Alto Ingredients Inc (ALTO) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Pacific Ethanol, Incorporated, second quarter 2015 financial results. 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 turn the conference over to Ms. Becky Herrick, of LHA. Ma'am, please begin.

Thank you, Howard, and thank you all for joining us today for the Pacific Ethanol second quarter 2015 financial 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. Bryan 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's 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 August 6, 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 30th, and, therefore, you're advised that 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, risk 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 EBITDA as unaudited earnings before interest, income taxes, depreciation, and amortization, and fair value adjustments. To support the Company's review of non-GAAP information later in this call, a reconciling table is included in yesterday's press release.

It's now my pleasure to introduce Neil Koehler, President and CEO. Neil.

Thanks, Becky, and thank you all for joining us today for the call.

For the second quarter of 2015, we reported net sales of $227.6 million, a 10% sequential increase. We also reported record total gallons sold of 140.7 million.

Gross profit of $6.3 million, operating income of $2.3 million, and adjusted EBITDA of $5.4 million. We also closed the quarter with strong cash position of $49.3 million.

We have completed several important strategic initiatives in just the last few months. On July 1, 2015, we closed our acquisition of Aventine Renewable Energy in a stock-for-stock transaction. This more than doubles our production capacity, increases our co-product mix, and diversifies our markets.

We have fully consolidated our ownership of 100% of the four Pacific Ethanol plants in the western United States, and now we are pleased to have full control of these assets. This will reduce administrative costs, which increases our earnings capacity.

We initiated corn oil production at our Boardman, Oregon facility, which completes our two-year initiative of adding this high-value co-product to our line. I also want to note that the Pacific Ethanol Midwest plants all produce corn oil as well.

And we are very pleased to announce we reached a settlement with the Aurora Cooperative in Nebraska which dismisses all outstanding litigation with the co-op. This very positive development facilitates a mutually beneficial commercial relationship that expands our corn purchase options and should improve the value of our co-product feed.

Pacific Ethanol now has eight strategically located bio-refineries in the United States, annual production capacity of 515 million gallons, marketing volume of over 800 million gallons based on historical volumes, and co-product production capacity of over 1.5 million tons per year.

We have production and marketing both in the Midwest and the western United States and sell and distribute our products in the domestic international markets.

We have distinguished ourselves as industry leaders in the production and marketing of low carbon renewable fuels in the west.

As we have grown, so, too, has our mission, which is now to be the leading producer and marketer of low carbon renewable fuels in the United States.

We are now the sixth largest producer of ethanol in the United States. Our four plants in the west are among the industry's lowest carbon producers of transportation fuel, and we will continue to improve the efficiencies, cost structure, and carbon intensity of all eight plants to achieve this mission.

Now I'd like to review the strategic advantages of the acquisition. We now have production assets in two distinct markets, the Midwest, a large producing region, and the west, a large demand region. This is a market diversification strategy that allows us to better manage the opportunities inherent within the industry.

With production established in five states and sales of products both domestically and internationally, we will spread our commodity and basis price risks across diverse markets and products.

We gain an increased correlation to the more liquid physical and paper markets in Chicago, extending our options in managing margins.

The variety of high-value co-products, including corn gluten meal and feed, corn germ, dry distillers yeast, adds to our existing portfolio of distillers grain and corn oil to provide a platform of products yielding high co-product returns for the Company.

As I mentioned earlier, we access many markets with ethanol and co-product sales, reaching domestic and international customers.

Scale also is a meaningful benefit of our acquisition, moving from 200 million gallons a year to 515 million gallons a year, and managing the business efficiently over the next 12 months is expected to yield increased revenues and reduced costs of $1 million per month, result in increased purchasing power, and strengthen our position as a low-cost producer.

This is a very competitive industry that requires constant improvement.

Many of our current customer relationships extend into the markets of our new Midwest production. We are able to naturally extend and expand our service focus strategy to existing customers and expand our marketing to new customers in these regions.

Now I want to review of our industry. The underlying fundamentals of the industry remain strong and will support industry growth. Demand for ethanol is supported and driven by the underlying economic value of the product and the demand from refiners and blenders.

Refiners blend ethanol to increase octane and lower tailpipe emissions required by motor vehicles. Ethanol remains the lowest cost octane source available on the market. Priced at a discount to gasoline, ethanol is the lowest cost liquid transportation fuel commercially available.

Ethanol's a low carbon fuel and is supported by state and federal policies to reduce carbon emissions.

And ethanol's growing in demand around the world. Exports are growing in total volume as global markets incorporate the economic, environmental, and performance benefits of ethanol into their transportation fuel requirements.

Exports are expected to continue to increase beyond the 2014 levels, which represented the second-highest annual totals on record.

Also like to provide a brief update on the public policies that continue to influence our business. The continuation and the success of California's low carbon fuel standard is among our key competitive advantages in the west.

The low carbon fuel standard has been a successful mechanism for reducing carbon emissions and driving demand for biofuels. It has also spawned similar regulations in the neighboring state of Oregon and into the province of British Columbia.

The low carbon fuel standard requires refiners to reduce the carbon intensity of their fuels by 10% between 2011 and 2020.

Currently, Pacific Ethanol receives a $0.04 per gallon premium over Midwest Ethanol on each California production gallon sold into the California market.

Furthermore, we expect this premium to increase as the compliance curve steepens beginning in 2016. The California Air Resources Board has engaged in a required process to readopt the low carbon fuel standard, which we expect to conclude this fall with readoption of a similar but improved program, still with a target of 10% reduction in overall carbon emissions by 2020.

With that, I will turn the call over to Bryon for review of the financials. Bryon.

Thank you, Neil. In the second quarter, we reported net sales of $228 million compared to $321 million in the second quarter of 2014.

The decline in net sales was attributable to a $1.02 decrease in the average sales price per gallon of ethanol, partially offset by an 8.5 million-gallon increase in total gallons sold.

Gross profit was $6.3 million this quarter, which compares to $33.6 million in the second quarter 2014, reflecting a decrease in production margins compared to the prior year.

SG&A expenses were $4 million and included approximately $300,000 of Aventine acquisition-related costs. This compares to $4.3 million in the second quarter of 2014.

This quarter's operating income was $2.3 million compared to $29.3 million in the prior-year period. Interest expense was $1 million compared to $2.9 million in interest expense in the second quarter of 2014, reflecting reduced debt balances.

Provision for income taxes for the second quarter 2015 was $530,000 compared to $7.2 million for the second quarter of 2014.

Net income available to common stockholders was $695,000 or $0.03 per share. This compares to net income of $15.3 million or $0.68 per share in the year-ago period.

Adjusted EBITDA was $5.4 million, compared to $27.8 million in the second quarter of 2014. For the six months ending June 30th, 2015, net sales were $434 million, compared to $576 million in the same period last year.

SG&A was $8.9 million and included approximately $1.2 million of Aventine acquisition-related costs. This compares to $8 million in SG&A in the six months ending June 30th, 2014.

Net loss available to common stockholders was $4 million or $0.16 per share, compared to net income of $4.1 million or $0.20 per share in the same period 2014.

And adjusted EBITDA was $2.7 million, compared to $63.2 million for the 2014 period, which included approximately $35.4 million in fair value adjustments and warrant inducements.

To provide some insight into the impact of the Aventine business on our future financial results, going forward, we expect our SG&A run rate to approximate $7 million and our capital expenditures to average $10 million per quarter through yearend 2015.

Turning to our balance sheet, cash and cash equivalence were $49.3 million at June 30, 2015, compared to $62.1 million at December 31st, 2014.

The reduction in cash reflects debt payments of $12 million and total CapEx of $12.2 million, which were partially offset by cash flows from operations of $11.4 million.

As announced on June 18th, we acquired the final 4% ownership interest in the Pacific Ethanol plants for $3.8 million in cash, bringing our total ownership interest to 100%.

On an aggregate basis, we purchased our 100% ownership interest for $60.8 million or $0.30 per gallon of capacity.

Regaining of 100% ownership interest has been an important initiative for the Company since June 2010, as it improves our potential to generate net income and reduce administrative costs.

Our working capital remains strong at approximately $92 million at June 30th, 2015, compared to $114 million at December 31st, 2014.

As Neil stated, the Aventine acquisition provides significant synergies in multiple areas of the business. To enumerate a few of these areas, in SG&A, we expect to save approximately $1 million annually in immediate synergies related to staff reductions.

Over a period of approximately nine months, we expect to reach $2 million in additional annual savings related to efficiencies in accounting, IT, and professional services.

In operations, over the next year, we will implement our operating practices across the newly acquired Pacific Ethanol facilities in the Midwest, which are anticipated to result in annual synergies of an estimated $1.5 million.

In commodities, it is our six-month goal to apply our merchandising practice to corn purchasing as well as ethanol and co-product sales, which are expected to result in annual synergies of $1.5 million.

In July, we increased our Wells Fargo line of credit to $75 million to support the working capital needs of the combined company, and retired Aventine's more expensive legacy line of credit. By doing so, we lowered our borrowing cost by 300 basis points and improved liquidity.

We're also evaluating opportunities to consolidate and refinance our term debt with the intent to lower our overall cost of borrowing.

To summarize, this transaction is anticipated to add scale and diversify our asset base, with the added benefit of significant operating synergies.

I'll turn the call back now to Neil.

Thanks, Bryon. I'm very proud of our accomplishments over the past several years, in particular, over the last few months. From superior logistics, strong supplier relationships, and diverse procurement options, to our leadership position in ethanol and co-product production and marketing, proprietary delivery network, and strong relationships with end customers, we have established Pacific Ethanol as a very strong presence across the entire ethanol value chain.

We remain focused on integrating and optimizing the newly acquired assets in the Midwest, executing plant improvement efforts that increase efficiencies and profitability, implementing advanced biofuels initiatives, and leveraging our state-of-the-art and strategically located production facilities to expand our market share.

With that, I'd like to open the call for questions. Howard?

Yes, sir. (Operator Instructions) Eric Stine from Craig-Hallum.

It's Aaron Spychalla on for Eric. Thanks for taking the questions. Maybe first, Neil, can you touch on the current margin environment to date and 3Q and your thoughts on the remainder for the year? It sounds like we're seeing some improvement [here] recently.

Yes. I mean, just like we saw sequentially Q2 over Q1, we saw improvement. The quarter started off a little rocky in July, little concern about inventory levels.

But as we're now firmly in a very strong demand season, exports continue to be strong out into the foreseeable future and we expect that to continue next year, we have seen a nice recovery in margins just really over the last couple of weeks.

So kind of industry average. I'd say we went from touching close to breakeven, in some areas of the country negative margins in early July, to solidly in double-digit margin territory now.

With gasoline demand very strong, 3% to 4% year over year, again with the exports and we are seeing, in response to the lower margin environment, also this is a time of year with the heat where it's harder to run plants all out, and with turnarounds that often get scheduled this time of year, we're seeing production moderate.

So what we've seen over the last few weeks which has led to margin improvement is the demand has been strong, production has been off a bit, and inventories have started to fall. And we are bullish margins for the balance of the year.

Okay. That's good. Thanks for the color. And maybe second, can you just provide some updated thoughts on the RFS and what you see as potential outcomes there?

Sure. The RFS, I think what was good about what the EPA did was that they gave us a three-year target. And rather than being behind, issuing these RVOs after the fact, they actually caught up and then some by projecting it all the way through 2016.

We do take exception and we provide comments on how the EPA is implementing the law. We think that from a statutory standpoint, they really have the legal obligation to move those numbers on the conventional up to that 15 billion gallons. We have the capacity in this industry to meet that.

That being said, it does show growth. It shows growth on advanced biofuels, 14 billion gallons in 2016 is a strong number. When you add it to exports, you do get very close to full-out capacity utilization in the industry. And the assumption would be that when you get to 2017 and 2018, they move to the 15 billion gallons.

So it's really not everything that it could or should be. But that being said, it's still a show in growth. And in today's market with ethanol and its very compelling price point, and 10% utilization in the industry and various retailers, some fairly good volume retailers starting to implement E15, the ethanol market is taking care of itself with or without the RFS.

Right. Okay. Good. Good call. And then maybe last for me. On the operational initiatives, so Columbia is now producing corn oil. We have that at all the plants. Can you just kind of quantify the benefit of the initiatives you've operated to date, as well as kind of what you're thinking going forward from the stuff still to come? Thanks.

Well, the corn oil is the biggest of the initiatives in terms of its contribution. And that is, conservatively estimated, is about a $0.05 per gallon improvement in operating income. And with the other initiatives that we've made of increased yield and lowered our overall cost, I would characterize those to the tune of about $0.03 a gallon.

So we, over the last number of years have basically lowered our breakeven by $0.08 a gallon, which is very material. And there are opportunities, as we mentioned, to do that with the legacy Aventine assets, and continue to improve.

So it's, as I said, it's a very competitive industry that requires constant improvement. We've been an industry leader in innovation at our existing facilities. We'll bring that to the newly acquired facilities and continue to extend our technology opportunities to further diversify feedstocks, and the way we produce renewable fuels to be even more competitive in the future.

Sounds good. Thanks for taking the question.

Thank you. Craig Irwin with ROTH Capital Partners.

Good morning, and congratulations on completing the Aventine acquisition.

First thing I wanted to ask about, Neil, is clearly, there's a lot of work to be done to integrate Aventine and to consolidate teams through the end of the year.

But as we start looking at 2016 where the real power of the combined platform starts to be better demonstrated, can you maybe discuss some of the specific things we should be looking at to understand how the financial profile's likely to evolve? Should we see incremental improvements in utilization at some of the plants that you've acquired? Are there certain inventory or hedge issues that we need to consider when we model this out for 2016 and beyond?

Sure. As we tried to outline here, there is certainly, with the scale and the combination of teams and reduction in the redundancies from an overhead basis, there's significant savings. So cost savings, as well as optimization. We do put that at a million dollars a month. That is the goal as we move into 2016. And we're very confident we will achieve that. So that's number one.

Number two is the, in terms of utilization, as you asked, that depends on market conditions. I mean, we have slowed down production a bit in early July. We're really focusing on matching our production to the optimal sales, particularly in Nebraska, which has been some of the most challenging margins in the industry of late. So that.

We have the capacity, obviously, to move that up and down. And I think by having a diversity of assets across many regions of the United States, there's just more optionality involved in that.

That also does contribute to the hedging opportunity with more exposure to the Chicago market, more sales tied to that, and the much deeper, both physical and paper market, in Chicago. That is an additional tool that when we see opportunities, that we can utilize.

And the diversity of products. The wet mill in particular, we're very excited about in terms of the co-product contribution and these new very high-value feeds and that we're able to supply.

So you'll see a larger co-product contribution to the overall platform. And just generally more optionality in how we produce and sell and access high-value markets both here in the United States and globally.

Thank you. My second question is about Aventine and the synergies that you itemized.

So I had understood that Aventine was paying a third party about a penny and a half a gallon to market its ethanol. And this was a real opportunity to bring this 300 million gallons, plus or minus, in house on to the Pacific Ethanol marketing platform, your Kinergy marketing platform you started so many years ago.

Can you update us whether or not this is included on your itemized list that you shared with us? Or if maybe there's a longer-term cut across that some of the agreements might need to expire before you would see the benefit?

Sure. It wasn't that they were actually under contract to third parties. It's just that the marketing program that Aventine had did involve the sale through brokers and third parties like Kinergy.

They were relatively thinly staffed on the marketing side. So it wasn't formal marketing agreements, but clearly a bulk of their sales were going through third parties.

And to your point, having Kinergy now internalize that to Pacific Ethanol has a lot of value. I believe in the synergy estimates we had about $1.5 million we would conservatively estimate.

But it also is discipline in the market. I mean we've now bulked up those 350 million gallons with our marketed gallons of over 500 and put it through one marketing company that we believe is the continuation of a trend in the industry to see more of a rationalization and consolidation of the marketed gallons.

And we think that that will also have an impact overall for us as a company and the industry.

Great. And then last question, if I may. Looking backwards over the last two years, Pacific Ethanol's done a really good job identifying capital projects on the prior platform that really had some pretty interesting returns, good, short-term paybacks.

Can you share with us what you're looking at at Aventine now? What you're considering as you put together a 2016 capital program for investment?

Sure. A number of those initiatives that you refer to that we've implemented at our western plants really yield enhancing technologies in the corn oil. Corn oil, we already have the Aventine assets, so that's done.

But there are some opportunities to improve the yields. Frankly, both at the wet mill and the dry mill, opportunity to develop some even more interesting products at the wet mill.

And then we continue to move on our advanced biofuel opportunities. Like today, we are commercially demonstrating the conversion of the corn fiber, the cellulose in the corn kernel into cellulose ethanol at our Stockton plant. We are looking at anaerobic digestion, continue to look at other opportunities on CO2.

So there's a lot of just small incremental opportunities as well as more transformational technologies that we continue to focus on and will be investing in over the next couple of years.

Thanks again for taking my questions.

Thank you. (Operator Instructions) Katja Jancic from Sidoti and Company.

Neil, you mentioned hedging, which is something you were unable to do on the west coast. Now, at what point would you start hedging on a foreword -- let's say, what margins would you look at to be comfortable to hedge?

Something better than today, although we, even on the forward curve, we've seen some improvement.

Our general view, while it is true that we have additional tools with the Chicago market, our general view is that when you look at the forward curve, you have a carry in the corn market and a inverse on the ethanol market.

So if you're locking forward margins, they almost invariably are worse than the current margin. And so it requires something that -- and this happens where you see moves in the market where suddenly the forward curve, a quarter out, the next two quarters out, is closer to what we would consider an acceptable margin and we would look at locking that.

But generally, we are, and, frankly, the industry is fairly cautious because of that fundamental problem of the corn versus the ethanol spread in the forward market.

So today's world, if we're in that, call it double-digit, mid-teens-type EBITDA margin, typical at the plant level, if we get into the $0.20, then historically, that becomes a number that is more interesting and we would look at locking that away.

Are there any maintenance plans right now in the third quarter? Because some of your competitors are taking some of the production down for maintenance.

We do have, in September, in Pekin, we have some more extended downtime scheduled for the better part of a week. Typically -- and so that's the schedule that we inherited. And with a wet mill, there's more maintenance attention required, more complicated technology.

At our own plants, we have a fairly consistent -- or the western plans, the legacy Pacific Ethanol plants, we have a more rolling way of dealing with maintenance while we operate, and then we do every five to six weeks, we will go down for 24 hours. So that's fairly continual throughout the year.

But with the Midwest assets, we do have some scheduled downtime in Q3.

Just one more question. Regarding international markets, you mentioned that you want to participate in that market. How are you planning to -- what's the strategy when it comes to that?

Sure. Well, on the feed markets, we're already through the Midwest assets in Pekin, in particular, being on the river. We're already participating very heavily on the export markets for feed. A good percentage of distillers grain goes out on export.

On the ethanol side what is very advantageous in Nebraska is the ability to load unit trains on the BN Railroad that's spread very nicely down into the gulf for potential export. So that is an avenue. We have a plant there that can produce that export grade. So that is -- we don't currently have any exports on the books, but we're investigating the opportunity to do that.

You mentioned [DVGs] are being exported. What's the main destination?

Well, there's a number of them. China is back in the market. They kind of come and go. They're a little slower right now. But that is the largest market for distillers grain on export.

Certainly in Asia, Mexico. There's quite a number of countries that buy the distillers grain from the industry and from our plant in Pekin.

Okay. That's all for me. Thank you.

Thank you. Jeff Osborne from Cowen and Company.

Just two questions on my end. One, I was wondering if you could just address the co-product return and what the cadence of that should be going forward. It looked like it was down a bit this quarter. But given Aventine ramping up, how should we think about the co-product percent returns?

Sure. On the dry mills, so excluding the wet mill, it's running right around where it was in the quarter. And obviously, as the distillers grain market moves up and down against corn, it's currently running close to parity with corn. There was a time in the second quarter where it dropped below and it's actually showing some strength right now. It has not come off with the fall in corn.

So that's pretty historically normal. And then, if you look at the 100-plus million gallons of the total 500-plus million gallons at the wet mill, the co-product return at that facility runs really in and around, if not in excess of 50%. So on a mathematical basis, you can run those numbers to see, but it, incrementally is moving our overall co-product return up.

Got you. Perfect. And maybe for Bryon, the last question I had was just now that Aventine's behind us, how do we think about the refinancing of the term debt? I think you had $26 million at the end of the quarter for just Pacific Ethanol. Obviously, Aventine coming on board as well.

Is that something you expect to do this year or evaluating for next year?

Yes. No, we're evaluating and seeing where the -- see if we can take advantage of some of the opportunities in the marketplace.

So I guess best answer for you is we don't have to refinance the term debt. The $17 million on Pacific Ethanol or the legacy Pacific Ethanol term debt matures in June of next year, $17 million. So we have some time.

It's got a make whole on the interest rate. So there's no advantage, materially, to prepaying that.

That being said, if there's an opportunity to refinance the legacy Aventine debt, the $145 million term debt, that, combine that together, and if there is -- if we find an opportunity to really take advantage of some, if you will, cost savings on borrowing rates and better terms and the ability to upstream and move cash around, it's something that we'll seriously pursue.

Sounds good. I appreciate the color. Take care.

Thank you. Michael Kaufman from Redwood Capital Management.

I just wanted to see if you could give us any commentary on the performance of the legacy Aventine facilities relative to legacy Pacific facilities in the quarter.

Sure. We will be providing more detailed information in what, Bryon, about a month or --?

Yes, over the next couple weeks.

Yes, in a couple weeks. So I'm going to defer any, as we're pressure testing those numbers. I will say that the plants are all great performing assets, the facility in Pekin has historically done exceptionally well on a comparative basis to any asset in the United States. The dry mill as well at Pekin.

In Nebraska, it's been a little choppier just because those plants, particularly the larger plant there, was in it restart mode, and, really, it was the first time that it's continually run. So in many respects, it's been start up.

There have been some issues getting the dryers lined out. When the margins were challenging and the capital limited with the prior owners, there were times when they slowed down and even shut down the Nebraska facilities.

So they did not run historically at full capacity in Nebraska over the last couple of quarters. We actually have been taking a fairly slow approach as well in Nebraska, given that the margins have been particularly challenging there with very low cost of wet feed and a fairly high corn basis.

So we're choosing to kind of match production to what we find acceptable margins than trying to avoid producing wet feed. So we're currently running those plans at less than capacity and kind of giving the opportunity to really line out the production more efficiently.

So that's probably where we have the most work to do is in Nebraska. But we're actually very optimistic and excited about those assets.

And what we're seeing in today's corn market is that -- I was in Nebraska last week, and corn's looking great and western corn belt is having a tremendous year growing a crop, and that should help out on the corn basis. We're actually seeing a little more challenging basis on the eastern side of the corn belt.

So that's sort of a general view for you. And we will have more detailed information over the next period of weeks.

Got it. Thank you, that's helpful. And then following up on an earlier comment you made about the wet mill with about 50% or even north of 50% in co-product revenues.

How much more does it cost on an operating cost basis to run that wet mill versus one of your typical dry mills?

Hard to characterize precisely. But it certainly does have a higher cost structure both in terms of maintenance and energy and operations.

But the bottom line is all about the EBITDA that you can generate from the asset. And as I said, the Pekin wet mill has really scored in the very, I'm going to say top 10% of margin performance in the industry, and it's done that for many years.

A good case in point is back in the top times at Aventine when the company itself was bankrupt and 40% of the ethanol industry was shut down back in parts of 2009 through 2012, the wet mill never shut down.

So it's an extraordinarily well-performing asset and we actually see some opportunities with some targeted capital investment to make it even better.

Got it. That's helpful. Thank you, guys.

Thank you. Craig Irwin from ROTH Capital Partners.

Thanks for taking my follow-up question. So, Neil, over the past couple years, you're probably aware that there have been -- a couple private equity firms have been actively evaluating assets and space.

And now that you've completed the Aventine acquisition, it really gives you different scale and different financial profile for a potential private equity investor.

And you also have a competitor who yesterday was saying they'd look to pay something like $1.60 a gallon now going forward. That's obviously a very nice premium from where you are now in an off-cycle market.

But can you maybe discuss with us, share with us how you would consider and evaluate a potential offer for the combined Aventine/ Pacific Ethanol company?

Sure. It's, as a company with a [duty of share] responsibility to our shareholders, we would take a serious look at any offer that was made.

At this point, we're more focused on the integration of the Aventine assets and continuing to run these assets as efficiently as possible and reinvesting organic growth opportunity for us to look at other acquisitions as well.

So that's a very speculative theoretical question. But whenever presented with a more concrete opportunity, we, of course, would evaluate it.

Thank you for that. And then just an adjacent question, right. So as an observation, most of the assets that have gone out this year have been trading for well north of a $1.00, $1.30, $1.50, $1.60. Yet, the public market valuations have been abysmal in comparison.

Can you share with us what the buyers of those assets maybe are thinking or seeing that's different than what a lot of the equity investors are seeing?

I think they're seeing what we see, which is fundamentally a very strong dynamic in the ethanol industry with a lot of future growth with what we believe will be a more sustained positive margin environment, growth both domestically as we migrate to higher blends and internationally with the very compelling value proposition of ethanol. So that's what they see.

As to public valuations, you're right, abysmal is a good word. It appears to us that the valuation of the public, ethanol [equities] tend to move with the daily crush margin, which is not the way we think about the business, not the way we plan for the business. We believe as we continue to perform and show results, that that dynamic will take care of itself.

I will say that we feel very fortunate in, you're right, an environment where the most recent transactions have gone in that $1.50 and north, and we acquired over 300 million gallons of high-quality assets for $1 a gallon. So we feel very fortunate to have been able to negotiate a transaction that was extremely favorable for our shareholders.

And it's our job now to show how we can perform at a very high level with this much larger scale, and our valuation will follow.

Thank you for that. And congratulations on the strong execution.

You're welcome, Craig.

Thank you. Showing no additional audio questions, I'd like two turn it over to Mr. Koehler for any closing remarks.

Thanks, Howard, and thank you all for joining us today to talk about our Q2 results, and look forward to further updates in the weeks to come. And will see you back here next quarter. Thank you. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.