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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Renewable Energy Group, Inc.    REGI

RENEWABLE ENERGY GROUP, INC.

(REGI)
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RENEWABLE ENERGY : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

11/06/2020 | 04:24pm EST
We encourage you to read this Management's Discussion and Analysis of Financial
Condition and Results of Operations in conjunction with the accompanying
condensed consolidated financial statements and related notes. Forward-looking
statements contained in this report present management's views only as of the
date of this report. Except as required under applicable law, we do not intend
to issue updates concerning any future revisions of management's views to
reflect events or circumstances occurring after the date of this report.
Overview
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.
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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 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. 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 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
and 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-cost, lower carbon biomass-based diesel producer. We primarily
produce our biomass-based diesel from a wide variety of lower-cost, lower 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
U.S., as well as BioHeat® blended heating fuel at one of these terminal
locations. In 2018, we expanded our sales of other biofuel blends to Midwest and
West Coast terminal locations and look to potentially expand our sales of
biofuel blends 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 of our decision to pursue a sale of
this business in the fourth quarter of 2018, the former Renewable Chemicals
segment and the operations of the Renewable Chemicals segment had been
classified as discontinued operations for 2019.
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The table below reflects our gallons sold during the three and nine months ended September 30, 2020 and 2019 (totals may not foot due to rounding):

                                                                                                              Gallons sold (millions)
                                                                    Three months ended             Three months ended             Nine months ended   

Nine months ended

                                                                    September 30, 2020             September 30, 2019             September 30, 2020         September 30, 2019
REG-produced biomass-based
diesel:
                                 Biodiesel - U.S.                             108.6                          103.7                         293.4                      289.9
                                 Biodiesel - International                     13.6                           12.3                          37.6                       35.2

                                 Renewable diesel                              18.4                           20.8                          56.0                       54.9
                                                                              140.6                          136.8                         387.0                      380.0
Third party biomass-based
diesel:

                                 Biodiesel                                      7.1                           12.2                          15.4                       30.2
                                 Renewable diesel                              12.3                           10.4                          30.2                       27.5
                                                                               19.4                           22.6                          45.6                       57.7

Petroleum-based diesel                                                         16.2                           28.2                          66.5                      109.7
Total                                                                         176.2                          187.5                         499.1                      547.4


During 2019, we sold 700 million gallons of fuel, which included 488 million
biomass-based diesel gallons produced at REG facilities, 75 million
biomass-based diesel gallons we purchased from third parties and 137 million
petroleum-based diesel gallons.
Our businesses are organized into two reportable segments - the Biomass-based
Diesel segment and the Services segment.
Biomass-based Diesel Segment
Our Biomass-based Diesel segment includes:
•the operations of the following biomass-based diesel production refineries:
•a 30 mmgy nameplate capacity biodiesel production facility located in Ralston,
Iowa;
•a 35 mmgy nameplate capacity biodiesel production facility located near
Houston, Texas;
•a 45 mmgy nameplate capacity biodiesel production facility located in Danville,
Illinois;
•a 30 mmgy nameplate capacity biodiesel production facility located in Newton,
Iowa;
•a 60 mmgy nameplate capacity biodiesel production facility located in Seneca,
Illinois;
•a 30 mmgy nameplate capacity biodiesel production facility located near Albert
Lea, Minnesota;
•a 30 mmgy nameplate capacity biodiesel production facility located in Mason
City, Iowa;
•a 75 mmgy nameplate capacity renewable diesel production facility located in
Geismar, Louisiana;
•a 27 mmgy nameplate capacity biodiesel production facility located in Emden,
Germany;
•a 23 mmgy nameplate capacity biodiesel production facility located in Oeding,
Germany;
•a 100 mmgy nameplate capacity biodiesel production facility located in Grays
Harbor, Washington; and
•a 20 mmgy nameplate capacity biodiesel production facility located in DeForest,
Wisconsin.
•purchases and resales of biomass-based diesel, petroleum-based diesel,
Renewable Identification Numbers ("RINs") and Low Carbon Fuel Standard ("LCFS")
credits, and raw material feedstocks acquired from third parties; and
•incentives received from federal and state programs for renewable fuels.

The nameplate capacity listed above, which is based on original plant design, is
distinguished from a facility's effective capacity, which represents the maximum
average throughput that satisfies certain defined technical constraints.

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We derive a small portion of our revenues from the sale of co-products of the
biomass-based diesel production process. For the nine months ended September 30,
2020 and 2019, our revenues from the sale of co-products were less than 5% of
our total Biomass-based Diesel segment revenues. For the three and nine months
ended September 30, 2020, revenues from the sale of petroleum-based heating oil
and diesel fuel acquired from third parties, along with the sale of these items
further blended with biodiesel produced by our facilities or purchased from
third parties, were approximately 3% and 5% 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
Renewable Fuel Standard 2, or 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 Condensed Consolidated Balance Sheets. At each balance sheet
date, this RIN inventory is valued at the lower of cost or net realizable value
and any 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.
RINs have trended up in value during the first nine months of 2020, although
still at a low level, mainly influenced by HOBO spread at multi-year lows and
the overall demand destruction of refined fuels, which effectively reduces the
overall RVO.
The table below summarizes our RINs balances available to be sold and the median
closing price per RIN at September 30, 2020 and December 31, 2019 according to
the Oil Pricing Information System ("OPIS"):
                                                            Quantity                                       OPIS Median Closing Price per RIN
                                        September 30, 2020               December 31, 2019           September 30, 2020          December 31, 2019
Biomass-based diesel RINs                    35,416,905                          7,196,022          $            0.75          $             0.40
Advanced biofuels RINs                        3,279,499                          2,008,689          $            0.74          $             0.40


We generate Low Carbon Fuel Standard 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 the LCFS
credit when it is generated, regardless of whether the LCFS credit is
transferred with the biomass-based diesel produced or held by us. In general,
the value of LCFS credits fluctuates with the price and demand for fuel. In the
first nine months of 2020, the value of LCFS credits decreased from $205 per
credit on January 2, 2020 to $199 per credit on September 30, 2020.
The below table summarizes approximate amounts of our LCFS credits available to
be sold and the median closing price per LCFS credit at September 30, 2020 and
December 31, 2019 according to OPIS:
                                                    Quantity                                    OPIS Median Closing Price per LCFS Credit
                                September 30, 2020           December 31, 2019                September 30, 2020          December 31, 2019
California LCFS                         33,456                              2,366          $              198.50          $           205.50
Oregon LCFS                             20,383                              4,073          $              127.50          $           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 construction of biomass-based diesel production
facilities.
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During recent years, we have utilized our construction management expertise
internally to upgrade our facilities located in Seneca, Ralston, Albert Lea,
Mason City, Newton and Geismar.
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, first and foremost, 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 during the period of "stay-at-home"
orders. While more states, counties and schools have been re-opening, we have
been able to continue to operate our facilities in the first nine months of
2020. We do not expect there to be any changes in our designation as an
essential business and as a result do not anticipate having to curtail or cease
our operations in the foreseeable future.
The impact of a reduction in the demand for fuels has been and is expected to
continue to be significant. However, because diesel is predominately used for
shipping and transportation of goods and agriculture, as opposed to commercial
and personal travel, the reduction in demand and prices for diesel in general
and biomass-based diesel in particular to date has not been as significant as
that for other fuels. For example, in the first nine months of 2020, the
reduction in demand and prices for biomass-based diesel was not as significant
as the reduction in demand and prices for jet fuel and gasoline as a result of
the COVID-19 pandemic.
Based on information available as of the date of this report, we expect the
COVID-19 situation to have the following impacts on our revenues and margins:
•Even though more states and counties continue to re-open, the significant
decline in demand for fuels is expected to continue, which we expect will result
in decreased demand for our products and a decline in prices for our products;
•The supply-side shock from oil production increases coupled with the
demand-side impact of the COVID-19 pandemic has driven oil prices to historic
lows and raised uncertainty for the direction of energy prices in the
near-future. Increases to energy prices will depend in part on OPEC and non-OPEC
members agreeing to and following new production quotas;
•We expect a significant reduction in the supply of lower cost 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 information is rapidly evolving with
respect to the duration and severity of the pandemic. 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.
For a further discussion of the uncertainties and business risks associated with
the COVID-19 pandemic, see Part II, Item 1A, "Risk Factors."
Factors Influencing Our Results of Operations
The principal factors affecting our results of operations and financial
conditions are the market prices for biomass-based diesel and the prices for 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.
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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 governmental programs promoting renewable fuels and low
carbon fuel policies that require or incentivize production and use of
biomass-based diesel, which allows biomass-based diesel to be price-competitive
with petroleum-based diesel.
RFS2 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:
                                        2016                    2017                    2018                    2019                    2020                    2021
                                    1.90 billion            2.00 billion            2.10 billion            2.10 billion            2.43 billion            2.43 billion
Biomass-based diesel                   gallons                 gallons                 gallons                 gallons                 gallons                 gallons
                                    3.61 billion            4.28 billion            4.29 billion            4.92 billion            5.04 billion
Total Advanced biofuels                 RINs*                   RINs*                   RINs*                   RINs*                   RINs*                    N/A


*Ethanol equivalent gallons
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 a $499 million net benefit to our net income for the year ended
December 31, 2019. The BTC net benefit was allocated to our corresponding
quarterly adjusted earnings before interest, taxes, depreciation and
amortization ("Adjusted EBITDA") when the business giving rise to the
retroactive credit was conducted. For the three and nine months ended September
30, 2019 and the year ended December 31, 2019, the reinstatement of the 2019 BTC
resulted in a net benefit to our Adjusted EBITDA of $77 million, $212 million,
and $261 million, respectively. As discussed below under "Non-GAAP Financial
Measures," Adjusted EBITDA is not a measure of financial performance under
generally accepted accounting principles ("GAAP").
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. Biomass-based diesel RIN pricing, a value component that was introduced
via RFS2 in July 2010, has had a significant impact on biomass-based diesel
pricing. The following table shows for 2018, 2019 and the first nine months of
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.
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                    [[Image Removed: regi-20200930_g1.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 increased to $1.12 per
gallon at the end of September 2020. It reached a high of $1.22 per gallon of
biodiesel in September 2020 and a low of $0.56 per gallon in January 2020. RIN
value however still stayed at a low level until mid third quarter when RINs
started to trend upward at a higher pace. We believe that the trending up of RIN
values toward the end of the third quarter of 2020 was influenced by the 10th
circuit ruling on restricting Small Refiner Exemptions ("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. During 2020, RINs were negatively
impacted by the overall decrease in demand for refined fuels and hence RVO due
to COVID-19. During 2019, RINs were heavily influenced by record levels of SREs
from RIN compliance requirements for 2016, 2017, and 2018. We enter into forward
contracts to sell RINs and we use risk management position limits that are
intended to manage RIN exposure.
During 2019 and the first nine months of 2020, feedstock expense accounted for
79% and 81%, respectively, of our production cost, while methanol and chemical
catalysts expense accounted for 4% and 3%, respectively, in 2019 and 3% each in
2020 of our costs of goods sold.
Feedstocks for biomass-based diesel production, such as distillers corn oil,
used cooking oil, 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.
During 2019 and the first nine months of 2020, 71% and 63%, respectively, of the
feedstocks used in our operations were comprised of distillers corn oil, used
cooking oil and inedible animal fats, with the remainder coming from virgin
vegetable oil.
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 lower-cost feedstock for the period January
2018 to September 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 lower-cost feedstock from the
cost of producing one gallon of biodiesel made from soybean oil.
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                    [[Image Removed: regi-20200930_g2.jpg]]
(1)Used cooking oil ("UCO") prices are based on the monthly average of the daily
low sales price of Missouri River yellow grease as reported by The Jacobsen
(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 gallon).
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 September 2020.

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                    [[Image Removed: regi-20200930_g3.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)Distillers corn oil prices are based on 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.

The average NY Harbor ULSD price for the first nine months of 2020 was $1.24 per
gallon, down $0.70 from the fourth quarter of 2019 average of $1.94 per gallon.
NY Harbor ULSD prices decreased significantly during the first four months of
2020, from a high of $2.06 per gallon in January 2020 to a historic low of $0.61
per gallon in April 2020. The significant price decrease resulted from reduced
energy demand as governments around the world issued lock down orders for
residents in order to slow the spread of COVID-19 as well as elevated inventory
levels as prior supply cuts by OPEC expired on March 31, 2020. ULSD prices
rebounded in the latter half of the nine-month period as state lockdown measures
were eased and return to work activities increased fuel demand combined with the
implementation by OPEC nations of historic crude supply cuts in June limiting
oversupply. However, ULSD prices remain lower in the three months ended
September 30, 2020 as economic recovery from COVID-19 has been slow in most
countries, and the outlook for demand remains tenuous as there are fears of a
second wave of shutdowns during the fourth quarter of 2020.
The U.S. biodiesel price decreased during the first nine months of 2020 although
not as significantly as ULSD prices. The average U.S. biodiesel price, as
indicated by the Chicago SME B100 price, reported by OPIS was $2.94 per gallon,
for the first nine months of 2020. During the first nine months of 2020, the
Chicago SME B100 prices, reported by OPIS, reached a high of $3.31 in September
2020 and a low of $2.59 in April 2020. Demand for offshore storage of diesel
stocks has increased in anticipation of reduced fuel demand from shutdowns.
The average soybean oil price for the first nine months of 2020 was $0.29 per
pound. Soybean oil prices ranged from a high of $0.35 per pound in January 2020
to a low of $0.25 per pound in April 2020. Despite a significant decrease in the
first quarter of 2020, soybean oil prices have rebounded in the latter half of
the nine-month period due to low global stocks of vegetable oils and record
weekly soybean purchases in China. Global stocks of vegetable oils has trended
downward as palm oil production is down 5-8% in part on low palm productivity
and in part on labor shortage because of COVID-19, providing support to soybean
oil price in late July and early August. Soybean oil prices moved upward rapidly
during late August and September as China soybean purchases increased and
reached record weekly amounts.
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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 are intended to 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 were the primary feedstocks we used to produce biomass-based diesel
in 2019 and the first nine months of 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
lower-cost feedstocks. The purchase prices for lower-cost 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 lower-cost 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 all
of the contract components in aggregate 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 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 resulting in
the offsetting gain or loss that will be recognized in a later accounting
period.
We recorded risk management gains of $7.5 million and $56.3 million from our
derivative financial instrument activity for the three and nine months ended
September 30, 2020, respectively, compared to a gain of $3.2 million and a loss
of $25.1 million for the three and nine months ended September 30, 2019,
respectively. Changes in the value of these futures, swaps or options
instruments are recognized in current income or loss.
                                       34
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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®, is designed to capture 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 its generation of 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 the nine months
ended September 30, 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, a global
pandemic such as COVID-19 or for any other reason, 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 upgraded our Newton and
Danville biorefineries in 2018 to produce distilled biodiesel, which has
improved cold-weather performance, from low-cost feedstocks.
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 (as defined under the
RFS2) 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. The table below provides a comparison between actual RIN
generation and RVO level for Advanced Biofuel as set by the EPA, together with
the impact of the SREs.
                                 RIN Generation                Finalized RVO level for       Estimated Advanced Biofuel
           Year                  (Advanced Biofuel)            Advanced Biofuel              RVO Exempted due to SREs
           2017                  4.23 billion RINs             4.28 billion RINs*            0.40 billion RINs
           2018                  4.34 billion RINs             4.29 billion RINs*            0.32 billion RINs
           2019                  4.87 billion RINs             4.92 billion RINs*            **
       YTD Q3-2020               3.85 billion RINs             5.04 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. Under RFS2, Obligated
Parties are entitled to satisfy up to 20% of their annual requirement with prior
year RINs. Biomass-based diesel production and/or imports, as reported by EMTS,
were 2.50 billion gallons for 2018. The amount of biomass-based diesel produced
and/or imported into the U.S. in 2019 was 2.65 billion gallons. In the first
nine months of 2020, according to EMTS data, 2.12 billion gallons of
biomass-based diesel were produced and/or imported into the U.S., compared to
the equivalent 1.98 billion gallons over the same period in 2019.
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,
according to the Energy Information Administration ("EIA"). Imported gallons
                                       35
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made up less of the RVO in 2018 and 2019 compared to previous years due to the
anti-dumping and countervailing duty trade case mentioned previously, which
eliminated the imports of biodiesel from Argentina and Indonesia in 2018.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations
is based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted 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 have disclosed under the heading "Critical Accounting Policies" in our Annual
Report on Form 10-K for the year ended December 31, 2019 the critical accounting
policies which materially affect our financial statements. There have been no
material changes from the critical accounting policies previously disclosed. You
should carefully consider the critical accounting policies set forth in our
Annual Report on Form 10-K.
Results of Operations
Three and nine months ended September 30, 2020 and 2019
Set forth below is a summary of certain financial information (dollars in
thousands and gallons in millions except for per gallon data) for the periods
indicated:
                                                   Three Months Ended                       Nine Months Ended
                                                      September 30,                           September 30,
                                                 2020               2019                2020                 2019

Gallons sold                                     176.2              187.5                499.1                547.4

Average biomass-based diesel price per
gallon (ASP excluding BTC net benefit of
$2.40 and $2.32 for the three and nine
months ended September 30, 2020)             $    2.92$    2.76

$ 2.88$ 2.71

Revenues from continuing operations $ 576,052$ 584,372

        $ 1,596,685$ 1,623,224
Cost of goods sold from continuing
operations                                     498,402            560,296            1,387,147            1,638,712
Gross profit (loss) from continuing
operations                                      77,650             24,076              209,538              (15,488)
Selling, general and administrative expenses    31,059             24,762               86,971               77,157

Gain on disposal of property, plant and
equipment                                            -                  -                 (187)                   -
Impairment of property, plant and equipment     19,256             11,145               19,256               11,613
Income (loss) from operations                   27,335            (11,831)             103,498             (104,258)
Other income (expenses), net                       542             (2,551)               5,041               (9,666)
Income tax benefit (expense)                    (1,046)               629               (4,007)               1,149
Net income (loss) from continuing operations    26,831            (13,753)             104,532             (112,775)
Net loss from discontinued operations                -             (2,193)                   -               (8,672)

Net income (loss)                            $  26,831$ (15,946)$   104,532$  (121,447)

Effect of participating share-based awards
on continuing operations                           492                  -                2,071                    -
Net income (loss) from continuing operations
available to the Company's common
stockholders                                 $  26,339$ (13,753)

$ 102,461$ (112,775)


Net loss from discontinued operations
available to the Company's common
stockholders                                 $       -          $  (2,193)         $         -          $    (8,672)


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Continuing Operations:
Revenues. In the three and nine months ended September 30, 2020, our revenues
decreased by $8.2 million and $26.5 million, or 1% and 2%, respectively,
compared to the same periods in 2019. In the third quarter of 2020, travel
restrictions due to COVID-19 continued to ease and more travel was seen across
the U.S. but still below pre-COVID levels. Economic activity also started to
slowly recover during the third quarter. As a result, our average selling price
(excluding BTC) decreased $0.36 and $0.39, or 13% and 14%, in the three and nine
months ended September 30, 2020, respectively, compared to the same periods in
2019. The decrease in our revenues was also impacted by a 11.3 million and 48.3
million, or 6% and 9%, decrease in total gallons sold for the same periods as a
result of decreased demand, our focus on product mix and a reduced volume of
petroleum diesel caused by an unusually warm winter in the Northeast.
The decrease in gallons sold for the three and nine months ended September 30,
2020 accounted for a revenue decrease of $27.1 million and $112.1 million,
respectively, using the average selling price for biomass-based diesel price for
the applicable periods. Our average biomass-based diesel sales price per gallon
increased $0.16, or 6%, for the three months ended September 30, 2020 and
increased $0.17, or 6%, for the nine months ended September 30, 2020, due
primarily to the BTC being in place for the period. The average biomass-based
diesel sales price per gallon, after excluding the 2020 BTC, decreased $0.36 and
$0.39, or 13% and 14%, respectively, for the three and nine months ended
September 30, 2020. The decrease in the adjusted average sales price excluding
the 2020 BTC contributed to a $67.5 million and $213.5 million decrease in
revenues for the three and nine months ended September 30, 2020, respectively,
when applied to the number of gallons sold in the comparable 2019 periods. These
decreases were partially offset by the increase in government incentives revenue
in the three and nine months ended September 30, 2020, of $82.7 million and
$244.0 million, respectively, related to the 2020 BTC.
Costs of goods sold. Our costs of goods sold decreased $61.9 million and $251.6
million, or 11% and 15%, respectively, for the three and nine months ended
September 30, 2020, as compared to the same periods in 2019. Costs of goods sold
as a percentage of revenues were 87% for both the three and nine months ended
September 30, 2020, and 96% and 101%, respectively, for the three and nine
months ended September 30, 2019. The decrease in costs of goods sold was
primarily driven by the BTC recognized in 2020 and the absence of the BTC in
2019, as well as changes in risk management as a result of energy prices
dropping to a historically low level, partially offset by higher feedstock costs
on our lower-cost feedstocks, both of which are described in more detail below.
Average prices for lower-cost feedstocks used in our production were $0.29 per
pound for both the three and nine months ended September 30, 2020, as compared
to $0.27 per pound for both the three and nine months ended September 30, 2019.
Average soybean oil costs were $0.30 per pound for both the three and nine
months ended September 30, 2020, as compared to $0.32 and $0.31 per pound for
the three and nine months ended September 30, 2019. Average canola oil costs
were $0.31 per pound for both the three and nine months ended September 30,
2020, as compared to $0.31 and $0.33 per pound for the three and nine months
ended September 30, 2019, respectively. Average distillers corn oil costs were
$0.26 per pound for both the three and nine months ended September 30, 2020, as
compared to $0.26 per pound for both the three and nine months ended
September 30, 2019. We recorded a risk management gain of $7.5 million and $56.3
million from our derivative financial instrument activity for the three and nine
months ended September 30, 2020, respectively, compared to risk management gain
of $3.2 million and loss of $25.1 million for the three and nine months ended
September 30, 2019, respectively.
Selling, general and administrative expenses. Our selling, general and
administrative expenses were $31.1 million and $87.0 million for the three and
nine months ended September 30, 2020, respectively, or 5% of total revenue for
both periods, and $24.8 million and $77.2 million, or 4% and 5%, of total
revenue, respectively, in the same periods of 2019. The $6.3 million, or 25%,
increase resulted primarily from higher legal expenses and employee related
compensation.
Impairment of property, plant and equipment. During the third quarter of 2020,
we recorded impairment charges of $19.3 million related to certain equipment
resulting from the probability that the assets will no longer be utilized in
future renewable diesel production expansions or are deemed not recoverable
given the assets' deteriorating physical conditions. During the same period of
2019, we recorded an impairment charge of $11.1 million against property, plant
and equipment assets at our facility in New Boston, Texas. The impairment charge
resulted from the decision to shut the plant down as a result of the
deteriorating economic conditions facing that particular plant.
Other income (expense), net. Other income was $0.5 million and $5.0 million for
the three and nine months ended September 30, 2020, respectively, compared to
other expense of $2.6 million and $9.7 million for the same periods in 2019.
Other income (expense) is primarily comprised of gain on debt extinguishment,
gain on lease termination, interest expense, interest income and other
non-operating items. We recognized a $4.5 million gain related to the
termination of a terminal lease at our non-operational New Orleans facility in
the first half of 2020. Gains on debt extinguishment related to the repurchase
of a portion of our 2036 Convertible Senior Notes in the three and nine months
ended September 30, 2020, coupled with lower interest expense, contributed to an
overall other income compared to other expense for the same periods in 2019.
Income tax expense. We recognized an income tax expense of $1.0 million and $4.0
million for the three and nine months ended September 30, 2020, respectively, as
compared to a tax benefit of $0.6 million and $1.1 million, respectively, for
the
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same periods in 2019. Our tax provision for an interim period is determined
using an estimate of our annual effective tax rate, adjusted for discrete items
arising in that period.  Our effective tax rate differs from the statutory tax
rate primarily due to the fact that we have a valuation allowance on our
domestic deferred tax assets and most of our foreign deferred tax assets.
Effects of participating share-based awards. Effects of participating
share-based awards was $0.5 million and $2.1 million for the three and nine
months ended September 30, 2020. There was no effect for the same respective
periods in 2019.

Discontinued Operations:
For the three and nine months ended September 30, 2020, there was no activity
classified as discontinued operations. Net loss from discontinued operations for
the three and nine months ended September 30, 2019 was attributable to the
research and development activities at the REG Life Sciences business and costs
to sell the business.
Non-GAAP Financial Measures:
Adjusted EBITDA
Earnings before interest, taxes, depreciation and amortization ("EBITDA") and
adjusted EBITDA are not measures of financial performance under GAAP. We use
EBITDA and EBITDA adjusted for certain additional items, identified in the table
below, or Adjusted EBITDA, as a supplemental performance measure. We present
EBITDA and Adjusted EBITDA because we believe they assist investors in analyzing
our performance across reporting periods on a consistent basis by excluding
items that we do not believe are indicative of our core operating performance.
In addition, we use Adjusted EBITDA to evaluate, assess and benchmark our
financial performance on a consistent and a comparable basis and as a factor in
determining incentive compensation for our executives.
                                                  Three months           Three months           Nine months           Nine months
                                                 ended September       ended September        ended September       ended September
(In thousands)                                      30, 2020               30, 2019              30, 2020               30, 2019

Net income (loss) from continuing operations $ 26,831 $

(13,753) $ 104,532$ (112,775) Adjustments: Income tax (benefit) expense

                            1,046                   (629)                4,007                 (1,149)
Interest expense                                        1,070                  2,866                 4,732                 10,822
Depreciation                                            9,388                  9,107                27,425                 27,349
Amortization of intangible assets                         591                    397                 1,262                  1,241
EBITDA                                           $     38,926          $    

(2,012) $ 141,958$ (74,512)


Gain on sale of assets                                      -                      -                  (187)                     -

Change in fair value of contingent consideration            -                   (136)                    -                    566
(Gain) loss on debt extinguishment                        (18)                     -                (1,809)                     2
Gain on lease termination                                   -                      -                (4,459)                     -
Other income, net                                      (1,594)                  (179)               (3,505)                (1,724)
Impairment of assets                                   19,256                 11,145                19,256                 11,613

Stock compensation                                      1,811                  1,804                 5,789                  4,981

Biodiesel tax credit 2019(1)                                -                 77,168                     -                212,045
Adjusted EBITDA                                  $     58,381$      87,790$    157,043$     152,971



(1) On December 20, 2019, the Biodiesel Mixture Excise Tax Credit ("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. 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 an
alternative 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:

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•Adjusted EBITDA does not reflect our cash expenditures for capital assets or
the impact of certain cash charges that we consider not to be an indication of
our ongoing operations;
•Adjusted EBITDA does not reflect changes in, or cash requirements for, our
working capital requirements;
•Adjusted EBITDA does not reflect the interest expense, or the cash requirements
necessary to service interest or principal payments, on our indebtedness;
•although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future, and
Adjusted EBITDA does not reflect cash requirements for such replacements;
•stock-based compensation expense is an important element of our long term
incentive compensation program, although we have excluded it as an expense when
evaluating our operating performance; and
•other companies, including other companies in our industry, may calculate these
measures differently than we do, limiting their usefulness as a comparative
measure.
Liquidity and Capital Resources
Our principal sources of liquidity are existing cash balances, marketable
securities, cash generated by our operations and our ability to borrow under
such credit facilities as we may have in effect 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 1 to the condensed 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 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.
Sources of liquidity. At September 30, 2020, the total of our cash and cash
equivalents and marketable securities was $383.7 million, compared to $50.4
million at December 31, 2019. At September 30, 2020, we had total assets of
$1,460.4 million, compared to $1,785.3 million at December 31, 2019. At
September 30, 2020, we had term debt before debt issuance costs of $67.6
million, compared to term debt 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 our borrowings as of September 30, 2020.
Our term debt (in thousands) is as follows:
                                                                 September 30, 2020           December 31, 2019

4.00% Convertible Senior Notes, $59,619 face amount, due in June 2036

                                                      $            46,877          $           69,668

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

                                                  -                       6,468

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

                                   -                       6,966

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

                                                                 6,732                       6,929

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

                                                  13,926                      15,980
Other                                                                           19                          33
Total term debt before debt issuance costs                     $            

67,554 $ 106,044



A full description of our credit facilities and other agreements related to our
outstanding indebtedness is included under the heading "Liquidity and Capital
Resources" in our Annual Report on Form 10-K for the year ended December 31,
2019.
2036 Convertible Senior Notes
The 2036 Convertible Senior Notes becomes 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. As of September 30,
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 were classified
as a current liability on our Condensed Consolidated Balance Sheets at
September 30, 2020 and December 31, 2019.
                                       39
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During the three and nine months ended September 30, 2020, we used $18,086 and
$75,890 to repurchase $5,000 and $30,008 principal amount of the 2036
Convertible Senior Notes, respectively.
In addition, we had revolving debt (in thousands) as follows:
                                                             September 30, 2020           December 31, 2019
Amount outstanding under lines of credit                    $                -          $           76,990

Maximum available to be borrowed under lines of credit $ 117,820 $ 101,485



Cash flows. The following table presents information regarding our cash flows
and cash and cash equivalents for the nine months ended September 30, 2020 and
2019 (in thousands):
                                                                    Nine Months September 30,
                                                                    2020                   2019
Cash provided by (used in) operating activities               $      554,384$   (77,149)
Cash (used in) provided by investing activities                     (333,484)              20,405
Cash used in financing activities                                   (174,229)              (2,631)
Net change in cash, cash equivalents and restricted cash              46,671              (59,375)

Cash, cash equivalents and restricted cash end of period $ 100,187$ 67,093



In the first nine months of 2020, we generated $554.4 million of cash from
operations, compared to $77.1 million of cash used in operations in the first
nine months of 2019. The increase in cash provided by operations is largely
driven by net income of $104.5 million, compared to a net loss of $121.4 million
for the nine months ended September 30, 2019. The net income for the nine months
ended September 30, 2020 was primarily due to the BTC being in place for 2020
compared to the lapse of BTC in 2019, improved margins in the third quarter of
2020 and the favorable impact of risk management activity. Net loss for the nine
months ended September 30, 2019 was negatively impacted primarily by compressed
margins and the lapse of the BTC. In addition, we received approximately $850.0
million related to the 2018, 2019 and 2020 BTC, contributing to the cash
generated from operations during the first nine months of 2020.
We used $333.5 million of cash in investing activity in the first nine months of
2020, compared to $20.4 million of cash provided by investing activities in the
first nine months of 2019. The increase in cash used by investing activities was
primarily due to net investments of $286.7 million in high quality marketable
securities, compared to excess maturities over purchases of marketable
securities of $51.1 million in 2019. In addition, we used $46.9 million of cash
for property, plant and equipment purchases and plant upgrades in 2020 compared
to purchases of property, plant, and equipment of $31.1 million in 2019.
Cash flows used in financing activities for the nine months ended September 30,
2020 was $174.2 million compared to $2.6 million for the nine months ended
September 30, 2019. The $171.6 million increase was primarily due to the payoff
of the lines of credits of $77.0 million in the first nine months of 2020
compared to a net borrowing of $83.0 million in the same period in 2019 and an
increase of $18.5 million in the debt repayments primarily due to the
repurchases of the 2036 Senior Convertible Notes.
Capital expenditures. During the nine months ended September 30, 2020, our
capital expenditures were $46.9 million involving various plant optimization
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. Our budgeted capital expenditures for the remainder of 2020 are
approximately $13.0 million, which includes investments in low cost, high return
projects, environmental, health and safety projects and growth projects.
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 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 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.
                                       40

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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 the Company, refer
to "Note 2 - Summary of Significant Accounting Policies" to our Condensed
Consolidated Financial Statements.

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