Aemetis, Inc

welcome to the ametis third quarter 2020 earnings review conference call at this time all participants are in a listen only mode a brief question and answer session will follow the formal presentation as a reminder this 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 thank you kate welcome to the ametis third quarter

Fourth quarter 2020 earnings review call. We suggest visiting our website at ametis.com to review today's earnings press release, updated corporate presentation, filings with the Security and Exchange Commission, recent press releases, and previous earnings conference call. The presentation for today's call is available for review or download on the investor section of the ametis.com website. Before we begin our discussion today, I'd like to read the following disclaimer 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 activity and 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 non-GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the quarter ended December 31, 2020, which is available on our website. adjusted EBITDAs defined as net income or loss, plus to the extent deducted in calculating such net income, interest expense, loss and 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 and year-ended 2020. Revenues were $37.3 million for the fourth quarter of 2020 compared to $52.1 million for the fourth quarter of 2019. The decrease in revenue was primarily attributable to delays in the India government oil marketing company biodiesel tender process that delayed revenue in our India operation and temporarily lower ethanol production prices in North America. Gross loss for the fourth quarter was $3.4 million compared to a gross profit of $5.8 million during the same period in 2019. The gross profit change was attributable to the temporary ethanol production volume and price reductions during the fourth quarter of 2020, during which the price of ethanol decreased from $1.82 per gallon to $1.64 per gallon in a market where the cost of delivered corn rose from $5.02 to $5.61 per bushel. during the same respective periods. Selling general administrative expenses decreased to $4.3 million during the fourth quarter of 2020 compared to $4.7 million during the fourth quarter of 2019. Operating loss was $7.7 million for the fourth quarter of 2020 compared to operating income of $1 million during the fourth quarter of 2019. Net loss was $14.6 million for the fourth quarter of 2020 compared to a net loss of $7.7 million for the fourth quarter of 2019. Turning to our balance sheet, cash at the end of the fourth quarter of 2020 was $592,000 compared to $656,000 at the end of the fourth quarter of 2019. As an additional note, capital expenditures of $17.3 million were made for the construction of carbon intensity reduction projects and keys plant upgrades during 2020. That completes our financial review for the fourth quarter of year end Now, I'd like to introduce the founder, chairman, and chief executive officer of Amedis, Eric McAfee, for a business update.

Eric? Thank you, Todd. The earnings release that was sent out this morning has a link to the updated Amedis presentation that we will refer to today. As we discuss results from 2020, I encourage you to consider viewing our updated slide presentation, which can be found on the investor page of our website under this conference call. Amedis was founded in 2006. We have grown into four lines of business, which are focused on producing renewable natural gas, including below zero carbon intensity dairy biogas for transportation fuel, renewable fuels, including low carbon and below zero carbon intensity ethanol, high grade distilled biodiesel, renewable jet and diesel using cellulosic hydrogen from waste wood, and byproducts including carbon dioxide and corn oil. health safety products, including sanitizer alcohol, refined glycerin, blended hand sanitizer, and other health safety products, and technology development to maximize the value of our products and processes. We own and operate production facilities with more than 110 million gallons per year of capacity in the U.S. and India. Included in our production portfolio is a 65 million gallon per year fuel ethanol, high-grade alcohol, wet distillers grains, and distillers corn oil plant located in Keys, California, near Modesto. 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. Before discussing our business, I'd like to comment about the social and environmental impact of our company and projects. The circular bioeconomy created by our California Dairy Renewable Natural Gas Project, our soon-to-be solar-powered ethanol plant, Our renewable jet and diesel plant under development to use cellulosic hydrogen from waste orchard wood and our synthesizer alcohol business provide benefits to the local environment and communities. For example, by providing an alternative use of waste wood and ultimately eliminating field burning of the 3 billion pounds per year of waste orchard wood in California's Central Valley, we plan to significantly reduce greenhouse gas emissions and air pollution by while displacing carbon-intensive feedstock with negative carbon-intensity feedstock for the production of renewable jet and diesel fuel. AMETIS projects result in a healthier planet and a better quality of life for our fellow Californians. From a social impact perspective, everyone living in the Central Valley is directly impacted by poor air quality, since the region has a dubious distinction of having the second worst air quality in the U.S., according to the EPA. The Amedis Production Facilities and Dairy Renewable Natural Gas Projects in California are located in or near disadvantaged communities. Our Dairy Renewable Natural Gas Project, Keys Plant Upgrades, and Renewable Jet and Diesel Projects are specifically designed to have a direct positive impact on these communities. Our projects directly benefit Central Valley disadvantaged communities and families by improving air quality while creating valuable energy and food products from dairy and orchard ag waste. and increasing the sustainability of farming and dairy operations that employ thousands of local workers. The AMETIS 2020 earnings report was a positive overall outcome, especially considering that more than 50 ethanol plants in the U.S. were shut down at various times during 2020 due to pandemic-related gasoline demand decreases and significant corn price increases caused by historic Midwestern weather conditions. Despite these challenges, The Ametis Keys ethanol plant operated continuously throughout the year by responding quickly to opportunities. In March 2020, we quickly upgraded production systems to supply high-grade alcohol into the sanitizer alcohol market, and the Keys plant became the largest sanitizer alcohol producer in the Western U.S. during a time of critical need for our country. Ametis operations were significantly impacted in 2020 by work constraints and market conditions. during the COVID-19 pandemic. In response, we focused on keeping our employees safe, and we also invested more than $17 million in building carbon intensity reduction projects and other upgrades that have generated a significant amount of shareholder value. Despite the difficult external conditions that began in Q1 of 2020, we completed phase one of the Dairy Renewable Natural Gas Project, began the installation of important Keys Plant energy efficiency systems upgrades to significantly reduce the carbon intensity of our ethanol, and they began operations of the Messer CO2 liquefaction facility that is now generating CO2 revenues and IRS 45Q credits from carbon reuse. Protecting the health of our employees while continuing to operate our California ethanol plant to supply animal feed to about 80 local dairies, occurred during a time period in which the demand for biofuels, starting in Q2 2020, decreased significantly due to the steep decline in gasoline consumption as a result of California shelter-in-place orders. However, as the economy began to reopen in mid-2020, fuel ethanol demand partially recovered during the second half of 2020, with the release of the COVID-19 vaccines in early 2021 and overall increased economic activity the Keys plant is now running at full capacity in order to meet increased demand for ethanol in California, partially driven by recent severe winter weather in the Midwest that caused disruption to the railroad supply chain used by Midwest ethanol producers. During the fourth quarter and full year of 2020, Amethyst achieved important milestones toward revenue growth and sustained profitability in each of our four lines of business. Let's review our EMETIS dairy renewable natural gas and pipeline project. At EMETIS, we are focused on producing below zero carbon intensity products, including the production of negative carbon intensity renewable natural gas and renewable fuels. Our projects maximize the value of carbon credits under the California Low Carbon Fuel Standard, the Federal Renewable Fuel Standard, and IRS 45Q tax credits, while reducing operating expenses by using waste materials as feedstocks. Using our byproducts from ethanol production or using readily available agricultural waste products from the local area, the sustainability and environmental benefits of our processes can benefit all of the parties in the value chain. An excellent example of this low-carbon, sustainable, circular bioeconomy is our dairy renewable natural gas project. which is designed to have many synergies with our Keys ethanol plant. Our Keys ethanol plant uses agricultural feedstock that absorbs CO2 from the atmosphere, then produces ethanol and animal feed. The plant delivers about 2 million pounds per day of wet distillers grain to about 80 local dairies to feed more than 100,000 dairy cows. The dairy cows provide waste to the dairy digesters we build at each dairy, thereby producing biogas that we clean up and pressurize in an amethyst processing unit at the dairy, then transport via the amethyst biogas pipeline back to the amethyst ethanol plant to use in the production of ethanol by displacing high carbon intensity petroleum natural gas. In addition, the dairy biogas can be upgraded and compressed to produce renewable natural gas to fuel RNG trucks at our fueling station at the Keys plant. to carry our wet distillers grains to the AD dairies. Trucks can also be fueled at any RNG station connected to a utility pipeline, since our RNG interconnection to the PG&E pipeline enables us to send renewable natural gas to other RNG fueling stations that we build or are owned by others. This fuel-full system is scheduled to be operating by the end of 2021. In September 2020, We completed construction of the first two out of 17 covered lagoon digesters in the Ametis Biogas Central Dairy Digester Project, including on-site dairy biogas cleanup and pressurization, a four-mile pipeline owned by Ametis, and a boiler unit to utilize the biogas to operate the Keys plant. We are now generating dairy biogas with an estimated carbon intensity of negative 416 that is being used at our ethanol plant, displacing petroleum natural gas with a carbon intensity of positive 100. Methane, commonly known as natural gas, is a potent greenhouse gas that is up to 80 times more destructive than carbon dioxide at warming our planet's atmosphere. Approximately 25% of California's methane emissions come from manure waste ponds on dairy farms. To reduce damaging methane emissions, California passed a law commonly known as Senate Bill 1383 that mandates a 40% reduction in methane emitted by large dairy lagoons by the year 2030. Biomethane sourced from dairies can be used directly in the form of renewable compressed natural gas to replace gasoline or diesel fuel in cars, trucks, and buses to significantly reduce carbon emissions and air pollution. To support the state mandate, California has funded through the California Department of Agriculture and other agencies matching grants to dairies to build biogas digesters and related systems. To date, AMETTS has applied for or been awarded about $23 million of grants for biogas and energy efficiency to support our conversion to low carbon and below zero carbon intensity power to operate our California biorefinery and produce renewable natural gas. We believe that capturing biogas from dairies and converting it into renewable natural gas to generate negative carbon intensity transportation fuel is an excellent way to reduce climate change, create value for dairies, and reduce costs for diesel truck fleets, and potentially for electric vehicles by conversion of dairy renewable natural gas to electricity. Ametis is uniquely positioned as one of only two ethanol plants in California that can maximize the value of biogas due to our proximity to dairies. we are able to use biogas in our plant until our planned utility pipeline interconnection and gas upgrading is completed. In addition, we were awarded a $1 million grant to install our own renewable natural gas dispensing system at our Keys plant for CNG trucks, supplying fuel for the approximately 75 truckloads per day of animal feed and ethanol at the Keys plant. In 2019, after more than a year of project development and financing work, we announced $30 million of equity financing to fund our biogas project. Our institutional investor is working with us to expand this funding with $25 million of additional equity funding to complete a total of 17 dairies by the end of Q2 2022. In addition to about $75 million of USDA guaranteed debt funding that is in process with one of the largest USDA lenders in the U.S., this 17-dairy project is scheduled to generate more than $40 million per year of operating cash flow under 25-year dairy supply contracts. Let's discuss progress at our California ethanol plant. Revenues from ethanol production were approximately flat in 2020 compared to $115 million for 2019. As higher ethanol prices offset our decision to respond to low margins by reducing production to 60.2 million gallons in 2020, instead of the 64.7 million gallons produced in 2019. Our decision to slightly reduce production by about 7% enabled us to operate the plant while managing finished goods inventory during the temporary decline in ethanol demand in 2020. Currently, the Imetys ethanol plant is operating at maximum sustainable production rates. Due to increased demand related to the winter weather in the Midwest, that reduced ethanol production at some plants and created a shortage in California, along with the loosening of many state and local COVID restrictions that increased demand for gasoline and ethanol. During 2020, gross profit percentage margins improved about 6%, from 6.2% to 6.6% of revenues, compared to 2019. SG&A expenses were actually reduced, and earnings per share were basically unchanged. while EBITDA decreased only slightly for year 2020 compared to 2019. New higher margin businesses largely offset the adverse impact of the COVID pandemic on ethanol and biodiesel revenues and margins for the year. Ametis operates in three of the federal essential critical infrastructures. We were able to continuously operate our California ethanol plant this past year in order to provide transportation fuel, alcohol for sanitizer products, CO2 for food production, and animal feed. By implementing stringent PPE and worker safety policies, we were able to continue to operate our ethanol facility, work on the construction of plant upgrades, and build our dairy renewable natural gas project without interruption. This work progress was achieved despite COVID shutdowns and operating restrictions that impacted many other companies in California and the Midwest. To increase the value of our ethanol and high-grade alcohol, and to reduce the cost of operation of our production plant. We are currently implementing several upgrade projects related to the California ethanol plant, including, number one, constructing the dairy biogas cluster and pipeline to deliver renewable natural gas to the Keys ethanol plant from an initial two dairies that became operational in September 2020, with planned expansion to an additional 15 dairies by the end of Q2 of next year. along with gas cleanup unit, an interconnection to the utility gas pipeline, and an RNG fueling station at the Keys plant. The dairy RNG will be used to eventually significantly reduce or potentially eliminate the use of petroleum natural gas at the Keys ethanol plant, as well as replace diesel use in trucks related to Keys plant operations. Number two, completing the installation of a new $8 million zeolite membrane dehydration unit from Mitsubishi that will reduce natural gas use at the ethanol plant by replacing our molecular sieves, which use a significant amount of petroleum natural gas to operate, with electrically powered equipment. This upgrade to an electric dehydration system will reduce the carbon intensity of our fuel ethanol and is partially funded by a $1.5 million energy efficiency grant. Number three, installing a solar panel microgrid array with battery backup to further reduce natural gas consumption by replacement with solar electricity while optimizing energy use throughout the ethanol plant, which is primarily funded by an $8 million California Energy Commission grant. Number four, designing and building a mechanical vapor recompression, or known as MVR, system to significantly reduce petroleum natural gas use, partially funded by a $6 million California Energy Commission grant. Number five, building new distillation columns and related systems to produce high-purity U.S. pharmacopoeia-grade alcohol for sanitizers known as USP-grade, expected to begin operation in Q1 2022. Number six, installing five new stainless steel tanks for USP and high-grade alcohol storage and loadout, increasing our storage capacity by more than 250,000 gallons and providing flexibility for operation of the new systems at the plant. When completed, these upgrades are designed to potentially eliminate petroleum natural gas use at the alcohol plant, saving up to $7 million per year of natural gas and utility pipeline transmission costs. The California biorefinery will primarily operate using high-efficiency electric motors and pumps powered by renewable power sources, including solar. These projects at the Keys plant are targeted to significantly reduce carbon intensity, By reducing petroleum natural gas usage and costs while increasing the number of California low-carbon fuel standard credits generated each year, the potential combined impact of these projects is expected to be more than $20 million per year increase in operating cash flow at the Keys plant, not including the increased value of high-grade alcohol produced by the new distillation unit. Let's review our biodiesel business in India. Last quarter, our universal biofuel subsidiary in India bid on a portion of a newly issued $900 million biodiesel purchase order for about 225 million gallons by the three India government oil marketing companies. In the past, the OMC bidding process required a one-year fixed price for biodiesel. However, the OMC bidding process for biodiesel was not successful in 2020 due to a high level of volatility in crude oil and other markets. So, in response to requests by biodiesel producers, including Amedis, the OMC contracting process has been changed to a monthly bid instead of a one-year contract with a fixed price. We expect that the new monthly OMC bidding process will be successful during 2021, allowing large volumes of biodiesel to be blended into petroleum diesel to improve air quality and reduce carbon emissions in India. Our production capacity at the India plant is about 4 million gallons of biodiesel per month. The large oil marketing company's tender offer that was issued in late 2020 is an indication of the rapidly expanding government demand for biodiesel in India to reduce dependence on imported crude oil, improve air quality, and reduce carbon emissions. The entire production capacity of the approximately five India biodiesel production plants is is about one-third of the amount of biodiesel requested to be purchased by the government oil marketing companies last year, signaling to the market that additional biodiesel capacity is needed to meet India biofuels consumption needs. Importing biodiesel into India is not allowed under the National Biofuels Policy, so only domestic production can meet the approximately 1.25 billion gallons per year of biodiesel blending, which is a goal set by the government. Currently, there is about 250 million gallons of India domestic biodiesel production capacity, and we believe that Emetis produced and sold the largest amount of any operating biodiesel plant in India during 2020, while the industry waited for government OMC purchasing, which was delayed for nine months due to the COVID-19 shutdowns in India. Though the global price of diesel declined along with the price of crude oil, as crude fell below $30 per barrel, the domestic price of diesel in India remained largely unchanged due to increased India government taxes that offset crude oil price declines. As global crude oil prices increased to more than $64 per barrel today, the price of diesel has also increased in India as the government is maintaining the same level of taxes. Since our biodiesel is sold at a price linked to India domestic diesel prices, our biodiesel prices in India have increased as global crude oil prices have increased. The rising cost of feedstock relative to the price accepted by the government OMCs is the remaining primary barrier to operation of our India biodiesel plant at full capacity, which would generate more than $150 million of annual revenues. Due to the COVID-related increase in demand, the refined glycerin prices received by our India plant have increased in response to the need for hand sanitizer and other consumer products. Let's discuss our carbon zero renewable jet and diesel fuel project using negative carbon intensity hydrogen in Riverbank, California. We were pleased that the Imedis carbon zero biorefinery under development in Riverbank, California near Modesto continues to achieve major milestones, including an expected issuance of the initial authority to construct under our original air permit application. Though further amendments are planned, as a part of final construction engineering, the authority to construct air permit will allow us to move forward with final EPC agreements and financing. The California Central Valley has about 1.5 million acres of almond and walnut orchards. Almond orchards have about a 20-year life and then must be removed, creating about 3 billion pounds per year of waste wood that is usually burned in large piles in the field, since there is no market for most of the waste material. The Ametis Riverbank project signed a 20-year fixed-priced, low-cost orchard wood waste contract to supply feedstock to the renewable jet and diesel plant for the production of negative carbon intensity cellulosic hydrogen to be used with distillers, corn oil, and other renewable oils to produce below zero carbon intensity renewable jet and diesel fuel. The Riverbank plant is designed to produce 45 million gallons per year of renewable jet and diesel fuel. generating more than $230 million of annual revenue and more than $65 million per year of positive cash flow. We plan to expand production to 90 million gallons per year at the Riverbank site by year 2025 in our five-year plan. The Riverbank plant is designed to use waste orchard wood and other waste biomass such as dead forest wood, which has become a major issue for California as the state has prioritized forest management to reduce damaging wildfires. Let's wrap up with a quick review of a newly issued exclusive patent and a milestone achieved by our technology development group in fueling an ethanol engine with cellulosic ethanol produced from sugar extracted from waste orchard wood. The Ametis Technology Development and Strategic Projects teams worked with the federally funded Joint Bioenergy Institute in Berkeley, California for three years in the development of a patented process to extract sugars from low-cost waste orchard and forest wood feedstocks. The process has been exclusively licensed to Emetis for wood and other biomass from non-commercial forests. The negative carbon intensity sugars can then be used to produce high-value cellulosic biofuels in the Emetis Keys ethanol plant, displacing expensive and carbon-intensive cornstarch as feedstock to produce ethanol. A $3 million California Energy Commission grant was awarded to J-Bay and Emetis which partially funded the years of collaborative work and lab testing that in Q2 2020 resulted in the production of the first carbon negative fuel ethanol from California orchard wood using ionic liquids. During the third quarter of 2020, our cellulosic ethanol was used to fuel the operation of an ethanol engine that generated the same performance and low emissions as a traditional ethanol used in testing. The ethanol engine technology was originally developed at Stanford University and is a modified diesel engine design. The engine takes advantage of the high octane content of ethanol to generate about 30% more torque or pulling power than an engine running on diesel, while creating almost no particulates and very low emissions, since ethanol contains a low level of contaminants compared to petroleum. The patented sugar extraction process allows the sugar component of low-cost waste wood to be used to replace cornstarch in an existing corn ethanol plant, such as the Keys plant, producing both high-grade alcohol as well as salosic ethanol that are each currently valued at more than $5 per gallon. Importantly, this process innovation to extract sugar from waste wood is scheduled to be implemented at our existing California ethanol plant in Keys, decreasing the cost of corn feedstock, and substantially increasing the value of our ethanol. We expect to move forward with a pilot project to extract sugars from locally sourced orchard and forest wood waste during 2021 with the expectation of commercial operations to pre-extract sugars from waste wood when the Riverbank Renewable Jet and Diesel Plant becomes operational. In summary, AMETIS is a leading diversified negative carbon intensity dairy RNG and low-carbon renewable fuels producer that is rapidly deploying new projects and adopting new technology to reduce carbon intensity and input costs, thereby significantly increasing the value of renewable natural gas and fuels by maximizing LCFS, RFS, and IRS 45Q credits. Now, let's take a few questions from our call participants.