Aemetis, Inc

Please stand by, we're about to begin. Ladies and gentlemen, welcome to the AMETIS fourth quarter 2019 earnings review conference call. At this time, all participants are in a listen-only mode, and a brief question and answer session will follow the formal presentation. As a reminder, today's conference is being recorded. It is now my pleasure to introduce your host, Mr. Todd Waltz, Executive Vice President and Chief Financial Officer of AMETIS, Inc. Mr. Waltz, you may begin, sir.

Thank you, Jim. Welcome to the AMETIS fourth quarter 2019 earnings review conference call. We suggest visiting our website at ametis.com to review today's earnings press release, updated corporate presentation, filing with the Securities and Exchange Commission, recent press releases, and previous earnings conference calls. This presentation is available for review or download on the ametis.com homepage. Before we begin our discussion today, I'd like to read the following disclosure statements. During today's call, we'll be making forward-looking statements, including, without limitation, statements with respect to our future stock performance, plans, opportunities, and expectations with respect to financing activities and the execution of our business plan. These statements must be considered in conjunction with the disclosures and cautionary warnings that appear in our SEC filings. Investors are cautioned that all forward-looking statements made on this call involve risks and uncertainties. and that future events may differ materially from the statements made. For additional information, please refer to the company's Security and Exchange Commission filings which are posted on our website and are available from the company without charge. Our discussion on this call will include a review of non-GAAP measures as a supplement to financial results based on GAAP. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the quarter ended on December 31, 2019 which is available on our website. Adjusted EBITDA is defined as net income or loss plus to the extent deducted in calculating such net income, interest expense, loss on extinguishment, income tax expense, intangible and other amortization expense, accretion expense, depreciation expense, loss contingency on litigation, and share-based compensation expense. Now I'd like to review the financial results for the fourth quarter of 2019. Revenues were $52.1 million for the fourth quarter of 2019 compared to $38.8 million for the fourth quarter of 2018. Gross profit for the three months ended December 31, 2019 was $5.8 million compared to a gross loss of $1.9 million during the same period in 2018. The gross profit improvement was attributable to increased sales at the India plant along with prices for ethanol increasing from $1.57 per gallon during the three months ended December 31, 2018 to $1.82 per gallon during the three months ended December 31, 2019 in a market where the cost of delivered corn rose slightly from $4.89 to $5.02 during the same respective periods. Selling general and administrative expenses were $4.7 million during the fourth quarter of 2019 compared to $4.8 million during the fourth quarter of 2018. Operating profit was $1 million for the fourth quarter of 2019 compared to an operating loss of $6.7 million during the fourth quarter of 2018. Profits at the India plant resulted in an income tax expense of $1.1 million during the fourth quarter of 2019 compared to negligible income tax expense during the fourth quarter of 2018. Net loss attributable to AMETIS was $6.7 million for the fourth quarter of 2019 with an additional $900,000 attributable to non-controlling interest for a total net loss of $7.7 million. compared to a net loss attributable to AMETIS of $11.4 million for the fourth quarter of 2018, with an additional $900,000 attributable to non-controlling interests for a total net loss of $12.3 million. Cash at the end of the fourth quarter of 2019 was $656,000 compared to $1.2 million at the end of the fourth quarter of 2018. Now I'd like to review the financial results for the 12 months ended December 31, 2019. Revenue increased 18% to $202 million for the 12 months ended December 31, 2019, compared to $171.5 million for the same period in 2018. The increase in revenue was primarily attributable to increases in the production and sales of biodiesel and glycerin in India. Gross profit for the 12 months ended December 31, 2019 increased significantly to $12.7 million compared to $5.4 million during the same period in 2018. Gross profit increase was attributable to higher quantity and margin from biodiesel sales in India. Selling general and administrative expenses were $17.4 million during the 12 months ended December 31, 2019. compared to $16.1 million during the same period in 2018. The increase in selling general and administrative expenses was primarily attributable to operational support fees and professional fees that were partially offset by grant receipt for expense reimbursement. Operating loss was $4.9 million for the 12 months ended December 31, 2019 compared to an operating loss of $10.9 million for the same period in 2018. Profits at the India plant resulted in income tax expense of $1.1 million during 2019 compared to negligible income tax expense during the year of 2018. Net loss attributable to Amedis was $35.7 million for the 12 months ended December 31, 2019, with an additional $3.8 million attributable to non-controlling interest for a total net loss of $39.5 million, compared to a net loss attributable to a METIS of $33.1 million during the same period in 2018, with an additional $3.3 million attributable to non-controlling interest for a total net loss of $36.3 million. That completes our financial review. Now, I'd like to introduce the founder, chairman, and chief executive officer of METIS, and Eric McAfee for Business Update.

Eric? Thank you, Todd. For those of you who may be new to our company, let me take a moment to provide some brief background information. Ametis was founded in 2006 and now have four lines of business focused on supplying low carbon and below zero carbon renewable fuels and biochemicals. Our four lines of business are renewable biodiesel, advanced ethanol, dairy renewable natural gas, and Waste Wood Biofuels. We own and operate production facilities with more than 110 million gallons per year of renewable fuel capacity in the U.S. and India. Included in our production portfolio is a 60 million gallon per year capacity ethanol, distillers grain and corn oil plant located in Keys, California near Modesto. To support our carbon reduction efforts that decrease our costs and increase the value of our biofuels, We have been awarded about $21 million of grants this year to support energy efficiency and other upgrades to our California ethanol plant. We also built, own, and operate a 50 million gallon per year capacity distilled biodiesel and refined glycerin biorefinery on the east coast of India near the port city of Kakanata. About a year ago, we signed a $30 million equity funding and launched a renewable natural gas project to build biogas digesters at about a dozen local dairies near our ethanol plant in California, construct a pipeline connecting the digesters to our plant, and install gas conditioning to produce carbon negative renewable natural gas, to reduce the carbon content of our ethanol production, and to displace diesel by fueling natural gas trucks. We now have signed participation agreements with 17 dairies, built and tested two dairy lagoon digesters at a cost of about $5 million and have designed and permitted a four-mile pipeline that's now under construction to connect the dairy digesters to our ethanol plant. In 2019, we signed financing term sheets to fund an advanced ethanol production facility in California to convert waste orchard wood and other waste biomass into about 12 million gallons of cellulosic ethanol per year. We are now in the final engineering and procurement cycle prior to completion of project financing and commencement of construction of the plant. The combination of these growth and cost reduction initiatives are expected to increase our revenue to more than $500 million per year and annual cash flow to more than $130 million per year. This projected growth in revenues and cash flow reflects certain planned and completed upgrades of our existing plants, as well as planned completion of the new dairy renewable natural gas and waste wood ethanol production facilities. With the consistent support of California regulators and continued strong California low carbon fuel standard credit prices, Amedis made positive progress in each of our four businesses during 2019. Let's first review our biodiesel business in India. The total diesel market in India is approximately 25 billion gallons per year of which less than 250 million gallons per year, or about 1%, is biodiesel. The 2018 National Biofuels Policy in India increased the biodiesel blending target to 5% of the diesel market, equal to more than 1.2 billion gallons per year. The national policy also outlawed the import or export of biodiesel into or out of India, thereby encouraging the expansion of domestic biodiesel and renewable diesel production capacity. After two years of investment and construction, we completed the upgrade of our India plant in early 2019, including installation of a pretreatment unit to process lower cost and waste feedstock into oil. The biodiesel and refined glycerin plant is now fully operational using the new feedstock pretreatment unit, the new boiler unit, and other upgrades that enabled expanded plant operations toward full plant capacity of 50 million gallons per year. On May 6th of last year, we announced that our Universal Vodules India subsidiary was awarded a $23 million biodiesel supply contract with the three India government-owned oil marketing companies in a public tender process. Biodiesel shipments to the oil marketing companies began in May 2019 and grew to comprise about 70% of monthly revenues at the India plant. We are particularly pleased with this arrangement because these three government oil marketing companies supply about 70% of the diesel fuel consumed in India and as a group represent the largest single potential biodiesel customer in the country. Under this contract, our biodiesel has fueled trucks, buses, and even trains throughout India with lower-cost biofuel that generates up to 90% lower particulate emissions and extremely low sulfur emissions. We achieved the capital expenditure upgrades and the revenue ramp-up at the India plant while repaying 100% of the long-term debt at the India subsidiary and without any ownership dilution to our Imetis parent company shareholders. Imetis effectively owns 100% of the India subsidiary and as a result may use the cash created from earnings to repay Imetis' senior debt and provide expansion funding for other renewable fuels production projects. Additional oil marketing company purchase requests for biodiesel are expected for year 2020 and we expect to continue to participate as a key supplier under these biodiesel contracts. During the months of December and January, the primary constraint on biodiesel revenues growth in India is the seasonal colder weather from lower winter temperatures and the high cost of feedstock in late 2019 that has now decreased significantly due to the global fall in the price of crude oil. Once the existing production capacity becomes fully committed to supplying the expanding biodiesel markets in India, The India plant has the footprint to expand its capacity to 100 million gallons per year and to grow revenues to more than $300 million per year to meet increasing biodiesel demand in India, driven by the 2018 National Biofuels Policy. In addition to the significant progress in India, our three businesses in the U.S. achieved major milestones toward increasing revenues and sustained profitability. Let's review our California traditional ethanol business. Similar to our strategy in India, where we added a technology to allow the use of a lower cost waste feedstock to produce biofuels, we have been upgrading our Keys California ethanol plant to lower input costs, reduce the carbon intensity of our biofuel, and significantly increase the value of the ethanol we supply to the 1.5 billion gallon California ethanol market. We have been awarded about $21 million of grants in the past year to fund upgrades to the Keys Plant and our renewable gas project to lower the carbon content of our biofuel and increase profitability. In May of last year, the Keys Plant successfully reduced carbon emissions under the California Low Carbon Fuel Standard by about three carbon intensity points. The credits were effective as of January 1, 2019, and generated about $250,000 per month of additional value from our corn ethanol sales without an increase in operating costs. The second upgrade to the Keys plant is a CO2 capture and reuse project. After three years of project development, Lindy Gas leased about five acres owned by Imetis adjacent to the Keys ethanol plant to build a CO2 liquefaction plant. We completed the CO2 capture equipment and piping for the Keys plant in January 2020 and expect to have revenues in Q2 2020 after the CO2 plant is fully operational. When operational, the CO2 plant will convert the approximately 150,000 tons per year of renewable CO2 produced by our ethanol plant into liquid CO2 for sale to local food processors, beverage producers, and other CO2 industrial users. about $1.5 million per year of cash is expected to be received from CO2 sales and the land lease for the CO2 plant. We also expect to qualify for a CO2 carbon capture and reuse federal tax credit that we calculate is worth more than $5 million per year. We are currently working on an arrangement to monetize the tax credits with a financial partner. The third upgrade to the Keys plant is the construction of an $8 million membrane dehydration system financed by Mitsubishi Chemicals of Japan and a $1.5 million Pacific Gas and Electric grant as a strategic implementation of the Mitsubishi Zebrex technology for the first time at a corn ethanol plant. The Mitsubishi unit was delivered to the Keys plant in late February 2020 and is in the installation process. The ethanol dehydration unit is designed to significantly reduce petroleum natural gas usage and decrease the carbon intensity of our ethanol, and once implemented, is expected to generate an estimated $3 million per year of increased cash flow. A fourth upgrade to the Keys plant is a solar microarray and artificial intelligence energy management system that received an $8 million grant from the California Energy Commission. This solar system will decrease the carbon intensity of our biofuel through the use of solar energy to displace higher carbon energy sources. A fifth upgrade to the Keys plant is a high-efficiency heat exchanger project that was awarded a $1.3 million Pacific Gas and Electric grant. And the sixth upgrade to the Keys plant is a mechanical vapor recompression system that was awarded a $6 million grant from the California Energy Commission that is expected to reduce natural gas use significantly. These projects at the Keys plant are targeted to reduce petroleum natural gas usage and costs by up to 80%. while increasing the number of low carbon fuel standard credits generated each year. The combined impact of these projects is expected to be a $30 million per year increase in operating cash flow at the Keys plant, not including any improvement in profit margins that are expected to occur if the EPA simply enforces federal biofuels laws. Let's briefly review our medicine, biogas, dairy digester, and pipeline project. Methane, commonly known as natural gas, is a potent greenhouse gas that is up to 30 times more powerful than carbon dioxide at capturing Earth's heat. About 25% of California's methane emissions are from the waste ponds on dairy farms. To reduce damaging methane emissions, in late 2016, California passed a law known as Senate Bill 1383 that mandates the capture of biogas from dairies. Biomethane sourced from dairies can be used to replace gasoline or diesel fuel in trucks and buses to significantly reduce carbon emissions and air pollution. Along with the California state mandate, California has funded about $75 million of annual matching grants to dairies to build biogas digesters and related systems. We believe that capturing biogas from dairies and converting it into renewable natural gas to generate negative carbon intensity biofuels is an excellent way to reduce climate change and create value for dairies while lowering costs for diesel truck fleets and electric vehicles. Based on our existing animal feed supply relationships with about 100 dairies and the ability to use biogas in our ethanol plant until utility pipeline approvals are obtained and pipeline injection is completed, We believe that Emetis is uniquely positioned as one of only three ethanol companies in California who can use existing infrastructure in this manner. After more than a year of project development and financing work, earlier this year we announced $30 million of equity financing. I should say earlier in 2019, we announced $30 million of equity financing. and a grant award from the California Department of Food and Agriculture for two matching grants for a total of about $3 million to build the first two dairies in our biogas project. Construction of the first two dairy digesters was completed in this quarter, and we are now building the four-mile pipeline to connect the digesters with the Ametis ethanol plant with an expectation of beginning renewable natural gas revenues during the second quarter of 2020. We have signed 17 participation agreements with dairies and plan to complete construction of the next 15 lagoon digesters by the end of year 2021. Let's finish with an update on our below zero carbon cellulosic ethanol project in Riverbank, California. We were pleased that the Imetis Advanced Bio Refinery under development in Riverbank, California near Modesto was named as the number one waste to value project in the world by Biofuels Digest, the world's largest daily biofuels publisher. The AMETIS project earned its number one ranking as a result of our fixed-price, low-cost almond and walnut wood waste contract for 20 years, with a cost of about $20 per ton for the first half of the contract period. Planned production of high-value salicylic ethanol is expected to be worth more than $5 per gallon, as well as production of valuable fish meal and other byproducts, and our use of the patented Lancetec gas microbe ethanol production technology. The Landstech technology is now in full commercial production at a plant that opened about a year ago in northern China that converts waste gases from a steel plant to produce ethanol. During 2019, we announced three significant financings related to the Riverbank project. A $5 million California Energy Commission grant to fund engineering and equipment, a $12.5 million tax waiver that offsets equity funding required for the project, and the signing of a $125 million United States Department of Agriculture conditional commitment letter for a 20-year debt financing under the 9003 biorefinery program. We are focused on completing engineering of the plant required for the negotiation of the EPC contract that will include a bonded maximum construction cost. The Riverbank Cellulose Ethanol Plant is expected to generate more than $80 million of revenue and more than $50 million per year of positive cash flow. by producing salicylic ethanol from low-cost waste orchard, vineyard, forest, and even construction demolition wood as feedstock. The financial closing to begin construction of the Riverbank plant is depending on completing the engineering and procurement work required for the signing of the construction contract. In summary, we believe that Nemetis holds a unique position with diversified production of low-carbon renewable fuels in two attractive markets in California and India, The profitability and 120% revenue growth at our India plant during 2019 was achieved while repaying 100% of our long-term debt in the India subsidiary. The increased profit margins from plant upgrades related to the Keys Biorefinery are expected to begin to be realized in the second quarter of 2020. The Emetis Biogas Dairy Digester and Pipeline project is expected to begin first gas production in the second quarter of 2020. and our planned deployment of the patented LansTech cellulosic ethanol technology at the Riverbank plant has positioned Imetis to rapidly produce expanding positive cash flow from the production of low carbon, clean burning, high performance renewable fuels from abundant, low cost, waste biomass feedstocks. Now let's take a few questions from our call participants. Jim?