Aemetis, Inc. (AMTX) Earnings Call Transcript & Summary

I want to introduce our next speaker, who is a veteran of the ABLC stage, a keynoter in the past, but making his DigestConnect debut, Eric McAfee, all the way from Cupertino, California. Thanks for joining us.

Thank you, Jim. I appreciate it. And it looks like we have quite a global audience here today. I'm going to spend about 15 minutes, and then we'll have some question and answers afterwards. Aemetis is a NASDAQ-listed public company. We went on to NASDAQ in 2014, and we'll go quickly through the slides here, but we've provided kind of a dense slide deck for you. So if you have any curiosity about some details, you can come back and take a look at any of these slides. At a glance, we're effectively 2 operating plants, one in California, that's the largest biofuel plant in California. It's a 65-million-gallon-per-year, $150-million-revenues, plant that we've operated in California since 2011. We have some upgrades we're going to talk about today, to increase cash flow. We have an India biodiesel plant, which we built from the ground up in India, starting in 2007. And we have successfully gotten that to positive EBITDA at about $6 million last year and had some growth there. We're not going to talk about that much today, but feel free to follow-up with me if you have some curiosity about that. What we're also going to talk about today is our Advanced Fuels Expansion Projects. We have approximately $70 million plus Dairy Renewable Natural Gas System, just completed the first phase, about a week or 2 ago. And we're now into our second phase. We also have a Waste Wood Renewable Fuels Plant, which is in the advanced project development phase and looking for a lot of progress next year. We would expect construction to start next year. And then last is just for public investors, we have a balance sheet where we've taken a bridge loan from about a $3 billion financing partner we've had for 12 years. And we've been repaying that with low interest rate, EB-5 debt. As you can see from the right, we have approximately $40 million of 1% interest rate financing, just got approved for another -- a little less than 200 investors, about $172 million at less than a 1% interest rate that will be used to repay our bridge financing. Next slide, a quick slide for the people that are just curious about why our stock has increased 500%, 600%. COVID-19 had an impact on certain ethanol producers, and certainly, we responded very, very quickly within a few days. And we're able to upgrade our 65-million-gallon-per-year plant in California to make sanitizer alcohol, but we also have a 50 million-gallon-per-year plant in India. 10% of the product -- distilled biodiesel plant is refined glycerin. And we built an entire separate production facility about the size of a biodiesel plant to make pharmaceutical-grade glycerin. And we did that a number of years ago. But sanitizer alcohol and refined glycerin are the 2 effective components of hand sanitizer. And so we ended up being the largest hand-sanitizer alcohol producer in the Western United States within a very short period of time after the FDA allowed that to occur in March. Next slide is, we have, again, following up the COVID-19 thing, sort of an interesting position, in that, we're sort of a what I call a castle with a 2,000 mile moat around it. We're the only sanitizer alcohol supplier of any size in the entire western United States. You have to go about 2,000 miles East of here to get to the next large-scale sanitizer producer. And so we went and we lease purchased 15 bulk trailers, so we wouldn't be able -- we wouldn't have to transport our sanitizer alcohol in fuel-alcohol trailers, which have, of course gasoline in them and benzene and everything else. And that enables us to be a high-volume supplier throughout the western United States. And we have a built-in cost advantage because it takes 2,000 miles come out and compete with us. So our overall strategy is eventually to be the alcohol supplier to Purell and Germ-X and all the brands you could think of when they are trying to supply the western markets. There's just a fundamental, probably dollar per gallon, cost advantage to buying from us. So our bulk business as well as we're launching on Amazon, big box retailers, et cetera, with our own branded product. We're just intending to basically be the alcohol inside of sanitizers for the 100 million or however many people there are in the Western United States. And then revenues last quarter is sort of a update for you to just kind of get a grounding of where we're at. Net income was $2.2 million for the quarter. Adjusted earnings before interest, et cetera, was about $11 million for the second quarter. And we're in a volatile market with sanitizer alcohol, but by the second quarter of next year, we expect to be a medical-grade USP producer that will kind of smooth out the earnings and cash flow a bit. This is a general slide for everybody. The concept here is, what are we supposed to be doing as an industry. And both federal and California low carbon renewable fuel standards are basically trying to displace petroleum high carbon fuels with low carbon fuels. And what we put here was, on the left-hand side is basically less value being contributed. And then to the right-hand side, the far right is the highest value you can obtain. For those who are in the industry and thinking about building projects and how to do it, this is a bit of a stair-step process. And if you look at the far right, I want to point out that, the federal D3 RIN, which is at the top right of your screen there next to Higher Price Lower Carbon. That D3 RIN is the only renewable identification number in the federal law that actually has a congressional calculation around it, All the other RINs float with the market on supply demand. This one technically is what has to be paid by refiners if they don't acquire enough D3 RINs. So the stability of the D3 RIN price, currently roughly over $1.58 per RIN is a big driver for looking at what would produce a D3 cellulosic RIN. And it happens to be that dairy biogas, which are cows eating plants and then we make biofuels out of it, as well as waste wood, which are plants directly being converted to biofuels. Both create D3 RINs. And so as a project developer, we are currently the largest D6 RIN plant in California. We have an appetite to say, okay, well, how do I migrate from D6 RINs to D3 RINs? That's your federal strategy? And then how do you maximize your reduction of carbon intensity because we could match D6 RINs -- D3 RINs with carbon-negative product, you're actually maximizing economics. To our knowledge, dairy biogas is actually the lowest carbon fuel in the world. It's a negative 350. When you turn it into negative carbon electricity because of some efficiency mechanisms and calculations, you can actually end up with a negative 600 carbon intensity. Each point is worth about $0.016. So there's a lot of economics to be studied off of this slide, and it's always important for people to look at where their particular technology is falling on the slide and how the economics of federal as well as you can optimize, you're going to be going into a low-carbon fuel standard environment of California being the largest. And so it's an important slide to consider as you're talking about things. Most of our management team has been with us since 2006, when I founded the company. And most of our Board of Directors actually -- John Block has been with us, I think, since 2007. But we have 2 individuals, former Corporate Secretary of Chevron. She is there for 38 years, but 20 years, Lydia Beebe was actually the Corporate Secretary, reporting to CEO. Jack (sic) [John] Block was Secretary of Agriculture under Reagan -- Ronald Reagan. And then Naomi is a newer add to the company, but her background is at Chevron with a global project planning and strategy role, and now is Head of Stanford's Natural Gas Initiative. So I've put up this slide pretty much every time I do a presentation because my opinion is, it's all about building teams. And in the case of the biofuels industry, it's teams that can sustain for decades. It's unfortunately, is an industry that faces external volatility that's oftentimes quite frustrating. And so the ability to build a team and then set out a strategy and implement it over a 15-year span is what enables real progress to be achieved on both technology as well as project development. This slide we won't go through with a lot of detail, but it lays out plant upgrades we're doing to a traditional corn ethanol plant to generate significantly in excess of $15 million per year of additional EBITDA. And on the left, we've got a $8 million grant for a Solar Array with Battery Storage. We're in the design and construction process for that. We have an artificial intelligence plant management system, is being installed at the same time with the solar array. And then we got a $6 million grant for a Mechanical Vapor Recompression unit. Total project cost there is probably roughly $20 million, but we've got a $6 million grant for that because the State of California is very interesting in us moving off of petroleum natural gas and towards using electricity. Certainly, electricity created by solar, that allows our carbon intensity to be decreased. And the other upgrade we're doing, I mentioned already, is US Pharmacopeia alcohol, which is at the top line there, we'll exit with a little bit more capacity, about 70 million gallons a year of US Pharmacopeia medical-grade sanitizer alcohol in Q2 of 2021. On the right-hand side are miscellaneous things we're doing that -- each one of them kind of chip away, every $7 million makes a little bit of difference. So we completed the construction -- I'm sorry, lowering our carbon intensity score. We completed construction of our CO2 reuse plant. It's in full operation. The Mitsubishi membrane dehydration system is installed. We're doing the final installation and commissioning now, and then reconfiguring heat exchangers as a upgrade to efficiency heat exchangers. So each of these upgrades add a little bit of cash flow, $3 million to $7 million or $10 million a year, and you add it all up and ends up being something meaningful. This slide is one that is unusual in that our ethanol plant happens to be in the largest dairy shed in the entire United States. We have over 1 million dairy cows in Central Valley of California. We supply up to 100 dairies, about 120,000 cows, with distillers grain, which is animal feed. And so we went out and we signed up 17 dairies. We arranged up to $70 million plus of capital. And we just completed the first phase. We put out a press release a week or 2 ago about this, in which we have 2 dairies with dairy digesters, on-site hydrogen sulfide cleanup, pressurized pipeline for 4 miles interconnected to our plant and actually feeding the natural gas into the production of ethanol using what we project to be negative 350 carbon intensity dairy natural gas. Lots of economics that are very positive here, but we're having a very big impact on the environment. 25% of the methane emissions in California come from dairy farms. So this is -- lots of details here, feel free to get a hold if you want to talk about it. In terms of projects that are also creating D3 RINs and have carbon-negative fuels, we have a Waste Wood Biofuels Plant that's in advanced development stage. And first step is gasification, but we're using a contracted feedstock where we have a 20-year fixed-price contract. And that is the 1.5 million acres of orchard wood in the Central Valley. Every 20 years, almonds die. 99% of the almonds in the United States grow within probably 100 or 150 miles of our plant in the Central Valley, California. And so that waste wood is about 3 billion pounds a year of waste material that's currently largely burned in the field. So we're converting that into valuable carbon negative. We project a negative 40 CI score on this project. And it's a gasification step, and then a fermentation step with LanzaTech, which has a fully operating facility in China that's been operating for more than 2 years. And InEnTec started up a facility just recently, a commercial scale facility with waste management. So we believe these are 2 proven technologies that we're putting together, along with our gas cleanup and other technologies to produce carbon-negative renewable biofuels. The economics of these kinds of waste wood biofuels is basically transforming feedstock from being 70% of feedstock costs to less than 3%. Effectively, we're just paying for trucking. And transformation cost isn't dramatically different. G&A is not much different. So EBITDA is dramatically different. EBITDA of -- in the 3% to 10% range, going to EBITDAs in the 60% to 70% range as we change the feedstock. And I'd like to say that all biofuels projects are basically determining what feedstock you have. That, to a large extent, determines what your process needs to be and direct even what product you need to make. I put this slide in here because everybody at the end of the day has to raise money. Otherwise, this is all just a discussion, it's really not any activity. And so our Waste Wood Ethanol Plant, by itself, is roughly an $80 million revenue company, a little bit over $50 million a year of adjusted EBITDA. This is a size in which we would basically have an opportunity to build approximately 16x this capacity in order to take care of all the waste feedstock from orchards in Central Valley. That would be at 4 locations. Each location would be roughly 3 phases of this thing, and a fourth location would be also expected. So we have some growth opportunities all within 100 miles of we're sitting already. Just by, frankly, converting biomass to electricity plants are no longer operational. And last slide is a very nice picture of a road. So we look forward to your questions. And of course, you're going to get a copy of the slide deck. So you can contact me directly if you have any questions about any of the details I skipped over. Jim?

Well, Eric, a very fast tour. We're going to start since you were so economical with your presentation, which I really always appreciate here. We are a digest, of course, gravity is wit. But we're going to have some questions coming your way first, and we're going to get back to a lot of the questions that came in on HDL with -- for Perry Toms. So first of all, we had a -- just to bring the 2 presentations a little bit together, there was some discussion in Perry's presentation about the value and the usages for digestate that left over from anaerobic digestion. What opportunities do you see there? And is it worth shifting long-range to try to capture higher values than the current disposal methods?

It depends on whether the feedstock is carbon-negative or not. One of the challenges we have with forest waste in California, in addition to the 160 million dead trees, is that there's really not a carbon-negative model at the California Resources Board that provides the economics to justify doing anything with forest wood. So when you look across North America and you look at forest wood, it's still considered to be a positive carbon feedstock, whereas orchard wood starts as a negative 100 carbon intensity. And then the conversion process requires a little bit of energy. So it ends up in a negative 40. And this carbon intensity question actually drives whether the digestate is worth anything. If the digestate has a lot of moisture, it's going to cost a lot of money to dehydrate it, and you're largely moving water. So you have to dehydrate first and then move it. But there could be a scenario in which you could find a carbon-negative feedstock, one that was otherwise emitting methane when it ferments or was being burned in creating CO2 and air pollution, and find a way to dehydrate it and then move that carbon-negative feedstock usually via rail in large capacity. And I couldn't see a scenario in which that would actually work.

Eric, we've had a question that came in about -- it was actually from a shareholder point of view, how the company differentiates itself from other competitors, such as Pacific Ethanol now moving into the sanitizer market. And one of the things that occurred to me in your presentation, and I just wanted to get your reaction to how shareholders think about this, is how much of a circular ecosystem Aemetis has built up over the years. And the examples would be in your presentation, how moving into the glycerol market in your India operation gave you a first advantage in the hand sanitizer market when that emerged. Clearly, that wasn't necessarily contemplated at the time, but it was an advantage that you had because of the ecosystem you built. Also, the dairy relationships that you mentioned for distillers grains led to that quick advantage to be able to move with the dairy farm relationships when you decided to move into RNG and biogas. Do shareholders recognize that as a differentiation point between your company and others? How do we talk to people about the circular economy to create value for those that have invested to build that?