Good day, ladies and gentlemen, and welcome to the Pacific Ethanol Incorporated Fourth Quarter and Year End Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Ms. Moriah Shilton, LHA Investor Relations. Ma'am, you may begin.

Thank you, Juel, and thank you all for joining us today for the Pacific Ethanol fourth quarter and full year 2018 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, Bryon will provide a summary of the financial and operating results, and then Neil will return to discuss Pacific Ethanol's outlook and open the call for questions. Pacific Ethanol issued a press release yesterday providing details of the Company's financial results. The Company also prepared a presentation for today's call that is available on the Company's website at pacificethanol.com. If you have any questions, please call LHA at 415-433-3777. A telephone replay of today's call will be available through March 20th, 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, March 13th and therefore you are advised that the 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 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. In management's prepared remarks, non-GAAP measures will be referenced. Management uses these non-GAAP measures to monitor the financial performance of operations and believe these measures will assist investors in assessing the Company's performance for the periods being reported. The Company defines adjusted EBITDA as unaudited net income or loss attributed to Pacific Ethanol before interest expense, provision or benefit for income taxes, asset impairments, purchase accounting adjustments, fair value adjustments, and depreciation and amortization expense. To support the Company's review of any non-GAAP information later in this call, a reconciling table was included in yesterday's press release. It is now my pleasure to introduce Neil Koehler, President and CEO. Neil?

Thanks, Moriah, and thank you everyone for joining us today. At Pacific Ethanol, we are focused on delivering long-term sustainable growth and profitability for our shareholders by being a leading producer and marketer of low-carbon renewable fuel and high value feed and alcohol products. Through both organic growth and acquisitions, we have established a footprint of nine plants with an annual capacity of more than 600 million gallons while diversifying product offerings and expanding nationally. The ethanol production facilities we originally built in the west and the facilities we subsequently purchased in the Aventine and ICP acquisitions are valuable assets. We have invested significant resources into these facilities to improve performance, diversify revenue streams, build efficiencies and lower production cost. There remains additional cost-effective opportunities to continue to improve these facilities and make them some of the most competitive in the world. This is important as the biofuels business is growing nationally and internationally fueled by the need for higher octane, low-carbon and low-cost transportation fuel. While the U.S. has been impacted by a combination of oversupply, regulatory uncertainty, demand destruction through the questionable overuse of small refinery exemptions and international trade disputes, we expect these negative forces to change for the better and return the industry and Pacific Ethanol to a much stronger position. All this being said, we believe our platform’s value is not appropriately reflected in our current enterprise valuation at less than $0.30 per gallon against recently publicly announced asset sales of over $1 per gallon and replacement value in excess of $2 per gallon. To remedy this, we have initiated a plan to complete over the next six months a strategic realignment of our business. Our current focus is on the potential sale of production assets, a reduction of our debt levels, by strengthening of…

Thank you, Neil. For the fourth quarter 2018, compared to the fourth quarter of 2017, net sales were $334 million, compared to $395 million. The 15% decline in sales is attributable to lower ethanol prices, fewer gallons produced and fewer third-party gallons sold. The lower production gallons resulted from our decision to moderate production in response to lower ethanol prices and negative ethanol margins. As noted in previous quarters this year, the reduction in third-party gallons was due to our intentional and successful effort to improve the profitability of that area of our business. Cost of goods sold was $355 million, compared to $397 million in the prior year’s quarter, a reflection of lower production and third-party ethanol sales. Gross loss for the quarter totaled $21 million, compared to $2 million in the prior year's quarter due to historically low ethanol margins. SG&A expenses were $9.2 million, up from $8.6 million due to higher legal cost and the full year ICP results. We expect SG&A for Q1 to total $9 million. Loss available to common shareholders was $32.3 million or $0.74 per share, compared to $13.6 million, or $0.32 per share. Adjusted EBITDA was negative $18 million, compared to $273,000 in the year ago period. For the full year of 2018 compared to 2017, net sales were $1.52 billion, compared to $1.63 billion. Production gallons sold were 556 million of a total 883 million gallons sold. Cost of goods sold was $1.53 billion, compared to $1.63 billion. Gross loss for 2018 was $15.2 million, compared to gross profit of $5.9 million. SG&A expenses were $36.4 million, compared to $31.5 million, the latter of which included $3.6 million in one-time gains associated with legal matters in the prior year. Loss available to common shareholders was $61.5 million, or $1.42 per share,…

Thanks, Bryon. As I open the call, we are confident that the compelling cost octane and carbon benefits of ethanol will drive both new domestic and export demand in 2019. We expect both domestic and export demand to achieve new highs in 2019 as a result of increased penetration of E15 and the easing of trade tensions. With more regulatory certainty, a proper implementation of the RFS and freer international trade, the ethanol industry is poised to tighten the supply and demand balance returning the industry to a stronger financial position. And with our strategic realignment process, we are currently undertaking, we are taking necessary steps to best position Pacific Ethanol to benefit. With that Juel, I would like to open the call for questions.

[Operator Instructions] Our first question comes from Eric Stine with Craig-Hallum. Your line is now open.

Hi, Neil, hi, Bryon.

Morning.

Morning, maybe just first a two-part question on the strategic restructuring. Just maybe more details on what you would need to do with your assets to get them in a spot where they are potentially for sale? And then, secondly, you talked about further operational initiatives, was above and beyond what you’ve got underway today and potentially what type of CapEx would that require?

On the first part of the question, all of our plants are operating and operating very efficiently other than the one plant Aurora East in Nebraska that is currently idle. So to that extent they are all ready for whatever dispositions at this point, we are running them and running them well and benefiting from some improved market conditions. As I said on the prepared remarks, we have hired Piper Jaffray to look at the potential disposition of some assets. And that’s prospective, so, we’ll just have to see how that plays out, but we think that that could be an important part of our realignment. In terms of initiatives, we talked about the ones that are in play. We do have any number of other ones as markets improve and whether it’s adding to our solar, whether it’s putting in new technologies to significantly reduce natural gas at our facility that serve the low-carbon markets and that will depend upon capital and market conditions. But they - you are aware of the ones that are underway and are being finished up.

Yes, yes, okay. Good, maybe just more of an industry question. I know you mentioned 85% of capacity and definitely hearing from others in the industry cutting back on that as well. But production has still remained stubbornly high and so, just curious what you are seeing now? And do you think as we get into summer driving season, that people have the – that are thoughtful about that in keeping production where it needs to be or do you expect that to come back?

Well, I – there is certainly been enough pain and suffering in the industry where it has forced people to take a more silver look at that and to reduce rates and you are right, inventories have remained high, production rates have been higher than they should be. But I would also point out that, quite a bit a low capacity, I mean, this industry can produce at or even above 17 billion gallon rate per year and rightly should be a great market for that and more. But today, it’s not quite at those rates. Encouraging over the last couple of weeks, we have seen production come off, the numbers that came out this morning had us running at a production rate of 15.4 billion gallons annualized. So that’s quite a bit less than full capacity. Inventories were down over 2% and demand was up. So, if you look at the annualized, we are in balance actually with the exports and domestic producing a bit less than the market is calling for which is why the inventories came down. So, the trend is good and we always see at this time of the year and I think there is a little more discipline. Again, given the very difficult financial environment the industry has found itself in to try to keep some balance there that will continue to see margins improve.

Yes, okay. And maybe last question for me. Just as we think about early 2019 and basis, weather in the Midwest has been pretty severe. Just curious if that has caused any issues with basis, I guess, particularly in the first quarter.

Yes, on corn basis and ethanol basis, we’ve seen increases in both. Unfortunately, the increase in corn basis that we’ve seen on a short-term basis has been greater on a per gallon basis than the improvement in the Chicago to LA ethanol spread. So that has pinched the – in the first quarter, the West Coast plants to some degree. We are seeing that bases come back down to normal. So, it was a temporary impact and with demand continuing to improve, domestically and globally for ethanol, we are encouraged to see the strong West Coast bases and we hope that that would continue and on top of that, we have a very strong carbon premium because those markets continue to be very robust.

Okay, thanks. I’ll take the rest offline.

All right.

Thank you. [Operator Instructions] Our next question comes from Sameer Joshi with H.C. Wainwright. Your line is now open.

Thanks, Neil. Thanks, Bryon. The question is related to the positive news on the E15’s front and also on the trade front, just positioned with your decision to divest some of your assets. If there is a positive outlook or what is prompting the sale now?

I kind of missed the last part of the question.

Oh, given that your outlook is good for – based on E15 and based on the trade dispute settlements, what justifies the shutting down or selling plants?

Right, well the Aurora East was shut down because its economics were marginal at the time and it was part of our efforts to do our part to reduce the overall production rates. That line can be turned on any time and we continue to evaluate that. But the last part to Eric’s question, it’s important that we take this one step at a time as an industry and don’t dial up production rates to where something we’re right back in the soup. As it relates to the potential sale of assets, I mean, that’s really looking at our own balance sheet. This will continue to be a commodity business very volatile one of that and while we are encouraged by improving conditions, we think it is prudent to address debt issues with the company. We do have debt that is maturing in December, working through our issues with our lenders in Illinois as well and that is part of addressing our specific balance sheet issues in a very proactive, prudent way, so that we can be even in a stronger position to benefit from the improving market conditions.

Okay. On the SG&A front, you mentioned one of the things you are doing is, raising costs at both the corporate and the plant level, operations level. What – have any of these changes been implemented and do they reflect in the 4Q numbers?

They do not. I mean, we’ve been continuing to run as efficiently as possible, but with some legal issues that we’ve been working through they were elevated in Q4. That is declining. So that will be an improvement. We’ve had vacancies both at the corporate level and even at the overhead levels at the plant we’ve not been selling. So it is a gradual trend and we are continuing to work very hard on that. We feel that our SG&A rates are on an enterprise basis are pretty efficient to begin with, but we are working to bring them even lower.

Okay, one last one from me. If you would invest in a lower carbon technologies and cellulose like technologies and solar and other investments, would that help or does that help with your exports if China opens up?

The China situation is just a overall supply and demand globally given that this is a global market and all boats will be benefited from that rising tides. As it relates to our low-carbon technologies, that strategy is always about selling our ethanol close to those markets and as to close to those plants that are located in those markets as possible. So, it would always be a higher value to sell with that very significant premium on carbon into those markets than export. That being said, we do have our production in Nebraska, that spreads very well to the Gulf and will be and has been part of supplying international markets.

Okay, great. Thanks for taking my questions.

Thank you. This concludes our question and answer session. I would now like to turn the call back over to Neil Koehler for any closing remarks.

Thank you all for joining us today. Appreciate your support of the company. We are encouraged by the trends in the market and the initiatives that we are taking as a company. And we look forward to speaking to you soon. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today’s program and you may all disconnect. Everyone have a wonderful day.