Aemetis, Inc

Welcome to the Amedis Second Quarter 2023 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, 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 2023 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 reading our website at ametis.com to review today's earnings press release, the AMETIS corporate and investor presentations, filing with the Security Exchange Commission, recent press releases, and previous earnings conference call. The presentation for the call today 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 disclosure and cautionary warnings that appear in our SEC filing. Investors are cautioned that all forward-looking statements made on this call involve risk and uncertainty, and that future events may differ materially from the statements made. For additional information, please refer to the Company 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 because we believe these non-GAAP measures serve as a proxy for the company's sources or uses of cash during the periods presented. A reconciliation of non-GAAP measures to most directly comparable GAAP measures is included in our earnings release for the three and six months ended June 30, 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, income tax expense, intangible and other amortization expense, accretion and other expenses of Series A preferred units, loss on lease termination, gain on litigation, depreciation expense, and share-based compensation expense. Let's review the financial results for the second quarter of 2023. revenues during the second quarter of 2023 were 45.1 million dollars compared to 65.9 million dollars for the second quarter of 2022 principally driven by 33.6 million dollars of sales from india biodiesel our california ethanol operation restarted after an extended maintenance cycle which allowed for the acceleration of the implementation of several important ethanol plant efficiency upgrades allowing for the generation of 11.3 million of revenue during late may and june delivery corn price decreased significantly from an average price of ten dollars and 21 cents per bushel during the second quarter 2022 to six dollars and eight cents per bushel during the second quarter 2023 gross profit for the second quarter of 2023 was two million dollars a significant improvement compared to a $214,000 gross loss during the second quarter of 2022. Selling general and administrative expenses were $9.7 million during the second quarter of 2023 compared to $7.4 million during the second quarter of 2022, including $1.3 million for fixed cost of goods sold that were allocated to selling general and administrative expenses during the Keys plant maintenance period. SG&A included 1.8 million of non-cash expense related to stock options and other considerations issued under stock incentive plans. Operating loss was 7.8 million and 7.7 million for each of the second quarters of 2023 and 2022. Interest expense during the second quarter of 2023 was $9.6 million, excluding accretion and other expense in connection with Series A preferred units and our Imetis biogas subsidiary, compared to $6.7 million during the second quarter of 2022. Additionally, our Imetis biogas subsidiary recognized $6.9 million of accretion and other expenses in connection with preference payments on its preferred stock during the second quarter of 2023 compared to $1.5 million during the second quarter of 2022. Net loss was $25.3 million for the second quarter of 2023 compared to a net loss of $209,000 for the second quarter of 2022, including the impact in 2022 of a grant of $14.2 million received from the United States Department of Agriculture biofuel producer program and the release of a litigation reserve of $1.9 million. Our India plan contributed $5.1 million of adjusted EBITDA during the three months ended June 30, 2023, offset by adjusted EBITDA from the restart of the Keys plan and other operations. For a total company negative adjusted EBITDA of $4.2 million for the second quarter of 2023. Cash at the end of the quarter was $3.5 million compared to $4.3 million at the close of 2022. This completes our review of the second quarter of 2023. During the first half of 2023, investments in capital projects were $9.8 million. Investments in capital projects related to AMETIS biogas were $7.8 million. Investments in capital projects related to reduction of carbon intensity of AMETIS ethanol and other company initiatives were $2 million. 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. AMETIS is focusing on producing below zero carbon intensity products. By growing and diversifying our existing dairy, renewable natural gas, and ethanol businesses in California, and expanding our biodiesel and tallow feedstock business in India, we are executing on a five-year plan to grow to $2 billion of annual revenues and more than $600 million of annual positive cash flow. we invite investors to review the company presentation on the homepage of the Amedis website. The Amedis five-year plan includes growth in our five business segments to produce sustainable aviation fuel and renewable diesel, biodiesel, renewable natural gas, and low-carbon ethanol, along with carbon sequestration of the CO2 produced by these businesses in California. Byproducts of these businesses include Distiller's Corn Oil in California and Refined Tallow from India that we plan to use as feedstocks for our SAF and RD production facilities, as well as using our dairy renewable natural gas to replace diesel while trucking our feedstocks and finished products, reducing fuel costs, carbon intensity, and air emissions. We already have achieved many of the significant milestones for the current year of the five-year plan, Several important events are scheduled over the next few months. In the India biodiesel business, $33.5 million of biodiesel contracts were fulfilled by Amedis for the three India government oil marketing companies during the second quarter of 2023, generating $5.1 million of positive adjusted EBITDA during the second quarter. We are now shipping new OMC orders for the third quarter. we are seeing steady improvement in the speed of the OMC procurement processes and note the positive impact of cost plus pricing that's now being used by the OMCs to purchase biodiesel. The India business is debt-free and now generally funds its own operations without outside working capital financing. The planned export of refined tallow from the India facility to renewable diesel producers in the U.S. is making steady progress, with final negotiations underway for storage tanks at two California ports and feedstock sales to several biorefinery customers in active discussions. In the Ametis biogas business, we closed the second $25 million USDA guaranteed loan to build dairy biogas digesters for an additional eight dairies, bringing our total to 15 fully funded dairies that are designed to produce a combined 400,000 MMBTUs of renewable natural gas each year. At $100 per MMBTU of future expected revenues, when the low carbon fuel standard carbon intensity pathways for the Amedis biogas project are issued by the California Air Resources Board, these 15 dairies are estimated to generate approximately $40 million of annual revenues and more than $30 million per year of annual positive cash flow under primarily 35-year contracts, including optional extensions. Until the California Air Resources Board pathway approval is processed, and we are able to begin selling into the renewable natural gas markets at its full LCFS value, we will be storing the renewable natural gas we produce underground and carrying it on our books as inventory. We already have signed agreements to build biogas digesters for 37 dairies and plan to build digesters for 65 dairies in the five-year plan. We now have built and are operating seven dairy digesters, a 40-mile biogas pipeline, a central biogas to RNG production facility, and a PG&E utility gas pipeline interconnection unit. The 20-year long-term debt financing provided by the U.S. Department of Agriculture Renewable Energy for America program, known as REAP, has now funded $50 million of project financing to Ametis Biogas. An additional $75 million of USDA-guaranteed project funding is in process, with an expectation of obtaining USDA commitment letters later this year. In total, we plan to receive $125 million of USDA REAP funding and commitments for Amedis Biogas by the end of this year. Though we plan to continue to utilize USDA REAP loans for the construction and operation of the Amedis Biogas projects, we are negotiating a repayment of the Third Eye Capital financing by a new lender. We expect to close the new financing for Ametis Biogas this fall and, along with an allocation of investment tax credits, to fully repay the Third Eye Capital financing that funded the launch of the Ametis Biogas project. The Ametis Biogas Central Dairy Project is expected to generate more than $60 million of federal tax credits under the Inflation Reduction Act by bringing the 40-mile biogas pipeline, the central R&G production facility, and other Ametis biogas assets in service in the first half of 2023. We are in the process of selling these tax credits to a large corporate buyer. and expect to receive more than $50 million of cash proceeds upon closing of the IRA investment tax credit sale. In the embedded sustainable aviation fuel and renewable diesel business, we have nearly completed the two primary permits for the construction of the 90 million gallon SAF and RD plant at the Riverbank site. The conditional use permit and California Environmental Quality Act approval allowing the use of the 24-acre site for construction of a sustainable aviation fuel and renewable diesel plant was posted for public notice and is expected to be approved in the next month. The authority to construct air permit is expected to be approved by the end of September in order to allow project financing to close early next year. In the Ametis carbon capture and sequestration business, We designed CO2 carbon capture and sequestration systems for the Riverbank and Quays site and recently were awarded the first CO2 characterization well permit ever issued by the state of California. The CO2 characterization well is designed to provide soil data for the EPA Class 6 injection well planned for the Riverbank site. the well site compacted access road and high capacity well drilling pad have now been engineered, permitted, and constructed at a cost of about $500,000. Let's briefly review progress with external legislation, regulations, and incentives, including the Federal Inflation Reduction Act and the California LCFS. 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. On June 21st of this year, the IRS issued guidance for the process to transfer IRA tax credits. The IRA investment tax credit that the Ametis Biogas business generated during Q1 and Q2 of 2023 from placing six digesters, 40 miles of biogas pipeline, and the renewable natural gas production facility with utility interconnect in service in late January are expected to be sold to a single corporate buyer in the next month or so. We expect that more than $450 million of Inflation Reduction Act transferable tax credits will be generated by the Ametis Biogas business in the next four years. And substantial amounts are expected to be generated by the reuse of CO2 by the ethanol plant, construction and operation of the SAF plant, and underground sequestration of CO2. The sale of investment tax credits is expected to be booked as other income and could generate a substantial amount of adjusted EBITDA cash and after-tax earnings. During the second quarter, the California Resources Board held an LCFS scoping plan webinar where 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. CARB expects the increased mandates will raise the price of LCFS credits to more than $240 per credit in the next two years. Recent discussions have focused on a 48% reduction in greenhouse gas emissions by year 2030, up from 40%, which should have a positive impact on LCFS credit prices. LCFS credits generate revenues for our medicine, all of our U.S. businesses, and indirectly benefit our India business that produces feedstock for U.S. noble diesel and sustainable aviation fuel biorefineries. Now, Andy Foster, the president of Amedis Biogas and Amedis Advanced Fuel Businesses, will review some highlights.