Alto Ingredients Inc (ALTO) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Pacific Ethanol First Quarter 2017 Financial Results Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Becky Herrick, LHA. Please go ahead, ma'am.

Thank you, Christy. And thank you all for joining us today for the Pacific Ethanol First Quarter 2017 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'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 May 17, the details of which are included in yesterday's 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, May 10, 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 states 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 laws, 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 believes these measures will assist investors in assessing the company's performance for the period being reported. The company defines adjusted EBITDA as unaudited net income or loss attributed to Pacific Ethanol before interest expense, benefit for taxes -- excuse me, 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.

And it's now my pleasure to introduce Neil Koehler, President and CEO. Neil?

Thank you, Becky. Good morning, everyone, and thank you for joining us today. For the first quarter of 2017, we reported net sales of $386 million, up 13% from the same period in the previous year, and 226 million total ethanol gallons sold, up 9% from the same period last year. We also reported a GAAP net loss of $12.9 million and an adjusted EBITDA of a negative $1.9 million.

The first quarter was negatively impacted by several factors. The first quarter results reflect seasonally weaker production margins due to lower transportation fuel demand and high industry-wide ethanol inventories. In addition, while ethanol production margins improved slightly year-over-year, falling ethanol prices in the first quarter this year significantly reduced gross profit in our ethanol marketing business by approximately $3.8 million. It is worth noting, while we can see some volatility in our marketing business on a quarterly basis, the business consistently delivers strong results on an annual basis.

More specific to our plants, local weather conditions affected transportation costs and production at some of our facilities, and we took our Pekin, Illinois wet mill facility off-line for 1 week for scheduled maintenance and repairs. While this reduced production and significantly increased maintenance costs during the quarter, to the tune of approximately $4 million, we intentionally scheduled the shutdown to position the plant for maximum production during higher-margin periods. As projected, it is translating into the wet mill's improved operating performance to date in the second quarter.

So far in the second quarter, we have seen an improvement in margins with stronger seasonal demand and a record pace of exports, although with continued volatility and daily margin movement. Regardless of the changing margin environment, we continue to focus on leveraging our unique and differentiated position in the industry. With production in both the West and Midwest and sales of products both domestically and internationally, we spread commodity and basis risks across diverse markets.

In addition, our portfolio of high-value coproducts continues to provide strong returns for the company. We benefit both from our corn oil production and our Pekin wet mill coproducts, which include corn, gluten meal, germ and gluten feed. Our yeast plant in Pekin is producing at strong rates with a solid book of forward business. Distillers grain markets are generally soft due to high supply and reduced exports. However, some of our wet distillers grain markets are benefiting from local demand, which improves pricing and demonstrates the value of our regionally diverse assets.

We are continuing our long-term strategy of implementing initiatives, projects and programs to increase operating efficiencies, enhance yields, improve our carbon scores and reduce operating costs.

Our cogeneration installation at our Stockton facility is in the late stages of interconnection and synchronization setup with our local utility provider, and we are in start-up mode of the system. The cogeneration system will deliver steam and electricity into the plant while lowering emissions. And we anticipate that it will reduce our annual energy costs by up to $4 million. The synchronization and start-up have been slower than expected, and we currently expect to be at 50% capacity by the end of the second quarter and at full capacity by the end of the third quarter.

At our Madera facility, we have been operating the Whitefox industrial scale membrane system at commercial levels since the start of the year. The system has been performing well and meeting our expectations. By separating water from ethanol in the plant's dehydration process, the membrane system is lowering our energy consumption, increasing our production efficiencies and reducing the carbon intensity of our ethanol production. Also at Madera, work continues toward the installation of a 5-megawatt solar power system, which is expected to reduce our utility costs by approximately $1 million annually and lower our carbon score. We're working through local utility interconnections, and our goal remains to start full-scale operation in early 2018.

We are on track to be in commercial production of cellulosic ethanol at Madera in the second half of this year. Utilizing Edeniq's Pathway and Cellunator Technologies, we expect to produce up to 1 million gallons of cellulosic ethanol annually at this facility with a contribution of over $2 million per year to our bottom line. We expect EPA approval on this production around the time commercial operations commence.

At our Stockton facility, we are producing cellulosic ethanol and generating high-value D3 RINS, the financial benefits of which we expect beginning this quarter. We remain on track to produce over 1 million gallons of cellulosic ethanol annually. We continue to focus on fine-tuning this technology to maximize yields and production efficiencies. We're also working with the California Air Resources Board to qualify our cellulosic production at both our Stockton and Madera facilities for additional carbon credits under California's Low Carbon Fuel Standard.

Exports remain a valuable contributor to supporting a better supply and demand balance. The U.S. exported over 1 billion gallons of ethanol in 2016, which was up 26% from 2015. We expect 2017 ethanol exports to grow by approximately 20% over year-earlier levels and could end up as the highest annual ethanol export total on record. We continue to see growth in existing export markets and the development of new markets where ethanol is being chosen for its environmental and economic benefits.

National and local regulations continue to provide a solid support for long-term ethanol demand. For the first time ever, U.S. gasoline consumption in 2016 contained more than 10% ethanol blends on average, exceeding the so-called blend wall and moving us toward the reality of higher ethanol blends.

Last year, we saw E15 gain traction as sales increased and additional infrastructure was developed. At the end of 2016, there were approximately 650 stations offering E15 for sale, and that number is expected to double by the end of 2017. All indications from the Trump administration are that it will continue to be supportive of policies such as the Renewable Fuel Standard, which also enjoys strong bipartisan support in Congress.

In March, many of my Pacific Ethanol colleagues who are U.S. military veterans joined other ethanol industry veterans around the country in sending a letter to President Trump in support of the industry. In this letter, our servicemen and women share their unique perspective on the dangers posed by the nation's reliance on oil imports. Furthermore, the letter underscores ethanol's important role in our national security, job creation and economic vitality, and encourages the federal government to do more to remove unnecessary regulatory barriers to the introduction of higher blends of ethanol. Of the 120 veterans who signed the letter, I'm proud to say that veterans who are Pacific Ethanol personnel represented 1/3 of those signatures.

With that, I'll hand the call over to Bryon for a review of the financials.

Thank you, Neil. Good morning, everyone. For the first quarter of 2017 compared to the first quarter of 2016, net sales were $386 million, up 13% compared to $342 million. Cost of goods sold were $392 million compared to $341 million. Gross loss was $5.8 million compared to a gross profit of $1.1 million in the first quarter of 2016. As Neil summarized previously, the decrease in gross profit is attributable to 2 primary factors: $3.8 million was due to lower gross profit from our third-party marketing business, which was primarily attributable to sharply falling ethanol prices in the first quarter of 2017; and $4 million was primarily associated with the scheduled shutdown of the Pekin wet mill facility for routine maintenance, and $1.6 million resulted from unanticipated repair and maintenance expenses at the wet mill incurred over the quarter.

SG&A expenses were $5.5 million compared to $8.3 million. This significant reduction year-over-year is largely due to a net gain of $3.6 million related to litigation matters that were settled in the first quarter of 2017. This was partially offset by higher cash and stock compensation expenses. We anticipate quarterly SG&A expenses to average $7.5 million through the remainder of this year.

Loss from operations was $11.2 million compared to $7.2 million in the prior year period. Interest expense was $2.6 million compared to $6.2 million. The decline in interest expense is primarily due to the lower interest rates resulting from the refinancing of debt in December 2016.

Net loss available to common stockholders was $12.9 million or $0.31 per share. This compares to a net loss of $13.5 million or $0.32 per share in the year-ago period.

Adjusted EBITDA was negative $1.9 million compared to adjusted EBITDA of positive $1.6 million in the year-ago period.

Now turning to our balance sheet. Cash and cash equivalents were $73.7 million at March 31, 2017, compared to $68.6 million at December 31, 2016. For the first quarter of 2017, our capital expenditures totaled $4 million, primarily related to plant improvement initiatives. We continue to expect our 2017 total CapEx to approximate $46 million, $16 million of which represents previously announced projects, including our Stockton cogeneration and Madera Cellunator and solar projects. The remaining $30 million represents projects that increase yield, capacity or revenues, improve operations through the upgrade and replacement of equipment, extend reliability, reduce costs or lower our carbon score. Of this amount, we have allocated approximately $6 million to cover the remaining repairs required at our Pekin facility over the coming months. The balance of the $24 million is earmarked for projects that are under development and review but have -- but not yet been committed. As a result, the amounts may be adjusted depending on market dynamics and company strategy.

With that, I'll turn the call back to Neil.

Thanks, Bryon. While we faced a challenging environment in the first quarter, we are encouraged by improving market fundamentals as we approach the summer driving season as well as the continued demand from exports. We will further advance initiatives to reduce our operating costs, improve our efficiencies and overall improve the company's position as a leading producer and marketer of low-carbon fuel and valuable coproducts.

In summary, we remain confident in the long-term demand for ethanol, driven by its underlying economic fundamentals as a high-octane, low-carbon and job-creating fuel. We believe we are well positioned to improve our financial performance and grow our share of the low-carbon fuel market.

Christy, we are now ready to begin the Q&A session.

(Operator Instructions) Our first question is from the line of Eric Stine of Craig-Hallum.

It's Aaron Spychalla on for Eric. You mentioned improving industry conditions to date in the second quarter. Can you just kind of maybe frame that against the pullback we've seen in the last couple of weeks and kind of talk about your outlook for the remainder of the quarter, and maybe touching on corn, given some of the recent weather we've seen there and harvest expectations?

Yes. First, on the ethanol, and I did mention that we continue to see volatility. So through the month of April, we saw very good improvement in industry margins. And as you mentioned, in the first part of May here, we have seen a pullback. We are generally constructive on the balance of the year. We look at the numbers. We're finally seeing the gasoline demand come back to levels that are at and, actually, this week -- the number is out this morning -- slightly above last year's levels. We saw production up but still below the levels that we'd seen earlier in the year. And the inventory is down slightly for the second week in a row. I think the short term, there's been some nervousness around the demand side as well as the inventories not coming down as quickly as we typically start to see as we move into the higher demand. But when we run the numbers and look at 144 billion, even 145 billion gallons of gasoline and 1.2 billion, 1.3 billion gallons of exports and production, that is, certainly in the summer months, we'll be struggling to keep up with those levels, we see a balanced market, and the making for a reasonable margin environment. As it relates to corn, there's certainly -- this is the time of year when everybody loves to overexaggerate what's going on in the weather markets. And yes, we saw a lot of moisture, but we're seeing more normal weather conditions. Planting is slightly behind historical levels, but it's catching up. And given the technology today, farmers can catch up very quickly. So from everything we hear from the country, corn crop should be fine. In fact, just in the last day or 2, with some of the rain conditions in the Kansas areas and even Texas, we're hearing that some of the wheat crop is being torn out because it got destroyed by the rains, and that is representing some potentially new acres for corn. So we fully expect to see the 90 million acres and good trend line yields and another bumper crop. So we actually are pretty constructive on that as well and see a very stable pricing environment, if not some really good basis, weakness this summer with the amount of corn that's in storage.

Maybe second on exports. Obviously, those have been strong and are expected to continue. Can you just maybe give your latest thoughts on Mexico and when we can maybe see a decision there? And then any update on China on your end?

On Mexico, we do see that as a very good growth market and probably starting -- it's a market today, but with some growth beginning in 2018 when they do have their deregulation of the fuels business. It is a bit of an arm wrestle right now between MTB interests and ethanol. We obviously think MTB should be not used anywhere in the world given its very toxic nature and contamination of groundwater. And that would represent, if you took all the MTB out, probably 1 billion gallon or more market for ethanol to fill in the octane and oxygenate needs there. The -- we do expect MTB to continue to be in that market, but over time, more of a transition to ethanol. So hard to judge accurately on how the government is going to play with that and move those regulations, but rest assured that our industry is doing everything we can to advocate for the advantages of ethanol from an octane and economic and environmental perspective in Mexico. China is also a hard market to call. We have discounted it to close to 0 as an industry and coming up with these various third-party views on a strong export market in that 1.2 billion range. My own personal perspective is that when the price is right and they've drawn down their own cornstalks, that we will see China back in the market for U.S. ethanol this year.

Okay. And then maybe final one for me. Can you just touch on the prospects for a year-round waiver for E15?

We think the prospects of that are quite possible. Some form of -- if not waiver, an RVP parity where all fuels are treated alike, whether it's 10%, 15% ethanol or even higher. We do think it's very consistent with the new administration's both support of the Renewable Fuel Standard and increasing opportunities for higher blends of ethanol, overlaid with their commitment to take away burdensome regulations that are hindering growth in our economy. And certainly, we see the opportunity to blend 15% and higher blends of ethanol, a really great opportunity to bring more jobs to rural America, build more incremental ethanol capacity and increase the market. And the RVP issue is -- certainly, outside of the RFG areas is a significant and we would consider very unnecessary regulatory burden today. So we're cautiously optimistic. There's both a regulatory path and there's been legislation introduced in Congress, and we are being very supportive of that and doing our part to advocate.

Our next question is from Jeff Osborne of Cowen and Company.

A couple of questions on my end. Can you -- first of all, I might have missed this, but how long was Pekin down? I'm just trying to get a sense of the issues that you had there.

Pekin down -- was down for 1 week. And that was the wet mill, and it's more complex in nature rather than the 24-, 40-hour rolling shutdowns that we do on the dry mills. We take that facility down for a full week. The prior year it was in the fourth quarter, so that's why -- and it does have certainly an impact by loss of production and significant maintenance costs. So that was a cost that we did not have in the first quarter of last year and did have in the first quarter of this year.

Got it. And Neil, in the prepared remarks, I think you made reference to weather impacting some of the plants that -- in particular, California. I was just curious, was there any issues in getting corn to the sites in Madera and Stockton? Or any other uptime or utilization issues at the 4 plants on the West Coast?

There was a minor amount of difficulty. We actually, at our Stockton plant -- and this was typical of the other plants in California as well. Madera was the 1 plant of the 4, 2 that we own, 2 that are others operate, that didn't have any issues, but we had a couple of days where we were out of corn. And there was really a serious situation for California in lots of industries when the tracks were washed out as they were. There was also some higher transportation cost, basis cost around that. And then in the Pacific Northwest, where the weather was so extreme that it really shut down not only railroads but major highways, we had to slow the plant down there for over a period of about 2 weeks because of the inability to move all the ethanol from the plant. We had no issue getting the corn there, but did have some issue getting the ethanol out. That was the most extraordinary weather that, that region has seen in, I believe, 40 years, so we wouldn't anticipate that as a regular course. And it also coincided with the river being shut down for barge maintenance. So we did not have our main mode of transportation, which is typically barges down the river to the Portland market. We were having to truck everything, and so when I-84 was shut down with all of the ice and snow, that put us in a difficult position. So there were definite impacts that we would consider somewhat extraordinary and nonrecurring due to weather.

Got it. That's helpful. Just a couple of other quick ones on my end. One on the cogen challenges. It sounds like that's ramping up a little bit slower than expected. I was just wondering, a 2-part question, a, if you can elaborate on what the issues there are; and then b, as it relates to that or just the broader market, I guess what the $24 million in unallocated CapEx for the year, what are the things that you needed to see in the market or other performance of some of these products like cogen and the Cellunator to get more comfortable with those technologies and move forward with deployment at some of the other clients?

Yes. On the cogen, it's a big piece of equipment, and there's some innovative technology that we've been using. So in that respect, it's 0-1, so it's still under the care and custody of Dresser-Rand, who's installing that system for us, and they want to make sure they get everything exactly right. There are no problems, no fundamental flaws. It's just a matter of getting everything synced up. It's also not a trivial matter to make sure that we meet all of the needs of the local utility in synchronizing that system because we would be both drawing electricity from the grid and delivering electricity over our fence to -- back to the grid. So there's just a host of issues. And as these things can be at start-up, can be a little more complicated than expected. So have seen those delays, but very confident that this will be a great contributor to Stockton and will be fully online, as I said, by the end of the third quarter. On the other projects, it's really -- it's the strategy, it's carbon pricing signals because a lot of those -- and I think one notable example would be anaerobic digestion, which we're looking at in our California plants and potentially in Oregon and elsewhere as well, where we have the low-carbon markets, is to really continue to fine-tune the process, so again, a new application of a known technology, the anaerobic digestion, into our facilities and to be able to make sure that we are marshaling our capital resources efficiently, that we're responding to market signals, that there is regulatory certainty on the -- not only the existence of these standards but their extensions. So California, the Low Carbon Fuel Standard is -- expires in 2020 at -- or it freezes at that level. We are working with the state, as many stakeholders are, because the California government is intending to extend that for 10 years, and that will give us a strong signal on a number of projects that -- where we could invest substantial capital to lower our carbon scores. We continue to incrementally invest in things that have a very quick payback so that we're comfortable even if there's not an extension of carbon standards by 2020. But the more material investments do require an investment horizon that goes beyond 2020.

Got it. That's helpful. Just 2 real quick ones. One, Neil, for you, big picture-wise, just what are you seeing in the market in terms of M&A? And how do you envision over the next 2 to 3 years Pacific Ethanol being a part of that? And then for Bryon, I was wondering just if you could help us out on the byproducts line item. How do we think about the mix between DDGs and corn oil for the quarter and the remainder of the year?

On the M&A front, it's been relatively quiet, certainly continue to be conversations and have seen some transactions over the last year. We've done a fair amount of consolidation of this industry, and we think more is ahead. Right now you have 6 ethanol players that control about 50% of the production. In a more mature commodity market, you would typically see 6 players controlling closer to 70%. So we think that is where this industry is headed. We continue to be very optimistic about the growth in the market and the consolidation. And as a company, we have been a consolidator, and we will continue to focus on opportunities both from organic growth and any acquisition opportunities that present themselves.

Jeff, on the coproduct side, as Neil mentioned in the prepared remarks, we've seen good strength, particularly as it relates to some of the more refined products out of our wet mill. We have seen softened prices at times, but that's nothing unusual -- or nothing specific to Pacific Ethanol more than an industry-related softening for DDG prices. But we're also able to -- because of the locations and the opportunity to move between dry distillers grain and wet distillers grain, be able to take advantage of strengthening wet distillers grain prices at times. And if it strengthens again in dry distillers grain, just swap over to that. So I wouldn't expect a significant change in what we're seeing. We're certainly seeing good yields out of our corn oil production. So some of the numbers that you're seeing, both now and on a historical basis, should be -- are good proxies for the next couple of quarters.

(Operator Instructions) Our next question is from Amit Dayal of Rodman & Renshaw.

In terms of the outlook for margin improvements in your third-party marketing business, do you have any flexibility involving your exposure to this segment in periods of margin compression? Or are you committed to certain volumes?

That's a fair question. Our whole franchise as a producer, marketer and having very strong market share in the markets that we focus on has required us -- or really part of that value proposition is for us to go in and tie up a tremendous amount of business that is beyond our own production capacity. And that has served our production plants very well, has served the market very well, has given us a very differentiated and value-added service component in the market. So we consider it a very important part of the value proposition, as I mentioned. While we do have some exposure to rapidly moving prices, we saw a $0.40 drop in ethanol prices over the first quarter, really, in the pretty much first half of the first quarter. And when we have a lot of inventory tied up, both in tanks and in transit, there is exposure. Conversely, when markets move the other way, we get that back. And so on an annualized basis, it continues and will continue to be a very profitable component and a very important part of making sure that we have the highest value sales for both our marketing partners and our own plants. That being said, it is a very competitive market. Certain areas that are a little more tangential to our production plants, we've been evaluating some of the business, trying to connect as much as possible our purchase price with our sales price in time and tenure and been successful in moving some of that business and are also looking at some elements of the business to say, that's -- we don't really have as much of a competitive position as we used to, and we don't -- we can turn that piece of business down. So we are reevaluating some areas. There's opportunities for growth in others.

Understood. And maybe just one more for me. Your utilizations were higher year-over-year. Do you expect to sort of maintain 90%-plus utilization levels for the remainder of the year?

I think that's a reasonable estimate. And depending on supply/demand dynamics, it could even be higher than that.

Our next question is from Carter Driscoll of FBR.

First question is, what have you learned from the initial installation of the Edeniq technology at Stockton? And is any you can port over to Madera? Have you been favorably pleased with the early results? Or is there an expectation you're going to increase the efficiency, and then potentially to what level? And then I have a follow-up.

We are happy with the Edeniq technology and the results. We are generating D3 RINS, and we have forward sales now, as I have mentioned in the prepared remarks, that we will be monetizing that starting this month going forward, and the pricing is good. The waiver credit for cellulose went up this year. The spread between D5 and D6 RINS has been increasing, so that just adds more value. And we're very confident of that $2-plus, really, in today's market, incremental premium value. It is -- in our view, it's been the lowest hanging fruit to get the industry into the cellulose ethanol business from a capital and operational standpoint. And that is why we are looking to expand it in Madera and beyond. And we -- whether it's Edeniq's technology or some of the other vendors out there, we do feel that the conversion of corn fiber to ethanol in the ethanol industry could be much like the rapid adoption of corn oil that we saw over the last number of years.

Okay. But you're comfortable with the yields you are getting today? And is there any specific improvement you can see, either at Stockton or anything that you've learned with the implementation you can port over to Madera?

Just like any of these technologies, there's always room for improvement. The Edeniq technology -- so the advantage is that you get the -- in a relatively low-capital, low-cost way, you get the conversion of fiber, but we're only getting up to 2% of that fiber, and there's closer to 8% in the corn kernel. So what can we do to tweak the system to do better? We are focused on that every day, and we are optimistic that there's some room for improvement. We are also looking at the opportunity to install other technologies [at other] process to capture more of that fiber as well. So it's very much a focus of the company. When you consider not only the value of the D3 RINS but the ability to also get additional carbon credit in these low-carbon fuel markets, it gives us real competitive advantage and opportunity to do more of this.

And the approval process for the EPA versus CARB, you compare and contrast those 2 processes and the time lines and, obviously, additional value you could get if you get qualification under the LCFS?

The EPA process, since we were the first adopter of that technology, it took close to 2 years. But then subsequent to that, it's been a number of months for other applicants, and that's what we're expecting for Madera. And CARB is on a similar trajectory. It was really a matter of getting the EPA protocol established and to leverage that with carbon. That's what we're doing now, and we expect that to be a process of months.

And then maybe just a big-picture question. Certainly, a lot of uncertainty with the administration, though President Trump seemingly has been very positively supportive of the ethanol industry in the past. But in terms of the point of obligation, there's a lot of noise right after he was elected, in particular, from one of his high-profile consultants, (inaudible). Do you anticipate any more noise on changing the point of obligation, how that could or could not be disruptive to the business ultimately? And then just as kind of an adjunct, you've exceeded -- we've exceeded the 10% blend wall. Maybe your perspective on the aging of the fleet and the swap-out in terms of new vehicles and that being less of a barrier towards progress towards E15.

The -- there's always noise around all aspects of ethanol regulatory and political issues. I don't expect that, the noise to necessarily go away, but it has obviously subsided quite a bit. The industry, all the trade groups remain united in opposing changing the point of obligation. There are obviously a number of obligated parties that very much want to see a change and a number of obligated parties that very much don't want to see a change. So you have ethanol industry that's united saying don't move it. You have an oil industry and refining industry that's actually pretty divided on whether to move it or not. Given that dynamic and given this administration's support for ethanol and seeing the growth in our industry and given what would be a fairly long administrative process to change the point of obligation, we do not expect that to happen. We do believe that the rules of the road have been known for years, that the point of obligation where it is. You can make good arguments on why it should change. But right now, today, it is helping to move the higher blends into the marketplace. You have retailers that are not obligated parties but can take advantage of the value of the RINS to justify their investments once they make those investments and sell E15, given the underlying economic benefits of ethanol. It is a cheaper product. That's why we're very confident that it -- when you reach critical mass in a market, if you're not selling E15, you're not going to be competitive with the gasoline retailer across the street. So we're optimistic that we'll start hitting that critical mass this year and next, and then you will see a more rapid growth. To your second question, which is also a part of it, is that we now have virtually all of the new cars being sold that are fully warrantied by the manufacturers to run on the higher blends. And even more exciting to us when you look sort of midterm is the CARB companies are also really focused on a new family of engines to meet higher fuel economy standards that are much more efficient and require direct injected high-compression turbocharged engines that from the car companies' perspective are going to need a much higher octane fuel. And there's really no way to bring that higher level of octane to the gasoline pool in the United States, and globally for that matter, without significant higher blends of ethanol. So E15 is great. We really see the ultimate future as a 20% or 30% ethanol blend. And we are spending a fair amount of time with our colleagues, with the car companies and the refiners to talk about how do we collectively move towards a future to support new technology, engine technology that's going to require higher octane fuels. So to us, the octane and carbon benefits of ethanol are major drivers for significant growth in the years ahead.

(Operator Instructions) I'm not showing any further questions at this time. I'd like to turn the call back over to Neil Koehler for any further remarks.

Well, thank you all for joining us. We are focused on improving our performance in this quarter and the quarters ahead, and we appreciate all of your interest and support. And we'll talk to you next quarter. 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 great day.