Good day, ladies and gentlemen, and welcome to the Pacific Ethanol Second Quarter 2014 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce the host of today's conference, Monica Chang of LHA. Ma'am, you may begin.

Thank you, operator, and thank you all for joining us today for the Pacific Ethanol second quarter 2014 results conference call. On the call today are Neil Koehler, President and CEO; and Bryon McGregor, CFO. Neil will begin with a review of the business highlights. Bryon will provide a summary of the financial and operating results. And then Neil will return to discuss the company's outlook and open the call for questions. Pacific Ethanol issued a press release yesterday providing details of the company’s quarterly results. The company also prepared a presentation for today’s call that is available on the company website at pacificethanol.net. If you have any questions, please call LHA at (415) 433-3777. A telephone replay of today’s call will be available through August 7, the details of which are included in yesterday’s earnings 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, July 31; and therefore, you are advised that time-sensitive information may no longer be accurate at the time of 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 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, events, risks and other factors previously and from time to time disclosed in Pacific Ethanol’s filings with the SEC. Except as required by applicable law, the company assumes no obligation to update any forward-looking statements. 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 net income loss as unaudited earnings before fair value adjustments and warrant inducements and gain loss on extinguishments of debt. Adjusted EBITDA is defined by the company as unaudited earnings before interest, provisions for income taxes, depreciation and amortization, fair value adjustments and warrant inducements and noncash gain loss on extinguishments of debt. To support the company’s review of non-GAAP information later in this call, reconciling tables are included in yesterday's press release. It is now my pleasure to introduce Neil Koehler, President and CEO. Neil?

Thanks, Monica, and thank you, all, for joining us today. Pacific Ethanol continues to perform exceptionally well. The plants are operating at excellent margins. Our marketing business continues to grow in both gallons sold and overall margin contribution. And we are investing capital in our core production business to further reinforce our market position. Our second quarter performance was solid. Net sales increased 37% over last year's second quarter. Total gallons sold grew to a record 132 million gallons. We restarted our Madera plant. Net income was $15 million or $0.68 per share. Adjusted net income was $17 million or $0.77 per share. Our adjusted EBITDA was $28 million. Our cash position as of June 30, 2014, was $26 million, and as of July 29, was $48 million, after approximately $20 million of warrant exercises in July. We eliminated all debt at the parent level, and our consolidated third-party plant debt was reduced to $17 million. Industry dynamics in the first 6 months of 2014 were positive, as sound market fundamentals drove strong demand for our products and favorable production margins. Overall ethanol demand remains at expected levels in the U.S., while exports provide overall balancing support to the industry. This year's corn crop is on track to be a record harvest. And we expect global supply and demand for ethanol to provide continued underlying support for strong ethanol margins. Ethanol continues to trade at a significant discount to gasoline, currently close to $1 per gallon on the forward curve. And corn prices are trading at nearly half the price they were 2 years ago. The USDA projects the carryout from the 2014-2015 crop to be one of the largest levels in many years. During the period of rebuilding from the industry lows of 2012 and through drought-induced high corn…

Thank you, Neil. Our strong operating performance for the second quarter of 2014 demonstrates our focus on building plant efficiencies and profitably strengthening our market share. During the second quarter of 2014, we reported net sales of $321 million, up 37%, compared to $234 million in the second quarter of 2013. This increase was primarily driven by increases in total gallons sold, which were a record of 132 million gallons in the quarter. This represents a 31% increase from the same quarter last year and a 17% increase over last quarter. We continue to benefit from both improved ethanol margins and ongoing plant efficiency initiatives. This is reflected in our gross profit of $34 million this quarter, which compares to $7 million in the second quarter of last year. SG&A expenses were $4 million compared to $3 million in the second quarter of 2013. The increase in SG&A is primarily due to an increase in compensation cost tied to our continued profitable results and an increase in professional fees from increased corporate productivity. At current levels of operation, we would expect our SG&A run rate through year end to approximate $4 million quarterly. This quarter's operating income was $29 million. We increased operating income by $25 million on a year-over-year basis. Interest expense net was $3 million and included a $1 million one-time expense related to the accelerated amortization of deferred financing fees and discounts on earlier higher debt. This compares to $4 million in interest expense net in the second quarter of 2013. The year-over-year decrease resulted from our reduced debt balances. We would expect, with current balances remaining constant, a quarterly interest expense going forward of less than $1.5 million. Loss on extinguishment of debt was $2 million and reflects the premium we paid to redeem debt from…

Thanks, Bryon. Our efforts over the past couple of years have been set firmly on establishing a stronger company. We strengthened our balance sheet, reestablished a 91% ownership interest in our plants and maintained those assets to position us for growth when the markets improve. Our differentiated business model has returned exceptionally good results for our shareholders in the first half of 2014. And the outlook for the industry and the company remain strong. As we look ahead, we are committed to reinvesting capital in our plant assets through projects aimed at improving efficiencies, diversifying feedstock, creating new products and furthering our advanced biofuels production initiatives. We remain focused on maintaining our strong cash position and disciplined investment strategy. We believe we are well situated to improve our long-term profitability and expand our share of the renewal biofuels market. Tareya, we are now ready to take any questions.

[Operator Instructions] And our first question comes from the line of Nathan Weiss of Unit Economics.

A couple of quick questions. So given your disclosure of your cash balances as we approach the end of July, as well as more still outstanding in still a pretty favorable margin environment, how do you think about balance sheet, yet again? And in particular, when I look at working capital, defined as receivables, inventories would be paid inventories minus payables, it's about $60 million that could potentially be unlocked through some sort of line of credit via a very favorable interest rate. How do you think about the structure going forward?

Well, certainly, that's a great question. And we are always evaluating ways to maximize our balance sheet and, obviously, made a lot of progress in that regard, looking at potential opportunities to bring in some -- and really refinance the remaining debt with a much lower interest rate and in a way that could free up some additional cash. We certainly just outlined a pretty aggressive investment strategy that becomes a source of -- a use of many of those funds. And we also believe, to stay well positioned for opportunistic growth and to have a solid foundation, that maintaining a pretty large cash balance is not a bad thing in today's environment. But we continue to evaluate all opportunities to optimize the use of cash to the benefit of the company and its shareholders.

And I know you've been largely capital-constrained in the last few years. I imagine you have some pretty attractive potential projects. But can you give any insight either in kind of aggregate dollar amounts or a couple of examples of projects you'd like to do and what they cost? And in particular, what kind of paybacks? And how many years do you think you're going to see payback in some of these investments?

Sure. And if you look at what we talked about and certainly the $16 million, good part of that is the 2 corn oil projects looking at other fine-grind opportunities and the 2 other plants making some piping and configuration changes on some of the process equipment that improve efficiencies as well. And if you look at those projects that we generally outlined in aggregate of $16 million and 6 to 9 months to complete all of those projects and improving our EBITDA $0.05 to $0.06 per gallon, running that math shows a very quick return of less than 2 years.

[Operator Instructions] Our next question comes from the line of Craig Irwin of Wedbush Securities.

So Neil, over the course of '14, we have seen some fairly significant changes to the futures curve. And spot profitability has done some very nice things. Can you comment, today where we sit in the third quarter, have you seen some of the strengthening benefit to your P&L to-date? And do you subscribe to the view that was shared by one of your competitors recently that the fourth quarter could continue to see strengthening from where we're at right now, given the corn dynamic and this continued strong export demand?

Yes, we're very optimistic about the future. We are seeing a much stronger forward margin curve. It's always an inverse. There is always less of a margin out forward, given the -- frankly, still the lack of liquidity in that futures market. But this is some of the best forward margin on paper that we've really ever seen in the business, and the spot margins continue to be stronger than that. So it is a very good margin environment today. And we do anticipate that really, not just through the fourth quarter but into 2015, we expect a continued strength. We have a fundamental value proposition between the cost of corn and the cost of crude oil, where ethanol can generate nice profitability of producers and still be sold into the market at a very significant discount to gasoline for a product that also provides needed octane here in the United States and increasingly around the world. So we are seeing the export market support that. We actually, just very recently, have been seeing a lot of activity on booking exports for the fourth quarter and into the first. And that bodes very well for this continued strength in the margin environment.

Second question I wanted to ask was: The proposed tanker trains out there look like they could slow down the rail cars that carry ethanol around the country would create an artificial change to the, I guess, overall inventories. It's one way to think about it. But given that you transport all your ethanol by truck, do you see this as something that would advantage Pacific Ethanol, if it's implemented as written today?

Quite definitely. We do believe that, given the issues that have been out there on rail safety and the accidents, that these regs will be implemented. There could be changes to the proposed rule, but something will be implemented that will impact ethanol and will raise the cost of shipping ethanol by rail. And as you accurately pointed out, we don't ship any of our produced ethanol by rail; it all is sold locally by trucks. So we've already seen a competitive advantage, given the rail logistics constraints out there. It has raised the ethanol basis from Chicago to our market Southwest, as those costs are being pushed through the market. And so that has, in 2014, been a significant advantage for us. And longer term, as we see these new rail car regulations implemented, that will sustain a continued advantage for us not having to ship our product in rail cars.

And my last question, if I may. There has been a lot of discussion about the Brazilians increasing their blend rate from 25% to 27.5%, maybe 26%, but that's still positive; and then the potential for the Brazilians to remove price controls on their gasoline, something that will be stimulative also for economic switching, given that the higher cost of a gasoline molecule than an ethanol molecule. Can you comment whether or not these would be incremental to the outlook in '15 or if you think we face a robust '15 market even in the absence of potential changes in Brazil that would be more supportive of increasing exports?

Our current deal -- again, if you do not see any major changes in the relationship between corn and oil, our outlook for 2015 is very positive. I would agree that, incrementally, what you outlined as occurring in Brazil could add further strength to what already is a strong forward outlook. I would also add to your comments that they continue to fight weather situations. It's very dry down there. They are not having great cane crops. And they are having that -- and before they increase the blend rates, they're having a difficult time keeping up with their own domestic demand, which is why Brazil is the second largest export market for the U.S. producers.

Our next question comes from the line of Paul Resnik of Uncommon Equities.

On DG -- the dry distiller grain prices have struggled lately, perhaps reflecting China's new restrictions. Now you don't sell DDGs. You sell wet distiller grains. How is that market holding up?

It is -- holding up or not holding up, just happy dry distiller grain markets. We generally peg our WDG pricing on a moisture-adjusted basis to dry distiller grain pricing. And as you pointed out, we've seen tremendous weakness in that market. And it is primarily due to the Chinese currently making it very difficult to import -- export DGs to that country. We think that, over time, they will again open that market up. This is a repeated cycle with the Chinese to buy a tremendous amount of our distillers grains, which is very stimulative to the overall price then to back off, see prices drop, and to step back in. So it has had a significant impact. We, as an industry, were selling dry distillers grains at pretty good and historically high premiums to corn. It now in tending to be sold at a discount to corn as it clears the markets to get back into domestic rations in the poultry and swine and also to incentivize other countries to become buyers of our distillers grains. That being said, the margin has not -- margin profile has changed, to whereas corn prices have come down so rapidly, ethanol has not fallen with corn. And even with the large drops of distillers grain, margins continue to be strong because it's been made up on the ethanol side.

Great. Do you know what the -- do you guys have an estimate of what the current premium that's been -- is currently been provided by your low-carbon footprint on a per-gallon basis?

It's currently about $0.02 a gallon. It's been, as recently as 6 months ago, was quite a bit higher than that. As the Air Resources Board -- California Air Resources Board is reauthorizing that program, there has been a pause in the program. It doesn't increase in terms of the percent reduction in carbon intensity now until 2016. So that has created somewhat of a lull in that market. We anticipate, as the state makes their plans for reauthorization quite clear over the next number of months, that we will again see an increase in carbon credit pricing.

Okay. And couple of questions about what's going on in Washington. The much delayed EPA decision on RFS is now expected in August. Does that seem -- do you think we're finally getting there?

Well, certainly, the EPA has redefined the word "soon", and so I can't really tell you whether we're getting there or not. But we hear the same thing as you hear. And frankly, I'd probably put that closer to September. The proposal has not yet gone to the OMV, and it's probably 30 days after that. So I think we're now probably looking at September. Clearly, given the dynamics in the market, it's immaterial to the current market environment. It becomes material for the longer-term future of advanced biofuels. And we are cautiously optimistic that the final rule will be more supportive of all forms of renewal fuels than the proposed rule.

And one last question. You certainly have found a very worthwhile use for $16 million, but that still leaves $32 million and rising as far as your cash position. In addition to plant improvements, could you envision some areas where acquisition would make sense?

Sure. We do believe that this industry will continue to rationalize and consolidate. And we view our position in the market as strong enough to be some -- a company that is in the M&A arena. So we certainly would advise you if anything material comes up in that regard, but we are open to opportunities.

Thank you. At this time, I'm showing no other further participants in the queue. I would like to turn the call back over to Neil Koehler for any closing remarks.

Again, thank you all very much for joining us today. This was a great quarter. We have a very positive outlook on our results and performance going forward as a company and an industry. We really appreciate everyone's support of the company. And we will talk to you next quarter. Thank you.

Ladies and gentlemen, thank you for your participation on today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.