Pacific Ethanol, Inc. (NASDAQ: PEIX) INVESTOR PRESENTATION DECEMBER 2017

Transcription

1 Pacific Ethanol, Inc. (NASDAQ: PEIX) INVESTOR PRESENTATION DECEMBER 2017

2 Safe Harbor Statement Statements and information contained in this communication that refer to or include Pacific Ethanol s estimated or anticipated future results or other nonhistorical 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 market conditions, includingthe supply of and domestic and international demand for ethanol and co-products; growth for these products, as well as margins, commodity prices and export conditions; ethanol blend rates; expectations regarding improvements in operating efficiencies and the carbon intensity of ethanol produced,including from new technologies; the timing, effectiveness, and cost and energy savings, of technologies and improvements implemented at PacificEthanol s plants; the timing and ability of Pacific Ethanol to qualify its cellulosic ethanol production for D3 RINs; 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 operatingcosts, and lower the carbon intensity of ethanol produced; capital expenditure projects and their associated costs; the expansion of E15 infrastructure and related effects on the demand for ethanol; benefits of the acquisition of Illinois Corn Processing, including future financial and operating results; the contemplated CoBank loan financing transaction; 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 economicand market conditions, including for ethanol and its co-products; fluctuations in the prices of oil and gasoline; raw material costs, including ethanolproduction input costs; changes in governmental regulations and policies; insufficient capital resources; the ability to timely and successfully execute on plant improvement initiatives or install new technologies, or both. 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; the inability to timely and efficiently integrate the operations and business of Illinois Corn Processing; the inability to timely close the CoBank loan financing transaction; 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; 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 November 9,

3 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 strategically located bio-refineries in the U.S. Production capacity of 605M gallons/yr. STOCK PROFILE AT 12/08/2017: Nasdaq: PEIX Trading at $4.30 Market cap of $190.2M Current run rate of 1B gallons/yr. of marketing volume Co-product production capacity of over 1.5M tons/yr. (on a dry matter basis) 05 Positioned to access 48 states and export markets with fuel ethanol and industrial-grade alcohol production and marketing 3

4 Reasons to Invest CONTINUED LONG-TERM DEMAND FOR ETHANOL Octane, carbon and cost benefits of ethanol driving market growth Regulations support long-term increasing demand for renewable fuels Growing export environment supports demand for domestic ethanol LEVERAGING OPERATING PLATFORM TO DRIVE GROWTH Strategically located bio-refineries serve multiple markets Diversity of production, geography, technology, feedstocks and logistics Implementing plant improvements to increase efficiencies and yields Acquired Illinois Corn Processing (ICP) in July 2017, expanding production to include fuel, beverage and industrial alcohol products (90mmgy) 4

5 Third Quarter 2017 Summary QUARTERLY NET SALES & TOTAL GALLONS SOLD $ in millions Gallons in millions 500 $442 $ $418 $405 $ Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Net sales Total Gallons Sold Q3 17 FINANCIAL HIGHLIGHTS Sequential and year-over-year quarterly improvements in Net sales Gross profit Operating income Net loss Adjusted EBITDA Record total sales of 250 million gallons Record 142 million production gallons 5

6 Ethanol: Lowest Cost & Cleanest Source of Octane ETHANOL VS. ALKYLATE Slate of crude oil supply and higher demand for premium fuel create octane shortage Auto companies calling for higher octane fuels to power next generation of increasingly efficient engines Gulf Ethanol per Octane Point Gulf Alkylate per Octane Point Higher blends of ethanol necessary to meet future octane and carbon reduction needs Opens up new export opportunities as world markets are increasingly octane short ((93 Premium - 87 Regular)/6)* (113-87) OCTANE VALUE Source: OPIS, EIA, CBOT 6

7 Corn: Production & Yield 15,148 o Record corn crop in 2016 o Four largest corn crops in history occurred in the last 4 years Source: USDA, July 2016 WASDE o U.S. average corn yield continues to increase Bushels/Acre AVERAGE CORN YIELD Source: USDA, July 2016 WASDE 7

8 Fundamentals Support Continued Demand U.S. MOTOR GASOLINE DEMAND BASED ON 4-WK AVERAGE CORN VS. CRUDE OIL Millions BBls per Day Corn [USC/BSH] WTI [USD/BBL] Range Source: NYMEX, CBOT, EIA CBT CORN First Month [USC/BSH] NYMEX Light Sweet Crude Oil (WTI) Futures Pit (Front Month) [USD/BBL] 8

9 Ethanol: Supply & Demand Record production and high inventory levels suppressing margins in Q4 In 2016, the mythical blend wall was breached with ethanol exceeding ten percent of gasoline supplied Over 1,000 stations in 29 states now offering E15 for sale Current ethanol pricing strongly incentivizing higher blends and growth in exports Crush Margin $/gal ETHANOL DAYS OF SUPPLY VS. MARGIN Days of Supply Current Margin vs DoS WEEKLY ETHANOL BLEND RATE 11.0% 10.5% 10.0% 9.5% 9.0% 8.5% 8.0% Source: OPIS, EIA, CBOT 9

10 Renewable Fuel Standard U.S. appeals court provided favorable decision regarding RVOs for 2015 & 2016 EPA released its RFS mandates for 2018, maintaining 15BGY for conventional ethanol E15 availability continues to expand; expected to be at almost 2,000 locations in 2018 Billion Gallons RENEWABLE FUEL STANDARD RFS- Conventional Biofuel RFS - Advanced Biofuel Installed Capacity Industry Production Total Demand Incl. Net Export blend 10% blend 15% Domestic Ethanol Demand

11 Low-Carbon Fuel Standards 25% CALIFORNIA LCFS PROGRAM REDUCTION IN CARBON INTENSITY CALIFORNIA ETHANOL PREMIUM $/GAL (CI 69.6) 20% 20.0%?? % % 5% 1% 2.0% 3.5% 5.0% 7.5% 10.0% % E - The California Air Resources Board (CARB) re-adopted the LCFS with the revised program effective Jan Oregon LCFS initiated Jan for a 10% reduction in carbon intensity by 2025 RFS is successful carbon policy at the national level Pacific Ethanol currently receives a $0.08 p/g premium over standard Midwest ethanol on each CA production gallon sold into the CA market 11

12 E15 could contribute significant GHG reductions under the LCFS in the near term 2018 Example: 10,000 gallons of gasoline 2018 Gasoline Standard = g/mj CARBOB carbon intensity = g/mj Ethanol carbon intensity = 55 g/mj 10,000 gallons of E10 9,000 gallons of CARBOB = 6.7 MT CO2e deficits 1,000 gallons of ethanol = 3.1 MT CO2e credits NET = 3.6 MT CO2e deficits 10,000 gallons of E15 8,500 gallons of CARBOB = 6.3 MT CO2e deficits 1,500 gallons of ethanol = 4.7 MT CO2e credits NET = 1.6 MT CO2e deficits -6% deficits +50% credits 12

13 Exports Create Growth Opportunity U.S. Ethanol Export and Import Million Gallons (50.0) (100.0) Import Export Net Export Source: EIA, Department of Commerce Exports Support Long-term Demand o U.S. ethanol exports expected to grow year-over-year in 2017 as blend levels increase internationally o Global demand is growing 2%-3% annually as global markets incorporate environmental and performance benefits o 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 13

14 Top Marketsfor U.S. Ethanol Jan. Oct 2017 Canada 26% Netherlands 2% Mexico 2% Columbia 1% Puerto Rico 1% Jamaica 2% Nigeria 2% UAE 3% Oman 1% India 13% Singapore 1% S. Korea 3% Philippines 5% Peru 3% Brazil 34% 2017 Exports Jan.-Oct.: 1.09 Billion Gallons 2016 Exports: 1.05 Billion Gallons 2015 Exports: 0.84 Billion Gallons 14

15 Illinois Corn Processing (ICP) Acquisition Pacific Ethanol now has nine production facilities with combined annual production capacity of 605 million gallons HIGHLIGHTS o Acquired ICP in July 2017 for approximately $76M o Adds 90 million gallons per year of production capacity o Diversifies production with high-quality alcohol products o Expands export opportunities with barge access o Creates synergies with existing adjacent production in Pekin, IL for a combined 250 million gallons of production o Expect ~$4.5M in annual cost savings within the first 12 months after closing o Immediately accretive to earnings o Multiple opportunities to improve yields, increase plant capacity utilization and continue to enhance ICP s production processes through additional capital investments 15

16 Midwest Bio-refineries Located near feedstock sources and directly linked to strong markets for ethanol and co-products Aurora, NE Aurora, NE Pekin, IL (ICP) Pekin, IL Pekin, IL Date of Operation: 2012 Annual Capacity: 110mmgy Technology: DDG/WDG, corn oil Date of Operation: 1995 Annual Capacity: 45mmgy Technology: DDG/WDG, corn oil Date of Operation: 2009 Annual Capacity: 90mmgy (fuel, beverage & alcohol) Technology: : DDG, corn oil, CO 2 Wet Mill/Yeast Date of Operation: 1981/1999 Annual Capacity: 100mmgy/55mmgy Technology: corn gluten feed, corn germ & meal, CO 2, yeast Date of Operation: 2007 Annual Capacity: 60mmgy Technology: DDG, corn oil 16

17 Western Bio-refineries Strategically located in the feed and fuel markets they serve Stockton, CA Madera, CA Burley, ID Boardman, OR Date of Operation: 2008 Annual Capacity: 60mmgy Technology: WDG, corn oil, cellulosic ethanol, terminal Date of Operation: 2006 Annual Capacity: 40mmgy Technology: WDG, corn oil, grain mill Date of Operation: 2008 Annual Capacity: 60mmgy Technology: WDG, corn oil Date of Operation: 2007 Annual Capacity: 40mmgy Technology: WDG, corn oil, CO 2 17

18 Co-Product Platform Production Distillers Grains with Solubles (DGS) & Wet Distillers Grains (WDG) Over 1M tons per year (tpy) (dry matter) of DDG & WDG Pacific Ethanol plants are strategically located near dairies and feedlots and able to sell WDG directly to those users in the heart of the livestock industries of California, Oregon, Idaho and Nebraska Distillers Corn Oil Over 85M 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 CO 2 Over 100K tpy Pacific Ethanol sells raw CO 2, another co-product of ethanol production, for processing into liquid CO 2 and dry ice 18

19 Wet Mill Co-Product Platform Production Corn Gluten Meal & Feed Corn Condensed Distillers Solubles (CCDS) Corn Germ Yeast 265k tpyof corn gluten feed and corn gluten meal annually Corn gluten meal is used primarily as a protein source & corn gluten feed is used as fiber, starch & steep water source in poultry, livestock rations, fish & pet foods CCDS is a palatable, free-flowing, energy and protein source for cattle and fits into a large number of feeding programs 70K tpyof corn germ Through the wet milling process we separate off the germ of the corn kernel and send it to third parties for further processing into corn oil and corn germ meal Over 50M pounds annually When extracted from the starch stream in the wet mill, yeast is processed, dried, bagged and sold for animal, pet and human food applications and is AIB food grade and also Kosher certified 19

20 Pacific Ethanol Marketing Experts in distribution and customer management OPPORTUNITIES Growing share in an expanding market Through Kinergy, Pacific Ethanol markets and trades ethanol with a combined production and marketing capacity of nearly 1 billion gallons/yr. Marketing agreements with two other CA ethanol producers Differentiated marketing & distribution capabilities Favorable ethanol blend economics Extensive trading relationships with Midwest ethanol producers and marketers Provides ethanol supply logistical services and inventory management Customers include both major and unbranded oil companies that distribute transportation fuel to retail customers Low-carbon fuel standards support demand 440.4M third party gallons sold in FY M third party gallons sold in FY 15 20

21 Serving Multiple Markets o Leveraging leading market share position on the West Coast to expand throughout the country o Expanding ethanol distribution capabilities through transportation arrangements such as recently signed unit Stockton, CA 60mmgy Boardman, OR 40mmgy Madera, CA 40mmgy Burley, ID 60mmgy Aurora, NE 110mmgy Aurora, NE 45mmgy (ICP) Pekin, IL 90mmgy Pekin, IL 100mmgy Wet Mill Pekin, IL 60mmgy train agreement at Pekin plant o ICP plant expands export opportunities with barge access HQ Pacific Ethanol Plants Marketing Partner Plants Terminals 21

22 Plant Investment Initiatives COGENERATIONsystem at Stockton plant anticipated to reduce annual energy cost by up to $4 million Producing CELLULOSIC ETHANOL at Stockton; commercial operations at Madera to begin this quarter; submitted for a pathway for Magic Valley INDUSTRIAL SCALE MEMBRANE SYSTEM at Madera; estimated operating efficiencies, energy savings and carbon premium combined = ~ $1 million annually at current market rates Installing 5-megawatt SOLAR POWER system at Madera plant; expected to reduce utility costs by approximately $1 million annually and lower our carbon score INTEGRATION OF ICP AND ANTICIPATED SYNERGIES expected to save $4.5 million annualized over the next nine months 22 22

23 Operating Results Summary ($ in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, Net sales $ 445,442 $ 417,806 $ 1,236,984 $ 1,183,038 Cost of goods sold 433, ,442 1,229,039 1,157,902 Gross profit 12,065 6,364 7,945 25,137 Selling, general and administrative expenses 8,720 5,971 22,932 20,436 Income (loss) from operations 3, (14,987) 4,701 Fair value adjustments (69) 473 (53) Interest expense, net (3,826) (3,874) (9,157) (16,643) Other income (expense), net (60) 32 (293) 92 Loss before provision (benefit) for income taxes (541) (3,518) (23,964) (11,903) Provision (benefit) for income taxes (245) Consolidated net loss (541) (3,518) (23,964) (11,658) Net loss attributed to noncontrolling interests 339 2,285 Net loss attributed to Pacific Ethanol $ (202) $ (3,518) $ (21,679) $ (11,658) Preferred stock dividends $ (319) $ (319) $ (946) $ (949) Net loss available to common stockholders $ (521) $ (3,837) $ (22,625) $ (12,607) Net loss per share, basic and diluted $ (0.01) $ (0.09) $ (0.53) $ (0.30) Weighted-average shares outstanding, basic and diluted 42,475 42,226 42,358 42,156 Adjusted EBITDA* $ 13,152 $ 9,282 $ 13,885 $ 31, * A reconciling table for Adjusted EBITDA is available in the Appendix of this presentation

24 Balance Sheet Review ($ in thousands) BALANCE SHEET At: 9/30/17 12/31/16 Cash & cash equivalents $ 56,923 $ 68,590 Current assets 212, ,201 Total assets 730, ,238 Current liabilities 92,396 78,841 Total liabilities 333, ,977 BALANCE SHEET HIGHLIGHTS o Working capital over $120 million o Excess cash and liquidity* exceeded $105 million o Refinanced $47.5 million in promissory notes related to the ICP acquisition Stockholders equity 396, ,261 Total liabilities & stockholders equity $ 730,650 $ 708,238 * Liquidity is defined as excess borrowing availability 24 24

25 Strategy for Growth MISSION To advanceourposition and significantlyincreasemarket share asa leadingproducer and marketer of low-carbon renewablefuelsand high-qualityalcoholproductsin the United States Continuing to evaluate and make investments in initiatives that Promote production efficiencies Diversify production and revenue Improve our carbon score Improve plant profitability. 25

26 Thank You

27 Agronomic improvements have further reduced energy intensity and carbon impacts of feedstock production BTU/Bushel 70,000 60,000 50,000 40,000 30,000 20,000 10,000 Lbs. CO2e/Bushel Total Energy Use per Bushel of Corn Produced Source: Gallagher et al. (USDA, 2016); 2015 extrapolated based on known yield GHG Emissions per Bushel of Corn Produced, Source: Field to Market 2012 Environmental and Socioeconomic Indicators Report >40% reduction since % reduction between 1980 and Gallons/Bushel kwh/bushel Cu. Ft./Bushel Energy Inputs per Bushel of Corn Produced Liquid Petroleum Products Diesel Gasoline LP Gas Electricity Natural Gas Source: Gallagher et al. (USDA, 2016); 2015 extrapolated

28 Steady Gains in Ethanol Production Efficiency New technologies adopted by grain ethanol producers Combined heat & power Corn oil extraction Selective milling Fiber separation Advanced enzymes Low-temp fermentation Variable frequency drive for pumps Membrane separation Molecular sieve Heat exchangers/transfer CO 2 capture Differential temperature dryers Process water recovery DG cooling enhancement 93% natural gas or biogas energy BTU/gallon (LHV) kwh/gallon 40,000 37,500 35,000 32,500 30,000 27,500 25,000 22,500 20, Thermal Energy Use for Ethanol Production Electricity Use for Ethanol Production % 30% 20% 10% Million Gallons Per Year (mgy) 0% Process Technology and Thermal Energy Feedstock Changes, Coal Share of Thermal Energy 32% Wet Mill Share of Total Capacity 30% 8% 7% Historical Average Ethanol Plant Capacity

29 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. 29

30 Adjusted EBITDA Reconciliation (Figures below in thousands) 3 Mos. 9/30/17 3 Mos. 9/30/16 9 Mos. 9/30/17 9 Mos. 9/30/16 Net loss attributed to Pacific Ethanol $ (202) $ (3,518) $ (21,679) $ (11,658) Adjustments: Interest expense* 3,781 3,874 9,062 16,643 Provision (benefit) for income taxes (245) Fair value adjustments (473) 53 Depreciation and amortization expense* 9,573 8,857 26,975 26,526 Total adjustments * Adjusted for non-controlling interests 13,354 12,800 35,564 42,977 Adjusted EBITDA $ 13,152 $ 9,282 $ 13,885 $ 31,319 * Adjusted for noncontrolling interest