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Renewable Energy Group (REGI)
Q4 2018 Earnings Conference Call
March 5, 2019 4:30 p.m. ET


Prepared Remarks:


Good day, ladies and gentlemen, and welcome to Renewable Energy Group's fourth quarter and full year 2018 earnings conference call. [Operator instructions] As a reminder, today's conference may be recorded. I would now like to turn the call over to Mr. Todd Robinson, treasurer.

Sir, you may begin.

Todd Robinson -- Treasurer

Thank you, Victor. Good afternoon, everyone, and welcome to our fourth-quarter and full-year 2018 earnings conference call. With me today is our new president and chief executive officer, CJ Warner; our chief financial officer, Chad Stone; and our former CEO and current vice chairman of the board, Randy Howard. Let me cover a few housekeeping items before I turn the call over to Randy for some initial comments.

First, I would like to remind everyone that this call is being webcast and is available at the Investor Relations section of our website at regi.com. A replay will be available on our website beginning later this afternoon. The webcast includes an accompanying slide deck for your reference. This will appear automatically with the webcast, but you will need to advance the slides manually as we prompt you.

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For those of you dialing in, the slide deck can be downloaded, along with the earnings press release in the investor relations section of our website. Turning to Slide 3. We would like to advise you that some of the information discussed on this conference call will contain forward-looking statements. These statements involve risks, uncertainties and assumptions that are difficult to predict and such forward-looking statements are not a guarantee of performance.

The company's actual results could differ materially from those contained in such statements. Several factors could cause or contribute to those differences. These factors are described in detail in the risk factors and other sections of our annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, which are on file with the SEC. These forward-looking statements speak only as of the date of this call.

The company undertakes no obligation to publicly update any forward-looking statements based on new information or revised expectation. Today's discussion also includes non-GAAP financial measures. We believe these metrics will help investors assess the operating performance of our core business. Please see the press release or the appendix to the accompanying slide deck for a reconciliation of the non-GAAP measures to the most comparable GAAP measure.

With that, let me turn the call over to Randy Howard. Randy?

Randy Howard -- Former Chief Executive Officer and Current Vice Chairman of the Board

Thank you, Todd. And thank you, everyone, for joining the call. I'm going to make brief introductory remarks and then turn the call over to our new President and CEO, Cynthia J. Warner.

The directors of REG completed their succession-planning process in December 2018 and named CJ as the new CEO effective January 14, 2019. Her experience is a great fit for our business. She has deep experience in the refining energy industry in which we operate as well as the renewable fuel segment in which we are a leader and has a proven track record of success over a long career. Maybe most importantly, she is a fit with the corporate culture we have developed over the years.

I am sure you will all be very impressed as you get to know CJ better. Before I turn the call over to CJ, I also want to thank all of our employees and shareholders for your support during my 18-month tenure as CEO. As a director, I stepped in, in July 2017 to lead the company during this important transition period. I am truly proud of REG's achievements over the last 18 months.

CJ is inheriting a fantastic team that is motivated to continue REG's long history of achievement. I am fully confident that the best is still ahead for REG. Now let me turn the call over to our new CEO, CJ Warner. CJ?

CJ Warner -- Chief Executive Officer

Randy, thank you for that warm welcome. I want to publicly thank Randy for agreeing to lead REG over the past 18 months and for delivering great results in the process. Ensuring a smooth transition has been a high priority for the board, for Randy and for me. I am extremely pleased that Randy has accepted the role of vice chairman of the board and has remained very accessible to me and to the executive team as part of the transition.

Joining REG is an incredibly exciting opportunity for me. Being actively involved in the renewable fuels industry for years, I've been well aware of REG and its leadership role in renewable energy and was watching their success from a distance with interest. The foundation built by the team here is unrivaled in our industry and remains a terrific platform for ongoing growth. I am honored to be chosen to lead the team to realize our goals.

With that, let's discuss our achievements in the fourth quarter and for the full year. I'll cover the operating highlights and then Chad will cover financials. I'll then come back to discuss our outlook. First, let me review what we accomplished in 2018.

We will cover fourth quarter performance as well as how we are continuing to build enabling factors for future growth. Our 2018 results reflect excellent operational performance and favorable market conditions. In June 2017, REG's management told you that our business was capable of generating $150 million in annual adjusted EBITDA, including the blenders tax credit, or the BTC. In 2017, we generated $230 million.

And last year, without the BTC being in effect, we approached that $150 million number. On Slide 5, you can see that our reported $139 million of adjusted EBITDA is a record level of profitability for the company without the BTC in effect and is five times 2017 adjusted EBITDA performance on a pre-BTC basis. We are very pleased with these results and we continue to be focused on getting the BTC retroactively reinstated for 2018 and longer. Assuming this is achieved, as shown on Slide 6, we estimate our adjusted EBITDA for 2018 would increase by approximately $237 million to almost $376 million.

I do want to caution that in the short term, we will have ups and downs as spreads move in reaction to supply and demand for energy and feedstocks as well as general trader sentiments. Having said that, we can clearly see underlying market forces that we believe will drive growth for years to come. I thought you might be interested in some of my initial observations since I joined REG so I would now like to share these, framing them in the context of both what has driven the company's 2018 achievements and why we're so optimistic about our future. REG has strengths in many areas: people, production, sales and marketing, environmental contribution and capital allocation.

Let me elaborate briefly on each of these, noting how 2018 results support my view. First, we have a great team at REG. Some employees here have helped to shape the industry from the very beginning. This group has persevered through the ups and downs of the industry, solved technical challenges, pushed the envelope on our multi-feedstock strategy that enabled us to convert primarily waste products into valuable fuel and overall, has delivered outstanding results.

The REG team draws upon their collective experience and expertise to foster growth and creative new ways to improve the business every day. They're knowledgeable problem-solvers, with a passion to create value and make a positive difference through what REG had to offer. Second, we're a great production company. Our scale adds real competitive advantage.

We have built a very powerful, multiplant, cross-functional system that helps us to optimize our feedstock supply, our fleet operations and how we place products in the optimal markets across our national sales footprint. All of this enhances our profitability. Our focus on great operations enabled us to continue to grow organically. In 2018, we produced 502 million gallons of low-carbon fuel.

That is an 11% increase year over year. We accomplished this double-digit increase with modest capital investment in our core biorefinery. Our fleet continued to increase production from existing assets by focusing on selected de-bottlenecking, great operations and continuous improvement. Our plants set 92 weekly, monthly, quarterly and annual production records in 2018.

Realized gains include adding 18 million gallons of capacity at Ralston in early 2018. Third, we are a great sales and marketing company. For years, we have demonstrated our ability to profitably sell more gallons than we produce. As in production economics, scale gives us competitive advantage in serving our customers.

In a business where high capacity utilization is critical to profitability, this capability is incredibly important. In 2018, we sold 649 million gallons of fuel, an 11% increase. We continue to invest in distribution to better serve our growing customer base and to ensure that demand continues to outstrip our own production. We added seven new terminals to our network and now we have 46 points of distribution.

We are also focused on direct to end-user sales. We doubled our end-user customers in 2018 to bring our total to 33. Our downstream initiative is an important element of incremental demand creation as well as additional margin capture. You can expect us to invest more in distribution in the years ahead, as we expand our integrated strategy.

Beyond simply building distribution, we are executing on smart distribution. With more demand than product in 2018, we have been in the enviable position of allocating sales in order to create the most value. We continue to leverage linear programming to optimize our fleet so we can procure the right feedstock at their best price, convert it to fuel at the right plant and then sell it to optimize the sales channel, all with a view to maximize value creation. The sales and marketing team works closely with our technical team in order to develop the most attractive fuel offerings for our customers.

Our most recent example of this is the development of REG Ultra Clean Diesel, our proprietary blend of renewable diesel and biodiesel that offers superior fuel quality and environmental performance. We are keenly focused on markets that place premium value on lower carbon fuel. A few examples of these markets include California, Oregon, British Columbia and the Nordic countries. During 2018, our target was to redirect 200 million gallons of fuel to higher-value markets.

We met that goal selling 10% more than we sold into those markets in 2017. Better sales and marketing extend to our coproducts as well. As you know, Geismar produces renewable naphtha and LPG, and our biodiesel fleet produces glycerin and other coproducts. In 2018, we increased coproduct revenue by over $12 million or 41%, primarily by identifying higher-value channels.

Keep in mind that essentially all of this revenue adds to gross profit since there is no incremental production cost in generating coproducts. Fourth, REG makes a very significant contribution to the preservation of the environment, which exemplifies our essential purpose, enhances demand for and profitability of our products and we believe increases our attractiveness as an investment. Approximately three quarters of our biofuel is made with waste-based renewable feedstocks, and they all substantially reduce carbon emissions. That 502 million gallons of renewable fuels that we produced in 2018 resulted in reduced carbon emissions of 4.3 million tons, when compared to an equivalent amount of petroleum diesel.

This level of carbon emissions reduction is the equivalent of displacing 10 million barrels of oil or reducing average passenger vehicle miles driven by 10 billion miles. We are extremely proud that we can do well by doing good and are happy that our products are a low-carbon solution for the transportation industry and for customers who love their vehicles. Fifth, we remain focused on our prudent and balanced approach to capital allocation. This is something we have emphasized in the past couple of years, and it is critical to creating shareholder value.

Our stepped-up level of earnings in the past two years has resulted in strong cash generation that has enabled us to invest to strengthen the business and shareholder returns. Our objective is to allocate that capital in a way that achieves a balance between buyback, debt reduction and investment for growth. In 2018, we allocated over $140 million to repurchase convertible bonds and stock. Additionally, we spent over $52 million on capital investments in 2018.

Let's discuss capital expenditures in the near term. As you know, renewable diesel is a primary growth focus now due to the attractive economics and large market opportunity. The returns for good renewable diesel projects have been robust. Our refinery in Geismar produced nearly 80 million gallons in 2018, which is a 10% increase over 2017 and generated more than half of our profits.

This reinforces our confidence in our proven operational excellence and our ability to maximize value from our existing assets. We continue to evaluate the best path forward for investing in additional renewable diesel capacity at Geismar and other locations. Our desire is to have the best-positioned renewable diesel refineries globally. Looking beyond Geismar, in November of last year, we announced that we are exploring a possible construction of a large-scale renewable diesel plant on the U.S.

West Coast with leading refiner, Phillips 66. The plant would utilize our proprietary BioSynfining technology. It is currently contemplated that the new facility would be constructed adjacent to Phillips 66's Ferndale Refinery in Washington state. The Ferndale Refinery offers existing infrastructure, including tank storage, a dock and rail and truck rack access.

We continue to devote significant effort to the evaluation of this potential project and will provide an update when appropriate. Even if we choose to fund one or more of these significant renewable diesel growth projects, we plan to continue to focus on shareholder returns. At the end of January of this year, the board authorized an additional $75 million repurchase program directed toward our convertible notes and shares. In addition, we have identified a suite of what we expect will be high-return rapid-payback projects.

We are also evaluating selected divestitures as demonstrated by our intent to sell the Life Sciences business unit. Our board of directors has now decided to pursue an outright sale as the most attractive way to achieve our strategic objective. Now I want to briefly discuss safety. I have been directly involved in energy production and logistics operations for over 30 years, so I have seen the positive difference a strong safety culture can make, and safety is a high priority for me.

Operating safely is a basic expression of value, and driving safety excellence demonstrates how much we value our employees, as well as our basic operational capabilities. As you can see on Slide 15, our total incident rate, or RII, had been trending downwards since January of 2014. Our 1.37 incidents per year for every 100 employees is better than our industry average, but we must not rest there. REG has a strong safety culture and a determination to achieve Vision Zero, in other words, an injury-free workplace.

Next, I will provide a brief update on the regulatory front. In November, the EPA finalized the 2019 advanced biofuel category at 4.92 billion ethanol equivalent gallons and the 2020 RVO for biomass-based diesel at a minimum volume of 2.43 billion gallons, as you can see on Slide 16. We were pleased with these increases since biomass-based diesel can satisfy both of these categories. As most of you are aware, the BTC has not yet been reinstated.

However, we remain confident that Congress will reinstate the BTC for 2018 and beyond. In summary, we are the leading U.S. advanced biofuel refinery, featuring an outstanding team with great assets, which have delivered robust performance and sets us up well for ongoing success. As we look back on 2018, we are very proud of our accomplishments.

Let me now turn the call over to Chad for the financial update. And then I will return to discuss our guidance and outlook. Chad?

Chad Stone -- Chief Financial Officer

Thank you, CJ. And good afternoon, everyone. You'll find all the figures and comparisons you need in the press release, in the supplemental slides, so we will not repeat all the numbers here. Instead, we'll focus on the primary factors that influenced results for the quarter.

I'll briefly comment on fourth quarter and then turn to full-year results. Unless I'd note otherwise, any figures I mention now refer to the fourth quarter, and all comparisons are year over year. We closed out the year with an outstanding fourth quarter. We exceeded guidance for adjusted EBITDA, and we're at the high end of guidance for gallons sold.

You can see our fourth-quarter financial highlights on Slide 17. The increase in gallons sold was driven by significant volume increases in biomass-based diesel production and petroleum diesel sales to support our downstream customers. Volume was up by the -- for the fourth quarter by an 11% year-on-year increase in gallons produced and a 7% increase in gallons sold. However, revenues were down as our average selling prices declined 12%, primarily as a result of lower RIN prices, which declined almost 60% year over year.

Despite the revenue decline, adjusted EBITDA, excluding the BTC, was up substantially. Margins improved meaningfully as we were able to procure lower-cost feedstocks during the quarter and the risk-management losses that we recognized late in the third quarter due to the spike in ULSD reversed in the fourth quarter as we realized higher margins and risk-management gains due to rapidly declining ULSD prices that occurred during the fourth quarter. You can see those trends on Slide 25 with the ULSD chart. Now let's look at full year.

Slide 18 shows the full-year financial highlights. The growth in gallons sold exemplifies our operating excellence and our sales and marketing efforts. We generated demand through expansion of our distribution network, as CJ mentioned earlier. Both gallons sold and gallons produced grew at 11%.

We held operating expense growth essentially in line with revenue growth, which resulted in strong net income and adjusted EBITDA. Our full-year fully diluted earnings per share was $6.78, which includes the 2017 BTC net benefit recognized in the first quarter of 2018. Slide 19 shows our trailing 12-month adjusted EBITDA, which moves our seasonality and better reflects our cash-flow-generating capability in our earnings power. Slide 20 shows trailing 12-month return on invested capital.

Our ROIC is 13% pre-tax credit and 35%, based on our estimates of the net benefit we expect if the BTC is retroactively reinstated for 2018. Looking at the balance sheet as shown on Slide 21, we had an increase of cash at the end of 2018 and of course, expect another rather large increase, assuming the BTC gets reinstated for 2018. Working capital management was sound with receivables actually down and inventory up, in line with expected growth of the business. You will notice that a big tranche of long-term debt is classified as current liabilities.

Our 2016 convertible bonds mature in June this year and the 2036 convertible bonds have hit their stock price triggers, enabling conversions so they're also treated as current liabilities. Our plan is to retire the 2019 bonds in June, with a combination of cash for the principal amount and stock for the conversion premiums. Slide 22 gives detail on our share and convertible bond repurchases during the year. Our activity included repurchases of our shares, the 2019 converts and the 2036 converts.

When analyzing our cash-flow statement, you should keep in mind that the rather large operating cash-flow number includes the full receipt of the net benefit of the 2017 BTC of $216 million. In your analysis, you should subtract that to see the underlying cash flow, but I would also remind you that our 2018 cash flows do not yet include the estimated net benefit of approximately $237 million related to the retroactive reinstatements of the 2018 BTC. Our capital investments for 2018 were $52 million as CJ mentioned and the CAPEX plan for 2019 is expected to be in the range from $75 million to $85 million. This is before the attractive and large renewable diesel investments currently under evaluation.

Our effective tax rate for 2018 was approximately 2%. Going forward, we expect our tax rate to continue to be less than 5% for the foreseeable future. Our low effective tax rate is due to a valuation allowance against our deferred tax assets, which is mostly made up of NOLs resulting from the BTC treatment. Without the valuation allowance, the future cash tax benefit of our NOLs was around $280 million at year end.

Before I turn the call back to CJ, I want to discuss the discontinued operations presentation. We have determined to pursue a sale of the Life Sciences business unit, and our financial statements have been adjusted to reflect the Life Sciences business as discontinued operations for all historical periods, so you'll notice net income from continuing operations as well as net loss from discontinued operations on our income statement. The net loss from discontinued operations for each year exclusively reflects the REG Life Sciences impact. With that, I'd like to turn the call back to CJ to discuss the outlook.


CJ Warner -- Chief Executive Officer

Thanks, Chad. Before I give specific guidance numbers, I want to set the context for 2019. There are three factors that are important to bear in mind as we establish our outlook for the coming year. The first is predictability.

While things can always change based on market conditions or other factors, we have a good level of confidence in our ability to estimate the controllable operating factors of gallons produced and sold. In contrast, we have a bigger challenge when we forecast margins. ULSD and feedstock prices will move as the markets dictate and our HOBO spread can vary meaningfully over short periods. So our visibility and confidence in these areas is limited to the near term, and even then, we have frequently experienced significant moves in ULSD near the end of the quarters.

Bear in mind, we can mitigate some of this short-term volatility from an economic standpoint by entering into risk-management contracts. The second point I want to make is that 2018 was an exceptionally good year for spreads. The HOBO spread was wider than recent historical norms. On the feedstock side, our fat supply was ample due to increased output rates in the protein complex.

Soybean and soybean oil prices were depressed due to a bumper harvest and crush exacerbated by trade issues with China. On the other side of the spread, ULSD prices were firm for most of the year, tracking the energy complex. While we enjoy this margin environment during the year, it would not be prudent to extrapolate it out unchanged into 2019. ULSD dropped precipitously during the fourth quarter, and although it is staging a comeback, it remains well below the highs reached last October.

Our feedstock prices could easily rise in 2019 with resolution of the Chinese trade issue, coupled with steadily increasing demand from the biomass-based diesel industry. In terms of RINs, as you can see on Slide 24, we have observed that D4 RIN prices have been inversely correlated to the HOBO spread. RIN prices fell in 2018, while the HOBO spread expanded. Since October, RIN prices have remained relatively flat, while the HOBO spread has contracted more dramatically.

Our observed correlation would indicate that RIN should continue to rise further. The third point relates to California, which continues to be an important geography for the company. California LCFS prices remain supportive at over $180 per ton of CO2. We expect this to be the case for the rest of 2019.

Notwithstanding these positive factors due to recently finalized changes in the LCFS rules, the timing for recognizing revenue and monetizing LCFS credits result in one quarter of 2019 LCFS credits being pushed into 2020, which will primarily impact second-quarter financial results. Note that this does not reflect any actual change in REG's value creation, but rather it's just a one-time change in when it is recognized. Now for some context around our first quarter guidance. The first quarter has been challenging thus far for three primary reasons.

First, if you'll recall, the BTC was retroactively reinstated for 2017 in February 2018, so the industry had certainty for 2017 at this time last year. Currently, we do not have that certainty for 2018, although we believe we will, as I previously mentioned. Second, the Midwest has experienced extreme cold weather and record snowfalls. The first quarter is always down seasonally due to weather, but this year, exceptionally so.

Third, the margin environment in the first quarter has been poor. As I mentioned, we would expect D4 RIN prices to increase more from today's levels based on a narrower HOBO spread. With all that as background, let's get to our guidance as shown on Slide 29. For the first quarter of 2019, we expect gallons sold in the range of 155 million to 170 million gallons and gallons produced to be in the range of 115 million to 130 million gallons.

Our ongoing production levels are enabling us to strategically build inventory this quarter as we expect margins to improve in future periods. Our inventory build is on track to be around 25% higher than last year's first-quarter record inventory build. As a result, we expect adjusted EBITDA in the range of negative $30 million to negative $15 million. We estimate that first quarter adjusted EBITDA would increase by approximately $45 million if the BTC is reinstated for 2019.

Bear in mind, we believe our first-quarter guidance does not reflect the value that is being created in the quarter and we expect to capture that additional value in subsequent months as the inventory is sold into a higher-margin period. This estimate for the first quarter is based on actual performance through February 25 and takes into account existing forward contracts expected to be fulfilled and existing spot margins through the end of the quarter. Any changes to the margins, RINs or LCFS credits or a level of market volatility through the end of the quarter could affect the estimated results. For the full year, we project continuing growth with estimated gallons sold to be in the range of 720 million to 760 million gallons and gallons produced to be in the range of 510 million to 550 million gallons.

We expect margins to recover to more attractive levels as the year progresses. Factors we will closely monitor include margins, RIN and LCFS values and general market volatility. So in summary, we believe our long-term earnings power is substantial, and we are continuing to build underlying performance robustly. Notwithstanding these positive long-term factors, we are facing a challenging first quarter and we see a bit of a headwind for 2019 versus 2018 with respect to margins.

Now I would like to turn the call over to the operator for the question-and-answer segment of our call. Operator? 

Questions and Answers:


Yes, ma'am. [Operator instructions] And our first question comes from the line of Chip Moore from Canaccord. You may begin.

Chip Moore -- Canaccord Genuity -- Analyst

Thanks. Hey, Randy. Hey, Chad. And CJ, nice to meet you.

Welcome aboard. Maybe we could start on the blenders, just give us your latest thoughts with what you're hearing in terms of bipartisan support and potential time lines for resolution there.

CJ Warner -- Chief Executive Officer

Yep. Thanks, Chip. And thanks for your warm welcome, and I'm looking forward to meeting you face to face. So we clearly have broad bipartisan support in both the House and the Senate and really well-positioned support across the industry from -- all the way up in the front-end from agriculture down to the end user.

So there really is strong support. As you probably know, Senator Grassley is Chairman of the Senate Finance Committee now. And last week, he and Senator Ron Wyden of Oregon, who's a top Democrat on the committee, just introduced a bill that includes a retroactive restatement of the BTC both for 2018 and proactively for 2019. This still does include some disaster-relief measures too, which might help us get that reinstatement done quickly.

On the House side, even just a few hours ago, we heard that the Ways and Means Committee announced a subcommittee hearing on March 12, and that's designed to address the BTC among a few other things. So there is activity going on. And as I said, we see bipartisan support up and down and in both areas of Congress. And while we think the activity now is very promising to hopefully get the reinstatement sometime in April, even if that doesn't happen, we still have other things that we know are going on across the course of the year.

Chip Moore -- Canaccord Genuity -- Analyst

Got it. That's helpful. And maybe we could switch over to CAPEX, the $75 million to $85 million this year, maybe you can expand a bit more on where that's going and potential returns. And then maybe we could talk about the larger renewable diesel projects, what's the latest on Ferndale and for Geismar potential expansion.

CJ Warner -- Chief Executive Officer

Yeah, sure. I'm happy to do that. So as I mentioned in my comments, we actually have a really nice suite of high-return, very rapid payback projects, and this is part of the company's overall program and strategy to continue to build existing assets and a performance out of them. So we have developed a culture of innovation and an ability to find small ways that can really get even more out of the assets than we've got.

And then you see that sort of happening year on year. A good amount of that capital for this year is devoted to those projects. There are some maintenance capital as well that goes into the background of what we would do year on year just to be good stewards of our equipment. In terms of renewable diesel, there's been a lot of activity there, and there's a tremendous amount of focus in this company on developing renewable diesel capacity.

So some of that $75 million, $85 million actually goes into the engineering development for those projects. So let me start with Geismar. I know there has been discussion about Geismar with you in the past, and so we've been looking basically at two options at Geismar. One was considered potentially to be a fairly rapid way to bring on additional RD capacity at a relatively smaller amount, and another one was looking at even doubling the capacity of Geismar.

So I think the really good news on that first one, which is the one we were looking at initially, is that we have through what I've described earlier, which is this more innovative approach of consistent debottlenecking and creative solutions really debottlenecked that unit tremendously without having to spend the additional capital. Geismar's performance continued to improve, and they added an additional 10% capacity year on year from 2017 to 2018. So what the engineering basically revealed was because we've debottlenecked basically all the way to the capacity of the supporting elements of that plant, if we're going to add additional capacity, we may as well go for economies of scale. And so we have stopped looking at small capital for that plant, and now we're looking at potentially doubling its capacity, and that'll be the focus for the coming year.

At the same time, we're looking, of course, as we announced, at a large project in Ferndale in Washington with P 66. That project is going very well, and we look forward to being able to report back as meaningful progress continues to be made.

Chip Moore -- Canaccord Genuity -- Analyst

Got it. Understood. That's great, CJ. And maybe one more on Life Sciences.

How far along are you in that process? And how do we think about your related cash burn impacts as you exit that business?

CJ Warner -- Chief Executive Officer

Yeah. So we are extremely hopeful in our sales process. And while we're in the process of developing potential sale, I can't really comment too much more on any specifics. But I can tell you that our focus is very much on ensuring that we are finding a very good home for this technology so that it continues to be developed robustly to commercialization.

We've had tremendous success with our JDA partners, with Exxon, for example. We continue to meet milestones or actually exceed them, and we're moving forward to the next stage with even more strength as we add on Clariant. And so as we look at sales, our full intent is to continue that JDA strongly with a new partner. Also with ACS, with the successful launch of Ambrettolide, the aroma chemical, we are looking very much at a potential buyer who's going to continue that support of that project.

And so we're very, very helpful. It's looking quite promising that we'll be able to achieve all of our strategic objectives and create the sale and keep the technology moving toward commercialization robustly.

Chip Moore -- Canaccord Genuity -- Analyst

Great. Thanks. I'll hop back in queue. Thanks, guys.

CJ Warner -- Chief Executive Officer

Very good. Thanks, Chip.

Chad Stone -- Chief Financial Officer

Thanks, Chip.


Thank you. [Operator instructions] Our next question comes from the line of Craig Irwin from Roth Capital Partners. You may begin.

Craig Irwin -- ROTH Capital Partners -- Analyst

All right. Good evening. And thanks for taking my questions. So first thing I wanted to ask about is the risk-management gains in the quarter.

So last quarter, I remember you had a negative $15 million swing in the quarter, $11 million of that was protective of the fourth quarter. I think, you talked about something like a $7.5 million component of that in your guidance. Can you maybe update us on how this changed during the quarter and what the risk-management gain was in the fourth quarter on an absolute basis?

Chad Stone -- Chief Financial Officer

Sure, Craig. I thought you might be asking that. If you wouldn't mind jumping to -- this is Chad, jumping to Slide 5, because that really shows the real driver as the movement in the ULSD price, and you see two arrows. One is at the beginning of the quarter, and so notably right there, you see the large spike in ULSD at the end of last quarter.

So we talked quite a bit about it then. And then since then, you see from October 1 through December 31, you saw ULSD go from about $2.33 a gallon down to $1.66. So at the time we talked about guidance, you're exactly right, we had just experienced a $15 million move in a real short period of time at the end of the quarter. And we have said at that point in time, we've already seen that reversed into -- in the fourth quarter when we were talking about last quarter results.

And since that time, you've seen that the ULSD went down further and further. The other thing to note is the first-quarter activity, where it's turned around once again. So in the fourth quarter, you'll see it in the 10-K. There is a $41 million risk management gain.

And then as we talked about guidance for first quarter, you can see that it's -- ULSD has gone from $1.66 up to $2 a gallon. So some of that has already reversed around in the first quarter and is reflective of our guidance for first quarter as you look at that. So $41 million for fourth quarter, and then our guidance going forward has over $23 million of actual risk-management losses reflected based on what we know today.

Craig Irwin -- ROTH Capital Partners -- Analyst

OK. So you -- I think, you said a $44 million benefit, but how would you compare that versus the original benefit that was anticipated when you gave guidance? Was the $11 million number I recall from last quarter correct, which means it's more like a $30 million uplift in the quarter? What's the flattened number?

Chad Stone -- Chief Financial Officer

Yeah, that's the right way to think of it. It's the $30 million delta from where we were when we gave you guidance, and then the fact that some portion of that trails into first quarter, and we've seen that turn around in the first quarter.

Craig Irwin -- ROTH Capital Partners -- Analyst

OK. And then can you maybe share with us the number -- the negative number that's in the first-quarter guidance? Are we talking about a negative $15 million number again in the first quarter as far as the hedge-loss assumption that's in your guidance for the first quarter?

Chad Stone -- Chief Financial Officer

It's actually $23 million.

Craig Irwin -- ROTH Capital Partners -- Analyst

OK, excellent. Excellent. Thank you for that. Next thing I wanted to ask about is the build-out of the terminals.

So you guys are obviously doing the right thing, growing your distribution base, where you're able to hold onto the full value of the BTC, the full value of the RIN. Can you quantify for us approximately what percentage of your gallons you do actually achieve this full monetization of the compliance value? Do you expect this to change materially with your terminal additions this year? Do you care to maybe approximate where you'd like to be at the end of '19, at the end of '20?

CJ Warner -- Chief Executive Officer

So if I understand your question correctly, though, having the terminals actually -- what it's doing is giving us superior access to customers we may not have had access to before, and it also enables us in many cases to provide blends that we couldn't have provided before, which can result in either additional sales of our products or additional sales of third-party products that we purchased and then blended. So it's -- the terminals are actually a fantastic play, because there is a multitude of benefits for it. That has been very successful for us. We continue to look at additional terminals, because it gives us access to some of the more favorable markets that we're looking at.

And if I just use as an example what's happening in California, having access to those markets as well as those customers has been extremely well received, especially with the Ultra Clean Diesel blend. Our customers are very enthused about it. And so what we're trying to do is build more terminal access so we can actually access those customers and meet that demand in greater volume.

Craig Irwin -- ROTH Capital Partners -- Analyst

So is it true that you actually capture at least 2/3 of the value of the compliance values in the various markets, where you have terminals versus traditionally around 1/3 in other markets?

CJ Warner -- Chief Executive Officer

I think, it's really hard to pin anything down, because capture happens on a sale-by-sale basis. The customers all have different preferences about what they want to keep and what they are concerned with. So that's something that's very much in our sales department.

Craig Irwin -- ROTH Capital Partners -- Analyst

OK, excellent. And what I wanted to ask a little bit more detail about is the CAPEX program. Can you maybe break down for us where you're spending this $75 million to $85 million? How much of this is maintenance capital on the existing biodiesel plants? How much of this is going to Geismar? Is any money being spent for the Phillips joint venture at this point?

CJ Warner -- Chief Executive Officer

So I would say just on roughly, roughly, we're looking at 1/3 of it being sustaining and maintenance CAPEX. And that's fairly typical for us, so that's just good background support for what we're currently doing. And then the income-producing is the other 2/3. Maybe about 15% to 20% of that is these two-year payback projects.

We have a very significant upgrade that we're working on at our Seneca plant, and that's going to help us with some of the integration that we talked about, being able to take on better or lower-cost feedstocks at one plant and moving some by-products to other plants. So that's a very attractive project that's going to give us a good payback in the biodiesel area. And then the rest of it would be for engineering.

Craig Irwin -- ROTH Capital Partners -- Analyst

Great. And then last question, if I may. There's been a little bit of market speculation out there. People have heard from different sources that the pricing of fats that are used as feedstock for RHD production have been pretty sloppy in the greater New Orleans area and there was some speculation that REG Geismar might have been down.

Can you confirm for us whether or not this is true and whether or not there's any outage or any reduction in overall utilization or production throughput at that facility? And can you update us on the turnaround schedule for Geismar for 2019?

CJ Warner -- Chief Executive Officer

Yeah. That sounds like interesting in quote in the British way, interesting market intelligence. But no, we've been running fine, which is great. We do have a turnaround plan for April.

Craig Irwin -- ROTH Capital Partners -- Analyst

And how many weeks is that?

CJ Warner -- Chief Executive Officer

I believe it's 2 1/2 to three weeks. And I'm sorry, I misspoke, it's May 1. It's just pushed to the back end of April.

Craig Irwin -- ROTH Capital Partners -- Analyst

Great. Thanks for taking my questions.

Chad Stone -- Chief Financial Officer

All right. Thanks, Craig.

CJ Warner -- Chief Executive Officer

Thank you.


Thank you. [Operator instructions] And I'm showing no questions at this time. I'd like to turn the call back to CJ Warner for closing remarks.

CJ Warner -- Chief Executive Officer

All right. Thank you, operator. To wrap up, I want to emphasize that with our fleet of biorefineries, multi-feedstock strategy, national sales reach and a great experienced team, we believe that we have the ability to compete and be successful for years to come. I'm very excited to be leading REG now and look forward to reporting to you on new achievements in the quarters ahead.

Now before we close, Todd is going to mention upcoming investor events for REG. Todd?

Todd Robinson -- Treasurer

Thanks, CJ. We will be attending the 31st Annual Roth Conference on March 18 at the Ritz-Carlton Laguna Niguel in Orange County. Attendance at this conference is by invitation only, so please contact your Roth sales representative if you want to attend or schedule one-on-one meetings with us. Additionally, we will attend the BMO 13th Annual Farm to Market Conference on May 17th through the 19th in New York.

Attendance at this conference is also by invitation only, so please contact your BMO sales representative if you want to attend or schedule one-on-one meetings with us. Thank you all again. This concludes the call, and you may now disconnect.

Duration: 46 minutes

Call Participants:

Todd Robinson -- Treasurer

Randy Howard -- Former Chief Executive Officer and Current Vice Chairman of the Board

CJ Warner -- Chief Executive Officer

Chad Stone -- Chief Financial Officer

Chip Moore -- Canaccord Genuity -- Analyst

Craig Irwin -- ROTH Capital Partners -- Analyst

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