Renewable Energy Group, Inc. - Quarter Report: 2012 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the Quarterly Period Ended March 31, 2012

OR

Commission File Number 000-54374

RENEWABLE ENERGY GROUP, INC.

(Exact name of registrant as specified in its charter)

416 South Bell Avenue Ames, Iowa 50010

(Address of principal executive offices)

(515) 239-8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES ¨  NO x

As of March 31, 2012, 7,200,000 shares of Common Stock, and 21,599,208 shares of Class A Common Stock of the registrant were issued and outstanding.

PART I. FINANCIAL INFORMATION

RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

AS OF MARCH 31, 2012 AND DECEMBER 31, 2011

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

See notes to condensed consolidated financial statements.

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RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(continued)                                          

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RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

(concluded)                                             

See notes to condensed consolidated financial statements

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RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND EQUITY (DEFICIT) (Unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (IN THOUSANDS EXCEPT SHARE AMOUNTS)

See notes to condensed consolidated financial statements.

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RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(IN THOUSANDS)

(continued)                                 

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RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(IN THOUSANDS)

(concluded)                                 

See notes to condensed consolidated financial statements.

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RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Unaudited

For The Three Months Ended March 31, 2012 and 2011

(In Thousands, Except Share and Per Share Amounts)

NOTE 1 — BASIS OF PRESENTATION AND NATURE OF THE BUSINESS

The condensed consolidated financial statements have been prepared by Renewable Energy Group, Inc. and its subsidiaries (the Company), without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes that the disclosures are adequate to present fairly the financial position, results of operations and cash flows at the dates and for the periods presented. It is suggested that these interim financial statements be read in conjunction with the consolidated financial statements and the notes thereto appearing in the Company’s latest annual report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.

On January 3, 2012, the Company filed its Second Amended and Restated Certificate of Incorporation which executed a one-for-2.5 reverse stock split of the issued and outstanding shares of its common stock. All numbers of common shares and per share data in the accompanying condensed consolidated financial statements and related notes have been retroactively adjusted. On January 24, 2012, the Company completed an initial public offering (IPO) of shares of Common Stock in which it sold 7,200,000 shares at a price to the public of $10 per share, which included 342,860 shares of Class A Common Stock from selling shareholders. The IPO raised approximately $59,919 net of underwriting fees and offering costs. On January 24, 2012, the Company acquired the Seneca Facility pursuant to the exercise of its option under the Funding, Investor Fee and Put/Call Agreement, by and among the Company, Seneca Landlord, LLC (Seneca Landlord) and certain subsidiaries of the Company. See “Note 5 – Acquisitions” for a description of the acquisition. See “Note 3 – Stockholders’ Equity of the Company” for a further description of the IPO.

During 2007, the Company invested, through a wholly-owned subsidiary, in 416 South Bell, LLC (Bell, LLC), whereby the Company owns 50% of the outstanding units. Bell, LLC owns and leases to the Company its corporate office building located in Ames, Iowa. On January 1, 2011, the Company determined it was the primary beneficiary of Bell, LLC and consolidated Bell, LLC into the Company’s financial statements in accordance with ASC Topic 810, Consolidation (ASC Topic 810). See “Note 6 – Variable Interest Entities” for a description of the consolidation.

As of March 31, 2012, the Company owned biodiesel production facilities with a total of 212 million gallons per year (mmgy) of nameplate production capacity.

The biodiesel industry and the Company’s business have benefited from the continuation of certain federal and state incentives. The federal blenders’ tax credit expired on December 31, 2011 and it is uncertain whether it will be reinstated. This revocation along with other amendments of any one or more of those laws, regulations or programs could adversely affect the financial results of the Company. Revenues include amounts related to federal subsidies and regulatory support totaling $5,387 and $4,340 for the three months ended March 31, 2012 and 2011, respectively.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company, consolidated with the accounts of all of its subsidiaries and affiliates in which the Company holds a controlling financial interest as of the financial statement date. Normally, a controlling financial interest reflects ownership of a majority of the voting interests. Other factors considered in determining whether a controlling financial interest is held include whether the Company possesses the authority to purchase or sell assets or make other operating decisions that significantly affect the entity’s results of operations and whether the Company is the primary beneficiary of the economic benefits and financial risks of the entity. Intercompany accounts and transactions have been eliminated.

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Accounts Receivable

Accounts receivable are carried on a gross basis, less allowance for doubtful accounts. Management estimates the allowance for doubtful accounts based on existing economic conditions, the financial conditions of customers and the amount and age of past due accounts. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are generally written off against the allowance for doubtful accounts only after reasonable collection attempts have been exhausted.

Inventories

Inventories consist of raw materials, work in process and finished goods and are valued at the lower of cost or market. Inventory values as of March 31, 2012 and December 31, 2011 include adjustments to reduce inventory to the lower of cost or market in the amount of $60 and $0, respectively. Cost is determined based on the first-in, first-out method.

Valuation of Series A Preferred Stock Conversion Feature Embedded Derivatives

In connection with the Company’s IPO on January 24, 2012, the Company gave effect to the one-time conversion of Series A Preferred Stock and certain common stock warrants into 7,660,612 shares of newly-issued Class A Common Stock and 2,999,493 shares of Series B Preferred Stock with a $74,987 aggregate liquidation preference and cumulative dividends of 4.5% per annum. No shares of Series A Preferred Stock remain outstanding after the IPO.

The Series A Preferred Stock terms provided for voluntary and, under certain circumstances, automatic conversion of the Series A Preferred Stock to Class A Common Stock based on a prescribed formula. In addition, shares of Series A Preferred Stock were subject to redemption at the election of the holder beginning February 26, 2014. The redemption price was equal to the greater of (i) an amount equal to $13.75 per share of Series A Preferred Stock plus any and all accrued dividends, not to exceed $16.50 per share, or (ii) the fair market value of the Series A Preferred Stock. In accordance with ASC Topic 815, Derivatives and Hedging (ASC Topic 815), the Company was required to bifurcate certain derivatives embedded in its contractual obligations and account for as a separate liability. An “embedded derivative” is a provision within a contract, or other instrument, that affects some or all of the cash flows or the value of that contract, similar to a derivative instrument. Essentially, the embedded provision within the contract contained all of the attributes of a free-standing derivative, such as an underlying market variable, a notional amount or payment provision, and can be settled “net,” but the contract, in its entirety, does not meet the ASC Topic 815 definition of a derivative.

The Company determined that the conversion feature of the Series A Preferred Stock was an embedded derivative because the redemption feature allowed the holder to redeem Series A Preferred Stock for cash at a price which could vary based on the fair market value of the Series A Preferred Stock, which effectively provided the holders with a mechanism to “net settle” the conversion option. Consequently, the embedded conversion option must be bifurcated and accounted for separately because the economic characteristics of this conversion option were not considered to be clearly and closely related to the economic characteristics of the Series A Preferred Stock, which was considered more like a debt instrument than equity.

Upon issuance of the Series A Preferred Stock, the Company recorded a liability representing the estimated fair value of the right of holders of the Series A Preferred Stock to receive the fair market value of the Common Stock issuable upon conversion of the Series A Preferred Stock on the redemption date. This liability was adjusted each quarter based on changes in the estimated fair value of such right, and a corresponding income or expense was recorded in change in fair value of the preferred stock conversion feature embedded derivatives in the Company’s statements of operations.

The Company used the option pricing method to value the embedded derivative. The Company used the Black-Scholes options pricing model to estimate the fair value of the conversion option embedded in the Series A Preferred Stock. The Black-Scholes options pricing model requires the development and use of highly subjective assumptions. These assumptions include the expected volatility of the value of the Company’s equity, the expected conversion date, an appropriate risk-free interest rate and the estimated fair value of the Company’s equity. The expected volatility of the Company’s equity is estimated based on the volatility of the value of the equity of publicly traded companies in a similar industry and general stage of development as the Company. The expected term of the conversion option was based on the period remaining until the contractually stipulated redemption date of February 26, 2014. The risk-free interest rate was based on the yield on U.S. Treasury STRIPs with a remaining term equal to the expected term of the conversion option. The development of the estimated fair value of the Company’s equity is discussed below in “Valuation of the Company’s Equity.”

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The significant assumptions utilized in the Company’s valuation of the embedded derivative are as follows:

Valuation of Seneca Holdco Liability

On January 24, 2012, the Company acquired the Seneca Facility pursuant to the exercise of its call option. See “Note 5 – Acquisitions” for a description of the acquisition.

Associated with the Company’s transaction with Nova Biosource Fuels, LLC, the Company had the option to purchase (Call Option) and Seneca Holdco, LLC had the option to require the Company to purchase (Put Option) the membership interest of Landlord whose assets consist primarily of a biodiesel plant located in Seneca, Illinois. Both the Put Option and the Call Option had a term of seven years and were exercisable by either party at a price based on a pre-defined formula. The Company determined the fair value of the amounts financed by Seneca Holdco, LLC, the Put Option and the Call Option using an option pricing model. The fair value represented the probability weighted present value of the gain, or loss, that is realized upon exercise of each option. The option pricing model required the development and use of highly subjective assumptions. These assumptions included (i) the value of Landlord’s equity, (ii) expectations regarding future changes in the value of Landlord’s equity, (iii) expectations about the probability of either option being exercised, including the Company’s ability to list its securities on an exchange or complete a public offering and (iv) an appropriate risk-free rate. Company management considered current public equity markets, relevant regulatory issues, industry conditions and the Company’s position within the industry when estimating the probability that the Company will raise additional capital.

The significant assumptions utilized in the Company’s valuation of the Seneca Holdco liability are as follows:

Preferred Stock Accretion

Beginning October 1, 2007, the Company determined that there was a more than remote likelihood that the Series A Preferred Stock would become redeemable; therefore commenced accretion of the carrying value of the Series A Preferred Stock over the period until the earliest redemption date to the Series A Preferred Stock’s redemption value, plus accrued but unpaid dividends using the effective interest method. This determination was based upon the state of the public equity markets at that time which restricted the Company’s ability to execute a qualified public offering, the Company’s historical operating results and the volatility in the biodiesel industry which resulted in lower projected profitability.

Accretion of $1,808 and $5,896 for the three months ended March 31, 2012 and 2011, respectively, has been recognized as a reduction to income available to common stockholders in accordance with paragraph 15 of ASC Topic 480-10-S99, Classification and Measurement of Redeemable Securities (ASC Topic 480-10-S99).

On January 24, 2012, in connection with the IPO, the Series A Preferred Stock was converted into a combination of shares of Series B Preferred Stock and Class A Common Stock. Accretion of the Series A Preferred Stock was terminated at the time of the conversion. The Company recorded the Series B Preferred Stock at fair value, which was a premium over its redemption value; therefore no accretion is recorded for the Series B Preferred Stock (ASC Topic 480-10-S99).

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Valuation of the Company’s Equity

Prior to our IPO, the Company considered three generally accepted valuation approaches to estimate the fair value of the aggregate equity of the Company: the income approach, the market approach and the cost approach. Ultimately, the estimated fair value of the aggregate equity of the Company was developed using the Income Approach - Discounted Cash Flow (DCF) method.

Material underlying assumptions in the DCF analysis include the gallons produced and managed, gross margin per gallon, expected long-term growth rates and an appropriate discount rate. Gallons produced and managed as well as the gross margin per gallon were determined based on historical and forward-looking market data.

The discount rate used in the DCF analysis was based on macroeconomic, industry and Company-specific factors and reflects the perceived degree of risk associated with realizing the projected cash flows. The selected discount rate represents the weighted average rate of return that a market participant investor would require on an investment in the Company’s debt and equity. The percent of total capital assumed to be comprised of debt and equity when developing the weighted average cost of capital was based on a review of the capital structures of the Company’s publicly traded industry peers. The cost of debt was estimated utilizing the adjusted average U.S. Industrials B Interest Rate Curve during the previous 12 months representing a reasonable market participant rate based on the Company’s publicly traded industry peers. The Company’s cost of equity was estimated utilizing the capital asset pricing model, which develops an estimated market rate of return based on the appropriate risk-free rate adjusted for the risk of the alternative energy industry relative to the market as a whole, an equity risk premium and a company specific risk premium. The risk premiums included in the discount rate were based on historical and forward-looking market data. Discount rates utilized in the Company’s December 31, 2011 DCF model was 22.2%.

On January 24, 2012, the Company completed an IPO of shares of Common Stock, in which it sold 7,200,000 at a price to the public of $10 per share, which included 342,860 shares of Class A Common Stock from selling shareholders. The IPO raised approximately $59,919 net of underwriting fees and offering costs. All numbers of common shares and per share data in the accompany condensed consolidated financial statements and related notes have been retroactively adjusted to give effect to the one-for-2.5 reverse stock split executed on January 3, 2012. See “Note 3 – Stockholders’ Equity of the Company” for further description of the IPO. Since the Company is publicly traded, the valuation of the Company’s equity is no longer necessary as the Company relies on the market value created on the open market for its Common Stock.

Non-Monetary Exchanges

The Company records assets acquired and liabilities assumed through the exchange of non-monetary assets based on the fair value of the assets and liabilities acquired or the fair value of the consideration exchanged, whichever is more readily determinable.

Property, Plant and Equipment

Property, plant and equipment is recorded at cost, including applicable construction-period interest, less accumulated depreciation. Maintenance and repairs are expensed as incurred. Depreciation expense is computed on a straight-line method based upon estimated useful lives of the assets. Estimated useful lives are as follows:

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Goodwill

The Company accounts for goodwill in accordance with ASC Topic 350, Intangibles – Goodwill and Other. The Company reviews the carrying value of goodwill for impairment annually on July 31 or when impairment indicators exist. Goodwill is allocated and reviewed for impairment by reporting units. The Company’s reporting units consist of its two operating segments, the biodiesel operating segment and services operating segment. The analysis is based on a comparison of the carrying value of the reporting unit to its fair value, determined utilizing a discounted cash flow methodology. Additionally, the Company reviews the carrying value of goodwill whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. Changes in estimates of future cash flows caused by items such as unforeseen events or sustained unfavorable changes in market conditions could negatively affect the fair value of the reporting unit’s goodwill asset and result in an impairment charge. The annual impairment test determined that the fair value of each of the reporting units exceeded its carrying value by significant margins. There was no impairment of goodwill recorded in the periods presented.

Impairment of Assets

The Company reviews long-lived assets, including property, plant and equipment and definite-lived assets, for impairment in accordance with ASC Topic 360, Property, Plant and Equipment. Asset impairment charges are recorded for long-lived assets and intangible assets subject to amortization when events and circumstances indicate that such assets may be impaired and the undiscounted net cash flows estimated to be generated by those assets are less than their carrying amounts. If estimated future undiscounted cash flows are not sufficient to recover the carrying value of the assets, an impairment charge is recorded for the amount by which the carrying amount of the assets exceeds its fair value. Fair value is determined by management estimates using discounted cash flow calculations. There was no impairment of assets recorded in the periods presented.

Other Noncurrent Assets

Other noncurrent assets include costs related to the issuance of debt, spare parts inventory, RIN inventory and a raw material supply agreement. The debt issuance costs are amortized to interest expense over the life of the related debt agreement. The supply agreement is amortized over the term of the agreement according to the volume of feedstock used in operation.

Revenue Recognition

The Company recognizes revenues from the following sources:

Biodiesel and raw material feedstock revenues are recognized when there is persuasive evidence of an arrangement, delivery has occurred, the price has been fixed or is determinable and collectability can be reasonably assured. Amounts owed and collected where revenue has not been recognized are recorded as deferred revenue.

Revenues associated with governmental incentive programs are recognized when the amount to be received is determinable, collectability is reasonably assured and the sale of product giving rise to the incentive has been recognized.

Fees received under toll manufacturing agreements with third parties are generally established as an agreed upon amount per gallon of biodiesel produced. The fees are recognized where there is a persuasive evidence of an arrangement, delivery has occurred, the price is fixed or is determinable and collectability can be reasonably assured.

Stock-Based Compensation

On August 31, 2011, the Company’s Board of Directors (Company Board) approved the Amended and Restated 2009 Stock Incentive Plan, which was then approved by the Company’s shareholders on October 26, 2011.

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Eligible award recipients are employees, non-employee directors and advisors who provide service to the Company. The Company accounts for stock-based compensation in accordance with ASC Topic 718, Stock Compensation (ASC Topic 718). Compensation expense is measured at the grant-date fair value of the award and recognized as compensation expense over the vesting period. Compensation expense of $4,964 and $990 for the three months ended March 31, 2012 and 2011, respectively, was recorded for restricted stock units and stock appreciation rights awarded to employees and non-employee directors in return for services. During January 2012, the Company granted 400,000 shares of stock appreciation rights to an employee for services with a vesting period of four years. During March 2012, the Company granted 50,000 shares of restricted stock units to an employee that will vest in nine months based upon meeting certain performance conditions.

Income Taxes

The Company accounts for income taxes during interim periods based on its best estimate of the annual effective tax rate in accordance with ASC Topic 740, Income Taxes (ASC Topic 740), which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred income taxes are recognized for differences between the financial statement and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Further, during interim periods certain items are given discrete period treatment and, as a result, the tax effects of such items are reported in full in the relevant interim period.

In addition, ASC Topic 740 requires that deferred tax assets be reduced by a valuation allowance if it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. If it is more-likely-than-not that all or a portion of the Company’s deferred tax assets will not be realized, based on all available evidence, a deferred tax valuation allowance would be established. Consideration is given to positive and negative evidence related to the realization of the deferred tax assets. Significant judgment is required in making this assessment. In evaluating the available evidence, the Company considers, among other factors, historical financial performance, expectation of future earnings, length of statutory carry forward periods, experience with operating loss and tax credit carry forwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. During the three months ended March 31, 2012, the Company estimated that it will incur a tax liability for the annual period ending December 31, 2012 and that its net deferred tax assets will be utilized as a result. As a result, the income tax expense recorded for the three months ended March 31, 2012 reflects the estimated reversal of the existing valuation allowance during 2012. The Company will continue to evaluate the need for a valuation allowance in future periods. As of March 31, 2012 and December 31, 2011, respectively, the Company had net deferred income tax assets of $11,210 and $13,804 with an offsetting valuation allowance of $5,759 and $7,337, which resulted in a net deferred tax asset of $5,451 and $6,467. The net amount is offset by an accrued liability for unrecognized tax benefits in the amount of $1,900 and $1,500 as of March 31, 2012 and December 31, 2011, respectively. The increase was recorded as a result of the purchase of Seneca Landlord.

Uncertain tax positions are evaluated and amounts are recorded when it is more-likely-than-not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Judgment is required in evaluating each uncertain tax position to determine whether the more likely than not recognition threshold has been met.

Income tax expense for the three months ended March 31, 2012 was $1,363, compared to $0 for the three months ended March 31, 2011. The effective tax rate was approximately 8.88% and 0% for the first three months of 2012 and 2011, respectively. The difference between the effective tax rate and the federal statutory rate (35%) is primarily a result of state income taxes (net of federal income tax effects), reversal of the valuation allowance offsetting deferred tax assets, income or loss from the change in fair value of the embedded conversion feature of preferred stock, the domestic production activities deduction, tax consequences of Seneca Landlord, various disallowed deductions and discrete items that occur during the period.

The 2012 annual effective tax rate can be affected as a result of variances among the estimates of full-year sources of taxable income, the realization of net operating losses and tax credits, the release of valuation allowances, and the Company’s assessment of its liability for unrecognized tax benefits.

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Net Income (Loss) Per Share

Basic and diluted net income (loss) per common share are presented in conformity with the two-class method required for participating securities. The two-class method includes an earnings allocation formula that determines earnings for each class of common stock according to dividends declared and undistributed earnings for the period.

The holders of the Series A Preferred Stock accrued dividends at a rate of $0.88 per share per annum. Dividends were cumulative, accrued on a daily basis from the date of issuance and compounded annually from the date of issuance. If dividends on the Series A Preferred Stock had not been paid or declared, the deficiency would have been paid or declared before any dividend is declared for Common Stock. Dividends in arrears did not bear interest. Holders of the Series A Preferred Stock were allowed to participate in the dividends to common stockholders in the event that dividends on Common Stock exceed that of the Series A Preferred Stock as if the Series A Preferred Stock had been converted to Common Stock at the beginning of the year.

The holders of the Series B Preferred Stock accrue dividends at a rate of $1.125 per share per annum. Dividends are cumulative, accrue on a daily basis from the date of issuance and compound annually from the date of issuance. If dividends on the Series B Preferred Stock have not been paid or declared, the deficiency shall be paid or declared before any dividend is declared for Common Stock. Dividends in arrears do not bear interest. Holders of the Series B Preferred Stock are allowed to participate in the dividends to common stockholders in the event that dividends on Common Stock exceed that of the Series B Preferred Stock as if the Series B Preferred Stock had been converted to Common Stock at the beginning of the year.

The Company calculates the effects of the convertible Series A Preferred Stock and Series B Preferred Stock on diluted EPS under the “if-converted” method unless the conversion of the convertible preferred stock is anti-dilutive to basic EPS. The effects of Common Stock options, warrants, restricted stock units and stock appreciation rights on diluted EPS are calculated using the treasury stock method unless the effects are anti-dilutive to EPS.

The following potentially dilutive weighted average securities were excluded from the calculation of diluted net income (loss) per share attributable to common stockholders during the periods presented as the effect was anti-dilutive:

The following table presents the calculation of diluted net income per share for the three months ended March 31, 2012. For the three months ended March 31, 2011 the effect from all convertible securities was anti-dilutive (in thousands, except share and per share data):

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements and reported amounts of revenues and expenses during the reporting periods. These estimates are based on information that is currently available to management and on various assumptions that the Company believes to be reasonable. Actual results could differ from those estimates.

New Accounting Pronouncements

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and the International Financial Reporting Standards (IFRS). The amendments in the update are intended to result in convergence between U.S. GAAP and IFRS requirements for measurement of, and disclosures about, fair value. ASU 2011-04 clarifies or changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. The amendments in this update are to be applied prospectively. The amendments are effective during interim and annual periods beginning after December 15, 2011. The Company adopted this statement effective January 1, 2012. The adoption of this guidance did not have a material effect on the Company’s financial statements.

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In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other, which amends ASC Topic 350 and the current guidance on testing goodwill for impairment. Under the revised guidance, entities testing goodwill for impairment have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount. If an entity determines it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, then performing the two-step impairment test is unnecessary. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company adopted this statement effective January 1, 2012.

In December 2011, the FASB issued ASU No. 2011-10, Derecognition of in Substance Real Estate – a Scope Clarification a consensus of the FASB Emerging Issues Task Force (Topic 360). The amendments in this update are intended to resolve the diversity in practice about whether the guidance in Subtopic 360-20, Property, Plant, and Equipment—Real Estate Sales, applies to a parent that ceases to have a controlling financial interest (as described in Subtopic 810-10, Consolidation—Overall) in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. This update does not address whether the guidance in Subtopic 360-20 would apply to other circumstances when a parent ceases to have a controlling financial interest in a subsidiary that is in substance real estate. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. Early adoption is permitted. The Company is evaluating the impact this standard may have on its condensed consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities (Topic 210). The new disclosure requirements mandate that entities disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The disclosures required by the amendments are required to be applied retrospectively for all comparative periods presented. The Company does not believe the adoption of this standard will have a material impact on its condensed consolidated financial statements.

NOTE 3 — STOCKHOLDERS’ EQUITY OF THE COMPANY

Common Stock

On February 26, 2010, the Company filed its restated certificate of incorporation with the Secretary of State of Delaware. The restated certificate of incorporation authorized 140,000,000 shares of Common Stock at a par value of $0.0001 per share.

Each holder of Common Stock is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders. Subject to preferences that may apply to shares of previously outstanding Series A Preferred Stock and currently outstanding Series B Preferred Stock as outlined below, the holders of outstanding shares of Common Stock are entitled to receive dividends. After the payment of all preferential amounts required to the holders of Series B preferred stock, all of the remaining assets of the Company available for distribution shall be distributed ratably among the holders of Common Stock.

On January 3, 2012, the Company filed its Second Amended and Restated Certificate of Incorporation which effected a one-for-2.5 reverse stock split on the shares issued and outstanding. The Amended and Restated Certificate of Incorporation authorized capital stock consisting of 450,000,000 shares, all with a par value of $0.0001 per share which includes 300,000,000 shares of Common Stock (the class of common stock offered in the IPO), 140,000,000 shares of Class A Common Stock and 10,000,000 shares of preferred stock, including 3,000,000 shares of Series B Preferred Stock.

On January 24, 2012, the Company completed an IPO of shares of Common Stock in which it sold 7,200,000 shares at a price to the public of $10 per share, which included 342,860 shares of Class A Common Stock from selling shareholders. The IPO raised approximately $59,919 net of underwriting fees and offering costs. In connection with the Company’s IPO on January 24, 2012, the Company gave effect to the one-time conversion of Series A Preferred Stock and certain common stock warrants into 7,660,612 shares of newly-issued Class A

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Common Stock and 2,999,493 shares of $74,987 aggregate liquidation preference Series B Preferred Stock with cumulative dividends of 4.50% per annum. On June 30, 2015, each holder of Series B Preferred Stock will have the right to require us to redeem its shares at the redemption price of $25.00 per share plus an amount equal to any accumulated and unpaid dividends (Redemption Price). At any time following the expiration of the underwriters’ lock-up period of 180 days, the holder of any shares of Series B Preferred Stock will have the right to convert such shares, together with accumulated and unpaid dividends (whether or not declared) into shares of Common Stock at the conversion rate in effect at such time. If, at any time following the lock-up expiration date of July 22, 2012, the closing sale price of the Common Stock exceeds certain pricing thresholds, then we may, at our option, cause up to all of the then outstanding shares of Series B Preferred Stock (and corresponding accumulated and unpaid dividends) to be converted into shares of our Common Stock at the then-applicable conversion rate.

Common Stock Issued During 2012

On January 24, 2012, we exercised an option to purchase our Seneca facility, which we previously operated under lease. The exercise price of the option was $12 million, of which approximately $937,000 was previously paid, and 60,000 shares of our Class A Common Stock to each of USRG Holdco IX, LLC, Bunge North America, Inc. and West Central Cooperative.

On January 24, 2012, we issued 200,000 shares of Class A Common Stock to USRG Holdco IX, LLC pursuant to a Termination Agreement and Mutual Release, dated as of July 15, 2011, by and among USRG Holdco IX, LLC, the Company, and REG Services Group, LLC, which related to the termination of a previous glycerin purchase agreement between the parties.

On February 28, 2012, we issued 59,301 shares of Class A Common Stock with respect to the intangible supply agreement in connection with the purchase of substantially all Tellurian Biodiesel, Inc. and American BDF, LLC assets.

Common Stock Warrants

Under the Company’s outstanding warrants, the holder may purchase the number of shares of Common Stock underlying each warrant held for a purchase price of $11.16 per share. The warrant holder may “net exercise” the warrants and use the common shares received upon exercise of the warrants outstanding as the consideration for payment of the exercise price.

The warrant holders are generally protected from anti-dilution by adjustments for any stock dividends, stock split, combination or other recapitalization.

On January 24, 2012, certain common stock warrant holders were converted to Class A Common Stock as part of the stock recapitalization. Warrant holders converted 287,560 common stock warrants to 134,181 shares of Class A Common Stock.

Stock Issuance Costs

In addition to the warrants, other direct costs of obtaining capital by issuing the common and preferred stock were deducted from related proceeds with the net amount recorded as preferred stock or stockholders’ equity. Direct costs incurred for the three months ended March 31, 2012 and 2011 were $5,749 and $0, respectively.

NOTE 4 — REDEEMABLE PREFERRED STOCK

The Company’s restated certificate of incorporation filed on February 26, 2010 authorized 60,000,000 shares of preferred stock, including 14,000,000 shares of Series A Preferred Stock, with a par value of $0.0001. The Company’s Board of Directors had discretion, subject to the approval of certain shareholders, as to the designation of voting rights, dividend rights, redemption price, liquidation preference and other provisions of each issuance.

On July 15, 2011, holders of the Company’s Series A Preferred Stock approved a second amended and restated certificate of incorporation, to be effective prior to the completion of the Company’s initial public offering, to, among other things, convert and redeem the Company’s outstanding Series A Preferred Stock for a combination of Class A Common Stock and Series B Preferred Stock. This was approved by the Company’s common stockholders during the Company’s annual stockholder meeting on October 26, 2011.

On January 3, 2012, the Company filed its Second Amended and Restated Certificate of Incorporation which affected a one-for-2.5 reverse stock split of the issued and outstanding shares of common stock. The Second Amended and Restated Certificate of Incorporation authorized capital stock consisting of 450,000,000 shares, all with a par value of $.0001 per share which includes 300,000,000 shares of Common Stock (the class of common stock offered in the IPO), 140,000,000 shares of Class A Common Stock and 10,000,000 shares of preferred stock including 3,000,000 shares of Series B Preferred Stock.

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In connection with the Company’s IPO on January 24, 2012, the Company gave effect to the one-time conversion of Series A Preferred Stock and certain common stock warrants into 7,660,612 shares of newly-issued Common Stock and 2,999,493 shares of $74,987 aggregate liquidation preference Series B preferred stock with cumulative dividends of 4.5% per annum. All Series A Preferred Stock was converted and there are no shares of Series A Preferred Stock remain outstanding.

The rights, preferences, privileges and restrictions granted to and imposed on the Preferred Stock are set forth below. The holders of Preferred Stock are generally protected from anti-dilution by adjustments for any stock dividends, stock split, combination or other recapitalization.

Series A Preferred Stock

Dividend Provisions

The holders of the Series A Preferred Stock accrued dividends at the rate of $0.88 per share per annum. Dividends are cumulative, accrued on a daily basis from the date of issuance and compound annually from the date of issuance. If dividends on the Series A Preferred Stock were not been paid or declared, the deficiency was to be paid or declared before any dividend was declared for Common Stock. Dividends in arrears do not bear interest. Holders of the Series A Preferred Stock were allowed to participate in the dividends to common stockholders in the event that dividends on Common Stock exceed that of the Series A Preferred Stock as if the Series A Preferred Stock had been converted to Common Stock at the beginning of the year. Holders of at least seventy-five percent of the outstanding shares of the Series A Preferred Stock that were issued (Preferred Supermajority) could have voted to waive the timing or amount of any dividend payment. The Company has not declared any dividends on the Series A Preferred Stock and as a result of the recapitalization where all Series A Preferred Stock was converted and all associated accumulated and unpaid dividends were cancelled. There was $22,750 of the Series A Preferred Stock dividends in arrears as of December 31, 2011.

Liquidation Rights

Upon the occurrence of a voluntary or involuntary liquidation (including consolidations, mergers or sale of assets as defined by the preferred stock agreement), if the remaining net assets of the Company were sufficient, the holders of the Series A Preferred Stock would have been paid no less than liquidation value plus all dividends in arrears (whether or not declared), out of the assets of the Company legally available for distribution to its stockholders, before any payment or distribution was made to any holders of Common Stock.

If upon any liquidation or dissolution, the remaining net assets of the Company are insufficient to pay the amount that the Series A Preferred Stock holders are due as indicated above, the holders of Series A Preferred Stock will share ratably in any distribution of the remaining assets of the Company.

Conversion Rights

All shares of the Series A Preferred Stock were converted into shares of Common Stock at a 1 to 2.5 conversion ratio.

Voting Rights

Each holder of the Series A Preferred Stock was entitled to the number of votes equal to the number of shares of Common Stock into which the Series A Preferred Stock held by such holder were convertible.

Additionally, the Company was prohibited, without obtaining the approval of the Preferred Supermajority, from performing certain activities including, but not limited to, amending shareholder agreements, redeeming or purchasing any outstanding shares of the Company, declaring dividends, making certain capital expenditures and merging or consolidating with other entities.

Redemption Rights

On or after February 26, 2014, the Preferred Supermajority could have required that the Company redeem all or part of the issued and outstanding shares of the Series A Preferred Stock out of funds lawfully available; provided, however, that any such redemptions equal in the aggregate $5,000. The redemption price was the greater of the fair market value per share at the date of the redemption election or $13.75 per share of the Series A Preferred Stock, plus accrued and unpaid preferred stock dividends, not to exceed $16.50 per share.

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Series B Preferred Stock

Dividend Provisions

The holders of the Series B Preferred Stock are entitled to receive, when, as and if declared by the board of directors, cumulative dividends on each outstanding share of Series B Preferred Stock at the annual rate of 4.50% of the stated value. Dividends are payable semi-annually in arrears on June 30 and December 30 of each year, beginning on June 30, 2012. The Company may, at its option, defer a regularly scheduled dividend payment and instead pay accumulated and unpaid dividends on the following dividend payment date. The Company can only defer two such dividend payments and may not defer consecutive dividend payments. The Company will pay any dividend in cash, by delivering shares of Common Stock or through any combination of cash and shares of Common Stock.

Liquidation Rights

In the event of any voluntary or involuntary liquidation, dissolution or winding up of our affairs, a holder of Series B Preferred Stock will be entitled to be paid, before any distribution or payment may be made to any holders of junior stock, an amount per share of Series B Preferred Stock, which we refer to as the Liquidation Preference, equal to the sum of the stated value of a share of Series B Preferred Stock of $25.00, which we refer to as the Stated Value, plus the amount of any accumulated and unpaid dividends, whether or not declared, to, but excluding, the date of payment.

If upon any liquidation or dissolution, the remaining net assets of the Company are insufficient to pay the amount that the Series B Preferred Stock holders are due as indicated above, the holders of Series B Preferred Stock will share ratably in any distribution of the remaining assets of the Company.

Conversion Rights

At any time following the lock-up expiration date, the holder of any shares of Series B Preferred Stock will have the right to convert such shares, together with accumulated and unpaid dividends (whether or not declared) into shares of Common Stock at a conversion rate in effect at such time. The initial conversion rate for each $25.00 of Liquidation Preference will be equal to $25.00 divided by a price that is 125% of the public offering price in the IPO.

If, at any time following the lock-up expiration date, the closing sale price of the Common Stock exceeds $15.00 for at least 20 trading days in any 30 consecutive trading day period and the average daily trading volume of the Common Stock for at least 20 trading days in such period exceeds 200,000 shares or $2,500, then the Company may, at its option, cause up to 50% of the then-outstanding shares of Series B Preferred Stock, and corresponding accumulated and unpaid dividends, to be converted into shares of Common Stock at the then-applicable conversion rate. If at any time following the lock-up expiration date, the closing sale price of the Common Stock exceeds $16.00 for at least 20 trading days in any 30 consecutive trading day period and the average daily trading volume of the Common Stock for at least 20 trading days in such period exceeds 200,000 shares or $2,500, the Company may, at its option, cause up to all of the then-outstanding shares of Series B Preferred Stock, and corresponding accumulated and unpaid dividends, to be converted into shares of Common Stock at the then-applicable conversion rate.

Voting Rights

Each holder of the Series B Preferred Stock is entitled to vote their share of Series B Preferred Stock on an as-converted basis on any matters presented to holders of Common Stock for their consideration. Except as required by law, holders of Series B Preferred Stock will vote on an as-converted basis together with the holders of Common Stock and with the holders of any other class or series of the Company’s capital stock entitled to vote with the Common Stock, as a single class.

The vote or consent of at least 75% of the shares of the Series B Preferred Stock at the time outstanding, voting as a separate class, shall be necessary to amend, alter or repeal the terms of the Series B Preferred Stock so as to adversely affect the powers, preferences or rights of the Series B Preferred Stock.

Redemption Rights

Except as set forth below, we may not redeem the Series B Preferred Stock prior to the date, which we refer to as the Initial Optional Redemption Date, which is 18 months following the lock-up expiration date. On or after the

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Initial Optional Redemption Date, the Series B Preferred Stock may be redeemed at our option, in whole or in part, for cash at a price per share equal to the Stated Value, plus any accumulated and unpaid dividends, which the Company refers to as the Redemption Price. If a change of control transaction occurs any time before the Initial Optional Redemption Date, then the Company may elect to redeem all, but not part, of the outstanding shares of Series B Preferred Stock for cash at the Redemption Price plus a “make-whole” payment for each share of Series B Preferred Stock equal to $2.25 less the amount of any dividends paid on such share since the original issuance date of the Series B Preferred Stock.

If before March 31, 2015, the Company conducts an equity offering or offerings for cash that results in aggregate net proceeds in excess of $20,000, then, subject to the Company having legally available funds, the Company will offer to purchase or redeem the maximum number of shares of Series B Preferred Stock at a price equal to the Stated Value plus the amount of any accumulated and unpaid dividends to, but excluding, the purchase date that may be purchased or redeemed using 25% of those net proceeds. Before the Initial Optional Redemption Date, the Company will use those net proceeds to offer to purchase, in a tender offer, Series B Preferred Stock, and after the Initial Optional Redemption Date, the Company will use those net proceeds to redeem Series B Preferred Stock.

On June 30, 2015, each holder of Series B Preferred Stock will have the right to require the Company to redeem its shares at the Redemption Price, subject to the Company having legally available funds. If at any time dividends on any shares of Series B Preferred Stock are unpaid as of the specific dividend payment date and the non-payment continues for a period of 30 days, then the holders of not less than 25% of the then-outstanding Series B Preferred Stock may require the Company, subject to our having legally available funds, to redeem all outstanding shares of Series B Preferred Stock at the Redemption Price.

NOTE 5 – ACQUISITIONS

Seneca Landlord, LLC

On January 24, 2012, the Company acquired the Seneca Facility pursuant to the exercise of its option under the Funding, Investor Fee and Put/Call Agreement (Put/Call Agreement). Pursuant to the Put/Call Agreement, the Company acquired all of the equity interest of Seneca Landlord, which owned the Seneca Facility, in exchange for $12,000, of which approximately $937 was previously paid, and 60,000 shares of the Company’s Class A Common Stock.

Seneca Landlord was determined to be a consolidated VIE prior to the exercise of the option available under the Put/Call Agreement, thus the basis of the assets recorded were not impacted by its exercise. See “Note 6 – Variable Interest Entities”. The payment of cash and Class A Common Stock shown below was used to relieve the Company’s obligation reflected on the condensed consolidated balance sheet as the Seneca Holdco Liability.

A summary of the acquisition price is as follows:

NOTE 6 — VARIABLE INTEREST ENTITIES

A VIE must be consolidated if the enterprise has both (a) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and (b) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company has invested in two plants owned by independent investment groups. Those companies are Western Iowa Energy, LLC (WIE) and Western Dubuque Biodiesel, LLC (WDB). See “Note 8 – Investments” for the investment amounts. The Company evaluated each investment and determined we do not hold an interest in any of our investments in third party network plants that would give us the power to direct the activities that most significantly impact the economic performance of the network plant. As a result, the Company is not the primary beneficiary and does not consolidate these VIEs.

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The Company has 50% ownership in Bell, LLC, a VIE joint venture that owns and leases to the Company its corporate office building in Ames, Iowa. Commencing January 1, 2011, the Company has the right to execute a call option with the joint venture member, Dayton Park, LLC, to purchase Bell, LLC; therefore, the Company determined it was the primary beneficiary of Bell, LLC and consolidated Bell, LLC into the Company’s financial statements. The Company is the primary beneficiary due to its ownership interest and having an exercisable call option that allows the Company to direct the activities that most significantly impact Bell, LLC’s economic performance and gives the Company the majority of the benefit from the use of Bell, LLC’s assets. Through consolidation of Bell, LLC on January 1, 2011, the Company had an outstanding promissory note balance of $4,757 with interest accrued monthly at a rate of 5.7% per annum, with a maturity date of February 15, 2013. The note is secured by a mortgage interest in the office building. In July 2011, Bell, LLC refinanced their promissory note to reduce the interest rate to 4.5% per annum. The new promissory note is due July 14, 2014 and requires a monthly payment of approximately $36.

The following table summarizes the fair values of the assets and liabilities recorded by the Company as a result of the consolidation of Bell, LLC: