Good day, ladies and gentlemen, and welcome to the Pacific Ethanol Inc First Quarter 2019 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. Ma'am, you may begin.

Thank you, Lorraine, and thank you all for joining us today for the Pacific Ethanol first quarter 2019 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 quarterly results. The Company also prepared a presentation for today's call that is available on the Company's website at pacificethanol.com. A telephone replay of today's call will be available through midnight, 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 the information in this call speaks only as of today, May 2 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 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?

Thank you, Moriah, and thank you everyone for joining us today. As discussed on our year end call, we’re pursuing a number of strategic initiatives. In late March, we amended credit related agreements with certain lenders to provide us with additional flexibility and liquidity as we continue our review of potential sale of production assets, reduction of our debt levels, further strengthening of our cash and liquidity and opportunities for strategic partnerships and capital raising. We continue to make progress on our plans and believe we’re taking the appropriate steps to increase shareholder value to benefit all our stakeholders and to provide greater financial flexibility to facilitate future growth opportunities. We look forward to providing you substantive updates as they develop over the coming months. The ethanol market overall is emerging from the bottom of a cycle that occurred in the fourth quarter of 2018 when the crush margin was at a historical low. The first quarter of 2019 results reflect this improvement resulting in a promising start to the year. Our net sales of $356 million were up 6% sequentially. While loss available to common stockholders was [$13 point million] adjusted EBITDA was a positive $1.6 million for the first quarter. These results represent a significant improvement over the fourth quarter. When looking at the overall ethanol industry, we continue to believe the compelling cost octane and carbon benefits of ethanol will drive new demand in 2019 above 2018 levels. Two significant drivers of this expected growth are new exports and E15. First, in the export markets, we look forward to resolution of trade disputes with China which will open up a large new market for U.S. ethanol as China continues on the path to incorporating 10% ethanol blends into its gasoline supply. The steady retail adoption of E15…

Thank you, Neil. For the first quarter of 2019 net sales were $356 million compared to $334 million in fourth quarter. This sequential increase in sales is due impart to an over 5% improvement in our average sales price per gallon of ethanol as well as an over 21% increase in third party gallon sold, more than offsetting our reduction in production gallons of almost 11%. Our lower production output was intentional and consistent with prior guidance. The increase in third party gallons sold stems from our need to replace gallons not produced by our plans to fulfil first quarter contractual obligations. Although cost of goods sold was up $3 million sequentially to $358 million. Gross profit improved by overall $80 million reflecting the combination of improved crush spreads reduced input costs and lower operating expenses, including labor and repair and maintenance. We reduced SG&A expenses by approximately $1 million sequentially to $8.2 million, largely a reflection of reduced proportional fees and other operating expenses. Loss available to common stockholders was $13.2 million or $0.29 per share a $19 million improvement when compared to the $32.3 million or $0.74 per share in the fourth quarter. Adjusted EBITDA was positive $1.6 million, also a significant improvement over the negative $18 million in the fourth quarter. Turning to our balance sheet. At March 31, 2019 cash and cash equivalents were $21.8 million compared to $26.6 million at December 31, 2018. This decline is attributable to a combination of lingering tight margins, mandatory capital expenditures and advertising debt payments. Although cash may appear tighter better, advance rates under Kinergy line of credit alone, improved liquidity further by nearly $8 million. For the first quarter of 2019 our capital expenditures totaled $1.1 million mostly attributable to ongoing repair and maintenance of our facilities. Consistent with prior guidance plan, capital expenditure for the year 2019 are expected to total $4 million, again almost solely related to normal repair and maintenance of our facilities. Finally a note in the first quarter we adopted a new accounting standard for leases under which operating leases are reflected on our balance sheet adding $43.8 million in right-of-use assets and leased viabilities. The preponderance of these leases consists of our operating railcar and land leases. The adoption of these new provisions did not have a significant impact on our consolidated statement of operations. Additional details will be provided in our Form 10-Q. With that I’ll turn the call back to Neil.

Thank you, Bryon. In summary we believe conditions in the overall ethanol market will continue to improve, and 2019 domestic and export demand will surpass the record total output and export volumes set in 2018. We are pursuing several strategic initiatives to strengthen our balance sheet and provide us with greater financial flexibility to take advantage of the expected improved conditions. We look forward to updating you on our progress in these areas. With that Lorraine I’d like to open the call for questions.

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

Hi Neil, hi Bryon.

Good morning Eric.

So just thinking about the overall industry and I know as off late there’s been modest market improvement. Just curious, well first of all how you envision your production or utilization levels here in Q2 and going forward? And where you see the industry? Do you think that the industry is going to be more thoughtful about this, or as you get into summer driving season where the potentially production comes back faster than it probably should?

Well that’s really a challenge, I do think that the industry has on -- relative historical basis has been more thoughtful we have seen inventories decline by about 7% from what was a record high in March and we are seeing the demand increasing. So where we sit today supply and demand as I mentioned in the prepared remarks is that are balanced and it is a market that still produce a catalyst and China will be that catalyst in getting this final rule on E15 done, becomes a catalyst because we do need that incremental demand. Production this last week running about $15.7 billion, that’s substantially less than the total capacity of the industry, which is showing that it can be closer to $17 billion. So we are seeing some level of restraint. We as a company are doing the same run rates in the quarter we just reported on, we’re about 83%. We’ve come up slightly from that but continue to run at lower levels and then have made our contractual obligations by buying additional gallons from our third party sources. So that’s -- it’s based on the strength of our production marketing model been able to do that and when others need to sell ethanol we can either to help buy it and support markets. So we’re cautiously optimistic that with the catalyst of additional export demand from China and E15, and some as you say thoughtful consideration on the part of producers that we will see a better margin environment as the year progresses.

Got it, and then just thinking about the overall market also, I mean obviously Q1 there were some pretty big pockets of severe weather. But it doesn’t seem like it really had that much of an impact or a lasting impact on production. It was more on logistics of ethanol and corn. Just curious in that light, how you see the West Coast premium? I know that was impart a driver of results this quarter. I mean it seems like it’s come back in a little bit, it’s still elevated, I mean do you see that persisting for some time? Or do you see that kind of returning to normal levels here in the near future?

Well that’s hard to clearly project but I think certainly that the history would be more normal, so something in that $0.20, $0.20 plus, we are running about $0.30 premium to the West Coast today. I think as you see the carbon requirements increase that that it will support higher spreads as we get a tighter supply demand balance on ethanol that can participate in those markets. So that is helpful. Yes it helped us in Q1 but that was offset by same sort of premiums on corn. We’ve seen those come in and we’ve seen the ethanol premium stay out, so that’s actually been helpful to us. But I think our expectation would be that we could see these premiums hold at slightly better than average but probably if anything will come in a bit.

Okay got it, and then last one from me just on the strategic process. And I know you maybe limited as to what you can say but if you’re able to any commentary on interest levels or confidence in terms of timing? I think you kind of targeted it as a 6 month process, so maybe in the August timeframe -- just any thoughts around that would be helpful.

Yes, we have a number of initiatives and a number of interested parties that we are speaking to on these initiatives and are optimistic that we will meet our targets and achieve our objectives.

Okay thank you.

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

Thanks Neil and Bryon for taking my questions.

Good morning Sameer.

Good morning. In terms of the gross margin improvement quarter-over-quarter, was it driven more by increased third-party gallons or was it driven more by the crush spread?

It is a combination of both and I think again that is the advantage of our models where margins were generally negative in the industry, across the board, where we could reduce production and go out and buy in at a small margin. That's better than losing money on our own gallons. So, that was helpful, but we definitely did see an improvement in the overall crush margin and then the third factor was that the cost cutting that we did. So, I think it's really a combination of all three of those.

Okay. I noticed that the crush spreads are actually slightly lower as of today compared to what they were at the end of the quarter. Do you see the same?

Yes, we do. It has certainly come off a few pennies here and again we were a little surprised that there wasn't a more positive reaction to this week’s report with the production down and the inventories down slightly as well. So it's definitely the market that's hard to evaluate from week-to-week, but we do believe that the fundamentals do support a better margin environment going forward.

Yes. And with gas prices where they are, that certainly should help as well in that option of ethanol. But as far as E15 goes, the final ruling I know is expected before June, but what are the chances and what are the remaining steps before that can be implemented?

Well, the comment period ended on Monday and so it's up to the EPA now to consider the myriad of comments they received and to promulgate a final rule as you set before June 1st. They have been very consistent in their public statements that, that is their objective and intent and we will take them at their word on that. And then we’re already seeing -- retailers are starting to gear up and introduce E15 where they have not before because of the lack of ability to keep it in the stations year around. We're not looking for this to be a watershed moment this summer. It's going to be slow and steady, but it will accelerate, and if you look at the overall market, I mean, we do believe that over time this market for good reasons economic, environmental, carbon based, will economic development help to the farmers, will migrate to these higher blends and that’s a 7 plus billion gallon market opportunity. If E15 becomes 1 billion or 2 billion over the next two or three years, that is achievable and obviously will be very significant to the industry.

Okay. Thanks. And then just last one on the SG&A, it's good to see the improvements there. Does this also include the effect of lower legal costs that you had before?

Yeah, it does, Sameer. So, it's difficult to measure exactly, and that’s actually why we haven't given much guidance. But if you want to be somewhere around -- somewhere between the numbers we reported for Q1 and our run rate of 9 million, probably that number would be up.

Understood. Thanks Bryon, thanks Neil. Thanks for taking my questions.

Thank you. And I'm not showing any further questions at this time. I’d now like to turn the call back to management for any closing remarks.

Thank you, Loraine, and thank you all for joining us today on the call. We appreciate the interest and support of the company and have a great day and we’ll speak to you soon.

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 great day.