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Renewable Energy Group Inc (NASDAQ:REGI)
Q3 2019 Earnings Call
Nov 5, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Renewable Energy Group Inc. Q3 2019 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded.

I will now turn the conference over to your host, Todd Robinson, Treasurer of Renewable Energy Group. Please go ahead, sir.

Todd Robinson -- Treasurer

Thank you, Gary. Good afternoon everyone, and welcome to our third quarter 2019 earnings conference call. With me today is our President and Chief Executive Officer, C.J. Warner; and our Chief Financial Officer, Chad Stone. Let me cover a few housekeeping items, before I turn the call over to C.J.

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. 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 everyone that some of the information discussed on this 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 expectations.

Today's discussion also includes non-GAAP financial measures. We believe these metrics will provide investors -- will help investors assess the operating performance of our core business. Please check 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 C.J. Warner. C.J.?

Cynthia Warner -- President and Chief Executive Officer

Thanks Todd and good afternoon to those on the call. Today, I will discuss our third quarter operating highlights and the regulatory environment and then Chad will provide more details on our financial results. Then I'll come back to discuss our outlook.

Results for the quarter were on-plan, with our gallons sold and adjusted EBITDA in line with expectations. As shown on slide 4, our adjusted EBITDA was $11 million. When including our estimated net benefit from a retroactive BTC reinstatement, our adjusted EBITDA would have been $88 million. Continued regulatory uncertainties suppressed margins during the quarter. Regardless, we maintained ongoing safe and efficient operations, delivered high quality products to our customers, and continue to pull through improvements to underlying performance that are serving to reduce our dependence upon the BTC. Sales volumes met expectations, as we sold 188 million gallons, up 5% versus third quarter 2018. We continue to focus our placement of gallons sold into the most profitable markets, which generally are those with the best local incentive programs. 83% of our total volume was sold into these incentivized markets.

Through third quarter this year, we sold 52 million more gallons into these markets compared to the same period last year. Total gallons produced were $137 million. Beneath that total is an enhanced mixed. Specifically at Geismara, production was up 7% in the quarter and 12% year-to-date. Petroleum diesel sales, which are driven by our initiative to increase gallons blended with biodiesel, were also up.

While we increased renewable diesel volumes, we further improved our product slate by reducing production of marginal domestic biodiesel volumes. This was in response to the challenging market conditions, caused by the uncertainty, created by both the ongoing lapse of the BTC and the debate around the policy related to small refinery exemptions.

Along these lines, the industry has been waiting far too long for the reinstatement of the BTC. After nearly two years the toll the uncertainty is taking has increased substantially. Many producers have been running at negative contribution margins, in anticipation of the eventual retroactive BTC promise, and are now stretched beyond their limits. Hundreds of millions of gallons of U.S. biodiesel production have now been cut, through outright plant shutdowns or significant volume turndowns. At least a dozen biodiesel plants, including our own new Boston refinery, have shut down. The inaction by Congress is not just abstract, plant closures are causing real Americans to lose solid manufacturing-based jobs and some of the biodiesel gallons may never return to the market. This is a very real and unnecessary tragedy.

And the BTC is not the only regulatory uncertainty harming the industry. In early August. the EPA announced 31 small refinery exemptions for the 2018 compliance year, equating to a loss of approximately 7.4% of the RFS required volume. These exemptions are in addition to the 35 exemptions given for the 2017 compliance year, waiving 9.4% of the required volumes. There have been and continues to be considerable pushback from the renewable fuels and agricultural industries on the 2018 exemptions for that year. The industry believed there was progress last month, when the President directed the EPA to properly account for the actual waived gallons. However, the EPA backpedaled by issuing a proposed rule that would establish compliance obligations, using estimated future SREs based on the Department of Energy recommendations, not the actual waivers granted. This would work out only about half of the actual waived volumes, as you can see on slide 5. That did not adhere to the President's promise. Debate on this matter remains active and we will continue to push for a process that requires the EPA to use actual waived volumes in setting future RVOs. EPA has stated their goal to finalize this proposal by the end of the year.

The result of all this, is that between the lack of a decision on the BTC reinstatement and all of the movement around small refinery exemptions, the industry has suffered. The most difficult part of all of this, is the government created uncertainty. The industry have been caught in the middle, operating under the promise of and belief in reinstatement of the BTC and the RVO volumes, but without having the real-time benefit of that BTC or market based RIN pricing. This has created a very poor margin environment.

Now having said all that, I am pleased that we are beginning to see a shift in market conditions, as an industry response. As I mentioned earlier, marginal volumes are starting to come off the market. The resulting reduction in feedstock demand has begun to put pressure on feedstock prices, and we have seen spot prices for distillers, corn oil and animal fats drop from the August highs, as shown on slide 6. Additionally, the industry slowdown is resulting in a drop in domestic biodiesel RIN production.

Slide 7 shows August and September RIN generation from U.S. biodiesel plants, off significantly from the prior year. Combined with other factors, we have seen D4 RIN prices increase. D4 RIN prices on Friday were trading over $0.60 per RIN, which is an 18-month high. And we see further room for RIN recovery based on the correlation between HOBO spread to D4 RIN price, as shown on slide 8. This slide demonstrates how 2019 RIN prices have been suppressed below the historical market based correlation.

We also continue to be encouraged by our legislators' strong bipartisan support for BTC and their assurances that a retroactive reinstatement is forthcoming. Should time continue to pass without a retroactive reinstatement of the BTC however, we believe the nascent industry rationalization will continue. Marginal gallons will continue to come off the market, fostering further adjustment of the feedstock market and RIN prices, and improving margins.

Meanwhile, we've been focused on our downstream strategy and are excited about the progress to-date, but more importantly, the future as we believe demand for both cleaner burning transportation fuel and heating oil is accelerating. Our downstream strategy enables us to more directly meet that demand and create value for our shareholders.

The downstream strategy is focused on three important objectives; margin expansion across the value chain, realization of higher biodiesel values through blends of biodiesel into petroleum diesel and renewable diesel, and increased demand for our biodiesel, via sales of B100 to end consumers. We believe these initiatives position us to expand margin and diversified sources of profitability, to enable us to manage through a wide variety of market conditions and increase shareholder value.

An important way to expand margin capture across the whole value chain and to increase demand for our biodiesel, is to get closer to our customers through fleet sales and participation in distribution businesses. We continue to make progress getting closer to the end users, such as fleet customers and retail buyers. Fleet sales continue to accelerate. Many of our fleet customers today are large national and regional logistics companies that are keenly aware of the environmental impact of their fuel sources, and they desire cleaner burning, renewable fuel that we deliver.

As a reminder, slide 10 reflects the level of carbon savings from REG produced gallons, just in the third quarter. These gallons displaced 1.1 million metric tons and are equivalent to the greenhouse gas reductions that would be realized by putting 400,000 EVs on the road for a full year, assuming their power was derived from natural gas. Sales of our REG Ultra Clean Diesel, a proprietary blend of renewable diesel and biodiesel, are especially strong, due to its attractive carbon and other criteria emissions profile. Blending biodiesel with renewable diesel offers a unique substitute or complement to petroleum diesel. Sales of Ultra Clean in the third quarter are up 300% year-over-year and are up over 165% year-to-date through September. Our biodiesel and petroleum blends are also accelerating. Our average blend of biodiesel into petroleum diesel for products sold as a BD-ULSD blend, was nearly 16% in the quarter and 13% for the nine months, both increases from 2018.

For retail sales, we continue to evaluate our first automated fuel station, otherwise known as a cardlock, pilot at our Seneca plant, which we opened in July. This location was chosen due to the captive diesel truck traffic coming in and out of the plant. And of course, the convenient and cost effective proximity to the production location. Early indications are showing promising unit economics. Most notably, these sales have a significant margin lift versus our normal wholesale sales. As important, we're learning about and solving important issues through this pilot approach, so that we can learn while small, and then build out further volumes more seamlessly.

In addition to new sales channels, we are working on a novel ways to promote demand; one example is technology that enables diesel trucks to use pure B100 year round. We are sponsoring several pilots to test this technology, including deploying it on all of our own delivery fleet trucks. The early results are promising. The technology can be implemented via a relatively simple and inexpensive retrofit. We believe this technology will be a great way for our consumers and our customers to improve their sustainability and carbon footprint scores through year round B100 use. Customers who have already converted to this technology and are running B100, include the Washington D.C. Department of Public Works and the Chicago Park District. We also have a robust pipeline of further opportunities set up for 2020 and beyond.

As we consider demand projections, its also worth mentioning some state, regional and municipal initiatives that we believe will enhance future demand and higher value for renewable diesel and biodiesel going forward.

California has cleared the way for storing biodiesel blends of up to 20% or B-20 in underground storage tanks beginning January 1, 2020. This is a significant increase from today's 5%. We believe this change to 20% blends in California will significantly increase the volume of biodiesel we sell there. It is worth pointing out as shown on slide 11, that biodiesel produced with lower carbon intensity feedstocks can generate comparable LCFS credit value to renewable diesel produced with similar feedstock.

Then in Oregon; the Oregon Clean Fuels Program or CFP, which is similar to California's LCFS, is targeting a 10% reduction in carbon intensity and transportation fuels by 2025. We estimate this could increased demand in Oregon for biomass based diesel by about 100 million gallons by 2022, based on a 12.5% blend rate. We've already seen Oregon CFP prices increase materially this year.

In Washington State, the Puget Sound Clean Air Agency's draft clean fuel program is targeting a greenhouse gas reduction of 26% in transportation fuels by 2030. This program will cover about 4 million people and our annual volume estimate is 45 million gallons of biodiesel by 2023 at just a 5% blend rate. Also the city of Seattle recently enacted a home heating oil tax of nearly $0.24 per gallon. We are pleased to share that biodiesel is exempt from that tax, because of its significantly lower carbon profile.

In the Northeast, the New England fuel Institute, the leading heating oil trade association for the region, has resolved to achieve net zero carbon dioxide emissions by 2050. The industries' resolution calls for a 15% reduction in CO2 emissions by 2023, a 40% reduction by 2030, and net zero carbon emissions by 2050. NIFI projects a potential market demand of 746 million gallons of biodiesel by 2023. In addition to these examples, as you can see on slide 12, many other cities are also pursuing greenhouse gas reductions.

Internationally, we're also optimistic. We believe last month's elections in Canada will likely accelerate completion of a national clean fuels program there. And in Norway where we already sell renewable diesel, the country has increased its biofuel mandate from 12% to 20%. It is because of this continued push by many and diverse groups seeking creative ways to address carbon reduction, that we are very bullish that demand and profitability for biodiesel and renewable diesel will increase for many years to come, in spite of the current issues we're facing at the federal level in the U.S.

Throughout our history, regulatory support has ebbed and flowed, yet our industry has grown and REG has thrived as one of its leaders. We see exceptional opportunities ahead of us, especially in the renewable diesel segment. Demand is expanding in the U.S and around the world. We are allocating our sales of renewable diesel between California, Canada and the Nordics to optimize for margin opportunities. The market for renewable diesel are growing, a direction, which we believe supports our capital spending plans. Completion of FEL2 engineering remains on track for our proposed joint venture with Phillips 66. We are also working on plans for direct water access at Geismar to reduce our logistics cost and enable a potential significant expansion there. And lastly, we continue to explore opportunities with other interested parties who want to participate with us in expanding the renewable diesel space.

In terms of capital pending, we have cut back planned 2019 spend by approximately 45%, as a matter of fiscal prudence, given the lack of BTC reinstatement to date, and accompanying margin environment uncertainty. This includes halting our $30 million Seneca project. We plan to reinitiate this profit enhancing improvement, once, we have greater clarity on a combination of BTC reinstatement or a more fulsome margin recovery. At that point, we will also be ready to launch our robust suite of growth and shareholder value creating opportunities, including additional RD expansion options.

Finally, I want to reinforce that the self-help actions we have taken are making progress. All of them are in service of being on the road to moving beyond dependence on the BTC, and instead, use the BTC to expand infrastructure and accelerate growth as intended.

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

Chad Stone -- Chief Financial Officer

Thank you, C.J. and good afternoon everyone. I'll run through the details on our financial performance and balance sheet, and then turn it back to C.J. for the outlook.

As shown on slide 13, revenues were $584 million, a decrease of 2% resulting from a 9% lower average selling price, partially offset by an increase in gallons sold. The average selling price per gallon was $2.76, down primarily as a result of lower biodiesel prices, partially offset by higher realized prices from international renewable diesel sales. Our average U.S. biodiesel price was down 14% from third quarter 2018, and our weighted average realized RIN price was $0.09 lower or approximately $0.14 lower per gallon of biodiesel. Gallons sold included nearly 5 million gallons of renewable diesel sold internationally. These international RD sales offset volume decline in U.S. biodiesel, which reflected our purposeful response to the challenging market due to the regulatory uncertainties that C.J. noted. One other element in the revenue mix worth noting, is revenue from low carbon fuel programs, which almost doubled from a year ago. This is due to higher volumes to incentivize states like California and Oregon, as well as higher credit prices.

As we noted in our Q2 earnings call, we recognized $29 million of California LCFS credits this quarter, revenue from Oregon's clean fuel program credits, although smaller, have more than doubled from $2 million last year to $4.4 million this year and the Oregon credit value has increased 90% from third quarter last year.

Going down the P&L, we had a gross profit of $24 million, which is a significant improvement from the first and second quarters of this year. As has been the case for the past two years, while operating without the tax credit, margins are distorted because of the market assumption regarding the likely reinstatement of the BTC. Under this environment generally, production volumes are too high, keeping feedstock prices elevated and RIN prices too low, if the BTC were to not be reinstated. Accordingly, as before, when the BTC was not in effect, our financial statements do not reflect the real economics of our business.

Having said that, on slide 14, you can see margins were also pressured a bit due to higher weighted average feedstock prices, which were up 4%. In the third quarter, we continued to experience a spread compression from traditionally lower cost feedstocks to soybean oil. On a yield adjusted basis. We saw higher prices for soybean oil, used cooking oil and animal fats, and canola was 10% lower than last year, while distiller corn oil was flat.

From a timing perspective, C.J. mentioned, we are seeing lower spot feedstock prices in the quarter. However, since we are generally booked 60 days forward, these lower feedstock prices won't be realized until the fourth quarter. Our flexible feedstock model allowed us to optimize between feedstock price and yield, resulting in taking on more higher yielding soybean oil and canola oil, relative to the traditionally lower cost feedstocks, due to the relative price compression during the period.

SG&A remained 4% of total revenues, and less than $0.15 cents per gallon. And on slides 15 and 16, you can see our trailing 12 month adjusted EBITDA and return on invested capital. The light blue on the bar charts reflects the net benefit of the BTC being reinstated, and our business is seasonal, and we believe trailing 12-month results are a better reflection of our long-term earnings power.

One important note to highlight, we did recognize a non-cash, non-recurring impairment charge of $11 million related to our New Boston plant closure in the quarter. Overall, we're pleased that even in a difficult environment, we produced positive adjusted EBITDA that was in the middle of the range that we guided.

If the BTC is reinstated on the same terms as before, we estimate the additional net benefit to our adjusted EBITDA would be $77 million. Through September of this year, the 2019 estimated net benefit of a BTC reinstatement is $213 million and the cumulative estimated total for 2018 and the nine months ended 2019 is $450 million.

Turning to the balance sheet on slide 17; we have $64 million of cash as of the end of the quarter. During the quarter, we used $4 million of cash in our operating activities. Accounts receivable were up nearly $6 million. Inventory decreased by $8 million, and accounts payable decreased by nearly $12 million in the quarter.

We invested $13 million in CapEx in the quarter, but are keeping a tight rein on CapEx spending until the BTC is reinstated. As C.J. mentioned, we paused a $30 million project at our Seneca plant that we started earlier this year. Our initial CapEx budget for 2019 was $75 million to $85 million. Through September however, we have held our investment to $31 million, with a full year projection of approximately $45 million.

As C.J. mentioned, we have a suite of exciting growth opportunities to invest in, once funds become available. Within this context, it's also helpful to remember that we also have $82 million remaining on our Board authorized buyback. A value-creating opportunity we intend to keep closely in mind.

During the quarter we drew $23 million from our line of credit, while $36 million remained available under the line at quarter end. Our availability actually got better in October, since we collected on a large international renewable diesel shipment.

Finally, you'll notice that $76 million is reclassified from current maturities to long-term debt. This is the result of our share price being below the stock trigger for our convertible bonds. At the end of the quarter.

Our effective tax rate for 2019 is expected to be less than 1%, and going forward we expect our tax rate to continue to be less than 5% for the foreseeable future and our blended average interest rate is less than 4%.

Before I close, we should also touch on some off-balance sheet items, because they're very important to understanding our current financial position. Our estimated BTC net benefit, contingent on the credit being reinstated, is now up to $450 million cumulatively, as I mentioned before. We also have $50 million worth of LCFS credits, and RINs that have been generated, but not yet recognized in our financial statements.

Now I'll turn the call back to C.J. to discuss the outlook. C.J.?

Cynthia Warner -- President and Chief Executive Officer

Thanks, Chad. Please all refer to slide 19 for our guidance. For the fourth quarter of 2019, we expect to gallons sold in the range of 145 million to 165 million gallons. With that in mind, we're projecting adjusted EBITDA to be in the range of $10 million to $25 million. In keeping with the trend we have experienced on BTC sharing, we estimate that fourth quarter adjusted EBITDA would be approximately $48 million higher, if the BTC were reinstated on terms similar to past years. This estimate for the fourth quarter is based on actual performance through last week, and takes into account existing forward contracts expected to be fulfilled, and existing spot margins through the end of the quarter. Any changes to ULSD prices, margins, RINs or LCFS credit values, or a level of market volatility through the end of the quarter could affect actual results.

We have included $2.5 million of risk management losses in our guidance, which reflects our estimate for the quarter, as of October 28, based on the ULSD forward curve. Our full year guidance reflects the difficult, although recently improving, 2019 market environment. We now estimate that gallons sold will be in the range of 695 million to 715 million, and gallons produced to be in the range of 485 million to 505 million. These have been reduced from prior guidance, as we optimize our product mix, trim marginal gallons, and focus our efforts on the most profitable gallons.

In closing, I think we all look forward to resolution of the BTC and small refinery exemption issues soon, so that supply and demand can become more market based. As I mentioned earlier however, we're continuing our progress on becoming less dependent on the BTC. We are doing this our downstream efforts to expand margins, focusing on renewable diesel growth, and focusing on high quality gallons. We are also running only when these volumes are contribution margin positive with or without the BTC. And we're maintaining from capital allocation discipline. Meanwhile, there are multiple avenues indicating increasing demand for our products over time, giving us much to play for, as we continue to work on creating both economic and social value at REG .

At this time, I'd like to turn the call over to the operator for the Q&A segment of our call. Operator?

Questions and Answers:

Operator

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions]. First question is from Craig Irwin, ROTH Capital Partners. Please go ahead, sir.

Craig Irwin -- ROTH Capital -- Analyst

Good evening and thanks for taking my questions.

Cynthia Warner -- President and Chief Executive Officer

Hi Craig.

Craig Irwin -- ROTH Capital -- Analyst

Hey C.J., Chad, everyone. Geismar, right, you said 7% quarter-over-quarter, 12% year to date -- 7% up in the quarter, 12% year-to-date. Are we still talking about an 85 million gallon a year run rate, or is it possible that discrete [Phonetic] maybe a little bit higher something to the 90 million gallon range? And then can you confirm for us the economics in this plan? Are we talking a $1 plus, maybe something in the $1.15, $1.20 range, what are we looking at, as far as the economic performance of Geismar right now?

Cynthia Warner -- President and Chief Executive Officer

Craig, in terms of demonstrated capacity, we are always pushing the envelope. That's something REG does and and we actually look at innovative projects that our operators are welcome to bring for us on a regular basis. So that enables us to consistently bring throughput up, and some of what we've been doing also, is increasing our catalyst life, which is partly contributing to the year-on-year improvements, because our downtime is lower. So I think it's a little bit early for us to declare what the nameplate has gone up to, but I think your instincts are right that we continue to bring it up higher and higher, and 85 million is what we've been operating at lately.

Yes, by the way something that enabled us to look at a much larger expansion at Geismar versus the original, when we looked at that was smaller, because we've been able to gain those smaller increases without significant capital investment.

Craig Irwin -- ROTH Capital -- Analyst

That's good to hear. That actually bridges nicely to my second question, which is about Phillips 66. So back when the original intentions for this plant were disclosed, it was said that only reason they were being disclosed at the time, is some permits that were about to bring bringing the application public? Can you maybe describe for us, why we would want Phillips 66 as a partner? Why we'd want to give up significant economics to an oil company? And can you clarify for us, that Phillips 66 applied for any small refinery exemptions and did they receive any? And how would they really fit as a [Indecipherable] partner, given the significant conflict between the refinery industry and renewable diesel industry right now?

Cynthia Warner -- President and Chief Executive Officer

Yeah there is a lot of good questions there. So I'll start with -- our reason and just say, you know, Phillips 66 needs to speak for themselves in that matter, and we actually don't know who applied for and received SRE.

But let's talk about our project with P66. We are excited about it. It's in an advantaged location. It is making great progress on the permitting, which is challenging for most in that region. We get significant synergies by locating close to the refinery. And we are realizing synergies as partners between the different skill-sets that we each bring to the table, with them being experienced at building major capital projects on time and on budget. With the kinds of things we're aware of, with the marketed feedstock allocation or feedstock procurement, as well as pre-treatment. So there is a lot of things for us to play for that create synergies by partnering, and we don't really give value up to each other, we're creating value together, and it's a 50-50 partnership and so we're excited about that.

I would say that in terms of industries, getting along or not, its exciting to be able to find a partner that's interested in renewable diesel and willing to work with us on creating this type of social and economic value.

Craig Irwin -- ROTH Capital -- Analyst

Okay. And then when the -- the last time the company discussed multiple potential sites for renewable diesel facilities, was it the the last Analyst Day, where Daniel Oh presented, and when he was there, he discussed three separate sites that were under consideration. So obviously, Phillips 66 is one, another is Geismar, which now it sounds like it could be a 350 million gallon plant, if you were to do the fourfold expansion. And then a third site, can you maybe update us on the third side? Does this site potentially include giving up 50% of the economics to someone in the big oil patch? Is this a site that could potentially be 100% owned by REGI, where your shareholders could fully benefit from the economics? And can you maybe comment about that site versus Geismar, given you probably do see a significant cash intake over the next handful of months? What you could prioritize potentially, not Phillips 66, looking outside of Phillips 66, for the other two sites?

Cynthia Warner -- President and Chief Executive Officer

So again, lots of good questions embedded in all that. And I did signal in my comments, that we continue to look at additional sites. So you picked up on that nicely. It's a little early for us to be any more specific than that. But I do want to assure you, its strong in our strategy and our strategic thinking. We are working on a number of things that evaluates optimal location, optimal feedstock and proximity to feedstock and optimal business models. So there are a lot of different ways we could look at business models. Some of them are direct partnerships, as you're envisioning. But there's other ways that we can look at things, including going it alone, and we are evaluating all of those things.

The name of the game though, with anything when you're producing RD or any other products to compete in the energy market is, you want to have a preferred location or some other advantage to your production. So that you have an advantaged production profile, and you're never the marginal gallon. And that's definitely high in our view, as we're looking at our options for RD.

Craig Irwin -- ROTH Capital -- Analyst

Great and then marginal gallons are again a great bridge to my last question. So, if we strip out the profitability from Geismar in the quarter, it looks like you probably lost something like a dime a gallon on the traditional biodiesel side, give or take. Obviously, Wheeler's gift to the refinery industries with the SREs is pinching you guys something like $0.20 to $0.25 a gallon. What sort of timing would you expect for the remediation of that, both on the feedstock side and the RIN side? Do you see any specific items that have you expect that headwind to come off, barring, all of a sudden Wheeler does the right thing for a change?

Cynthia Warner -- President and Chief Executive Officer

Although we are -- as I intimated in my comments. We're starting to see that already and we imagine the longer it goes, the less BTC, the more you're going to see margin recovery. So that's a watch this space kind of a thing, and we're active in it, even as we speak. I would also say that, in terms of improved margins, all of those things I was describing that we're doing in the downstream are also going to serve us well in that capacity, and we are seeing that come through, albeit at still somewhat smaller volumes, but as you can see the uptake on some of these ideas is fairly significant. So as that starts to kick in, that will close some of that gap as well. And Chad, you might want to add to that?

Chad Stone -- Chief Financial Officer

Yeah, I was just going to point out, we don't have separate segment reporting for our renewable diesel, so there's not as much transparency there, as you might see with a couple of other companies out there. But you're right, the renewable diesel has been solidly profitable throughout the cycle. I would say, to your point, the first half of the year, we didn't see the market indicators reflecting a changed approach to production, and that left some biodiesel producers, what we'll call on the marginal side, where they needed the BTC to make it whole. Of course when you look through our portfolio or our network of plants, we've got some that are very competitively positioned and profitable throughout, and then to C.J.'s point. We're not going to run plants just for the BTC upside. So that being said, all of our plants are profitable with the BTC reinstatement. Some are even profitable -- even without it, because they're in advantaged markets and locations that are very competitive.

Craig Irwin -- ROTH Capital -- Analyst

Great. And if I could squeeze just one more in before I jump back in the queue; priorities for cash use, so if we just sort of approximate $500 million in cash benefit when we get the check from the IRS, hopefully April, its pretty easy to see your buyback and your investment in the Phillips 66 plant, probably coming in together around $200 million. What do you expect to use the remaining $300 million for? Are there any preset priorities for cash use at REGI at this point?

Cynthia Warner -- President and Chief Executive Officer

So we do have a very robust list of items and they run along the list of the strategic priorities that I've been describing. So definitely, RD expansion. Definitely expansion into the downstream and getting closer to the customer. And definitely, improving our margins with all of our produced gallons.

Craig Irwin -- ROTH Capital -- Analyst

Great. Congratulations on the quarter and thanks again for taking my questions.

Cynthia Warner -- President and Chief Executive Officer

Thanks, Craig.

Operator

[Operator Instructions]. We have a question from Hamed Khorsand, BWS Financial. Please go ahead sir.

Hamed Khorsand -- BWS Financial -- Analyst

Hi. So the first question I had was, how much excess inventory you think is out in the market right now?

Cynthia Warner -- President and Chief Executive Officer

In terms of produced material?

Hamed Khorsand -- BWS Financial -- Analyst

Yes.

Cynthia Warner -- President and Chief Executive Officer

I might let Chad try to make an estimate of that. But the typical scenario for our industry is for inventory to start building at this time of the year.

Chad Stone -- Chief Financial Officer

Yeah, I think what we've seen in the second half of the year, Hamed, is the -- I think C.J., referred to about a dozen plants that have come offline in U.S biodiesel production in the 330 million to 360 million gallon range, if you look at some of the trade association reports. So that's reflecting a lower overall production of domestic biodiesel. Now, we have continued to see really really attractive economics for renewable diesel, and international imports coming in strong on that front. They continue to be strong and the domestic renewable diesel producers continue to do well, and you can see, our plant is operating above rates never run before. So that's the main thing I would reflect and that kind of leads into some of the biodiesel margin indicators that C.J. referred to in terms of RIN prices meeting and beginning to appreciate, and get stronger, in response to the reduced domestic production. And just general margin indicators.

Cynthia Warner -- President and Chief Executive Officer

I might also add, I think it's a bit hard to predict right now because of the pricing changes and because we are starting to see volumes come off. But I will say that we've received some calls from obligated parties being somewhat concerned about whether the available RINs and the products that enable them to meet those RINs will be available when they want them to be. So I think that's a sign that things are going to be a bit different going forward.

Hamed Khorsand -- BWS Financial -- Analyst

I guess, what I'm trying to get to is, if all those productions come off and eventually just gallons, their excess inventory in the channels would be consumed, so one of their implication that prices will eventually go up, especially with this IMO 2020 kicking in a couple of months?

Chad Stone -- Chief Financial Officer

Yeah, I think you'll find that -- historically, the inventory levels would have been better this time of the year, particularly, coming out of the third quarter and you actually saw domestic production coming offline. So there is not going to be all that excess inventory people are accustomed to out there. So I think you're right on the need for prices and margins to continue to improve to encourage enough RIN generation throughout the industry.

Hamed Khorsand -- BWS Financial -- Analyst

Sorry. Are you doing anything different to capture more margin upside? Just given that the environment right now, with feedstock prices declining, are you still going to the hold true to that 60-day rule?

Cynthia Warner -- President and Chief Executive Officer

Well, some of what we do is sort of built into the amount of time required to procure and ship. So there's -- and also, because we've already procured, you have the option in some cases to build inventory, if there's opportunistic pricing. So we do do some of that. And we have some opportunities as well, because of our fleet being large and integrated, as sometimes we can move things around from one plant to the other, if there is a particular upside that we noticed. So we will be opportunistic. But, I wouldn't say it could be wholesale in the short term, simply because of the timing, as Chad described in his comments. At least in the near term.

Hamed Khorsand -- BWS Financial -- Analyst

Okay. Great. Thank you.

Chad Stone -- Chief Financial Officer

Thank you.

Operator

We have a follow-on question from Craig Irwin, ROTH Capital Partners. Please go ahead sir.

Craig Irwin -- ROTH Capital -- Analyst

Thank you. Just a housekeeping question. So Chad, in your prepared remarks you talked about, I think it was $32 million in remaining liquidity on your facilities, but the large renewable diesel collection out of Europe. Can you approximate for us, what the cash intake was on that significant collection?

Chad Stone -- Chief Financial Officer

Yeah. It was north of $20 million.

Craig Irwin -- ROTH Capital -- Analyst

Okay. So we're now looking at north of $50 million in liquidity, is that fair?

Chad Stone -- Chief Financial Officer

Yeah. And we also had a positive EBITDA quarter two.

Craig Irwin -- ROTH Capital -- Analyst

Yeah, obviously. Great, thanks again.

Chad Stone -- Chief Financial Officer

Thank you.

Operator

We've reached the end of the question and answer session. I would now like to turn the call back over to Todd Robinson for closing remarks.

Todd Robinson -- Treasurer

Thank you. Please turn to slide 20 for some upcoming conferences. We will present at the Baird 2019 Industrial Conference on November 7 in Chicago this week. Attendance at this conference is invitation-only, so please contact your Baird sales representative, if you want to attend or schedule one-on-one meetings with us. We will also be attending the ROTH New Industrial -- New Industries and Technology Conference on November 13. Attendance at this conference is invitation-only. So please contact your sales representative, if you want to attend or schedule one-on-one meetings with us.

Thank you for joining. This concludes the call. And you may now disconnect.

Duration: 45 minutes

Call participants:

Todd Robinson -- Treasurer

Cynthia Warner -- President and Chief Executive Officer

Chad Stone -- Chief Financial Officer

Craig Irwin -- ROTH Capital -- Analyst

Hamed Khorsand -- BWS Financial -- Analyst

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