Aemetis, Inc

Welcome to the Ametis Fourth 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 your host, Mr. Todd Waltz, Executive Vice President and Chief Financial Officer of Ametis, Inc. Mr. Waltz, you may begin.

Thank you, Matthew. Thank you. Welcome to the AMETIS fourth quarter and year-end 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 the 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 Securities 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 limitations, 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 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. They're posted on our website and are available from the company without charge. Our discussion on this call may include a review of non-GAAP measures as a supplement to financial results based on GAAP because we believe these non-GAAP measures serve as a proxy for the company's source or use of cash during the period presented. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the 3 and 12 months ended December 31, 2022, which is available on our website. Adjusted EBITDA is defined as net income or loss plus, to the extent deducted in calculating such net income, interest expense, loss or gain on debt extinguishment, income tax expense, intangible and other amortization expense, accretion and other expense of Series A preferred unit, loss on lease termination, certain cash grants, gain on litigation, depreciation expense, and share-based compensation expense. Now, I'd like to review the financial results for the fourth quarter of 2022. Revenues were $66.7 million for the fourth quarter of 2022 compared to $64.4 million for the fourth quarter of 2021. The selling price of ethanol decreased from $3.36 per gallon during the fourth quarter of 2021 to $2.65 per gallon during the fourth quarter of 2022. Biodiesel sales of 10,700 metric ton occurred during the fourth quarter of 2022 at a price of $1,511 per metric ton. Our California ethanol segment accounted for $49.4 million of revenues, and our India biodiesel accounted for $17.2 million of revenue during the period. Cost of goods sold increased from $51.7 million during the fourth quarter of 2021 to $67.9 million during the fourth quarter of 2022, resulting principally from delivered corn price increasing from an average of $7.23 per bushel during the fourth quarter of 2021 to $10.05 per bushel during the fourth quarter of 2022. and the incremental sales in our India biodiesel segment. Gross loss for the fourth quarter of 2022 was $1.1 million compared to a gross profit of $12.7 million during the same period in 2021. Selling general and administrative expenses remained flat at $7.5 million during the fourth quarter of 2022 and 2021. Operating loss was $8.7 million for the fourth quarter of 2022 compared to an operating profit of $5.2 million during the fourth quarter of 2021. Net loss was $22.4 million for the fourth quarter of 2022 compared to a net loss of $881,000 for the fourth quarter of 2021. Cash at the end of the fourth quarter of 2022 was $4.3 million compared to $7.8 million at the end of the fourth quarter of 2021. This completes our review of the fourth 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. thank you todd amethyst is focused on producing below zero carbon intensity products including negative carbon intensity renewable natural gas and renewable aviation and diesel fuel with renewable hydrogen and carbon sequestration our projects generate sustainable and innovative renewable fuels that benefit our communities and restore our environment while generating tax and other credits from federal and state carbon reduction programs. We seek to reduce feedstock and operating costs by using waste materials and zero carbon intensity energy for the production of renewable fuels. Amedis grew revenues 21% in 2022, representing $45 million of new sales. For 2023, We are excited about the strong and growing positive cash flow expected from biogas, biodiesel, and renewable oil feedstock refining facilities coming into full production this year, driving the strong growth in revenues and cash flow planned for the next five years. Interestingly, all of our India biodiesel, glycerin, and feedstock refining facilities are already built and are debt-free. Due to the time delays related to CARB pathways for biogas production, all six of the 2023 California biogas facilities that are expected to generate revenues this year are already built and are awaiting approval of their LCFS pathways. Until the California Resources Board approval is processed and we're able to begin selling into the renewable natural gas market as full LCFS value, we will be storing the renewable natural gas that we produce underground and carrying it on our books as inventory. As we will discuss later this month, we are completing a maintenance and upgrade cycle for our Keys ethanol plant that saves millions of dollars while accelerating our reduction of energy costs and driving the lower carbon intensity of our biofuel by installing a new decision control system with artificial intelligence capabilities, along with several other important process upgrades. The external political and regulatory environment for renewable fuels and the reduction of carbon pollution in the US and India has improved significantly during the past year. The passage of the Inflation Reduction Act in August 2022 provides an estimated $400 billion of funding toward renewable energy and carbon reduction projects. Last month, the California Air Resources Board held an LCFS scoping plan webinar where their staff stated that CARB plans to significantly increase the number of credits required under the Low Carbon Fuel Standard Program starting in 2024 with sufficiently expanding the LCFS mandates to increase the price of credits to more than $240 per credit in the next two years from about $60 today. We are encouraged that CARB's strong support of the LCFS program And while significant details need to be addressed in the scoping plan, we're working closely with our fellow biofuel producers and CARB staff to achieve a positive outcome. As we have expected for the last couple of years, we believe that LCFS credit prices will rebound to more than $200 per credit. As the markets recognize, the large number of LCFS credits that will be required to meet the expanded decarbonization goals set forth by CARB. These credits generate revenues for Inmedis in all of our U.S. businesses and indirectly benefit our India business that produces feedstock for U.S. renewable diesel and sustainable aviation fuel by refineries. During 2022, we achieved important milestones in the construction of 36 additional miles of biogas pipeline, upgrades to the Keys ethanol plant, growth to profitable operations by the India biodiesel plant, and many other key achievements. Last month, we updated the AMETIS five-year plan, which now projects $2 billion of revenues, $496 million of net income, and $682 million of positive EBITDA in year 2027, the fifth year of the plan. The updated five-year plan reflects continued growth in production revenues during the five-year period, while adding the significant positive impact of the Inflation Reduction Act that was passed into law in August 2022, and increased California low-carbon fuel standard credit prices. The AMETIS five-year plan assumes LCFS credit prices that are 35% lower than CARB's plan, as we took what we believe to be a conservative view Our estimate of revenues from LCFS credits being lower than CARB's projection therefore provides a significant upside to our profitability and should enhance the pace of our growth. The Federal Inflation Reduction Act is expected to provide a large amount of funding for METIS. During the next five years, we expect to receive more than $820 million from the sale of investment and production tax credits generated by the construction and operation of renewable fuels plants, renewable hydrogen production facilities, and CO2 sequestration facilities. The expected sale of IRA tax credits provides important project financing to build facilities, not just be a source of cash flow after production has begun. The transferability of tax credits under the IRA has opened a new large market from investors seeking to offset tax liabilities by purchasing tax credits from Metis and other renewable energy producers. We are currently working to complete our first tax credit sale, monetizing our investment tax credits and CO2 reuse tax credits that we began generating in January of this year. To date, we believe that we have generated more than $24 million of investment tax credits, primarily from biogas project investments, and we expect to generate more than $60 million of IRA tax credits this year. During 2022, We continue to make progress in reducing our average interest rate on debt. The best and most recent example of our reduced cost of borrowing is the 6% interest rate obtained in October 2022 for a $25 million 20-year loan that is 80% guaranteed by the U.S. Department of Agriculture. The initial interest rate is fixed for five years, and we believe the rate is significantly below the prevailing interest rates for renewable fuels projects As our senior lender, Third Eye Capital was a key contributor to our progress in 2022. In 21 and 22, Amedis repaid more than $90 million to Third Eye Capital to reduce higher interest rate bridge loans, which expanded our access to lower interest rate funding In the past year, Amedis has drawn more than $50 million on our new lower interest rate credit facilities from Third Eye Capital. We look forward to continued progress with Third Eye Capital as we continue to repay higher interest rate loans and utilize the lower interest rate credit facilities. For many investors in Amedis, the planned redemption of the Third Eye Capital preferred stock investment in our Amedis biogas business has been confusing and a source of concern. The Third Eye investment of $30 million of preferred equity into Ametis Biogas starting in late 2018 enabled Ametis to attract $23 million of grant funding. We used the $53 million of combined funding to begin building the biogas project without debt until we added $25 million of USDA-guaranteed long-term funding in October 2022. In the fourth quarter of 2022, Amedis negotiated an extension on the redemption of the preferred equity of our Amedis Biogas subsidiary from Third Eye Capital. Early this year, we extended this redemption to May 2023 and may agree to extend the redemption again if needed. We are seeking to refinance the Amedis Biogas preferred stock and have strong indications of investment interest from multiple parties. And we are working to complete the redemption during Q2 2023. However, our primary goal is to attract quality investors who share our vision for the long-term growth of our company. Our overall plan is to fund growth by using positive cash flow from our ethanol, biogas, India biodiesel, glycerin, and India refined tallow feedstock production facilities. enhanced by up to $100 million of working capital and project development financing from the credit facility that was signed with Third Eye Capital in March 2022. In the past two quarters, we've received funding of about $50 million from the two credit facilities provided by Third Eye Capital and reduced interest rates. We plan to obtain more than $200 million in the aggregate of 20-year, $25 million USDA-guaranteed project financings Under the Renewable Energy for America program, known as REAP, we are in the process of closing three more $25 million REAP loans this year for our biogas business, as well as other long-term debt funding for our jet diesel business. We are investing a significant amount of time and resources to develop and implement specific business structures that should maximize the value of the tax credits available under the Inflation Reduction Act. These regulations are driven by initiatives to decarbonize transportation, the need to reduce the cost of fuels as petroleum prices increase, a renewed interest in energy security, and a desire to reduce greenhouse gas emissions. Let's briefly review our biodiesel business in India. The National Biofuels Policy in India was updated in 2022 and now is being implemented to achieve a 5% blend of biodiesel that is equal to about 1.25 billion gallons per year in India. On April 1st of this year, a new biodiesel tax is scheduled to go into effect in India, which is a tax on diesel. The three government oil marketing companies are expected to issue a tender offer to purchase up to the entire production capacity of the Ametis biodiesel plant under a feedstock plus pricing formula that was used very successfully last fall to bring biodiesel plants into full production. The pricing formula and timing of the two-month tender by the oil marketing companies is expected to be the ongoing format for sales to the oil marketing companies. We expect the formula to be a successful mechanism for the rapid growth of biodiesel production in India due to the predictability of the pricing. This year, India is expected to achieve a 1% biodiesel blend, which would fully utilize all of the existing production capacity in the country. Our plant in India is uniquely situated to benefit since importing biodiesel or renewable diesel is not allowed under India law. The tallow feedstock pretreatment unit in India is expected to be utilized to refine crude tallow for export to the U.S. and Europe, furthering the production of renewable diesel and sustainable aviation fuel. Negotiations of refined tallow offtake agreements have been underway since late last year. and refined tallow production is expected to begin in Q2 2023 to support exports to U.S. renewable diesel production plants. Since our India subsidiary has no debt, and the 50 million gallon per year biodiesel plant, the glycerin plant, and the tallow refining facility are fully constructed, we are well positioned for profitable operations at full capacity. Now, Andy Foster, the president of the Ametis Biogas and Ametis Advanced Fuel businesses, will review some highlights. Andy?