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spk01: 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.
spk07: 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.
spk06: 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.
spk08: At Emetis, we're focused on producing below zero carbon intensity products, including the production of negative carbon intensity renewable natural gas and renewable fuels. Our products 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 costs by using waste materials as feedstock. An excellent example of a low-carbon, sustainable, circular bioeconomy that Eric spoke of 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 during plant growth, from which our production facility produces ethanol and animal feed. The Ametis ethanol plant delivers 65 million gallons per year of renewable ethanol, but also produces about 2 million pounds per day of wet distillers grains that supply approximately 80 local dairies and feeds more than 100,000 cows. Methane, commonly known as natural gas, is a very 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 these 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. The dairy cows generate waste that is captured in the covered lagoon anaerobic dairy digesters that we're currently building at Dairies, producing biogas that is cleaned up, pressurized, and sent through and processed through a unit at the Dairies to remove hydrogen sulfide. We then transport the biogas via a meta-zoned pipeline to the AMETIS ethanol plant, where it is used in ethanol production or will be upgraded and compressed to produce renewable natural gas. This RNG can fuel RNG trucks at a fueling station at the Keys plant to carry our wet distillers grains to the 80 dairies and biofuels to customers throughout Northern California. This process is a sustainable negative carbon intensity circular bioeconomy that productively uses dairy waste as fuel and significantly reduces air pollutants in the community. Trucks can also be fueled by our RNG at any compressed natural gas station connected to a utility pipeline in California, as our RNG interconnection to the PG&E pipeline enables us to send RNG to other RNG fueling stations that we build or are owned by others. This end-to-end system is scheduled to begin operating by the end of 2021. In September 2020, we completed the construction of the first two of 17 covered lagoon digesters in the Amedis Biogas Central Dairy Digester Project, including on-site dairy biogas cleanup and pressurization, a four-mile pipeline that is owned by Amedis, and a boiler unit to use the biogas as process energy at the Keys plant in the production of ethanol. During Q1, the California Air Resources Board issued a reduced carbon intensity fuel pathway for the Keys ethanol plant, utilizing a negative 426 CI score for our biogas, compared to a positive 100 carbon intensity for petroleum natural gas. To date, AMETIS has been awarded about $23 million of grants from the California Energy Commission, the California Department of Agriculture, and PG&E, and other government agencies for the dairy biogas system and production of renewable natural gas. 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. In addition, we are in the process of obtaining long-term debt funding under the USDA Renewable Energy for America program for more than $75 million of USDA guaranteed loans that will complete the build-out of the 17 dairies. This 17 dairy project is scheduled to generate more than $40 million per year of operating cash flow under 25-year dairy supply contracts when it is fully operational in mid-2022. The preferred equity investor in the biogas project is automatically redeemed by an allocation of 75% of operating free cash flow until the preferred receives $3 for every $1 of equity invested. AMETIS recovers operating costs and 25% of free cash flow from inception subject to covenants. The redemption of the biogas preferred investment is expected to be completed by the year 2025 after which AMETIS receives 100% of cash flow from the project generated by 25-year-long agreements with Darius. Now, let's take a moment to discuss progress at our California ethanol plant. Revenues from ethanol production increased to $42 million in Q1 of 2021, despite lingering COVID issues early in Q1 that caused lower ethanol demand while corn costs increased significantly starting in the second half of 2020. However, by late Q1 2021, the price of ethanol had accelerated rapidly and is now more than 100% higher than January of this year, as the new administration and EPA have shown a commitment to enforcing the renewable fuel standard. As the economy began to reopen due to availability of vaccinations in Q1 2021, fuel ethanol demand began to recover. Since mid-Q1, the Keys plant has been running at full capacity in order to meet the significant demand for ethanol in California, particularly driven by the severe winter weather in the Midwest that caused major disruption to the railroad system and supply chain used by Midwest ethanol producers, but mostly reflecting increased consumption of gasoline and ethanol as economic activity has increased and Californians began driving more as they start to return to work. The Ametis ethanol plant has been operating at maximal sustainable production rates while building the following projects to increase cash flow by approximately $23 million per year once completed. First, completing the installation of a new $8 million zeolite membrane dehydration unit from Mitsubishi that will reduce natural gas use at the alcohol plant by replacing our molecular sieves, which use a significant amount of petroleum natural gas, to operating with electrically powered equipment. This upgrade to an electric dehydration system will reduce the carbon intensity of our fuel and is partially funded by a $1.5 million energy efficiency grant. Second, installing five new stainless steel tanks for USP and beverage high-grade alcohol storage and loadout, which will increase our storage capacity by more than 250,000 gallons, and providing flexibility for operation of the new electric ethanol dehydration system at the plant. Third, installing a $12 million solar panel and microgrid array with battery backup to further reduce natural gas consumption by replacing carbon-based natural gas with zero CI solar electricity, while operating while optimizing energy use throughout the ethanol plant, primarily funded by an $8 million California Energy Commission grant. And fourth, designing and building an electrically driven mechanical vapor recombression, also known as MVR system, to significantly reduce petroleum natural gas use, which equates to reducing approximately 100,000 pounds of steam per hour, partially funded by a $6 million California Energy Commission grant, And also, we've applied for a PG&E energy efficiency grant as well. When completed, these upgrades are designed to potentially eliminate petroleum natural gas use at the alcohol plant, reduce our steam-driven co-gen system, and save up to $8 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. The combination of this new electric membrane dehydration system, zero CI solar power, and the electric MVR system is expected to result in a double-digit reduction in the carbon intensity for the fuel produced at our ethanol plant in Keys.
spk06: Thanks, Andy. Let's review our biodiesel business in India. Last quarter, our Universal Biofuels subsidiary in India bid on a portion of a newly issued $900 million biodiesel purchase tender offer 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 prices 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 oil marketing company 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. The second wave of COVID-related shutdowns has delayed the ramp-up of production at the India plant, but we are well positioned for a rapid revenue increase as large government purchases of renewable biodiesel occur to meet climate change and air quality goals once the current COVID crisis facing India begins to subside, hopefully in the coming weeks and months. Let's discuss our carbon zero renewable jet and diesel fuel project using negative carbon intensity hydrogen in Riverbank, California. We are pleased that the Ametis Carbon Zero biorefinery under development at Riverbank near Modesto continues to achieve major milestones, including the significant development we just achieved through the issuance of 19 separate air permits for our Riverbank refinery, otherwise known as the ATC, or Authority to Construct. Though further amendments are planned as a part of final construction engineering, the ATC air permit allows us to move forward with engineering, EPC contractor agreements, and project financing. During Q1 2021, we signed an agreement to retain Koch Project Solutions as the project manager in EPC, which has accelerated the pace of project development toward construction. The Riverbank plant is designed to produce 45 million gallons per year of renewable jet and diesel, generating more than $230 million of 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 as part of our five-year plan to generate approximately $460 million of revenue and $130 million of annual positive cash flow from renewable jet and diesel production. The Riverbank plant is designed to use waste orchard wood and other waste biomass such as dead forest wood to produce cellulosic hydrogen. which will hydrotreat vegetable and other renewable oils to produce jet and diesel fuel. Waste wood has become a major challenge for California as the state is facing a severe drought and has prioritized forest management to reduce the impact of damaging wildfires. Let's finish with a brief review of our technology development group. Headed by Dr. Gautam Vermeury as our VP Technology Development Officer, The EMETIS technology development team 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. This important production process has been exclusively licensed to EMETIS for wood and other biomass from noncommercial forests. The negative carbon intensity sugars can then be used to produce high-value cellulosic biofuels in the Ametis Keys ethanol plant, displacing expensive and carbon-intensive cornstarch as feedstock to produce ethanol. The remaining lignin can be used to produce cellulosic hydrogen for the hydro-treatment of vegetable and other oils to produce renewable jet and diesel fuels. A $3 million California Energy Commission grant was awarded to J. Bay and Ametis which partially funded the years of collaborative work and lab testing that led to the granted patent. Last Friday, we were notified that an EMEDIS project proposal was selected by the U.S. Department of Energy to apply for a $1 million grant and a follow-up $15 million to $40 million grant to fund a production plant to extract sugars from locally sourced orchard and forest waste wood. We expect commercial operations to pre-extract cellulosic sugars from waste wood when the Riverbank renewable jet and diesel plant becomes operational. These waste wood sugars are expected to generate more than $5 per gallon of revenue at low feedstock costs when used to replace cornstarch in our Keys ethanol plant. In summary, AMETIS is now implementing a diversified portfolio of negative carbon intensity projects from dairy, renewable natural gas, and low-carbon renewable ethanol to renewable jet and diesel fuel. We are rapidly deploying new projects and adopting both proven as well as new technologies to reduce carbon intensity and input costs, thereby significantly increasing the value of RNG and renewable fuels by maximizing LCFS, RFS, and IRS 45Q credit values. Our company's values remain unwavering, a long-term commitment to building value for shareholders, empowerment and respect for our employees, and making significant and positive contributions to the communities we serve. The foundation upon which we have been executing upon our five-year plan, despite the challenges of the COVID pandemic and other external factors, remains solid and we believe will result in exciting growth opportunities for Metis. Now let's take a few questions from our call participants. Operator?
spk01: Thank you, Mr. McAfee. We will now be conducting a question and answer session. If you do have a question, please press star then 1 on the telephone keypad to join the queue. If you're using a speakerphone, please pick up your handset to provide the best sound quality. Again, ladies and gentlemen, if you do have a question or comment, please signal by pressing star then 1 at this time. And we'll go right to the line of Manav Gupta with Credit Suisse. Please go ahead.
spk04: Hey, Eric and team. So my first question here is that when I look at your business growth plan and in the near term, the biggest growth is coming from dairy RNG, is there any reason why I should be worried that emitters will not be able to hit those dairy RNG growth numbers? I think your EBITDA guidance is 45 million 2022. going up to $110 million 2024. So is there any reason RINs, LCFS, competitors, why you think there could be an issue with you hitting that guidance?
spk06: At this point in time, we have removed some of the key barriers, such as the California Environmental Quality Act permit for our pipeline, which we announced within the past month has been granted. And frankly, we've already signed up the key contracts with the dairies for the execution through the next up to the 17 dairies that are challenges over the next year. So I would say the key project challenges are behind us. We are executing on the Renewable Energy for America program, USDA loan. You may know that separately we have $125 million USDA financing commitment letter signed already. But in this dairy biogas process, we've invested about $30 million of equity already. We have no debt in the subsidiary at all. And so the next phase is funding the USDA REAP funding. That program is a very common program. It's very fast. It's typically a three- to six-month process from application to completion. And we're well into that process. So assuming that continues to move forward, I would expect we wouldn't see any interruption in our execution over the next roughly 18 months. And that program would allow us to continue funding after that. So we really don't have exposure to needing additional equity or some other contributions. I think the refinancing is the way forward. I should mention, though, that this project is a very, very attractive project. It's the lowest carbon renewable fuel on the market today at a negative 426, and there are other agencies and tax-free municipal markets, et cetera, that seem to be very, very excited about this. So I anticipate we'll be executing on the USDA for the next year or so, but I could see a scenario in which after that tax-free long-term financing or other sources of financing will be used. So we're really just at a – I think, a financing execution phase at this point in time. The project milestones, I believe, are well under control, and we're right on track on those items.
spk04: And then, Eric, what is not in the guidance is the carbon capture and sequestration, which came out a little bit after the guidance. So if you could talk about that opportunity from your perspective, how much you can capture and sequester. But as I understand, the size of the facility is much bigger than what you can utilize. So is there an opportunity to get third-party carbon capture opportunity? I mean, what kind of opportunity is there to capture third-party carbon and put it in the ground?
spk06: You are correct. The Stanford University Center for Carbon Capture Study, reviewing 61 of the largest carbon emission sources in California, identified that our sites would be able to do about a million metric tons of CO2 injection per year At our Keys plant, between the plant itself and the biogas carbon, we produce about 200,000 metric tons of CO2 per year at 52 dairies. So a million minus 200,000 leaves about 800,000 metric tons per year that third parties, which in the Stanford study identified would be oil refineries, would be the next category of carbon emitters that would be most attractive for sequestration. We have already had meetings with major oil refiners in California. There is a strong appetite to work with us and basically piggyback on the extensive EPA process that we're going through. One of the unique opportunities we have is that our CO2 pipelines either will be very, very short, a matter of a couple hundred yards or a mile or two, just basically insignificant. compared to the Midwest pipelines. There's a $2 billion pipeline being proposed to go from Iowa all the way to North Dakota, another, I think, $1.5 billion Blackstone and Valero pipeline being proposed. In our project, our pipeline costs are, I mean, de minimis. A couple million dollars maybe would be if we had to go a mile or two. So we're just in a very unique position to execute quickly and don't have to wait for permitting, et cetera, These third parties would be an opportunity for us to essentially have the well already built, and we just move the CO2 in via rail or via truck. You may note that we use biogas in trucking, so we're in a very, very unique position in which we could be fueling our own trucks with our own biogas. And if you look at the economics of biogas, you can see that's a very low-cost fuel for us to use. So our plan is to complete these projects. What for us is essentially it's an offtake agreement, but it's more of a partnership relationship with oil refiners. And the ones we're focusing on are in the Bay Area, but frankly the economics work almost equally as well for L.A. refiners. And I would expect to see reports on those arrangements over the next quarter.
spk04: Thank you so much for taking my questions, Eric.
spk06: Sure.
spk04: Thank you.
spk01: Next we go to the line of Derek Whitfield with Stifel. Please go ahead.
spk09: Thanks, and good afternoon, all. And also, thanks, Eric, for your prepared remarks on your board and your company's culture and values. Perhaps beginning with that, there's been a lot of undue attention recently focused on your history and relationship with Nevo Motors. For the benefit of investors listening in today's call, could you speak to that history and put it in perspective, and then also speak to the opportunity you see in your low-cost investment in Nevo Motors?
spk06: Sure, absolutely. Amedis is a below zero carbon renewable fuels producer. And in order for us to monetize the biogas we produce, the ethanol we produce, frankly, even the renewable diesel we produce, we are strongly benefited if it goes into trucks. There's a multiplier and some other reasons why displacing diesel in transportation is much more valuable than displacing gasoline. And yet in the marketplace today, there are no truck companies that use ethanol as the range extender for an electric truck. And actually, it's a very simple reason. Ethanol engines are like gasoline engines. They don't have the torque. They don't have the pulling power. And that's why when you go out and look at Class 8 large over-the-road trucks, they're virtually all diesel trucks. You don't see gasoline trucks pulling down an 80,000-pound truck down the road. Likewise... We don't have access to the infrastructure to build the truck. So as we looked closely at what the discipline is that we need to apply at our business, we wanted to focus at producing these carbon-negative fuels. And I think our presentation laid out a pretty disciplined plan to take advantage of our excellent position as an ethanol producer supplying over 80 dairies and ability to produce the biogas molecule. I have a background as a venture capitalist in Silicon Valley. I've funded about 25 companies. I've founded about eight public companies. Four were oil companies. Two were biofuels companies, including Pacific Ethanol. And so it didn't take long for us to decide somebody needed to go and invest the capital, develop the technology, and deploy electric trucks with ethanol range extenders, opening an entirely new market for ethanol in the U.S., electric trucks with biogas range extenders, expanding our ability to ship biogas into trucks in California, as well as just electric trucks, because biogas, as you know, with renewable natural gas, can be converted into electricity to power electric trucks. So, that's off in the future. So, because we felt that that was not a business that Ameta should do, we took one of my other portfolio companies and encouraged their management team to get active in this business, and they got very excited about it. And the relationship we have with them ended up being mature enough that we determined that Amedis actually has a lot of value we can bring to that startup, though we don't have to put up any cash related to their equity, et cetera. We have a 142-acre riverbank facility that used to be an Army emission plant was 710,000 square feet of buildings that were seven production lines, very akin to what, let's say, a truck manufacturer would want to do. We also happen to have here the former headquarters building of the portfolio company that is undertaking this. It's about 3,000 square foot office space, not much. but we have it available. And so we found that there were just a number of things we could do, including supply carbon negative renewable natural gas, which is a unique asset for a renewable natural gas truck company to be able to use. So we have a shareholding that is not above 20%. If it does exceed 20%, our balance sheet is exposed to consolidating the debt, and our income statement is exposed to consolidating any operating losses. And so we have protected our balance sheet and income statement from any ups or downs in the business, but we have maximized the amount of equity upside we have. And if shareholders were to look at TuSimple, T-U-S-I-M-P-L-E, and Plus.ai, you might notice their valuations are rather significant. And I think Nebo Motors has some opportunities to execute in that marketplace of autonomous and electric trucking. that emphasizes the need for range extender fuels that are carbon negative. That's basically deploying our assets into removing the blend wall so we don't have to put nine gallons of gasoline in with one gallon of ethanol in order to sell a single gallon of ethanol. We can literally fill up a truck with ethanol and drive it down the road or renewable natural gas into renewable natural gas trucks. Did that answer your question, Derek?
spk09: It did. Thanks, Eric. And then as my follow-up, I wanted to focus on your Carbon Zero project. Could you speak to market offtake interest in that project and comment on when you'd reasonably be in a position to announce offtake commitments?
spk06: We are currently in paperwork with two oil refining companies that have strong marketing presence in California. I would say easily among the largest suppliers of diesel and soon to be renewable diesel in California. And I would expect that documentation, which is moving at the pace of major oil companies, should be able to be closed certainly in the next several months. We don't control the lawyers at the major oil companies, but we've had a very, very high level. I'd almost say that no one has said they're not interested. What we've been able to do is pick various strategic relationships where we have multiple points of contact that are synergistic with our business. And so we're looking to execute on that.
spk09: Very helpful. Thanks for your time.
spk06: Sure.
spk01: Our next question or comment comes from the line of Amit Dayal with HC Wainwright. Please go ahead.
spk02: Thank you. Hi, Eric.
spk03: With respect to the dairy digester deployments, can you give us an update on how many are deployed now? I know you provided some color on how the revenue recognition for this works, but if you could remind investors listening in, that would be very helpful.
spk06: Sure. We have completed two dairy digesters, a four-mile pipeline. And, Andy, why don't you give us an idea of how we're doing over the next year?
spk08: So we have two that are currently operating and sending gas to the ethanol plant for process energy. We have five that are either permitted or, you know, mostly through permitting that we'll begin construction on in the next – call it the next 30 to 60 days. We'll have five more that we'll be getting in the third quarter. So we'll have – by the end of this year, we'll have 10 – Digester projects underway under construction. We're also beginning on Monday the construction of our gas cleanup hub at the Keys facility, which will take the gas that's piped in from the dairies and clean it up through an air-liquid membrane system, and then we'll be ready for interconnection to the PG&E pipeline or our CNG station at the ethanol plant. We're going to begin construction on that. All the... pardon me, all of the permitting work has been done, and we're going to start pouring the foundation next week on that. Expect that to be done by late second quarter, early third quarter. So I think everything is moving along the pace. The only challenge we've found is the counties, because of COVID, a lot of the counties are backed up in terms of their ability to process permits. We're not having any pushback on the permits. They're all very strongly supportive of our project. It's just workload. The economy is picking up in California, so they're getting something like 30 new permit requests a week from various projects around the county. So kind of working through that. The fact that we have a good relationship with them is helping us move the process along. But I'd say to answer, circle back to the beginning of your question, We should be at a place where we'll have 10 projects underway, certainly by the end of this year, and five of those projects will be pretty close to completion by the end of the year, beginning of Q1 next year.
spk03: Thank you for that. And with respect to biodiesel sales in India, it doesn't look like there were any sales in one queue. Is this because of the change in the bid process, or is it because of other reasons?
spk06: It's permanently driven by COVID. The bid process has actually improved to benefit us, but there's some really strict measures that had to be done to protect our employees and vendors in India.
spk03: Understood. And your presentation, Eric, has around $52 million coming from India biodiesel sales for 2021. Is that still something that you think is achievable, or should we sort of adjust our expectations, you know, for biodiesel revenues this year?
spk06: I think that COVID will have an impact on this year. At full operation, 12 months, it's $168 million operation. So to tell you the truth, it's all about how the COVID and OMC tender process kind of rolls out in the second half of this year. we could very easily meet this year's expectations. It's really only about, it's less than a third of what our total operating expense opportunity is. The unknown really is how this COVID situation affects India. I'm sure you're aware of how dramatic this second phase has been for them, but it could be just as dramatic that they recover as the vaccines start distributing, etc. So, Currently, I would not change that. We might revisit it in the third quarter. We'll have a lot more visibility then. But certainly, we're set up to just start the plant and run it at 100% capacity the day you start it. And that's all depending on these external factors.
spk03: Understood. And with respect to sort of managing the crush spread, et cetera, you know, for the ethanol business right now, is there anything you're doing unique or – Is there any opportunities to manage some of these things better, or are we just dependent on volatility in the commodity space right now for the ethanol margins?
spk06: Andy, you want to take that?
spk08: Yeah, I'd say, unfortunately, I wish there was more we could do. I think hedging in this kind of a market right now is a pretty dangerous strategy because we're not located near the corn. I think if we were in the Midwest, some of the Midwest producers are able to do that because of of their unique situation with local corn bases, but we're just not in that position. I'd say on the upside for us, when we've been through a similar experience, and I want to say it was 2016 or 13. 2013 happened. Where there was a drought or some other event that was going on that caused essentially a shortage. We work with JD High School, who's our corn merchandiser based out of Omaha. Great company, 100-year-old company. And they have the ability to draw from grain elevators all over the Midwest. In fact, I think that year we received grain from something like 25 different corn elevators. And that gives us a dramatic advantage in the marketplace. Midwest plants are not set up to receive grain from any other source other than trucks locally. So when they run out of corn locally, they're done. There's really nothing they can do. And I've talked to, in the past couple weeks, I've probably talked to six different producers in the Midwest who said, you know, this is the one time I wish I was a destination plant Because you guys have the ability to find it. You can bring it in from the eastern corn belt if we wanted to. I mean, it gets expensive when you do that. But I think that is the one advantage we have in what's going to be a very volatile, very difficult year on the corn supply side. So I think, you know, we're going to do the best we can. But I think the idea of trying to – hedge as a destination plant with this volatility could end up costing us some pain. So we're unfortunately sort of stuck with what we're at.
spk06: And I like to say we don't sell corn, we actually sell ethanol. So it's the demand for ethanol that's actually going to determine our cash flow. We're seeing very, very strong demand for ethanol right now and shortages in the western pad area.
spk08: Pad 5, which as you know is the western United States, for the past three months has shown record lows from an inventory perspective. Part of that is attributable to the giant storm that hit Texas and the Southwest still actually having impacts, as you all probably know, across the economy. That is starting to work itself out, but California sort of went from zero to 60 miles per hour in the last couple of months in terms of gasoline demand And so we're seeing, I think, at least through the third quarter, which is about all the visibility you're going to get in a market like this right now, I think we're seeing that we're going to continue to see strong demand in California in our local truck market, which is really what we serve within a 100-mile radius of our plant, continue to see strong ethanol demand. So it's one of those deals where if ethanol can keep pace with corn, we can continue to have an operating – positive contribution margin. If we see a retreat in ethanol pricing and the corn situation stays where it is, it's where it gets a little challenging.
spk03: No, understood. Thank you for that, Conrad. I know there was discussion previously about maybe allocating some capacity to high-grade industrial quality alcohol. Is that still in play, or should we not really assume any contribution from those efforts?
spk08: We have ongoing discussions. I'll let Eric speak to the sanitizer business, but from a potable alcohol perspective, we have an ongoing relationship with a couple of very large producers in our area. In fact, we have discussions scheduled for later this month. I think we're going to continue to see, as now we have a DSP permit from the TTB, we're allowed to do that. I think we're going to continue to try to grow Our potable alcohol, grain neutral spirits business, that's a nice piece of business. I won't say it's huge volumes, but it's a good solid business that allows us some diversification. And I think the same is probably true on the sanitizer side where we see opportunities to do that. We'll take advantage of those opportunities.
spk06: Right. And we're waiting for the FDA to actually enforce the pharmacopeia standard again. That'll shut down a lot of the cheap imports of lower quality products. And now over 200 of them have been warned by the FDA as not meeting FDA specs. So we're waiting for the market to kind of clean up as we see this.
spk08: And the market is, I mean, the channel was jammed pretty significantly last year. So there's not a ton of demand from non-traditional USP sources right now because anybody that goes to the supermarket, you can find bottles and bottles and stacks and stacks of hand sanitizer. So the market needs to settle itself out a little bit. But we do believe that's an ongoing opportunity for us. That's all I have, guys. Thank you so much.
spk03: Sure.
spk01: Next, we go to the line of Jordan Lelevy with Truist Securities. Please go ahead.
spk11: Good afternoon, Eric, and the rest of the team. I appreciate all the color you guys have given. I'll keep mine to two quick questions. First, just wanted to touch on the Department of Energy grant you all mentioned in relation to the cellulose extraction from the orchard wood. To my understanding, you guys haven't put a lot of weight into this in your five-year plan, but just wanted to get your thoughts high level on the potential of that sort of project and what the economics of that could look like and what percent and that sort of thing.
spk06: Sure. Thanks, Jordan. The first step in our jet and diesel hydrogen production process is to extract sugars from the waste wood because we have an existing 65-million-gallon plant that can process those sugars with very minimal additional capital expenditures, that, of course, being our corn ethanol plant. So our overall strategy is to wean ourselves gradually off of being 100% dependent on corn. So as we increase the volumes of wood we're using in jet fuel, we're increasing the amount of sugar we can get from that wood. And every 10% of the cornstarch that we decrease at our corn ethanol plant saves us purchasing costs of corn and generates a lower carbon intensity score for the ethanol being produced and generates a different renewable identification number. So we estimate about $30 million per year of additional positive cash flow from our corn ethanol plant for every 10% of the feedstock that is displaced. We've done these numbers a number of times, and they always come out around $30 million. Sometimes it's $28 million. Sometimes it's $35 million. but about $30 million per 10%. This is linear, so it doesn't decrease. If we go to 20%, then it's $60 million, et cetera. The scale-up of our sugar extraction technology, which is patented, the patent was granted in January of this year. It's exclusively licensed to us for noncommercial forests. We're using it for orchards, which is a million and a half acres and 1.6 million tons each year in California. That technology now needs to go to the pilot scale, and so the Department of Energy grant program is specifically to fund pilot projects, and it's a two-phase program. It's a $1 million grant award for engineering and some other things, and then a $15 million to $40 million grant award for actually construction of the plant. The size of our plant would be a small commercial size because of how it's integrated with our other facility. It actually... would be projected to be positive cash flow upon its construction. So we're calling it a pilot plant, but it's a pilot commercial facility, and then we would just expand it from that point on. So it's a gradual technology development we've been working on for probably four years. Now we have a path to technology, and the Department of Energy has recognized its unique opportunity to have a broad impact on the corn ethanol business, and not just our plant, but frankly every plant. benefit from this technology.
spk11: That's great. Thanks, Eric. And just as a follow-up, just pivoting back to the R&G business, just wanted to get your updated thoughts as it relates to kind of the long-term trajectory of that business and the ability to scale it beyond, you know, the 17 and even potentially beyond the 50 and the five-year plan. Just noting kind of the increased competition we've seen just in general in the R&G space and your kind of unique positioning geographically. Just wanted to get your thoughts on how you think you can continue to scale that business.
spk06: We are actively interacting with the dairies in the region, the counties we operate in. We, of course, supply about 80 dairies with feedstock. Putting 36 miles of pipeline in the ground obviously makes us the obvious choice for any dairies within a few miles of our gas pipeline, and that's all occurring over the next 12 months. So we continue to expand those relationships. There are approximately 1,200 dairies in California. We are regionally the leader in our market just because of our obvious connection to the local dairy market through the animal feed business. I would say that over the next year, our job is to dominate the region that we're in and then a year from now, expand our footprint to other regions of California. If you look at the market in California, there's really only a couple of developers. and one of which is in the south part of the valley and one is sort of in the central part of the valley, and we're sort of in the north part of the valley. And we have good relationships with the dairies in our area, and I think we're showing that we can very quickly ramp up those dairies into being customers. So out of the 1,200 dairies, our goal is to have a substantial portion of them.
spk08: And this is Andy. I would just add to that that we're deep into conversations with all the brand name companies offtake partners that you all are familiar with. We're having all those conversations. But what we're trying to do is come up with a strategy that will address, I think, the underlying question you ask, which is at some point does California become saturated, right? I think that's kind of what everybody's concern is because now you've got outside of the state developers coming in and it's kind of the wild west. I think Eric touched on two things that give us an advantage. One is our existing relationship in the dairy industry economy, right? We've been selling feed to dairies for the last 10 years. We have a strong relationship, and I think that helps us a lot in terms of it. And I think the evidence is there with the number of dairies that we've signed up and are continuing to engage with. So, you know, you've got to have the source of the gas, number one. But the other thing we're trying to do is balance our offtake agreements so that we're not putting all of our chips into one basket and then going to get real sad and disappointed when the price changes or things happen in the market that are undoubtedly going to happen as we progress into this in the next five to 10 years. So we're looking at really diversifying where we send our gas and how it's used. And then I think the open remaining question that has got an obvious answer to it, it's just not quite there yet, is how electricity is going to play into this whole market. And I think we're contemplating that as well. And without getting into any detail, let's just say we're not we're keeping our eye on the ball and on all the potential markets that will exist for renewable natural gas as we progress forward this and have had significant discussions with the California Air Resources Board and others. So we're trying to, you know, having been a destination ethanol plant for 10 years, we sort of know what it's like not to have very many options. And so what we're trying to do is sort of smash that model and give ourselves lots of options so that we reduce our risk across the business.
spk11: Excellent. Thank you both very much.
spk01: Next, we go to the line of Ed Wu with Ascendant Capital. Please go ahead.
spk05: Yeah, thank you for taking my question. As we just passed 100 days with the new president in the office, what do you see either in the green bill that he's proposing as well as the stance the EPA has in terms of the ethanol waivers? How do you see that playing out in the next six months?
spk06: I would say that there's some very promising legislation increasing the value of carbon credits from $50 to under the 45Q provision to, in one case it's $80, another one I read was $125 per ton, very significant increase in the revenues that we could potentially get from carbon sequestration. The EPA has not only just talked, but they've actually taken very significant action in favor of the biofuels industry. They filed an opposition to their own grant of three waivers This is strange, but they went to the Supreme Court, and they actually opposed their own grant of hardship waivers to three oil companies and filed also a petition in support of the biofuels industry on something that went to the Supreme Court just a couple weeks ago. So the EPA has actually hit the ground running. The new secretary has promised that the renewable volume obligations, which are sort of the blending rules, which had been delayed, will now get – published in the next few months. And so I think they're playing catch up a little bit, but they so far have been not only saying things, but doing things that are very much in support of renewable fuels. The price of D3 RINs, which is cellulosic RINs generated by our biogas, was about 80 cents in the third quarter of last year, and today is $3.20 per D3 RIN. So that's a very significant, almost quadrupling of the federal revenue, reflecting the that the offtakers, the obligated parties, expect to actually have to blend the actual physical molecule or buy a RIN from somebody who is physically blending the molecule. This is what the Renewable Fuel Standard was designed to do, was to encourage some to blend and other ones who didn't want to blend to be able to buy RINs, and that mechanism is now working. The price this morning for the D6 RIN, which was about $0.30 or so last year, is $1.80. The D6 RIN is a corn ethanol RIN, again, supporting the value of blending ethanol. Because if you blend ethanol, you don't have to buy any RINs. You get the RIN for free. We give away RINs, 65 million of them, every year to anybody that buys ethanol and blends it. So we're very well equipped to meet the market demand. But frankly, if the EPA doesn't enforce the rules, there's not the market demand. I think the The positive thing that the stock market has seen is that renewable fuels companies now are operating under a set of rules that are being enforced, and that's providing a balance to the market we haven't had for a number of years.
spk05: Great. Thanks for answering my question, and good luck. Thank you, Ed.
spk01: And we take our last question or comment from the line of Marco Rodriguez with Stonegate Capital. Please go ahead.
spk10: Good afternoon, everyone. Thank you for taking my questions. I was wondering if you could maybe spend a little bit of time on the capital structure here for Amedis. You made some comments earlier and your prepared remarks were very helpful, but how are you kind of thinking about your at-the-market offering, just kind of given the volatility in the stock price and It looks like some of the more expensive debt, the maturity date is extended, I guess, extended another year here to April 22. Just kind of update us on your thoughts and how you're thinking about things there.
spk06: Sure. In response to really long, long discussions with various Wall Street players, We recognized the concern about the high interest rate bridge debt that we had, and we took steps in early 2021 to not completely replace that debt. I don't think that's necessary. We have about $300 million cost of our assets. So we reduced that debt down to a meaningful opportunity to refinance it at lower interest rates so we are saving a substantial amount of money now by not having interest that's due. But frankly, the remaining higher interest bridge financing can now be refinanced with other tools. And I think that in the first quarter of this year, we were above that refinance threshold. Now we're clearly within that refinance threshold. So we are, I think, executing on a moderate plan of debt reduction of high interest rate debt that I think over the next couple months you'll see matures very nicely with what we would call low interest rate debt something in this eight to ten percent range we would consider to be low interest rate debt I think though that most people are not clear that our projects do not require parent company debt financing our projects are standalone And when we put, for example, the $30 million of equity funding into biogas, that allows us to do debt funding at the project company level. USDA Renewable Energy for America program, for example, has nothing to do with the parent company debt. We could have a billion dollars of debt to the parent company. It would have no impact at all on our project company debt because our subsidiary has no debt at all. The Ametis Biogas subsidiary literally is a debt-free entity. with $30 million of equity invested. So the same goes with our jet diesel plant. We have about $32 million of equity and grants in that subsidiary. And so functionally, it's well set up to do a USDA or DOE or tax-free unique financing. And I think most investors, if they want to spend the extra time, just go one layer down from looking at the consolidated balance sheet, they'd very quickly figure out that our India plant has no debt at all either. We have no long-term debt at all. Completely debt-free, 50 million gallon biodiesel plant set up to be able to do over 160 million a year of revenue. All upside, no downside. Biogas, of course, I mentioned is debt-free. So we structured the company deliberately with no convertible debt, so we're not worried about the conversions that dilute shareholders. And a very, very cooperative, supportive relationship with our senior lender. They're the ones that put in the $30 million of equity in our subsidiary. So they're also an owner of equity in the publicly traded stock of the company. So we have a very solid relationship with them. They've done very well in their senior debt. And because of that relationship, we've been able to grow the company well. But by paying them down significantly... in the first part of this year. I think it probably provided some comfort to those investors. It might be a little more concerned about the debt low that we were carrying as we came out of the fourth quarter last year.
spk10: Great. Very helpful. I appreciate the time, guys. Thanks a lot. Thank you very much.
spk01: There are no further questions at this time. I'd like to turn the floor back over to management for closing remarks.
spk06: Thank you very much to the analysts that joined us today as well as Amedis shareholders and others. Please review the Amedis corporate presentation that's posted on the homepage of the Amedis website. We look forward to talking with you about participating in the growth opportunities at Amedis.
spk07: Thank you for attending today's Amedis earnings conference call. Please visit the investor section of the Amedis website where we will post a written version and an audio version of this Amedis earnings review and business update.
spk01: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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