Aemetis, Inc

Welcome to the Amedis Second Quarter 2022 Earnings Review Conference Call. At this time, all participants are on 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 you to your host, Mr. Todd Waltz, Executive Vice President and Chief Financial Officer of Amedis, Inc. Mr. Waltz, you may begin.

Thank you, Kelly. Welcome to the AMETIS second quarter 2022 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 and AMETIS Biogas. We suggest visiting our website at ametis.com to review today's earnings press release, the AMETIS corporate and investor presentations, filing with the Security and Exchange Commission, recent press releases, and previous earning conference calls. The presentation for today's call is available for review or download on the investor section of the emedis.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 activities and the execution of our business plan. These statements must be considered in conjunction with the disclosures and cautionary warnings that appear in our SEC filings. Investors are cautioned that all forward-looking statements made on this call involve risks and uncertainties, and that future events may differ materially from the statements made. For additional information, please refer to the company's Security and Exchange Commission filings, which are posted on our website and are available from the company without charge. Our discussion on this call will include a review of non-GAAP measures as a supplement to financial results based on GAAP. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the three and six months ended June 30, 2022, which is available on our website. Adjusted EBITDA is defined as net income or loss plus to the extent deducted in calculating net income, interest expense, gain on debt extinguishment, income tax expense, intangible and other amortization expense, accretion, and other expense of Series A preferred units, loss on lease termination, gain on litigation, depreciation expense, and share-based compensation expense. Now I'd like to review the financial results for the second quarter of 2022. Revenue during the second quarter of 2022 increased 20% to $65.9 million, compared to $54.9 million for the second quarter of 2021. Our California ethanol operation experienced steady sales volume with an increase in the selling price of ethanol from $2.78 per gallon in the second quarter of 2021 to $3.13 per gallon in the second quarter of 2022. Delivered corn price significantly increased from an average price of $8.04 per bushel during the second quarter of 2021 to $10.21 per bushel during the second quarter of 2022, as continued poor railroad performance impacted both the delivery cost and supply of corn into California. Gross loss for the second quarter of 2022 was $214,000, compared to $3.6 million gross profit during the second quarter of 2021. Our California ethanol segment accounted for substantially all of the reported consolidated gross loss or profit, respectively in both periods. Selling general and administrative expenses were $7.1 million during the second quarter of 2022 compared to $5.8 million during the second quarter of 2021 as a result of investments in our ultra-low carbon initiatives and non-cash charges for stock compensation. Operating loss was $7.6 million for the second quarter of 2022 compared to an operating loss of $2.1 million for the second quarter of 2021. Interest expense during the second quarter of 2022 was $6.7 million, excluding accretion and other expenses in connection with Series A preferred units in our Ametis Biogas LLC subsidiary, compared to $5.2 million during the second quarter of 2021. Additionally, our Ametis Biogas LLC subsidiary recognized $1.5 million of accretion and other expenses in connection with preference payments on its preferred stock during the second quarter of 2022 compared to $3.8 million during the second quarter of 2021. The Edenic litigation was settled during the second quarter of 2022 for $4.8 million, including litigation costs, allowing for the release of $1.4 million of litigation reserves. Additionally, a grant of $14.2 million was received from the United States Department of Agriculture biofuel producer program. Net loss was $209,000 for the second quarter of 2022 compared to a net loss of $10.6 million for the second quarter of 2021. Cash at the end of the second quarter of 2021 was $3.6 million compared to $7.8 million at the close of the fourth quarter of 2021. Investments in capital projects of $12.1 million were made during the second quarter of 2022, further highlighting our commitment to build ultra-low carbon projects. This completes our review of the second quarter of 2022. Now I'd like to introduce the founder, chairman, and chief executive officer of AMETIS, Eric McAfee, for a business update.

Eric. Thanks, Todd. AMETIS is focusing on producing below zero carbon intensity products, including negative carbon intensity renewable natural gas and renewable aviation fuel with carbon sequestration. Our projects maximize the value of favorable federal and state carbon reduction programs while reducing feedstock and operating costs by using waste materials as feedstock, hydrogen supply, and energy sources for the production of renewable fuels. In early 2022, we announced an updated five-year plan which projected revenues to grow to about $1.5 billion and annual EBITDA to increase to more than $460 million by year 2026. We are monitoring federal legislation that strongly supports almost every aspect of our business and, if passed, would be expected to significantly improve our five-year plan. If the legislation becomes law, we will provide further updates. Our plan is to fund growth by using the approximately $100 million of lower interest rate senior secured lines of credit that were signed in March of this year, in addition to low interest rate U.S. government guaranteed long-term loans. In the past year and a half, we have repaid more than $80 million to reduce higher interest rate bridge loans from Third Eye Capital, which has expanded our access to lower interest rate funding. We recently closed two credit facilities at 8% and 10% interest rates with the same lender who will have an aggregate availability of up to $100 million subject to certain criteria. The carbon reduction line of credit is designed to fund the completion of the carbon reduction projects at the Keys Ethanol Plant and to provide the development funding prior to project financing for the Jet Diesel Plant and the two CO2 secretion wells The working capital line of credit is intended to provide liquidity for ongoing operations. We're also on track with financing growth using long-term 20-year low interest rate project financing from the U.S. Department of Agriculture. Our first $25 million of an expected $100 million or more of USDA Renewable Energy for America funding for our biogas subsidiary was approved last week by the National USDA Investment Committee and is in the closing process now for funding this month. The positive regulatory trends for renewable fuels have continued to improve, including the recent approval of year-round 15% ethanol known as E15 by the EPA and and the release of the California Air Resources Board 2022 LCFS Scoping Plan that significantly increases the number of credits required under the Low Carbon Fuel Standard Program. We expect that LCFS credit prices will increase significantly as traders learn more about the number of LCFS credits that will be required starting in January 2024 in order to meet the expanded decarbonization goals set forth by CARB. Last week, investors were pleasantly surprised to hear the news that the energy provisions of the Build Back Better legislation received the support of key congressional leaders and the White House, and the bill is now on a fast track for approval. Though the legislation is not final, a brief summary of the provisions and the potential impact on Amedis includes the following direct benefits to Amedis projects. A $1.25 to $1.75 tax credit for sustainable aviation fuel. The proposed sustainable aviation fuel tax credit could result in up to $80 million per year to support the construction and operation of the 90 million gallon per year Amedis Carbon Zero One sustainable aviation fuel and renewable diesel plant in Riverbank, California, assuming a 50% SAF production allocation and a 50% renewable diesel production allocation. Renewable diesel is expected to continue to receive the dollar per gallon blenders tax credit. Next, a 30% investment tax credit for renewable natural gas capital investments. The ITC for renewable natural gas projects is expected to result in more than $90 million of cash received by Emedis in the next five years from investment tax credits. This cash would be additional equity investment into the Amedis biogas project, which makes project financing much easier by reducing the amount of long-term project debt by $90 million and reducing interest costs by more than $60 million over the life of the 66 dairy digester project. Also, an increase in the carbon sequestration tax credit from $50 to $85 per metric ton of CO2, but paying the credit in cash as an IRS tax refund to companies in a process called direct pay. We're developing two CO2 injection wells located at the Ametis Biofuels plant sites in California to sequester 2 million metric tons per year of CO2 into a saline formation about 7,000 feet underground. 2 million tons times $85 per ton equals $170 million per year of cash that could potentially be paid to IMETIS by the IRS each year for the first five years of the project, providing $850 million of IRS funding to repay the capital costs and operating costs of the two projects. With another seven years thereafter as a tax credit valued at $1.2 billion, The total value of the $85 per metric ton tax credit would be $2 billion in just the first 12 years of operations of the two Ametis carbon sequestration wells. Several provisions in the legislation are valuable to the Ametis ethanol business, including $500 million for biofuels fueling infrastructure to support 15% and 85% ethanol blends, a tax credit for low carbon intensity ethanol, and adopting the GREET model so the carbon intensity of ethanol is calculated correctly. These regulations are driven by initiatives to decarbonize transportation, the need to reduce the cost of fuels as petroleum prices increase, and a renewed interest in energy security. During the second quarter of 2022, AMETIS achieved important milestones toward revenue growth and sustained profitability in each of our businesses. Now, Andy Foster, the president of the Ametis Biogas and Ametis Advanced Fuels businesses, will review some highlights. Andy?