Aemetis, Inc

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 Amedis, Inc. Mr. Waltz, you may begin.

Thank you, Matt. Welcome to the Amedis First Quarter 2023 Earnings Review Conference Call. Joining us for the call today is Eric McAfee, founder, chairman, and CEO of Amedis, and Andy Foster, president of Amedis Advanced Fuels and Amedis Biogas. We suggest visiting our website at Amedis.com to review today's earnings press release, the Amedis corporate and investor presentations, filings 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 emedis.com website. Before we begin our discussion today, I'd like to read the following disclaimer statement. During today's call, we will 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 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 because we believe these non-GAAP measures serve as a proxy for the company's source or use of cash during the periods presented. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the three months ended on March 31, 2023, 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 expenses, Series 8 preferred units, loss on lease termination, certain cash grants, gain on litigation, depreciation expense, and shared base compensation expense. Now, let's review the financial results for the first quarter of 2023. Revenue during the first quarter of 2023 decreased to $2.2 million compared to $52.0 million for the first quarter of 2022. Due to historically high natural gas prices in December 22, we made the decision to idle the Keys plant in our North American division and initiate an extended maintenance cycle. which extended through the end of the first quarter, allowing for acceleration of several important ethanol plant energy efficiency upgrades. Working on the extensive plant maintenance and upgrade during Q1 of 2023 enabled the Quays plant to avoid significant loss due to insufficient natural gas storage in the western United States that made continuing operations uneconomical. From December through March, exorbitant pricing for natural gas would have resulted in a significant loss for the ethanol business, so management made the difficult but necessary decision to temporarily idle production. The dairy natural gas segment produced 21,300 MMBTUs from six dairy digesters, and the RNG was placed in underground storage to preserve carbon credits while waiting for approval of the low carbon fuel standard pathway for each digester. At an expected approval CI value of minus 427, this inventory represents meaningful future revenue that will be recognized once the pathways are approved. India Biodiesel recognized $1.5 million of revenue from private customers. Gross loss for the first quarter of 2023 was $1.3 million compared to a $3.1 million loss during the first quarter of 2022. Selling general and administrative expense increased to $10.8 million during the first quarter of 2023 from $7.3 million during the same period in 2022, driven primarily by a $2.7 million a fixed cost of goods sold charged to selling general and administrative expense during the idle time. Operating loss was $12.1 million for the first quarter of 2023 compared to operating loss of $10.4 million for the same period in 2022. Interest expense excluding a creation of Series A preferred units in the Ametis Biogas LLC subsidiary increased to $9 million during the first quarter of 2023 compared to $6.3 million during the first quarter of 2022. Additionally, our EMETIS biogas initiative recognized $5.6 million of accretion of preferred payment during the first quarter of 2023 compared to $1.6 million during the first quarter of 2022. Net loss was $26.4 million for the first quarter of 2023 compared to net loss of $18.3 million for the first quarter of 2022. Cash at the end of the first quarter of 2023 was $4.1 million compared to $4.3 million at the close of the fourth quarter of 2022. Investments in capital projects related to the reduction of the carbon intensity of AMETIS ethanol were $7.6 million for the first quarter of 2023. This completes our review of the first quarter of 2023. 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. Thank you very much. AMETIS is focused on producing below zero carbon intensity products. and is executing the five-year plan that's available to investors on the EMETIS homepage. Core activities to achieve the five-year plan include extensive energy efficiency upgrades to the KEEDS ethanol plant, build-out of our dairy renewable natural gas project, and the ramp-up of production at the India biodiesel plant. Each of these core activities were achieved during Q1. while minimizing the negative impact of temporary, extraordinarily high natural gas prices during Q1 2023. During Q1, we completed an extended maintenance and upgrade cycle for our Keys ethanol plant that avoided significant losses during the quarter, but importantly avoids future plant shutdowns that would have been required to install the upgrades. The result is an acceleration of our reduction of energy costs and driving the lower carbon intensity of our biofuel through a number of plant electrification projects. We also accelerated the installation of an entirely new Allen-Bradley decision control system with artificial intelligence capabilities, along with several other important process upgrades. While a top priority for Emetis is to maintain our decade-long track record of continuously operating the Keys plant to supply feed and fuel to local markets, Doing so under the extremely negative conditions that developed late last year and continued into the first quarter of this year in California natural gas markets would have been irresponsible and unsustainable. We chose to use that short time period to instead conduct a significant plant maintenance program and pull forward many of the critical components of our energy efficiency projects. In the long run, this decision to focus on fundamental improvements in our energy efficiency projects will save us millions of dollars in project costs through avoided down days and lost production and save time in completing the projects. We are currently working through plans to allow us to restart the Keys plant in the second quarter. Despite the temporary low revenues during Q1 2023, as we completed the plant upgrades and extended maintenance at the Keys ethanol plant, we are excited about the strong and growing positive cash flow expected from biodiesel and renewable oil feedstock refining facilities coming into full production this year. Until the California Air Resources Board carbon intensity pathway approvals process and we're able to begin selling into the renewable natural gas market at its full LCFS value, we will be storing the renewable natural gas that we produce underground and carrying it on our books as inventory. Our sustainable aviation fuel and renewable diesel project continues to make steady progress toward full permitting in 2023. while our first carbon sequestration characterization well drilling permit is now nearing completion due to work during the first quarter of 2023. Also during Q1 2023, our India biodiesel, glycerin, and feedstock refining facilities started production in anticipation of the second quarter 2023 contracts with the three India government oil marketing companies. About $34 million of biodiesel contracts were issued to Ametis of the three India oil market in Q2 2023, and deliveries are on schedule. The external political and regulatory environment for renewable fuels and the reduction of carbon pollution in the U.S. 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. However, the IRS has not issued guidance that provides the form for transfer of IRA tax credits. So the IRA investment tax credits that the U.S. biogas business generated during the first quarter of 2023 from placing six digesters, 40 miles of biogas pipeline, and the renewable natural gas production facility with utility interconnects into service in late January was not able to be booked as a sale during the quarter. We have many interested tax credit purchasers and continue to make progress toward a sale of the credits on hand, as well as several exciting Inflation Reduction Act sale transactions that would provide funding for Ometis projects during construction. The IRS has stated that guidance is expected to be issued in June 2023. at which time we expect to be able to close sales of the tax credits at a discount to the base value of the tax credits. The sale of investment tax credits is expected to be booked as other income and would generate a substantial amount of EBITDA, cash on hand, and earnings. During the first quarter, the California Air Resources Board held a 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 by significantly expanding the LCFS mandates to increase the price of credits to more than $240 per credit in the next two years. The LCFS credit market reacted positively to the news from CARB and prices increased more than 20% from about $65 to yesterday's $86 LCFS credit price. which is a price increase trend that we have expected and that CARB projected would occur. We believe that LCFS credit prices will continue to 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, in medicine, all of our U.S. businesses and indirectly benefit our India business that produces feedstock for U.S. renewable diesel and sustainable aviation fuel power refineries. Now, Andy Foster, the president of Ametis Biogas and Ametis Advanced Fuels, will review highlights. Andy?