Fourth Quarter 2020 Highlights:

• 151 million gallons of fuel sold
• 129 million gallons produced
• Revenues of $548 million
• Net income from continuing operations available to common stockholders of $27 million, or $0.60 per diluted share
• Adjusted EBITDA of $46 million
• Carbon reduction of over one million metric tons from fuels produced by REG in the quarter

Full Year 2020 Highlights:

• 651 million gallons of fuel sold
• Record 519 million gallons produced
• Revenues of $2.1 billion
• Net income from continuing operations available to common stockholders of $120 million, or $2.76 per diluted share
• Adjusted EBITDA of $196 million
• Sales of blends of biodiesel and renewable diesel increased 57%
• Carbon reduction of 4.2 million metric tons from fuels produced by REG for the full year
• Announced planned expansion of renewable diesel plant in Geismar, Louisiana to 340 million gallons per year

Financial Restatement Summary:

• Restatement of $38.2 million in cumulative revenue from January 2018 through September 30, 2020 is due to diesel additive system failures at the Company’s Seneca facility that caused REG to not be first blender / proper claimant for certain biodiesel mixture excise tax credits (“BTC”)
• Adjustment is immaterial to each year, but aggregate amount is material in 2019, hence restatement
• REG has established additional policies and controls designed to enhance assurance around proper BTC-related petroleum diesel blending and BTC filing going forward
• Issue is not whether the biodiesel ultimately qualified for the BTC, but rather which taxpayer added the petroleum diesel and as such is the proper BTC claimant
• REG is engaging with relevant customers to recover as much of these funds as possible

AMES, Iowa--(BUSINESS WIRE)--Renewable Energy Group, Inc. (NASDAQ:REGI) ("REG" or the "Company") today announced its financial results for the fourth quarter and full year ended December 31, 2020. The Company also announced that it is restating financial statements for the years ended December 31, 2018 and 2019, and for the first three quarters of 2020, to reflect a $38.2 million adjustment over those periods as a result of the Company not being the proper claimant for certain federal biodiesel mixture excise tax credits (“BTC”) on biodiesel it sold between January 1, 2017 and September 30, 2020. The Company is working with its customers on BTC re-filings on these gallons to recover as much of the $38.2 million in revenue as possible.

Commentary on 2020 and Business Outlook

"REG’s resilient business model enabled us to deliver strong financial results, with $120 million of net income from continuing operations available to common stockholders, supported by record production, despite the array of externally driven challenges we faced in 2020," said Cynthia (CJ) Warner, REG President and Chief Executive Officer. "In the face of the pandemic, we were able to adjust operations to ensure safety while fulfilling customer demand for our essential transportation fuels. We used our flexible feedstock approach to sustain margins and profitability even as the pandemic dramatically impacted feedstock supply and pricing. The Adjusted EBITDA of nearly $200 million exemplifies the soundness of our strategy and underscores our belief that REG can sustainably deliver earnings over the long term."

Warner continued, "At REG, we are continuing to build on renewable energy's positive momentum and on our track record as a leader of the transition to sustainability. We expect robust demand for renewable diesel and biodiesel to continue into 2021, benefiting from economic recovery combined with strong public support for an option to decarbonize that is available now. We are confident that our focused strategy and expansion plan will deliver long-term success and significant value for our shareholders and other stakeholders."

Biodiesel Tax Credit Assessment

The restatement is the result of the Company not being the proper claimant for certain BTC payments on biodiesel it sold between January 1, 2017 and September 30, 2020. REG qualifies for the BTC when it blends petroleum diesel with biodiesel. Due to failures in the diesel additive system at the Company’s facility in Seneca, Illinois, petroleum diesel was periodically not added to certain loads. As a result, the Company’s customers who received these loads and subsequently added petroleum diesel are the proper claimants on these biodiesel gallons rather than the Company’s REG Seneca subsidiary.

The Company discovered the blending discrepancy in connection with its preparation for a standard IRS audit of its BTC filings. The Company self-reported the findings to the IRS and initiated an investigation overseen by the Audit Committee of the Company’s Board of Directors. The Company concluded this discrepancy is limited to Seneca. In addition, all of the Company's other U.S. biorefineries have passed their relevant IRS audits.

REG reached agreement on February 23, 2021 with the IRS on a $40.5 million assessment, excluding interest, to correct the REG Seneca BTC claims. This reflects assessments of $14.8 million, $9.9 million, $7.6 million and $8.2 million for the tax years 2017, 2018, 2019, and the first three quarters of 2020, respectively. The $2.3 million difference between the $40.5 million tax liability and $38.2 million in revenue being restated is a result of the Company’s ability to recover the BTC in instances where another REG subsidiary blended the biodiesel with petroleum diesel and was thus the proper claimant. The Company is working with its customers on BTC re-filings on these gallons to recover as much of the $38.2 million as possible.

"Operational excellence is fundamental to REG's success. Ensuring this is reflected across all areas of our business – from sourcing to delivery – is a top priority," said Warner. "REG takes the matter at our Seneca facility seriously, and we have taken steps to strengthen our operations, enhance our internal controls and assurance processes, and implement additional policies and controls designed to ensure proper BTC-related blending and BTC filing going forward."

Warner continued, "It is important to note that this situation has no impact on the total amount of BTC credits actually generated, and it does not impact the robust demand for our biodiesel products, the durability of our business model, or the value we bring to our customers."

Remediation Actions

The Company has established additional policies and controls designed to ensure that the correct amount of petroleum diesel is being blended at all of the Company’s facilities, including Seneca, and that the Company properly files for the BTC going forward. These include:

• For the Seneca facility:
  • Limiting the loading to modes where the existing system is known to be functional, until the system is redesigned to work in all operating modes; and
  • Implemented a control system calculation and readout tool that enables the loading operator to validate that the proper number of petroleum diesel gallons were added to each load;

• Then, to further reinforce the Company's system-wide controls and assurances:
  • Performing additional local reconciliations weekly to validate that the amount of petroleum diesel used matches the amount of petroleum diesel required to be blended; and
  • The Company is now reviewing monthly inventory reconciliations prior to filing for BTC to re-confirm that the required volume of petroleum diesel has been blended.

Restatement of Financial Results

While the BTC adjustment in each individual year is not material, the Company determined that the aggregate BTC adjustment is material in 2019. As a result, the Company is restating its financial statements for the years ended December 31, 2019 and 2018 and the quarters ended March 31, June 30 and September 30, 2019 and 2018. The 2017 BTC was recognized as revenue in the first quarter of 2018, so the BTC assessment does not affect the Company's 2017 GAAP financial statements. A material weakness in the Company's internal control over financial reporting directly related to the restatement was found to exist as of December 31, 2020 and December 31, 2019. The Company has taken the remediation actions described above to address this material weakness.

REG today filed with the SEC an amended Form 10-K for the year ended December 31, 2019. The amended Form 10-K includes additional details regarding the restatement for the years ended December 31, 2019 and 2018. In addition, REG expects to file on March 1, 2021 its Form 10-K for the year ended December 31, 2020, which will include amended financial results for the quarters ended March 31, June 30 and September 30, 2020 that reflect an immaterial restatement for those periods.

Fourth Quarter 2020 Highlights

All figures refer to the quarter ended December 31, 2020, unless otherwise noted. All comparisons are to the quarter ended December 31, 2019 as restated per the 10-K/A filed on February 25, 2021, unless otherwise noted.

The table below summarizes REG’s financial results for the fourth quarter of 2020.

REG sold 151 million total gallons of fuel, a decrease of 1%. Product mix improved, largely due to an increase of self-produced biodiesel sold in North America and Europe of 6 million gallons and 2 million gallons, respectively; offset by a decrease in low-margin petroleum diesel of 6 million gallons and a decrease in third party North American renewable diesel of 2 million gallons. Gallons sold of self-produced renewable diesel decreased by 2 million.

REG produced 129 million gallons of biodiesel and renewable diesel, an increase of 13%. Gallons produced increased on a year-over-year basis, due to more favorable market conditions, including BTC certainty versus fourth quarter 2019. European biodiesel production increased 20% and North American biodiesel production increased 19%. Renewable diesel production at our Geismar facility decreased 9% as the result of unplanned downtime in December.

Revenues decreased $454 million to $548 million, driven primarily by the GAAP recognition of all the 2018 and 2019 BTC net benefit to revenue of $491 million in the fourth quarter of 2019 and the year-over-year decrease in ULSD prices of 34%. Offsetting these decreases were an increase in revenue from North American biodiesel from the higher volume, improved product mix driven by lower petroleum volumes and higher volumes of self-produced biodiesel and an increase in Separated RIN sales of $30 million resulting from higher average D4 RIN prices and more RINs sold.

Gross profit was $66 million, or 12% of revenues, compared to gross profit of $529 million, or 53% of revenues from the same period a year ago. Gross profit as a percentage of revenue declined mainly due to the GAAP recognition of all of the 2018 and 2019 net BTC benefit in the fourth quarter of 2019. The HOBO + 1.5x RIN spread was down 40% year-over-year. NYMEX ULSD decreased 34% and average D4 RIN prices increased, while weighted average feedstock cost per gallon produced increased $0.39. Additionally, risk management losses increased $16 million year-over-year. The margin challenges were partially offset by the increase in Separated RIN sales and improved product mix driven by lower petroleum volumes and higher volumes of self-produced biodiesel.

Operating income was $31 million compared to $488 million for the fourth quarter of 2019, driven by the same factors as those described above for gross profit, along with lower selling, general and administrative costs of $9 million due to higher employee related compensation caused by the reinstatement of the BTC in 2019.

GAAP net income from continuing operations available to common stockholders was $27 million, or $0.60 per share, on a fully diluted basis, compared to $476 million, or $11.15 per share on a fully diluted basis, in the fourth quarter of 2019. The factors driving this difference are the same as those described above for operating income.

At December 31, 2020, REG had cash and cash equivalents, restricted cash, and marketable securities (including long-term) of $358 million. For the quarter, the Company's cash and cash equivalents, restricted cash, and marketable securities (including long-term) decreased by $29 million. At December 31, 2020, accounts receivable were $143 million, a decrease of $44 million from September 30, 2020 and accounts payable were $133 million. The decrease in cash, restricted cash, and marketable securities (including long-term) and accounts receivable were offset by an increase in inventory of $63 million in the quarter and decrease in accounts payable.

Fourth Quarter 2020 Highlights - Non-GAAP

All figures refer to the quarter ended December 31, 2020, unless otherwise noted. All comparisons are to the year ended December 31, 2019 as restated per the 10-K/A filed on February 25, 2021, unless otherwise noted. Adjusted amounts reflect the allocation of the BTC benefits for the period in which the gallons were sold (shown in the table above).

The table below summarizes REG's financial results for the fourth quarter of 2020, as adjusted in order to reflect the allocation of the BTC benefits for the period in which associated gallons were sold.

Revenues after allocating the BTC to the period in which the gallons were sold were down 4%, primarily due to the 34% decrease in ULSD prices. Separated RIN sales increased $30 million resulting from higher average D4 RIN prices and more RINs sold and improved product sales mix driven by reduced sales of petroleum diesel and higher sales volumes of self-produced biodiesel.

Operating income as adjusted was $31 million, a decrease of $21 million resulting mainly from the lower HOBO + 1.5x RIN spread, as well as increased risk management losses. This decrease was partially offset by the increase in Separated RIN sales and improved product mix.

Net income available to common stockholders as adjusted was $27 million compared to a net income of $49 million in 2019. Adjusted EBITDA was $46 million compared to $64 million in Q4 2019, all as a result of the same factors as those described above for operating income.

Full Year 2020 Results

All figures refer to the year ended December 31, 2020, unless otherwise noted. All comparisons are to the year ended December 31, 2019 as restated per the 10-K/A filed on February 25, 2021, unless otherwise noted.

REG sold 651 million total gallons, a decrease of 7% compared to 700 million gallons in 2019. The decrease in gallons sold is mostly attributable to intentional decreases in lower margin product lines, including petroleum diesel, down 49 million gallons, and third party North American biodiesel, down 16 million gallons. These decreases were partially offset by gains in the Company's North American biodiesel business, up 10 million gallons, and European business, as European renewable diesel and biodiesel sales increased by 5 million and 5 million gallons respectively. These changes are partially a result of the Company's increased biodiesel blending strategy.

REG produced a company record high of 519 million gallons, compared to 495 million gallons in 2019. Both North American and European biodiesel production increased, 5% and 7%, respectively. Production at the Company's renewable diesel refinery increased 2% to 87 million gallons.

Revenues were $2.1 billion, a decrease of $488 million, or 19%. The largest drivers of the decrease were the GAAP recognition of all the 2018 and 2019 BTC net benefit to revenue of $491 million in the fourth quarter of 2019 and lower volumes. In addition, revenue was impacted by a 36% decrease in ULSD prices year over year. This was partially offset by the improved product mix driven by lower petroleum volumes and higher volumes of self-produced biodiesel, a $31 million increase in Separated RIN sales, and a $25 million increase in LCFS revenue.

Gross profit was $268 million, or 13% of revenues, compared to gross profit of $514 million, or 20% of revenues. The decline in gross profit as a percentage of revenue was mainly driven by GAAP recognition of all of the 2018 and 2019 net BTC benefit in the fourth quarter of 2019. The HOBO + 1.5x RIN spread was down 41% year-over-year. NYMEX ULSD decreased 36% and average D4 RIN prices increased, while weighted average feedstock cost per gallon produced increased $0.14. The margin challenges were partially offset by the improved product mix, $66 million positive impact from risk management and the increase in gross profit from both Separated RINs and LCFS credits.

Operating income was $127 million compared to $383 million for the full-year 2019, driven by the same factors as those described above for gross profit.

Net income from continuing operations available to common stockholders was $120 million, or $2.76 per share on a fully diluted basis for 2020, compared to $364 million, or $8.61 per share on a fully diluted basis for 2019.

Full Year 2020 Highlights - Non-GAAP

All figures refer to the year ended December 31, 2020, unless otherwise noted. All comparisons are to the year ended December 31, 2019 as restated per the 10-K/A filed on February 25, 2021, unless otherwise noted. Adjusted amounts reflect the allocation of the BTC benefits for the period in which the gallons were sold (shown in the table above).

The table below summarizes REG's financial results for 2020, as reported and as adjusted to reflect allocation of the BTC benefits for the period in which the gallons were sold.

Revenues after allocating the BTC to the period in which the gallons were sold decreased 11%, primarily due to the 36% decrease in ULSD prices and lower volume. The decrease in ULSD prices was partially offset by an increase in European biodiesel and European renewable diesel revenue from higher volume, improved product mix driven by lower petroleum volumes and higher volumes of self-produced biodiesel, a $31 million increase in Separated RIN sales and a $25 million increase in LCFS revenue.

Operating income as adjusted was $127 million, a decrease of $28 million resulting mainly from the lower HOBO + 1.5xRIN spread. This decrease was partially offset by increases in risk management and the increase in gross profit for separated RINs.

Net income available to common stockholders as adjusted was $120 million compared to a net income of $140 million in 2019. Adjusted EBITDA was $196 million compared to $211 million in 2019. The Company's Adjusted EBITDA margins were 9.2% and 8.0% for 2020 and 2019, respectively. These changes occurred as a result of the same factors as those described above for operating income.

Reconciliation of Non - GAAP Measures

The Company uses earnings before interest, taxes, depreciation and amortization, adjusted for certain additional items, identified in the table below, or Adjusted EBITDA, as a supplemental performance measure. Adjusted EBITDA is presented in order to assist investors in analyzing performance across reporting periods on a consistent basis by excluding items that are not believed to be indicative of core operating performance.

Renewable Energy Group
Todd Robinson
Interim Chief Financial Officer
+1 (515) 239-8048
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