Pacific Ethanol Management Discusses Q2 2012 Results - Earnings Call Transcript

Pacific Ethanol (PEIX)

Q2 2012 Earnings Call

August 14, 2012 4:30 pm ET

Executives

Rebecca Herrick - Assistant Vice President of San Francisco Office

Neil M. Koehler - Chief Executive Officer, President and Director

Bryon T. McGregor - Chief Financial Officer and Principal Accounting Officer

Analysts

Ian T. Gilson - Zacks Investment Research Inc.

Paul Resnik

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Pacific Ethanol Second Quarter 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn conference over to your host, Ms. Becky Herrick of LHA. You may begin.

Rebecca Herrick

Thank you, operator, and thank you, everyone, for joining us today for the Pacific Ethanol Second Quarter 2012 Results Conference Call. On the call today are Neil Koehler, President and CEO; and Bryon McGregor, CFO. Neil will begin with a review of business highlights, and then Bryon will provide details on the company's quarterly financial and operating results. Then, Neil will return to discuss Pacific Ethanol's vision and open the call for questions.

Pacific Ethanol issued a press release this afternoon that provides details of the company's quarterly financial and operating results. The company also prepared a presentation for today's conference call available for download at www.pacificethanol.net. If you have any questions, please call LHA at (415) 433-3777. A telephone replay of today's call will be available until 11:59 p.m. Eastern Time on August 21, 2012, the details of which are included in today's press release. A webcast replay will also be available at Pacific Ethanol's website.

Please note that information in this call speaks only as of today, August 14, 2012, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay.

Before we begin, I will review the company's Safe Harbor statement. Management's comments today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Information about potential factors that could affect the company's financial results is available in the company's risk factors as updated in the company's SEC filings.

With the exception of historical information, the matters discussed in this conference call, including without limitation, the ability of Pacific Ethanol to continue as the leading marketer and producer of low-carbon renewable fuels in the Western United States; the ability of Pacific Ethanol to improve in the outcomes of various aspects of its business including margins, profitability, costs, yields, risk management, raw material supplies and debt structure at the operating plant level; expected improvements in commodity margins and commodity in ethanol demand; the success and effects of Pacific Ethanol's implementation of corn oil separation; and the increase in success of higher ethanol blends are all forward-looking statements and considerations and involve a number of risks and uncertainties. The actual future results of Pacific Ethanol could differ from those statements.

Pacific Ethanol refers to you to the Risk Factors section contained in its Form 10-Q to be filed with the Securities and Exchange Commission today, August 14, 2012.

Also, please note that the company uses financial measures not in accordance with Generally Accepted Accounting Principles, commonly known as GAAP, to monitor the financial performance of operations. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the reported financial results as determined in accordance with GAAP. The company defines adjusted EBITDA as unaudited earnings before interest, taxes, depreciation and amortization and fair value adjustments. To support the company's review of non-GAAP information later in this call, a reconciling table is included in the press release the company issued this afternoon.

It is now my pleasure to introduce Neil Koehler, President and CEO. Neil?

Neil M. Koehler

Thanks, Becky, and thank you all for joining us today to discuss our quarterly results. During the second quarter, we made significant progress in our efforts to position Pacific Ethanol as an industry leader in the production and marketing of ethanol and its co-products. We achieved several of the 2012 strategic objectives we laid out at the beginning of the year.

First, on July 3, we completed a public equity offering for $11.3 million in net proceeds to finance the purchase of additional ownership interest in the Pacific Ethanol plants and provide additional working capital. Then on July 13, we increased our ownership in the plants by 33% at attractive valuations compared to a placement cost and market valuations and at a discount to our last purchase price.

Now our combined 67% ownership in the plants provides us with more control over the strategic direction of the plants. We believe the long-term outlook for ethanol fundamentally supports our consolidation of plant ownership.

Also, on July 13, we amended the credit agreement at the plant level. The amendment gives us more favorable terms on a portion of our plant debt and provides additional liquidity for plant operations. Looking ahead, we are evaluating additional opportunities to improve the terms of the remaining plant debt.

As announced in early June, we further diversified our revenue stream in our production business. We contracted for the implementation of corn oil separation at our Magic Valley plant. Corn oil is a high-value co-product. The Magic Valley plant is expected to produce approximately 12 million pounds of corn oil per year, which at current prices would contribute as much as $4.5 million or $0.07 per gallon of operating income annually.

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