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.

Thanks, Eric. Late last year, we closed our first USDA $25 million financing, and just last week, our second USDA $25 million financing, utilizing the Renewable Energy for America program. Allow me to quickly recap the Amedis Biogas RNG Q1 project milestones. We completed the installation of 40 miles of biogas pipeline. We completed commissioning of the biogas to RNG upgrading facility. We completed commissioning of the RNG interconnection unit with PG&E's pipeline. We now have seven fully operating digesters and will be constructing eight additional digesters this year. These 15 dairy digesters are expected to generate approximately 400,000 mm BTU per year of renewable natural gas. We recently received our default negative 150 carbon intensity pathway approval for four dairies to begin generating LCFS credits and expect two more approvals in the coming weeks. While we await the approvals of our provisional LCFS pathways for credit generation, we are storing our RNG underground and carrying it as inventory until we deliver it to customers. With the dairy RNG business now operating seven digesters and with eight more dairies fully funded and underway, the approval of LCFS pathways for each digester will significantly increase revenues for RNG that is already being produced. We are working diligently to obtain the provisional LCFS carbon intensity pathways as quickly as possible. which we expect to be in the negative 415 CI range, resulting in significantly more revenue than the negative 150 default pathway that we are currently using while the full pathway applications are in process. Operationally, we're focusing on executing the construction of additional dairy digesters to fill our 40-mile biogas pipeline, the centralized biogas to RNG production facility, and the PG&E interconnection unit, which are all currently operating. Let's briefly discuss progress at our Keys, California, ethanol production plant. During Q1 and a portion of Q2 this year, we completed an extended maintenance and upgrade cycle for our Keys ethanol plant, which helped us to avoid significant losses during the quarter due to extraordinarily high natural gas prices, but equally important, helps us avoid future plant shutdowns that would have been required to install key components of our energy efficiency upgrades. The result is an acceleration of our reduction of energy costs and driving lower carbon intensity of our biofuel through several plant efficiency and electrification projects. We also accelerated the installation of an entirely new Allen Bradley Decision Control System, or DCS, with artificial intelligence capabilities, along with several other important process upgrades. While a top priority for AMETIS 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 extremely negative conditions that developed late last year and continued into the second quarter of this year in California, natural gas markets would have been unsustainable and frankly irresponsible. Rather than just shutting down and furloughing our employees, we instead chose to use this time to conduct an extensive 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 will save us millions of dollars in project costs through avoided down days and lost production and save us time in completing the projects. Ultimately, this also puts us on a faster path to improving our operational expenses through increased energy efficiency. We restarted the Keys ethanol plant in late May and ramped up production during June and July. As a strong endorsement of our carbon reduction and energy efficiency projects, AMETIS has been awarded $16 million of energy efficiency and other grants by PG&E, the California Public Utilities Commission, and other entities to supplement our own funding to complete these projects. Our goal is to significantly reduce or even eliminate the use of petroleum-based natural gas at the Keys plant. When these projects are completed in 2024, we expect that natural gas usage at the Keys ethanol facility will be reduced by 80% or more. This transformation from traditional natural gas to renewable electricity will put AMETIS at the forefront of decarbonized manufacturing facilities in California and is expected to reduce the carbon intensity of the fuel ethanol produced at the Keys plant by double digits. The installation of a solar microgrid, mechanical vapor recompression, or MBR, operation of the all-electric Mitsubishi Zebrax dehydration unit, the replacement or upgrading of various heat exchangers and other process equipment, and the installation of a new AI-enabled DCS system will allow Amedis to achieve meaningful energy cost savings and increased revenue through lower carbon intensity fuel ethanol sales. In summary, despite facing some temporary and highly unusual external headwinds in the first and second quarters of this year in our ethanol business, operational performance and project milestones for the amethyst biogas and ethanol plant business continue to be on track with our five-year plan.

Eric? Thank you, Andy. Let's review our growing biodiesel, talopete stock refining, and glycerin refining businesses 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's equal to about 1.25 billion gallons per year. During the second quarter of 2023, the three government oil marketing companies issued tender offers to purchase biodiesel under a feedstock plus pricing formula that was used very successfully last fall to bring biodiesel plants into production. The tender offers were for delivery during the second quarter of 2023. AMETA selected specific delivery locations and amounts, then received supply contracts for about $34 million of biodiesel to be delivered during April, May, and June of this year. The cost plus pricing formula used by the oil marketing companies is expected to be the ongoing format for sales to the OMCs. We expect the formula to be a successful mechanism for the rapid growth of Our plant in India is uniquely situated to benefit from the successful feedstock plus pricing mechanism in India, since importing biodiesel or renewable diesel is not allowed under India law. And Amedis owns and operates the largest production capacity biodiesel plant in India. We're negotiating the sale of tallow feedstock that is refined by our tallow pretreatment unit in India for export to the U.S. for the production of renewable diesel and sustainable aviation fuel. Since our India subsidiary has no debt, and the 50 million gallon per year biodiesel plant, the 50 million gallon per year towel refinery facility, and the glycerin plant are fully constructed, we are well positioned for profitable operations as we scale operations to meet OMC requirements for biodiesel blending. Let's discuss our carbon zero sustainable aviation fuel and renewable diesel project in Riverbank, California. A year ago, Amidst the operational control of the 125-acre Riverbank site for construction of our sustainable aviation fuel and renewable diesel plant, as well as the Riverbank portion of our CO2 sequestration well project, we have signed and announced more than $3.8 billion of sales contracts with Delta Airlines, American Airlines, Japan Airlines, Qantas, and other airlines. We've now completed offtake contracts for about 45 million gallons per year of blended sustainable aviation fuel to be produced at the Riverbank plant. In addition, we signed a $3.2 billion renewable diesel sales agreement to deliver 45 million gallons per year under a 10-year sales contract with a major travel stop chain for its Northern California locations. Incentives included in the recently passed IRA legislation expand the market for sustainable evasion fuel by allowing a price to airlines that is about 10% higher than petroleum jet fuel and is partially or entirely offset by Corsia carbon credits generated by the airlines. During Q2 2023, we continued to make steady progress toward air permits and other building permits for the 90 million gallon per year Riverbank SAF RD plant. We look forward to completing engineering and permitting in order to begin construction of the Riverbank Renewable Jet Diesel Plant later this year or early next year. Let's review our subsidiary, Emetis Carbon Capture. Currently, Emetis captures the 150,000 metric tons per year of CO2 emissions from our ethanol plant near Modesto and reuses the CO2 for local customers. This reuse of CO2 generates 45Q transferable tax credits under the Inflation Reduction Act, In Phase 1 of the Amethyst Carbon Capture Project, we plan to inject up to 400,000 metric tons per year of CO2 emissions from our biogas, ethanol, and jet diesel plants into two sequestration wells which are planned to drill near our two biofuels plant sites in California. We expect to construct two CO2 injection wells that each have a minimum of 1 million metric tons per year of injection capacity. with additional CO2 supplied by other emission sources to sequester a planned total of 2 million metric tons per year of CO2. During 2022, AMETIS completed the purchase of 24 acres at the Riverbank site and built a heavy equipment access road and a well drilling pad for the soil characterization well to provide data for our EPA Class VI injection well permit. The initial phase of construction includes drilling two characterization wells to provide empirical data for the EPA Class 6 permits. We expect to receive our first well drilling permit for the characterization well last month, which we've just recently achieved. But this is key in that it's on track with our well development plan. The direct feature of the Inflation Reduction Act provides a federal tax credit of $85 per metric ton of CO2 as a cash refund to AMETIS each year for the first five years of production. The planned 2 million metric tons of CO2 per year from the AMETIS carbon capture project would generate an expected $170 million per year from the federal direct pay tax credit. as well as an estimated $400 million per year at a projected $200 per ton for sequestered CO2 under the low carbon fuel standard in California. We believe the fixed amount of $850 million provided by the direct pay funding over the first five years of the project could support the funding of an estimated $250 million capital cost for the two injection wells and related equipment. In summary, The India biodiesel business showed $5.1 million of adjusted EBITDA on sales of $33.5 million in the second quarter, while the Ametis ethanol business was in a maintenance and upgrade cycle during the quarter in response to the temporary exorbitant pricing of natural gas in California during the first quarter and early second quarter of this year. With this extraordinary natural gas price event behind us, We restarted the Keys plant and continue to expand a diversified portfolio of negative carbon intensity projects, dairy renewable natural gas, biodiesel in India, sustainable aviation and renewable diesel fuel, low carbon ethanol using zero carbon intensity electricity and renewable hydrogen, and CO2 sequestration. All these projects are synergistic. and create what we refer to as a circular bioeconomy within Amedis, in which we use byproducts and waste products from our facilities and local areas as feedstock to produce low and negative carbon intensity renewable fuels. Our company's values include a long-term commitment to building value for shareholders, the empowerment of and respect for our employees and business partners, and making significant and positive contributions to the communities we serve. Now let's take a few questions from our call participants. Kelly.

Thank you, Mr. McAfee. We will now be connecting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just a moment while we poll for questions. Your first question is coming from Manav Gupta with UBS. Please pose your question. Your line is live.

Eric, you have a closer visibility with CARB than probably anybody else. You know those people very well, and they listen to you. They take your inputs. Help us understand. I mean, we hear that CARB wants to fix this, that the price is too low right now for new development. What are the next milestones we should look for, Eric, as this process unfolds? And when can we expect some kind of firm commitment from their side, which helps the higher price of carbon to move higher and benefit emitters in multiple ways?

What do we have, Andy, over that?

Good question. I think we're sort of in the interim period where CARB is obviously re-scoping the LCFS program, a pretty significant undertaking that started last fall, and they're hoping to have wrapped up this fall. They certainly sent a lot of very positive indications about the direction they're going, but currently they're doing things like working on the Tier 1 calculator, which they've sent out to all the various stakeholders, to receive comment and feedback and any, you know, kind of insights from industry and other groups to help them as they start to finalize the rules that will be a part of this new LCFS. So I think in that period of time, Manav, it's natural that there's some level of of kind of wait and see. And we did see a nice little run-up in the LCFS price about a month ago. I think there's a record number of credits that are out there, which obviously that's not helping the price. So I think our view is that, take the long-term view of your investment or the marketplace and how we're building our business, probably seeing... improvement in the first quarter. Hopefully, you know, they'll send some more clear signals by the end of this year, but in the first quarter of next year when they begin the reauthorization and the implementation of the new LCFS, we know that they're going to increase the requirements of the program. We know that for a fact. They've stated it publicly. They've set up to 48 48 so so um you know unfortunately we're in that kind of middle zone right now where everybody's sort of waiting for this to happen a lot of projects are being built out as you know carb has a huge backlog of applications that are sitting with temporary or default pathways. So there's a lot of projects that want to come online, a lot of projects that are looking to actively participate in the program that are sort of in the queue right now waiting for CARB to get through those applications. We have six of them ourselves in there, and we're meeting with CARB and having good open dialogue with them about how we can help them as an industry, how we can help them improve that process, because I think once people start to see these projects really flowing through the pipeline, that's also going to have a very positive effect because the state of California needs to be mindful of their obligations in meeting their own goals. And the renewable natural gas business is really at the front of that line in terms of helping them advance the program and meeting their obligations under the LCFS. So long answer. I apologize for being windy, but I hope that gives you some insight.

Perfect. I'm going to keep it to the macro again. Looks like the EPA also came out and with their RVO is going to be very supportive of renewable natural gas. maybe not as supportive of renewable diesel, but definitely very supportive of renewable natural gas. And we have seen the price of D3 respond to that. So any thoughts on EPA being supportive of RNG? Maybe it was not as supportive earlier, and EV rinse was a little tricky area, but it looks like now they want to grow RNG, and they want you to use it in the transportation vehicles. That's right.

And I think they received a lot of input from industry, to be honest with you. Over the last few months, we work with the Renewable Gas, the RNG Coalition, and other groups, giving a lot of feedback. submitted a lot of information to the EPA and it appears that they were listening. So yes, we're happy with the developments there and hope that they continue to show strong support for renewable fuels in general because despite the lofty goals and aspirations for EVs, which, you know, we certainly support EVs, but there's an aggressive timeline that everybody's looking at, and the one sector that can deliver and has proven it can deliver is renewable fuels.

Thank you so much, guys, and congrats on all the positive developments that are happening at EMATUS.

Thanks, Manav. Appreciate you joining the call.

Your next question is coming from Derek Whitfield with Stifel. Please pose your question. Your line is live.

Thanks, and good morning, Eric and team. Hey, Derek. For my first question, I actually wanted to pick it up with where Manav left it there on macro, but really focus more on Riverbank. In light of the less favorable D4 RVO announcements, Could you update us on your latest thoughts on the macro environment for RD and SAF investments? And separately, could you comment on your degree of flexibility that you will have in your operation and supply agreements to produce and allocate production to SAF?

Absolutely. Let's take the second one first. We invested – it's about an extra $30 million investment to use the Halder Topso HydroFlex system. What Hydroflex allows is we can run the plant 100% renewable diesel, any percentage of SAF, all the way up to 100% sustainable aviation fuel. The yield is less on aviation fuel, but the economics would drive the decisions of what percentage of SAF and RD we produce. Currently, we've done our contracts with 50% RD and 50% SAF. So let's then talk about what would drive our decisions. The D4 RIN and the D5 RIN under the renewable volume obligation of 2023, 2024, and 2025 is being discouraged by the EPA. They have set targets that are below the known volume that are coming in the market. And frankly, the signal was don't produce as much biodiesel as you're producing now. and just kind of try to play the magic of go make SAF happen, but oh, by the way, don't produce as much renewable diesel as you're planning to either. So it's essentially a discouragement signal from the EPA for building renewable diesel plants, which is the kind of plant that makes an SAF molecule. So there's a contradiction between the White House's 3 billion gallon 2030 target for sustainable evasion fuel production and and an RVO that's below the current capacity to produce existing biodiesel and renewable diesel. Now, our response to that is that we believe people will be discouraged. Well, in any market in which your other producers are discouraged means that the amount of capacity they produce is less. But I tell you that people that are not discouraged are our customers in the SAF business. The airline industry consumes about 100 billion gallons per year worldwide of aviation fuel. There will be no battery or hydrogen or nuclear-powered airplanes anytime soon to displace this petroleum jet fuel. And the airline industry is fully committed, driven by penalties in Europe and incentives in the U.S., to a rapid displacement of as much of that 100 billion gallons as possible. So we end up with one of these classic situations which customers want the product, But government policy is lagging what industry needs, which is to have supportive policy. So we, as I said in our commentary, will be fully permitted and, frankly, going to the financing closure here very soon. And so we see it as many projects that are a year or two or three years behind us due to litigation or other problems very possibly may be further delayed or not to get built at all. providing even a bigger gap between the reality of the customer, the airline's willingness to pay for this sustainable aviation fuel solution to their decarburization goals, and the actual production. So what the EPA has set up is basically a miss on the 2030 3 billion gallon goal by telling us we don't need to build any renewable diesel or SAF production capacity. Whereas airlines who are our customers and frankly our partners are very encouraging and very supportive and trying every way possible to participate in our project. So we are very enthusiastically moving forward in partnership with our customers and frankly our technology providers. And one of the reasons we have a high level of comfort and confidence is we are a feedstock supplier to our own plant. many of the reasons why these projects will get delayed is a lack of feedstock supply chain confidence either price or just the physical uh you can have a great price but if you can't get the physical volumes then obviously the plant's not going to operate and our 50 million gallon tallow refinery already built and already debt free in india plus our distilled corn oil production in the in our plant in california and other access to other uh domestic tallow supply Puts us in a very unique position to be confident and move quickly. Well, at this point in time, I would suspect that many projects are being looked at again very closely. Feedstock has always been something to look at closely, but now with D4 and D5 and D6 RINs, it's largely a question mark what the price is going to be. I think it's going to provide less competition for the Ametis SAF plant. And that's good news for our customers. We have been asked to expand the capacity of our plant in phase two and phase three. And I can tell you right now, we could easily triple the amount of contracts we have with our existing customers and still not be anywhere close to what their goals are.

That's great. And I completely agree with you on the staff macro backdrop. With my follow-up, I know that you were expecting your first ITC to close in Q2, late Q2 or early Q3. Could you offer your latest thoughts on timing of when it will close and note if there are any meaningful remaining hurdles to clear?

Our current guidance is in the next month or so. I feel very comfortable that as of today that's conservative guidance and there's been a team working on this. of at least a half dozen law firms and accounting firms and a bunch of other people, consultants, et cetera, for many months. And we're reaching the end of that process. So we're looking forward to a $50 million plus closing. We believe it will certainly be one of the largest ever done in the United States, maybe the first large transaction in the United States. So dealing in that environment of uncertainty, has required the work of a lot of industry-leading tax lawyers and accountants. And so I think we've gotten that guidance in place. I would thank the IRS for their June 21st guidance, 264 pages, tremendous amount of work by the IRS. And it was very, very helpful in bringing this transaction to a near close where we're at today and hopefully closing here in the next month or so.

That's great. Thanks for your time. Thank you, Derek.

Your next question is coming from Jordan Levy with Truist. Please pose your question. Your line is live.

Hey, all, and I appreciate all the details. Maybe just on the tallow business in India, just curious if we could get a little more detail on how you expect that to progress. I think you discussed that you're in negotiations for some space in California ports and that sort of thing. So anything there on timing or realizing of revenues out of that?

We are very well positioned for production in India. That's not really been our constraint. The constraint has been tankage at the ports. Tallow requires a heated tank. and then the uh the actual carbon intensity pathway in california is a about a six month process to get the the tallow in the plant to do the the 90 days of testing and all the other things required for that process so uh we are steadily moving forward and i feel very uh solid about the ability to get the tankage in place we're actually in contract uh process there And then in terms of customers, we have pretty much every renewable diesel producer in California or our neighboring state, Nevada, who are excellent candidates for this. And so we've had... We have one particular refinery that was looking to take all of our capacity. So we do not have a projected shipment date yet, but we hope to have that in place by the end of this quarter and be looking at revenues in the fourth quarter. Shipments, of course, from India take a little time, and then you've got to post it through the storage tank into our customer before it's really revenue. But we are targeting to have fourth quarter revenue, and we'll see whether that flow starts. We, of course, if we sell to one customer with pretty much all of our capacity, would be looking to scale this up rather quickly. And so really the scale-up speed is what we're focusing on. And I think once we get the tankage in place, we'll be in a much better position to start the shipments.

Thanks for that. Maybe shifting over to the R&G side, I'm just curious now that you have seven digesters online, you've built a lot of scale on that business. How has the reception, I guess, been from the dairy owners in that area, either the ones that are already part of the business or that you're looking to add on to the business? And what's your confidence level on, I think, the 65 dairy target in the five-year plan?

Andy spent a lot of time with Darius, so Andy, why don't you give us an update on that?

Derek, I think over the last three years, we've seen a real kind of evolution in this process where when we first started, you know, frankly, I first started talking to Darius back in the summer of 2018, and it was sort of like, what are you talking about? To now going in and them asking us questions about the LCFS price, and they've become a lot more sophisticated. So I would say that I think most of the dairies that we are targeting, all of the dairies that we are targeting, certainly know that this is something they need to move forward with. I think the biggest obstacle for everybody in this business right now is just the fact that the dairy business as a whole is not doing well. Margins and, you know, the price of milk is low. And, you know, so... Our approach has always been to look at well-capitalized dairies, dairies that can sustain these peaks and valleys. It's not altogether too different from the ethanol business, honestly, when you have these peaks and valleys from a margin perspective. So I think, you know, the folks that we're dealing with are, you know, nobody's happy right now because it has nothing to do with RNG. It has everything to do with the fact that their milk price is not very great. I've heard some encouraging signs about where that's going. So I bring that into the equation because while RNG is a central business point for us and we come into work every single day beating on RNG and thinking about RNG from a dairy – producer perspective, it's the last thing they're thinking about. And so our challenge there is just trying to keep people focused and, hey, we're moving forward. You know, we're paying for all these projects at their facilities and trying to just keep people energized to realize that this will be another stream of revenue for them. And the faster we get these projects built, the more it will help their bottom line from a revenue perspective and hopefully improving their margins a little bit. So there's great education about what's going on and the requirements of the program and their requirements as producers. I think a lot of these, most of the dairymen have really educated themselves, and so we're dealing with a shorter sales cycle from the perspective of, you know, we walk in the door, they're informed, and they're excited. I think the fact that we have the 40-mile biogas pipeline is a, you know, it was a significant capital investment for us that has paid off time and time again. When we go in and we talk about it, It's something that's real in the ground. They can see it. They saw it being built. They know that there will be a home for this gas. So it makes it very real. And the fact that it's connected to the ethanol plant, which they have seen operating for the last 12 years, it kind of completes a nice circle. So I would say no lack of enthusiasm for RNG projects. It's just overall the environment in the dairy world right now is not super happy just because of the price of milk.

That's really helpful perspective. Appreciate it.

Your next question is coming from Matthew Blair with Tudor Pickering Holt. Please pose your question. Your line is live.

Hey, good morning. Thanks for taking my questions here. First one is on the India biodiesel segment. Looks like EBITDA profitability per ton was around 200, which is about half of what it was in the back half of last year. Could you talk about what drove that number lower and is that a good number going forward or what are your expectations for future profitability?

The margins in the second quarter reflected higher feedstock prices. We had sort of a global increase. If you track soy prices, for example, for renewable diesel, you would have seen that. We think the margins are sustainable where they are today, but we have some opportunity to expand margins using a proprietary technology we developed over time. last half decade and more in India, which allows us to use lower cost feedstocks and generate the same high quality biodiesel we currently produce. And we generate about a 10% additional margin when we use that lower cost feedstock and about the same yields actually So we are going to increasingly have up to a third of our revenues be from this lower cost stock using our proprietary technology. We've expanded the capital investment in that activity over the last roughly four months and have quadrupled that capacity. And so we expect that to have an impact increasingly in third quarter and then as we go into the fourth quarter and into next year, I do expect up to a third of our revenues to have that lower cost structure.

Sounds good. And then on the California ethanol segment, could you help us understand what drove the $4 million EBITDA loss in Q2? Was that due to like restart costs or maybe you had to work through higher cost inventory? And as you look into Q3, Do you think the EBIT will be positive for this quarter?

On Q2, it was restart. We only really operated for one-third of the quarter. And the combination of yields and just some one-time charges around contracts we had with customers, et cetera, really led to the EBITDA effect. It was not a large out from any single thing, but you just add up some smaller things related to the start. And so we see these as one-time startup-related costs. In terms of Q3, margins going into Q3 were much better. We're still looking to get our production to be at full maximum and take full advantage of the current margin environment. We're about one month into Q3, and we'll see how corn does, but corn has shown a low price trend, let's say, and unless there's some strange weather effect, that appears to be the market condition we're in. Really good questions around ethanol. I personally am looking for E15 to increasingly be part of the discussion we have over the next year or two. E15 is taking our national consumption of ethanol from a 10% blend, which is roughly 14 billion gallons, to over 20 billion gallons. Well, the entire production capacity in the entire United States is only 17 billion gallons, of which we export a little less than 2 billion gallons. So E15, a 15% blend of ethanol accepted in 49 states, by the way, is not currently allowed in California. California has a 90% petroleum gasoline mandate. And so we are working closely with our friends at CARB to complete a multi-year process to get 15% blend approved in California. We're the only state that can set our own blending rules, by the way. And that would, in California alone, be over 700 million gallons a year of new ethanol demand in a state that already consumes over 1.2 billion gallons. So we're looking at some external realities of E15 being a driver. Last little point I would make is that we sell our ethanol for roughly $2.50 or $2.60 a gallon, but then we turn around and across the street, we pay $4.50 to buy it back. It's a 10% blend, but we're paying $2 a gallon more for it. And so there are significant margin opportunities in the ethanol business simply by solving the supply-demand curve, and that's what E15 is doing gradually over the next year or two.

Sounds good. Thanks for your comments.

Sure. Thank you, Matthew.

Your next question is coming from Amit Dayal with HG Wainwright. Please pose your question. Your line is live.

Thank you. Hi, guys. So with respect to the keys planned, then, Eric, I mean, are we running at full capacity for the third quarter now?

We're going to be by the end of the quarter for sure, really August and September. July was another ramp up. As I mentioned, June and July were ramp up months. So August and September we expect to be in full capacity.

Understood. Okay, thank you for that. And then the eight digesters, you know, targeted for this year, will they be completed and brought online this year or will that spill into 2024?

We have, what, half of those under construction?

Yeah, there's probably five of those, four or five of those that are currently under construction. We may have one or two of those completed by the end of the year, but I'd say kind of a safe timeline for you to think about is by the end of Q1 of next year, we'll have all of those completed and online. Thank you. But again, they're sort of sequential, and we should have a few of those will be online this year. It gets weird with what kind of winner are we going to have, and if we have a winner like we did last year, it might slow some things down. But by and large, we're pretty far along on a few of those, so we'll definitely have two to three more that should be completed by the end of this year.

And the five that are operating days, are they running as expected other, you know, running at full capacity, et cetera. Okay.

Yes, we've actually been very happy with our operational uptime and performance. It's exceeded our expectations, honestly. And production is, you know, because these are ambient temperature digesters, production is really dependent on the weather. The weather in California this summer has been slightly cooler than normal, so that has a little bit of an impact. But as far as The nuts and bolts of how these things are running, we've been very, very happy with the performance of the equipment and the pipeline and the RNG upgrading facility and everything that's associated with this project. We've been very happy with the operational uptime and efficiency.

Thank you.

Kelly, I think we lost them. There you are.

Hello?

Yeah, we can hear you now. Try it again.

Yeah, so I was just trying to go back to the tallow feedstock from India. The permitting and the qualification, et cetera, that is required, is this a one-time thing, or will it be required for each shipment that takes place?

Good question. It's actually a one time thing. It's the carbon intensity of the fuel produced when tallow is used from a new region in this case from India. So there's some default pathways, but then you can get a much better score. If you actually show, for example, we run a 100% biomass energy in our plant in India. the underlying default has coal as the electricity source. And so we get a lower carbon intensity score than the default. So it's sort of like our biogas business. We're running along with a negative 150 default pathway. We want to move to a negative 415 provisional pathway, which is a word that means our project's pathway. India has the same kind of quicker because it's a Tier 1 pathway. It's not a Tier 2, which Tier 2 is more project-specific. Tier 1 is more of a standardized process. But it still takes you six months to get done. I understand.

This last one, again, on the India side. For modeling purposes, should we assume similar levels of production and shipment in India that we saw in Q2? For Q3?

Yes, for Q3.

I would take it down a little bit. We're doing multiple procurement cycles. They've been expanding the number of locations we're shipping to. And so it's not the entire quarter we've contracted at this point in time. But we're two-thirds of the way there. And over the course of August and September, we'll be looking for additional orders. So we'll probably be press releasing sometime in the next month as we get the full order for the quarter done. But what they did was they moved quickly, which is what we wanted, so we could continue production and keep on going in July and August. That meant that they haven't quite gotten all their tenders done for the September timeframe. So we'll probably put out press release once we have good visibility on the quarter.

Okay.

Thank you, guys. That's all I have. Appreciate it. Thank you.

Your next question is coming from Ryan Todd with Piper Sandler. Please pose your question. Your line is live.

Good, thanks. Maybe just one for me. Congratulations on the continued progress on digesters in the R&D side of the business. You're still building gas and storage at this point. Can you maybe walk through your latest thoughts on potential timing of gas monetization? What do you need to see to start monetizing gas and maybe timing or progress on LCFS pathway approval?

Sure. We have our default pathway approved for four of our digesters. We have two more we expect to get here in the next few weeks. So we'll have six of our digesters that can generate revenue at the negative 150 timeframe. There's a requirement that we have to ship not in the quarter it's produced, not in the next quarter, but in the quarter after that. We have to actually ship the product in order to get LCFS credits. We can't just let it sit in the ground for 18 months, which very possibly might be exactly what we want to do in order to maximize our LCFS revenue. So we will be showing some revenues as we meet these minimum thresholds. But we are working diligently with the CARB team to get our provisional pathway, negative 415 is what we estimate to be, completed. And then we'll be able to ship everything that's in the ground in that quarter and the quarter afterwards. So we are definitely meeting the minimum requirements. And in Q3, we'll be showing revenue as a result of that in Q4 as we have to do a look back to the earlier quarters. But I can tell you our business model would be just leave it in the ground until it's negative 415, and we're working diligently to get that approval in place as quickly as possible.

Great. Thanks, Eric. Sure. Thank you.

Your next question is coming from Dave Storms with Stonegate Capital. Please pose your question. Your line is live.

Good afternoon. Just two quick ones for me on the dairy digester side. With the additional $75 million in funding expected to close this year, can we just do simple math and say that translates to about 21 new digesters being funded?

That's approximately correct. The size of the dairies will have an impact on that, so it's a range. It would be somewhere in the 18, which would be six per funding, to 22. So, you know, I would probably plug in 20 and then true it up as you see press releases come out, because we'll announce how many dairies are in each project.

Perfect. And just following on to that, is there a critical mass of dairy digesters that you'll hit where you'll have to extend that pipeline?

We're essentially extending the pipeline for every dairy. Think about it as having a main trunk line in place, and if the dairy is a half mile away, we'll run a pipeline out to them. The good news is it's very quick and relevant, so it's not a material part of the budget.

Well, I mean, the only thing I would add is that when you – so Eric is right on track in terms of what we would call sort of the legs to the dairies. But with as many dairies as we're building out, it ends up turning out to be about another 20 miles worth of pipeline.

Yeah, a lot.

Not all at one time, so it's not, you know, you can expect – You're not going to see a big chunk of money all at one time, but as we build out these dairies, when you look back and everything's completed, it's going to be not 40 miles of pipeline, but closer to 60.

Understood. That's very helpful. Thank you.

Thank you, Dave. Thanks.

There are no additional questions in queue at this time. I would now like to turn the floor back over to management for their closing remarks.

Thank you, Kelly. And thank you to Amedis shareholders, analysts, and others for joining us today. Please review the Amedis company presentation that is posted on the homepage of the Amedis website. We look forward to talking with you about participating in the growth opportunities at Amedis. Todd?

Thank you for attending today's Amedis earnings conference call. Please visit the investor section of the Amedis website where we'll post a written version and an audio version of this Amedis earnings review and business update. Kelly?

This does conclude today's conference call. You may disconnect your lines at this time. Thank you for your participation.