Renewable Energy Group, Inc. (REGI) on Q1 2021 Results - Earnings Call Transcript
Operator: Greetings, and welcome to Renewable Energy Group, Inc.’s Q1 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I would now like to turn the conference over to our host, Jacob Schwaegler with Investor Relations for Renewable Energy. Thank you. You may begin.
Jacob Schwaegler: Thank you, Devin. Good afternoon, everyone, and welcome to our first quarter 2021 earnings conference call.
CJ Warner: Thank you, Jacob, and good afternoon, everyone. Before we get into the discussion around first quarter results, I want to publicly welcome Craig Bealmear, REG’s new CFO to the team. Craig joined us just two weeks ago, bringing to REG a breadth and depth of the accounting and finance functions with specific senior experience in the world of refining and marketing. Some of you already have had a chance to chat with Craig, and he’s looking forward to meeting many more of you very soon. In turn, I would also like to thank Todd Robinson for serving us so well as interim CFO, and who will now become Deputy CFO, also retaining his responsibilities as Treasurer and VP, Investor Relations. These two strong leaders will help us progress our growth program with operational excellence, and their appointments demonstrate REG’s ongoing drive to build outstanding talent.
Todd Robinson: Thank you, CJ, and good afternoon, everyone. Slide 18 shows our first quarter results. As CJ mentioned, we had a strong first quarter. First, revenue increased 14%. This increase was mostly driven by higher average selling prices, including RINs. North American biodiesel, in particular, experienced a significant boost in average selling price, up 38%. As a reference, RIN prices were up $0.73 per RIN, over 158%, while ULSD prices were 14% higher versus first quarter of 2020. The increase in average selling price was partially offset by a lower volume of gallons sold. Gallons sold declined slightly versus last year, down 4%. This was in line with our guidance based on the turnaround at Geismar. REG produced renewable diesel sales were down slightly because of the turnaround, and we optimized our sales by routing more products to Norway. European biodiesel sales were down significantly due to increased lockdowns, which impacted both, feedstock availability and fuel demand. Finally, as CJ mentioned earlier, first quarter adjusted EBITDA at $56 million beat guidance. This outsized beat was a result of multiple factors: lower realized feedstock costs than we forecasted; higher RIN values; more RINs monetized as we continue to optimize margin capture across our network; and lower risk management loss. As you may recall from last quarter when we provided guidance, we anticipate building RIN inventory in Q1 for a variety of reasons, including a short-term lack of liquidity in the RIN market due to Houston being shut down from the winter storm, a large number of RIN traders and buyers are located in Houston. RIN values increased after we provided guidance and liquidity returned to the market. We took advantage of this to monetize more RINs and reduce the RIN inventory build. Q1 adjusted EBITDA was down compared to the $89 million of adjusted EBITDA we produced in the first quarter of 2020. The largest factor leading to the decrease was a $55 million negative swing in risk management. As a reminder, we recognized a $54 million risk management gain in the first quarter of 2020 due to the historic drop in ULSD prices last March. Our risk management strategy functioned as planned to counter that drop and also because of the timing factors, pulled some profitability from second quarter 2020 into first quarter of 2020. Additionally, we captured $18 million more profit from RINs and LCFS credits in Q1 2020 versus Q2 -- Q1 of 2020, excuse me. SG&A expenses were up $4 million, driven by an increase in legal and professional-related expenses, higher stock compensation due to the increase in our stock price, larger vacation accrual due to COVID-related deferrals of time off and a higher bonus accrual. SG&A was flat last year as a percentage -- was flat to last year, as a percentage of revenue. Slide 19 shows trailing 12-month adjusted EBITDA, and slide 20 shows our trailing 12-month return on invested capital. Note that Q2 2020 is included in the trailing 12-month number, where adjusted EBITDA was only $6 million due to the pandemic. As I mentioned earlier, much of the risk management that covered Q2 2020 performance was realized in the first quarter of 2020. Because of this impact and to better illustrate our outlook and how low -- how that low quarter is currently affecting the trailing 12-month result, we’ve calculated a pro forma trailing 12-month view based on the low end of our second quarter 2021 guidance, which CJ will discuss shortly. As a reminder, our internal threshold for growth project is above 20% internal IRR and our target of ROIC is above 15%. And based on our second quarter guidance, we expect to be back above 15% return on invested capital. We did recognize a small tax expense in the first quarter. And going forward, we expect our tax rate to continue to be less than 5%. Our blended average interest rate continues to be low and is currently less than 4%. Now, let’s turn to the balance sheet, as shown on slide 21. As of March 31st, we had over $600 million in cash and marketable securities when you include the long-term portion of marketable securities. Obviously, our cash position has been bolstered by the recent equity raise. The equity raise was an important part of our planning for Geismar as we secured $365 million in cash, net of fees. We remain on track to reach a final investment decision soon, and we are submitting permit applications to the normal course of the project. We have strong support from the local community and the state of Louisiana for Geismar Train B. Recall, the 2021 Board approved CapEx in keeping with our capital allocation, included roughly $20 million for safety, reliability and asset integrity; roughly $30 million for high-return rapid payback projects; and another $30 million on engineering for Geismar and other future growth projects. In addition to our CapEx budget, the framework also contemplates funding of potential strategic projects and acquisitions. We had three convertible bondholders submit conversion notice recently, so we settled two in March and one in April with $28.3 million in cash for the principal and approximately 2.3 million shares for the premium. In addition, we provided a notification to our bondholders that we will redeem all outstanding 2036 convertible senior notes on June 15, 2021, again, settling the principal with cash and shares for the premium. Now, I will turn the call back over to CJ to discuss the second quarter outlook.
CJ Warner: Thanks, Todd. I will now discuss our second quarter 2021 guidance as well as a general outlook for the year ahead. For context, I’d like to touch once more on the current market environment, specifically with respect to feedstock prices. Current prices, especially for soybean oil are higher and more volatile than the market has seen since 2008, and any forecast must be made with caution in respect to these price movements. Having said that, we are confident in our optimization abilities and have strategies and approaches that seek to enable us to operate profitably in these conditions. This includes our multi-feedstock capabilities and the optimization upside that offers. As a reminder, typically, over 75% of our feedstocks are lower CI waste-based material. With that in mind, let’s turn to the numbers, as shown on slide 23. For the second quarter, we are targeting adjusted EBITDA of $65 million to $85 million, with gallons sold in the range of $155 million to $175 million. This equates to an estimated first half adjusted EBITDA performance of between $120 million and $140 million, and gallons sold estimate roughly between 290 million and 310 million. This guidance includes $14 million of estimated risk management gain for the quarter as of April 26th. For the full year, we are targeting gallons sold in the range of 630 million to 670 million gallons, down slightly from 660 million to 700 million gallons to reflect our lower production in first quarter. We expect to produce 470 million to 500 million gallons, which is down from 490 million to 520 million gallons for the same reason. Of course, any changes to ULSD prices, margins, RINs or LCFS credit values or level of market volatility through the end of the quarter could affect actual results. Shipment timing could also affect timing of revenue recognition. Our strong performance in the volatile first quarter gives us added confidence as the U.S. economy appears to be returning to something closer to normal. We believe we are well positioned to capitalize on our strategy as we pursue long-term growth in renewable diesel, combined with near-term tactical growth in the downstream. The world today is undergoing a profound and exciting energy transition intended to put us on a path to environmental and economic sustainability. REG has an important and growing role in this effort. Our fuels can drive this transition today right now, offering substantial carbon and emission reductions with drop in fuels that require little to no change in infrastructure, operating costs, or customer investment. Our feedstocks are 100% renewable and support both the ag economy and the circular recycling economy. Wise government policies are encouraging the energy transition while the private markets are realizing the benefits we offer today. We have never been more excited about our growth prospects and look forward to creating meaningful value for our customers, employees, shareholders and all of society. And with that, I’d like to turn the call over to Devin for the question-and-answer segment of our call. Devin?
Operator: Thank you. Our first question comes from the line of Craig Irwin with ROTH Capital Partners.
Craig Irwin: Good evening. And thanks for taking my questions. Most important, I guess, is the RINs sold from inventory. So, you did kind of say in there more RINs were monetized. But, can you spell out in some detail sort of what the inventory position was at the beginning and end of the quarter? And how much more of an inventory are we talking about this quarter?
Todd Robinson: Yes. Hey, Craig. Todd here. Thanks for the question. Yes, we figured this would be a topic of conversation. So, yes, when we gave our first quarter guidance back in February, we indicated $25 million value kind of at the end of first quarter, based on our forecast. And again, based on my comments, we were able to monetize more RINs and obviously, prices were a lot higher in the quarter. So, we were able to take advantage of that to some extent. If you look at what prices were when we gave guidance, I think they were around $1 per RIN. And then, if you look at what they averaged in the quarter, I think it was closer to like $1.20 or something like that. And then, certainly in March, they were even higher than that, like around $1.40. So, we were able to monetize more than what we forecast. So, our inventory build didn’t get to that $25 million at the end of first quarter as we anticipated.
Craig Irwin: So, just to clarify, does that mean that there was a $30 million to $35 million benefit in the quarter from selling those RINs, or did you exit the quarter with a greater RIN inventory than where you began it?
Todd Robinson: No. So, it was quite a bit lower than that $25 million number, Craig. It was probably around $16 million at the end of the quarter on an actual basis.
Craig Irwin: Okay, excellent, excellent. And then, second question, can you maybe discuss how you handle inventory, and inventory gains on feedstocks that you own? Was there any change in accounting here? And is there anything that we need to understand as far as inventory carried from the fourth quarter into the second quarter?
Todd Robinson: Yes. Craig, I’ll take this. And then, just to be clear, given that we got several analysts, we need to just kind of limit it to one question for each analyst. And then, if you want to, you can get back in the queue. So, yes. So, feedstock prices obviously are a topic recently. And with the run-up in soybean oil, obviously, that’s been a hot topic. So, yes, usually, when we think about risk management, gains and losses, it’s usually driven by ULSD prices. But recently, with the rapid rise in soybean oil prices, we have seen, probably I would suggest a disproportionate amount of risk management impact from soybean oil prices. So, we have seen some risk management gains associated with our book, as we lock in those cash margins at the time of sale.
Craig Irwin: Okay. But that was -- that differs a little bit from what I think you disclosed as the risk management gain in the quarter. Can you maybe talk about that?
Todd Robinson: Yes. So, we had a $2 million risk management loss in the quarter compared to that significant $55 million, $54 million amount in the first quarter of 2020. So, if you look at the $2 million risk management gain -- excuse me, risk management loss, about two-thirds of that relates to the second quarter. Otherwise, the rest is first quarter.
Craig Irwin: Okay. And then, during the first quarter, we saw feedstocks go vertical. So, you had a gain, but you’re recording a $2 million loss. Can you just tie that up for us?
Todd Robinson: Are you talking about forecasts, Craig? Are you talking about actual? I’m sorry.
Craig Irwin: Let’s talk actual.
Todd Robinson: Yes. So, we had $2 million risk management loss with a big chunk of that -- with a sizable amount of that being risk management gains from soybean oil.
CJ Warner: Well, don’t forget that, Craig, that product prices were escalating, which reverses risk management for product. And so, it’s a combination of both. And I’m sorry, we really need to let somebody else in the queue, and we’ll answer your questions after everybody else gets to go through. Thanks a lot.
Operator: And our next question comes from the line of Manav Gupta with Credit Suisse.
Manav Gupta: Hi. I want to move to slide 12. And I know you don’t give exact color codings. But, let’s assume for a minute, the green is soybean oil. Historically, it was only 25% or less than 30%. And then, COVID happened, everything else disappeared, and it became a big part of your feedstock. Now, if I look at the last bar, it looks like everything else is coming back. Soybean oil is shrinking. So, from the perspective of feedstock, I want to understand, do you see the situation normalizing where, let’s say, blue is used cooking oil and gray is distillers corn oil, those feedstocks are coming back and REG is going back to a situation where it was like 20%, 25% soybean oil, and the rest is lower CI feedstock?
CJ Warner: Yes. Hey Manav, thanks for the question. And absolutely, we are back on track with our normal feedstock mix, which is primarily waste based. And those differentials maintained their attractiveness versus soybean oil.
Manav Gupta: Okay. And one quick follow-up. Last quarter call, you talked about covered crops, alternate feedstocks, you had historically looked at new feedstocks. Can you talk about where REGI is moving with looking for newer feedstocks besides vegetable oils? And I’ll leave it there.
CJ Warner: Yes. Thank you. We look at new feeds all the time. In fact, this last quarter, we processed, I believe, over 14 different types. Some of them in smaller quantities than others as we’re learning, and going internationally for different sources. And of course, cover crop oil is one of the ones we’re working on because, although it’s not available commercially yet, we believe it’s got really significant commercializable potential for scale as well as significant knock-on environmental benefits beyond the significant one of making oil that could be converted into bio-based diesel. So, CoverCress was the one we chose to highlight this time and what we’ve invested in just recently because of that potential. But we continue to look at novel feedstocks like LG as well as a wide variety of other types of waste oils procured internationally.
Operator: Our next question comes from the line of Ryan Todd with Simmons Energy.
Ryan Todd: Maybe can I just follow-up on the last question there? I mean, as you think about -- you highlighted CoverCress here in the slide deck. I mean, can you give any more color on how you’re thinking about that? I mean, from a scale point of view, is that theoretically the scale -- is it applicable across just about anywhere that soy has grown? What are the obstacles that remain to scaling this up? Any idea what the potential -- like a range or a CI score would be for something like CoverCress? And would the cost -- would it be similar to other low CIPs? Anything more that you can give us on where that’s headed?
CJ Warner: Sure, Ryan. Thank you for the question. This is an important area. And while CoverCress very exciting, it’s not the only cover crop. So bear in mind that each type of cover crop is going to have its applicability that’s geographic as well as have better or worse possibilities between different types of crops, which is why you really want to look at a variety of things. CoverCress is being developed to grow in between a soybean and corn cycle. So, it’s particularly well suited for the Midwest. And other cover crops are looking at potentially being planted between, say, cotton crops and -- some of them refer more arid climates and others are for wetter and hotter climates. So, there’s a variety of different types of crops that are suitable. But, the reason I go to that point is that it illustrates that a cover crop can be used in multiple areas in between multiple crops, which makes it particularly scalable. And because it has these knock-on environmentally beneficial effects, and they’re actually economically beneficial as well for the farmer because they do prevent the soil runoff, the need to purchase additional fertilizer, they enable the farmer to actually process more or a lower carbon-intensive way and they enable them to monetize when they would otherwise simply just have a raw expense to plan to cover crops. There are multiple benefits, both from as social as well as an environmental standpoint. They don’t have additional land use implications because they are planted between crops, which makes very good candidates for very low CI scores. We don’t have specific scores to share at this point, but I think one can assume that they’re going to be classified very closely to many of our other low CI waste-based feeds.
Ryan Todd: Thanks. That’s really helpful. CJ, maybe can I just ask a follow-up on one of the earlier questions as well? I mean, I appreciate the guidance that you gave, some of the color that you gave around the RINs inventories. But, as we think about your Q1 results versus the guide that you had given for Q1, outside of the delta and RIN inventories and pricing, what were the biggest -- any color on what were the biggest meaningful drivers of the outperformance relative to your prior guidance?
CJ Warner: Yes. I mean, I’ll let Todd embellish as needed, but there’s a significant factor associated with optimization, and in particular, feedstock costs.
Todd Robinson: Yes. I think, Brian, one thing to think about is, we’re booking sales at opportune times, not necessarily pro rata throughout the quarter. So, we will be opportunistic when we see the spreads widen, and we’ll take advantage of that and book sales during then versus just straight through the quarter. So, being a little nimble helps in terms of optimization.
Operator: Our next question comes from the line of Bert Dons with Truist.
Unidentified Analyst: Could you maybe talk to the difference you’re seeing between U.S. and international markets for UCO, and maybe the ability for international markets to evolve over time?
CJ Warner: Yes. In Europe, UCO is treated a little bit differently than in the U.S. and it’s because their statutes are different. But used cooking oil-based biodiesel basically gets a double credit for renewability. And that makes it a very attractive product in that market. Having said that, this particular quarter was a tougher one in Europe because Europe’s gotten hit a lot harder by COVID and the shutdowns are a little bit more firm. And if you combine that with the fact that much of the UCO that Europe uses comes from Asia, and the shipping lanes and shipping volumes have been challenged over the quarter. We did reduce our volumes for the quarter, which Todd reported. But overall, the market is very attractive in Europe because of the RED II.
Operator: Our next question comes from the line of Amit Dayal with H.C. Wainwright.
Amit Dayal: With respect to the downstream strategy, could you talk about how you use this in the first quarter? And how you may use sort of that optionality, managing margins for the rest of the year during this volatile period?
CJ Warner: So, the downstream strategy is very exciting for us because it enables us to accomplish multiple things. Possibly, the biggest one is getting direct to that end customer, and enabling that end customer to decarbonize more rapidly. What we’ve been learning every time we do it is there a level of enthusiasm for escalating their blending levels and taking on more either renewable or biodiesel continue to -- continues to grow. So, there’s just a connection and a volume-enhancing approach and result from doing this. But, the other thing that we’re able to do, particularly in the carbon incentivized market is expand the blending with biodiesel and renewable diesel. And that’s our Ultra Clean approach. And Ultra Clean is a proprietary blend, which provides reliable, high-quality product and properties. And the two blended together actually give the best of both worlds because biodiesel actually has a high lubricity factor, which improves mileage, and renewable diesel has a very high cetane number, which is a very high-quality burning indicator. If you put those two together, you get excellent engine performance. And then, the two together also have really enhanced tailpipe emissions reductions from criteria pollutant standpoint. So, that’s why when we report the escalation of Ultra Clean diesel sales, we believe is happening because as we get our branded sales out in front of customers, their receptivity has been high. And of course, as we go downstream, we collect more of the rent along the value chain. And in our business, in particular, that means taking a higher share, if not the whole share of the incentives because the end consumer is typically not the obligated party. And so, the incentives aren’t part of the proposition for them, they just want a high-quality, very low carbon-intensive fuel.
Amit Dayal: Understood. And on the feedstock again, do you think the feedstock volatility risk is higher or lower from here for the rest of the year?
CJ Warner: Well, it’s going to be an interesting market, as you can see from the forward curve, it’s pretty heavily backwardated. But there are a lot of multiple factors going on, including planting levels, harvest capability and the success or failure of that. And then, we’ve got issues in China with swine fever again. So, there’s a lot of unknown. And of course, with the recovery from the pandemic, the available supplies are going to move around as recovery takes place. So, I think it’s probably fair to say, we still have a measure of volatility in front of us. In which direction that takes us in terms of absolute price, it’s going to be interesting to follow. As I said, the futures market is making its view known through a pretty heavy backwardation. But, the thing to keep in mind is, regardless of whatever happens with feedstock prices, what’s really important is a couple of things. For us, one is the differential between soybean oil and the lower CI feeds that we actually operate in greater quantity in abundance in soybean oil by a lot. And the other one is the way that the HOBO spread and the RINs work together. So, the reason you’re seeing the escalation in RIN price is because feedstock prices were going up faster than the heating oil price, suppressing that HOBO spread and the RINs come in to balance in order to make sure that the RVO gets produced.
Operator: Our next question comes from the line of Hamed Khorsand with BWS Financial.
Hamed Khorsand: I just wanted to understand from a competitive standpoint, are you seeing any pressures as far as being able to source any of your high-carbon intensity feedstock? And is that going to be contributing to further price increases on that front?
Todd Robinson: Yes. Hamed, I’m not sure I caught the first part of that -- your question. Was it the increasing low-carbon feedstock prices?
Hamed Khorsand: The competitive pressures and being able to source it and also the pricing pressures that come from as well, the price inflation?
CJ Warner: Yes. Obviously, there’s a lot of potential new entrants. Keep in mind that many of them are either 100% soybean oil or a higher percentage of soy than anything else. Having said that, for us, our multiple feedstock strategy, we have -- our finding serves us well. So, if one particular type of feed or one particular source become scarce, which obviously it did during the pandemic, which is a good example of this, we pivot to other feeds. And so, there’s something about the combination of being able to pivot and be flexible, having a lot of different sources, and then having the deeper relationships that we have as being an incumbent with many of our suppliers being very, very longstanding suppliers, gives us confidence of our ability to continue to source and, in fact, continue to grow our sourcing, which we’ve been able to successfully do now for the last 10 years at about a 23% CAGR. Helps us feel confident that regardless of some of the other issues that are going on, we will be able to continue to source successfully.
Operator: Our next question comes from the line of Matthew Blair with Tudor Pickering Holt & Company.
Matthew Blair: I thought that Q2 guidance . So, congratulations there. Could you break out what is included in this estimate for one, sales of RINs from inventory; and two, risk management gains and losses?
Todd Robinson: Yes. So, I think we noted risk management of about $14 million was in our second quarter guidance. We’re not going to -- we don’t want to get in the habit of providing that level of information around our RINs just because it does -- there is some competitive intelligence there in terms of what that is and how valuable it is. But, suffice it to say that the balance of the RIN inventory from the beginning of second -- excuse me from the beginning of second quarter to the end of second quarter is going to be about flat. So, it’s not -- again, the reason we had such a significant build in the first quarter is seasonality. So, some of you guys are new to the story. First quarter, we’re building inventory, finished goods as well as RINS. And then, generally, throughout the rest of the year, you don’t see that. And by the end of the year, our RIN inventory is trading down.
Matthew Blair: And then, I just wanted to clarify is that your ending RIN inventory at the end of Q1, or was that the boost that we saw for the Q1 results?
Todd Robinson: Yes. I think you broke up there a little bit, Matt, but I’ll try to interpret what you were asking. So, yes, so what we indicated when we gave first quarter guidance back in February, we indicated we were going to have about a $25 million RIN inventory at the end of first quarter. That number ended up being lower than that because we were able to monetize more. So, it’s about $16 million on an actual basis at the end of this first quarter.
Operator: Our next question comes from the line of Chris Tsung with the Webber Research.
Chris Tsung: It’s Chris on for Greg. How are you?
Todd Robinson: Hey, Chris.
Chris Tsung: A lot has been covered with regard to the feedstock price volatility . I guess, you mentioned earlier in the Q&A section that there are benefits of being nimble. But could we kind of see you guys deploy longer term contracts, you kind of isolate the volatility from
Todd Robinson: Chris, we’re having a hard time with you too. Operator, is there something happening that we can’t hear the calls very well?
Operator: It’s probably just cell service, sir.
CJ Warner: Now, what I think that he was asking a third-party supplies or longer-term contracts helped to reduce volatility. So, we are focused on having some longer-term contracts, and that’s actually one of our targets to continue to increase. And at this point, we have about 30% of our feed in sort of those categories. Having said that, many of them are indexed. So, it gives us sourcing confidence. But, the reason we risk manage is because the pricing will still be indexed in order to protect the supplier and balance things out with us. I think that was what you asked. If we guessed it wrong, please repeat.
Chris Tsung: You got that right. That’s kind of what I was looking for. Thanks. And maybe just a quick follow-up, just to sneak in. Last quarter, you guys mentioned about pulling some maintenance forward into Q1 in addition to Geismar. Were you guys able to complete it by the end of quarter Q2?
CJ Warner: Yes. Everything that was planned for first quarter got completed. So, we’ve been really pleased with that and are ready for a focused second quarter.
Operator: Our next question comes from the line of Jason Gabelman with Cowen & Company.
Jason Gabelman: First, on RINs. You mentioned that RINs should essentially compensate for the difference between soybean oil and petroleum diesel. Are you seeing that to the full extent now as soybean oil prices have rapidly increased? And if you assume that relationship is going to play out, is that something that’s contemplated in your 2Q earnings guidance?
CJ Warner: Yes. You can really see from the charts that we shared, you can really see how the RIN price escalation has come in to pretty much stabilize at HOBO plus 1.5 RINs margin. And that’s been pretty stable now for quite a while, which gives us a pretty good look as to what we should use for our assumptions going forward.
Jason Gabelman: Okay. Yes. Because that chart, which I believe is on slide 15, it looks like it’s just through the end of the quarter. It’s tough to tell if that’s capturing April and May, which saw some of the more rapid appreciation of feedstocks. And it seemed like the relationship broke down a bit, but I’m not sure if maybe that’s not the right interpretation of what’s going on?
CJ Warner: Yes. If you get really granular, there’s a lot of breakdowns in this whole curve that you see. And so, sometimes it takes a while for things to catch up. So, you need to give it a little bit more time to draw a conclusion. And you’re exactly right, there’s been some pretty wild volatility, which is actually why we wanted to show that forward curve on soybean oil, because that’s a pretty crazy shaped curve. And we’ll have to watch. And as we said, we don’t like to predict markets too much. But, history being our guide, you can kind of see how the market is functioning from a market fundamental standpoint. And at the end of the day, the obligated parties still need to achieve that RVO. So, the RINs need to come in and help make sure that that marginal gallon gets produced.
Todd Robinson: Yes. Remember, just -- it’s Todd. Remember, right, so that’s soybean oil, right? And we’re running whatever, 75%, 80% of the low CI. So, we are seeing much better spreads for choice white grease, used cooking oil and the low CI feedstocks that we run.
Jason Gabelman: Yes, for sure. Understood. If I could just ask separately about the downstream integration initiative that you have. You announced selling B100 straight to fleet customers. Is that -- does an agreement like that essentially enable you to capture a majority of the regulatory benefits that you wouldn’t otherwise be capturing? And what’s kind of the opportunity set there to strike agreements with other fleets?
CJ Warner: Yes. It absolutely does because it’s a win-win. And we’re able to capture the incentives, which keeps us developing more, and they’re able to get this rapid decarbonization. And when you think about these municipalities now starting to have zero carbon goals or significant carbon reduction goals, this is probably the cheapest way for them to do it. It’s certainly an option that’s available right now, whereas many of the things they’re looking at are going to take a while to get there. And they don’t have to retool and completely change their fleet over, and there’s not a big infrastructure change. So, there’s some real attraction there to being able to basically do what they’re doing now, but 85% lower carbon. So, that’s a pretty big win.
Operator: And our final question comes from the line of Manav Gupta with Credit Suisse.
Manav Gupta: And I had a quick one, CJ, you mentioned it looks like Washington is moving ahead. They could have their own clean fuel standards pretty quickly. In your opinion, how does that benefit and support the carbon price in California? Because we are hearing that too many projects are coming on. So there could be downward pressure on California carbon price. So, in your opinion, whether it’s Canada, Washington and some other states? How does it help support the carbon price and LCFS credits?
CJ Warner: Hey, Manav. Yes, you’re right in the sweet spot on that one. The more municipalities, states and others establish targets to take on more of these types of feeds or at least to decarbonize more rapidly, the renewable diesel and the biodiesel are available now. And in California right now, renewable plus biodiesel makes up over 50% of the credits that are earned, because they’re available today. So, as you have new states coming in and they have the same mandates in the early days, when there is not much decarbonization, there’s a little bit more of a wide variety of types of credits that are going to come into play. But that pull is there, and it signals the need for greater volumes. And it’s kind of predictable because you can see what the decarbonization level is each year. So, definitely, it’s very good news for our industry that Washington has passed these targets because one of the primary ways they’re going to meet it is through more renewable and biodiesel consumption.
Operator: And with that, ladies and gentlemen, we have reached the end of our question-and-answer session. And now, I would like to turn the call back over to Mr. Todd Robinson for closing remarks.
Todd Robinson: Thank you, Devin. We have two virtual investor conferences scheduled for May and one in June, which are shown on slide 24. Before I walk through the conferences, please note that all upcoming conferences will be virtual due to COVID-19. Attendance at these conferences is by invitation-only for clients of each respective firm. So, interested investors, please contact your respective sales representative to register and for one-on-one meetings to secure time. The first is May 13th when we will participate in the Credit Suisse Renewable and Utilities Conference. We will host virtual one-on-one meetings with institutional investors throughout the day. On May 19th, we will participate in the 16th Annual BMO Farm to Market Conference. We will be participating in a fireside chat at 10:00 a.m. Eastern and we will host virtual one-on-one meetings with institutional investors throughout the day. In addition, on June 9th, we will participate in the 2021 Baird Global Consumer Technology and Services Conference. We will be presenting at the conference at 2:30 Eastern. And we’ll host one-on-one meetings with investors throughout the day. Lastly, as noted on slide 25, we will be holding the annual meeting of our stockholders on May 18th at our offices in Ames, starting at 10:00 a.m. Central. The meeting will be in-person only. Thank you all, again. This concludes the call. You may now disconnect.
Operator: Thank you, everyone, for joining today’s conference call. You may now disconnect. We appreciate your participation, and have a wonderful day everyone. Bye, bye.
