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Renewable Energy Group Inc (NASDAQ:REGI)
Q3 2020 Earnings Call
Nov 5, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Renewable Energy Group Third Quarter 2020 Earnings Conference Call. During the presentation, [Operator Instructions]. Afterwards, we'll conduct a question-and-answer session. [Operator Instructions]

I would now like to turn the conference over to Mr. Todd Robinson, Treasurer. Please go ahead, sir.

Todd Robinson -- Investor Relations

Thank you, Eric. Good afternoon, everyone, and welcome to our third quarter 2020 earnings conference call. With me today is REG President and Chief Executive Officer, CJ Warner and our Chief Financial Officer, Chad Stone. Let me cover a few housekeeping items before I turn the call over to CJ. 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, which 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 three. 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 and 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 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. Let me also remind you that at the end of last year, the Biodiesel Mixture Excise Tax Credit, or BTC, was retroactively reinstated for 2018 and 2019. It was also put in place for 2020 through 2022. The net benefit of that retroactive reinstatement for both years was reflected in our GAAP financial statements in the fourth quarter of 2019. Because their credit related to our 2018 and 2019 operations, our adjusted EBITDA and other line items reflect an allocation of the net benefit of the credit to our 2018 and 2019 results by quarter, to reflect the period in which the associated gallons were sold. Chad will provide more detail on this when he reviews the financial results.

With that, let me turn the call over to our President and CEO, CJ Warner. CJ?

Cynthia (CJ) Warner -- President and Chief Executive Officer

Thank you, Todd and good afternoon, everyone. Following on from our Analyst and Investor Day from a few weeks ago, we are pleased to be building on that event today with our third quarter results. At Analyst Day, among other things, we described how we are building momentum through a planned major expansion at our Geismar renewable diesel plants, as well as with our downstream strategy. Our current experience and information leads us to believe that demand for clean fuels continues, demand for great ESG investment continues and demand for solutions available now continues. And all of this contributes to our feeling that this is the right place in the right time for REG. We have solid financial and operational performance in the third quarter. As shown on slide four, we sold 176 million gallons of fuel and produced 137 million gallons, generating $576 million in revenue and $58 million of adjusted EBITDA. Gallon sold were at the midpoint of guidance, while adjusted EBITDA exceeded previous guidance, mainly due to ongoing strong performance and incremental risk management gains realized during the period. Year to date, adjusted EBITDA performance is 157$million, a result with which we are very pleased especially considering the overall price volatility and energy demand reduction due to the pandemic.

Primary drivers of change and year over year adjusted EBITDA for the quarter are shown on slide five. From an underlying performance standpoint, we continue to optimize profit by focusing on higher margin products and directing sales to the most profitable markets. Volume sold was down versus last year, primarily due to reduced sales of lower margin petroleum, diesel and third party gallons. REG produced gallons sold increased 3% from last year to 141 million as shown on slide six. Sales of self produced biodiesel increased by 6 million gallons, and sales of self produced renewable diesel decreased by 2 million gallons, due to timing of a vessel shipment. Our ongoing sales optimization efforts resulted in 4 million more gallons of REG being sold in Norway. Sales of biodiesel the premium market, as reflected on slide seven declined slightly, as we optimize our product disposition based on current market conditions. Turning to production, we continue to operate safely, efficiently and effectively. On slide eight, you can see our total recordable incident rate of 0.92 remain significantly lower than the industry average of 2.1. And much closer to the industry leader level of 0.7. As we continue our drive to our vision of zero safety incidents, we must always stay vigilant and mindful of how changes may affect workplace safety. We have had a recent uptick of incidents as you can see in the slide and are taking strong steps to address the challenges of pre job safety communication introduced by our pandemic related working conditions.

We are resolute in our determination to focus on job safety, while working during this challenging time. Along with already existing pressures from COVID-19, Q3 presented new challenges from weather related disruptions. A direct show in Iowa and hurricanes in the Gulf Coast provided challenges for several of our plants. But the team managed well through the disruptions and production for the quarter was essentially flat year-over-year. Notably, guideline production in the quarter was up 3% year on year and over 128% of its nameplate capacity. slide nine shows our biodiesel and renewable diesel production by quarter. Compared to the highly volatile second quarter, we benefited from a more stable economic environment in 3Q, although margins remained significantly compressed versus 2019. It is notable that year on year biobased diesel demand was stable, and pricing was far less volatile than 2Q. Equally important feedstock availability started to return to normalcy after the COVID driven disruptions on second quarter.

To get a sense of the dynamics of 2020 in the fuel market, slide 10 shows market demand for a variety of fuels in both 2019 and 2020. The pandemic has had a strong negative effect on petroleum fuels demand with gasoline down by 14% year to date, just saw it down 9% and jet fuel down 38% versus last year. In contrast, biobased diesel demand has been relatively stable, and on a year to date average is down only 1% year-over-year. As I mentioned earlier, margins have been quite challenging. following along with the drop in crude prices, the ULSD average price per gallon declined 37%. Accordingly, our average product selling price in North America was also down. On the other hand, we do see a price increase for biodiesel in Europe, driven by increased local environmental mandates and increases in fuel consumption as significant holiday traffic there moved from airplane to on road vehicles. The U.S. HOBO drop in the quarter was significant with ULSD declining as mentioned, and soybean oil prices increasing. D4 RIN prices have helped to offset some of the decline supporting the market with a 46% year-over-year increase.

Taking all of those factors together, the HOBO plus 1.5 times Rin spread was down 41% year-over-year, although it has stabilized after the COVID induced decline in the first half as you can see on slide 11. Although relative feedstock pricing remained volatile as reflected on slide 12, options for feedstock supply selection did improve in the quarter relative to second quarter. Our flexible feedstock strategy enable us to change our feedstock mix year-over-year significantly in response, as shown on slide 13. Soybean oil usage increased 26%; animal fat usage increased 20%; distillers corn oil usage decreased 14%; and canola oil usage decreased 26% year-over-year. With overall feedstock prices up, this change in mix enabled us to limit the increase in our weighted average feedstock costs to only $0.04 per gallon. In contrast to the significant swings in the economic environment, the regulatory environments provided a stable foundation for demand. Biodiesel tax credit, RFS2, end the LCFS programs in California and Oregon, all provided welcome stability.

Slide 14 shows the pricing for both the California LCFS market as well as the Oregon Clean Fuels Program. With its strong performance despite a very challenging market environment, coupled with expanding demand, and a supportive regulatory environment, we believe we're well positioned to execute on our growth strategies. One area of focus here is expansion of renewable diesel production, which will balance our product portfolio and enable us to accelerate our downstream strategy. Last month, we announced that we have a major expansion planned at Geismar, Louisiana. Summarize on slide 15, we intend to add 250 million gallons per year capacity to our existing facility there increasing renewable diesel production capacity to 340 million gallons per year. The project is on track to be completed in late 2023 with projected costs of around $825 million. Geismar was selected solely for the advantages that it offers us, including economies of scale, ready access to hydrogen, advantage logistics, and a strong community of support, including an excellent workforce.

As we pursue this growth, we will also continue to closely watch our economics at all locations and we're committed to making strategic decisions to optimize our portfolio, maximizing margin and impact, and shifting resources as opportunities arise. A second important focus for growth is our downstream strategy. Our aim is to generate near-term margin enhancement for the fuels we sell. Our partnership with Hutchinson continues to progress as plan to increase sales of REG Ultra Clean in California and it gives us a strong foothold in the largest renewable fuels market in the country. All 12 locations are up and running and the initial customer reception has been quite positive. Speaking of REG Ultra Clean volumes continue to grow as the market comes to appreciate its clean low carbon value proposition. As shown on slide 16 sales of blends of biodiesel and renewable diesel grew 70% year-over-year. Sales to end users are also a key element of our downstream strategy and they grew 26% in the quarter versus last year as noted on slide 17. As I look back on third quarter and ahead of the opportunities in front of us, I feel more than ever that we are in the right place at the right time.

Demand is moving from regulatory push to [12:45] [Indecipherable] and we believe should increase as people understand the tremendous environmental benefits our fuels are delivering today. While we applaud the efforts and recent momentum behind electric semi and large equipment vehicles, these ideas and prototypes may be several years or even decades away from being available at full commercial scale. In contrast, we offer our fuel today at scale and growing that enables our customers to substantially reduce carbon emissions with no capital costs and no performance compromised. We provide the best solution now for reducing transportation related carbon emissions. In the third quarter alone as shown on slide 18, REG produced fuel resulted in a reduction of 1.1 million tons of carbon. That is the equivalent of 2.7 billion miles driven by a passenger vehicle. That is the right results at the right time, right now. REG has committed to making a difference for our planet, our customers, our stakeholders and our shareholders in the years ahead.

Now I will turn the call over to Chad to review our financial performance for the third quarter.

Chad Stone -- Chief Financial Officer

Thank you, CJ, and good afternoon, everyone. Before I get into my comments on the quarter, I want to align everyone on comparisons. As Todd mentioned, the biodiesel tax credit was retroactively reinstated last December for 2018 and 2019 and then extended through 2022. As such, we will provide an analysis of the non-GAAP numbers adjusted the allocation of the BTC to the third quarter of 2019. The apples-to-apples comparison will allow you to better understand the real change underlying the economic performance. Slide 19 shows third quarter results. And as CJ mentioned, margins were down year-on-year. Biodiesel sales were up, renewable diesel sales were down due to the timing of the vessel shipments, but total renewable diesel production was up. Finally, we brought down sales volumes of petroleum diesel quite significantly as we shifted our blending strategy to higher margin opportunities. At CJ noted, our gallons sold were at the midpoint of guidance and it reflects very encouraging relative stability of the biodiesel demand during the pandemic recovering. Prices were down across the board except for European biodiesel, which increased modestly.

The price reduction reflects much lower diesel prices, partially offsetting this was an increase in RIN value. Finally, as CJ noted, our actual full quarter risk management gains were $9 million larger than when we gave guidance. Recall that our risk management approach is designed to lock-in cash margins as best we can when we make the sale. As ULSD prices declined during the quarter, risk management gains increased to balance out the decline. And our approach did the job as intended, resulting in these risk management gains. Moving from revenue to margin, let's look at feedstocks on slide 12 and 13, because fuel production was essentially flat year-over-year, so feedstock usage. Feedstock production costs were up around 1% however, due to lingering higher prices in certain feedstocks as the world continued to adjust to the pandemic. Notably used cooking oil is more expensive in the quarter, as supply remains constrained with restaurant closures still prevalent. In response, we use their feedback flexibility and optimization efforts to ship them on feedstocks. For example, soybean oil prices were down. So we increased our usage that significantly.

As we often emphasize these types of flexibility as an incredibly important advantage for us. When you look at the actions we took in the quarter, you can see our margin optimization strategy in action. On the sales side, we directed product to the highest margin market and on the production side, we shifted between feedstocks based on supply and price. This quarter, we did take an impairment charge for equipment we initially planned to use a Geismar for a small renewable diesel production expansion project. Since that time, we've been able to increase our production capacity organically without major capital expenditures. And we're now playing a much larger 250 million gallon expansion to the plant, with this new design that equipment is no longer needed and was written off. Now on to SG&A. SG&A as a percentage of revenue was 5% compared to 4% last year. The increase versus last year was driven primarily by bonus accruals. We did not have those accruals last year given the low profitability prior to the biodiesel tax credit reinstatement. Looking at the bottom line, adjusted EBITDA exceeded our guidance due to ongoing strong performance and incremental risk management gains. We're very pleased with this performance considering the challenging economic environment we are also operating within. To smooth out quarterly volatility, we tracked trailing 12 months figures.

Slide 21 shows trailing 12 months adjusted EBITDA and slide 22 shows trailing 12 months return on invested capital, which was an excess of 17%. Now let's turn to the balance sheet shown on slide 23 and discuss our capital allocation strategy. The balance sheet remains strong. We have $286 million in marketable securities, with $100 million of those classified as long-term. Our multi-quarter debt reduction program has resulted as planned in a low leverage ratio and a net cash position as we consider the necessary financing to the deployment Geismar expansion. Slide 24 reflects our strong liquidity and capital position, which provides us with many options as we finalize our financing strategy. On that subject, we have a combination of opportunities and operational needs that compete for capital. Obviously, renewable diesel is attractive and the planned Geismar expansion is at the top of the list. Sharing convertible bond repurchases have also been a high return option opportunistically over the years. Finally, our biodiesel fleet optimization opportunities are attractive and delivering returns.

As a reminder, our target for growth and capital projects is a 20% internal rate of return for the project and an overall 15% return on invested capital for the company. In the third quarter, our capital expenditure investment was $16 million. We also use $18 million to repurchase convertible bonds early in the quarter. And we now have $91 million of repurchase authorization remaining following that repurchase.

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

Cynthia (CJ) Warner -- President and Chief Executive Officer

Thanks, Chad. Turning now to the fourth quarter guidance. With the COVID pandemic continuing and looking to our neighbors in Europe, as well as the current statistics in the United States, we must be mindful that a second wave is possible in the winter months. Keeping that in mind without dwelling on it, we are once again taking into account both potential positive and negative market forces as we formulate our outlook. As you can see on slide 25, on the positive side potential factors include that the diesel inventory situation will continue to improve renewable diesel and biodiesel demand will remain relatively robust. Choice white grease availability and pricing will remain attractive and public support for cleaner fuel solutions with low carbon intensity will continue to broad. On the downside, potential developments factors include that low crude prices appear to be with us for a while depressing diesel prices. Both distillers' corn oil and vegetable oil prices are rising and both of those are putting our margins under ongoing pressure. So as mentioned above, there is also a potential resurgence of COVID-19. Note that we have not factored a major market disruption into our guidance.

With all that in mind, as shown on slide 26 for fourth quarter we expect gallon sold to be in the range of 150 to 170 million. We expect adjusted EBITDA in the range of $30 million to $45 million. For the full year, we expect gallon sold to be in the range of 650 to 670 million gallons produced in the range of 505 to 525 million and adjusted EBITDA in the range of $187 million to $202 million. Of course, any change to ULSD prices, margins RINs, LCSF credit values or a level of market volatility through the end of the quarter could affect actual results. Shipment timing could also affect timing of revenue recognition. Note that this fourth quarter guidance included $1.5 million of risk management gain. We remain optimistic and closing out 2020. And we will continue to focus on underlying performance, optimization, shareholder value and implementation of our strategy.

And now I'd like to turn the call over to the operator for the Q&A segment of our calls, Eric.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question comes from the line of Manav Gupta with Credit Suisse. Please go ahead.

Manav Gupta -- Credit Suisse -- Analyst

Hey, CJ, Todd and team. Just quickly referring back to slide 13. In 2Q, obviously, the restaurants are closed, a lot of ethanol facilities were closed. So you were running a much heavier soybean slate. Now it looks like the distiller corn oil has made its way back into your feed slate, use CO is looking a little better and soybean has shrunk a little. As you look toward 4Q, what's the supply situation looking and also what we are seeing is there's a little bit of a compression in spread between soybean and some of these lower CI feedstocks. So would it still make sense to move around soybean, like which way would -- how should we think about 4Q as relates to your feedstock mix.

Cynthia (CJ) Warner -- President and Chief Executive Officer

Yes. Thanks, Manav. It's good to hear from you. What we are seeing is, the need to optimize not just price differential, but of course, the types of yield and as well as the CI potential of each of the different feeds. So we have a pretty sophisticated optimization system that we utilize. We are seeing, as I mentioned, we're getting a return of supply back, but you do see some pretty big pricing differentials as there's various market dynamics going on. So we are actually continuing to look at things like choice white grease, as well as soybean oil a little bit more heavily than some of the others. But our procurement team is active and out in the market all the time. So it's a little bit difficult to say how the whole thing's going to workout, as you look out in the further months away. Chad, anything you want to add to that?

Manav Gupta -- Credit Suisse -- Analyst

Thank you.

Chad Stone -- Chief Financial Officer

No, I would just reinforced that, for the most part, I think, in the second quarter we saw the extreme movement toward soybean oil away from what we traditionally emphasize and kind of a returning to normalcy like CJ said in the third quarter, but not quite all there yet. Certainly saw the ethanol plants come back online in force versus second quarter, for sure. And then, we did see both some restaurants openings, making UCO a little bit more available, and then some closures after that causing it to be a bit tight. So we still watch that everyday as we're in the feedstock markets for sure.

Manav Gupta -- Credit Suisse -- Analyst

Thank you for taking my question.

Chad Stone -- Chief Financial Officer

Thank you, Manav.

Operator

Thank you. Our next question comes from the line of Craig Irwin with ROTH Capital Partners. Please go ahead.

Craig Irwin -- ROTH Capital Partners -- Analyst

Good evening and thanks for taking my question. So congrats on the EBITDA, both the top end of your guidance range, it's nice to see performance there. Can you maybe talk a little bit about the $9 million delta you mentioned during the call, delta on risk management? How much of the strength really came from that, versus RINs and other factors in the quarter? And then, as we look at the fourth quarter guidance $30 million to $45 million in EBITDA, how much of that is actually been pulled out from risk management, from us having a stronger third quarter than you expected? And are there any other factors other than typical seasonality or maybe feed stock price compression that might be causing this guidance slightly lower than that, than where you executed to in the third quarter?

Chad Stone -- Chief Financial Officer

Yes, Craig. Thanks for your question. It's Chad. To the question on risk management, I would say, for the third quarter, we were coming in with improved RIN prices and good operational performance, right at the top end of our $50 million of guidance, and then that risk management put us over the top. And that was really a reflection of the reducing ULSD price throughout the quarter. The point of the $9 million was to just reflect that, based on what we gave you guidance on. It was $9 million higher risk management gains. And when we give you the forecast and that was -- we were operating at the top of guidance, and that pushed us over the top. So still strong performance. But that was the differential there.

And then CJ's -- in the guidance section for risk management, in the forecast that we've given, we've included $1.5 million of known risk management as of basically last week or October 26 I think was that measurement date when we levelized all the commodity prices. So the other point, though, was rims did improve during the quarter, we've seen indoor strengthening in response to the tightening of the HOBO spread. And you can see that a little bit on slide 11.

Cynthia (CJ) Warner -- President and Chief Executive Officer

Craig, this is CJ. I'll just add that for fourth quarter, we are watching margins pretty closely. It is seasonal, but it's getting tight. So that's behind our guidance. And in terms of the beat for third quarter yes, there was a factor for risk management, but we're also seeing some of our margin expansion in the approach we're taking in the downstream coming through which we're pleased to see.

Craig Irwin -- ROTH Capital Partners -- Analyst

Great. And then my second question is kind of a big -- big picture question. So yeah, there's a lot a lot of companies out there making announcements out that they're going to be involved in renewable diesel. Most of the oil companies that have never bought feedstock before or have no idea or no budget actually in their announcements for pretreatment, they think they can actually buy feedstock pretreated somewhere. There's an appetite on the part of investors to see REGI maybe do more than one plant, see if you can pick up you know, a couple more. Can you maybe update us on the essential for debt financing at Geismar? And what you expect as far as financial flexibility as you move through the capex schedule there before it comes online? And how that could potentially free you up for additional plants if that makes sense for you?

Cynthia (CJ) Warner -- President and Chief Executive Officer

So, Craig, I'll a great start. And we'll let our CFO opine as well, such as financing strategy. But keep in mind that, our dump steam strategy is enabling us to start expanding our EBITDA. And then we're very much focusing on that, because that's nearer term. And we will be continuing to do that between now and when Geismar actually comes up. And that's going to help us continue to fuel our growth. So if we think about our strategic approach, from a big picture standpoint, I think that's your answers. And rest assured that Chad's working some great options for financing.

Chad Stone -- Chief Financial Officer

You know, we are considering all options for financing of course, Craig and, you can see on the balance sheet really strong balance sheet with nearly $100 million in cash, $285 million, $286 million invested in. So you already have a pretty nice down payment for the existing project with financing alternatives available, as well as, a historical track record of really strong cash flows generation, as well as retention of that cash flow generation in terms of, we don't generally -- we don't generally have a really high otherwise capital expenditure portfolio. Of course, this is a really big project, but there's not a huge call from that perspective in we've got a really attractive tax profile. That that helps us retain a lot more of the cash.

Craig Irwin -- ROTH Capital Partners -- Analyst

Great. Understand. Congrats on the really strong quarter. And I'll hop back in the queue.

Cynthia (CJ) Warner -- President and Chief Executive Officer

Thanks, Craig.

Chad Stone -- Chief Financial Officer

Thanks, Craig.

Operator

Our next question comes from the line of Greg Wasikowski with Webber Research, Please go ahead.

Greg Wasikowski -- Webber Research -- Analyst

Hey, good afternoon, everyone. How are you?

Cynthia (CJ) Warner -- President and Chief Executive Officer

Great.

Chad Stone -- Chief Financial Officer

Good. How are you?

Greg Wasikowski -- Webber Research -- Analyst

Doing well. Thanks for taking our questions. I'm going to start with Geismar, construction set to begin, I guess, like mid to late next year? I'm just curious what's left to do there? And then considering the benefit and progress that you guys had from the P66 venture out? How much is that benefiting that timeline?

Cynthia (CJ) Warner -- President and Chief Executive Officer

Yeah. So we were able to take our IOCL engineering and just continue to progress it without really missing a beat from that project. So that has probably accelerated by a year where we might have been otherwise. Engineering is largely complete on ISPO [Phonetic], we have some OSPL engineering, we're still doing only because we were working on all our easements and service, so that we knew exactly what we were engineering. But everything's progressing to schedule to enable us to get to that mid to late 2023 completion time.

Greg Wasikowski -- Webber Research -- Analyst

Okay, great. And then along those lines, in terms of milestones, I know, you guys have been asked this in the past, but are there any, like tangible milestones that you could give us either in the near-term, or over the course of the next three to four years, either on the regulatory side or construction? I mean, the logical next step is to kind of look at comparable facilities and kind of extrapolate that for ourselves. But, it'd be nice to see if you anticipate that if you're processing materially different than others, or any specific milestones that you guys might have?

Cynthia (CJ) Warner -- President and Chief Executive Officer

Yeah. So, I think that you can think of in the very near-term, one would be long lead order items. And we've actually placed those already. So that gives you a sense of momentum of the heavy capital items in actual final investment decision, which is more of a reflection of engineering completion than anything we would consider to be in the early part of next year. So we'll be sharing that milestone with everyone as we pass it.

Greg Wasikowski -- Webber Research -- Analyst

Okay, very helpful. Thanks again for your time everyone.

Cynthia (CJ) Warner -- President and Chief Executive Officer

Yeah. Thank you, Greg.

Operator

Thank you. Our next question comes from the line of Jordan Levy with Truist. Please go ahead.

Jordan Levy -- Truist -- Analyst

Afternoon, CJ, Chad. Just wanted to get a sense on, I know you've got a lot of questions on feedstock, as it relates to the aggregator side of that market for low carbon feedstock. Are you seeing that that market and knowing there's a lot of different moving pieces within that, are you seeing any development in that market, as a lot of renewable diesel capacity gets announced from yourselves and your peers?

Cynthia (CJ) Warner -- President and Chief Executive Officer

Well, we certainly see activity starting to show up. I do think that for the newer entrants, so more challenging lower CI feeds are simply just either not getting touched just yet, or it's harder either to get into the market or to understand what the quality differentials are by the different suppliers, etc. So you're seeing a little bit of activity there, as well as some lots and lots of questions. So it'll -- I think it'll be developing as we go. But I do think that new entrants are starting to realize that it is more challenging than it might appear at face value. And there are a tremendous number of nuances.

Jordan Levy -- Truist -- Analyst

Great. Thank you. And then my second question is this, just hoping to get a sense of, if there were any changes in end market for renewable diesel, diesel versus last quarter, there's three main buckets for renewable diesel last quarter?

Cynthia (CJ) Warner -- President and Chief Executive Officer

Actually we're seeing -- what's interesting is we're seeing pretty flat demand even when the overall fuel demand has come down, which means that the blend level and inclusion blend of biodiesel and renewable diesel has been growing up. So I think that's probably the biggest trend that we're seeing. And that's happening in multiple regions. Obviously it's happening a lot in California. It's driven by the LCFS in Oregon as well. We're seeing it in several other markets, so as that blend will continues to rise.

Jordan Levy -- Truist -- Analyst

Great, thanks so much.

Chad Stone -- Chief Financial Officer

Thanks, Jordan.

Jordan Levy -- Truist -- Analyst

All right.

Operator

Okay. Thank you. Our next question comes from the line of Ryan Todd with Simmons Energy. Please go ahead.

Ryan Todd -- Simmons Energy -- Analyst

Thanks. On slide 16, you saw a nice jump in third quarter and blends of biodiesel and the renewable diesel. Can you maybe talked about the driver of the sequential increase there? Was there -- how we should think about the pace of that growth going forward? Is -- are the availability a limiting factor? And maybe thoughts on where that number could go over the next 12 to 24 months in terms of percentage of the broader sales?

Cynthia (CJ) Warner -- President and Chief Executive Officer

So, thanks for noticing that we're pretty excited about it. And the year-on-year increases are substantial. And we plan to continue that sort of rate up pace. It's really tremendous. We're getting a lot of good customer enthusiasm about it. And the big uptick is, largely what you're seeing is our Henderson taking place. So we're very excited about that deal and very encouraged by the initial volume uptick. We've got other plans in the mix. So I encourage you to watch this page. And we'll plan to continue talking about it as they develop.

Ryan Todd -- Simmons Energy -- Analyst

Sure. Thanks. And maybe, turning into the feedstock for one follow-up question on some of the earlier ones. As we think about the Geismar expansion, you guys are obviously, know that market down there very well. As you think about feedstock availability, and I'm sure, you've obviously done tons of work on this as you thought about improving the expansion. But in terms of the availability to low feedstocks down there in the market, do you anticipate that coming from -- primarily from increased aggregation of feed here in the US is increasingly to be come from international sources or from different types of feeds from what you've historically run. Maybe any thoughts around the confidence of your ability to continue to source most feedstocks for the expansion there?

Cynthia (CJ) Warner -- President and Chief Executive Officer

Sure. Well, I think one of the advantages of expanding an existing site is that we've got some pretty good familiarity of sourcing options available to us. And you're right, especially because we have water access with attractive logistics, we can source from pretty much anywhere and we already do. And that gives us a wonderful line of sight to the expansion options that were already starting to work to enable us to see where we're going to go to for that 2023 start-up.

Ryan Todd -- Simmons Energy -- Analyst

How much of the feed right now comes from waterborne versus domestic, or not waterborne, I guess.

Cynthia (CJ) Warner -- President and Chief Executive Officer

Well, and just thinking from an international standpoint, at any given time, I definitely get back to you to give you an exact percentage. And I know that it moves around quite a bit from quarter-to-quarter. But there are times in particular where we put a pretty substantial weight on securing international sources. It really, you know, it's a very, we do optimize really flexibly, that's one of the things we like to emphasize for you is that, as the market moves around, we're capable of moving pretty quickly. And there have been some really good opportunities that we can take because of that. So the arbitrage between domestic and international is very much part of that as well as the arbitrage between the low CI fees and some of the higher CI fees because the margins between them move around quite substantially.

Ryan Todd -- Simmons Energy -- Analyst

Thanks CJ.

Operator

All right. Thank you. Our next question comes from the line of Sameer Joshi with H.C. Wainwright. Please go ahead.

Sameer Joshi -- H.C -- Analyst

Thanks. Thanks for taking my question. Most of the questions have been answered though. But on the macro level CJ I think you've commented that you saw increased demand in Europe during quarter, as people used -- rolled more than air travel, do you expect or are you seeing something like that for this holidays in the U.S.?

Cynthia (CJ) Warner -- President and Chief Executive Officer

Well, U.S. a little different. Well, they are quite different than the U.S. just from a regulatory regime. So that's a little bit of what you're seeing, especially one of the things we pointed out was the pricing, which is very interesting. So their regulations are changing dynamically. And there's a really good pool for biodiesel that comes from waste feedstocks, which is the type of biodiesel that we produce over there. And they have a pretty strong tariff structure as well. So they internally produce material is definitely incentivized versus anything that can be imported, quite difficult and costly to import there. So it's a kind of a special and unique market. In terms of U.S. base demand, we are seeing, as I mentioned, sort of a differential demand between the biowaste diesel and the petroleum. And that's where the blending levels coming up. But overall, in the U.S., the total fuel demand is definitely down year-on-year.

Sameer Joshi -- H.C -- Analyst

Okay. Thank you.

Cynthia (CJ) Warner -- President and Chief Executive Officer

A lot between second quarter and third quarter. So you know, it's starting to finish off the year a lot -- in a lot better shape. So the numbers that I quoted you earlier on year-to-date are probably only half of the demand instruction that we would have been talking about in second quarter. So it's getting better, but it hasn't bounced back, like you saw in Europe through 2019.

Sameer Joshi -- H.C -- Analyst

Understood, and just one more, I think to poured that, just partially to previous questioners answer that in terms of the downstream strategy, you are seeing that nice, slide 16, I think demand that -- so are you planning more stations, more push out of that strategy quicker than planned?

Cynthia (CJ) Warner -- President and Chief Executive Officer

We absolutely are. And so not necessarily at liberty to explain exactly what but some will continue to work in it's very much part of our downstream strategy. And we're extremely encouraged by what we're seeing.

Sameer Joshi -- H.C -- Analyst

Okay. Thanks for taking my question.

Chad Stone -- Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Hamed Khorsand with BWS Financial. Please go ahead.

Hamed Khorsand -- BWS Financial -- Analyst

Hi, could you just talk about the sales in the premium markets, the decline sequentially and was there seasonally a pretty good sales timeframe? And is there -- really competitive reasons that you are diverting away from the premium markets this past quarter?

Cynthia (CJ) Warner -- President and Chief Executive Officer

You know -- thanks, Hamed. Good observation on your part. It's very much part of the overall optimization. So if you think about premium markets are partly premium, but because they reward differentially for the carbon intensity differential and availability of feeds and the margins between them went absolutely haywire. And so as we optimize in many cases with the feeds that we did procure it -- we were actually able to get a better net back by not going to those premium markets and spending the extra -- additional logistics money and instead of going to other incentivized markets. So it really is just purely on optimization, and I would say in normal times, premium always wins out. But in volatile times, you have to be flexible in your thinking.

Hamed Khorsand -- BWS Financial -- Analyst

Okay. And then what is the traction that you're seeing as far as selling direct? How will that work out? And as far as the mix is concerned, will you just divert more to direct versus other markets?

Cynthia (CJ) Warner -- President and Chief Executive Officer

Well, I think it's probably a combination of the two. So there is a little bit of trading that we're doing by identifying the channels we prefer and preferentially directing our volume that way. And as we grow, we'll be taking advantage of a variety of channels. So to answer your question directly, it's going to be a little bit of a mix of the two.

Hamed Khorsand -- BWS Financial -- Analyst

Okay. Thank you.

Operator

Thank you. Our next question is a follow-up from the line of Craig Irwin with ROTH Capital Partners. Please go ahead.

Craig Irwin -- ROTH Capital Partners -- Analyst

Thanks for taking the follow-up question. So CJ, deep there -- there is a lot of people, particularly European investors they are asking about renewable Jet. You know, one of your competitors out there that makes a different flavor of RHD, talks about renewable Jet a lot. Can you maybe discuss the channel dynamics here in the United States? Why this hasn't been a focus over the last few years? With your successful sales volumes increasing into Norway, is this something where, you know, you would consider this? And what kind of investments would it take for Geismar to divert increasing volumes to renewable jet opportunities that's emerging?

Cynthia (CJ) Warner -- President and Chief Executive Officer

Yeah, it's a wonderful opportunity emerging, if you're in the RHD market, because there is not a substantial investment required to produce renewable jet from your RHD process or at least our proprietary process, we can -- with the minor finishing. So it's we're watching it closely. We've used our equipment to prove that we can make it. It hasn't been -- it hasn't come into solution, let's say for us from an optimization standpoint yet, but we're watching it closely. And the great thing about it is as you see that market developing, it's just another element of the increased demand that we're seeing in the poll for the products that we're making. So we're really pleased to see it. We're monitoring it closely. And when the market signals get to the point where those price signals are more attractive than the ones we're able to meet now, we'll definitely be players in that market.

Craig Irwin -- ROTH Capital Partners -- Analyst

Great. Thanks for the update.

Operator

All right. Thank you. And CJ, we have no further questions from the phones at this time. I'll turn the call back to you.

Cynthia (CJ) Warner -- President and Chief Executive Officer

All right. Thank you, Eric. And thanks for all the great questions. I'll make some closing remarks now. And then we'll have Todd announce the next investor event. So to conclude, we believe that REG making a difference for our planet, our customers, our stakeholders and our shareholders. And we will continue to do so in the years ahead. We believe that demand for Clean Fuels continued, demand for great ESG investment continues, and demand for solutions now continue. We offer up fuel today at scale and enable our customers to substantially reduce carbon emissions with no capital costs, and no performance compromised. We provide the best solution today for reducing transportation carbon emissions.

With this quarter, strong performance, expanding demand and a supportive regulatory environment we are well positioned to execute on our growth strategy. We optimize margins by focusing on higher margin products and selling into the most profitable markets. With our planned expansion at Geismar, we will grow renewable diesel production and thus balancing our product portfolio and accelerating our downstream strategy. That approach is designed to enhance margins and its gaining traction. Our partnership with Hunt & Sons is progressing and both REG Ultra Clean Volume and sales to end users are growing. Looking at our strong performance now even in the face of an extremely challenging year and the opportunities in front of us. We think you can agree that this is the right place and the right time for REG. And now before we close, Chad will announce our upcoming investor event for REG. Chad?

Chad Stone -- Chief Financial Officer

Thanks CJ. Please turn into slide 27. First, I want to say thanks to those who have participated in our virtual analyst and investor day earlier in October. For anyone who missed this, a replay is available on our IR section of our website under past events. We have one upcoming virtual investor conference scheduled in November, Baird 2020 Virtual Global Industrial Conference on November 12. Attendance at the conference is by invitation only for clients of Baird. Please contact Baird representative sales representative for secured meeting. Thank you all, again. This concludes the call. You may now disconnect.

Operator

[Operator Closing Remarks].

Duration: 50 minutes

Call participants:

Todd Robinson -- Investor Relations

Cynthia (CJ) Warner -- President and Chief Executive Officer

Chad Stone -- Chief Financial Officer

Manav Gupta -- Credit Suisse -- Analyst

Craig Irwin -- ROTH Capital Partners -- Analyst

Greg Wasikowski -- Webber Research -- Analyst

Jordan Levy -- Truist -- Analyst

Ryan Todd -- Simmons Energy -- Analyst

Sameer Joshi -- H.C -- Analyst

Hamed Khorsand -- BWS Financial -- Analyst

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