Pacific Ethanol, Inc. (PEIX)

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Pacific Ethanol (PEIX)

Q4 2012 Earnings Call

April 02, 2013 11:00 am ET


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


Paul Resnik



Good day, ladies and gentlemen, and welcome to the Pacific Ethanol Fourth Quarter and Year-End 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Becky Herrick. Ma'am, you may begin.

Rebecca Herrick

Thank you, Sam, and thank you, everyone, for joining us today for the Pacific Ethanol Fourth Quarter and Year-End 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 financial and operating results. Neil will return to discuss Pacific Ethanol's outlook and open the call for questions.

Before we get underway, let me first inform you that Pacific Ethanol issued a press release on March 27 that provides details of the company's quarterly results. The company also prepared a presentation for today's conference call that is available for download on the company's website at 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 April 9, the details of which are included in the press release issued on the 27th. A webcast replay will also be available at Pacific Ethanol's website.

Please note that information in this call speaks only as of today, April 2, 2013, and therefore, you're advised that any time-sensitive information may no longer be accurate at the time of any replay. Please refer to the company's Safe Harbor statement on Slide 2 of the presentation available online, which says that some of the comments in this presentation constitute forward-looking statements that reflect management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results. Forward-looking statements are based on many assumptions and factors. Any changes in such assumptions or factors could produce significantly different results. Information about potential factors that could affect the company's financial results are available in the company's Risk Factor section as updated in the company's SEC filings. To the extent permitted under applicable law, the company assumes no obligation to update any forward-looking statements as a result of new information or future events. 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 on March 27.

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

Neil M. Koehler

Thank you, Becky, and thank you, all of us, for joining us this morning. The ethanol industry in 2012 suffered through historically low production margins as supply exceeded demand, several plants across the industry suspended operations, and corn prices were at historic highs due to drought conditions in the Midwest. These factors had a negative impact on Pacific Ethanol, as well as the rest of the industry.

While we are disappointed with our financial results, we are proud of our accomplishments as we achieved significant financial and operational milestones, positioning the company well for 2013 and beyond. We refinanced nearly all the remaining plant debt at levels and terms that provide long-term stability for the operations of these assets and strengthen our corporate balance sheet to provide for growth in 2013.

Since the beginning of 2012, we've increased our ownership interest in the plants from 34% to 83% at favorable valuations compared to both market and replacement values. We reduced operating costs, increased efficiencies at the plants and moderated production when necessary to offset unfavorable margins, while meeting our customer commitments in the fuel and feed markets and preserving the overall enterprise value of the company.

In fact, with our integrated production and marketing platform, we sold a record number of gallons in 2012. By executing on these goals we established at the beginning of last year, we are a better, stronger and leaner company well positioned to return to profitability as the overall market conditions improve.

During the first quarter, we have seen improvements in production margins as supply and demand in the industry are in better balance. Most recently, corn prices have fallen almost $1 per bushel or 15% since the USDA last Thursday reported larger-than-expected corn inventories and projected record production for this year's corn crop, which is providing a reduction in our cost of production.

We remain focused on diversifying our revenues in feedstocks. We are well on our way in implementing corn oil separation in each of our production facilities, which provides a high-value co-product to the feed and biodiesel markets and significantly improves our operating margins. We are in start-up mode for production of corn oil at our Magic Valley facility, and we are in the midst of construction at our Stockton plant and expect to be in production at both plants during the second quarter.

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