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Pacific Ethanol, Inc. (NASDAQ: PEIX)
INVESTOR PRESENTATIONDECEMBER 2018
Safe Harbor StatementStatements and information contained in this communication that refer to or include Pacific Ethanol’s estimated or anticipated future results or other non‐historical expressions of fact are forward‐looking statements that reflect Pacific Ethanol’s current perspective of existing trends and information as of the date of the communication. Forward looking statements generally will be accompanied by words such as “anticipate,” “believe,” “plan,” “could,” “should,” “estimate,” “expect,” “forecast,” “outlook,” “guidance,” “intend,” “may,” “might,” “will,” “possible,” “potential,” “predict,” “project,” or other similar words, phrases or expressions. Such forward‐looking statements include, but are not limited to, statements concerning future market conditions, including the supply of and domestic and international demand for ethanol and co‐products; expected market growth for these products; anticipated margins, commodity prices and export growth, conditions and amounts; carbon values in California and Oregon and any resulting low‐carbon ethanol premiums; anticipated ethanol blend rates, including E15 adoption and related effects on ethanol demand and margins; the ability to achieve, and the effects and timing of, Reid vapor pressure (RVP) parity and year‐round sales of E15; the timing and effectiveness of, and cost and energy savings and emission reduction from, new technologies and other improvements implemented at Pacific Ethanol’s plants; anticipated selling, general and administrative expense levels; capital expenditure projects and their associated costs, as well as anticipated capital expenditure amounts; the anticipated benefits of the acquisition of Illinois Corn Processing, including future financial and operating results, cost savings and synergies; and Pacific Ethanol’s other plans, objectives, expectations and intentions. It is important to note that Pacific Ethanol’s plans, objectives, expectations and intentions are not predictions of actual performance. Actual results may differ materially from Pacific Ethanol’s current expectations depending upon a number of factors affecting Pacific Ethanol. These factors include, among others, adverse economic and market conditions, including for ethanol and its co‐products; fluctuations in the prices of oil and gasoline; raw material costs, including ethanol production input costs, such as corn and natural gas; the ability of Pacific Ethanol to timely and successfully execute on, and the effects of, its further initiatives to optimize production, improve plant efficiencies and increase yields, reduce operating costs, and reduce energy usage and emissions; changes in governmental regulations and policies, including with respect to RVP parity and renewable volume obligations; and insufficient capital resources. These factors also include, among others, the inherent uncertainty associated with financial and other projections; the anticipated size of the markets and continued demand for Pacific Ethanol’s products; the impact of competitive products and pricing; the risks and uncertainties normally incident to the ethanol and specialty alcohol production and marketing industries; changes in generally accepted accounting principles; successful compliance with governmental regulations applicable to Pacific Ethanol’s facilities, products and/or businesses; changes in laws and regulations, including with respect to tariffs; the loss of key senior management or staff; and other events, factors and risks previously and from time to time disclosed in Pacific Ethanol’s filings with the Securities and Exchange Commission including, specifically, those factors set forth in the “Risk Factors” section contained in the Pacific Ethanol’s Form 10‐Q filed with the Securities and Exchange Commission on August 9, 2018.
2
Pacific Ethanol, Inc. Mission: To be the leading producer and marketer of low‐carbon renewable fuels
HISTORY: Founded in 2003, public in 2005 as the first pure‐play ethanol company
STOCK PROFILE:Nasdaq: PEIX
Stock price 52‐week range $1.38 ‐ $4.80Market cap 52‐week range $63.1M ‐ $219.4M
3
Nine strategically located bio‐refineries in the U.S.1
Production capacity of 605 million gallons per year2
Current run rate of almost one billion gallons per year of marketing volume3
Diversified product portfolio with co‐product production capacity of three million tons per year and EPA approved cellulosic ethanol production capabilities
4
Positioned to access 48 states and export markets with fuel ethanol and industrial‐grade alcohol production and marketing5
Growth investment opportunities in diversified product lines at existing facilities and new adjacent high return markets6
4
Investment Highlights
Established market leader with diversified product portfolio and significant scale
Differentiated platform with strategically located, geographically diversified facilities and superior logistics capabilities
Longstanding, established relationships with blue‐chip client and vendor base
Favorable long term industry dynamics with sustainable demand drivers
Substantial, tangible growth and capital investment opportunities
Seasoned management team with proven track record of operational expertise in the ethanol, fuel and energy industries
1
6
2
3
4
5
Pacific Ethanol, Inc.
Company Opportunities
• Octane, carbon and cost benefits of ethanol driving market growth
• E15 and full implementation of RFS supporting domestic market
• Exports responding to market signals and growing rapidly
CONTINUED LONG‐TERM DEMAND FOR ETHANOL
• Strategically located bio‐refineries serve multiple markets
• Diversity of production, geography, technology, feedstocks and logistics
• Implementing plant improvements to increase efficiencies and yields
LEVERAGING OPERATING PLATFORM TO DRIVE GROWTH
5
$445$395 $400 $411
$370
250 240 233 227 212
050
100150200250300350400450500
Q3'17 Q4'17 Q1'18 Q2'18 Q3'18
QUARTERLY NET SALES & TOTAL GALLONS SOLD
Net sales Total Gallons Sold
Q3 2018 Summary
6
• Net sales of $370 million
• Production gallons sold of 140 million
• Adjusted EBITDA* $6.3 million
Q3’18 FINANCIAL HIGHLIGHTS
$ in millions Gallons in millions
* A reconciling table for Adjusted EBITDA is available in the Appendix of this presentation
Ethanol: Supply & Demand
• Compression in industry ethanol margins continued in Q3
• Over 1,400 stations in 29 states now offering E15 for sale
• Current ethanol pricing strongly incents higher blends and growth in exports
Source: OPIS, EIA, CBOT
7
Weekly Ethanol Blend Rate
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
4‐Jun‐10
4‐Sep‐10
4‐De
c‐10
4‐Mar‐11
4‐Jun‐11
4‐Sep‐11
4‐De
c‐11
4‐Mar‐12
4‐Jun‐12
4‐Sep‐12
4‐De
c‐12
4‐Mar‐13
4‐Jun‐13
4‐Sep‐13
4‐De
c‐13
4‐Mar‐14
4‐Jun‐14
4‐Sep‐14
4‐De
c‐14
4‐Mar‐15
4‐Jun‐15
4‐Sep‐15
4‐De
c‐15
4‐Mar‐16
4‐Jun‐16
4‐Sep‐16
4‐De
c‐16
4‐Mar‐17
4‐Jun‐17
4‐Sep‐17
4‐De
c‐17
4‐Mar‐18
4‐Jun‐18
4‐Sep‐18
‐ 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8
15.0 17.0 19.0 21.0 23.0 25.0 27.0
Crush Margin $/gal
Days of Supply
ETHANOL DAYS OF SUPPLY VS. MARGIN
Current DoS vs Margin
8
Corn: Production and Yield
Source: USDA, NASS, Crop Production 2017 Summary, January 2018, Bloomberg(1) Prices adjusted for inflation
176.6
0.0
50.0
100.0
150.0
200.0
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
1997 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
(BU in thousands) U.S. CORN PRODUCTION
(Bushels per acre) AVERAGE CORN YIELD
Corn is the major input for ethanol production
Advances in corn growing and harvesting technologies have led to sustainable increases in corn production and yields
CORN PRICE1($ per bushel)
0.0
2.0
4.0
6.0
8.0
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Fundamentals Support Continued Demand
Source: NYMEX, CBOT, EIA
9
0
20
40
60
80
100
120
140
160
0
100
200
300
400
500
600
700
800
900
Dec‐97
Jun‐98
Dec‐98
Jun‐99
Dec‐99
Jun‐00
Dec‐00
Jun‐01
Dec‐01
Jun‐02
Dec‐02
Jun‐03
Dec‐03
Jun‐04
Dec‐04
Jun‐05
Dec‐05
Jun‐06
Dec‐06
Jun‐07
Dec‐07
Jun‐08
Dec‐08
Jun‐09
Dec‐09
Jun‐10
Dec‐10
Jun‐11
Dec‐11
Jun‐12
Dec‐12
Jun‐13
Dec‐13
Jun‐14
Dec‐14
Jun‐15
Dec‐15
Jun‐16
Dec‐16
Jun‐17
Dec‐17
Jun‐18
Dec‐18
WTI [U
SD/BBL]
Corn [U
SC/BSH
]
Corn vs. Crude Oil
CBOT Corn Futures Electronic [USC/BSH]
8.0
8.2
8.4
8.6
8.8
9.0
9.2
9.4
9.6
9.8
10.0
2‐Jan 2‐Feb 2‐Mar 2‐Apr 2‐May 2‐Jun 2‐Jul 2‐Aug 2‐Sep 2‐Oct 2‐Nov 2‐Dec
Millions BBls p
er Day
U.S. Motor Gasoline Demand based on 4‐Wk Average
2011‐17 Range 2015 2016 2017 2018
Low‐Carbon Fuel Standards
• The California Air Resources Board (CARB) re‐adopted the LCFS with the revised program effective Jan. 2016
• Oregon LCFS initiated Jan. 2016 for a 10% reduction in carbon intensity by 2025
• RFS is successful carbon policy at the national level
1% 2.0%3.5%
5.0%7.5%
10.0%
20.0%
0%
5%
10%
15%
20%
25%
2015 2016 2017 2018 2019 2020 2030 E
CALIFORNIA LCFS PROGRAMREDUCTION IN CARBON INTENSITY
• Pacific Ethanol currently receives a premium on each CA production gallon sold into the CA market
10
‐
0.020
0.040
0.060
0.080
0.100
0.120
0.140
0.160
0.180
CALIFORNIA ETHANOL PREMIUM $/GAL (CI 69.7)
o U.S. ethanol exports reached a record 1.37 billion gallons in 2017, a 30% increase over 2016o Demand is growing as global markets incorporate environmental and performance benefitso Approximately 30 countries have renewable fuel standards or targets o U.S. ethanol producers supply the world with lower cost ethanol than competing sugar based Brazilian ethanol
Exports Support Long‐term Demand
Exports Create Growth Opportunity
Source: EIA, Department of Commerce
11
(100.0)
(50.0)
‐
50.0
100.0
150.0
200.0
250.0
Jun‐11
Aug‐11
Oct‐11
Dec‐11
Feb‐12
Apr‐12
Jun‐12
Aug‐12
Oct‐12
Dec‐12
Feb‐13
Apr‐13
Jun‐13
Aug‐13
Oct‐13
Dec‐13
Feb‐14
Apr‐14
Jun‐14
Aug‐14
Oct‐14
Dec‐14
Feb‐15
Apr‐15
Jun‐15
Aug‐15
Oct‐15
Dec‐15
Feb‐16
Apr‐16
Jun‐16
Aug‐16
Oct‐16
Dec‐16
Feb‐17
Apr‐17
Jun‐17
Aug‐17
Oct‐17
Dec‐17
Feb‐18
Apr‐18
Jun‐18
Aug‐18
Oct‐18
MM Gallons
U.S. Ethanol Export and Import
Import Export Net Export
Top Markets for U.S. Ethanol 2018 Jan‐Oct
Canada21%
2018 Exports Jan‐Oct: 1.4 Billion Gallons2017 Exports: 1.37 Billion Gallons2016 Exports: 1.05 Billion Gallons2015 Exports: 0.84 Billion Gallons
Brazil30%
S. Korea 5% Mexico 2%
Peru 3%
4%Philippines
Oman 2%
Europe 7%
Columbia 3%
China 4%
India 8%
UAE 4%
12
13
Diversification Creates Growth Opportunity
High Protein Feed
Back‐end fractionation of feed products allows for opportunity to produce higher protein feeds similar to corn gluten meal and soybean meal, commanding a significant premium in feed markets and increasing co‐product return
Cellulosic Ethanol
D3 RINs currently valued at $2.25 per gallon and can be produced from cellulosic ethanol produced at existing or new facilities and from renewable compressed natural gas
Carbon
Valuable carbon markets are expanding through the California LCFS, Oregon CFP, cap and trade markets and
carbon sequestration opportunities
Biodiesel
Biodiesel markets continue to grow and meet RFS targets. Ethanol plants are well positioned with distiller’s corn oil as feedstock for production, particularly in carbon markets
such as CA and OR
Source: Company Data
14
Illinois Corn Processing (ICP) AcquisitionPacific Ethanol now has nine production facilities following the ICP acquisition
OVERVIEW:• Acquired ICP in July 2017 for approximately $77.0 million• Added 90.0 million gallons per year of production capacity • Diversified production with high‐quality, industrial and
beverage alcohol production capabilities
Source: Company Data
KEY HIGHLIGHTS:• Greater penetration into export markets with barge access• Created transportation cost advantages by enabling Pekin
plant to utilize barge access• Added valuable diversified revenue stream with high
quality alcohol production capabilities• Created synergies with existing adjacent production in
Pekin, IL for a combined 250.0 million gallons of production• $4.5 million in annual cost synergies realized• Immediately accretive to earnings
FUTURE IMPROVEMENTS:• Multiple opportunities to improve yields, increase high‐
quality alcohol production, increase plant capacity utilization and continue to enhance ICP’s production processes
15
Facilities Overview: Midwest Bio‐Refineries (5 of 9 Tot.)Located near feedstock sources
(1) Date reflecting modern configuration of facilities
Aurora, NEDry Mill (2012)
Annual Capacity: 110mmgyProducts: DDG/WDG, corn oil
Pekin, IL
Pekin, IL
Aurora, NE
Pekin, IL (ICP)
Dry Mill (1995)Annual Capacity: 45mmgy
Products: DDG/WDG, corn oilEmployee Count: (included in dry mill)
Dry Mill (19931)Annual Capacity: 90mmgy (fuel ethanol,
beverage & industrial alcohol)Products: DDG, corn oil, CO2
Wet Mill/Yeast (19811/1999)Annual Capacity: 100mmgy/55mmlby (fuel
ethanol & industrial alcohol)Products: Corn gluten feed, corn germ &
meal, CO2, yeast
Dry Mill (2007)Annual Capacity: 60mmgyProducts: DDG, corn oil
16
Facilities Overview: Western Bio‐Refineries (4 of 9 Tot.)Strategically located in the feed and fuel markets they serve
Burley, ID
Boardman, OR
Dry Mill (2008)Annual Capacity: 60mmgy
Products:WDG, corn oil, EPA‐pending cellulosic ethanol
Dry Mill (2007)Annual Capacity: 40mmgy
Products:WDG, corn oil, CO2
Stockton, CA
Madera, CA
Dry Mill (2008)Annual Capacity: 60mmgy
Products: WDG, corn oil, cellulosic ethanol, terminal
Dry Mill (2006)Annual Capacity: 40mmgy
Products: WDG, corn oil, grain mill, EPA‐pending cellulosic ethanol
Source: Company Data
17
Dry Mill Co‐Product Production
Source: Company Data
Distillers Grains with Solubles (DGS) & Wet Distillers Grains
(WDG) Distillers Corn Oil CO2
• Over 2 million tons per year (tpy) (dry matter) of DGS & WDG
• Plants strategically located near dairies and feedlots and able to sell WDG directly to end users in the heart of the livestock industries in California, Oregon, Idaho and Nebraska
• Over 85 million pounds of corn oil• All Pacific Ethanol facilities produce corn oil, which is sold into feed markets as well as feedstock markets for biodiesel production
• Over 100,000 tpy• Pacific Ethanol sells raw CO2, another co‐product of ethanol production, for processing into liquid CO2 and dry ice
High protein feed production at dry mills can increase co‐product return and profitability
18
Wet Mill Co‐Product Production
Source: Company Data
Corn Gluten Meal & FeedCorn Condensed Distillers
Solubles (CCDS) Corn Germ Yeast
• Produce annually 38k tons of corn gluten feed and 182k tons of corn gluten meal
• Corn gluten meal is sold for pet food, poultry and aquaculture markets as a high protein feed
• Corn gluten meal is sold into cattle rations as a high fiber mid protein feed
• CCDS is a palatable, free‐flowing, energy and protein source for cattle and fits into a large number of feeding programs
• 70k tpy of corn germ• Through the wet milling process corn germ is separated from the corn oil and is sold to processors for production of oils and meal into human food markets
• Over 50M pounds annually• When extracted from the beer fermentation stream in our wet mill, yeast is processed, dried, bagged and sold for pet and human food and specialty animal feed applications and is AIB food grade and also Kosher certified
Opportunity for increased yields of Corn Gluten Meal and Yeast
19
Pacific Ethanol MarketingPioneers and experts in distribution and customer management
THROUGH KINERGY, PACIFIC ETHANOL MARKETS AND TRADESETHANOL WITH A COMBINED PRODUCTION AND MARKETINGCAPACITY OF NEARLY ONE BILLION GALLONS PER YEAR
• Marketing agreements with two other CA ethanol producers
• Extensive trading relationships with Midwest ethanol producers and marketers
• Provides ethanol supply logistical services and inventory management via 3rd party providers
• Customers include both major and unbranded oil companies that distribute transportation fuel to retail customers
Source: Company Data
Optimizing position in an expanding market
Low‐carbon fuel standards support
demand
Favorable ethanol blend economics
Differentiated marketing & distribution capabilities
OPPORTUNITIES
Year Third Party Gallons SoldH12018 174.9M2017 424.8M2016 440.4M2015 382.3M
20
Geographically Diversified FootprintPortfolio of high quality assets strategically located to provide a diversified geographic presence
• The Company has strategic facility locations with close proximity to suppliers, domestic end markets and export centers– Midwestern facilities located in close
proximity to key suppliers
– West Coast facilities located near fuel, feed and carbon end‐use markets
– Illinois Corn Processing (ICP) plant expanded export opportunities with direct barge access down river to New Orleans
• The Company is expanding distribution networks through barge and rail from central plants
Source: Company Data
Boardman, OR40mmgyDry Mill
HQ
Stockton, CA60mmgyDry Mill
Madera, CA40mmgyDry Mill
Burley, ID60mmgyDry Mill
Aurora, NE110mmgyDry Mill
Aurora, NE45mmgyDry Mill
Pekin, IL100mmgyWet Mill
Pekin, IL60mmgyDry Mill
(ICP) Pekin, IL90mmgyDry Mill
Pacific Ethanol PlantsMarketing Partner PlantsTerminals Partner Plants
21
Plant Investment InitiativesNumerous near‐term opportunities to further drive plant efficiency and other operational improvements
Source: Company Data
Industrial scale membrane system at Madera plant
Cogeneration system at Stockton plant
Cellulosic ethanol at western plants
Integration of ICP
Installed 5‐megawatt solar power system at Madera plant
Anticipated to reduce annual energy cost by up to $4.0 million
Estimated operating efficiencies, energy savings and carbon premium combined ~$1.0 million annually at current market rates
Generated $4.5 million in annualized cost synergies
Expected to reduce utility costs by approximately $1.0 million annually and lower carbon score
Expanding cellulosic production capabilities from 1M gallons to 2.7M gallons annually pending EPA approval
* A reconciling table for Adjusted EBITDA is available in the Appendix of this presentation
Operating Results Summary
2222
Three Months EndedSept. 30,
Nine Months EndedSept. 30,
2018 2017 2018 2017Net sales $ 370,407 $ 445,442 $ 1,180,956 $ 1,236,984Cost of goods sold 366,639 433,377 1,175,099 1,229,039Gross profit 3,768 12,065 5,857 7,945Selling, general and administrative expenses 8,970 8,720 27,183 22,932Income (loss) from operations (5,202) 3,345 (21,326) (14,987)Fair value adjustments ‐ ‐ ‐ 473Interest expense (4,193) (3,826) (12,875) (9,157)Other income (expense), net 91 (60) 233 (293)Loss before benefit for income taxes (9,304) (541) (33,968) (23,964)Benefit for income taxes ‐ ‐ 563 ‐Consolidated net loss (9,304) (541) (33,405) (23,964)Net loss attributed to noncontrolling interests 1,790 339 5,142 2,285Net loss attributed to Pacific Ethanol, Inc. $ (7,514) $ (202) $ (28,263) $ (21,679)Preferred stock dividends $ (319) $ (319) $ (946) $ (946)Loss available to common stockholders $ (7,833) $ (521) $ (29,209) $ (22,625)Net loss per share, basic and diluted $ (0.18) $ (0.01) $ (0.68) $ (0.53)Weighted‐average shares outstanding, basic and diluted 43,299 42,475 43,171 42,358
Adjusted EBITDA* $ 6,267 $13,152 $ 12,197 $ 13,885
($ in thousands, except per share amounts)
($ in thousands)
Balance Sheet Summary
23
At: 9/30/18 12/31/17
Cash & cash equivalents $ 56,093 $ 49,489
Current assets 192,266 203,246
Total assets 688,547 720,296
Current liabilities 99,020 90,706
Total liabilities 337,025 336,596
Stockholders’ equity 351,522 383,700
Total liabilities & stockholders’ equity $ 688,547 $ 720,296
23
Strategy for Growth
24
To be a leading producer and marketer of low‐carbon renewable fuels, high‐quality alcohol and high‐value animal feed products in the United States
MISSION Continuing to evaluate and make investments in initiatives that…
• Promote production efficiencies
• Diversify production and revenue
• Improve our carbon score
• Improve plant profitability
Thank You
Appendix
27
Management Team Pacific Ethanol is led by a management team rich in experience, knowledge and relationships
Neil Koehler – Co‐Founder, Director & CEO• Brings 30+ years of experience in ethanol production, sales and
marketing• Formerly co‐founder and general manager of Parallel Products
and founder of Kinergy Marketing• Serves on the board of Renewable Fuels Association and is the
incoming Chairman
Mike Kandris – Director & COO• Brings 30+ years of general management experience in the
transportation and logistics industry• Formerly President and COO of Ruan Transportation
Management Systems• Served on the Executive Committee of the American Trucking
Association board for the National Tank Truck Organization
Bryon McGregor – CFO• Brings 25+ years of treasury and finance experience• Formerly Senior Director of Treasury for E*TRADE Financial• Served as project finance head for BP (formerly ARCO) and as a
Director at Credit Suisse
Christopher Wright – VP & General Counsel• Brings 30+ years of experience in managing the legal affairs of
growth companies• Formerly served as Partner‐in‐Charge of the Pacific Northwest
office of Cooley Godward• Has acted as general counsel for numerous technology
enterprises in all aspects of corporate development
Paul Koehler – VP, Commodities and Corporate Development• Brings 28+ years of business experience in ethanol and renewable
electricity industries• Formerly served as Director of Business Development for PPM
Energy• Also a co‐founder of ReEnergy and has worked for Portland
General Electric and Enron in electricity trading and market development
Jim Sneed – VP, Ethanol Supply & Trading• Brings 20+ years of experience in various senior management and
executive positions in the ethanol industry• Formerly served as Vice President – Ethanol Marketing & Trading
for Hawkeye Gold, LLC and as Vice President, Marketing & Logistics of Aventine Renewable Energy
28
Company HistoryPacific Ethanol has a strong track record of leadership, growth and innovation
(1) Reflects gallons from ICP and Aventine plants prior to acquisitions to illustrate organic production growth through facility and plant improvements
• Pacific Ethanol completes restructuring on original western plants
• Pacific Ethanol begins reconsolidating ownership in original western plants
• Entered into definitive merger agreement with Aventine Renewable Energy Holdings in Q4
• Debt from plant restructuring fully repaid
• Finalized acquisition of Aventine to strengthen presence in Midwestern market
• Magic Valley facility located in Burley, ID begins production in Q2
• Stockton, CA facility begins production in Q3
• Acquired KinergyMarketing, an ethanol sales and distribution firm in March 2005
• Public on the Nasdaq National Market
• Columbia facility located in Boardman, OR begins production in Q3
• Madera, CA facility begins production in Q4
• Pacific Ethanol is founded by Neil Koehler and Bill Jones
• Implements unique business model to transport corn from Midwest to West Coast and manufacture ethanol and feed in local end markets
• Entered into technology license agreement to implement industrial scale membrane system for Madera facility as part of ongoing plant improvement initiatives
• Acquired Illinois Corn Processing (ICP) in Q3 to diversify products and access additional distribution channels
Approx. Gallons Produced1 (in millions): 150 140 350 460 520 550 555
• Installed solar PV system at Madera –the industry’s first PV system for ethanol production
590
• Completed key facility improvements including corn oil and fine grind
29
Industry Overview
Source: RFA, U.S. Energy Information Administration, USDA DOA National Agricultural Statistics Service March 2018, “Grain Crushings and Co‐Products Production 2017 Summary” ‐ USDA
• Ethanol is a leading source of renewable fuel globally
• Ethanol production in the U.S. has been particularly strong as corn supplies continue to increase annually, keeping pace with ethanol corn demand and allowing U.S. ethanol to compete favorably in international markets
• Ethanol producers manufacture high value animal feed and other diversified co‐products
• U.S. ethanol production in 2017 totaled 15.8B gallons with $24.3B in annual revenue and 40M tons of co‐product with annual revenue of ~$9.0B
• Industry growth continues through product diversification in high‐quality alcohol, high protein feed, carbon credits and renewable natural gas
DRY MILL ETHANOL PROCESS WET MILL ETHANOL PROCESS
30
‐
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0RFS‐ Conventional BiofuelRFS ‐ Advanced BiofuelInstalled CapacityIndustry Production
Renewable Fuel Standard(RFS)RFS requirements continue to drive demand for clean, renewable energy in the United States
• The RFS is a federal program that requires transportation fuel sold in the United States to contain a minimum volume of renewable fuels
• The RFS requires traditional gasoline to be blended with ethanol at various blending levels
• E10 (10% ethanol)
• E15 (15% ethanol)
• RFS currently requires 36 billion gallons of renewable fuel to be blended by 2022
• Renewable fuel categories:
• Conventional Biofuel: Any fuel derived from starch feedstock
• Cellulosic: Any fuel derived from cellulose renewable feedstock and from renewable natural gas
• Biomass‐Based Diesel: A diesel fuel substitute made from renewable feedstock such as fats, oils, greases, bean oils and distiller’s corn oil
• Advanced Biofuel: Any fuel derived from renewable feedstock that achieves a 50% GHG reduction from 2007 levels
Source: U.S. Energy Information Administration
RFS FUEL VOLUMES BY YEAR(Gallons in billions)
Use of Non‐GAAP Measures
Management believes that certain financial measures not in accordance with generally accepted accounting principles ("GAAP") are useful measures of operations.
The company defines Adjusted EBITDA as unaudited net income (loss) attributed to Pacific Ethanol before interest expense, provision (benefit) for income taxes, asset impairments, purchase accounting adjustments, fair value adjustments, and depreciation and amortization expense. A table is provided at the end of this release that provides a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure. Management provides this non‐GAAP measure so that investors will have the same financial information that management uses, which may assist investors in properly assessing the company's performance on a period‐over‐period basis. Adjusted EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income (loss) or any other measure of performance under GAAP, or to cash flows from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity. Adjusted EBITDA has limitations as an analytical tool and you should not consider this measure in isolation or as a substitute for analysis of the company's results as reported under GAAP.
31
3 Mos. 6/30/18
3 Mos. 6/30/17
6 Mos. 6/30/18
6 Mos. 6/30/17
Net loss attributed to Pacific Ethanol $ (12,908) $ (8,841) $ (20,749) $ (21,477)
Adjustments:Interest expense* 4,169 2,668 8,573 5,281
Benefit for income taxes ‐‐ ‐‐ (563) ‐‐
Fair value adjustments ‐‐ (18) ‐‐ (473)
Depreciation and amortization expense* 9,735 8,794 19,389 17,402
Total adjustments 13,904 11,444 27,399 22,210Adjusted EBITDA $ 996 $ 2,603 $ 6,650 $ 733
(Figures below in thousands)
Adjusted EBITDA Reconciliation
* Adjusted for noncontrolling interest.
3232