Leading Provider of Low Carbon Renewable Fuels. Strong Long term Demand for Ethanol. Differentiated with Destination Model & Western U.S.

Transcription

1 Leading Provider of Low Carbon Renewable Fuels in the Western U.S. Strong Long term Demand for Ethanol Differentiated with Destination Model & Western U.S. Locations Pacific Ethanol Corporate Overview: September

2 Cautionary statements With the exception of historical information, the matters discussed in this presentation including, without limitation, continued favorable market conditions, margins, commodity prices and the expected growth in demand for low carbon renewable fuels; the ability of Pacific Ethanol to timely implement, and the effects of, corn oil separation and other yield enhancement technologies, including advanced grinding technologies, at certain of its plants; the ability of Pacific Ethanol to timely and successfully execute on, and the effects of, its other plans and initiatives, including its strategy for advanced biofuels; expected improvements in Pacific Ethanol s low carbon premium for ethanol it produces and sells into the California market; the effects of Pacific Ethanol s destination business model given its location in the Western United States; Pacific Ethanol s projections concerning certain expenses, its effective tax rate and reduced GAAP earnings volatility from fair value adjustments are forward looking statements and considerations that involve a number of risks and uncertainties. The actual future results of Pacific Ethanol could differ materially from those statements. Factors that could cause or contribute to such differences include, but are not limited to, adverse economic and market conditions, including for ethanol and its co products; raw material costs, including ethanol production input costs; changes in governmental regulations and policies; insufficient capital resources; 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 Pacific Ethanol s Form 10 Q filed with the Securities and Exchange Commission on August 14,

3 Pacific Ethanol at a Glance The leading producer & marketer of low carbon renewable fuels in the Western United States Founded in 2003, IPO in 2005 first pure play public ethanol company Headquarters in Sacramento, CA 170 full time employees at 6/30/14 Four biorefineries strategically located in the markets they serve Combined operating capacity of 200 MGY Ethanol Production & Marketing Advantage Wet Distillers Grain Corn Oil 3

4 Financial Highlights Solid Q2 14 Financial Performance Net sales grew 37% over Q2 13 Established record total gallons sold of 132M gallons Restarted Madera plant Net income was $15M or $0.68 per diluted share Adjusted net income was $17M or $0.77 per diluted share (1) Adjusted EBITDA was $28M (1) Cash at June 30, 2014 was $26M and $52M in mid August Eliminated all debt at the parent company level Reduced consolidated plant debt to $17M With plant cash in excess of debt, plants are net debt free (1) Reconciling tables for Adjusted Net Income and Adjusted EBITDA are available on slide 30 of the presentation 4

5 Production Facilities 200 MGY of combined ethanol production capacity Magic Valley Burley, ID Capacity: 60 MGY ethanol 500K tons/year WDG 12M lbs/year corn oil Stockton Stockton, CA Capacity: 60 MGY ethanol 500K tons/year WDG 12M lbs/year corn oil Columbia Boardman, OR Capacity: 40 MGY ethanol 350 tons/year WDG Madera Madera, CA Capacity 40 MGY ethanol 350 tons/year WDG 5

6 Investment Rationale Strong long term demand for ethanol Regulations & fundamental economics of ethanol drive demand Increasing exports provide additional balance to supply & demand Differentiated business model delivering results Differentiated with destination model & western US locations Leveraging production & marketing advantages Growing market share in western US Poised to capitalize on growth opportunities Established strong platform for growth with strong cash flows Evaluating capital projects to improve profitability Implementing advanced biofuels initiatives 6

7 Renewable Fuel Standard Renewable Fuel Standard (RFS) vs. Installed Capacity (1) 40.0 In billions of gallons RFS- Conventional Biofuel RFS - Advanced Biofuel Installed Capacity Industry Production blend 10% blend 15% (1) Source: PEIX Higher blend levels & investment in existing & new technology required to meet RFS goals 2013 U.S. required conventional ethanol demand at 13.8 billion gallons per year (BGY) By 2015, requirement increases to 15 BGY for conventional biofuel By 2022, requirement increases to 36 BGY of total biofuel 7

8 Low Carbon Fuel Standard Pacific Ethanol produces among the lowest carbon ethanol of any commercially available transportation fuel, and receives a premium for its fuel sold in California The world s first greenhouse gas (GHG) standard for transportation fuels Requires a 10% reduction in carbon intensity by 2020 Refiners can choose among reduction requirements Each type of alternative fuel receives a carbon intensity score based on its lifecycle GHG emissions As more efficient, higher octane E15 fuel blends enter the market, Pacific Ethanol is well equipped to meet the demand Source: Biofuels Digest 8

9 Ethanol Demand in the U.S. Fuel Supply High octane and clean volume of ethanol is necessary to meet higher fuel and emissions standards Approved under the warranties of all US marketed auto manufacturers All mainstream manufacturers of power equipment, motorcycles, snowmobiles and outboard motors permit ethanol usage in products Keeps fuel systems clean for optimal performance Helps prevent wintertime problems by acting as a gas line antifreeze With a 113 octane rating, ethanol keeps today's engines running smoothly and efficiently 87 Octane Rating (1) Regular Unleaded Premium Unleaded Ethanol (1) Source: RFA website facts engine performance 9

10 Ethanol Reduces Consumers Gas Prices Ethanol trades at a discount to gasoline RBOB Gasoline and Ethanol Prices (Nearby Futures) Ethanol remains the cheapest liquid transportation fuel on the planet (1) Consumers paid $0.50 $1.50 per gallon less for gasoline in 2013 because of ethanol (1) 1.60 Ethanol Futures RBOB Futures Corn is lower cost source for fuel than either crude oil or sugar (1) Source: Renewable Fuels Association 10

11 Ethanol in Demand in Export Markets 2013 U.S. exports totaled 605 million gallons and 2014 U.S. exports through July 2014 totaled 474 million gallons 2013 U.S. Exports by region (Figures below in millions of gallons) Canada 325 Europe 39 Middle East East Asia 8 Mexico 31 Jamaica Philippines India Peru 30 Brazil 47 Africa 10 Rest of world = 15 (1) Source: Renewable Fuels Association 11

12 Differentiated by Destination Model Western U.S. proximity & access to local markets provides several advantages Ability to source feedstock near the Pacific Ethanol Plants & Midwest Situated to deliver products into high value markets Keeps production costs low As Pacific Ethanol produces among the lowest carbon rated ethanol commercially produced in the U.S., we receive a low carbon premium for ethanol produced and sold into the California market 12

13 Ethanol Production: Fuel & Feed Ethanol producers are feed producers Corn used in ethanol production is livestock feed not food for humans Ethanol production returns co product back to feed markets Production concentrates protein, fat, minerals & fiber into nutritious feed product Million bushels 16,000 14,000 12,000 Historical Corn Usage by Sector Carryout Ethanol Exports Industrial Distiller Grain Feed 10,000 8,000 6,000 4,000 2, Source: USDA Corn prices have minor impact on food prices Petroleum is the single largest factor contributing to food prices Continued increase in yields per acre allows for land to be used for food, feed, fuel & fiber Since 1991, the average corn yield has increased by 36% and is expected to increase by another 29% by (Source: Informa Economics, Inc.) 13

14 Production & Market Advantage Ethanol Facilities, Terminals and Midwest Supply Unique & extensive market coverage Calibration of production & purchases responsive to market dynamics Midwest Ethanol to Kinergy HQ Pacific Ethanol Plants Marketing Partner Plants Terminals 14

15 Marketing and Trading Business Diversifies revenue streams, insulates from volatile market conditions & contributes to cash flow Kinergy ethanol Provides transportation, storage and logistical services Extensive market presence in Western U.S. Pacific Ag. Products feed Manages corn procurement and risk management Develops and markets value added feed products Explores alternative, lower cost feedstocks for incremental use in existing ethanol plants Marketing Production Pacific Ethanol Plants: Stockton (60MGY) Magic Valley (60MGY) Columbia (40MGY) Madera (40MGY) Partner Plants: Calgren (55MGY) Keyes (55MGY) Trading Business to fill customer needs Dominant Market Position in Western United States 15

16 Established a Strong Platform for Growth Through industry lows of , Pacific Ethanol focused on strengthening its position as the leading low cost, low carbon renewable fuel producer in the Western United States Reduced Overall Debt Improved Operating Efficiencies Developed Incremental Revenue Streams Reduced Overhead Expenses Increased Plant Ownership to 96%* Establishing a solid foundation for long term growth *In Q3 2014, purchased an additional 5% ownership interest in Pacific Ethanol plants to 96% at a weighted average cost of thirty cents per gallon of annual operating capacity. 16

17 Strong Margin Environment Production margins sustaining higher levels 1.60 Adjusted Crush Margin $/gal * Source: PEIX *Calculated by using PEI Ethanol (CBOT Corn+basis) *(1 Co product return)/2.74 industry standard conversion yield. Using PEI ethanol sales price, corn basis and co product return as disclosed in Form 10 Q for each quarter assumes a standard 2.74 in corn yield, consistent across all periods and all plants. Actual conversion yields may differ. For July and Aug 14 margin, used OPIS LA, CBOT Corn, market corn basis, and Q2 14 co product return. 17

18 Capital Projects Improving Long term Profitability Diversifying Revenue Planning to implement corn oil separation technology at Madera and Columbia plants with goal to begin production in early 2015 Improving Plant Yields and Efficiencies Improving yields with advanced grinding technologies at Magic Valley and Stockton plants Pacific Ethanol targets plant investments to contribute 5 6 per gallon in EBITDA annually Diversifying Feedstock Blending beet sugar at Magic Valley and Columbia; saved ~$1.7M in Q2 14 Awarded $3M matching grant from the CEC for Sorghum for CA Feedstock Project 18

19 Strategy for Advanced Biofuels Moving toward producing nextgeneration renewable fuels Leveraging existing facilities to explore use of alternative feedstocks, new technologies and production enhancements Working to convert corn fiber into cellulosic ethanol qualified by the EPA as cellulosic feedstock under the RFS Evaluating wheat straw production & cogeneration projects 19

20 Implementing Strategic Growth Strategy Leverage improved operational and financial positioning to reinvest in the business Complete capital improvement projects to enhance plant assets Integrate production & marketing supply chains Leverage core competencies & differentiated advantages Grow market share & return value to our shareholders 20

21 Experienced Leadership Neil Koehler CEO, Founder & Director Over 30 years in producing and marketing ethanol in CA Director of the CA Renewable Fuels Partnership Mike Kandris COO & Director Over 30 years of management experience Former President & COO, Ruan Transportation Management Systems Bryon McGregor CFO 25 years in treasury, banking and finance Formerly with E*TRADE Financial, BP (formerly ARCO) & Credit Suisse Christopher Wright VP & General Counsel Over 30 years in growth company BOD advisory Focus on securities and strategic transactions Jim Sneed VP Supply & Trading 29 years in finance, logistics, marketing & trading Formerly with Hawkeye Gold, LLC & Aventine Renewable Energy Paul Koehler VP Corporate Development 25 years in energy project development & marketing Formerly with PPM Energy, Portland General Electric and Enron, as well as co founder of ReEnergy 21

22 Board of Directors Bill Jones Chairman of the Board & Founder 20 years in California politics, 8 of which as Secretary of State ( ) Central Valley farmer and rancher Neil Koehler CEO, Founder & Director Over 30 years in producing and marketing ethanol in CA Director of the CA Renewable Fuels Partnership Mike Kandris COO & Director Over 30 years of general management experience in transportation and logistics Former President & COO of Ruan Transportation Management Systems Doug Kieta Director Former SVP for Calpine Construction Management Oversaw $18B build out of power assets Larry Layne Director Former Vice Chairman of Sanwa Bank Former Chairman of the Board of Eureka Funds Jack Prince Director Former President and CEO of Dairyman s Cooperative Creamery Association Former EVP of Land O Lakes Terry Stone Director CPA, 30 years of experience in accounting and taxation Owner of accountancy firm 22

23 Financial Overview Consolidated Statements of Operations (Figures below in thousands, except per share amounts) Q2 14 Q1 14 Q4 13 Q3 13 Q2 13 Q1 13 1H H 2013 FY 2013 Net sales $ 321,144 $ 254,543 $ 215,290 $ 233,880 $ 233,808 $ 225,459 Gross profit 33,576 38,545 21,596 3,523 6, SG&A 4,315 3,670 4,372 2,511 3,133 4,005 Operating income (loss) 29,261 34,875 17,224 1,012 3,832 (3,159) Fair value adjustments 485 (35,844) (2,520) 762 1,437 (692) Interest expense (2,886) (4,351) (3,688) (4,530) (3,972) (3,481) Gain (loss) on extinguishments of debt (2,363) (1,240) (2,573) (39) 817 Provision for income taxes (7,196) Consolidated net income (loss) 16,966 (8,817) 9,745 (5,435) 1,130 (6,602) Net income (loss) to common $ 15,257 $ (11,138) $ 8,274 $ (5,290) $ 736 $ (5,766) stockholders Net income (loss) per share, diluted $ 0.68 $ (0.69) $ 0.54 $ (0.40) $ 0.07 $ (0.04) Adjusted net income (loss) (1) $ 17,135 $ 24,706 $ 12,034 $ (3,479) $ (662) $ (5,891) Adjusted net income (loss) per share, diluted (1) $ 0.77 $ 1.34 $ 0.79 $ (0.26) $ (0.05) $ (0.59) Adjusted EBITDA (2) $ 27,823 $ 35,395 $ 18,259 $ 3,445 $ 6,573 $ 355 $ 575,687 $ 459,267 $ 908,437 72,121 7,811 32,930 7,985 7,138 14,021 64, ,909 (35,359) 745 (1,013) (7,237) (7,453) (15,671) (2,363) 778 (3,035) (10,466) 8,149 (5,472) (1,162) $ 4,119 $ (5,030) $ (2,046) $ 0.20 $ (0.48) $ (0.17) $ 41,841 $ (6,553) $ 2,002 $ 2.04 $ (0.63) $ 0.16 $ 63,218 $ 6,929 $ 28,633 (1) Reconciling tables for Adjusted Net Income (Loss) and Adjusted EBITDA are available on slide 30 of the presentation 23

24 Balance Sheet Summary (Figures below in thousands, except per share amounts) At: June 30, 2014 March 31, 2014 December 31, 2013 September 30, 2013 June 30, 2013 Cash & cash equivalents $ 25,923 $ 7,846 $ 5,151 $ 9,175 $ 6,983 Current assets 112,413 99,787 79,377 63,274 71,435 Total assets $ 272,713 $ 260,007 $ 241,049 $ 226,469 $ 230,397 Current liabilities $ 33,280 35,699 28,216 19,039 20,894 Total liabilities $ 104,816 $ 150,408 $ 146,148 $ 146,314 $ 156,525 Stockholders equity $ 167,897 $ 109,599 $ 94,901 $ 80,155 $ 73,872 Total liabilities & stockholders equity $ 272,713 $ 260,007 $ 241,049 $ 226,469 $ 230,397 Cash in mid August 2014 was ~$52 million 24

25 Debt Reduction Highlights Balances as of Change from $ in thousands 12/31/13 3/31/14 6/30/14 12/31/13 6/30/14 Parent Debt* Senior Unsecured Notes $ 13,984 $ 977 $ $ (13,984) Related Party Note 750 (750) $ 14,734 $ 977 $ $ (14,734) Plant Debt** Plant Revolvers to 3rd Parties $ 35,378 $ 16,000 $ $ (35,378) Plant Term Debt to 3rd Parties 31,678 31,678 17,003 (14,675) $ 67,056 $ 47,678 $ 17,003 $ (50,053) Total Debt Reduction $ (64,787) * Excludes unamortized debt discounts ** Excludes debt purchased by Parent 25

26 Goals for 2014 Capital Improvements Improve efficiencies Diversify Feedstock Further advanced biofuels initiatives Strengthen Financial Position Maintain strong cash flows Refinance/ repay legacy debt Improve long term profitability & expand market share 26

27 Thank You Appendix 27

28 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 Net Income (Loss) as unaudited earnings before fair value adjustments and warrant inducements and gain (loss) on extinguishments of debt. The company defines Adjusted EBITDA as unaudited earnings before interest, provision for income taxes, depreciation and amortization, fair value adjustments and warrant inducements and noncash gain (loss) on extinguishments of debt. Tables are provided at the end of this presentation that provide a reconciliation of Adjusted Net Income (Loss) and Adjusted EBITDA to their most directly comparable GAAP measures. Management provides these non GAAP measures 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 Net Income (Loss) and Adjusted EBITDA are not measures of financial performance under GAAP, and should not be considered alternatives 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 Net Income (Loss) and Adjusted EBITDA have limitations as analytical tools and you should not consider these measures in isolation or as a substitute for analysis of the company s results as reported under GAAP. 28

29 Non GAAP Reconciliations Adjusted Net Income (Figures below in thousands, except per share amounts) Q2 14 Q1 14 Q4 13 Q3 13 Q2 13 Q1 13 Net income (loss) attributed to common shareholders $ 15,257 $ (11,138) $ 8,274 $ (5,290) $ 736 $ (5,766) Fair value adjustments (485) 35,844 2,520 (762) (1,437) 692 Extinguishments of debt 2,363 1,240 2, (817) Adjusted net income (loss) $ 17,135 $ 24,706 $ 12,034 $ (3,479) $ (662) $ (5,891) 1H H 2013 FY 2013 $ 4,119 $ (5,030) $ (2,046) 35,359 (745) 1,013 2,363 (778) 3,035 $ 41,841 $ (6,553) $ 2,002 Diluted shares 22,276 18,482 15,293 13,177 12,135 10,060 Adjusted net income (loss) per share diluted $ 0.77 $ 1.34 $ 0.79 $ (0.26) $ (0.05) $ (0.59) 20,514 10,462 12,264 $ 2.04 $ (0.63) $ 0.16 Adjusted EBITDA Q2 14 Q1 14 Q4 13 Q3 13 Q2 13 Q1 13 Net income (loss) attributed to $ 15,572 $ (10,826) $ 8,593 $ (4,971) $ 1,051 $ (5,454) Pacific Ethanol Adjustments: 2,551 Interest expense* 4,044 3,138 3,997 3,393 2,731 Provision for income taxes 7,196 3,270 Extinguishment of debt noncash 1,240 2,573 1,037 Fair value adjustments (485) 35,844 2,520 (762) (1,437) 692 Depreciation & amortization expense* 2,989 3,063 2,768 2,608 2,529 2,386 Total adjustments 12,251 46,221 9,666 8,416 5,522 5,809 Adjusted EBITDA $ 27,823 $ 35,395 $ 18,259 $ 3,445 $ 6,573 $ 355 1H H 2013 FY 2013 $ 4,746 $ (4,403) $ (781) 6,595 6,124 13,260 10,466 1,037 4,850 35,359 (745) 1,013 6,052 4,915 10,291 58,472 11,331 29,404 $ 63,218 $ 6,929 $ 28,633 * Adjusted for non-controlling interests.: 29