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Management's Discussion of Results of Operations (Excerpts)

For purposes of readability, Zenith attempts to strip out all tables in excerpts from the Management Discussion. That information is contained elsewhere in our articles. The idea of this summary is simply to review how well we believe Management does its reporting. Also, this highlights what Management believes is important.

In our Decision Matrix at the end of each article, a company with 0 to 2 gets a "-1", and 3 to 5 gets a "+1."

On a scale of 0 to 5, 5 being best, Zenith rates this company's Management's Discussion as a 5.


Overview

Our Company focuses on providing cleaner, lower carbon products and services. 
We utilize a nationwide production, distribution and logistics system as part 
of an integrated value chain model to focus on converting natural fats, oils 
and greases into advanced biofuels. We own and operate 14 biorefineries with 12 
locations in North America and two locations in Germany, which consist of 13 
biomass-based diesel plants (biodiesel and renewable hydrocarbon diesel), with 
aggregate nameplate production capacity of 502 gallons per year ("mmgy"), and 
one demonstration scale fermentation facility. We also have one feedstock 
processing facility in Germany. We are also engaged in research and development 
efforts focused on the conversion of diverse feedstocks into renewable 
chemicals and biobased products. We are a lower-cost biomass-based diesel 
producer. We primarily produce our biomass-based diesel from a wide variety of 
lower-cost feedstocks, including inedible corn oil, used cooking oil and 
inedible animal fat. We also produce biomass-based diesel from virgin vegetable 
oils, which are more widely available and tend to be higher in price. We 
believe our ability to process a wide variety of feedstocks provides us with a 
cost advantage over many biomass-based diesel producers, particularly those 
that rely primarily on higher cost virgin vegetable oils, such as soybean oil 
or canola oil. We expanded our business internationally by acquiring a majority 
interest in what is now known as REG Germany, GmbH, or REG Germany, in December 
2014. We continued to acquire additional shares throughout 2015 and 2016, and 
in January 2017, we acquired full equity ownership of REG Germany. REG Germany 
is a fully-integrated company that utilizes used cooking oil and other waste 
feedstocks to produce biomass-based diesel at its two biorefineries in Germany. 
The combined nameplate production capacity is approximately 50 mmgy. We sell 
petroleum-based heating oil and diesel fuel, which enables us to offer 
additional biofuel blends, while expanding our customer base. We sell heating 
oil and ultra-low sulfur diesel ("ULSD") at terminals throughout the 
northeastern U.S. as well as BioHeat® blended heating fuel at one of our 
existing Northeast terminal locations. In 2015, we expanded our sales of 
additional biofuel blends to Midwest terminal locations and look to potentially 
expand in other areas across North America. In January 2014, we acquired a 
development-stage industrial biotechnology business focusing on microbial 
fermentation to develop and produce renewable chemicals, fuels and other 
products. We acquired a 75 mmgy nameplate capacity renewable hydrocarbon diesel 
("RHD") biorefinery located in Geismar, Louisiana in June 2014. Our Geismar 
facility had been idled by its previous owner, began operating again by us in 
October 2014 and was shut down between April 2015 and early March 2016 due to 
two separate fires that occurred in April and September 2015. Our Geismar 
facility has been running at high utilization rates since early October 2016. 
In August 2015, we acquired our Grays Harbor facility, a 100 mmgy nameplate 
biodiesel plant and terminal at the Port of Grays Harbor, Washington. This 
acquisition expanded our production fleet to the west coast of the United 
States. The Grays Harbor location includes 18 million gallons of storage 
capacity and a terminal that can accommodate feedstock intake and fuel delivery 
on deep-water PANAMAX class vessels. It also possesses significant rail and 
truck transport capabilities. To date, the production facility's primary 
feedstock has been canola oil.

In March 2016, we acquired our 20 mmgy nameplate biodiesel refinery located in 
DeForest, Wisconsin, or REG Madison, which produces biodiesel from yellow 
grease, rendered animal fats, and inedible corn oil, and also produces refined 
vegetable oils using our patented technology currently in use at our Seneca, 
Illinois plant. The facility has both truck and rail capabilities. In June 
2017, we experienced a fire at our Madison facility, resulting in the shutdown 
of the facility. During the three and six months ended June 30, 2017, we sold 
160 million and 282 million total gallons of fuel, including 16 million and 30 
million gallons of biomass-based diesel that we purchased from third parties 
and resold, 10 million and 21 million biomass-based diesel gallons produced by 
REG Germany and 18 million and 40 million petroleum-based diesel gallons, 
respectively. During 2016, we sold 567 million total gallons, including 77 
million biomass-based gallons we purchased from third parties and resold, 45 
million biomass-based diesel gallons produced by REG Germany and 54 million 
petroleum-based diesel gallons.

Our businesses are organized into three reportable segments – the Biomass-based 
Diesel segment, the Services segment and the Renewable Chemicals segment.

Biomass-based Diesel Segment Our Biomass-based Diesel segment includes: • the 
operations of the following biomass-based diesel production facilities:

• a 12 mmgy nameplate biodiesel production facility located in Ralston, Iowa;

• a 35 mmgy nameplate biodiesel production facility located near Houston, 
Texas;

• a 45 mmgy nameplate biodiesel production facility located in Danville, 
Illinois;

• a 30 mmgy nameplate biodiesel production facility located in Newton, Iowa;

• a 60 mmgy nameplate biodiesel production facility located in Seneca, 
Illinois;

• a 30 mmgy nameplate biodiesel production facility located near Albert Lea, 
Minnesota;

• a 15 mmgy nameplate biodiesel production facility located in New Boston, 
Texas;

• a 30 mmgy nameplate biodiesel production facility located in Mason City, 
Iowa;

• a 75 mmgy nameplate RHD production facility located in Geismar, Louisiana;

• a 27 mmgy nameplate biodiesel production facility located in Emden, Germany;

• a 23 mmgy nameplate biodiesel production facility located in Oeding, Germany;

• a 100 mmgy nameplate biodiesel production facility located in Grays Harbor, 
Washington; and

• a 20 mmgy nameplate biodiesel production facility located in DeForest, 
Wisconsin.

• purchases and resales of biomass-based diesel, petroleum-based diesel, 
Renewable Identification Numbers ("RINs") and Low Carbon Fuel Standard credits, 
or LCFS credits, and raw material feedstocks acquired from third parties;

• sales of biomass-based diesel produced under toll manufacturing arrangements 
with third-party facilities using our feedstocks; and

• incentives received from federal and state programs for renewable fuels.


We derive a small portion of our revenues from the sale of glycerin, free fatty 
acids and other co-products of the biomass-based diesel production process. In 
2016 and for the three and six months ended June 30, 2017, our revenues from 
the sale of co-products were less than five percent of our total Biomass-based 
Diesel segment revenues. For the three and six months ended June 30, 2017, 
revenues from the sale of petroleum-based heating oil and diesel fuel acquired 
from third parties, along with the sale of these items further blended with 
biodiesel produced at wholly owned facilities or purchased from third parties, 
were approximately five percent and seven percent, respectively, of our total 
revenues. In accordance with EPA regulations, we generate 1.5 to 1.7 RINs for 
each gallon of biomass-based diesel we produce. RINs are used to track 
compliance with Renewable Fuel Standard 2, or RFS2, using the EPA moderated 
transaction system, or EMTS. RFS2 allows us to attach between zero and 2.5 RINs 
to any gallon of biomass-based diesel we sell. When we attach 1.5 to 2.5 RINs 
to a sale of biomass-based diesel gallons, a portion of our selling price for a 
gallon of biomass-based diesel is generally attributable to RFS2 compliance; 
however no cost is allocated to the RINs generated by our biomass-based diesel 
production as RINs are a form of government incentive and not a result of the 
physical attributes of the biomass-based diesel production. In addition, RINs, 
once obtained through the production and sales of gallons of biomass-based 
diesel, may be separated by the acquirer and sold separately. We regularly 
obtain RINs from third parties for resale, and the value of these RINs is 
reflected in “Prepaid expenses and other assets” on our Condensed Consolidated 
Balance Sheets. At each balance sheet date, this RIN inventory is valued at the 
lower of cost or net realizable value and any resulting adjustments are 
reflected in our cost of goods sold for the period. The cost of RINs obtained 
from third parties is determined using the average cost method. Because we do 
not allocate costs to RINs generated by our biomass-based diesel production, 
fluctuations in the value of our RIN inventory represent fluctuations in the 
value of RINs we have obtained from third parties. At June 30, 2017, we had 
approximately 60.0 million biomass-based diesel RINs and 1.4 million advanced 
biofuel RINs available to be sold, as compared to 16.8 million biomass-based 
diesel RINs and 0.2 million advanced biofuel RINs held for sale at December 31, 
2016, respectively. According to the Oil Pricing Information System ("OPIS"), 
the median closing price at June 30, 2017 was $1.11 and $1.09 per biomass-based 
diesel RIN and advanced biofuel RIN, respectively compared to $1.055 and $1.055 
at December 31, 2016, respectively, per biomass-based diesel RIN and advanced 
biofuel RIN, respectively. We generate Low Carbon fuel Standard ("LCFS") 
credits for our low carbon fuels or blendstocks when our qualified low carbon 
fuels are imported into California. LCFS credits are used to track compliance 
with California’s LCFS. As a result, a portion of the selling price for a 
gallon of biomass-based diesel sold into California is also attributable to 
LCFS compliance. Like RINs, LCFS credits that we generate are a form of 
government incentive and not a result of the physical attributes of the 
biomass-based diesel production. Therefore, no cost is allocated to the LCFS 
credit when it is generated, regardless of whether the LCFS credit is 
transferred with the biomass-based diesel produced or held by us. At June 30, 
2017, we held for sale approximately 13,000 LCFS credits, increasing from 5,000 
credits at December 31, 2016. According to OPIS, the median closing price at 
June 30, 2017 and December 31, 2016 was $78.00 and $93.00, respectively, per 
LCFS credit.

Services Segment

Our Services segment includes: • biomass-based diesel facility management and 
operational services, whereby we provide day-to-day management and operational 
services to biomass-based diesel production facilities; and

• construction management services, whereby we act as the construction 
management and general contractor for the construction of biomass-based diesel 
production facilities.

During recent years, we have utilized our construction management expertise 
internally to upgrade our facilities, such as our facilities located in Albert 
Lea, New Boston, Mason City and Newton. In October 2016, we completed a $34.5 
million upgrade to our Danville facility. In November 2016, we started a $24 
million expansion project at our Ralston facility. In June 2017, we completed 
the $20 million acquisition of approximately 82 acres of land at and in close 
proximity to our Geismar, Louisiana biorefinery from Lion Copolymer. The 
purchase includes the termination of a ground lease and acquires the land we 
previously leased for our Geismar operations, and approximately 61 additional 
acres in parcels adjacent to and near the facility. We plan to improve and 
utilize the new acreage to support existing production capacity and future 
expansion opportunities using the Services segment.

Renewable Chemicals Segment

Our Renewable Chemicals segment includes: • research and development activities 
focusing on microbial fermentation to develop and produce renewable chemicals, 
additional advanced biofuels and other biobased products;

• collaborative research and development and other service activities to 
continue to build out the technology platform; and

• the operations of a demonstration scale fermentation facility located in 
Okeechobee, Florida.

In January 2016, ExxonMobil Research and Engineering Company entered into an 
agreement with our subsidiary, REG Life Sciences, LLC ("REG Life Sciences"), to 
develop technology for the production of biodiesel by fermenting renewable 
cellulosic sugars from sources such as agricultural waste. In October 2016, REG 
Life Sciences sold and delivered its first commercial product, a specialty 
fatty acid. REG Life Sciences developed, produced, sold and delivered 
approximately one metric ton of the renewable, multi-functional chemical to 
Aroma Chemical Services International. Fatty acids is one of three product 
areas REG Life Sciences has focused on, along with esters and alcohols. In 
November 2016, the Company's Board of Directors authorized a review of 
strategic alternatives for REG Life Sciences. There can be no assurance that 
this ongoing strategic review will result in any specific action or transaction 
or that any action taken or transaction we may enter into will prove to be 
beneficial to stockholders. Factors Influencing Our Results of Operations The 
principal factors affecting our operations are the market prices for 
biomass-based diesel and the feedstocks used to produce biomass-based diesel, 
as well as governmental programs designed to create incentives or requirements 
for the production and use of biomass-based diesel.

Governmental programs favoring biomass-based diesel production and use 
Biomass-based diesel has historically been more expensive than petroleum-based 
diesel, when excluding the value of biomass-based diesel incentives and 
credits. The biomass-based diesel industry’s growth has largely been the result 
of federal and state programs that require or incentivize biomass-based diesel, 
which allows biomass-based diesel to compete with petroleum-based diesel on 
price. On July 1, 2010, RFS2 was implemented, stipulating volume requirements 
for the amount of biomass-based diesel and other advanced biofuels that must be 
utilized in the United States each year. Under RFS2, Obligated Parties, 
including petroleum refiners and fuel importers, must show compliance with 
these standards. Currently, biodiesel and renewable hydrocarbon diesel RINs 
meet three categories of an Obligated Party’s annual renewable fuel required 
volume obligation, or RVO—biomass-based diesel, undifferentiated advanced 
biofuel and undifferentiated renewable fuel.

The federal biodiesel mixture excise tax credit, or the BTC, has historically 
provided a $1.00 refundable tax credit per gallon to the first blender of 
biomass-based diesel with petroleum-based diesel fuel. The BTC became effective 
January 1, 2005, but since January 1, 2010 it has lapsed and been reinstated a 
number of times. For example, the BTC lapsed on January 1, 2014 and was 
retroactively reinstated for 2014 on December 19, 2014 and lapsed again on 
January 1, 2015. On December 18, 2015, the Protecting Americans from Tax Hikes 
Act of 2015 was signed into law, which reinstated and extended a set of tax 
provisions, including the retroactive reinstatement for 2015 and extension for 
2016 of the BTC. The BTC again lapsed on January 1, 2017 and has not been 
reinstated as of the date of this report. During the six months ended June 30, 
2017, the Company recognized $26.7 million as BTC revenue out of the $26.9 
million deferred BTC revenue that was outstanding as of December 31, 2016. When 
the BTC has lapsed in the past, it has been reinstated by Congress. As a result 
of this history of retroactive reinstatement of the BTC, we and many other 
biomass-based diesel industry producers have adopted contractual arrangements 
with customers and vendors specifying the allocation and sharing of any 
retroactively reinstated incentive. As of June 30, 2017, we estimate that if 
the BTC is reinstated on the same terms as in 2016, our net income and Adjusted 
EBITDA for the quarter and year to date ended June 30, 2017 will increase by 
approximately $58 million and $98 million, respectively. It is uncertain 
whether the BTC will be reinstated and if reinstated, whether it would be 
reinstated retroactively or on the same terms. The modification or failure to 
reinstate the BTC would adversely affect our future financial results. 
Biomass-based diesel and feedstock price fluctuations Our operating results 
generally reflect the relationship between the price of biomass-based diesel, 
including credits and incentives, and the price of feedstocks used to produce 
biomass-based diesel. Biomass-based diesel is a low carbon, renewable 
alternative to petroleum-based diesel fuel and is primarily sold to the end 
user after it has been blended with petroleum-based diesel fuel. Biomass-based 
diesel prices have historically been heavily influenced by petroleum-based 
diesel fuel prices. Accordingly, biomass-based diesel prices have generally 
been impacted by the same factors that affect petroleum prices, such as crude 
oil supply and demand balance, worldwide economic conditions, wars and other 
political events, OPEC production quotas, changes in refining capacity and 
natural disasters.

Regulatory and legislative factors also influence the price of biomass-based 
diesel. Biomass-based diesel RIN pricing, a value component that was introduced 
via RFS2 in July 2010, has had a significant impact on biomass-based diesel 
pricing. The following table shows for 2014, 2015, 2016 and the first half of 
2017 the high and low average monthly contributory value of RINs, as reported 
by OPIS to the average B100 spot price of a gallon of biodiesel, as reported by 
The Jacobsen in terms of dollars per gallon.

Value of RINs acquired from third parties and held in inventory remained fairly 
stable in the first half of 2017 and resulted in a $0.4 million write-down to 
lower of cost or net realizable value for the first six months of 2017. At June 
30, 2017, the write-down to lower of cost or net realizable value of RINs was 
$0.2 million. See “Note 5 – Other Assets” to our Condensed Consolidated 
Financial Statements. We enter into forward contracts to sell RINs and we use 
risk management position limits to manage RIN exposure. During 2016, feedstock 
expense accounted for 78% of our production cost, while methanol and chemical 
catalysts expense accounted for 5% and 3% of our costs of goods sold, 
respectively. Feedstocks for biomass-based diesel production, such as inedible 
corn oil, used cooking oil, inedible animal fat, canola oil and soybean oil are 
commodities and market prices for them will be affected by a wide range of 
factors unrelated to the price of biomass-based diesel and petroleum-based 
diesel fuels.

During 2016, 72% of our feedstocks were comprised of inedible corn oil, used 
cooking oil and inedible animal fats with the remainder coming from refined 
vegetable oils. The graph below illustrates the spread between the cost of 
producing one gallon of biodiesel made from soybean oil to the cost of 
producing one gallon of biodiesel made from a lower-cost feedstock from January 
2013 to June 30, 2017. The results were derived using assumed conversion 
factors for the yield of each feedstock and subtracting the cost of producing 
one gallon of biodiesel made from each respective lower-cost feedstock from the 
cost of producing one gallon of biodiesel made from soybean oil.

(1) Used cooking oil prices are based on the monthly average of the daily low 
sales price of Missouri River yellow grease as reported by The Jacobsen (based 
on 8.5 pounds per gallon).

(2) Inedible corn oil prices are reported as the monthly average of the daily 
distillers’ corn oil market values delivered to Illinois as reported by The 
Jacobsen (based on 8.2 pounds per gallon).

(3) Choice white grease prices are based on the monthly average of the daily 
low prices of Missouri River choice white grease as reported by The Jacobsen 
(based on 8.0 pounds per gallon).

(4) Soybean oil (crude) prices are based on the monthly average of the daily 
closing sale price of the nearby soybean oil contract as reported by CBOT 
(based on 7.5 pounds per gallon).

Historically, our results of operations generally benefit when the spread 
between biomass-based diesel prices and feedstock prices widens and will be 
harmed when this spread narrows. The following graph shows feedstock cost data 
for choice white grease and soybean oil on a per gallon basis compared to the 
per gallon sale price data for biodiesel, and the spread between biodiesel and 
each of soybean oil and choice white grease, from January 2013 to June 30, 
2017.

During the second quarter of 2017, NY Harbor ULSD prices ranged from a high of 
$1.6506 per gallon in April to a low of $1.3648 per gallon in June with the 
average price for the quarter of $1.5062 per gallon. Energy prices were range 
bound throughout second quarter 2017. European UCOME prices remained relatively 
flat for second quarter 2017 as demand was impacted by biodiesel imports from 
China and Southeast Asia. Feedstock supplies were larger than prior year, which 
were offset by strong demand that drove pricing higher. More recent soybean oil 
prices have been trending higher due to declines in soybean crop conditions 
caused from hot and dry weather patterns across major growing regions in the 
Midwest. The soybean oil price increase has been limited by a larger current 
inventory of soybeans and increasing palm oil production in Southeast Asia. 
Relatively low priced feed cost along with continued strong demand for pork and 
beef has continued to lead to expansions in the US hog and cattle industries. 
Both hog and cattle slaughter numbers in the second quarter of 2017 were again 
higher than the prior year. In March 2017, the National Biodiesel Fair Trade 
Coalition ("Coalition") filed an antidumping and countervailing duty petition 
with the U.S. Department of Commerce and the U.S. International Trade 
Commission ("ITC"), arguing that Argentine and Indonesian companies were 
violating trade laws by flooding the U.S. market with dumped and subsidized 
biodiesel. The Coalition is made up of the National Biodiesel Board and U.S. 
biodiesel producers. On May 5, 2017, the ITC agreed to proceed with an 
investigation regarding this matter. In relation to this antidumping and 
countervailing duty petition, the Coalition filed a new allegation in July 2017 
that "critical circumstances" exist with respects to imports of biodiesel from 
Argentina. The critical circumstance provision in antidumping and 
countervailing duties laws allows for the imposition of duties on imports that 
enter the U.S. prior to preliminary determinations of subsidization and 
dumping. The Coalition found that imports of biodiesel from Argentina jumped 
144.5 percent since the March 2017 petition was filed.

Risk Management The profitability of producing biomass-based diesel largely 
depends on the spread between prices for feedstocks and biomass-based diesel, 
including incentives, each of which is subject to fluctuations due to market 
factors and each of which is not significantly correlated. Adverse price 
movements for these commodities directly affect our operating results. We 
attempt to protect cash margins for our own production and our third-party 
trading activity by entering into risk management contracts that mitigate the 
impact on our margins from price volatility in feedstocks and biomass-based 
diesel. We create offsetting positions by using a combination of forward 
fixed-price physical purchases and sales contracts on feedstock and 
biomass-based diesel, including risk management futures contracts, swaps and 
options primarily on the New York Mercantile Exchange NY Harbor ULSD and CBOT 
Soybean Oil; however, the extent to which we engage in risk management 
activities varies substantially from time to time, and from feedstock to 
feedstock, depending on market conditions and other factors. In making risk 
management decisions, we utilize research conducted by outside firms to provide 
additional market information in addition to our internal research and 
analysis. Inedible corn oil, used cooking oil, inedible animal fat, canola oil 
and soybean oil were the primary feedstocks we used to produce biomass-based 
diesel in 2016 and the first six months of 2017. We utilize several varieties 
of inedible animal fat, such as beef tallow, choice white grease and poultry 
fat derived from livestock. There is no established futures market for these 
lower-cost feedstocks. The purchase prices for lower-cost feedstocks are 
generally set on a negotiated flat price basis or spread to a prevailing market 
price reported by the USDA price sheet or The Jacobsen. Our efforts to risk 
manage against changing prices for inedible corn oil, used cooking oil and 
inedible animal fat have involved entering into futures contracts, swaps or 
options on other commodity products, such as CBOT Soybean Oil and New York 
Mercantile Exchange NY Harbor ULSD. However, these products do not always 
experience the same price movements as lower-cost feedstocks, making risk 
management for these feedstocks challenging. We manage feedstock supply risks 
related to biomass-based diesel production in a number of ways, including, 
where available, through long-term supply contracts. The purchase price for 
soybean oil under these contracts may be indexed to prevailing CBOT soybean oil 
market prices with a negotiated market basis. We utilize futures contracts, 
swaps and options to risk manage, or lock in, the cost of portions of our 
future feedstock requirements generally for varying periods up to one year. Our 
ability to mitigate our risk of falling biomass-based diesel prices is limited. 
We have entered into forward contracts to supply biomass-based diesel. However, 
pricing under these forward sales contracts generally has been indexed to 
prevailing market prices, as fixed price contracts for long periods on 
acceptable terms have generally not been available. There is no established 
market for biomass-based diesel futures in the United States. Our efforts to 
hedge against falling biomass-based diesel prices generally involve entering 
into futures contracts, swaps and options on other commodity products, such as 
diesel fuel and New York Mercantile Exchange NY Harbor ULSD. However, price 
movements on these products are not highly correlated to price movements of 
biomass-based diesel. We generate 1.5 to 1.7 biomass-based diesel RINs for each 
gallon of biomass-based diesel we produce and sell. We also obtain RINs from 
third-party transactions which we hold for resale. There is no established 
futures market for RINs, which severely limits the ability to risk manage the 
price of RINs. We enter into forward contracts to sell RINs, and we use risk 
management position limits to manage RIN exposure. As a result of our strategy, 
we frequently have gains or losses on derivative financial instruments that are 
conversely offset by losses or gains on forward fixed-price physical contracts 
on feedstocks and biomass-based diesel or inventories. Gains and losses on 
derivative financial instruments are recognized each period in operating 
results while corresponding gains and losses on physical contracts are 
generally not recognized until quantities are delivered or title transfers. Our 
results of operations are impacted when there is a period mismatch of 
recognized gains or losses associated with the change in fair value of 
derivative instruments used for risk management purposes at the end of the 
reporting period but the purchase or sale of feedstocks or biomass-based diesel 
has not yet occurred resulting in the offsetting gain or loss that will be 
recognized in a later accounting period. We recorded risk management gains of 
$9.8 million and $18.0 million from our derivative financial instrument 
activity for the three and six months ended June 30, 2017, respectively, 
compared to losses of $30.5 million and $34.8 million for the three and six 
months ended June 30, 2016, respectively. Changes in the value of these 
futures, swaps or options instruments are recognized in current income or loss.

Seasonality Our operating results are influenced by seasonal fluctuations in 
the demand for biodiesel. Our biodiesel sales tend to decrease during the 
winter season due to blending concentrations being reduced to adjust for 
performance during colder weather. Colder seasonal temperatures can cause the 
higher cloud point biodiesel we make from inedible animal fats to become cloudy 
and eventually gel at a higher temperature than petroleum-based diesel or lower 
cloud point biodiesel made from soybean oil, canola oil or inedible corn oil. 
Such gelling can lead to plugged fuel filters and other fuel handling and 
performance problems for customers and suppliers. Reduced demand in the winter 
for our higher cloud point biodiesel can result in excess supply of such higher 
cloud point biodiesel and lower prices for such biodiesel. In addition, most of 
our production facilities are located in colder Midwestern states in proximity 
to feedstock origination, and our costs of shipping can increase as more 
biodiesel is transported to warmer climate states during winter. To mitigate 
some of these seasonal fluctuations, we have upgraded our Newton and Danville 
biorefineries to produce distilled biodiesel from low-cost feedstocks, thus 
allowing the product to have improved cold-weather performance. RIN prices may 
also be subject to seasonal fluctuations. The RIN is dated for the calendar 
year in which it is generated, commonly referred to as the RIN vintage. Since 
20% of an Obligated Party's annual RVO can be satisfied by prior year RINs, 
most RINs must come from biofuel produced or imported during the RVO year. As a 
result, RIN prices can be expected to decrease as the calendar year progresses 
if the RIN market is oversupplied compared to that year's RVO and increase if 
it is undersupplied.

Industry capacity, production and imports Our operating results are influenced 
by our industry’s capacity and production, including in relation to RFS2 
production requirements. Under RFS2, Obligated Parties are entitled to satisfy 
up to 20% of their annual requirement with prior year RINs. Biomass-based 
diesel production and/or imports, as reported by EMTS, was 2.60 billion gallons 
for 2016, 790 million gallons higher than 2015. In the first half of 2017, 
according to EMTS data, 1.13 billion gallons of biomass-based diesel were 
produced and/or imported into the U.S., compared to the equivalent 1.07 billion 
gallons over the same period in 2016. During 2016 and 2015, the amount of 
imported biodiesel gallons qualifying under RFS2 in the D4 biomass-based diesel 
category increased from 334.2 million gallons in 2015 to approximately 692.9 
million gallons in 2016, according to the information from the EIA.


Results of Operations

Three and six months ended June 30, 2017 and 2016

Revenues. Our revenues decreased $23.2 million, or 4%, in the three months 
ended June 30, 2017, but increased $97.8 million, or 11%, for the six months 
ended June 30, 2017 as compared to the three and six months ended June 30, 
2016. The decrease in revenues for the second quarter was primarily due to 
lower average selling price, coupled with the impact of the lapse of the BTC on 
January 1, 2017 and higher imported gallons compared to the second quarter of 
2016. The absence of the BTC revenues resulted in a decrease of $86.3 million 
and $127.8 million, or 89% and 82%, respectively, in government incentive 
revenues in the three and six months ended June 30, 2017 compared to the same 
periods in 2016. The increase in revenues for the first half of 2017 was 
largely driven by an increase in total gallons sold compared to prior year, 
which resulted from an increase in RHD gallons sold and the impact of 
distillation upgrades completed in 2016 at the Danville, Illinois biorefinery.

Biomass-based diesel revenues including government incentives decreased $23.2 
million, or 4%, over the same quarter last year, but increased by $97.0 
million, or 11%, for the six months ended June 30, 2017. Gallons sold in the 
second and first half of 2017 increased by 10.1 million gallons and 34.3 
million gallons, or 7% and 14%, respectively. Our average B100 sales price per 
gallon decreased $0.41 and $0.21, or 13% and 7%, respectively, for the three 
and six months ended June 30, 2017, compared to $3.27 and $3.11 for the three 
and six months ended June 30, 2016, respectively. The fluctuations in average 
sales price contributed to a $61.5 million and $52.1 million decrease in 
revenues for the three months ended June 30, 2017, respectively, when applied 
to the number of gallons sold during the same periods of 2016. The increase in 
gallons sold for the three and six months ended June 30, 2017 accounted for a 
revenue increase of $28.9 million and $99.5 million, respectively for the three 
and six months ended June 30, 2017, using pricing for the same periods of 2016. 
Sales of separated RIN inventory were $67.3 million and $124.7 million for the 
three and six months ended June 30, 2017, respectively, as compared to $60.8 
million and $86.6 million for the three and six months ended June 30, 2016, 
respectively. Costs of goods sold. Our costs of goods sold decreased $28.4 
million, or 5% for the second quarter, but increased $92.7 million , or 11%, in 
the six month period. Costs of goods sold as a percentage of revenues were 94% 
and 95%, respectively, for the three and six months ended June 30, 2017 and 95% 
for both three and six months ended June 30, 2016. The slight decrease in cost 
of goods sold as a percentage of revenues during the three ended June 30, 2017 
was primarily due to feedstock prices trending lower. Biomass-based diesel 
costs of goods sold also increased in the three and six months ended June 30, 
2017 due to a 7% and 14% increase in gallons sold, respectively. Average prices 
for lower-cost feedstocks were $0.29 per pound for the three and six months 
ended June 30, 2017, as compared to $0.30 and $0.27 per pound for the three and 
six months ended June 30, 2016. Soybean oil costs were $0.31 and $0.32 per 
pound for the three and six months ended June 30, 2017, respectively, as 
compared to $0.33 per pound for the three and six months ended June 30, 2016. 
Canola oil costs were $0.33 and $0.34 per pound for the three and six months 
ended June 30, 2017, respectively, as compared to $0.33 per pound for the three 
and six months ended June 30, 2016. We recorded risk management gains of $9.8 
million and $18.0 million from our derivative financial instrument activity for 
the three and six months ended June 30, 2017, respectively, compared to risk 
management losses of $30.5 million and $34.8 million for the three and six 
months ended June 30, 2016, respectively. The fluctuation in risk management 
gains and losses was mainly due to price volatility in the energy markets. 
Costs of goods sold for separated RIN inventory sales were $33.9 million and 
$80.5 million for the three and six months ended June 30, 2017 and $61.2 
million and $87.7 million for the three and six months ended June 30, 2016, 
respectively. Lower of cost or net realizable value writedown on RINs was $0.3 
million and $0.4 million and $4.2 million and $4.4 million during the three and 
six months ended June 30, 2017 and June 30, 2016, respectively. Biomass-based 
diesel costs of goods sold for the three months ended June 30, 2017 also 
included a loss of $4.0 million as a result of the land purchase and lease 
termination transactions at our Geismar facility in June 2017.

Selling, general and administrative expenses. Our selling, general and 
administrative, or SG&A, expenses were $22.8 million and $45.7 million, or 4% 
and 5% of total revenue, for the three and six months ended June 30, 2017 and 
$20.9 million and $40.6 million, or 4% and 5% of total revenue, for the three 
and six months ended June 30, 2016, respectively. This represents an increase 
of $2.0 million and $5.1 million, or 9% and 13%, respectively, over the same 
respective periods of last year. The increase year over year was primarily due 
to increases in employee related expenses, such as payroll and stock 
compensation, associated with growth, international expansion and integration 
of our European operations. Research and development expense. Our research and 
development expenses were $3.2 million and $6.8 million for the three and six 
months ended June 30, 2017, compared to $4.4 million and $8.4 million for the 
three and six months ended June 30, 2016, respectively. The majority of the 
research and development expenses were related to activities of the Renewable 
Chemicals segment, which is seeking to bring industrial biotechnology products 
to market and drive growth.

Other income (expense), net. Other expense was $37.0 million and $42.6 million 
for the three and six months ended June 30, 2017 compared to other income of 
$9.4 million and $9.6 million for the same periods in 2016. Other income 
(expense) is primarily comprised of change in value of contingent 
consideration, change in fair value of convertible debt conversion liability, 
interest expense, interest income and the other non-operating items. Other 
income (expense), net for the three and six months ended June 30, 2016 also 
included a gain on involuntary conversion, which represented the amount of 
insurance proceeds in excess of the net book value of the property damage 
recorded by us related to the April 2015 fire at our Geismar facility. Our 
insurance policies cover replacement costs incurred to replace the property 
damaged by the fire.

Income tax expense. We recognized an income tax expense of $2.0 million and 
$3.0 million for the three and six months ended June 30, 2017 as compared to 
tax expense of $1.3 million and $2.0 million for the same periods in 2016. Our 
tax provision for interim periods is determined using an estimate of our annual 
effective tax rate, adjusted for discrete items arising in that quarter. Our 
effective tax rate differs from the statutory tax rate primarily due to the 
fact that we have a valuation allowance on our domestic deferred tax assets and 
most of our foreign deferred tax assets.

Adjusted EBITDA We use earnings before interest, taxes, depreciation and 
amortization, adjusted for certain additional items, identified in the table 
below, or Adjusted EBITDA, as a supplemental performance measure. We present 
Adjusted EBITDA because we believe it assists investors in analyzing our 
performance across reporting periods on a consistent basis by excluding items 
that we do not believe are indicative of our core operating performance. In 
addition, we use Adjusted EBITDA to evaluate, assess and benchmark our 
financial performance on a consistent and a comparable basis and as a factor in 
determining incentive compensation for our executives.

Adjusted EBITDA is a supplemental performance measure that is not required by, 
or presented in accordance with, generally accepted accounting principles, or 
GAAP. Adjusted EBITDA should not be considered as an alternative to net income 
or any other performance measure derived in accordance with GAAP, or as 
alternatives to cash flows from operating activities or a measure of our 
liquidity or profitability. Adjusted EBITDA has limitations as an analytical 
tool, and should not be considered in isolation, or as a substitute for any of 
our results as reported under GAAP. Some of these limitations are:


• Adjusted EBITDA does not reflect our cash expenditures for capital assets or 
the impact of certain cash charges that we consider not to be an indication of 
our ongoing operations;

• Adjusted EBITDA does not reflect changes in, or cash requirements for, our 
working capital requirements;

• Adjusted EBITDA does not reflect the interest expense, or the cash 
requirements necessary to service interest or principal payments, on our 
indebtedness;

• although depreciation and amortization are non-cash charges, the assets being 
depreciated and amortized will often have to be replaced in the future, and 
Adjusted EBITDA does not reflect cash requirements for such replacements;

• stock-based compensation expense is an important element of our long term 
incentive compensation program, although we have excluded it as an expense when 
evaluating our operating performance; and

• other companies, including other companies in the industry, may calculate 
these measures differently than we do, limiting their usefulness as a 
comparative measure.

Liquidity and Capital Resources Sources of liquidity. At June 30, 2017, the 
total of our cash and cash equivalents was $87.6 million, compared to $116.2 
million at December 31, 2016. At June 30, 2017, we had total assets of $1,060.5 
million, compared to $1,136.6 million at December 31, 2016. At June 30, 2017, 
we had term debt before debt issuance costs of $215.3 million, compared to term 
debt of $217.9 million at December 31, 2016. The debt is subject to various 
financial covenants. We were in compliance with all restrictive financial 
covenants associated with the borrowings as of June 30, 2017.

REG Ralston

In April 2017, REG Ralston, LLC ("REG Ralston") entered into a construction 
loan agreement ("Construction Loan Agreement") with First Midwest Bank. The 
Construction Loan Agreement allows REG Ralston to borrow up to $20.0 million 
during the construction period at REG Ralston and convert it into an amortizing 
term debt thereafter. The loan has a maturity date of October 19, 2025. The 
loan requires monthly principal payments after the construction period and 
interest to be charged using prime rate plus 0.5% per annum. The loan agreement 
contains various loan covenants. At June 30, 2017, we have not made any 
borrowings under this Construction Loan Agreement.

Cash flows.

In the first six months of 2017, we used $1.5 million of cash in operations. We 
received approximately $85.8 million from the 2016 BTC receivable, of which 
$2.1 million was paid to our vendors and customers. This compares to the first 
six months of 2016 BTC receipts of $242.1 million. In addition during the first 
half of 2017, approximately $50.9 million of operating cash was used to build 
up our other assets, including RINs inventory. Our net cash flows used in 
investing activity was impacted by the release of our restricted cash related 
to our petroleum-based sales and Geismar land purchase and payments of $32.0 
million for our continued investments in our plant and office facilities. 
Financing activities were impacted by our repayments under the Danville and 
Newton borrowings, together with contingent consideration payments made related 
to our past acquisitions.

Capital expenditures. We have three partially constructed plants, one near New 
Orleans, Louisiana, one in Emporia, Kansas, one in Clovis, New Mexico and a 
non-operational plant near Atlanta, Georgia. We expect additional investments 
of approximately $165 million to $270 million in the aggregate, excluding 
working capital requirements, would be required before these plants would be 
able to commence production. These facilities would add an expected 150 mmgy to 
our nameplate production capacity. Our Clovis plant is currently being operated 
as a terminal facility. We plan to make significant capital expenditures when 
debt or equity financing becomes available to complete construction of these 
four facilities. During the six months ended June 30, 2017, our capital 
expenditures were $32.0 million from various projects, the majority of which 
were at facilities such as New Boston, Madison, Seneca, Geismar and Ralston. In 
June 2017, we completed an acquisition for $20 million of approximately 82 
acres of land in Geismar, Louisiana, which includes the land our Geismar 
biorefinery has leased for its operations that was terminated by this 
acquisition, as well as more than 61 adjacent acres, which we plan to improve 
and utilize to support existing production capacity and future expansion 
opportunities. During 2016, our capital expenditures were $60.7 million, 
including $13.9 million towards the planned $34.5 million upgrade to our 
Danville facility and $9.1 million in repairs and upgrades to bring our Geismar 
facility back on-line in March 2016. Our budgeted capital expenditures for the 
remainder of 2017 are approximately $30 million to $40 million, including 
repairs and upgrades to the Madison facility following the fire at that 
facility in June 2017 and upgrades to the Ralston, Geismar and Grays Harbor 
facilities, among others. We continue to be in discussions with lenders in an 
effort to enter into equity and debt financing arrangements to meet our 
projected financial needs for facilities under construction and capital 
improvement projects for our operating facilities. Since these discussions are 
ongoing, we are uncertain when or if financing will be available. The financing 
may consist of common or preferred stock, debt, project financing or a 
combination of these financing techniques. Additional debt would increase our 
leverage and interest costs and would likely be secured by certain of our 
assets. Additional equity or equity-linked financings would likely have a 
dilutive effect on our existing and future stockholders. It is likely that the 
terms of any project financing would include customary financial and other 
covenants on our project subsidiaries, including restrictions on the ability to 
make distributions, to guarantee indebtedness and to incur liens on the plants 
of such subsidiaries.

Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that 
have or are reasonably likely to have a current or future effect on our 
financial condition, changes in financial condition, revenues or expenses, 
results of operations, liquidity, capital expenditures or capital resources 
that is material to investors.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The primary 
objectives of our investment activity are to preserve principal, provide 
liquidity and maximize income without significantly increasing risk. Some of 
the securities we invest in are subject to market risk. This means that a 
change in prevailing interest rates may cause the principal amount of the 
investment to fluctuate. To minimize this risk, we maintain a portfolio of cash 
equivalents in short-term investments in money market funds.

Commodity Price Risk Over the period from January 2013 through June 30, 2017, 
average diesel prices based on Platts reported pricing for Group 3 (Midwest) 
have ranged from a high of approximately $3.30 per gallon reported in January 
2013 to a low of approximately $0.85 per gallon in January 2016, with prices 
averaging $2.12 per gallon during this period. Over the period January 2013 to 
June 30, 2017, soybean oil prices (based on daily closing nearby futures prices 
on the Chicago Board of Trade for crude soybean oil) have ranged from a high of 
$0.5311 per pound, or $3.98 per gallon of biodiesel, in February 2013 to a low 
of $0.2605 per pound, or $1.95 per gallon, in September 2015 assuming 7.5 
pounds of soybean oil yields one gallon of biodiesel with closing sales prices 
averaging $0.3611 per pound, or $2.71 per gallon. Over the period from January 
2013 through June 30, 2017, animal fat prices (based on prices from The 
Jacobsen Missouri River, for choice white grease) have ranged from a high of 
$0.4625 per pound in June 2013 to a low of $0.1600 per pound in December 2015, 
with sales prices averaging $0.2822 per pound during this period. Over the 
period from July 2013 through June 30, 2017, RIN prices (based on prices from 
OPIS) have ranged from a high of $1.47 in July 2013 to a low of $0.24 in 
November 2013, with sales prices averaging $0.77 during this period. Adverse 
fluctuations in feedstock prices as compared to biomass-based diesel prices 
result in lower profit margins and, therefore, represent unfavorable market 
conditions. The availability and price of feedstocks are subject to wide 
fluctuations due to unpredictable factors such as weather conditions during the 
growing season, rendering volumes, carry-over from the previous crop year and 
current crop year yield, governmental policies with respect to agriculture and 
supply and demand. We have prepared a sensitivity analysis to estimate our 
exposure to market risk with respect to our sales contracts, lower-cost 
feedstock requirements, soybean oil requirements and the related 
exchange-traded contracts for the first half of 2017. Market risk is estimated 
as the potential loss in fair value, resulting from a hypothetical 10% adverse 
change in the fair value of our lower-cost feedstock and soybean oil 
requirements and biomass-based diesel sales.

We attempt to protect operating margins by entering into risk management 
contracts that reduce the risk of price volatility related to anticipated 
purchases of feedstocks, such as inedible animal fat and inedible corn oil and 
energy prices. We create offsetting positions by using a combination of forward 
physical purchases and sales contracts on feedstock and biomass-based diesel, 
including risk management futures contracts, swaps and options primarily on 
NYMEX NY Harbor ULSD and CBOT Soybean Oil; however, the extent to which we 
engage in risk management activities varies substantially from time to time, 
and from feedstock to feedstock, depending on market conditions and other 
factors. A 10% adverse change in the prices of NYMEX NY Harbor ULSD would have 
had a negative effect on the fair value of these instruments of $10.8 million 
at June 30, 2017. A 10% adverse change in the price of CBOT Soybean Oil would 
have had below $0.2 million negative effect on the fair value of these 
instruments of at June 30, 2017.

Interest Rate Risk Our weighted average interest rate on variable rate debt 
balances for the six months ended June 30, 2017 was 3.52%. A hypothetical 
increase in interest rate of 10% would not have a material effect on our annual 
interest expenses or consolidated financial statements. Inflation To date, 
inflation has not significantly affected our operating results, though costs 
for petroleum-based diesel fuel, feedstocks, construction, labor, taxes, 
repairs, maintenance and insurance are all subject to inflationary pressures. 
Inflationary pressure in the future could affect our ability to sell the 
biomass-based diesel we produce, maintain our production facilities adequately, 
build new biomass-based diesel production facilities and expand our existing 
facilities as well as the demand for our facility construction management and 
operations management services.