Aemetis, Inc

Welcome to the AMETIS Second Quarter 2025 Earnings Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. Joining us today on today's call is Eric McAfee, the Chairman and CEO of AMETIS. Andy Foster, the President of Amedis Advanced Fuels, and Todd Waltz, the Chief Financial Officer of Amedis. It is now my pleasure to introduce your host, Mr. Todd Waltz, the Executive Vice President and Chief Financial Officer of Amedis, Inc. Mr. Waltz, you may begin.

Thank you, Matthew, and welcome, everyone. Before we begin, I'd like to remind everyone that during this call, we'll be making forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995. These statements are based on the current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include but are not limited to those factors discussed in our earnings release issue today and in our most recent Form 10-K and Form 10-Q filings with the Security Exchange Commission under the caption Risk Factors, and management discussion and analysis of financial condition and results of operations, as well as in our other filings with the SEC. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments, or otherwise, except as required by law. Please refer to our earnings release and our SEC filing for a more detailed discussion of these risks and uncertainties. Full financial details can be found in our second quarter 2025 earnings release and form 10Q available on the AMETIS website and EDGAR. I'll briefly highlight the key items. Revenues were $52.2 million, up by $9.3 million from the first quarter revenue, primarily due to the fulfillment of biodiesel orders with oil marketing companies in India. California ethanol, saw a slightly lower production rate of 13.8 million gallons to maximize margins during the quarter. California Dairy Renewable Natural Gas recognized $3.1 million of revenue from 11 operating digesters during Q2, using the CARB-approved LCFS pathway for seven of the digesters. As we'll discuss later, Section 45C Tax credit revenue from the production of dairy renewable natural gas were not included in the second quarter since we recognize revenue when credits are sold. Operating loss improved by $4.9 million from the first quarter of 2025, reflecting reduced SG&A in the second quarter of 2025. Interest expense, excluding the Series A preferred unit accretion, rose to $12.3 million in line with our capital structure and investment phase. We reported a net loss of $23.4 million, roughly flat versus Q2 last year after adjusting for the non-recurring charge during the prior quarter of the last year. Cash at year end was $1.6 million, following $3.6 million of investment in carbon intensity reduction and dairy renewable natural gas production expansion. As Eric will describe shortly, we expect multiple revenue streams from India, LCFS credits, and federal tax incentives to ramp up as the year progresses, positioning us for a stronger second half of 2025. Further, we remain focused on improving our capital structure With cash flow expected to increase in the second half of this year, we anticipate further progress on debt reduction and are actively pursuing low-cost financing and refinancing alternatives. Now, Eric McPhee, our chairman and CEO, will review our businesses. Thanks, Todd.

I'll start with a business segment update, followed by updates on future projects and supportive regulations. In our dairy R&G business, we are steadily scaling up gas production. with a new multi-dairy digester coming online this month that is expected to increase RNG production by 30%. As planned, we expect to reach 550,000 MMBTUs of renewable natural gas production capacity this year and grow to a 1 million MMBTU annual run rate by the end of 2026. We're now operating or building digesters at 18 dairies. funded by equity and $50 million of USDA-guaranteed financing with 20-year repayment terms and attractive interest rates. Seven of our dairy pathways were approved by CARB during the second quarter at a blended negative 384 carbon intensity score, unlocking about 120% more LCFS credit revenue for those dairies starting this quarter compared to digesters with a negative 150 default pathway score. Four more pathways are currently under review with CARB and are expected to be approved under the faster Tier 1 pathway process that was adopted by CARB last month. Additionally, these dairy RNG facilities qualify for federal Section 48 investment tax credits. To date, we have sold $83 million in investment tax credits related to our RNG facilities and received approximately $70 million in cash. We monetize the production of dairy RNG in multiple ways. Until this year, we have generated revenues primarily through the sale of the gas molecule, the sale of California low-carbon fuel standard credits, and the sale of federal D3 renewable identification numbers. Since January 1, 2025, we've been generating transferable Section 45Z production tax credits, which we are working to sell and generate additional income this quarter. In July 1, or I should say on July 1, 2025, the California Air Resources Board amendments to the LCFS program that will apply for the next 20 years became effective, resulting in an increase in LCFS credit prices from about $42 to about $60 in the past month or so. The current cap on the price of LCFS credits is $268 for the year 2025. The LCFS program is expected to incur deficits this year that would reduce the inventory of available LCFS credits and be expected to continue to increase credit prices. Collectively, molecule revenues, LCFS credit sales, D3 RIN sales, and the sale of 45Z production tax credits are expected to generate strong positive cash flow from operations this year and expanding operating cash flow in 2026 as new production comes online. At our ethanol plant, our key vendors are fabricating equipment for the $30 million mechanical vapor recompression system. The MVR project is expected to reduce natural gas use by 80% and add an estimated $32 million in annual cash flow starting in 2026. We have been awarded $20 million in grants and tax credits to help fund the MDR system. Ethanol pricing has improved since earlier this year, and the recent EPA approval of summer E15 blending and lower corn prices have improved margins. We decreased production during the spring in order to optimize margins, but recently increased ethanol production to support market demand and participate in the higher margin environment. California legislation to approve E15 year-round passed the Assembly with a unanimous vote and now is advancing through the State Senate for approval that is expected later this year. In India, we resumed biodiesel deliveries to government oil marketing companies in April following a six-month pause in OMC purchasing, shipping $11.9 million of biodiesel and coproducts in the second quarter. We are targeting an IPO of our India subsidiary in early 2026 and recently appointed a new chief financial officer at our India subsidiary to lead the process. We are also actively seeking to expand into ethanol production in India, which is strongly supported by government policies and pricing. Let's look at our future projects. For our sustainable aviation fuel and renewable diesel project, we have received the authority to construct air permits and conditional use permit for our 90 million gallon per year SAF renewable diesel facility at the Riverbank site in California. When operated solely for sustainable aviation fuel, capacity will be approximately 78 million gallons per year. We are in active discussions on financing structures and are awaiting further clarity on the 45Z production tax credit and biofuel mandates to support project financing. For our carbon capture project at the Riverbank site, We have completed initial site work and conductor installation for our geologic characterization well. The data we obtain from the next phase of drilling will support our class six CO2 sequestration permit application with the EPA. Once permitted, the site is expected to sequester up to 1.4 million tons of CO2 annually. Let's review some regulatory events that support a strong growth outlook for AMETIS and the biofuels and biogas industries. Amidist is positioned to benefit from a range of federal and state policies that directly enhance the value of its low carbon biofuel and biogas operations. The California low carbon fuel standard. Amendments adopted by CARB to establish a 20 year framework for reducing transportation fuel emissions became effective on July 1. In response, LCFS credit prices rose by nearly 50% and are expected to continue to increase as credit supply tightens and credit demand increases. We expect further strengthening during the second half of 2025 and for the foreseeable future. The Federal Renewable Fuel Standard. The sale of renewable natural gas qualifies for D3 RINs, currently adding $19 per MMBTU in value at today's prices. Section 45Z production tax credits. Effective January 1, 2025, the new federal Section 45Z transferable tax credits support low-emission ethanol and RNG production. AMETIS is currently applying Treasury guidance to calculate and market these credits for both our Keys plant ethanol production and our RNG sales, with additional clarification expected later this year. In addition to any further clarification in 2025, the Section 45Z credits will increase in 2026 under the recent One Big Beautiful Bill, which removes indirect land use from the ethanol plant calculation and requires dairy-specific CI scores for renewable natural gas. We estimate this will double the 45Z credits in 2026 for each business, even with no further changes to the current Treasury guidance. Section 48, investment tax credits. AMETIS received $19 million in cash proceeds in Q1 2025 from the sale of solar and biogas-related investment tax credits. We expect additional sales of both investment and production tax credits in Q3 2025 and in Q1 2026 for the balance of 2025 production tax credits, plus additional sales of both PTCs and ITCs later in 2026. E15 ethanol blend expansion. The US EPA has approved temporary summer use of 15% ethanol in 49 states, and new legislation is advancing to allow year-round use, including in California. E15 approval in all 50 states would expand the potential US ethanol market by more than 5 billion gallons per year from the current 14 billion gallons per year, while lowering fuel prices for consumers. In California, E15 should decrease fuel prices at the pump by $2.7 billion per year, according to a recent UC Berkeley study, while increasing the ethanol market by an estimated 600 million gallons per year. In California, Governor Newsom has directed CARB to expedite the process for allowing the sale of E15 gasoline in-state and, as previously mentioned, the state house unanimously approved legislation that would allow for E15. California is currently the only U.S. state that does not allow the sale of gasoline with higher than a 10% ethanol blend. These aligned policy developments in the U.S. are expected to significantly strengthen a medicine's revenue, cash flow, and project economics across its RNG, ethanol, carbon capture, and SAF-RD businesses. Our India business is expected to grow with support from the India government for the benefits of biodiesel, ethanol, and other biofuels to farmers, consumers, and the environment. With aligned regulatory support and milestone execution underway, Amedis is positioned for growth and improved cash flow through year end and throughout 2026. Now let's take some questions from our call participants.