Alto Ingredients Inc (ALTO) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2007 Pacific Ethanol, Inc.

earnings conference call.

My name is Dan, and I'll be your Operator for today.

(OPERATOR INSTRUCTIONS.) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr.

Gregory Petit from [Hill & Knowlton].

Please proceed, sir.

Good morning, everyone, and welcome to Pacific Ethanol's second quarter conference call.

Before we get started this morning I want to point out that this quarter we have the slides to accompany this call posted in PDF form on the home page of our website.

For those of you who haven't found them yet, just go to www.pacificethanol.net, and just below the call [and] information icon you'll see the slide presentation.

I'll read a little Safe Harbor language, and then we'll get started.

With the exception of historical information, the matters discussed in this call are forward-looking statements and involve a number of risks and uncertainties.

The actual future results of Pacific Ethanol could differ from those statements.

Factors that could cause or contribute to such differences include, but are not limited to, the ability of Pacific Ethanol to successfully and timely complete in a cost effective manner construction of its three ethanol plants under construction, the ability of Pacific Ethanol to obtain all necessary financing to complete the construction of its other plant ethanol production facilities, the ability of Pacific Ethanol to timely complete its ethanol plant build out program and to successfully capitalize on its internal growth initiatives, the ability of Pacific Ethanol to operate its plants at their planned production capacities, the price of ethanol relative to the price of gasoline, the effective federal and state governmental regulations on the demand for ethanol, and the factors contained in the risk factors section of Pacific Ethanol's Form 10-K filed with the Securities & Exchange Commission on March 12th, 2007.

With that, I'd like to now turn the call over to Neil Koehler, President and CEO of Pacific Ethanol.

Thank you very much, Gregory, and welcome everyone to Pacific Ethanol's investor call to discuss our 2007 second quarter financial results.

We are conducting this call today form our Portland, Oregon office.

In addition to being a very beautiful City, Portland is down the Columbia River from our Boardman ethanol plant and in a State that just passed a 10% ethanol mandate that begins at the beginning of 2008, bringing significant new ethanol demand in our market.

We are pleased to report today positive operating results for the quarter.

Our net income was $2.2 million on record revenues of nearly $114 million, compared to a loss of $200,000 on sales of $38 million in the first quarter of 2006.

We sold a record 43.9 million gallons of ethanol in the quarter.

Our gross profit was over $11 million, and our EBITDA for the quarter was $4.6 million.

Cash flow from operations totaled $23.4 million through the first six months of 2007.

These numbers all represent substantial improvements over year earlier results.

Growth in revenues and net income in the quarter was due both to the continued expansion of our ethanol marketing business and the contribution of profitable production operations in Madera, California and Windsor, Colorado.

John will be providing greater detail on these results in a moment.

We continue to successfully execute on our differentiated business strategy to be the leader in destination ethanol production and marketing.

This strategy allows for low cost, low carbon ethanol production, and high value ethanol and coproduct feed marketing.

In mid 2005 we set an annual production capacity goal of 220 million gallons by mid 2008, with a further target of 420 million gallons of annual capacity by the end of 2010.

We remain on target to meet these goals.

Our wholly owned Madera ethanol facility and minority owned Windsor, Colorado plant continue to operate above nameplate capacity.

Our Boardman, Oregon ethanol plant is currently in the startup phase, and construction is progressing well at our facilities in Burley, Idaho, Stockton, California, and Calipatria, California.

In the last quarter, we made further progress on our pipeline of new development projects.

This quarter we continue to build a highly qualified workforce.

At the end of Q2 Pacific Ethanol had 135 valued employees, up from 87 at the end of Q1.

We have hired and trained the workers for our Boardman ethanol facility and continue to add experienced professionals to our corporate staff in the finance, operations, and sales areas.

As we have said before, the quality of our management team and supporting staff is a key element of our competitive advantage.

With that, I would like to now turn it over to John to run through the financial and operating details of our first quarter results.

Thank you, Neil.

And good morning to everyone on the call.

As we go through our Q2 results I'd like to mix in some comments on how we see these results fitting with our overall game plan.

As Neil described, we have a 220 million gallon per year production capacity goal for next year.

That's where we want to be with our results going ahead.

Going to slide 3, our net sales during the quarter were up 145% YOY and up 151% for the six-month period.

This reflects not only our increased production but also our dynamic growth in the ethanol marketing activities.

Net sales in Q2 was up sequentially from Q1 by 15%, driven by increased third-party gallons.

The chart on slide 4 shows our strong sequential growth over the last six quarters and illustrates our game plan to grow our marketing business out ahead of increases in our production capacity.

Gross profit as a percentage of net sales was substantially higher YOY due to our production margins, but decreased sequentially from our Q1 results, primarily due to higher corn costs and a loss we recorded in our derivative activities related to our commodity risk management program.

As you all know, we use derivatives to lock-in margins for future production and marketing activities, which produce gains or losses in our financial results.

For clarity, I will break out the gains or losses applicable to our current period from those attributable to future periods.

During the quarter we had a $2.6 million loss on derivatives primarily related to hedging gasoline index ethanol sales, $900,000 of which is applicable to commodity activity in the reported quarter.

The balance of $1.7 million or about $0.04 per share is the change in fair value of derivative positions that will settle in subsequent quarters and will be offset primarily against forward gasoline indexed ethanol sales contracts.

We would anticipate gross profit to grow steadily as production from Boardman and subsequent plants come online over the next 12 months.

Slide 5 illustrates the growth in gross profit from a year ago, before we had production capacity and the related higher margins from that production activity.

Going back to slide 3 and looking at the SG&A expenses, our efforts to reduce SG&A as a percentage of our revenue produced very good results during Q2, shrinking to 7.3% of revenues from 9.6% in Q1.

We remain on track to meet our goal of holding SG&A dollars in line with the prior year.

An item unique to the quarter that impacted our results was the final amortization of certain intangibles associated with our Front Range investment, an amount of $1.5 million for the quarter.

Income from operations was $2.8 million for the quarter and $8.6 million for the six-month period.

As you know from previous quarters, we deduct the portion of Front Range's results relating to the non-controlling ownership interest, the 58% that we do not own.

So net income for the quarter was $2.2 million and $5.1 million for the six-month period.

After our preferred dividend, net income available to common stockholders was $0.03 per share for the quarter and $0.08 per share for the six-month period.

We expect our income tax rate for the current year to stay at zero as we work through our NOLs.

EBITDA is shown on slide 6, which shows the substantial -- which shows substantial improvement YOY, both for the three and six-month periods.

We would expect this trend to continue as our focus on increased production and overhead reduction should positively impact this measure in future quarters.

Slide 7 shows the continued growth of ethanol gallons sold and the positive results of our continuing investment and our marketing capabilities, as well as our production build out program.

During Q2 our ethanol sales volume increased to 43.9 million gallons, up 122% YOY, and up 13% sequentially from Q1.

For the six-month period our ethanol sales volume was 82.8 million gallons, up 109% YOY.

During Q2 the plants operated above nameplate, and we believe we can show further improvement in their capacity.

The capital and operating improvements we made during the first half of this year should allow us to improve production during the second half of the year.

Looking at slide 8, our average selling price for ethanol during Q2 was $2.32 compared with $2.28 in the same quarter a year ago, and down just slightly from $2.34 in the first quarter.

During Q2 our delivered cost of corn was $4.23 per bushel, up 15% from our Q1 delivered cost of $3.69.

Our corn basis averaged $0.64 giving us a [C bought] equivalent corn cost of $3.59 per bushel, which compares favorably with the average C bought market price of $3.71 during the quarter.

Despite the higher corn cost in Q2, our C bought equivalent price of corn for the first half of the year at $3.28 per bushel still compares very favorably to an average C bought market price of $3.86 during the same period.

Our coproduct return declined to 26.5% in Q2 from 30.9% in Q1.

This is due to the widening price spread between distillers' grains and corn during the second quarter.

We continue to maintain an active risk management program that has benefitted our commodity price performance in the first half of the year.

At the end of the second quarter we have forward fixed price ethanol contracts with a dollar value of $54.7million, as well as 43.7 million gallons in forward index based ethanol sales.

Our forward corn purchase commitments consist of 24.1 million of fixed price contracts, as well as 10 million bushels of forward index based purchase contracts.

Additional details of our purchase and sales commitments are available in the 10-Q.

Now, moving to the balance sheet and slide 9.

With four construction projects simultaneously in progress our balance sheet remains healthy.

Our present estimates based on current projections for project costs, cash flow from operations, and other measures show that we have all the resources we need to fund this phase of our plan through the 220 million gallon per year production capacity in 2008.

Under this scenario we see cash continuing to decline for the next few quarters and then begin to rise in the second half of 2008 as capital spending is completed and the operating plants generate cash flow.

I'd like to report on the progress of building a dedicated and motivated work force.

With our growing marketing activities and one plant operating, a second under startup, and all the support in place to make this happen, we are very pleased with the performance of the group of people who are responsible for implementing our game plan.

We have established our headquarters operation in Sacramento during the first half of the year, and we are very pleased with the focus on safety and integrity in our plants and in our offices during the first half of the year.

As to the Boardman startup, I'd like to go through where we are with the progress on each of the construction projects right now -- as to the Boardman startup, our plant today is in the startup phase.

The systems are being turned over to our operating crews, corn is onsite and we expect to start grinding and beginning ethanol production in the next couple of weeks.

As to the rest of the plants, after Boardman, the next plant to start up will be Burley, Idaho at 50 million gallons a year.

Construction is well underway.

Site work and concrete are complete.

Tanks are going up.

And as with our other projects major equipment has already been purchased.

We are currently projecting startup during Q2 2008.

Site work at Stockton is complete, and we have released the contractor to begin concrete work and assembly of the plant.

We expect that plant to be in operation during Q3 of 2008.

And at our Imperial Valley project site work is underway.

We are currently projecting startup in Q4 of 2008.

In regards to our activities related to Sarbanes-Oxley, our efforts have been very successful during the first half of 2007.

As you all know, at the end of last year we had a number of material deficiencies identified in our controls.

It was our goal to remediate those by midyear and be able to certify that we are in compliance.

Based on the excellent work over the last six months we have done that.

The details are in the Q.

Going back to Neil's opening comment about our goal of 220 million gallons per year of production capacity in 2008, we are now two years into the three-year long first phase of our work on this goal.

We believe we have successfully assembled all of the pieces to meet that objective next year.

Now, I would like to turn the microphone back to Neil.

Thank you, John.

Before turning to the question and answer session, I wanted to provide a brief ethanol market update.

We continue to believe that persistently high oil prices, increasing gasoline demand, and a lack of sufficient new gasoline refining capacity, combined with very favorable ethanol blend economics will result in a steady migration to 10% ethanol blend in the entire U.S.

gasoline pool.

This translates into annual ethanol demand in excess of 14 billion gallons.

Initiatives to expand the 85 marketing and increase the base blends in gasoline to between 10% and 20% can result in annual ethanol demand significantly higher than 14 billion gallons.

We stand behind our moniker that we [earn] a business that will be driven by new demand for years to come.

Emerging CO2 reduction strategies may represent the single greatest ethanol demand driver in the future.

Our strategy of being the leading low carbon fuel provider in the western United States is being validated by California's landmark CO2 reduction initiatives contained in both State legislation and Governor Arnold Schwarzenegger's executive order.

The low carbon fuel standard was included last month as an early action item by the Air Resources Board in meeting legislative requirements for CO2 reductions and will be adopted as new regulation by the end of 2008.

The most recent technical report, issued by UC Berkeley for the purpose of this regulation, shows our California ethanol production facilities to be the lowest carbon ethanol fuel in the marketplace today, resulting in estimated CO2 reductions of 44% compared to gasoline.

This is due to our lower fossil fuel energy use resulting from our not drying the distillers' grains made possible by our local distribution of wet distillers' grains.

We also expect other states and possibly the Federal Government to adopt substantially similar low carbon fuel standards over the next few years.

We believe our low carbon ethanol fuel status gives us a preferred position in the marketplace as our country and the global community of nations grapple with the challenging issue of climate change.

Operator, at this time, John and I would be happy to open up the lines for questions.

(OPERATOR INSTRUCTIONS.)

Your first question comes from the line of Eitan Bernstein from FBR.

Please proceed.

Morning, gentlemen.

Good morning, Eitan.

Congrats on another good quarter.

Thank you.

Any guidance, at all, on third quarter price realizations?

You know, not looking for anything hard, just sort of more general in terms of what to expect in third quarter or what you're thinking about third quarter prices and costs?

It's John.

As you know, we don't disclose specifics on the contracts, but we're out there in the marketplace with our competitors, and as I think you've heard from others and just general information in the marketplace, it's a combination of spot related deals indexed to various, various trades, gasoline related, as well as keeping some open for just spot contracts.

So I think really the best guidance on that today is if you look at both the [Plats] and the [Opus] postings on ethanol, and you were to average those for the quarter, I think generally that gives a pretty good indicator for price realizations in the quarter.

Okay.

And if I could, one more.

Talking about -- well, and part of the reason I was asking about third quarter prices and such is just sort of thinking about capacity growth in the Midwest and then potentially incremental demand on the west coast.

Just trying to think about, you know, potential price differentials between the two regions.

I guess, you know, sort of more basically are you starting to see some more incremental demand or, I guess, are we still locked into the 5.7 for a little bit?

That's a very good question, and it is a work in progress.

We, as you know, have been working very diligently with both refiners and State Government in California to allow for a relatively immediate opportunity for refiners to move to 10% blend.

There is regulation that was passed by the Air Resources Board this summer to allow that.

It is in the regulatory process of being finalized, and we expect by the end of the year what's called the Office of Administrative Law in California will have finalized that regulation.

What that will allow is for refiners to move immediately to 10% blends at their discretion, and the marketplace will determine that.

We certainly see that with the very favorable blend economics it is our expectation that in advance of 2010 when all refiners will be expected to move to 10% blend that we will see the early movement, as early as 2008 to 10% blend, both because of the very favorable economics, the lack of refining capacity in California to meet demand, and the need for octane.

And also, very importantly, as we see the CO2 regulations develop, the opportunity for refiners to start blending ethanol in 2008 to gain early credits for the CO2 regulations, the low carbon fuel standard that is being implemented in California.

Great.

Thank you very much.

Thank you.

Your next question comes from the line of [Jim Ming] from Ardour Capital.

Please proceed.

Hi, good morning.

Good morning.

Good morning.

Yes.

I have a question about your production.

You said your (inaudible) plant are currently running about (inaudible) capacity.

Yes.

And -- but actually the sale from your shipments is about 13 million gallons, and lower, actually lower than first quarter, so what's the difference there?

During the second quarter we increased our inventory so the production was slightly above nameplate but the actual sales were a little below that.

But the difference there that you'll find is in our inventory buildup.

So sales number is different from production numbers.

We produced at about 5% over nameplate capacity at our facilities.

Okay, so we should expect low (inaudible) going to be (inaudible) in the next quarter?

Correct.

Again, at the end of the third quarter depending on market conditions, and our inventory position you could see a change up or down on inventory, as well.

Okay, good.

And, also, I have one more thing, is a housekeeping question, is about prepaid inventory, that's [current]; right?

That is -- typically we do have very significant third-party ethanol sales.

In fact, significantly more volume today than we produce, and that is primarily related to in transit ethanol that we have coming from the Midwest in railcars to our inventory positions.

And in some cases we have prepaid for that inventory in transit.

Okay.

Got that.

Thanks.

The next question comes from the line of [Puanka Minen] from Thomas Weisel.

Please proceed.

Good morning.

Congrats on a great quarter.

Thank you.

Good morning.

Good morning.

I wanted to find out what your thoughts are on competitive activity in your local markets, especially probably with some reference to the expansion plans (inaudible), where they've acquired these three plants from [ASA], and we hear that one of the plants is targeting the west coast market, specifically.

Any thoughts on competitive activity?

Well, we feel very strongly that our competitive position in the west coast is very good.

With that being said, the market in California is currently a billion gallons, with the 200 million or 300 million gallons that are in the other western states and with the incremental growth, the 10% in California, incremental 700 million gallons of production, another 200 million, 300 million gallons of incremental growth in the Pacific Northwest, with the mandates that are being implemented there is that the western region of the United States for the foreseeable future will always be a net importer of ethanol.

So if you look at just California, that's 700 million gallons of incremental growth going to 10%.

You know, that eclipses even our growth plans of 420 million gallons of capacity by 2010.

That is one reason that we continue to expand our distribution network and our marketing opportunities to add value to ethanol produced by Midwest companies.

So the -- the general position is that our market will continue to be a very good market for all producers, whether they be located in California and the Midwest, that we will need the support of Midwest production to continue to expand the market, but that as it relates to our production and our logistics network that we are very well positioned to profit from this continued growth in the market.

Okay.

And the second question I have is regarding your SG&A expenses.

Do you expect it to be sequentially in the same range as $8 million to $10 million per quarter or would it be higher especially with plants coming online in 2008?

We expect it to decline during the rest of this year.

It will be -- we always have a higher first quarter than the rest of the quarters because of the yearend activities.

I think the -- during 2008 we're not making a projection yet, but the people that we hire for the plants go into our cost of goods sold at the plants and are not captured in the SG&A numbers.

Okay.

And okay -- with regard to ethanol contract, fixed versus those in spot market, would it be possible for you to give us some color on -- is it like 50/50 or is there some sort of way you can tell us how much are you in the spot market?

You know, we generally don't do that.

Our risk management group looks at each of the contracts on a -- at least once a week, and more often than that lately, basis.

We're looking at this and in order to lock-in our margins we've put hedges in place as we see appropriate at the time that the orders are being discussed.

And, you know, we try to take advantage of each of those opportunities, and for competitive reasons we just don't go into any more detail than that.

Okay.

Okay.

And just a last question on these plants coming up.

I think we read earlier this -- I'm wondering if there's some sort of a delay in the plants coming online, I mean since (inaudible) and one plant is coming up now in Q4 of 2008, are you seeing some sort of delays from equipment providers or any sort of cost inflation?

No, We've bought all the equipment for these plants early this year, so we -- we've had that locked in and those prices and deliveries have been locked in for some period of time.

I think we've -- we have been as realistic as we can in terms of projecting the dates out ahead of us so that everybody is comfortable with what we're projecting.

As we bring, as we put the individual plants under contract with the various subcontractors that are working on each one of those, we start to get a schedule that have more clarity, and that's what we're providing to you today.

Okay.

Thanks.

That's all.

Thank you.

You're welcome.

Your next question comes from the line of Jon Lichter from Sidoti.

Please proceed.

Good morning.

Good morning.

Good morning.

How did the Kinergy gross margins trend in this quarter?

We do not break-out our separate business units, but they were positive and continued to expand the -- both the volumes and the gross profit contribution from that business segment.

Okay.

And you talked about expanding I guess existing plants, how much above nameplate will you be able to produce at that -- once you're done?

That's a fair question.

We, as I said, we have been producing about 5% over nameplate, and we do believe that 15% is very achievable over a reasonable period of time and with some debottlenecking the possibility to go even beyond that.

Okay.

Just one last question on the -- the other income on the statement there, how much of that is related to Front Range?

We don't break-out the individual results on those, but -- excuse me, just one moment.

Let me get back to you on that particular item.

Okay.

Thank you.

Okay.

I believe it's interest income, and it's not related to Front Range.

Okay.

That's all of ours; okay?

Yes.

Thanks.

Yes.

Thank you.

Your next question comes from the line of [Corey Garcia] from Raymond James.

Please proceed.

Morning, guys.

Good morning.

A couple of my questions have already been answered, but I was just wondering if you could provide a little color into the renewable energy mandate that (inaudible) in Oregon this past month, and really how that affects kind of your Boardman Facility going forward?

Well, it clearly is a very positive development.

We were very active in that effort, working with the Legislature and the Governor to bring this landmark legislation into place.

And it provides market certainty.

You know, we were always very confident that our ethanol from the Boardman Facility would find a home in the Pacific Northwest.

There are two refiners that currently and historically have blended ethanol to make-up both supply and octane shortfall, so there was already an existing market with two of the largest refiners in the region, but this brings the rest of the players into the game.

To put that in perspective, in Oregon it's about a $1.7 billion annual gasoline market, so this requirement will result in a 170 million gallon annual market for ethanol, Boardman Plant, 40 million gallons of operating capacity.

As you can see that we'll have no problem finding a home.

What it also does is provide a good net back opportunity.

You know, we did have a contingency plan there where we would rail some of the ethanol out of the Boardman Plant and to service our northern California destinations.

We now believe that all of the ethanol will stay in Oregon and southern Washington.

We have the opportunity in Boardman to barge our ethanol down the river at very favorable transportation rates to supply the refiners in Portland, so that is going to improve our netbacks.

You know, combined with some of the new opportunities in corn procurement in Oregon we're very, very encouraged by the cost structure and the sales structure for that facility.

I will also say that the -- Washington at the end of 2008 is implementing a 2% renewable fuels mandate that we believe will migrate very quickly to 10%, and a lot of that is due to the comingled system between Oregon and Washington and, in fact, well in advance of the beginning of 2009, at least in southern Washington, serviced out of Portland that we will see 10% ethanol blends in that market, as well.

Okay.

And you said that was end of '08 you expect the Washington mandate?

Yes, it's -- there is a law in place that as of January 1 of 2009 there is a renewable fuels requirement in the State of Washington, as well.

Okay.

Thanks a lot.

Great quarter.

Thank you.

Your next question comes from the line of Rob Stone from Cowen and Company.

Please proceed.

Hi, guys.

Hi, Ron.

Neil, could you comment on the rate of growth that you expect to see in your ethanol marketing relative to, you know, you're going to have a substantial increase in your own internal production, if you could just help us size out how much you plan to grow marketed ethanol in relation to that?

Well, you know, clearly that will depend on various factors.

We don't give any specific guidance into either our growth or the earnings other than to talk about the plants and the demand from there.

But, as you can see, we have continued to grow the marketing business along with production so that we certainly are seeing very rapid growth of production and incremental growth in the marketing business and it is our plan to continue in that direction.

So without putting a specific target on it, I guess in connection to your earlier comments about the west coast market being a net importer for the foreseeable future and several locations headed towards an increased blend, is it fair to assume that irrespective of the percentage that the absolute volume of your marketing business should continue to grow?

That is fair.

That certainly is -- as our efforts to continue to build that market, we do have a very strong terminal network and infrastructure in place in the western United States, are continuing to make additional investments so that we are positioned not only to add value to our own production but continue to add value to ethanol produced from third parties.

Okay.

A question related to pending regulatory support, the Senate version of the energy bill has an [RFF], the House did not include that.

Do you get the sense that the RFF will be one of the more controversial elements in the reconciliation between the House and Senate versions this fall, or is it a better position in your mind than some of the other things?

I think it's better positioned.

What we see in Congress consistently over the years and more true today than ever is very, very strong bipartisan support for increasing the production and use of ethanol and renewable fuels in this country.

So we really see it as a potential peacemaker as they work through other controversial items that the renewable fuel standard is something that increased renewable fuel standard is something that can bring agreement among parties.

Okay.

But, you know, obviously the politics of that and whether it happens this year is a hard one to handicap because the politics overall are very complicated.

A final question, with respect to your construction timeline, any update on the remaining CapEx you expect to complete the plants that will be coming online through the end of next year?

See, we have -- our budget for the completion of the rest of the plants, of course, is in place.

We have -- project that we will be spending about $130 million, $135 million through the rest of this year, and I think -- I don't have the balance for the following -- for the rest of the build out, because that number -- I don't think we have that available right now, but it -- I can -- we can get back to you on that.

But we have laid out over the next six quarters the capital spending required to build-out the plants to reach that 220 million gallon a year target.

And with respect to the plans, capital structure out of that, you know, as between cash and other sources of financing, just a rough ratio?

Well, we are -- we have our multiplant financing in place which provides a total of $325 million including the working capital line of $25 million as the debt component for those plants, which is about $1.15 a gallon.

Okay.

Thank you.

(OPERATOR INSTRUCTIONS.)

Your next question comes from the line of Mr.

Mark Flannery from Credit Suisse.

Please proceed.

Hi, yes.

We've seen a fairly big change in the value of -- of the market value of existing producing assets, most of them in California, but I'm thinking about more the Midwest.

How do you, when you think about the next phase of growth, how do you think the buy versus build equation?

And what might tempt you, what level of pricing might tempt you to get more into the buy rather than the build stage?

Well, Mark, that's something we evaluate all the time, and we do believe that there are advantages to scale in this business.

We were one of the first companies to articulate a vision of a multiplant platform.

We have a marketing business that has given us scale in the market in advance of production, so we certainly are very focused on the advantages of having scale.

We are focused on opportunities to expand even beyond our west coast region, and we are evaluating on literally a daily basis what those opportunities look like on the build versus the buy, and ultimately the criteria is what is accretive to earnings and our shareholders, and certainly with that spread having come in closer between the build versus buy that does present some opportunities.

So it's, you know, certainly, we've seen some activity with (inaudible).

We saw an announcement yesterday with the [Ace] ethanol plant being purchased so, you know, we are seeing activity in that area.

As it relates to what's immediately in front of us, in the western United Sates there are limited opportunities for acquisitions so that probably puts us in a position where we stay very focused on really putting a footprint down in a market that did not have production assets and to have a very dominant position from that.

We will evaluate both build and buy opportunities as we expand our operations.

Okay.

Thank you very much.

(OPERATOR INSTRUCTIONS.) At this time there are no further questions in the queue.

I would now like to turn the call back over to Mr.

Neil Koehler.

Please proceed.

Thank you very much.

And thank you, all, for participating.

We appreciate the support of the analysts community and our shareholders, and look forward to continuing to build on our strategy, and we'll talk to you next quarter.

Thank you very much.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.