Aemetis, Inc

Welcome to the AMETIS first quarter 2021 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, 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.

Thank you, Melinda. Welcome to the AMETIS First Quarter 2021 Earnings Review Conference Call. Joining us for the call today is Eric McAfee, Founder, Chairman, and CEO of AMETIS, and Andy Foster, President of AMETIS Advanced Fuels. We suggest visiting our website at ametis.com to review today's earnings press release, corporate presentations, filing with the Security and Exchange Commission, recent press releases, and previous earnings conference calls. 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 statement. 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 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 risk 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 the call today 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 measures is included in our earnings release for the quarter ended on March 31, 2021, 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, income tax expense, intangible and other amortization expense, accretion expense, depreciation expense, and share-based compensation expense. Now I'd like to review the first quarter results for 2021. Revenue during the first quarter of 2021 increased to $42.8 million compared to $39.5 million for the first quarter of 2020. Our North America operations in the first quarter of 2021 compared to the first quarter of 2020 experienced steady ethanol sales volume with an increase in the selling price from $1.56 per gallon to $1.91 per gallon and an increase in the delivered corn price from an average of $5.20 per bushel during the first quarter of 2020 to $6.87 per bushel during Q1 2021. Gross loss for the first quarter of 2021 was $3.6 million compared to $400,000 loss during the first quarter of 2020. Losses during the first quarter of 2021 resulted from a crush margin that was weaker than the same period of the previous year. Within the first quarter of 2021, the crush margin improved during the quarter as ethanol rose from $1.40 per gallon in January 2021 to more than $2.90 per gallon today. Corn pricing and supply are an ongoing supply chain issue for the ethanol industry. Selling general and administrative expenses increased to $5.4 million during the first quarter of 2021 from $3.9 million during the same period in 2020. driven primarily by compensation expense, insurance premium increases, as well as professional fees as we execute our five-year growth plan. Operating loss was $9 million for the first quarter of 2021 compared to an operating loss of $4.5 million for the same period in 2020, much of which is from the effect of the difference in the ethanol crush spread between the periods. Interest expense, including accretion of Series A preferred units in the AMETIS biogas LLC subsidiary, increased to $7.2 million during the first quarter of 2021, compared to $6.9 million during the first quarter of 2020. Additionally, our AMETIS biogas initiative recognized $1.9 million of accretion of preferred payments on its preferred stock during the first quarter of 2021, compared to $960,000 during the first quarter of 2020. Net loss increased to $18.1 million for the first quarter of 2021 compared to a net loss of $12.1 million for the first quarter of 2020. Cash at the end of the first quarter of 2021 was $15.8 million compared to $592,000 at the close of the first quarter of 2020. Cash strengthened from proceeds of $62.4 million of stock sales, which was used to repay $36.9 million of high interest rate debt, invest in capital projects, and fund working capital for operations. That completes our financial review for the first quarter of 2021. Now, I'd like to introduce the founder, chairman, and chief executive officer of AMETIS, Eric McAfee, for a business update.

Eric? Thanks, Todd. As we discuss results from Q1 2021, I encourage you to consider viewing the Amedis corporate presentation, which can be found on the homepage of the Amedis.com website. Amedis was founded in 2006. We have grown into four lines of business, which are focused on producing renewable natural gas from dairy biogas with a negative 426 carbon intensity for transportation fuel to replace high carbon intensity diesel and gasoline. Renewable fuels, including low-carbon and negative 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. Enhanced by carbon dioxide injection wells, we plan to sequester CO2 and significantly reduce the carbon intensity of our products. 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 the largest ethanol plant in California, a 65 million gallon per year fuel ethanol plant located in Keys, California, near Modesto, that we leased in 2009. retrofitted for 18 months, began operations in mid-2011, and have owned since 2012, when the original shareholders converted their ethanol plant ownership into about 10% of the common stock of Amedis. 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. We have operated in India since 2007. We founded the India Biodiesel Manufacturers Association, and our managing director serves as chairman of the association on behalf of the five major biodiesel producers in the country. Before discussing our businesses, I'd like to comment about the values and the culture of our company, as well as the social and environmental impact of our production plants and development projects. During a difficult time in the U.S. and India due to the COVID pandemic, and the lack of enforcement of federal renewable fuels laws by regulators. We are a company that spends our time working to improve our communities. Our investments create jobs, feed and house hundreds of families that depend on us to sustain and expand our business. And the products we produce provide a positive and meaningful contribution to reversing global climate change. From truck drivers in India that move our feedstock and biofuels, to Midwest farmers that grow the crops and supply our California biofuel plant, to the workers that maintain and expand our $300 million of production plants worldwide, as well as the 160 AMETIS team members and the several hundred people that work to support our businesses, they rely upon us to operate every day, despite external events such as financial crises and policy changes that impact our business. Despite the extraordinary circumstances of the past year, we have maintained 100% employment at all of our facilities worldwide. We seek to build a strong, sustainable company by supporting a resilient, supportive corporate culture among our teams who work together to create value during times of uncertainty. During the past 15 years, this company culture and value system has endured oil price crashes, stock market collapses, financial market downturns, political uncertainty, and the active undermining of federal renewable fuel laws by multiple administrations from 2014 to the present time. Recent changes in federal leadership have been recognized by Wall Street as a significant positive trend for Ametis and the renewable energy sector. But our company was founded in 2006 with the same goals and values as we are executing upon today. Though the stock market has only recently responded favorably to the unique below zero carbon intensity leadership position held by InMedis in the California renewable biogas and biofuels market, our team has worked tirelessly for longer than a decade to build the fundamental foundation of our business. In that respect, we like to say that we are an overnight success that took 15 years of hard work to build and are now simply accelerating our leadership position as we execute the five-year plan that was announced in Q1 2021. Financing this 15-year growth process to become about a $200 million revenues business without heavily diluting shareholders was not easy. It took hard work and sacrifice and an extreme commitment to our shareholders by our management team and our board of directors. Our entire top management team has more than 12 years of tenure at the company, with our president, Andy Foster, joining the company during the founding in 2006, and our head of international, Sanjeev Gupta, joining in 2007. We have one I met as board of directors member that has served for 14 years, formerly serving as the secretary of the U.S. Department of Agriculture. And two of our board members were formerly long-term executives at Chevron Corporation. Our audit committee chairman and lead independent director has served as the chief financial officer for five public companies, each of which had more than $1 billion of revenues, and the largest had $16 billion of revenues. We have a deeply committed and experienced team that has been working for many years to execute a long-term vision and build value for shareholders, regardless of the external challenges that have come our way. In the face of external challenges and the need for growth capital, many of our competitors decided to sacrifice shareholder value for management compensation or executive comfort, entering into highly dilutive equity transactions or convertible debt financings to fund losses or projects. In the past 15 years, we have done neither, avoiding highly dilutive equity offerings or convertible debt financings. To achieve the goal of protecting Amedis shareholders from dilution, I have personally guaranteed more than $200 million of debt that has funded Amedis since 2008. This personal guarantee benefited Amedis shareholders by allowing shareholders to receive the benefit of funding with minimal dilution and has funded our growth to about $200 million of revenues. I have received no stock options since the inception of the company as compensation. making the decision every year to allocate my options to our employees to maximize their ownership in the company. However, like other shareholders, I have benefited from avoiding large equity dilution since my wife and I are the largest shareholders of the company through our holding company, McAfee Capital. While we have great upside potential, my personal guarantee since 2008 has demonstrated a commitment to the long-term value of Emetis. This is consistent with the values I spoke of earlier, and I'm proud that our shareholders have had the opportunity to participate in a higher valuation of the company's stock in recent months. The $200 million of senior bridge financing has now been significantly reduced by $62 million of new equity received at high valuations during Q1 2021, and our cash balance at the end of Q1 2021 was $15 million. I still have more than $100 million of personal guarantees in place related to the Amedis senior bridge debt, but we are well on our way to achieving strong operating cash flow that will further reduce or refinance the high-interest bridge financing that funded our past growth. Fortunately, the positive macro trends for renewable fuels have opened up low-cost, long-term U.S. Department of Agriculture, Department of Energy, and tax-free municipal private activity project financing opportunities for Emetis. Less experienced investors and research analysts who may not fully understand this process of startup and rapid growth utilizing short-term high interest rate financing, which is then refinanced using long-term low interest rate debt. Please note that this growth funding technique is not unique to Emetis. It has been successfully utilized by other prominent companies, notably Tesla, who minimize shareholder dilution while funding $15 billion of debt for rapid growth, then repaying the debt with low interest rate financing and equity offerings at a very high valuation. We are deploying similar well-established financing tools, just doing so with far fewer zeros. As our March 31, 2021 balance sheet shows, we have already achieved significant progress in repaying our high interest rate bridge financing. Yet, even after the $62 million of equity funding during Q1 2021, there are only approximately 29.8 million shares outstanding at Amedis. We value shareholders as a top priority, including our own employees, who are meaningful shareholders in the company. I would like to mention another aspect of our company culture at Amedis, to serve our communities with our products and our leadership. Our 90 employees in India have been severely impacted by the COVID pandemic, with the lockdown in India last year and another wave of COVID infections this past month, which have affected almost every family related to our company. However, our India plant workers have been helping the local community, serving food to migrant workers that are stranded away from their homes when the COVID lockdowns occurred. From setting up food stations to serve migrant workers who are homeless and lining the highway near our India plant, to caring for our own workers with strict and effective safety measures during the COVID crisis. The leaders in our company have shown courage, compassion, and a concern for others ahead of themselves. Our Keys Plant team has not stopped working for a single day during the year-long pandemic, despite significant local surges in COVID infections. They quickly pivoted to producing hand sanitizer alcohol at the very time California's economy was shutting down. Additionally, the renewable fuel products we produce go to the very heart of creating safer and healthier communities through cleaner air and reduced dependence on outside sources of energy. Though many investors may not fully understand or appreciate why so many of our employees have made the personal sacrifices and long-term decisions that have built the company to this advanced stage, I hope it is clear that the resilience and persistence shown by our team is exactly why we have been able to execute and achieve key milestones in the midst of a global pandemic, such as obtaining a California Environmental Quality Act permit for a 32-mile expansion of our dairy renewable natural gas project, or receiving 19 separate air permits for the jet diesel project, and many other achievements realized in the past year. The circular bioeconomy created by our California Dairy Renewable Natural Gas Project, our soon-to-be solar-powered ethanol plant, our biodiesel plant with glycerin byproduct, and our renewable jet diesel plant under development to use Salosic hydrogen from waste orchard wood provide significant benefits to the environment and local communities. Each project provides large capital investments into local communities while creating thousands of new jobs in agricultural and rural areas. During the fourth quarter and full year of 2021, Amedis achieved important milestones toward revenue growth and sustained profitability in each of our four lines of business. Now, I'd like to ask Andy Foster, President of the Amedis North America business, to review highlights of our renewable natural gas and ethanol businesses. Andy? Thanks, Eric.