnel could adversely affect our business and results of operations.
We may encounter difficulties in integrating the businesses we acquire, including our international businesses where we have limited operating history.
We incur significant expenses to maintain and upgrade our operating equipment and plants, and any interruption in the operating of our facilities may harm our operating performance.



Growth in the use, sale and distribution of biodiesel is dependent on the expansion of related infrastructure which may not occur on a timely basis, if at all, and our operations could be adversely affected by infrastructure limitations or disruptions.
Our business is subject to seasonal changes based on regulatory factors and weather conditions and this seasonality could cause our revenues and operating results to fluctuate.
Failure to comply with governmental regulations, including EPA requirements relating to RFS2 or new laws designed to deal with climate change, could result in the imposition of higher costs, penalties, fines, or restrictions on our operations and remedial liabilities.
Renewable diesel fuel is superior to biodiesel in certain respects and if renewable diesel production capacity increases to a sufficient extent, it could largely supplant biodiesel; we may not be successful in expanding our renewable diesel production capacity.
Nitrogen oxide emissions from biodiesel may harm its appeal as a renewable fuel and increase costs.
We and certain subsidiaries have indebtedness, which subjects us to potential defaults, that could adversely affect our ability to raise additional capital to fund our operations and limits our ability to react to changes in the economy or the biomass-based diesel industry.
We may still incur significant additional indebtedness that could increase the risks associated with our indebtedness.
We may not have the ability to raise the funds necessary to settle conversion of our convertible notes in cash or to repurchase the convertible notes for cash upon a fundamental change or on a repurchase date, and our future debt may contain limitations on our ability to repurchase the convertible notes.
Certain provisions in the indenture governing the 2036 Convertible Senior Notes could delay or prevent an otherwise beneficial takeover or takeover attempt of us.
We are a holding company and there are limitations on our ability to receive dividends and distributions from our subsidiaries.
Our debt agreements impose significant operating and financial restrictions on our subsidiaries, which may prevent us from capitalizing on business opportunities.
The market price for our common stock may be volatile.
We may issue additional common stock as consideration for future investments or acquisitions.
If we fail to maintain effective internal control over our financial reporting and financial forecasting, we may not be able to report our financial results accurately, provide accurate financial guidance or prevent fraud, and if we fail to maintain effective internal governance and conduct policies, such as our Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers and Trading by Insiders Policy, or if our employees fail to adhere to such policies, we may be unable to maintain a proper control environment. If any of these failures occur, our business could be harmed, our stockholders could lose confidence in our financial reporting and financial guidance or our business integrity and we could suffer negative regulatory scrutiny or media attention, which could negatively impact the value of our stock.
Delaware law and our certificate of incorporation and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.




PART I

ITEM 1.    Business
General
We focus on providing cleaner, lower carbon transportation fuels. We are North America's largest producer of advanced biofuels. 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. During 2020, we sold 651 million total gallons of fuel (including biofuel and petroleum fuel purchased from third parties for resale) and generated revenues of $2 billion. 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 growing market for cleaner transportation fuels.
In addition to our acquisition of Keck Energy in September 2018, we opened our first REG branded fueling station in July 2019 adjacent to our biorefinery in Seneca, Illinois to serve a variety of customers from trucking fleets to local diesel vehicle owners. In June 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. These are the initial parts 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 renewable diesel; and increased demand for our biodiesel via sales of B100 to end consumers.
In October 2020, we announced that, following an internal review and site selection process, we plan to expand the effective capacity of our Geismar, Louisiana biorefinery by 250 million gallons annually to approximately 340 million gallons per year. We currently expect construction to begin in mid to late 2021 with a target mechanical completion date in late 2023. We currently estimate our capital expenditures in connection with the expansion project will be at least $825 million. We currently expect to fund these capital expenditures with a combination of cash on hand, marketable securities, borrowings under our credit facilities, offerings of equity and debt, or from other sources. There can be no guarantee that we will be able to obtain the necessary capital in a timely manner or on terms acceptable to us or increase the capacity of our biorefinery at Geismar, Louisiana on time, at our estimated budget, or at all. The expansion is subject to a number of conditions and risks.
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.
Plant Network and Products
We own and operate a network of 12 biorefineries. Ten biorefineries are located in the United States and two in Germany. Eleven biorefineries produce biodiesel and one produces renewable diesel. Our twelve biomass-based diesel production facilities have an aggregate nameplate production capacity of 505 million gallons per year ("mmgy"). In August 2019, we closed our New Boston, Texas biorefinery, which had a nameplate capacity of 15 mmgy.
We own and operate the following facilities in North America and internationally:
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Property
Nameplate1
Production
Capacity (mmgy)
Effective Capacity 2 (mmgy)
REG
Operations
Commenced
Feedstock Capability
Ralston, Iowa30492002Refined Oils and Fats
Albert Lea, Minnesota30462005Crude, High FFA and Refined Oils and Fats
Newton, Iowa 30382007Crude, High FFA and Refined
Oils and Fats
Seabrook, Texas35532008Refined Oils and Fats
Danville, Illinois45502009Crude, High FFA and Refined
Oils and Fats
Seneca, Illinois60762010Crude, High FFA and Refined
Oils and Fats
Mason City, Iowa 30392013Crude, High FFA and Refined
Oils and Fats
Geismar, Louisiana 3
751012014Crude, High FFA and Refined
Oils and Fats
Grays Harbor, Washington1001072015Refined Oils and Fats
Madison, Wisconsin 20282016Crude, High FFA and Refined
Oils and Fats
Emden, Germany27312016Crude, High FFA and Refined Oils and Fats
Oeding, Germany23252016Crude, High FFA and Refined Oils and Fats
Total505643

1The nameplate capacity listed above is based on original plant design.
2Effective capacity represents the maximum average throughput that satisfies certain defined technical constraints.
3This facility produces renewable diesel, naphtha, and liquid petroleum gas.

We maintain a testing laboratory at our corporate headquarters in Ames, Iowa, for testing various feedstocks for conversion into biomass-based diesel and various new manufacturing processes to produce biomass-based diesel. We also have a regional office in Tulsa, Oklahoma, focused on maintaining and developing advanced biofuel technologies.

We produce renewable diesel at our Geismar, Louisiana facility. Renewable diesel generally carries a premium price compared 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. We announced in October 2020 our intended expansion of the effective capacity of our Geismar, Louisiana facility to 340 million gallons annually. We intend to continue to evaluate opportunities to further our ability to leverage our renewable diesel technology and expand renewable diesel production to meet the growing demand for cleaner transportation fuels.

Our products include biodiesel and renewable diesel produced at our facilities or from third parties, including RINs and LCFS credits, transportation, storage and insurance costs to the extent paid for by our customers; petroleum-based heating oil and ultra-low sulfur diesel, or ULSD, acquired from third parties, along with these petroleum-based products further blended with biomass-based diesel; glycerin, and other co-products of the biomass-based diesel production process. Renewable diesel carries a premium price compared to biodiesel as a result of a variety of factors including the ability to blend it with petroleum diesel, better cold weather performance, and it generates more RINs on a per gallon basis. In addition, our products include operations management services that we provide for biomass-based diesel production facilities, typically based on production rates and profitability of the managed facility; and services performed by us in our role as general contractor and construction manager for upgrades and repairs to our biomass-based diesel production facilities.

Our Feedstocks and Other Inputs
We are a lower carbon biomass-based diesel producer. We primarily produce our biomass-based diesel from a wide variety of low carbon feedstocks, including distillers corn oil, used cooking oil and inedible animal fat. We also produce biomass-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
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process a wide variety of feedstocks in most of our facilities provides us with a cost advantage over many biomass-based diesel producers, particularly those relying primarily on higher cost virgin vegetable oils.
We can adjust our processing in most of our facilities to accommodate different feedstocks and feedstock mixes. Our ability to use a wide range of feedstocks gives us a feedstock cost advantage over many other producers because we have the flexibility to respond to changes in feedstock pricing. In 2020, approximately 65% of our total feedstock usage was distillers corn oil, used cooking oil or rendered animal fat feedstock. The remaining approximately 35% consisted of refined vegetable oils, such as soybean oil or canola oil.
We procure our feedstocks from numerous vendors in quantities ranging from truckload to railcar to marine vessel. There is no established futures market for the low carbon feedstocks that we utilize. Distillers corn oil is typically purchased on fixed priced contracts in forward positions of one to three months and occasionally longer. We generally purchase used cooking oil and rendered animal fats on one to four week forward positions using fixed pricing or an indexed price compared to a published index such as USDA reports or recognized industry price reports such as The Jacobsen or Informa. Soybean and canola oils can be purchased on a spot or forward contract basis from several suppliers and pricing for these vegetable oils is compared to the broadly traded Soybean Oil Futures market on the Chicago Mercantile Exchange.
From time to time, we work with developers of next generation feedstocks, such as algae and camelina, to assist them in bringing these new feedstocks to market. We have converted several of these feedstocks, as well as other second generation feedstocks, into high quality biomass-based diesel in our laboratory and production facilities. We believe we are well positioned to incorporate many new feedstocks into our production process as they become commercially available.
We procure methanol and chemical catalysts used in our production process such as sodium methylate and hydrochloric acid, under fixed-price contracts and formula-indexed contracts based upon competitive bidding. These procurement contracts typically last from three months to five year. The price of methanol is indexed to the monthly reported published price. We also enter into a long-term supply agreement with a supplier to procure hydrogen necessary for our renewable diesel production.
Risk Management
The prices for feedstocks and biomass-based diesel, including the value associated with government incentives, can be volatile and are not always closely correlated. Low carbon feedstocks are particularly difficult to risk manage given that such feedstocks are not traded in any public futures market. To manage feedstock and biomass-based diesel price risks, we utilize forward contracting, hedging and other risk management strategies, including the use of futures, swaps, options and over-the-counter products.
In establishing our risk management strategies, we draw from our own in-house risk management expertise and consult with industry experts. We utilize research conducted by outside firms to provide additional market information and risk management strategies. We believe combining these sources of knowledge, experience and expertise expands our view of the fluctuating commodity markets for raw materials and energy to improve our risk management strategies.
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Distribution
We have established a national distribution system to supply biomass-based diesel throughout the United States. Each of our biomass-based diesel facilities is equipped with an on-site rail loading system, a truck loading system, or both. Our Seneca biorefinery near the Illinois River has direct barge access for supplying customers using the inland waterways system. Our Houston biorefinery has barge and deep-water ship loading capability. Our Grays Harbor biorefinery has deep-water capability for PANAMAX class vessels. We also manage some customers’ biomass-based diesel storage tanks and replenishment process. Our distribution performance for 2020 in North America is depicted below.

regi-20201231_g1.jpg
In addition, we have established an international distribution system to supply biomass-based diesel throughout Europe. Our products that are produced in Europe and in the United States are distributed to European customers using sea vessels, barges and trucks. Our Emden biorefinery has deep-water capabilities and can load vessels, barges and trucks. Our Oeding biorefinery can only load and unload trucks. We also have storage facilities in the Amsterdam-Rotterdam-Antwerp region, which allows us to distribute our products efficiently.
As of December 31, 2020, we leased over 1,035 railcars for transportation and leased biomass-based diesel storage tanks in 42 terminals in North America and 2 terminals internationally. In general, the terminals in North America where we lease our biomass-based diesel storage tanks are largely chemical product and petroleum fuel terminals so that fuel distributors and other biomass-based diesel customers can create a biomass-based diesel blend at the terminal before further distribution. Terminal contracts typically have one-to three-year terms and are generally renewable subject to certain terms and conditions. During 2020, REG sold products in 41 states in the United States, seven Canadian Provinces, and fourteen other countries around the world.
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We sell heating oil and ultra-low sulfur diesel ("ULSD") at terminals throughout the northeastern United States. We sell additional biofuel blends at terminal locations in the Midwest, West Coast and Texas. We continue to look for terminal expansion and optimization opportunities across North America.
Government Programs Favoring Biomass-Based Diesel Production and Use
The biomass-based diesel industry benefits from numerous federal and state government programs.
Renewable Fuel Standard
Biomass-based diesel has historically been more expensive to produce than petroleum-based diesel. The biomass-based diesel industry's growth has largely been the result of federal and state programs that require or incentivize production and use of biomass-based diesel, which allows biomass-based diesel to be priced competitively with petroleum-based diesel.
The RFS2 biomass-based diesel requirement became effective in 2010, requiring for the first time that a certain percentage of the diesel fuel consumed in the United States be made from renewable sources. The biomass-based diesel requirement can be satisfied by two primary fuels, biodiesel and renewable diesel. Required volumes under the RFS2 program, referred to as the renewable volume obligation ("RVO"), are determined by the U.S. Environmental Protection Agency, or EPA. The final RVO targets for the biomass-based diesel and advanced biofuels volumes for the years 2016 to 2021 as set by the EPA are as follows:
201620172018201920202021
Biomass-based diesel1.90 billion gallons2.00 billion gallons2.10 billion gallons2.10 billion gallons2.43 billion gallons2.43 billion gallons
Total advanced biofuels3.61 billion RINs*4.28 billion RINs*4.29 billion RINs*4.92 billion RINs*5.04 billion RINs*N/A
*Ethanol equivalent gallons
The biomass-based diesel requirement is one of four separate renewable fuel requirements under RFS2. The RFS2 requirements are based on two primary categories and two subcategories. The two primary categories are conventional renewable fuel, which is primarily satisfied by corn ethanol, and advanced biofuel, which is defined as a biofuel that reduces lifecycle greenhouse gas emissions by at least 50% compared to the petroleum-based fuel the biofuel is replacing. The advanced biofuel category has two subcategories, cellulosic biofuel, to be satisfied by newly developed cellulosic biofuels, such as ethanol made from woody biomass, and biomass-based diesel, which is satisfied by biodiesel and renewable diesel. RFS2’s total advanced biofuel requirement is larger than the combined cellulosic fuel and biomass-based diesel requirements, thus requiring the use of additional volumes of advanced biofuels.
The RFS2 requirement for advanced biofuels can be satisfied by any advanced biofuel, including biodiesel, renewable diesel, biogas used in transportation, biobutanol, cellulosic ethanol or sugarcane-based ethanol, so long as it meets the 50% greenhouse gas reduction requirement.
The advanced biofuel RVO is expressed in terms of ethanol equivalent volumes, or EEV, which is based on the fuel’s renewable energy content compared to ethanol. Biodiesel has an EEV of 1.5 and renewable diesel typically has an EEV of 1.7, compared to 1.0 for sugarcane-based ethanol. Accordingly, it requires less biomass-based diesel than sugarcane-based ethanol to meet the required volumes as each gallon of biomass-based diesel counts as more gallons for purposes of fulfilling the advanced biofuel RVO, providing an incentive for refiners and importers to purchase biomass-based diesel to meet their advanced biofuel RVO.
The RFS2 volume requirements apply to petroleum refiners and petroleum fuel importers in the 48 contiguous states and Hawaii, who are defined as “Obligated Parties” in the RFS2 regulations. Obligated Parties are required to incorporate into their petroleum-based fuel a certain percentage of renewable fuel or purchase credits in the form of renewable identification numbers from those who do. An Obligated Party’s RVO is based on the volume of petroleum-based fuel they produce or import. The largest U.S. petroleum refining companies, such as British Petroleum, Chevron, Citgo, ExxonMobil, Marathon, PBE, Phillips 66, and Valero, represent the majority of the total RVO, with the remainder made up of smaller refiners and importers.
Renewable Identification Numbers
The EPA created the RIN system to track renewable fuel production and compliance with the renewable fuel standard. EPA registered producers of renewable fuel may generate RINs for each gallon of renewable fuel they produce. In the case of biomass-based diesel, generally 1.5 to 1.7 biomass-based diesel RINs may be generated for each gallon of biomass-based diesel produced, based upon the fuel's renewable energy content. Renewable fuel, including biomass-based diesel, can then be sold
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with associated RINs attached. RINs may also be separated from the gallons of renewable fuel they represent and once separated they may be sold as a separate commodity. RINs are ultimately used by Obligated Parties to demonstrate compliance with RFS2. Obligated Parties must obtain and retire the required number of RINs to satisfy their RVO during a particular compliance period. An Obligated Party can obtain RINs by buying renewable fuels with RINs attached, buying RINs that have been separated, or producing renewable fuels themselves. All RIN activity under RFS2 must be entered into the EPA’s moderated transaction system, which tracks RIN generation, transfer and retirement. RINs are retired when used for compliance with the RFS2 requirements.
The value of RINs can significantly impact to the price of biomass-based diesel. In 2020, RIN prices as a percentage contribution to the daily average 100% pure biodiesel (B100) spot price, as reported by the Oil Pricing Information System, or OPIS, fluctuated significantly throughout the year and ranged from a low of $0.37 per gallon, or 17% of the average B100 spot price per gallon, in January to a high of $1.03 per gallon, or 45% of the average spot price, in December.
Biodiesel Tax Credit
The federal biodiesel mixture excise tax credit, or BTC, provides a $1.00 refundable tax credit per gallon to the first blender of biomass-based diesel with petroleum-based diesel fuel. The BTC can then be credited against federal excise tax liability or the blender can obtain a cash refund from the U.S. Treasury for the value of the credit. The BTC was first implemented on January 1, 2005 and has been allowed to lapse multiple times before being retroactively reinstated, as described in the following table:
regi-20201231_g2.jpg
The BTC is an incentive shared across the advanced biofuel production and distribution chain through routine, daily trading and negotiation. In December 2019, the BTC was retroactively reinstated for 2018 and 2019, and made effective from January 2020 through December 2022.
California Low Carbon Fuel Standard Credits
In 2006, California passed the Global Warming Solutions Act or AB 32. The legislation established the California Low Carbon Fuel Standard, or LCFS, regulation, which is a rule designed to reduce greenhouse gas emissions associated with transportation fuels used in California. The regulation quantifies lifecycle greenhouse gas emissions by assigning a “carbon intensity” ("CI") score to each transportation fuel based on that fuel’s lifecycle assessment. Each petroleum fuel provider (generally the fuel’s producer or importer, or “regulated party”) is required to ensure that the overall CI score for its fuel pool meets the annual carbon intensity target for a given year. A regulated party’s fuel pool can include gasoline, diesel, and their blendstocks and substitutes.
We obtain carbon credits when we sell qualified biomass-based diesel into California. During 2020, California LCFS carbon credits ranged from $167.50 per metric ton to $218.00 per metric ton, as reported by OPIS.
Oregon Clean Fuel Program
The Oregon Clean Fuel Program was launched in 2016 and requires a 10% reduction of the average carbon intensity of Oregon’s transportation fuels from 2015 levels by 2025. The baseline year for the program is 2015 and represents 10% ethanol blended with gasoline and 5% biodiesel blended with diesel. The Oregon Renewable Fuels Standard requires all gasoline sold in the state to be blended with 10% ethanol (E10). In addition, all diesel fuel sold in the state must be blended with at least 5% bio-based diesel. In March of 2020, the Oregon Governor issued an executive order to expand the Clean Fuel Program to achieve at least a 20% reduction from 2015 levels by 2030 and a 25% reduction by 2035. The executive order is currently in a rule making process, with a targeted effective date of January 1, 2023.
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We obtain carbon credits when we sell qualified biomass-based diesel in Oregon. During 2020, Oregon OCF carbon credits ranged from $105.00 per metric ton to $155.00 per metric ton, as reported by OPIS.
Other Government Programs
According to the U.S. Department of Energy, more than 40 states have implemented various programs that encourage the use of biomass-based diesel through blending requirements as well as various tax incentives. The chart below summarizes some of the most significant programs.
GovernmentProgram description
Canada
The federal government has a 2% nationwide requirement. In addition a number of provinces in Canada have biofuel programs (British Columbia has an LCFS, Alberta, Saskatchewan, Manitoba and Ontario have usage requirements that exceed the federal standard). The federal government is currently engaged in the rulemaking process on a nationwide Clean Fuel Standard, which may incorporate a number of carbon reducing policies.
New YorkIn 2019 New York passed the Community Leadership and Climate Protection Act (similar to California's AB 32) which establishes firm carbon reduction goals of 40% reductions by 2030 and 85% reductions in 2050. The state is currently undertaking a rulemaking which will establish an LCFS program for mobile source emissions and fixed source emissions.

In 2016, the City of New York adopted legislation requiring 5% biomass-based diesel blends for heating oil starting on October 1, 2017 and the blend level then moves to 10% in 2025, 15% in 2030 and 20% in 2034. Regional oil heat dealers have pledged to support 50% biomass-based diesel blends by 2030 to meet home heating requirements.
IllinoisIllinois offers a tax exemption from the generally applicable 6.25% sales tax on fuel for biomass-based diesel blends that incentivizes blending at 11% biomass-based diesel, or B11, through December 31, 2023. Illinois’ program has made that state one of the largest biomass-based diesel markets in the country.
IowaIowa has a retailer’s incentive for blended fuel which has been modified over time. For 2018 through 2024, retailers earn $0.035 per gallon of 5%-10% biodiesel blends and $0.055 per gallons for 11% and above biodiesel blends. Iowa also has a biomass-based diesel production incentive that provides $0.02 per gallon of production capped after the first 25 million gallons per production plant. Iowa also reduces the excise tax on fuel, by $0.024 per gallon for biodiesel blends of 11% and above.
MinnesotaMinnesota law requires a 5% biodiesel blend except during the summer months (April - September) when a 20% blend is required.
North Dakota
North Dakota offers a $0.05 per gallon sales tax incentive for retailers who sell 5% and above biodiesel blends.
PennsylvaniaPennsylvania has adopted legislation requiring biomass-based diesel blends beginning at 2% biodiesel blends with incremental increases, provided certain feedstock or production minimums are met.
Texas
The biomass-based diesel portion of biomass-based diesel blends are exempt from Texas state excise tax, which results in a $0.20 per gallon incentive for 100% pure biodiesel.
WashingtonThe City of Seattle has a heating oil tax exemption for the portion of the heating oil that is biodiesel. Washington legislature is also in the process of developing legislation on a low carbon fuel program.
U.S. Municipalities
Many cities across the United States have set targets to reduce greenhouse gas emissions. New York, Chicago, Atlanta and 34 other cities have set emissions reduction goals of 80 percent or higher by 2050.
We believe that other government requirements for the use of biofuels increase demand for our biomass-based diesel within such regions and they may help increase the overall demand in addition to the RFS2 requirements. We observe that existing demand for our biofuel from Obligated Parties in connection with federal requirements may shift to regions that have use requirements or tax incentive programs.
RED Program
In the European Union, or EU, the Renewable Energy Directive established a 10% target by 2020 for the use of renewable energy in the transport sector in EU member states. Given the existing limited market presence of alternative fuels or electromobility, the majority of the target has been realized through biofuels. In 2018, a revised Renewable Energy Directive, RED II, was established. RED II set a target of 14% renewables in transport and a 32% reduction of greenhouse gases, to be progressively achieved from 2021 until 2030. Biofuels produced from certain types of waste feedstocks, such as used cooking oil, benefit from extra incentives and so-called advanced feedstocks even get a specific sub-mandate. Additionally, RED II opens up new outlets such as marine fuels or renewable aviation fuels. In 2021, each of the EU Member States is in the process
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of ratifying RED II into national legislation. Since the adoption of RED II, the EU has introduced the “European Green Deal”, a package of new measures that are intended to align the EU's environmental goals with the Paris Accord objectives and, according, the European Commission is exploring whether to update RED II.
Trends in Market Demand and Competitive Conditions
We face competition from producers and suppliers of petroleum-based diesel fuel, other biomass-based diesel producers, marketers, traders and distributors. The size of the biomass-based diesel industry is small compared to the size of the petroleum-based diesel fuel industry and large petroleum companies have greater resources than we do. Our principal competitive differentiators are biomass-based diesel and RIN quality, supply reliability and price. In the United States, and Canadian biomass-based diesel markets, we compete with independent biomass-based diesel producers as well as large, multi-product companies that have greater resources than we do. Ag Processing Inc., Archer Daniels Midland Company, Cargill Incorporated, and Louis Dreyfus Commodities Group are major international agribusiness corporations and biodiesel producers with the financial, feedstock sourcing and marketing resources to be formidable competitors in the biodiesel industry. These agribusiness competitors tend to make biodiesel from virgin vegetable oils such as soybean or canola oil, which they produce as part of their integrated agribusinesses.
We also compete with several large and well capitalized producers of renewable diesel. Neste Corporation has approximately 882 million gallons of renewable diesel production capacity in Asia and Europe, a significant portion of which is imported into the United States. Neste has announced that it is in the process of expanding its renewable diesel production capacity in Singapore. Diamond Green Diesel, LLC, a joint venture between Valero Energy Corporation and Darling Ingredients Inc., operates a 275 mmgy capacity renewable diesel facility and it is in the process of expanding capacity to 675 mmgy by 2021. In January 2021, Valero Energy Corporation has announced that it will build a 470-million-gal/year renewable diesel plant in Texas with joint venture partner Darling Ingredients. We also face the prospect that petroleum refiners will be increasingly competitive with us, either by converting oil refineries to produce renewable diesel or by co-processing renewable feedstock with crude oil. Several petroleum refiners in the United States have effected conversions of their facilities from crude oil to renewables in the past year including Sinclair, Phillips 66, Holly Frontier, Marathon, and Exxon. Some of the largest refiners have started co-processing renewable feedstocks or have announced plans to do so. If refinery conversions accelerate or if co-processing expands significantly, the competition we face could increase significantly.
We also face competition in the biomass-based diesel RIN compliance market from producers of renewable diesel and in the advanced biofuel RIN compliance market from producers of other advanced biofuels, such as Brazilian sugarcane ethanol producers and producers of biogas used in transportation. Competition from imported biodiesel changed significantly in 2018, when the International Trade Commission and U.S. Department of Commerce imposed countervailing duties against unfairly subsidized biodiesel exports to the United States from Argentina and Indonesia. According to the U.S. Energy Information Administration data, renewable diesel imports from Singapore to the United States have maintained a steady rate. Imports from Singapore totaled 173 million gallons in 2018, 252 million gallons in 2019 and 280 million gallons in in 2020.
In our marketing and distribution operations, besides the integrated producers, we are also faced with competition from biomass-based diesel traders such as BP, Lincoln Energy, NGL, Shell, Vitol and others. The integrated producers and traders at times may have advantages because of logistics, feedstock accessibility and price, geographical location to customers, blending infrastructure, financial resources, and risk appetite. These same trading companies may have greater financial resources than we do and are able to take significant biomass-based diesel positions in the marketplace. These competitors are often customers and/or suppliers of ours as well.
Seasonality
Our operating results and working capital needs are influenced by seasonal fluctuations in the price of and demand for biodiesel. Seasonal fluctuations may be based on both the weather and the status of both the BTC and RVO.
Demand may be higher in the quarters leading up to the expiration of the BTC as customers seek to purchase biomass-based diesel when they can benefit from the agreed upon value sharing of the BTC with producers. This higher demand prompted by an expiring BTC has often resulted in reduced demand for biodiesel in the following quarter. In addition, RIN prices may also be subject to seasonal fluctuations. The RIN is dated for the calendar year in which it is generated. Since 20% of an Obligated Party's annual RVO 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 increase as the calendar year progresses if the RIN market is undersupplied compared to that year's RVO and decrease if it is oversupplied.
Seasonal fluctuation in our business also occurs in the colder months when historically there has been reduced demand for biodiesel in northern and eastern U.S. markets, which are some of the primary markets in which we operate. Biodiesel typically has a higher cloud point than petroleum-based diesel or renewable diesel. The cloud point is the temperature below which a fuel
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exhibits a noticeable cloudiness and eventually gels, leading to fuel handling and performance problems for customers and suppliers. Reduced demand in the winter for our higher cloud point biodiesel may result in excess supply of such higher cloud point biodiesel and lower prices for such higher cloud point biodiesel. To mitigate some of these seasonal fluctuations in demand, we have upgraded our Newton and Danville biorefineries to produce distilled biodiesel which improves cold-weather performance.
Government Regulations

Our manufacturing facilities, like other fuel and chemical production facilities, are subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground; the generation, storage, handling, use, transportation and disposal of hazardous materials; ecological and natural resources; and the health and safety of our employees, contractors and the public. These laws and regulations require us to obtain and comply with numerous environmental permits to construct and operate each facility. They can require expensive pollution control equipment or operational changes to limit actual or potential impacts to human health and the environment. A violation of these laws, regulations or permit conditions could result in substantial fines, natural resource damage, criminal sanctions, permit revocations and or facility shutdowns. We do not currently have any environmental proceedings either pending or threatened against our facilities that would materially affect our business or financial condition. Furthermore, we do not anticipate a material adverse effect on our business or financial condition as a result of our efforts to comply with these requirements as presently in effect.
Human Capital
As of December 31, 2020, we had 793 employees located in the United States and 102 employees located internationally. None of our U.S. employees are represented by a labor organization or under any collective bargaining agreements.

We provide our employees with competitive salaries and bonuses, opportunities for equity ownership, development programs that enable continued learning and growth and an employment package intended to promote well-being across all aspects of their lives, including health care, retirement planning and paid time off. In addition, we regularly conduct an employee survey to gauge employee engagement and identify areas of focus. Since the onset of the COVID-19 pandemic, we have taken an integrated approach to helping our employees manage their work and personal responsibilities, with a strong focus on employee well-being, health and safety.

We believe that an equitable and inclusive environment with diverse teams is crucial to our efforts to attract and retain key talent and produces more creative solutions and innovative products and services. In 2020, we launched certain programs aimed at building an equitable and inclusive culture through a variety of diversity and inclusion initiatives.
Intellectual Property
We own a significant number of U.S. and international patents and expect to file additional patent applications as we continue to pursue technological innovations. We have also developed trade secrets to protect our production know-how, particularly in the field of processing low-cost feedstocks.
Executive Officers of the Registrant
Cynthia J. Warner, age 62, has served as our President and Chief Executive Officer since January 2019. Ms. Warner was Executive Vice President, Operations for Andeavor (formerly known as Tesoro Corporation) from August 2016 until Andeavor's acquisition by Marathon Petroleum Corporation in October 2018. Prior to that, Ms. Warner served as Andeavor's Executive Vice President, Strategy and Business Development, since October 2014. From 2012 to August 2014, Ms. Warner was Chairman and Chief Executive Officer of Sapphire Energy, Inc. and she continued to serve as Chairman through February 2015. From 2009 to 2011, Ms. Warner was President of Sapphire Energy. From 2007 to 2009, she was Group Vice President, Global Refining, at BP plc. Ms. Warner has served as a member of the Board of Directors of IDEX Corporation (NYSE: IEX) since February 2013 and of Sempra Energy since June 2019. She is also a member of the National Petroleum Council. Ms. Warner has a Bachelor of Engineering degree in Chemical Engineering from Vanderbilt University and an MBA from Illinois Institute of Technology.
Todd Robinson, age 55, has served as our Interim Chief Financial Officer since December 2020. Mr. Robinson has served as our Treasurer since April 2016, and served as Director, Investor Relations of the Company since February 2014. Prior to joining REG, Mr. Robinson spent more than 25 years in banking, investment, finance and treasury operations at companies including Wells Fargo, Deloitte, Pioneer Hi-Bred International, Pella Corporation, and HSBC Securities (USA), Inc. Mr. Robinson holds a bachelor’s degree from Iowa State University - College of Business.
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Brad Albin, age 58, has served as our Vice President, Manufacturing since February 2008. Mr. Albin joined REG in 2006. From 2002 to 2006, Mr. Albin served as Executive Director of Operations for Material Sciences Corporation, where he directed multi-plant operations for automotive and global appliance industries. From 1996 to 2002, Mr. Albin was the Vice President of Operations for Griffin Industries. Mr. Albin has over 25 years of experience in executive operations positions in multi-feedstock biomass-based diesel, chemical, food and automotive supplier companies, such as The Monsanto Company, The NutraSweet Company and Griffin Industries. Mr. Albin was a charter member of the National Biodiesel Accreditation Committee. Mr. Albin is a current director on two boards where REG has investments and was previously on the Board of Managers for Petrotec GmbH before REG acquired full ownership in 2017.  Mr. Albin was previously the President and Vice President of the Iowa Renewable Fuels Association from 2011-2013. In November 2014, Mr. Albin completed the Advanced Management Program from the University of Chicago Booth School of Business and he holds a B.S. in Chemistry from Eastern Illinois University.
Eric M. Bowen, age 49, has served as our General Counsel and Corporate Secretary since April 2020. Prior to becoming our General Counsel, Eric served as our Vice President, Corporate Business Development & Legal Affairs from January 2013 to April 2020, and led the REG Life Sciences business unit since January 2014 until the sale of the business unit in May of 2019. From June 2010 to January 2013, Mr. Bowen served as our Executive Director, Corporate Business Development and Legal Affairs. From 2005 to June 2010, Mr. Bowen was Founder, President and CEO of Tellurian Biodiesel, Inc., which was acquired by the Company. Prior to entering the biodiesel industry, Mr. Bowen practiced corporate and securities law in Silicon Valley. For 15 years, Mr. Bowen has been at the forefront of the development of the biodiesel and renewable diesel industries. Mr. Bowen was a founding member of the California Advanced Biofuels Alliance and served as the founding Chairman from 2007 to 2012. He also served as Chairman of the San Francisco Biodiesel Taskforce and as a member of the California LCFS Advisory Panel. Mr. Bowen has served as a member of the Board of Directors of a company in which REG has invested since November 2013. Mr. Bowen holds a J.D. from the University of California, Berkeley and a B.A. from the University of Oregon Honors College.
Available Information
Our internet address is http://www.regi.com. Through that address, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available free of charge as soon as reasonably practicable after they are filed with the U.S. Securities and Exchange Commission. The information contained on our website is not included in, or incorporated by reference into, this annual report on Form 10-K.
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ITEM 1A.    Risk Factors
Our business, financial condition, results of operations and liquidity are subject to various risks and uncertainties, including those described below. As a result, the trading price of our common stock could decline.

RISKS RELATED TO RENEWABLE FUEL AND LOW CARBON FUEL INCENTIVES
The Renewable Fuel Standard Program, a federal law requiring the consumption of qualifying biofuels, could be repealed, curtailed or otherwise changed, which would have a material adverse effect on our revenues, operating margins and financial condition.
We and other participants in the biomass-based diesel industry rely on governmental programs requiring or incentivizing the consumption of biofuels. Biomass-based diesel has historically been more expensive to produce than petroleum-based diesel fuel and these governmental programs support a market for biomass-based diesel that might not otherwise exist.
One of the most important of these programs is the RFS2, a federal law that requires that transportation fuels in the United States contain a minimum amount of renewable fuel. This program is administered by the U.S. Environmental Protection Agency ("EPA"). The EPA's authority includes setting annual minimum aggregate levels of consumption in four renewable fuel categories, including the two primary categories in which our fuel competes biomass-based diesel and advanced biofuel. The parties obligated to comply with this RVO, are petroleum refiners and petroleum fuel importers.
The petroleum industry is strongly opposed to the RFS2 and can be expected to continue to press for changes both in the RFS2 itself and in the way that it is administered by the EPA. One key point of contention is the rate of growth in the annual RVO. The RVO for biomass-based diesel was set at steadily rising levels beginning at 1.00 billion gallons in 2012 and increasing to 2.00 billion gallons in 2017. However, growth in the RVO for biomass-based diesel was constrained from 2017 through 2019, as the biomass-based diesel RVO increased by only 100,000 gallons from 2.00 billion to 2.10 billion gallons while the advanced biofuel RVO increased from 4.28 billion gallons to 4.92 billion gallons. For 2020 and 2021, the EPA set the biomass-based diesel RVO at 2.43 billion gallons. The 2020 advanced biofuel RVO has been set at 5.04 billion gallons which represents zero growth in the advanced biofuels category after taking into account the increase in the cellulosic volumes. We believe that growth in the annual RVOs strongly influences our ability to grow our business and supports the price of our fuel through the RINs. The EPA's future decisions regarding the RVO will significantly influence our revenues and profit margins.
The RFS2 also grants to the EPA authority to waive a qualifying refiner's obligation to comply with RFS2, through a small refinery exemption ("SRE"), based on a determination that the program is causing severe economic harm to that refinery. SREs can significantly harm demand for biomass-based diesel and the value of RINs. In December 2019, the EPA issued a ruling on the reallocation of the required volumes under RFS2 in an attempt to offset the effect of the SREs. The ruling detailed the intent to redistribute the exempt volumes granted through the SRE to non-exempt obligated parties. This redistribution will be calculated on a three-year rolling average, based on the U.S. Department of Energy ("DoE") recommended relief. The EPA has consistently granted more relief through small refinery waivers than recommended by the DoE.
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The table below summarizes the small refinery waiver petitions requested, granted, denied or pending and the impacted volumes as of February 18, 2020, according to the EPA's website:
202020192018201720162015
Petitions received16 32 44 37 29 28 
Petitions granted— 32 35 19 
Petitions denied or withdrawn— — 18 
Petitions pending16 30 
Estimated volume of fuel exempted (million gallons)— — 13,420 17,050 7,841 3,070 
Estimated Advanced Biofuel RVO Exempted (million RINs)— — 318 404 157 49 
Estimated Advanced Biofuel RVO Exempted (% of Advanced biofuels RVOs)— %— %7.4 %9.4 %4.3 %1.7 %

We believe that the increase in small refinery waivers granted in 2018 for the 2016 and 2017 RVO years and in 2019 for the 2018 RVO year significantly affected the demand and price of RINs as the average price of D4 (Biomass-based diesel classification) RINs fell from $0.57 to $0.40 during 2019 according to OPIS data. If the EPA continues this practice, it will harm demand and price of RINs and thus our profitability.
Subsequent to the EPA's December 2019 ruling, in January 2020, the 10th Circuit Court of Appeals issued a ruling invalidating the process the EPA had been using to grant SREs. The EPA also denied 54 retroactive waivers filed for periods 2011-2018. There are 14 remaining waivers that are still to be decided on by the EPA. We believe these actions have increased RIN values. In January 2021, the Supreme Court of the United States agreed to review the 10th Circuit Court's ruling on the SRE matter. There is no certainty of the outcome of the review at this time. The EPA could change their procedures to permit more SREs and that has the potential to cause further harm to RIN values.
The COVID-19 pandemic and measures to address the pandemic have severely affected demand for gasoline and diesel, reducing demand for 2020 RINs for RFS compliance. RVO compliance obligations are based on the volume of sales of gasoline and diesel of a party that is subject to RFS2's volume requirements, or obligated party. As those volumes decrease, there is a corresponding decrease in the volume of RINs required for RFS compliance. As such, if the effects of COVID-19 on fuel demand continue throughout 2021, we expect that demand for the RINs we produce will decrease and for those RINs to have lower values, which would harm our profitability.
Several Governors have petitioned the EPA to use its general waiver authority to reduce the 2020 RVO in response to COVID-19 economic disruptions. Should the EPA use its general wavier authority to reduce RVO requirements, we expect that this would harm demand for and the value of biomass-based diesel and RINs, which would harm our revenues and earnings.
As of the date of this report, the EPA has not issued the 2021 RVO. This was to be issued in 2020 and it is uncertain when the EPA will issue the RVO and at what level the 2021 RVO will be.
The U.S. Congress could repeal, curtail or otherwise change the RFS2 program in a manner adverse to us. Similarly, the EPA could curtail or otherwise change its administration of the RFS2 program in a manner adverse to us, including by not increasing or even decreasing the RVO, by waiving compliance with the RVO or otherwise. In addition, while Congress specified RFS2 volume requirements through 2022 (subject to adjustment in the rulemaking process), beginning in 2023 required volumes of renewable fuel will be largely at the discretion of the EPA (in coordination with the Secretary of Energy and Secretary of Agriculture). We cannot predict what changes, if any, will be instituted or the impact of any changes on our business, although adverse changes could seriously harm our revenues, earnings and financial condition.

Loss of or reductions in federal and state government tax incentives for biomass-based diesel production or consumption may have a material adverse effect on our revenues and operating margins.
Federal and state tax incentives have assisted the biomass-based diesel industry by making the price of biomass-based diesel more cost competitive with the price of petroleum-based diesel fuel to the end user.
Federal Tax Incentives
The most significant tax incentive program has been the federal biodiesel mixture excise tax credit, referred to as the Biodiesel Tax Credit ("BTC"). Under the BTC, the first person to blend pure biomass-based diesel with petroleum-based diesel fuel receives a $1.00-per-gallon refundable tax credit.
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The BTC was established on January 1, 2005 and has lapsed and been reinstated retroactively and prospectively several times. Most recently in December 2019, the BTC was retroactively reinstated for 2018 and 2019 and is in effect from January 2020 through December 2022. Unlike the RFS2 program, the BTC has a direct effect on federal government spending and changes in federal budget policy could result in its elimination or in changes to its terms that are less beneficial to us. We cannot predict what action, if any, Congress may take with respect to the BTC after 2022. There is no assurance that the BTC will be reinstated, that it will be reinstated on the same terms or, if reinstated, that its application will be retroactive, prospective or both. Any adverse changes in the BTC can be expected to harm our results of operations and financial condition.
State Tax Incentives
Several states have enacted tax incentives for the use of biodiesel. For example, Illinois has a generally applicable 6.25% sales tax, but offers an exemption from this tax for a blend of fuel that consists of greater than 10% biodiesel. In Iowa, for 2018 through 2024, retailers earn $0.035 per gallon for 5%-10% biodiesel blends and $0.055 per gallon for 11% and above blends. Iowa also has a biomass-based diesel production incentive that provides $0.02 per gallon of production capped at the first 25 million gallons per production plant. The biodiesel and renewable diesel ("RD") portion of fuel blends are exempt from Texas state excise tax, which results in a $0.20 per gallon incentive. Minnesota law requires a 5% biodiesel blend except during the summer months when a 20% biodiesel blend is required. State budget or other considerations could cause the modification or elimination of tax incentive programs. Both Illinois and Iowa have pending legislation that proposes modifying existing incentives and adding usage requirements. The curtailment or elimination of such incentives could materially and adversely affect our revenues and profitability.

We derive a significant portion of our revenues from sales of our renewable fuel in the State of California primarily as a result of California’s Low Carbon Fuel Standard ("LCFS"); adverse changes in this law or reductions in the value of LCFS credits would harm our revenues and profits.
We estimate that our revenues from the sale of renewable fuel in California and from sales of credits received under LCFS were approximately $380.8 million in 2020. The LCFS is designed to reduce greenhouse gas ("GHG") emissions associated with transportation fuels used in California by ensuring that the total amount of fuel consumed meets declining targets for such emissions. The regulation quantifies lifecycle GHG emissions by assigning a “carbon intensity” ("CI") score to each transportation fuel based on that fuel’s lifecycle assessment. Each petroleum fuel provider, generally the fuel’s producer or importer is required to ensure that the overall CI score for its fuel pool meets the annual carbon intensity target for a given year. This obligation is tracked through credits and deficits and credits can be traded. We receive LCFS credits when we sell qualified fuels in California. As a result of the trading price of LCFS credits, California has become a desirable market in which to sell our biomass-based diesel and an increasing percentage of our revenue and profit is related to sales to California and LCFS credit values. In 2020, LCFS credit prices ranged from a high of $218 per credit in February to a low of $168 per credit in March. If the value of LCFS credits were to materially decrease as a result of over-supply, as a result of reduced demand for our fuels, or for other reasons including the continued impact of the COVID-19 pandemic, if the fuel produced is deemed not to qualify for LCFS credits; or if the LCFS or the manner in which it is administered or applied were otherwise changed in a manner adverse to us, our revenues and profits could be seriously harmed.

We derive a significant portion of our revenues from sales of our renewable fuel in Canada and Europe; adverse changes in the programs requiring the use of renewable and lower carbon fuels or reductions in the value of credits would harm our revenues and profits.
We estimate that our revenues from the sale of renewable fuels in Canada and Europe were approximately $461.5 million in 2020. Canadian provinces and certain European countries have policies designed to increase the renewable content in transportation fuels and/or reduce GHG emissions associated with such fuels. As a result of these policies, these markets have become increasingly important markets into which we sell our biomass-based diesel and an increasing percentage of our revenue and profit is related to sales into these markets. If the value of biomass-based diesel in these markets were to materially decrease, as a result of reduced demand or increased supply by competitors, or for other reasons including the impact of the COVID-19 pandemic, if the fuel we produce is deemed not to qualify for compliance in those markets or those policies are otherwise changed in a manner adverse to us, our revenues and profits could be seriously harmed.

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RISKS RELATED TO OUR BUSINESS OPERATIONS AND THE MARKETS IN WHICH WE OPERATE

The COVID-19 pandemic may adversely impact our business.
The COVID-19 pandemic has negatively impacted the global economy. While we did not incur significant, unmanageable operational or financial disruptions during the year ended December 31, 2020 from the COVID-19 pandemic and measures to address the pandemic, the extent to which the COVID-19 pandemic may adversely impact our business depends on future developments, which are highly unpredictable.
We cannot predict the degree to, or the time period over, which our sales and operations will be affected by this outbreak, and the effects could be material. The impacts include, but are not limited to:
a significant decline in demand for our products due to market disruptions, resulting in a decline in sales and prices;
limitations of feedstocks, price volatility, or disruptions to our suppliers’ operations;
the complete or partial closure of one or more of our manufacturing facilities;
the interruption of our distribution system, or temporary or long-term disruption in our supply chains, or delays in the delivery of our product;
suspension of renewable fuel and/or low carbon fuel policies;
limitations on our ability to operate our business as a result of federal, state or local regulations, including any changes to the designation of our business as “essential” by the US Department of Homeland Security;
decreases in the demand for and price of RINs and LCFS credits as a result of reduced demand for petroleum-based gasoline and diesel fuel; and
Our management of the impact of COVID-19 has and will continue to require significant investment of time and may cause the Company to divert or delay the application of its resources toward other or new initiatives or investments, which may cause a material adverse impact on the results of operations.
The extent of the impact of the COVID-19 pandemic on our business is highly uncertain, as information is evolving with respect to the duration and severity of the pandemic. We cannot reasonably estimate the duration and severity of the COVID-19 pandemic, or its impact, which may be significantly harmful to our operations and profitability.

We derive a substantial portion of our profitability from the production of RD at our plant in Geismar, Louisiana and any interruption in our operations would have a material adverse effect on operations and financial conditions.
RD carries a premium price compared to biodiesel as a result of a variety of factors including its ability to be blended with petroleum diesel, better cold weather performance, and generation of more RINs on a per gallon basis. We estimate that our RD production in Geismar, Louisiana generated a significant portion of our net income from continuing operations and our non-GAAP adjusted earnings before interest, taxes, depreciation and amortization, ("EBITDA") for 2020 and 2019. We experienced two fires at this facility in 2015 that each resulted in the plant being shut down for a lengthy period. If production at this facility were interrupted again due to any reason, it would have a disproportionately significant and material adverse impact on our operations and financial conditions.

Our planned capacity expansion at our Geismar, Louisiana facility will require significant capital expenditures and there is no guarantee that the project will be completed on time or on budget, which could have a negative effect on revenues and operations.
In October 2020, we announced a plan to expand the effective capacity of our Geismar, Louisiana biorefinery by 250 million gallons annually to approximately 340 million gallons. We currently expect construction to begin in mid to late 2021 with a target mechanical completion date in late 2023. We currently estimate our capital expenditures will be at least $825 million. We currently expect to fund these capital expenditures with a combination of cash on hand, marketable securities, borrowings under our credit facilities, offerings of equity and debt or from other sources. The sale of equity or debt securities in the future may be dilutive to our stockholders, and may provide for rights, preferences or privileges senior to those of our holders of common stock. Debt financing arrangements may require us to pledge certain assets or enter into covenants that could restrict operations or ability to incur further indebtedness. There is no guarantee that we will obtain the funds necessary to complete this project in a timely manner or on terms acceptable to us or that the project will be completed timely or within budget. If we are unable to obtain such funds in a timely manner or at all, if the cost of such funds is higher than we anticipate, if there are cost overruns or construction delays, or if we are not able to obtain the governmental permits and third party easements required or necessary to initiate or complete the project, there could be a negative effect on our revenues and operations.

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Increased industry-wide production of biodiesel due to potential utilization of existing excess production capacity, announced plant expansions of RD and potential co-processing of RD by petroleum refiners, could reduce prices for our fuel and increase costs of feedstocks, which would seriously harm our revenues and operations.
If additional volumes of advanced biofuel RIN production comes online and the EPA does not increase the RVO in accordance with the increased production, the volume of advanced biofuel RINs generated could exceed the volume required under the RFS2.  In the event this occurs, biomass-based diesel and advanced biofuel RIN prices would be expected to decrease, potentially significantly, harming demand for our products and our profitability.
According to the EPA, in 2018, 4.1 billion gallons per year of biomass-based diesel production capacity in the United States were registered under the RFS2 program. This amount far exceeds both historic consumption of biomass-based diesel in the United States and required consumption under the RFS2.
Additionally, several leading biomass-based diesel companies have announced their intention to expand production of RD for the U.S. market. World Energy has announced that it will expand capacity at its Los Angeles area biorefinery from 45 mmgy to over 300 mmgy. Diamond Green Diesel, the largest U.S. producer of RD, is expanding its 275 mmgy capacity by 400 mmgy as well as planning an additional 470 mmgy biorefinery in Texas. Neste, the largest global producer of RD, has announced that it is expanding its Singapore facility which exports a significant portion of its production to the U.S. West Coast. Traditional petroleum refiners are also planning to enter the RD market with Holly Frontier, Marathon Petroleum and Philips 66 announcing new biorefineries or the conversion of existing refineries to RD production facilities.
Further, due to economic incentives available, several petroleum refiners have started or may soon start to produce co-processed RD, or CPRD. CPRD uses the same feedstocks to produce biomass-based diesel and it generates an advanced biofuel RIN. CPRD may be more cost-effective to produce than biomass-based diesel, particularly biodiesel.
If production of competitive advanced biofuels increases significantly as a result of utilization of existing excess production capacity or new capacity as described above, competition for feedstocks would increase significantly, harming margins. Furthermore, if supply of advanced biofuels exceeds demand, prices for RD and for RINs and other credits may decrease significantly, harming profitability and potentially forcing us to idle facilities.

Our gross margins are dependent on the spread between biomass-based diesel prices and feedstock costs, each of which are volatile and can cause our results of operations to fluctuate substantially.
Biomass-based diesel has traditionally been marketed primarily as an additive or alternative to petroleum-based diesel fuel, and, as a result, biomass-based diesel prices have been heavily influenced by the price of petroleum-based diesel fuel, adjusted for government incentives supporting renewable fuels, more so than biomass-based diesel production costs. The absence of a close correlation between production costs and biomass-based diesel prices means that we may be unable to pass increased production costs on to our customers in the form of higher prices. If there is a decrease in the spread between biomass-based diesel prices and feedstock costs, whether as a result of an increase in feedstock prices or as a result of a reduction in biomass-based diesel and credit prices, gross margins, cash flow and operations would be adversely affected.
Energy prices, particularly the market price for crude oil, are volatile. The NYMEX ULSD prices decreased signficantly in 2020 as a result of the COVID-19 pandemic, ranging from a high of $2.06 per gallon to a historic low of $0.61 per gallon.
In addition, an element of the price of biomass-based diesel that we produce is the value of the associated credits, including RINs. RIN prices in the biomass-based diesel category, as reported by the Oil Pricing Information System ("OPIS"), have been highly volatile in 2020, ranging from $0.37 to $1.03 per RIN, while in 2019, RIN prices ranged from $0.32 to $0.65 per RIN. For the past several years there has been significant volatility in RIN prices. Reductions in RIN values, such as those experienced in prior years, may have a material adverse effect on our revenues and profits as they directly reduce the value that we are able to capture for our biomass-based diesel.
A decrease in the availability or an increase in the price of feedstocks may have a material adverse effect on our financial condition and operating results. The price and availability of feedstocks and other raw materials may be influenced by general economic, market, environmental, and regulatory factors. During periods when the BTC has lapsed, biomass-based diesel producers may elect to continue purchasing feedstock and producing biomass-based diesel at negative margins under the assumption the BTC will be retroactively reinstated, and consequently, the price of feedstocks may not decrease to a level proportionate to current operating margins. Increasing production of biomass-based diesel puts pressure on feedstock supply and availability to the biomass-based diesel industry. The biomass-based diesel industry may have difficulty in procuring feedstocks at economical prices if competition for biomass-based diesel feedstocks increases due to newly added capacity.
Historically, the spread between biomass-based diesel prices and feedstock costs has varied significantly. Although actual yields vary depending on the feedstock quality, the average monthly spread between the price per gallon of B100 as reported by OPIS, and the price per gallon for the amount of choice white grease necessary to produce one gallon of B100 was $1.37 in 2018, $0.97 in 2019 and $1.12 in 2020, assuming eight pounds of choice white grease yields one gallon of biomass-based diesel.
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The average monthly spread for the amount of crude soybean oil required to produce one gallon of B100, based on the nearby futures contract as reported on the Chicago Board of Trade, was $0.74 in 2018, $0.59 in 2019 and $0.70 in 2020, assuming 7.5 pounds of soybean oil yields one gallon of biomass-based diesel. For each year 2018, 2019 and 2020, approximately 77%, 71% and 65%, respectively, of our annual total feedstock usage was distillers corn oil, used cooking oil or inedible animal fat, and approximately 23%, 29% and 35%, respectively, was virgin vegetable oils. When the spread between biomass-based diesel prices and feedstock prices narrows, our profitability will be harmed.

Risk management transactions could significantly increase our operating costs and may not be effective.
In an attempt to partially offset the effects of volatile feedstock costs and biomass-based diesel fuel prices, we enter into contracts that establish market positions in feedstocks, such as distillers corn oil, used cooking oil, inedible animal fats and soybean oil, along with related commodities, such as heating oil and ULSD. The financial impact of such market positions depends on commodity prices at the time that we are required to perform our obligations under these contracts as well as the cumulative sum of the obligations we assume under these contracts.
Risk management activities can themselves result in losses when a position is purchased in a declining market or a position is sold in a rising market. Risk management arrangements expose us to the risk of financial loss where the counterparty defaults on its contract or, in the case of exchange-traded or over-the-counter futures or options contracts, where there is a change in the expected differential between the underlying price in the contract and the actual prices paid or received by us. Changes in the value of these futures instruments are recognized in current income and may result in margin calls. We had risk management gains of $36.9 million from our derivative financial instrument trading activity for the year ended December 31, 2020, compared to risk management losses of $28.9 million for the year ended December 31, 2019. At December 31, 2020, the net notional volumes of NY Harbor ULSD, CBOT Soybean Oil and NYMEX Natural Gas covered under our open risk management contracts were approximately 50.4 million gallons, 27.0 million pounds and 3.2 million million British thermal units, respectively. A 10% positive change in the prices of NYMEX NY Harbor ULSD would have a negative effect of $7.5 million on the fair value of these instruments at December 31, 2020. A 10% positive change in the price of CBOT Soybean Oil would have had a negative effect of $1.1 million on the fair value of these instruments at December 31, 2020. If these adverse changes in derivative instrument fair value were to occur in larger magnitude or simultaneously, a significant amount of liquidity would be needed to fund margin calls.  In addition, we may also vary the amount of risk management strategies we undertake, or we may choose not to engage in risk management transactions at all.  Our results of operation may be negatively impacted if we are not able to manage our risk management strategy effectively.

One customer accounted for a meaningful percentage of revenues and a loss of this customer could have an adverse impact on our total revenues.
One customer, Pilot Travel Centers LLC ("Pilot"), the largest operator of travel centers in North America, accounted for 19%, 17% and 18% of our total biodiesel gallons sold in each of 2020, 2019 and 2018, respectively. In the event we lose Pilot as a customer or Pilot significantly reduces the volume of biomass-based diesel purchased from us, it could be difficult to replace the lost revenues, and our profitability and cash flow could be materially harmed. We do not have a long-term contract with Pilot that ensures a continuing level of business from Pilot.

Our facilities and our customers' facilities are subject to risks associated with fire, explosions, leaks, and natural disasters, including climate change, which may disrupt our business and increase costs and liabilities.
Because biomass-based diesel and some of its inputs and outputs are combustible and/or flammable, a leak, fire or explosion may occur at a plant or customer’s facility which could result in damage to the plant and nearby properties, injury or death to employees and others, and interruption of operations. For example, we experienced fires at our Geismar facility in April 2015 and again in September 2015 and there was a fire at our Madison facility in June 2017. As a result of these fires, people were injured, and the affected facilities were shut down for lengthy periods while repairs and upgrades were completed.
The operations at our facilities are also subject to the risk of natural disasters. Our Houston and Geismar facilities, due to their Gulf Coast locations, are vulnerable to hurricanes and flooding, which may cause plant damage, injury or death to employees and others and interruption of operations. For example, in August 2016 we experienced reduced operating days at our Geismar facility as a result of local area flooding and reduced operating days at our Houston facility as a result of Hurricane Harvey in August 2017. A majority of our facilities are located in the Midwest and are subject to tornado activity. In addition, California has become one of our largest markets, serviced by our Geismar and Midwest facilities. An earthquake or other natural disaster could disrupt our ability to transport, store and deliver products to California. Changing weather patterns and climatic conditions, such as global warming, have added to the unpredictability and frequency of natural disasters and have created additional uncertainty. The Company's operations could be exposed to a number of physical risks from climate change, such as changes in rainfall rates, rising sea levels, reduced water availability, higher temperatures, fire and other extreme weather
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events. We are not able to accurately predict the materiality of any potential losses or costs associated with the physical effects of climate change.
If we experience a fire or other serious incident at our facilities or if any of our facilities is affected by a natural disaster, we may incur significant additional costs, including, loss of profits due to unplanned temporary or permanent shutdowns of our facilities, loss of the ability to transport products or increased costs to do so, cleanup costs, liability for damages or injuries, legal and reconstruction expenses. The incurrence of significant additional costs would harm our results of operations and financial condition.

In addition to biodiesel and RD, we store and transport petroleum-based fuels.  The dangers inherent in the storage and transportation of fuels could cause disruptions in our operations and could expose us to potentially significant losses, costs or liabilities.
We store fuel in above ground storage tanks and transport fuel in our own trucks as well as with third-party truck and rail carriers. Our operations are subject to significant hazards and risks inherent in transporting and storing fuel. These hazards and risks include, but are not limited to, accidents, fires, explosions, spills, discharges, and other releases, any of which could result in distribution difficulties and disruptions, environmental pollution, governmentally-imposed fines or clean-up obligations, personal injury or wrongful death claims, and other damage to property. Any such event not covered by our insurance could have a material adverse effect on our business, financial condition and results of operations.

Our insurance may not protect us against our business and operating risks.
We maintain insurance for some, but not all, of the potential risks and liabilities associated with our business. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially and, in some instances, certain insurance policies may become unavailable or available only for reduced amounts of coverage. As a result, we may not be able to renew our existing insurance policies or procure other desirable insurance on commercially reasonable terms, if at all. Although we intend to maintain insurance at levels that we believe are appropriate for our business and consistent with industry practice, we will not be fully insured against all risks. In addition, pollution, environmental risks and the risk of natural disasters generally are not fully insurable. Losses and liabilities from uninsured and underinsured events and delay in the payment of insurance proceeds could have a material adverse effect on our financial condition and results of operations.

We operate in a highly competitive industry and expect that competition in our industry will increase.
The biomass-based diesel industry primarily comprises smaller entities that engage exclusively in biodiesel production, large integrated agribusiness companies that produce biodiesel along with their soybean crush businesses and increasingly, integrated petroleum companies producing renewable diesel. We face competition for capital, labor, feedstocks and other resources from these companies. In the United States, we compete with soybean processors and refiners, including Archer-Daniels-Midland Company, Cargill, and Louis Dreyfus Commodities. In Europe, we compete directly with Greenergy, KFS, Mercuria, Neste and Sunoil. Our indirect competitors in the European market are British Petroleum, Cargill, Shell and Vitol.
In addition, petroleum refiners across the globe are increasingly entering into the biomass-based diesel or advanced biofuels business, and many petroleum refiners are converting their existing plants to produce biofuels. Such petroleum refiners include Neste Corporation RD production capacity in Asia and Europe, and Valero Energy Corporation through its Diamond Green Diesel joint venture in the United States. In addition, petroleum refiners such as British Petroleum, Eni SPA, Holly Frontier, Philips 66, Marathon Petroleum, Repsol, Saras SRS, Sinclair, and Total SE, have announced that they have begun or have plans to begin producing renewable diesel at a new facility or at a current refinery and/or co-processing biomass-based diesel or advanced biofuels at certain of their refineries. All of these named competitors and potential competitors may have greater financial resources than we do and may be able to produce biomass-based diesel at a lower cost than we do due to their integrated operations or greater refining capacity.
According to EIA's Short Term Energy Outlook projections, production of biomass-based diesel and advanced biofuels business is expected to increase by 19% in 2021 as compared to 2020. The increased production of biomass-based diesel or advanced biofuels may increase the demand and prices for feedstocks and other inputs which may materially adversely affect our profitability and results of operations.
Petroleum companies and diesel retailers form the primary distribution networks for marketing biomass-based diesel through blended petroleum-based diesel. If these companies increase their direct or indirect biomass-based diesel production, including in the form of co-processing, there will be less need to purchase biomass-based diesel from independent biomass-based diesel producers like us. Such a shift in the market would materially harm our operations, cash flows and profitability.
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We are dependent upon one supplier to provide hydrogen necessary to execute our RD production process and the loss of this supplier could disrupt our production process.
Our Geismar facility relies on one supplier to provide hydrogen necessary to execute the production process. Any disruptions to the hydrogen supply during production from this supplier will result in the shutdown of our Geismar plant operations.

Technological advances and changes in production methods in the biomass-based diesel industry could render our plants obsolete and adversely affect our ability to compete.
Advances in the process of converting oils and fats into biodiesel and RD, including CPRD, could allow our competitors to produce biomass-based diesel faster and more efficiently and at a substantially lower cost. In addition, we currently produce biomass-based diesel to conform to or exceed standards established by the American Society for Testing and Materials ("ASTM"), whose standards for biomass-based diesel and biomass-based diesel blends may be modified in response to new technologies from the industries involved with diesel fuel.
New standards or production technologies may require us to make additional capital investments in, or modify, plant operations to meet these standards. If we are unable to adapt or incorporate technological advances into our operations, our production facilities could become less competitive or obsolete. Further, it may be necessary for us to make significant expenditures to acquire any new technology, acquire licenses or other rights to technology and retrofit our plants in order to remain competitive. There is no assurance that we will be able to obtain such technologies, licenses or rights on favorable terms. If we are unable to obtain, implement or finance new technologies, our production facilities could be less efficient, and our ability to produce biomass-based diesel on a competitive level may be harmed, negatively impacting our revenues and profitability.

Our intellectual property is integral to our business. If we are unable to protect our intellectual property, or others assert that our operations violate their intellectual property, our business could be adversely affected.
We rely on a combination of intellectual property rights, including patents, copyrights, trademarks and trade secrets in the United States and in select foreign countries to protect our intellectual property. Effective patent, copyright, trademark and trade secret protection may be unavailable, limited or not obtained in some countries.
We rely in part on trade secret protection to protect our knowhow, confidential and proprietary information and processes. However, trade secrets are difficult to protect. We have taken measures to protect our trade secrets and proprietary information, but these measures may not be effective. For example, we require new employees and consultants to execute confidentiality agreements upon the commencement of their employment or consulting arrangement with us. These agreements generally require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. These agreements also generally provide that knowhow and inventions conceived by the individual in the course of rendering services to us are our exclusive property. Nevertheless, these agreements may be breached, expire, or may not be enforceable, and our proprietary information may be disclosed. Despite the existence of these agreements, third parties may independently develop equivalent proprietary information and techniques.
It may be difficult to protect and enforce our intellectual property and litigation initiated to enforce and determine the scope of our proprietary rights can be costly and time-consuming. Adverse judicial decision(s) in any legal action could limit our ability to assert our intellectual property rights, limit our ability to develop new products, limit the value of our technology or otherwise negatively impact our business, financial condition and results of operations.
A competitor could seek to enforce intellectual property claims against us. Defending intellectual property claims asserted against us, regardless of merit, could be time-consuming, expensive to litigate or settle, divert management resources and attention and force us to acquire intellectual property rights and licenses, which may involve substantial royalty payments. Further, a third party claim, if successful, could secure a judgment that requires us to pay substantial damages limits our operations.

Increases in transportation costs or disruptions in transportation services could have a material adverse effect on our business.
Our business depends on transportation services. The costs of these transportation services are affected by the volatility in fuel prices or other factors. Prices per Platts Group 3 (Midwest) increased moderately throughout 2019 with the prices approaching two dollars at the end of the year. Prices decreased steadily in the first two months of 2020 and then plummeted to its low point in late April of $0.62 and prices slowly increased through mid-November and then increased more rapidly ending the year at $1.46.
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Our transportation costs are also affected by U.S. oil production in the Bakkens, which has had a significant impact on tank car availability and prices. If oil production from this area increases, the demand for rail cars will rise and will significantly increase rail car prices. We have not been able in the past, and may not be able in the future, to pass along part or all of any of these price increases to customers.
If we continue to be unable to increase our prices as a result of increased fuel costs charged to us by transportation providers, our gross margins may be materially adversely affected. If any transportation providers fail to deliver raw materials to us in a timely manner, we may be unable to manufacture products on a timely basis. Shipments of products and raw materials may be delayed and any such delay or failure could harm our reputation, negatively affect our customer relationships and have a material adverse effect on our business, financial condition and results of operations.

We are dependent upon our key management personnel and other personnel, and the loss of these personnel could adversely affect our business and results of operations.
Our success depends on the abilities, expertise, judgment, discretion, integrity and good faith of our management and employees. We are highly dependent upon key members of our relatively small management team and employee base that possess unique technical skills for the operation of our facilities and the execution of our business plan. The inability to retain our management team and employee base or attract suitably qualified replacements and additional staff could adversely affect our business. The loss of employees could delay or prevent the achievement of our business objectives and have a material adverse effect upon our results of operations and financial position.

We may encounter difficulties in integrating the businesses we acquire, including our international businesses where we have limited operating history.
We may face significant challenges in integrating entities and businesses that we acquire, and we may not realize the benefits anticipated from such acquisitions. Our integration of acquired businesses involves a number of risks, including:
difficulty in integrating the operations and retaining of personnel of the acquired company;
difficulty in effectively integrating the acquired technologies, products or services with our current technologies, products or services;
demands on management related to the increase in our size after an acquisition and integration of the acquired business and personnel;
failure to achieve expected synergies and costs savings;
difficulties in the assimilation of different cultures and practices, as well as in the assimilation of broad and geographically dispersed personnel and operations;
difficulties in the integration of departments, systems, including accounting systems, technologies, books and records and procedures, as well as in maintaining uniform standards and controls, including internal control over financial reporting, and related procedures and policies;
the incurrence of acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;
the need to fund significant working capital requirements of any acquired production facilities;
potential failure of the due diligence processes to identify significant problems, liabilities or other shortcomings or challenges of an acquired company or technology, including but not limited to, issues with the acquired company’s intellectual property, product quality, environmental liabilities, data back-up and security, revenue recognition or other accounting practices, employee, customer or partner issues or legal and financial contingencies;
exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, an acquisition, including but not limited to, claims from terminated employees, customers, former stockholders or other third parties;
the incurrence of significant exit charges if products or services acquired in business combinations are unsuccessful;
challenges caused by distance, language, cultural differences, political economic and social instability;
difficulties in protecting and enforcing our intellectual property rights;
the inability to extend proprietary rights in our technology into new jurisdictions;
currency exchange rate fluctuations and foreign tax consequences;
general economic and political conditions in foreign jurisdictions;
foreign exchange controls or U.S. tax laws in respect of repatriating income earned outside the United States;
compliance with the U.S.'s Foreign Corrupt Practices Act and other similar anti-bribery and anti-corruption regulations, and
higher costs associated with doing business internationally, such as those associated with complying with export, import regulations and trade and tariff restrictions.
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Our failure to successfully manage and integrate our acquisitions could have an adverse effect on our operating results, ability to recognize international revenue, and our overall financial condition.

We incur significant expenses to maintain and upgrade our operating equipment and plants, and any interruption in the operation of our facilities may harm our operating performance.
The machines and equipment that we use to produce our products are complex, have many parts and some operate on a continuous basis. We must perform routine maintenance on our equipment and will have to periodically replace a variety of parts and components. In addition, our facilities require periodic shutdowns to perform major maintenance and upgrades. These scheduled shutdowns of facilities result in decreased sales and increased costs in the periods in which a shutdown occurs and could result in unexpected operational issues as a result of changes to equipment, operational and mechanical processes made during the shutdown.

Growth in the use, sale and distribution of biodiesel is dependent on the expansion of related infrastructure which may not occur on a timely basis, if at all, and our operations could be adversely affected by infrastructure limitations or disruptions.
While RD has the same chemical composition as petroleum diesel and can utilize the same distribution infrastructure, biodiesel has a different chemical composition and may require separate or additional infrastructure. Growth in the biodiesel market depends on continued development and expansion of infrastructure for the distribution of biodiesel, which may or may not occur and which is outside of our control. Also, we compete with other biofuel companies for access to some of the key infrastructure components, and the increased production of biodiesel will increase the demand and competition for necessary infrastructure. Any delay or failure in expanding distribution infrastructure could hurt the demand for or prices of biodiesel, impede delivery of our biodiesel, and impose additional costs, each of which would have a material adverse effect on our results of operations and financial condition.

Our business is subject to seasonal changes based on regulatory factors and weather conditions and this seasonality could cause our revenues and operating results to fluctuate.
Our operating results are influenced by seasonal fluctuations in the price of and demand for biomass-based diesel. Seasonal fluctuations may be based on both the weather and the status of both the BTC and RVO.
Demand for our biomass-based diesel may be higher in the quarters leading up to the expiration of the BTC as customers seek to purchase biomass-based diesel when they can benefit from the agreed upon value sharing of the BTC with producers. This higher demand prompted by an expiring BTC has often resulted in reduced demand for biodiesel in the following quarter. In addition, RIN prices may also be subject to seasonal fluctuations. The RIN is dated for the calendar year in which it is generated. Since 20% of an obligated party's annual RVO 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 increase as the calendar year progresses if the RIN market is undersupplied compared to that year's RVO and decrease if it is oversupplied.
Weather also impacts our business because biodiesel typically has a higher cloud point than petroleum-based or renewable diesel. The cloud point is the temperature below which a fuel exhibits a noticeable cloudiness and eventually gels, leading to fuel handling and performance problems for customers and suppliers. Reduced demand in the winter for our higher cloud point biodiesel may result in excess supply of such higher cloud point biodiesel and lower prices for such higher cloud point biodiesel. Most of our production facilities are located in colder Midwestern states and our costs of shipping biodiesel to warmer climates generally increase in cold weather months.
The tendency of biodiesel to gel in colder weather may also result in long-term storage problems. In cold climates, fuel may need to be stored in a heated building or heated storage tanks, which results in higher storage costs. Higher cloud point biodiesel may have other performance problems, including the possibility of particulate formation above the cloud point which may result in increased expenses as we try to remedy these performance problems, including the costs of extra cold weather treatment additives. Remedying these performance problems may result in decreased yields, lower process throughput or both, as well as substantial capital costs. Any reduction in the demand for our biodiesel product, or the production capacity of our facilities will reduce our revenues and have an adverse effect on our cash flows and results of operations.

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Failure to comply with governmental and state regulations, including EPA requirements relating to RFS2, BTC, LCFS and other programs or new laws designed to deal with climate change, could result in the imposition of higher costs, penalties, fines, or restrictions on our operations and remedial liabilities.
The biomass-based diesel industry is subject to extensive federal, state and local laws and regulations, and we could be held strictly liable for the removal or remediation of previously released materials or property contamination regardless of whether we were responsible for the release or contamination, and regardless of whether current or prior operations were conducted consistent with the accepted standards of practice. Many of our assets and plants were acquired from third parties and we may incur costs to remediate property contamination caused by previous owners. In addition, we are subject to similar laws and regulations in Europe and Canada for the renewable fuels we sell there. Compliance with these laws, regulations and obligations could require substantial capital expenditures.
Changes in environmental laws and regulations occur frequently, and changes resulting in more stringent or costly waste handling, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to attain and maintain compliance. Climate change continues to attract considerable attention globally. Numerous proposals have been made and could continue to be made at the international, national, regional, state and local levels of government to monitor and limit existing emissions of GHGs as well as to restrict or eliminate future emissions. As a result, our operations are subject to a series of regulatory, litigation and financial risks associated with the production and transportation of biofuel products and emission of GHGs. The potential effects of GHG emission limits on our business are subject to significant uncertainties based on, among other things, the timing of the implementation of any new requirements, the required levels of emission reductions, and the nature of any market-based or tax-based mechanisms adopted to facilitate reductions. Compliance with changes in laws and regulations relating to climate change could increase our costs of operating and could require us to make significant financial expenditures that cannot be predicted with certainty at this time. We are subject to various laws and regulations including RFS2, BTC, LCFS, and other jurisdictions. These regulations are highly complex and continuously evolving, requiring us to periodically update our systems to maintain compliance, which could require significant expenditures. In 2014, the EPA issued a final rule to establish a quality assurance program and the EPA also implemented regulations related to the generation and sale of biomass-based diesel RINs. Any violation of these regulations by us, could result in significant fines and harm our customers’ confidence in the RINs we issue, either of which could have a material adverse effect on our business.

RD fuel is superior to biodiesel in certain respects and if RD production capacity increases to a sufficient extent, it could largely supplant biodiesel; we may not be successful in expanding our RD production capacity.
RD is not as widely available as biodiesel, but it has certain characteristics that favorably distinguish it from biodiesel and as a result renewable diesel carries a price premium compared to biodiesel. For example, RD has very similar chemical properties to petroleum-based diesel, which permits 100% RD (unlike 100% biodiesel) to flow through the same fuel storage and distribution network as petroleum diesel. RD can be used in its pure form in modern engines rather than as a blend with petroleum diesel and has similar cold weather performance as petroleum diesel. RD and CPRD may receive 1.6 or 1.7 RINs per gallon, whereas biodiesel receives 1.5 RINs per gallon. As the value of RINs increases, this RIN advantage makes RD more cost-effective, both as a petroleum-based diesel substitute and for meeting RFS2 requirements. If RD proves to have superior performance characteristics and is more cost-effective than biodiesel, revenues from our biodiesel plants and our results of operations would be adversely impacted.

Nitrogen oxide emissions from biodiesel may harm its appeal as a renewable fuel and increase costs.
In some instances, biodiesel may increase emissions of nitrogen oxide as compared to petroleum-based diesel fuel, which could harm air quality. Nitrogen oxide is a contributor to ozone and smog. While newer diesel engines are believed to eliminate any such increase, emissions from older vehicles may decrease the appeal of biodiesel to environmental groups and agencies who have been historic supporters of the biodiesel industry, potentially harming our ability to market biodiesel.
In addition, several states may act to regulate potential nitrogen oxide emissions from biodiesel. California adopted regulations that limit the volume of biodiesel that can be used or requires an additive to reduce potential emissions. In states where such an additive is required to sell biodiesel, the additional cost of the additive may make biodiesel less profitable or make biodiesel less cost competitive against petroleum-based diesel or RD, which would negatively impact our ability to sell biodiesel in such states and therefore have an adverse effect on our revenues and profitability.
In addition, there may also be requirements of fleet and retail fueling station owners to reduce nitrogen oxide emissions. The requirements relate to the type of vehicle and age of the vehicle. These requirements could result in additional costs for the operators and therefore may make the use of biodiesel less attractive, which could negatively impact our ability to sell biodiesel in such states and therefore have an adverse effect on our revenues and profitability.


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RISKS RELATED TO OUR INDEBTEDNESS

We and certain subsidiaries have indebtedness, which subjects us to potential defaults, that could adversely affect our ability to raise additional capital to fund our operations and limits our ability to react to changes in the economy or the biomass-based diesel industry.
At December 31, 2020, our total term debt before debt issuance costs was $67.0 million. This includes $47.1 million aggregate carrying value on our $59.6 million face amount, 4.00% convertible senior notes due in June 2036, which we refer to as the "2036 Convertible Senior Notes". At December 31, 2020, our total term debt also includes borrowings at our Ralston facility of $13.2 million and at REG Capital LLC. of $6.7 million. At December 31, 2020, we also had undrawn availability under our lines of credit, as discussed below.
Our indebtedness could:
require us to dedicate a substantial portion of our cash flow from operations to payments of principal, interest on, and other fees related to such indebtedness, thereby reducing the availability of our cash flow to fund working capital and capital expenditures, and for other general corporate purposes;
increase our vulnerability to general adverse economic and biomass-based diesel industry conditions, including interest rate fluctuations, because a portion of our revolving credit facilities are and will continue to be at variable interest rates, and
limit our flexibility in planning for, or reacting to, changes in our business and the biomass-based diesel industry, which may place us at a competitive disadvantage compared to our competitors that have less debt.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the 2036 Convertible Senior Notes, depends on our future financial performance, which is subject to several factors including economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to satisfy our obligations under our indebtedness or any future indebtedness we may incur as well as our ability to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional capital on terms that may be onerous or highly dilutive. Our ability to refinance our existing or future indebtedness will depend on the conditions in the capital markets and our financial condition prior to maturity of the indebtedness.

We may still incur significant additional indebtedness that could increase the risks associated with our indebtedness.
We and our subsidiaries may be able to incur substantial additional indebtedness, including additional secured indebtedness, in the future. As of December 31, 2020, we had $149.7 million of undrawn availability under our lines of credit, subject to borrowing base limitations. In addition, the indenture governing the 2036 Convertible Senior Notes does not prevent us from incurring additional indebtedness or other liabilities that constitute indebtedness. We currently expect to fund the estimated $825 million of capital expenditures in connection with the expansion of our Geismar, Louisiana facility with a combination of cash on hand, marketable securities, borrowings under our credit facilities, offerings of equity and debt or from other sources. If we are unable to complete the expansion within the estimated budget, we will require additional funds to do so. If new debt or other liabilities are added to our current debt levels, the related risks that we and our subsidiaries now face could intensify.

We may not have the ability to raise the funds necessary to settle conversions of our convertible notes in cash or to repurchase the convertible notes for cash upon a fundamental change or on a repurchase date, and our future debt may contain limitations on our ability to repurchase the convertible notes.
We may settle conversion of the 2036 Convertible Senior Notes in cash, shares of our common stock, or a combination of cash and stock. If we choose to use our common stock to settle conversions, dilution to existing stockholders can result. If we choose to use cash to settle conversion, we will need to use available cash, which will result in our inability to use that cash for other purposes such as our capital expenditures.
Holders of the 2036 convertible Senior Notes have the right to require us to repurchase their notes upon the occurrence of a fundamental change, as defined in the indenture governing the notes, at a repurchase price generally equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, if any. In addition, holders of the 2036 Convertible Senior Notes have the right to require us to repurchase their notes on each of June 15, 2021, June 15, 2026 and June 15, 2031 at a repurchase price generally equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, if any. We may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of the 2036 Convertible Senior Notes.
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In addition, our ability to repurchase the 2036 Convertible Senior Notes may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our failure to repurchase 2036 Convertible Senior Notes at a time when the repurchase is required by the indenture would constitute a default under the indenture governing the 2036 Convertible Senior Notes. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the convertible notes.

Certain provisions in the indenture governing the 2036 Convertible Senior Notes could delay or prevent an otherwise beneficial takeover or takeover attempt of us.
Certain provisions in the 2036 Convertible Senior Notes and the indenture could make it more difficult or more expensive for a third party to acquire us. For example, if a takeover would constitute a fundamental change, holders of the 2036 Convertible Senior Notes will have the right to require us to repurchase their 2036 Convertible Senior Notes in cash. In addition, if a takeover constitutes a make-whole fundamental change, we may be required to increase the conversion rate for holders who convert their 2036 Convertible Senior Notes in connection with such takeover. In either case, and in other cases, our obligations under the 2036 Convertible Senior Notes and the indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.

We are a holding company and there are limitations on our ability to receive dividends and distributions from our subsidiaries.
All of our principal assets, including our biomass-based diesel production facilities, are owned by subsidiaries and some of these subsidiaries are subject to loan covenants that generally restrict them from paying dividends, making distributions or making loans to us or to any other subsidiary. These limitations will restrict our ability to repay indebtedness, finance capital projects or pay dividends to stockholders from our subsidiaries' cash flows from operations.

Our debt agreements impose significant operating and financial restrictions on our subsidiaries, which may prevent us from capitalizing on business opportunities.
Certain of our revolving and term credit agreements, including our M&L and Services Revolver, impose significant operating and financial restrictions on certain of our subsidiaries. These restrictions limit certain of our subsidiaries’ ability, among other things, to:
incur additional indebtedness or issue certain disqualified stock and preferred stock;
place restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments to us;
engage in transactions with affiliates;
sell certain assets or merge with or into other companies;
guarantee indebtedness; and
create liens.
When (and for as long as) the availability under the M&L and Services Revolver is less than a specified amount for a certain period of time, funds deposited into deposit accounts used for collections will be transferred on a daily basis into a blocked account with the administrative agent and applied to prepay loans under the M&L and Services Revolver.
As a result of these covenants and restrictions, we may be limited in how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. There is no assurance that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.
There are limitations on our ability to incur the full amount of revolving commitments under the M&L and Services Revolver. Currently, the maximum aggregate principal amount of revolving commitments that we may borrow under the M&L and Services Revolver is $150.0 million. In addition, these revolving commitments are further limited by a specified borrowing base consisting of a percentage of eligible accounts receivable and inventory, less customary reserves. In addition, under the M&L and Services Revolver, a monthly fixed charge coverage ratio would become applicable if excess availability under the M&L and Services Revolver is less than 10% of the then current revolving loan commitments which equates to $15 million. As of December 31, 2020, availability under the M&L and Services Revolver was approximately $149.7 million. However, it is possible that excess availability under the Revolving Credit could fall below the applicable threshold in a future period. If the covenant trigger were to occur, our subsidiaries who are the borrowers under the M&L and Services Revolver would be required
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to satisfy and maintain on the last day of each month a fixed charge coverage ratio of at least 1.0x for the preceding twelve month period.
As of December 31, 2020, the fixed charge coverage ratio for our M&L and Services Revolver was approximately 0.368, which was less than the minimum amount required for compliance with this ratio. However, as noted above, we are not required to comply with the minimum fixed charge covenant of 1.0 unless availability under the M&L and Services Revolver drops below the agreed threshold. Our ability to meet the required fixed charge coverage ratio can be affected by events beyond our control, and we cannot assure you that we will meet this ratio. A breach of any of these covenants would result in a default under the M&L and Services Revolver.

RISKS RELATED TO OUR COMMON STOCK

The market price for our common stock may be volatile.
The market price for our common stock is likely to be highly volatile and subject to wide fluctuations in response to factors including the following:
actual or anticipated fluctuations in our financial condition and operating results;
changes in the performance or market valuations of other companies engaged in our industry;
issuance of new or updated research reports by securities or industry analysts;
changes in financial estimates by us or of securities or industry analysts;
investors’ general perception of us and the industry in which we operate;
changes in the political climate in the industry in which we operate, existing laws, regulations and policies applicable to our business and products, including RFS2, and the continuation or adoption or failure to continue or adopt renewable energy requirements and incentives, including the BTC;
other regulatory developments in our industry affecting us, our customers or our competitors;
announcements of technological innovations by us or our competitors;
announcement or expectation of additional financing efforts, including sales or expected sales of additional common stock;
additions or departures of key management or other personnel;
litigation;
inadequate trading volume;
general market conditions in our industry;
the effects of the COVID-19 pandemic and measures to address the pandemic;
whether our shares are included in stock market indexes such as the S&P SmallCap 600 index; and
general economic and market conditions, including continued dislocations and downward pressure in the capital markets.
In addition, stock markets experience significant price and volume fluctuations from time to time that are not related to the operating performance of particular companies. These market fluctuations may have material adverse effect on the market price of our common stock.

We may issue additional common stock as consideration for future investments or acquisitions.
We have issued in the past, and may issue in the future, our securities in connection with investments and acquisitions. Our stockholders could suffer significant dilution, from our issuances of equity or convertible debt securities. Any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. The amount of our common stock or securities convertible into or exchangeable for our common stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding common stock.

If we fail to maintain effective internal control over our financial reporting and financial forecasting, we may not be able to report our financial results accurately, provide accurate financial guidance or prevent fraud, and if we fail to maintain effective internal governance and conduct policies, such as our Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers and Trading by Insiders Policy, or if our employees fail to adhere to such policies, we may be unable to maintain a proper control environment. If any of these failures occur, our business could be harmed, our stockholders could lose confidence in our financial reporting and financial guidance or our business integrity and we could suffer negative regulatory scrutiny or media attention, which could negatively impact the value of our stock.
Effective internal controls over our financial reporting and adherence to our internal governance and conduct policies are necessary for us to provide reliable financial reports and to prevent fraud. The process of maintaining our internal controls may be expensive and time consuming and may require significant attention from management. The failure to do so may harm our business or our reputation and could negatively impact the value of our stock. Even if our management concludes that, as of the
24


end of a fiscal quarter or fiscal year, our internal control over financial reporting provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements.

In addition, failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting firm discover a material weakness in our internal control over financial reporting, the disclosure of that weakness could harm the value of our stock and our business.

As a result of the matters discussed in the explanatory note to the Form 10-K/A filed by us on February 25, 2021, we concluded that our previously issued audited consolidated financial statements for fiscal years ended December 31, 2019 and 2018, each of our unaudited condensed consolidated financial statements for the quarterly and year-to-date periods during such years, and related disclosures, as well as our unaudited condensed consolidated financial statements and related disclosures for the quarterly periods ended March 31, June 30 and September 30, 2020, should be restated. As a result of these restatements and the errors that resulted in these restatements, we are subject to additional risks and uncertainties, including potential litigation and loss of investor confidence.
In connection with this restatement of our historical consolidated financial statements, we identified a material weakness in our internal control over financial reporting, and management concluded that our internal control over financial reporting and disclosure controls and procedures were not effective as of December 31, 2020. For further discussion of the material weakness, please see Item 9A of this report, “Controls and Procedures.”
We have undertaken remediation efforts designed to address the material weakness. If we are unsuccessful in remediating our existing or any future material weaknesses or other deficiencies in our internal control over financial reporting or disclosure controls and procedures, investors may lose confidence in our financial reporting and the accuracy and timing of our financial reporting and disclosures and our business, reputation, results of operations, liquidity, financial condition, ability to access the capital markets, perceptions of our creditworthiness, and ability to complete acquisitions could be adversely affected. In addition, we may be unable to maintain or regain compliance with applicable securities laws, stock market listing requirements, and the covenants under our debt instruments regarding the timely filing of periodic reports; we may be subject to regulatory investigations and penalties; we may suffer defaults or accelerations under our debt instruments to the extent we are unable to obtain waivers from the required creditors or counterparties or are unable to cure any breaches; and our stock price may decline.
Further, effective financial forecasting is necessary for us to provide reliable financial guidance. The process of providing accurate financial guidance may be expensive and time consuming, may require significant attention from management, and is inherently uncertain. Nevertheless, the failure to do so accurately may harm our business or our reputation and could negatively impact the value of our stock. For example, in the second quarter of 2020, we identified errors in our financial guidance model that led to our June 23, 2020 announcement of a revised outlook for the second quarter of 2020, which announcement was followed by a drop in the price of our stock.
It is also necessary for our employees, and in particular our senior officers, to adhere to all of our internal governance and conduct policies, including our Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers and Trading by Insiders Policy. Failure to adhere to our policies could result in negative regulatory scrutiny or media attention or otherwise harm our reputation and cause stockholders to lose confidence in our business integrity or management. For example, in connection with an internal investigation into the series of events that led to our June 23, 2020 announcement of a revised outlook for the second quarter of 2020, we uncovered certain violations of our policies by senior officers, which resulted in disciplinary actions and remediations for the officers involved. The investigation also prompted a review of all of our internal policies and codes of ethics, which is resulting in a number of revisions intended to further strengthen them and their associated assurance processes. Any failure to maintain these policies or failure by our employees, and in particular our senior officers, to adhere to these policies could still result in harm to our reputation and could negatively impact the value of our stock.

Delaware law and our certificate of incorporation and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:
the right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors;
the requirement for advance notice for nominations for election to the board of directors or for proposing matters that can be acted upon at a stockholders’ meeting;
the ability of the board of directors to alter our bylaws without obtaining stockholder approval;
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the ability of the board of directors to issue, without stockholder approval, up to 10,000,000 shares of preferred stock with rights set by the board of directors, which rights could be senior to those of common stock;
a classified board;
the required approval of holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or amend or repeal the provisions of our amended and restated certificate of incorporation regarding the classified board, the election and removal of directors and the ability of stockholders to take action by written consent; and
the elimination of the right of stockholders to call a special meeting of stockholders and to take action by written consent.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law ("DGCL"). These provisions may prohibit or restrict large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us. These provisions in our certificate of incorporation and bylaws and under Delaware law could discourage potential takeover attempts and could reduce the price that investors might be willing to pay for shares of our common stock in the future and result in our market price being lower than it would without these provisions.
ITEM 1B.    Unresolved Staff Comments
None.
ITEM 2.    Properties
We own our corporate headquarters located at 416 South Bell Avenue, Ames, Iowa 50010, comprised of 60,480 square feet of office and laboratory space; as well as two other buildings located at 300 South Bell Avenue, Ames, Iowa 50010 and at 215 Alexander Avenue, Ames, Iowa 50010, which have a combined 26,837 square feet of office space.
The following tables list each of our owned North American and European production facilities and their location, use, and nameplate production capacity. Each facility listed below is used by our Biomass-based diesel Segment.
PRODUCTION FACILITIES - NORTH AMERICA
LocationUseNameplate
Production
Capacity
(mmgy)
Ralston, IowaBiodiesel production30
Seabrook, TexasBiodiesel production35
Danville, IllinoisBiodiesel production45
Newton, IowaBiodiesel production30
Seneca, IllinoisBiodiesel production60
Albert Lea, MinnesotaBiodiesel production30
Mason City, IowaBiodiesel production30
Geismar, Louisiana*Renewable diesel production75
Grays Harbor, WashingtonBiodiesel production100
DeForest, WisconsinBiodiesel production20

* This facility produces renewable diesel, naphtha, and liquid petroleum gas.
PRODUCTION FACILITIES - EUROPE
LocationUseNameplate
Production
Capacity
(mmgy)
Emden, GermanyBiodiesel production27
Oeding, GermanyBiodiesel production23
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ITEM 3.    Legal Proceedings
Neither the Company nor any subsidiary of the Company is a party to any material pending legal or governmental proceeding, nor is any of the Company's property the subject of any material pending legal proceeding, except ordinary routine legal or governmental proceedings arising in the ordinary course of the Company's business and incidental to the Company's business, none of which is expected to have a material adverse impact upon the Company's business, financial position or results of operations.
ITEM 4.    Mine Safety Disclosures
None.

PART II
ITEM 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market For Our Common Equity
Our common stock trades on The Nasdaq Global Select Market under the ticker symbol "REGI".
Holders
As of January 31, 2021, there were approximately 1,492 holders of record of our common stock.
Dividends
Our Board of Directors currently intends to retain any future earnings to support operations and to finance the growth and development of our business, and therefore does not intend to pay cash dividends on our common stock for the foreseeable future.
Performance Graph
The following performance graph is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by reference into any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, respectively.
On May 15, 2018, we were added to the S&P SmallCap 600 index. The following graph shows a comparison of the cumulative total returns for the last 5 years to December 31, 2020 for us, the Elements MLCX Biofuels ETN Index, the Russell 3000 Index and the S&P SmallCap 600. The graph assumes that $100 was invested on December 31, 2015 in our common stock, the Elements MLCX Biofuels ETN Index, the Russell 3000 Index and the S&P SmallCap 600 assuming all dividends were reinvested.
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regi-20201231_g3.jpg
12/31/201512/31/201612/31/201712/31/201812/31/201912/31/2020
REGI$100.00 $104.41 $127.02 $276.64 $290.10 $762.33 
Elements MLCX Biofuels ETN100.00 102.00 93.33 83.47 82.00 88.00 
Russell 3000100.00 110.42 131.23 122.06 156.89 186.42 
S&P SmallCap 600100.00 124.74 139.38 125.78 152.02 166.57 
Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
In June 2018, January 2019, and February 2020, the Company's board of directors approved repurchase programs of up to $75.0 million, $75.0 million, and $100.0 million, respectively, of the Company's convertible notes and/or shares of common stock (the "2018 Program", "2019 Program" and "2020 Program"). 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 Company made no share repurchases during the quarter ended December 31, 2020.
ITEM 6.    Selected Financial Data
The Securities and Exchange Commission enacted amendments, effective February 10, 2021, to modernize, simplify, and enhance certain financial disclosure requirements in Regulation S-K. The amendments are effective for fiscal years ending on or after August 31, 2021 and early adoption is permitted. Specifically, the requirement for Item 6, Selected Financial Data, has been eliminated. We have evaluated the impact of the final rule and early adopted the amendment. As a result, selected consolidated financial data disclosures have been removed.
ITEM 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
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
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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.
Objective
We focus on providing cleaner, lower carbon transportation fuels. We are North America's largest producer of advanced biofuels. 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 in September 2018, we opened our first REG branded fueling station in July 2019 adjacent to our biorefinery in Seneca, Illinois to serve a variety of customers from trucking fleets, local diesel vehicle owners. In June 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. These are the initial parts 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 renewable diesel; and increased demand for our biodiesel via sales of 100% pure biodiesel, or B100, to end consumers.
In October 2020, we announced that, following an internal review and site selection process, we plan to expand the effective capacity of our Geismar, Louisiana biorefinery to approximately 340 million gallons per year. We currently expect construction to begin in mid to late 2021 with a target mechanical completion date in late 2023. We currently estimate our capital expenditures in connection with the expansion project will be at least $825 million. We currently expect to fund these capital expenditures with a combination of cash on hand, marketable securities, borrowing under our credit facilities, offerings of equity and debt or from other sources. The sale of equity or debt securities in the future may be dilutive to our stockholders, and may provide for rights, preferences or privileges senior to those of our holders of common stock. Debt financing arrangements may require us to pledge certain assets or enter into covenants that could restrict our operations or our ability to incur further indebtedness. There can be no guarantee that we will be able to obtain the funds necessary to complete this project in a timely manner or on terms acceptable to us or increase the capacity of our biorefinery at Geismar, Louisiana on time, at our estimated budget or at all. The expansion is subject to a number of conditions and risks.
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.
We own and operate a network of 12 biorefineries. Ten biorefineries are located in the United States and two in Germany. Eleven biorefineries produce biodiesel, one produces renewable diesel (“RD”). Our twelve biomass-based diesel production facilities have an aggregate nameplate production capacity of 505 million gallons per year (“mmgy”). In August 2019, we closed our New Boston, Texas biorefinery, which had a nameplate capacity of 15 mmgy.
We are a lower carbon biomass-based diesel producer. We primarily produce our biomass-based diesel from a wide variety of low carbon feedstocks, including distillers corn oil, used cooking oil and inedible animal fat. We also produce biomass-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 biomass-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 northeastern United States, as well as BioHeat® blended heating fuel at one of these terminal locations. In 2018, we expanded our sales of biofuel blends to Midwest and West Coast terminal locations and look to potentially expand in other areas across North America and internationally.
In May 2019, we sold the core assets of REG 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 2020 and 2019 (totals may not foot due to rounding).
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Gallons sold (millions)
Year ended December 31, 2020Year ended December 31, 2019
REG-produced biomass-based diesel:
Biodiesel - United States375.2 365.3 
Biodiesel - International50.1 45.5 
Renewable diesel76.4 77.5 
501.7 488.3 
Third party biomass-based diesel:
Biodiesel20.9 36.0 
Renewable diesel39.8 39.2 
60.7 75.2 
Petroleum-based diesel88.1 136.9 
Total650.5 700.3 
Our businesses are organized into three reportable segments - the Biomass-based Diesel segment, the Services segment and Corporate and Other.
Biomass-based Diesel Segment
Our Biomass-based Diesel segment includes:
the operations of the biomass-based diesel production refineries as included in Item 2 of Part I of this document;
purchases and resales of biomass-based diesel, sales of biodiesel and renewable diesel blended with petroleum-based diesel, RINs and LCFS credits, and raw material feedstocks acquired from third parties;
sales of biomass-based diesel produced under toll manufacturing arrangements with third party facilities using our feedstocks; 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 biomass-based diesel production process. In 2020 and 2019, our revenues from the sale of co-products were less than five percent of our total Biomass-based diesel segment revenues. During 2020 and 2019, 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% and 10% of our total revenues, respectively.
In accordance with EPA regulations, we generate 1.5 to 1.7 RINS, for each gallon of biomass-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 biomass-based diesel we sell. When we attach RINs to a sale of biomass-based diesel gallons, a portion of our selling price for a gallon of biomass-based diesel is generally attributable to RFS2 compliance, but no cost is allocated to the RINs generated by our biomass-based diesel production because RINs are a form of government incentive and not a result of the physical attributes of the biomass-based diesel production. In addition, RINs, once obtained through the production and sale of gallons of biomass-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 biomass-based diesel production, fluctuations in the value of our RIN inventory represent fluctuations in the value of RINs we have obtained from third parties. The value of RINs significantly decreased during the first quarter of 2019 and remained relatively low through the first half of 2020, which we believe was influenced by record level of Small Refiner Exemptions ("SREs") from RIN compliance requirements for 2016, 2017, and 2018. 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.
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The table below summarizes our RINs balances available to be sold and the median closing price per RIN at December 31, 2020 and 2019 according to OPIS:
QuantityOPIS Median Closing Price per RIN
December 31, 2020December 31, 2019December 31, 2020December 31, 2019
Biomass-based diesel RINs3,962,710 7,196,022 $1.02 $0.40 
Advanced biofuels RINs817,464 2,008,689 $1.02 $0.40 
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 biomass-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 biomass-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 biomass-based diesel produced or held by us. LCFS prices increased throughout 2019 and were near all time high prices at the end of 2019. In 2020 prices remained 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.
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, 2020 and 2019 according to OPIS:
QuantityOPIS Median Closing Price per LCFS Credit
December 31, 2020December 31, 2019December 31, 2020December 31, 2019
California LCFS2,618 2,366 $199.00 $205.50 
Oregon LCFS8,967 4,073 $123.00 $152.50 
Services Segment
Our Services segment, which primarily provides services to our Biomass-based Diesel Segment, includes:
biomass-based diesel facility management and operational services, whereby we provide day-to-day management and operational services to biomass-based diesel production facilities; and
construction management services, whereby we act as the construction management and general contractor for the upgrade or construction of biomass-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;
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
In March 2020, the World 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 a COVID-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 pandemic, such as a remote workplace requirement for all office and administrative employees, social distancing protocols for our production employees and any visitors to our facilities, additional paid time off for employees as needed in order to deal with health or family issues related to COVID-19, and a temporary ban on discretionary business travel.
To date, biodiesel and renewable diesel have been confirmed as essential businesses and have continued to operate throughout the pandemic. As more states, counties and schools have been re-opening and with the distribution of COVID-19 vaccines, we do not anticipate having to curtail or cease our operations in the foreseeable future.
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The demand for fuels has been significantly impacted by COVID-19, but is expected to recover in 2021.
Based on information available as of the date of this report, we expect the COVID-19 pandemic to have the following impacts on our revenues and margins in 2021:
Although more states and counties continue to re-open and distribute vaccinations for COVID-19, the significant decline in demand for fuels is expected to continue;
the supply-side shock from oil production increases coupled with the demand-side impact of the COVID-19 pandemic drove oil prices to historic lows and raised uncertainty for the direction of energy prices in the near-future;
we expect a significant reduction in the supply of low carbon feedstocks and corresponding higher prices,
particularly corn oil and used cooking oil, due to significant market disruptions related to COVID-19; and
we anticipate the price of RINs and the value of LCFS credits to experience pressure and volatility as the demand for fuel continues to decrease during the imposition of containment measures.
The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as the duration and severity of the pandemic evolves. At this point, we cannot reasonably estimate the duration and severity of the COVID-19 pandemic, or its overall impact on our business. We continue to monitor the impact of COVID-19 pandemic and will adjust our operations, as necessary. We believe our cash on hand, our investments in short-term marketable securities and the cash available to us under our lines of credit will allow 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.
Factors Influencing Our Results of Operations
The principal factors affecting our results of operations and financial conditions are the market prices for biomass-based diesel and the feedstocks used to produce biomass-based diesel, as well as governmental programs designed to create incentives for the production and use of cleaner renewable fuels.
Governmental programs favoring biomass-based diesel production and use
Biomass-based diesel has historically been more expensive to produce than petroleum-based diesel. The biomass-based diesel industry’s growth has largely been the result of federal and state programs that require or incentivize the production and use of biomass-based diesel, which allows biomass-based diesel to be price-competitive with petroleum-based diesel.
The RFS2 biomass-based diesel requirement was implemented in 2010, stipulating volume requirements for the amount of biomass-based diesel and other advanced biofuels that must be utilized in the United States each year. Under RFS2, Obligated Parties, including petroleum refiners and fuel importers, must show compliance with these standards. Currently, biodiesel and renewable diesel satisfy three categories of an Obligated Party’s annual renewable fuel required volume obligation, or RVO—biomass-based diesel, advanced biofuel and renewable fuel. The final RVO targets for the biomass-based diesel and advanced biofuels volumes for the years 2016 to 2021 as set by the EPA are as follows:
201620172018201920202021
Biomass-based Diesel1.90 billion gallons2.00 billion gallons2.10 billion gallons2.10 billion gallons2.43 billion gallons2.43 billion gallons
Total Advanced Biofuels3.61 billion RINs*4.28 billion RINs*4.29 billion RINs*4.92 billion RINs*5.04 billion RINs*N/A
*Ethanol equivalent gallons
As of the date of this report, the EPA has not issued the 2021 RVO. This was to be issued in 2020 and it is uncertain when the EPA will issue the RVO and at what level the 2021 RVO will be.
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 biomass-based diesel with petroleum-based diesel fuel. The BTC became effective January 1, 2005, but since January 1, 2010 it has been allowed to lapse and then been reinstated a number of times. The BTC was retroactively reinstated on December 20, 2019 for the fiscal years 2018 and 2019. The BTC was also extended through December 31, 2022.
As a result of this history of retroactive reinstatement of the BTC, we and many other biomass-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 ended December 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
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the retroactive credit was conducted. For the years ended December 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.
Biomass-based diesel and feedstock price fluctuations
Our operating results generally reflect the relationship between the price of biomass-based diesel, including credits and incentives and the price of feedstocks used to produce biomass-based diesel.
Biomass-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. Biomass-based diesel prices have historically been heavily influenced by petroleum-based diesel fuel prices. Accordingly, biomass-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 biomass-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 biomass-based diesel pricing. In addition, biomass-based diesel RIN pricing, a value component that was introduced via RFS2 in July 2010, has had a significant impact on our biomass-based diesel pricing. The following table shows for 2018, 2019 and 2020 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.
regi-20201231_g4.jpg
At the beginning of 2020, the value of RINs, as reported by OPIS, to the average B100 spot price of a gallon of biodiesel was $0.60 per gallon. The value of RINs to the average B100 spot price of a gallon of biodiesel grew to $1.53 per gallon at the end of December 2020. It reached a high of $1.55 per gallon of biodiesel in December 2020 and a low of $0.56 per gallon in January 2020. In the first half of 2020, the value of RINs was negatively impacted by the overall decrease in demand for refined fuels and hence RVO due to the COVID-19 pandemic, but recovered in the second half of 2020. We believe that the increase of RIN values toward the end of 2020 was influenced by the 10th circuit ruling on restricting SRE waiver grants by the EPA, as well as the denial of 54 retroactive waivers for SREs that were filed in 2020 for periods 2011 through 2018. The Supreme Court of the United States agreed in January 2021 to review the ruling. The decision of the Supreme Court could cause volatility in the price of RINs in 2021. In addition, prices for soybean oil and other feedstocks increased in 2020, as a result, increasing RIN values. During 2019, we believe that the value of RINs was heavily influenced by record levels of SREs from RIN compliance
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requirements for 2016, 2017, and 2018. We enter into forward contracts to sell RINs and we use risk management position limits to manage RIN exposure.
During 2020 and 2019, feedstock expense accounted for 80% and 79% of our direct production cost, respectively. Methanol and chemical catalysts expense accounted for 3% and 4%, and 3% and 3% of our costs of goods sold, respectively.
Feedstocks for biomass-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 biomass-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: biomass-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 biomass-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 biomass-based diesel industry. The biomass-based diesel industry may have difficulty procuring feedstocks at economical prices if competition for biomass-based diesel feedstocks increases due to newly added production capacity.
During 2020 and 2019, 65% and 71% 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 biobased 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 period January 2018 to December 2020. 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.
regi-20201231_g5.jpg

(1)Used cooking oil prices ("UCO") are based on the monthly average of the daily low sales price of C.I. adjusted Gulf of Mexico yellow grease as reported by The Jacobsen for the period of January 1, 2018 through June 30, 2019. The prices from July 1, 2019 through December 31, 2020 are based on the monthly average of the daily low sales price of Gulf 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 to Illinois 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 of Missouri 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).
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Our results of operations generally will benefit when the spread between biomass-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 from January 2018 to December 2020.
regi-20201231_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 of Missouri 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 of Illinois 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 2020, NY Harbor ULSD prices ranged from a low of $0.61 per gallon in early April to a high of $2.06 per gallon in January with an average price for the year of $1.25 per gallon. The COVID-19 pandemic created an unprecedented collapse in worldwide mobility. Demand for oil dropped by 20% in 2020 with March and April demand dropping much below 20% from the prior year. ULSD prices were pressured further by refiners' practice of blending jet fuel into diesel, which created unprecedented oversupply and required creative storage solutions such as the use of ocean vessels. OPEC cut production by a record amount in May, June and July. U.S. biodiesel prices based on Chicago SME B100 prices traded in a range reaching a high of $3.68 in December and a low of $2.59 in April.
Soybean oil production reached record levels during several months in 2020; whereas, animal fat production was mixed with hog slaughter up 1.5% and cattle slaughter down 3%, contributing to feedstock price volatility during the year. CBOT soybean oil prices ranged from a high of $0.43 per pound in December to a low of $0.25 per pound in April with an average price for the year of $0.31 per pound. Soybean oil plummeted in March and April in response to demand destruction from COVID-19 lockdowns. SBO price ramped up June through September when foreign soybean demand became strong as China swine population surged in recovery from Asian Swine Flu epidemic. A second price surge occurred October through November when tight supply of palm oil became clear, resulting from labor shortages and poor growing weather brought on by La Nina; meanwhile, soybean orders from China did not slow down. Choice white grease prices ranged from a low of $0.18 in July to a high of $0.30 per pound in December with an average price for the year of $0.24 per pound. Relatively strong demand for pork and beef has continued to lead to expansions in those industries. Choice White Grease and tallow prices were volatile due to production disruptions from COVID-19 and SBO price trend.
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Risk Management
The profitability of producing biomass-based diesel largely depends on the spread between prices for feedstocks and biomass-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 biomass-based diesel. We create offsetting positions by using a combination of forward fixed-price physical purchases and sales contracts on feedstock and biomass-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 biomass-based diesel in 2018, 2019 and 2020. 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 the USDA 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 biomass-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 biomass-based diesel prices is limited. We have entered into forward contracts to supply biomass-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 biomass-based diesel in the United States. Our efforts to hedge against falling biomass-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 biomass-based diesel.
We generate 1.5 to 1.7 biomass-based diesel RINs for each gallon of biomass-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 biomass-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 biomass-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 biomass-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 $36.9 million from our derivative financial instrument trading activity for the year ended December 31, 2020, compared to risk management losses of $28.9 million for the year ended December 31, 2019. 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.
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Increasing importance of renewable diesel
Renewable diesel 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. Renewable diesel is a relatively new fuel but has quickly become popular because it reduces emissions and delivers strong performance. Renewable diesel can also be blended with biodiesel. Our proprietary blend of renewable diesel and biodiesel which we call REG Ultra Clean® captures the best properties of the two fuels.
Renewable diesel has become an increasingly significant part of our business. Renewable diesel 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 renewable diesel production facility in Geismar, Louisiana generated a significant portion of our adjusted EBITDA in 2019 and in 2020. 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 biomass-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, renewable diesel, 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 our Newton and Danville 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 an Obligated 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.
YearRIN Generation (Advanced Biofuel)Finalized RVO level for Advanced BiofuelEstimated Advanced Biofuel RVO Exempted due to SREs
20174.23 billion RINs4.28 billion RINs*0.40 billion RINs
20184.34 billion RINs4.29 billion RINs*0.32 billion RINs
20194.87 billion RINs4.92 billion RINs***
20205.28 billion RINS5.04 billion RINs***
* Ethanol equivalent gallons
** Not yet determined
Industry capacity, production and imports
Our operating results are influenced by our industry's capacity and production, including in relation to RFS2 production requirements. Biomass-based diesel production and/or imports, as reported by EMTS, were 2.50 billion gallons in 2018, 2.65 billion gallons in 2019 and 2.88 billion gallons in 2020.
According to the U.S. Energy Information Administration, the amount of imported biodiesel gallons qualifying under RFS2 increased from 333.4 million gallons in 2018 to approximately 423.7 million gallons in 2019. The amount of imported biodiesel was at approximately 476.4 million gallons in 2020, slightly higher than 2019 according to the EIA.
Components of Revenues and Expenses
Continuing Operations:
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We derive revenues in our Biomass-based Diesel segment from the following sources:
sales of biodiesel and renewable diesel 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 biomass-based diesel, renewable diesel, 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 biomass-based diesel;
sales of glycerin, other co-products of the biomass-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 biomass-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 biomass-based diesel production facilities.
Cost of goods sold for our Biomass-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 biomass-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 others who provide procurement, 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 biomass-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 ended December 31, 2020. Net loss from discontinued operations for the fiscal year ended December 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
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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 in the United States. The preparation of 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. 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. These assets 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, 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.
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 at December 31, 2020. 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.

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Results of Operations
Fiscal years ended December 31, 2020 and December 31, 2019
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,
20202019
Gallons sold650.5 700.3 
Average biomass-based diesel price per gallon (ASP with BTC net benefit allocated to the corresponding period of $3.21 for the year ended December 31, 2019)$2.91 $3.62 
Revenues from continuing operations$2,137,148 $2,625,216 
Costs of goods sold from continuing operations1,868,794 2,111,324 
Gross profit from continuing operations268,354 513,892 
Selling, general and administrative expenses119,302 118,209 
Gain on disposal of property, plant and equipment(205)— 
Impairment of property, plant and equipment22,404 12,208 
Income from operations126,853 383,475 
Other income (expense), net1,889 (11,550)
Income tax benefit (expense)(5,929)570 
Net income from continuing operations122,813 372,495 
Net loss from discontinued operations— (9,667)
Net income122,813 362,828 
Effects of participating share-based awards on continuing operations(2,398)(8,238)
Net income from continuing operations available to common stockholders$120,415 $364,257 
Net loss from discontinued operations attributable to common stockholders$— $(9,667)
Continuing Operations:
Revenues. Our total revenues decreased $488.1 million, or 19%, to $2,137.1 million for the year ended December 31, 2020, from $2,625.2 million for the year ended December 31, 2019. Due to the retroactive reinstatement of the BTC in December 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 ended December 31, 2020 as compared to $106.5 million and $98.3 million for the year ended December 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 $2,135.7 million during the year ended December 31, 2020, from $2,623.6 million for the year ended December 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 ended December 31, 2020, compared to 700.3 million during the year ended December 31, 2019. The decrease in gallons sold for the year ended December 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 ended December 31, 2020 compared to $3.62 during the year ended December 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 and OPEC 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.
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Costs of goods sold. Our costs of goods sold decreased $242.5 million, or 11%, to $1,868.8 million for the year ended December 31, 2020, from $2,111.3 million for the year ended December 31, 2019. Costs of goods sold as a percentage of revenues were 87% and 80% for the years ended December 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 December 31, 2020 and December 31, 2019, were $0.29 and $0.26 per pound, respectively. Average soybean oil costs for the years ended December 31, 2020 and December 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 ended December 31, 2020, compared to $118.2 million for the year ended December 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 renewable diesel 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 the New Boston refinery.
Other income (expense), net. Other income was $1.9 million for the year ended December 31, 2020, compared to other expense of $11.6 million for the year ended December 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-operational New 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 ended December 31, 2020 was $5.9 million, compared to income tax benefit of $0.6 million for the year ended December 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. At December 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 ended December 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 ended December 31, 2020 and 2019, respectively.
Discontinued Operations:
For the year ended December 31, 2020, there was no activity classified as discontinued operations. Net loss from discontinued operations for the year ended December 31, 2019 of $9.7 million was attributable to the research and development activities at the REG Life Sciences business and costs to sell the business.
Fiscal years ended December 31, 2019 and December 31, 2018
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:
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Twelve Months Ended
December 31,
20192018
Gallons sold700.3 649.2 
Average biomass-based diesel price per gallon (ASP excluding BTC net benefit of $2.75 and $3.03 for the years ended December 31, 2019 and 2018, respectively)$3.62 $3.40 
Revenues from continuing operations$2,625,216 $2,368,478 
Costs of goods sold from continuing operations2,111,324 1,962,996 
Gross profit from continuing operations513,892 405,482 
Selling, general and administrative expenses118,209 106,739 
Impairment of property, plant and equipment12,208 879 
Income (loss) from operations383,475 297,864 
Other income (expense), net(11,550)(3,523)
Income tax benefit (expense)570 (5,871)
Net income (loss) from continuing operations372,495 288,470 
Net loss from discontinued operations(9,667)(11,312)
Net income (loss)362,828 277,158 
Effects of participating share-based awards on continuing operations(8,238)(7,434)
Net income (loss) from continuing operations available to common stockholders$364,257 $281,036 
Net loss from discontinued operations available to common stockholders$(9,667)$(11,312)
Continuing Operations:
Revenues. Our total revenues increased $256.7 million, or 11%, to $2,625.2 million for the year ended December 31, 2019, from $2,368.5 million for the year ended December 31, 2018. Due to the retroactive reinstatement of the BTC in December 2019 for the 2018-2019 periods, we recognized in the fourth quarter of 2019 $490.6 million of BTC net revenue, $227.9 million of which was attributable to sales in 2018 and $262.7 million of which was attributable to sales in 2019. Due to the retroactive reinstatement of the BTC in February 2018 for the 2017 periods, we recognized in the first quarter of 2018 $205.7 million of BTC revenue, $205.7 million of which was attributable to sales in 2017. The recognition of BTC revenue attributable to operations from prior periods resulted in increased revenue for the period. The increase in total revenues was also driven by an increase in total gallons sold of 51.1 million gallons, or 8%, offset by a decrease in average selling price excluding the BTC of $0.28, as well as a decrease in Separated RIN sales of $39.6 million.
Biomass-based diesel revenues including government incentives increased $257.4 million, or 11%, to $2,623.6 million during the year ended December 31, 2019, from $2,366.2 million for the year ended December 31, 2018. The increase in revenues was mostly attributable to the recognition in the fourth quarter of 2019 of BTC revenue relating to operations in the 2018 period, which exceed the BTC net revenue recognized in the 2018 period relating to our 2017 operations by $284.8 million. Gallons sold increased 51.1 million, or 8%, to 700.3 million during the year ended December 31, 2019, compared to 649.2 million during the year ended December 31, 2018. The increase in gallons sold for the year ended December 31, 2019 accounted for a revenue increase of $140.5 million using 2019 average sales pricing. Our average biomass-based diesel sales price per gallon including the BTC net benefits increased $0.22, or 6%, to $3.62 during the year ended December 31, 2019 compared to $3.40 during the year ended December 31, 2018. Excluding the BTC net benefits, our average biomass-based diesel sales price decreased $0.28, or 9%, compared to $3.03 for 2018. This decrease was mainly due to the lower energy prices in 2019. The decrease in average sales price excluding the BTC net benefits from 2019 to 2018 contributed to a $181.8 million revenue decrease when applied to the number of gallons sold during 2018. Sales of separated RIN inventory were $98.3 million and $137.9 million for the years ended December 31, 2019 and 2018, respectively, reducing the overall increase in biomass-based diesel revenues in 2019. RIN prices, which we believe have been inversely correlated to the HOBO spread, decreased significantly in 2018 and declined almost 60% during the 2018-2019 period, with low prices persisting throughout 2019.
Costs of goods sold. Our costs of goods sold increased $148.3 million, or 8%, to $2,111.3 million for the year ended December 31, 2019, from $1,963.0 million for the year ended December 31, 2018. Costs of goods sold as a percentage of revenues were 80% and 83% for the years ended December 31, 2019 and 2018, respectively.
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Biomass-based diesel costs of goods sold increased in 2019 mainly due to an 8% increase in gallons sold. Average low carbon feedstocks prices for the years ended December 31, 2019 and December 31, 2018, were $0.26 per pound. Average soybean oil costs for the years ended December 31, 2019 and December 31, 2018 were $0.31 per pound. We recorded risk management losses of $28.9 million from our derivative financial instrument activity in 2019, compared to risk management gains of $18.4 million for 2018. Our risk management gains and losses are directly impacted by any volatility in the energy and commodities market. Costs of goods sold for separated RIN inventory sales were $39.2 million and $75.7 million for the years ending December 31, 2019 and 2018, respectively.
Selling, general and administrative expenses. Our selling, general and administrative, or SG&A, expenses increased $11.5 million, or 11%, to $118.2 million for the year ended December 31, 2019, compared to $106.7 million for the year ended December 31, 2018. As a percentage of revenues, our SG&A expenses were 4.5% for both 2019 and 2018, respectively. The increase in 2019 year over year was driven largely by higher employee related compensation, arising from the Company's strong financial performance in 2019.
Impairment of property, plant and equipment. We recorded a property, plant and equipment impairment in 2019 of approximately $12.2 million mainly due to the closure of the New Boston refinery. During 2018, we recorded a $0.9 million property, plant and equipment impairment after we determined that the carrying amounts of certain assets were deemed not recoverable.
Other income (expense), net. Other expense was $11.6 million for the year ended December 31, 2019, compared to other expense of $3.5 million for the year ended December 31, 2018. Other income (expense) is primarily comprised of change in fair value of contingent consideration, gain on debt extinguishment, gain on involuntary conversion, change in fair value of convertible debt conversion liability, interest expense, interest income and other non-operating items. In 2019, we had a $0.5 million gain on debt extinguishment and in 2018 we had a $6.3 million gain on debt extinguishment, a difference of $5.8 million. The $6.3 million net increase in other expense in 2019 was primarily due to this difference in gain on debt extinguishment between the periods. In addition, in 2018 we recorded gain from involuntary conversion related to a fire at our Madison facility that offset higher interest expense for the year, resulting in lower total other expense compared to 2019.
Income tax benefit (expense). Income tax benefit recorded during the year ended December 31, 2019 was $0.6 million, compared to income tax expense of $5.9 million for the year ended December 31, 2018, with the decrease primarily resulting from additional tax expense incurred in connection with the repurchase of a significantly greater amount of our 2016 convertible debt in 2018 compared to repurchases in 2019. At December 31, 2019 and 2018, we had net deferred income tax assets of approximately $343.9 million and $275.4 million, respectively, with a valuation allowance of $350.9 million and $283.8 million, respectively. As a result, our effective tax rate was 0.2% and (2.0%) for the years ended December 31, 2019 and 2018, respectively.
Effects of participating share-based awards. Effects of participating restricted stock units was $8.2 million and $7.4 million for the years ended December 31, 2019 and 2018, respectively.
Discontinued Operations:
Net loss from discontinued operations for the year ended December 31, 2019 was $9.7 million, primarily related to the research and development activities of REG Life Sciences and expenses incurred related to the sale of the business. In 2019, REG Life Sciences continued to incur costs that primarily relate to certain pre-existing contractual agreements and legal and professional fees related to the disposition and wind-down of operations. We do not expect future costs to be material. For the year ended December 31, 2018, the net loss was $11.3 million. This loss included an impairment loss, net of tax, of $11.2 million reflecting the fair value of the estimated proceeds from a sale, net of costs to sell. Net loss from discontinued operations for the year ended December 31, 2018 also included a loss of $14.0 million primarily related to the research and development activities of REG Life Sciences, which was offset by a change in value of contingent consideration of $13.9 million.
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.
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We discovered a blending discrepancy in connection with our preparation for a standard IRS audit of our BTC filings as a result of us not being the proper claimant for certain BTC payments on biodiesel we sold in the first three quarters of 2020. Refer to Item 8 - NOTE 19—SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED) for further detail. The Adjusted EBITDA for the three months ended September 30, June 30 and March 31, 2020 has been revised for the effects of the matter.
(In thousands)Year ended December 31,Year ended December 31,
1Q-2020
(As Restated)
2Q-2020 (As Restated)3Q-2020 (As Restated)4Q-202020201Q-20192Q-20193Q-20194Q-20192019
Net income (loss) from continuing operations$74,667 $(1,685)$22,663 $27,168 $122,813 $(41,652)$(57,900)$(14,018)$486,065 $372,495 
Adjustments:
Interest expense
2,946 1,664 1,544 1,757 7,911 4,484 4,002 3,131 1,618 13,235 
Income tax (benefit) expense
1,331 1,630 1,046 1,922 5,929 (430)(90)(629)579 (570)
Depreciation
8,934 9,103 9,388 9,890 37,315 9,099 9,142 9,107 8,950 36,298 
Amortization of intangible and other assets353 318 591 510 1,772 334 510 397 391 1,632 
EBITDA
88,231 11,030 35,232 41,247 175,740 (28,165)(44,336)(2,012)497,603 423,090 
Gain on sale of assets
— (187)— (18)(205)— — — — — 
Change in fair value of contingent consideration
— — — — — 304 398 (136)— 566 
(Gain) loss on debt extinguishment
(1,172)(619)(18)— (1,809)— — (490)(488)
Gain on lease termination— (4,459)— — (4,459)— — — — — 
Other (income) expense, net304 (2,215)(1,594)(28)(3,533)(854)(691)(179)(39)(1,763)
Impairment of assets
— — 19,256 3,148 22,404 — 468 11,145 595 12,208 
Stock compensation expense1,367 2,611 1,811 1,909 7,698 1,353 1,824 1,804 1,726 6,707 
Adjusted EBITDA excluding BTC allocation
$88,730 $6,161 $54,687 $46,258 $195,836 $(27,360)$(42,337)$10,622 $499,395 $440,320 
 Biodiesel tax credit 2018(1)
— — — — — — — — (229,041)(229,041)
 Biodiesel tax credit 2019(1)
— — — — — 55,315 76,148 75,349 (206,812)— 
Adjusted EBITDA$88,730 $6,161 $54,687 $46,258 $195,836 $27,955 $33,811 $85,971 $63,542 $211,279 
    (1) On December 20, 2019, the BTC was retroactively reinstated for the 2018 and 2019 calendar years. The retroactive credit for 2018 and 2019 resulted in a net benefit to us that was recognized in our GAAP financial statements for the quarter ending December 31, 2019. However, because a portion of this credit relates to the 2018 operating performance, our presentation of Adjusted EBITDA reflects the allocation of the net benefit to each of the four quarters of 2018 based upon the portion of the BTC benefit that related to that quarter. The portion of the credit related to 2019 was allocated to each of the four quarters based upon the portion of the BTC benefit that related to that quarter.
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;
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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. We have also authorized programs to repurchase our convertible notes and common stock, as described in Note 2 of notes to our consolidated financial statements. Our cash requirements will also depend on capital expenditures in connection with future facility projects, such as our announced capacity expansion of our Geismar, 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. To the extent we seek to augment our existing cash resources, generated by our operations and our ability to borrow under our credit facilities that we may have in effect from time to time, we expect that additional funding can be obtained through equity or debt financings or from other sources. The sale of equity or equity-linked securities in the future may be dilutive to our stockholders, and along with debt instruments we may issue or obtain, may also provide for rights, preferences or privileges senior to those of our holders of common stock. Debt financing arrangements would likely increase our debt service and could reduce our liquidity and may require us to pledge certain assets or enter into covenants that could restrict our operations or our ability to incur further indebtedness.
Sources of liquidity. At December 31, 2020 and 2019, the total of our cash and cash equivalents and marketable securities was $354.0 million and $50.4 million, respectively. At December 31, 2020, we had total assets of $1,461.4 million, compared to $1,785.3 million at December 31, 2019. At December 31, 2020, we had term debt before debt issuance costs of $67.0 million, compared to term debt before debt issuance costs of $106.0 million at December 31, 2019. Our debt is subject to various financial covenants. We were in compliance with all financial covenants associated with the borrowings as of December 31, 2020.
Our term debt (in thousands) is as follows:
December 31,
20202019
4.00% Convertible Senior Notes, $59,619 face amount at December 31, 2020, due in June 2036$47,057 $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 202513,241 15,980 
REG Grays Harbor term loan, variable interest of minimum 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 20286,665 6,929 
Other14 33 
Total debt before debt issuance costs$66,977 $106,044 
In addition, we had revolving debt (in thousands) as follows:
December 31,
20202019
Amount outstanding under lines of credit$— $76,990 
Maximum available to be borrowed under lines of credit$149,666 $101,485 

2036 Convertible Senior Notes
In June 2016, we issued $152.0 million aggregate principal amount of 4.00% Convertible Senior Notes due 2036 (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
45


their terms prior to such date. The initial conversion rate is 92.8074 common shares per $1,000 principal amount of 2036 Convertible Senior Notes (equivalent to an initial conversion price of approximately $10.78 per common share).
We 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 us 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 us 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 2036 Convertible Senior Notes will become convertible in the subsequent quarter if the closing price of our 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. Should the holders elect to convert, our current intent and policy is to settle the principal amount the 2036 Convertible Senior Notes in cash, with the remaining value satisfied at our option in cash, stock or a combination of cash and stock. As of December 31, 2020 and December 31, 2019, the early conversion event was met based on our stock price and as a result, the 2036 Convertible Senior Notes have been classified as a current liability on our Consolidated Balance Sheets at December 31, 2020 and December 31, 2019.
During 2019, we used $7.4 million under our 2018 Program to repurchase $3.9 million of principal amount and approximately $7.2 million under our 2019 Program to repurchase $2.8 million principal amount of the 2036 Convertible Senior Notes, reflecting the conversion premium, after tax impact, of $9.7 million and gains on debt extinguishment of $0.5 million.
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.
Cash flow. The following table presents information regarding our cash flows and cash, cash equivalents and restricted cash for the years ended December 31, 2020, 2019 and 2018:
Year Ended
December 31,
202020192018
(in thousands)
Cash provided from (used in) operations$543,430 $(46,708)$365,534 
Cash (used in) provided from investing activities(333,910)5,670 (97,197)
Cash used in financing activities(175,114)(32,052)(219,205)
Net change in cash, cash equivalents and restricted cash34,406 (73,090)49,132 
Cash, cash equivalents and restricted cash end of period$88,218 $53,436 $126,575 
In 2020, we had $543.4 million of cash provided from operations, compared to $46.7 million used in operations in 2019 and $365.5 million provided from operations in 2018. Cash provided by operations for 2020 was mainly due to net income of $122.8 million and the reduction of accounts receivables of $715.7 million, largely due to receipt of the 2018 and 2019 BTC, partially offset by cash used for a $274.1 million reduction in accounts payable, primarily related to the payment of the BTC sharing with customers and vendors. In 2019, we used $46.7 million of cash in operating activities, a significant decrease from 2018, mainly due to the buildup of accounts receivables of $786.2 million, largely due to the recognition of two years of BTC benefit in the fourth quarter of the year, offset by a significant increase in accounts payable related to the reinstatement of the BTC of $255.2 million due to customers and vendor.
The increase in net cash flows used in investing activity was primarily impacted by the net investments in marketable securities of $270.5 million, compared to the net maturities in marketable securities in 2019 of $51.0 million and net investments in 2018 of $50.7 million. This increase was also partially driven by an increase in cash paid for property, plant and equipment of $63.6 million, compared to $42.5 million and $46.5 million in 2019 and 2018, respectively.
The net cash flows used in financing activities during 2020 were primarily due to cash paid on debt of $92.3 million, which included repurchases of our 2036 Convertible Senior Notes and the prepayment in full of term debt incurred to finance our Grays Harbor and Danville biorefineries. Also impacting cash flows from financing activities in 2020 were net repayments on revolving lines of credit of $77.0 million. In 2019, the net cash flows used in financing activities were due primarily to cash paid on debt of $80.4 million, which included the payment of $67.4 million upon maturity of the 2019 Convertible Senior Notes and payments made for contingent consideration settlements, and net borrowings of $70.1 million on lines of credits. In 2018, cash used in financing activities included $25.0 million used to buy back shares of our common stock, $6.7 million used to buy back
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$6.3 million principal amount of the 2019 Convertible Senior Notes and $110.8 million used to buy back $55.7 million principal amount of the 2036 Convertible Senior Notes, partially offset by net repayments of $51.0 million in from lines of credits.
Capital expenditures: During 2020, our capital expenditures were $63.6 million involving various projects, the majority of which were at the Emden (Germany), Seneca and Geismar facilities. During 2019, our capital expenditures were $42.5 million involving various projects, the majority of which were at the Houston, Seneca, and Geismar facilities. During 2018, our capital expenditures were $46.5 million involving various projects, the majority of which were at the Madison, Ralston, Grays Harbor and Geismar facilities.
In October 2020, we announced that, following an internal review and site selection process, we plan to expand the effective capacity of our Geismar, Louisiana biorefinery by 250 million gallons annually to approximately 340 million gallons per year. We currently expect construction to begin in mid to late 2021 with a target mechanical completion date in late 2023. We currently estimate our capital expenditures in connection with the expansion project will be at least $825.0 million. We currently expect to fund these capital expenditures with a combination of cash on hand, marketable securities, borrowings under our credit facilities, offering of equity and debt or from other sources.
In addition, our budgeted capital expenditures for non-major projects for 2021 are approximately $80.0 million, which includes investments in low cost, high return projects, environmental, health and safety projects and growth projects.
Contractual Obligations:
We early adopted the amendments enacted by the Securities and Exchange Commission to modernize, simplify, and enhance certain financial disclosure requirements in Regulation S-K. Specifically, the requirement for tabular disclosure of contractual obligations has been eliminated. See Notes 9, 12, and 17 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.
ITEM 7A.    Quantitative and Qualitative Disclosures about Market Risk
The primary objectives of our investment activity are to preserve principal, provide liquidity and maximize income without significantly increasing risk. Some of the securities we invest in are subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, we maintain a portfolio of cash equivalents in short-term investments in money market funds.
Commodity Price Risk
Over the period from January 2018 through December 2020, average diesel prices based on Platts reported pricing for Group 3 (Midwest) have ranged from a high of approximately $2.47 per gallon reported in October 2018 to a low of approximately $0.61 per gallon in April 2020, with prices averaging $1.74 per gallon during this period. Over the period January 2018 to December 2020, soybean oil prices (based on daily closing nearby futures prices on the Chicago Board Of Trade for crude soybean oil) have ranged from a high of $0.43 per pound, or $3.25 per gallon of biodiesel, in December 2020 to a low of $0.25 per pound, or $1.87 per gallon of biodiesel, in April 2020 assuming 7.5 pounds of soybean oil yields one gallon of biodiesel with closing sales prices averaging $0.30 per pound, or $2.26 per gallon. Over the period from January 2018 through December 2020, animal fat prices (based on prices from The Jacobsen Missouri River, for choice white grease) have ranged from a high of $0.30 per pound in December 2020 to a low of $0.16 per pound in March 2018, with sales prices averaging $0.22 per pound during this period. Over the period from January 2018 through December 2020, RIN prices (based on prices from OPIS) have ranged from a high of $1.03 in December 2020 to a low of $0.31 in October 2018, with sales prices averaging $0.55 during this period.
Adverse fluctuations in feedstock prices as compared to biomass-based diesel prices result in lower profit margins and, therefore, represent unfavorable market conditions. The availability and price of feedstocks are subject to wide fluctuations due
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to unpredictable factors such as weather conditions during the growing season, rendering volumes, carry-over from the previous crop year and current crop year yield, governmental policies with respect to agriculture and supply and demand.
We have prepared a sensitivity analysis to estimate our exposure to market risk with respect to our sales contracts, low carbon feedstock requirements, soybean oil requirements and the related exchange-traded contracts for 2020. Market risk is estimated as the potential loss in fair value, resulting from a hypothetical 10% adverse change in the fair value of our low carbon feedstock and soybean oil requirements and biomass-based diesel sales. The results of this analysis, which may differ from actual results, are as follows:
2020
Volume
(in millions)
UnitsHypothetical
Adverse
Change in
Price
Impact on Annual
Gross
Profit (in
millions)
Percentage
Change in
Gross
Profit
Total Biomass-based Diesel651.8 gallons10%$(191.0)(71.3)%
Total Low Carbon Feedstocks2,694.7 pounds10%$(78.1)(29.1)%
Total Canola Oil540.3 pounds10%$(17.3)(6.5)%
Total Soy Oil886.5 pounds10%$(28.4)(10.6)%
We attempt to protect operating margins by entering into risk management contracts that reduce the risk of price volatility related to anticipated purchases of feedstocks and energy prices. We create offsetting positions by using a combination of forward physical purchases and sales contracts on feedstock and biomass-based diesel, including risk management futures contracts, swaps and options primarily on NYMEX NY Harbor ULSD and CBOT Soybean Oil. The extent to which we engage in risk management activities depends on market conditions and other factors and varies substantially from time to time and from feedstock to feedstock. A 10% adverse change in the prices of NYMEX NY Harbor ULSD would have a positive effect of $7.5 million on the fair value of these instruments at December 31, 2020. A 10% adverse change in the price of CBOT Soybean Oil would have had a positive effect of $1.1 million on the fair value of these instruments December 31, 2020. A 10% adverse change in the price of NYMEX Natural Gas would have had an immaterial impact on our gross margin at December 31, 2020.
Interest Rate Risk
Our weighted average interest rate on variable rate debt balances during 2020 was 2.41% and a hypothetical increase in interest rate of 10% would not have a material effect on our annual interest expenses or consolidated financial statements.
Renewable Identification Numbers
We are exposed to market risks related to the volatility in the price of credits needed to comply with governmental programs. For the past several years there has been significant volatility in RIN prices. Reductions in RIN values, such as those experienced in prior years, may have a material adverse effect on our revenues and profits as they directly reduce the value that we are able to capture for our biomass-based diesel.
Foreign Currency Risk
We have minimal exposure to foreign currency risk and as such the cost of hedging this risk is viewed to be in excess of the benefit of further reductions in our exposure to foreign currency exchange rate fluctuations.

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ITEM 8.    Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Renewable Energy Group, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Renewable Energy Group, Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, because of the effect of the material weakness identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Material Weakness

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's assessment:

The Company’s controls failed to detect an error in the recognition of revenue from biomass-based diesel government incentives. The error resulted from the failure to blend petroleum diesel with biodiesel, a necessary step for the Company to comply with the requirements of the federal biodiesel mixture excise tax credit (the “BTC”), and to identify the failure prior to recognizing BTC revenue. This material weakness has not been remediated as of December 31, 2020, and due to this, the Company concluded that its internal control over financial reporting was not effective as of December 31, 2020.

This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended December 31, 2020, of the Company, and this report does not affect our report on such financial statements.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements of the Company that was communicated or required to be communicated to the audit committee and that (1) related to the accounts or disclosures that are material to the financial statements (2) involved or especially involved, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures which it relates.

Property, Plant and Equipment, Net - Determination of Impairment Indicators – Refer to Notes 2 and 5 to the financial statements

Critical Audit Matter Description

The Company tests its long-lived assets for recoverability when events or circumstances indicate that their carrying amount may not be recoverable. Possible indications of impairment may include events or changes in circumstances affecting availability or amount of government incentives, technological advances, and expansions to existing facilities that make assets obsolete. When events or circumstances exist, the Company evaluates its long-lived assets for impairment by comparing undiscounted future cash flows expected to be generated over the life of each asset to the respective carrying amount. If the carrying amount of an asset exceeds the undiscounted future cash flows, an analysis is performed to determine the fair value of the asset. The property, plant and equipment, net balance was $594.8 million as of December 31, 2020. The Company recorded impairment charges of $22.4 million related to property, plant and equipment for the year ended December 31, 2020 as the carrying amounts of these assets were deemed not recoverable.

We identified the determination of impairment indicators for property, plant and equipment as a critical audit matter because of the significant assumptions management makes when determining whether events or changes in circumstances have occurred indicating that the carrying amounts of property, plant and equipment may not be recoverable. This required a high degree of auditor judgment when performing audit procedures to evaluate whether management appropriately identified impairment indicators.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the assessment of long-lived assets for possible indications of impairment included the following, among others:

We tested the effectiveness of controls over management’s identification of possible circumstances that may indicate the carrying amounts of long-lived assets may not be recoverable.
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We evaluated management’s analysis of impairment indicators by:

Assessing whether property, plant and equipment having indicators of impairment were appropriately identified and further tested for impairment.

Reading industry and analysts reports and considering the impact of macroeconomic factors, such as future biodiesel prices, or adverse changes in regulatory, legislation or other legal factors that may represent impairment indicators not previously contemplated in management’s analysis.

We inquired of management and facility personnel whether property, plant and equipment may be sold or otherwise disposed of significantly before the end of the assets’ previously estimated useful life.

We inspected minutes of the board of directors to understand if there were factors that would represent potential impairment indicators for property, plant and equipment.

We compared current facility production levels to facility production capacity and historical production levels to identify if potentially previously unidentified impairment indicators exist.

We selected property, plant and equipment classified as construction in process and inspected when the long-lived assets were acquired and obtained evidence regarding management’s intentions for future use.

/s/ Deloitte & Touche LLP

Des Moines, Iowa
March 1, 2021

We have served as the Company's auditor since 2006.


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RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2020 AND 2019
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<
20202019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$84,441 $50,436 
Marketable securities149,521  
Accounts receivable (net of allowance for doubtful accounts of $1,631 and $1,001, respectively)
143,475 858,922 
Inventories209,361 161,429 
Prepaid expenses and other assets67,657 35,473 
Restricted cash3,777 3,000 
Total current assets658,232 1,109,260 
Long-term marketable securities120,022  
Property, plant and equipment, net594,796 584,577 
Right of use assets28,840 36,899 
Goodwill16,080 16,080 
Intangible assets, net10,708 12,018 
Other assets
32,720 26,515 
TOTAL ASSETS$1,461,398 $1,785,349 
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Revolving lines of credit$ $76,990 
Current maturities of long-term debt50,088 77,131 
Current maturities of operating lease obligations14,581 15,690 
Accounts payable 132,938 399,899 
Accrued expenses and other liabilities34,875 42,484 
Deferred revenue13,488 8,620 
Total current liabilities245,970