Q4 2019 Earnings Call
Please standby we're about to begin.
Ladies and gentlemen, a welcome to the Aemetis fourth quarter 2019 earnings Review Conference call. At this time, all participants are in listen only mode and a brief question and answer session will follow the formal presentation. As a reminder, today's conference is being recorded it does now my pleasure to introduce your host Mr., Todd Waltz, Executive Vice President and Chief I know.
Actual officer, all day Medis Inc. Mr. won't you may begin sir.
Thank you Jim welcome to the Best fourth quarter 2019 earnings Review Conference call. We suggest visiting our website today Medis Dot Com to review today's earnings press release updated corporate presentation.
With the Securities and Exchange Commission recent press releases and previous earnings Conference calls. This presentation is available for review were download on the Aemetis Dot Com home page before we begin our discussion today I'd like to read the following disclosure statement.
During today's call will be making forward looking statements, including without limitation statements with respect to our future stock performance plans opportunities and expectations with respect to financing activities.
And the execution of our business plan. These statements must be considered in conjunction with the disclosures and cautionary warnings that appear in our S. You see filings investors are cautioned that all forward looking statements made on this call involve risks and uncertainties and the future events may differ materially from the statements made for additional information. Please refer to the cup.
Any security and Exchange Commission filings, which are posted on our website and our available from the company without charge.
Our discussion on this call will include a review of non-GAAP measures as a supplemental financial results based on GAAP, a reconciliation of non-GAAP measures. The most directly comparable GAAP measures is included in our earnings release for the quarter ended on December.
Decemberthirty one two during 2019, which is available on our website. Adjusted EBITDA is defined as net income or loss plus to the extent deducted in calculating such net income interest expense loss on extinguishment income tax expense intangible and other amortization expense accretion expense depreciate.
<unk> expense loss contingency on litigation and share based compensation expense.
Now I'd like to review the financial results for the fourth quarter 2019.
Revenues were $52.1 million for the fourth quarter 2019, compared to $38.8 million for the fourth quarter 2018.
Gross profit for the three months ended December 31, 2019 was $5.8 million compared to a gross loss of $1.9 million during the same period in 2018.
The gross profit improvement was attributable to increased sales at the India plant along with prices for ethanol increasing from $1.57 cents per gallon. During the three months ended December 31, 2018 to one dollar and 82 cents per gallon. During the three months ended December 31 to that.
Sure 19.
In a market, where the cost to deliver corn rose slightly from $4, an 89 cents to $5.02 during the same respective periods.
Selling general and administrative expenses were $4.7 million during the fourth quarter 2019, compared to $4.8 million during the fourth quarter 2018.
Operating profit was $1 million for the fourth quarter 2019, compared to an operating loss of $6.7 million during the fourth quarter of 2018.
Profits at the India plant resulted in an income tax expense of $1.1 million during the fourth quarter 2019, compared to negligible income tax expense during the fourth quarter 2018.
Net loss attributable to Aemetis.
Was $6.7 million for the fourth quarter 2019, with an additional $900000 attributable to non controlling interest for a total net loss of $7.7 million.
Compared to a net loss attributable to a metis of $11.4 million for the fourth quarter 2018.
With an additional $900000 attributable to non controlling interest for a total net loss of $12.3 million.
Cash at the end of the fourth quarter 2019 was 600.
$56000 compared to $1.2 million at the end of the fourth quarter 2018.
Now I'd like to review the financial results for the 12 months ended December 31 2019.
Revenue increased 18% to $202 million for the 12 months ended December 31, 2019, compared $171.5 million for the same period in 2018.
The increase in revenue was primarily attributable to increases in the production and sales a biodiesel English or in India.
Gross profit for the 12 months ended December 31, 2019 increased significantly to $12.7 million compared to $5.4 million during the same period in 2018.
Gross profit increase was attributable to higher.
Well entity and margin from biodiesel sales in India.
Selling general and administrative expenses were $17.4 million. During the 12 months ended December 31, 2019 compared to $16.1 million during the same period in 2018.
The increase in selling general and administrative expenses was primarily attributable to operational support fees and professional fees that were partially offset by grant receipt for expense reimbursement.
Operating loss was $4.9 million for the 12 months ended December 31, 2019, compared to an operating loss of $10.9 million for the same period in 2018.
Profits at the India plant resulted in an income tax expense of $1.1 million during 2019 compared to negligible income tax expense during the year 2018.
Net loss attributable to Aemetis was $35.7 million for the 12 months ended December 31, 2019, with an additional $3.8 million attributable to non controlling interest for total net loss of $39.5 million compared to a net loss attributable to a metaphor.
$33.8 million during the same period in 2018.
With an additional $3.3 million attributable to non controlling interest for a total net loss was $36.3 million.
That completes our financial review.
Now I'd like to introduce the founder Chairman and Chief Executive Officer being noticed Eric Mcafee for business update error. Thank you Todd for those of you who maybe new do our company. Let me take a moment to provide some brief background information Aemetis was founded in 2006 and now have four lines of business focus.
Well, its applying low carbon and below zero carbon renewable fuels and biochemicals.
Our four lines of business, our renewable biodiesel advanced ethanol dairy renewable natural gas and waste would biofuels.
We own and operate production facilities with more than 110 million gallons per year of renewable fuel capacity in the U.S. in India.
Alluded in our production portfolio was 60 million gallon per year capacity ethanol distillers grain and corn oil plant located in keys, California Interment Modesto.
To support our carbon reduction efforts that decrease our costs and increased the value of our biofuels.
We've been awarded about $21 million of grants this year to support energy efficiency and other upgrades to our California ethanol plant.
We also build own and operate a 50 million gallon per your capacity distilled biodiesel unrefined, let's run by refinery on the East Coast of India near the Port City, let's talk about it.
About a year ago, we signed a 30 million dollar equity funding and launched a renewable natural gas project to build biogas digesters at about a dozen local dairies near our ethanol plant in California construct a pipeline connecting the digesters to our plant and install gas conditioning to produce carbon negative renewable natural gas to reduce the carbon content.
Number ethanol production and to displace diesel like fueling natural gas trucks.
We now have signed participation agreements with 17, dairies built and tested to dairy lagoon digesters at a cost of about $5 million.
And have designed and permitted a four month mile pipeline that is now under construction to connect the dairy digesters to our ethanol plant.
In 2019, we signed financing term sheets to funded advanced ethanol production facility in California to convert waste Orchard would another waste biomass into about 12 million gallons of say lusk ethanol per year. We're now in the final engineering and procurement cycle prior to completing the completion of project financing and commitment <unk> I'm sorry commencement of.
Construction of the plant.
The combination of these growth and cost reduction initiatives are expected to increase our revenue to more than $500 million per year and annual cash flow to more than $130 million per year. This projected growth in revenues and cash flow reflects certain plans and completed upgrades of our existing plants as well as planned completion of the new dairy renewable.
Natural gas and waste would ethanol production facilities.
Well, the consistent supportive, California regulators and continued strong, California, low carbon fuel standard credit crisis Aemetis made positive progress in each of our four businesses during 2019.
Let's first review our biodiesel business in India.
The total diesel market. Indeed in India is approximately 25 billion gallons per year of which less than 250 million gallons per year or about 1% is biodiesel.
The 2018 National Biofuels policy in India increase the biodiesel blending target to 5% of the diesel market equaled to more than 1.2 billion gallons per year.
The National policy also out lot outlawed the imports or exports of biodiesel into or out of India, thereby encouraging the expansion of domestic biodiesel and renewable diesel production capacity.
After two years of investment in construction, we completed the upgrade of our India plant in early 2019, including installation of her pretreatment unit to process lower cost and waste feedstock into oil.
The biodiesel and refine blistering plant is now fully operational using the new feedstock pretreatment unit, the new boiler unit and other upgrades to the enabled expanded plant operations towards full plant capacity of 50 million gallons per year.
On may 6th of last year, we announced that our Universal Biofuels Indian subsidiary was awarded a 23 million dollar biodiesel supply contract with the three India government owned will marketing companies in a public tender process.
Biodiesel shipments to the oil marketing companies began in May 2019, and grew to comprise about 70% of monthly revenues at the India plant.
We're particularly pleased with this arrangement because these three government oil marketing company supply about 70% of the diesel fuel consumed in India and as a group group represent the largest single potential biodiesel customer in the country.
Under this contract our biodiesel.
Has fueled trucks buses and even train throughout India with lower cost biofuel, the generates up to 90% lower particulate emissions and extremely low sulfur emissions.
We achieved the capital expenditure upgrades in revenue ramp up at the India plant, while repaying 100% of the long term debt at the Indian subsidiary and without any ownership dilution to our Amedisys parent company shareholders.
It's effectively owns 100% of the India subsidiary and as a result may use of cash created from earnings repay it met a senior debt and provide expansion some funding for other renewable fuels production product projects.
Additional oil cut marketing company purchased request for biodiesel are expected for year 2020.
We expect to continue to participate as a key supplier under these biodiesel contracts.
During the month of December January the primary constrained on biodiesel revenues growth in India is a seasonal colder weather from lower winter temperatures and the high cost of feedstock in late 2019 that has now decreased significantly due to the global fall and the price of crude oil.
Once the existing production capacity becomes fully committed to supplying the expand the expanded biodiesel markets in India. The India plant has the footprint to expand its capacity to 100 million gallons per year and to grow revenue grow revenue should revenues to more than $300 million per year to meet increasing biodiesel demand in India driven by the two things.
As an 18 national Biofuels policy.
In addition to the significant progress in India are three businesses in the U.S. achieved major milestones store to creep, increasing revenues and sustained profitability.
Lets review, our California traditional ethanol business.
Similar to our strategy in India, where we added a technology to they allow the use of a lower cost waste feedstock to produce biofuels, we have been upgrading our keys, California ethanol plants to lower input costs reduce the carbon intensity of our biofuel.
And significantly increased the value of the ethanol, we supply to the 1.5 billion gallon, California ethanol market.
We have been awarded about $21 million of grants in the past year to fund upgrades to the Keyes plant and our renewable gas project to lower the carbon content of our biofuel and increased profitability.
In may of last year, the Keyes plant successfully reduced carbon emissions under the California, low carbon fuel standard by about three carbon intensity points. The credits were effective as of January one 2019 and generated about 250000 hours per month of additional value from our corn ethanol sales without an increase in operating costs.
The second upgrade to the Keyes plant is a C O to capture and reuse project.
After three years of project development Lindy gas leased about five bakers owned by a medis adjacent to the Keyes ethanol plant to build a CEO to Liquification plant, we completed the CEO to capture equipment and piping for the Keyes plant in January 2020, and expect to have revenues in Q2 22.
Many after the CEO to plant is fully operational.
When operational the CEO to plant will converge the approximately 150000 tons per year of renewable Seo to produce barrette by our ethanol plant into liquid Seo too for sale to local food processors beverage producers and other Seo to industrial users.
About $1.5 million per year of cash is expected to receive be received from CL to sales and the land lease for the CEO to plant. We also expect to qualify for a CEO to carbon crap capture and reuse federal tax credits that we calculate is worth more than $5 million per year. We're currently working on an arrangement.
Monetized tax credits with the financial partner.
The third upgrade to the Keyes plant is the construction of an 8 million dollar membrane dehydration system.
Financed by Mitsubishi Chemical of Japan, and a 1.5 million dollar Pacific gas and electric grant as a strategic implementation of the Mitsubishi Zebra technology for the first time added corn ethanol plant.
The Mitsubishi unit mission Mitsubishi unit was delivered to the Keyes plant in late February two 2020 and is in the installation process.
All dehydration unit is designed to significantly reduce petroleum natural gas usage and decrease the carbon intensity very ethanol and once implemented is expected to generate an estimated $3 million per year of increased cash flow.
Before the upgrade to the Keyes plant is the solar micro array and artificial intelligence energy management system.
I've received an 8 million dollar grant from the California Energy Commission. This solar system will decrease the carbon intensity of our biofuel through the use of solar energy displaced hydrocarbon energy sources.
A 50 upgrade to the Keyes plant is a high efficiency heat exchanger project that was awarded a $1.3 million Pacific gas and electric grant.
And the six up there upgrade to the Keyes plant is a mechanical for re compression system that was awarded a $6 million grant from the California Energy Commission that is expected to reduce natural gas use significantly.
These projects at the Keyes plant are targeted to reduce petroleum natural gas usage and costs by up to 80%.
While increasing the number of low carbon fuel standard credits generated each year. The combined impact of these projects is expected to be a 30 million dollar per year increase in operating cash flow at the Keyes plant not including any improvement profit margins that are expected to occur to occur if the EPA.
Simply enforces federal Biofuels loss.
Let's briefly review, our medicine, biogas dairy digester and pipeline project.
[noise] methane, commonly known as natural gas is a potent greenhouse gas that it's up to 30 times more powerful than carbon dioxide at capturing Earth heat.
About 25% of California methane emissions are from the waste ponds on dairy farms.
To reduce damaging methane emissions in late 2016, California passed a law known as Senate Bill 13, 83 that mandates the capture a bio gas from dairies.
Ethane sourced from dairies can be used to replace gasoline or diesel fuel and trucks and buses to significantly reduce carbon emissions a car in the air pollution.
Along with the California State mandate, California has funded about $75 million of annual matching grants to dairies to build biogas digesters and related systems.
We believe that capturing biogas and dairies in converting it into renewable natural gas to generate negative carbon intensity biofuels is an excellent way to reduce climate change and create value for dairies, while lowering costs for diesel truck fleets and electric vehicles.
Based on our existing animal feed supplier relationships with about 100, dairies and the ability to use biogas in our ethanol plant until utility pipeline approvals are obtained and pipeline injection is completed.
We believe that immense is uniquely positioned as one of only three ethanol companies in California, who can use existing infrastructure in this manner.
After more than your project development and financing work earlier earlier this year, we announced $30 million of equity financing I should say earlier in 2019, we announced $30 million of equity financing and the Grant award from the California apartment food and agriculture for two matching grants for a total of about $3 million to build the first two dairies.
In our biogas project.
Construction of the first two dairy Digesters was completed in this quarter and we're now building the four mile pipeline to connect the Digesters with the Amedisys ethanol plant with an expectation of beginning renewable natural gas revenues during the second quarter of 2020.
We have signed 17 participation agreements with Aries and plan to complete construction of the next 15 lagoon digestion digesters by the end of year 2021.
Let's finish with an update on our below zero carbon slate Cellulosic ethanol project in Riverbanc, California.
We were pleased that the Amedisys advanced by refinery under development in Riverbanc, California near Modesto was named as the number one waste to value project in the World Biofuels digests, the world's largest daily Biofuels publisher.
The mess project earned its number one ranking as result of our fixed price low cost almond and Walnut wood waste contract for 20 years, where the clock cost about $20 per ton for the first half the contract period.
Plans production of high value say lets you got an all expect to be worth more than $5 per gallon.
As well as production of valuable fish meal and other byproducts.
And our use of the Pat did lanzatech gas microbes ethanol production technology.
The Lanzatech technology is now in full commercial production at a plant that open about a year ago with northern China that converts waste gases from a steel plants to produce ethanol.
We entered 2019, we announced three significant financings related to the Riverbanc project.
A $5 million, California Energy Energy Commission Grant to fund the engineering and equipment.
$12.5 million tax waiver that offsets equity funding required for the project.
And the signing of a 125 billion dollar United States Department of Agriculture conditional commitment letter for a 20 year debt financing under the nine 003 bio refinery program.
We are focused on completing engineering of the plant required for the negotiation of the EGPC contract that will include a bonded maximum construction cost the riverbanc cellulosic ethanol plant is expected to generate more than $80 million of revenue and more than $50 million per year of positive cash flow by producing cellulosic ethanol from low cost waste.
Orchard Vineyard forest, and even construction demolition would as feedstock.
The financial closing to begin construction of the Riverbanc plant is depending on completing the engineering and procurement work required for the signing of the construction contract.
In summary, we.
We believe that they medis holds a unique position with diversified production of low carbon renewable fuels into attractive markets in California in India.
The profitability and 120% revenue growth at or India plant. During 2019 was achieved while repaying 100% of our long term debt in the India subsidiary.
The increased profit margins for plant upgrades related to the keys by refinery are expected to begin to be realized in the second quarter of 2020.
The Amedisys biogas dairy digester and pipeline project is expected to begin first gas production in the second quarter 2020.
And our plan deployment of the patented Lanzatech Cellulosic ethanol technology at the Riverbanc plant has positioned them out as to rapidly produce expanding positive cash flow from the production of low carbon clean burning high performance renewable fuels from abundant low cost waste biomass feedstock.
Now, let's take a few questions from our call participants Joe.
Mr. Mcafee. Thank you Mr. well. Thank you for your remarks, as well and to our phone audience. Joining today. If you would like to ask your question or any clarification on anything covered in today's announcement separate press Star then one on your telephone keypad.
Thanks, Don one what was your line into a Q and a from a reminder, that if you are joining us today on speakerphone. Please return to your handset prior to pressing star and wanted to be sure that your signal does reach our equipment.
Gentlemen, once again that is star and one of you would like to ask a question, we'll hear first from Ed Woo with Ascendiant capital.
Yes. Thank you for taking my question. My question is obviously oil has been very very weak and volatile what's your best outlook on what do you think oil Oh ahead, and how it's going to affect the ethanol market.
I'll give you the medium and long term answer first it'll take a couple sentences then we'll talk about the short term.
When the price of gasoline or diesel decreases the incentive for people to.
Not drive long distances is decreased as well so they are motivated to go and undertake tasks that are.
More energy intensive such as buying and Sq b or pickup truck instead of a small vehicle and go and take that extra two or three.
Trips to Grandma's House every month, so the incentive was significant 40% reductions and in gasoline prices at the pump is for people to drive more not to drive less so the medium and long term impact on ethanol is that we are mandated blend, California had been example, with a 10% blend.
Our average across the United States today is 11% so as more gasoline is consumed as people drive larger vehicles and drive more miles in the medium to long term. This is very very bullish for Biofuels. This is a demand increase for biofuels and frankly, it's not such good news for highly expenses electric vehicles.
Of who.
Frankly lose some of their cost justification, whether it's one feels very inexpensive. So it's the it makes it more difficult for carbon reduction programs that are trying to get people to use less carbon intensive gasoline and diesel because people tend to use more and therefore blending biofuels is encouraged in order to meet these low carbon fuel standard goals.
Now the very short term, which is.
Potentially a two week two one year timeframe is the saudis in the Russians, having a have a backyard dispute about who's in control of the oil market worldwide.
And I think we've seen this picture before it started in June of 2014. It ended in January 2016, It was about an 18 month cycle.
The decline that time got to $26 crude oil and it took about a year and a half its for that kind of battles to get to its low point before you start to cooperations. This time. It took two days for the price of crude oil will fall to $28 and the Saudis said in public we're going to make this very harsh and it's going to be.
A shock to the system and they have now proposed increase their production capacity from 12 million barrels per day to 13 million barrels per day, and they've done all the indications necessary quite frankly to scare the Russians the Russians are.
Stuck with a much higher cost of crude oil production saudis costs about $8 Russians are estimated to be about $42 and so this little price war will last as long as the Russians and the Saudis want to beat each other out now that could last as much as a year. We saw last 18 months last time, I think with Mohammed bin Salmaan running the Saudi.
Cycle. He just basically said look if we're going to do this we're gonna do it now and he took 18 month price decline a compressed it into two days and I think we might be quite surprised to see that Mr. Prudent mr. saw amount in the Iranian had.
Come to agreement and we are we're back is 50 to $60 crude oil rather quick.
Goldman Sachs leaves that that's what's going to happen that we're going to see a relatively rapid recovery as all sorts of different countries come due to realize what $33 crude oil does to their national economy. So my personal projection is we have to prepare for a year of of this kind of dispute, but I think theres a political upsides.
It could come to bear in the next month or two where we could just have a shocking rebounded in crude oil prices as the Saudis reason there their decision to overproduce. So it's a political risks there's really no way to handicap. It other than just watch for the news on what how to build some been small.
So months' as Overa in Saudi Arabia.
Now the impact in ethanol.
The short term impact and ethanol is we're slate we had a very slight decrease in price. It's about three cents decrease on the Chicago Board of trade for ethanol at the same time, we had a decrease in their input costs. We are a major consumer of natural gas and we saw natural gas prices fall, we are consumer of corn and corn prices.
For a variety of reasons.
Fell and so our input costs decreased roughly proportionate with our our our ethanol price. So we.
Pretty much had no price compression or margin compression occur as result of this dramatic fall in crude oil prices and we're sitting actually with the different element as as a driver of our margins and that is the EPA, losing a court battle that ended in January 25 to this year.
In which the last four years of EPA actions were overturned by the federal Court regarding most of the small refinery exemptions that were issued the net impact of that will be a dramatic increase in the demand for the physical delivery of Biofuels in United States and we'll see how that plays out there the EPA is at.
For a two week extension to decide what they're going to peel, it or not but up until last Thursday, Ed Ed had said publicly they intended to comply with the court order, which would entail the physical delivery of 700 million gallons or more of ethanol in the U.S. and potentially and a bottom at more than 80 per.
That reduction in the numbers of pieces of paper in the marketplace that are traded call brands that are essentially avoidance mechanisms to not have to buy the physical physical gallons. So a reduction in there into the marketplace by 80% and a 700 million gallons physical demand increase this year to comply with the 15 million gallon.
Requirement would be a very bullish elements for the ethanol business without changing the prices at the pump at all and here's why we sell our product for roughly $1.50.
The customer at the pump.
After taxes and paying about $2.50, we have 65 million gallon plant. So a dollar time $65 million to $65 million is paid to the people to drive a truck from our plant over to the retail store and.
That has $65 million the trucking company makes a few million the retailer makes a few million the rest goes into pockets of oil companies. So there without changing the price at the pump we could see a dramatic margin improvement of 30, 40, 50 cents easily and the last time that EPA actually enforced federal law.
The ethanol business, our business made 65 cents per gallon every quarter for four quarters.
So we in that equation would have the oil companies make about 15 cents for owning a telephone and calling us and buying our product. We think about 65 cents, which is over $40 million year positive cash flow and that is the ordinary supply and demand equation in our industry, it's only not been in.
Existence, when federal laws is violated which it was under up almost for two years, but not enforcing law and then for the last four years under.
Trump by actively issuing illegal waivers if you listen to federal Court, that's what they said they're hundred page opinion. So that's my.
Summary of the current status is we're awaiting the EPA realization that sooner or later the enforcement Federal law has been determined by the federal court and when that happens our profitability should be reflective of a more balanced sharing of the margins with our customers.
Great and you said that that should be within the next two week.
They are going to have to decide whether they.
Support the appeal in the next two weeks the appeal will be a process. It takes three to four months and is expected to fail and it's the reason why its expected sales is the unanimous decision by the appellate courts and 100 page decision. That's opened in shut case and so there's really not a question for the Supreme Court.
Deal with in terms of conflicts alarm or anything else so in the.
Legal treatises that I've I've heard and read on this topic, it's a guaranteed loser and so in the political season. We're in two to lose a major case that was flawed aggressively against farmers and against Biofuels industry players. It's just not a great idea for a guy wants to be reelected present, the United States. So it makes no.
Political sense at all that the EPA, we to would oppose and not fully implement the the court decision a January there's only really to refiners that benefit once owned by Carl Icahn and so I think there was just the political mistake made by requesting essentially 15 days and we should know 15 days.
Now whether that political clinicals mistake is exacerbated made worse by actually finding for an appeal. It makes no sense at all that that the Trump administration would do so, but we're we're waiting and seeing.
That's a mortality forced by the way the date March 24th as a date and whats EPA either has to state how they're going to enforceable off or ask for an appeal of the law.
Great. Thank you for asking my question I wish you guys. Good luck. Thank you. Thanks appreciate it.
Well take our next question from the line of Shane Martin Don't go ahead. Your line is open.
Hey, guys. Thanks for taking my question can you guys I know, it's kind of early innings as far as India is concerned but can you guys give me any color as to how kind of India operations have been hampered if at all by the current a virus in terms of both demand and also if there's any kind of operational disruptions that you guys are seeing just kind.
Of an overall impact thus far a if any.
Yes, good question.
I would take the current a virus and have a derivative being oil prices because he was a demand decreased from corona buyers that caused some of the upset in the Saudi Russian relationship.
They're basically fighting over a smaller market.
They're the direct impact is it in India. Historically, we have sold our bio diesel as a 100% replacement for diesel so unlike in the United States, where you blend about diesel with diesel India's a warm country and so for about 10 months a year of the the trucks and mining machines and construction was machines that that by and use our product.
Don't actually have any petroleum diesel in their tanks or 100% running on our our trucks our fuel and.
So the immediate impact in India has not been noticeable in terms of of demand reduction India's not listed as one of the major.
Co bid 19 countries. They don't have major widespread shutdowns or anything yet.
And the sectors that were selling to specifically mining construction.
Hi way.
Equipment et cetera tend to be more and the infrastructure development and not so much consumer.
Environments. So we're probably going they have a more muted demand response in our particular market, India, because we're selling a businesses who are under contract to build things and.
We're not really dependent all in consumer use and whether people driving to work or not.
You know and indirectly, though that the the price of crude oil declining means that we're competing against the lower price commodity now the 2018 National Biofuels policy has this 1.2 billion gallon goal and the entire production passing the country's 250 million gallons and they specifically out of them.
Mandate to try to set a price it's going to encourage us to reinvest in an expansion of our capacity our current capacity 50 million gallons and the government like it to be 100 million gallons. So this tender process. This bidding process has about five suppliers in the country. We founded the biodiesel manufacturers Association that so we have relation.
Unshipped with all the suppliers and the result of this process, which should be a two or three.
It's process is to end up with a price that is profitable for us enough for us not only supply, but also to expand our operations and we'll be able to probably by may have.
That tender process completed and are seeking a price. It is attractive like it was last year and enables our profitability to be reinvested in the expansion growth of both revenues as well as profit.
Okay, Great and then.
Can you give me an idea as far as the SGN a outlook for the India segment for 2020, I mean, more specifically what a with the operating support charges are gonna look like for that going forward.
India is a very inexpensive.
Country to operate in I'm going to estimate less than $10 million for all in staffing overhead.
Counting illegal and everything else.
Okay.
And then.
Can you give an idea kind of switching over.
To the U.S. market, the 30 million dollar increase in operating cash flow can you give kind of an idea I know you've outlined.
Some of the <unk> some of the things that are gonna come online. This year in Q2 and kind of later on your can you give an idea of kind of how much of that $30 million increase in operating cash flow, we could see kind of fall in line here in 2020, and then maybe in 2021 as well.
Yes in and.
And I haven't come out with the quarterly number that we've we've published but we do have a in annual number and.
Let me give you a run rate concept.
From a run rate perspective, we'd be looking at accomplishing about $12 million of that improvement by the end of this year from a run rate. So some good scale up a second some a third someone fourth quarter, we would be looking to exit and this assumes that we get our solar project built as well that we'd be exiting this year with with about $1 million a month.
Have improved cash flow.
The final project, which is that mechanical vapor reconstruction re compression project would be a 2021 project and when you layer that on.
With with some other continue expansion, that's where we get up to the roughly $30 million. So we would be looking to exit 2021 with the full 30 million in place now we can accelerate that.
That timeframe the timeframe I gave you was you know seven quarters and so we can accelerate that it's all really subject to.
The the financing and grant process grants tend to be pretty administratively slow. So the scale I'm, giving you is really just reflecting that but we are making concerted efforts to accelerate that process. The actual construction cycle could be happy you're quicker than that so the upside would be that instead.
Being fourth quarter of 2021 run rate if it ends up being the second quarter 2021 run right, but I bogey is without any enforcement by the EPA.
Federal law, none at all that we would improve our monthly cash flow by approximately two and half million dollars per month.
Yes by creating a more low carbon fuel standard.
Benefiting projects are and decreasing our input costs.
Okay, Great and then last question for me kind of Capex outlay for 2020, what does that kind of look like for you guys and and how much of that is a it's kind of growth Capex where you.
Yeah, I haven't added that number up if we take the NBR and put it aside we're talking about a and and and.
Let me, let me doing a project basis, because I think it'd be more helpful that way we have a.
Subsidiary, Medicis, bio gas, which has no debt.
As a $30 million equity commitment and has already.
Approximately.
Between what we filed them, we expect to file we couldn't get as much as $30 million grants in that subsidiary. So 30 million of equity 30 million of granted the total budget about 60 million. So we'll be spending about.
Almost 60 million of Capex in that subsidiary to build out over the next.
A year or so the the 12 there is that our initial initial phase and so the capex budget is a little south of of 60 million, but the the source of funding is the half of it comes from grants, which is state of California supporting what we're doing the other half is from this non dilutive.
Equity funding, where we sold preferred equity at our subsidiary and then we automatically by it back and it's it's kept its not its not a Dennis ran it doesn't have interest in it it just cap and any without us investing any capital we received 25% of cash flow from operations initial period and then.
After its fully redeemed we get a 100% of the cash flow. So we end up with 100% ownership and don't actually have a capital investment budget provided by the parent company and we get to 25% of cash flow.
Upfront.
From the operation of the of the project. So I didnt. It when you say <unk> Capex. Most people think Oh. This company is gonna have to go get a bunch of debt or it's going to have to.
Somehow dilute shareholders or otherwise we have structured each one of our activities as being grant funded with us some sort of up.
Average mechanism that is automatically self financed through the mechanism of of the financing Mitsubishi 100% finance their equipment and a million have dollar PGD grant made up the gap. So that financing structure is a grant plus Mitsubishi self financing it paid out of increased cash flow and.
I think weve actually we're about even in terms of number of shares outstanding since we went on to NASDAQ in 2014. So.
Minimizing or actually maybe even completely eliminating shareholder dilution in our business model has been a very very significant focus of management energy and it is is it different.
Approach then perhaps of the other biofuels companies that have capital expense intensive business model, but I think we've proven we can make it work and.
To now operate in our six years since we've been on NASDAQ and have roughly the same number of shares outstanding is quite unusual I can't actually think of any other biofuels company has achieved that while she brings significant revenue growth that's now $200 million.
Okay. That's it for me thanks, guys.
Thank you I appreciate it.
Next we'll take a question over the phone is coming from the line of Tom Welch. It Ameriprise. Please go ahead Tom.
Great cost.
First question I see that Uribe.
Funding.
Second round.
You have now landed approximately $4 million.
That's correct.
That's correct, we funded by 4 million last year, we're expanding the whole offering activity. This year, though because of the rules changed in November of 2019 to strongly favor projects like ours.
Can I ask what country, primarily are you, saying.
The existing funding coming from formulary.
Today, the country is India.
I would expect at least 70% of the investors in the program will be from the in it from India. In 2020, historically, China is comprised 85% of the program, but so many Chinese Chinese funded literally billions of dollars into Ebfive job creation program. That's about a 15 year wait for a new Chinese invest.
Sure it to get a green card. So the Indians you do not have that that long wait period, our and our losing each one be work visas and the U.S. You may you may know that a little over a third of H. won't be worked pieces were rejected by the Trump administration starting in year 2017.
So these are sometimes families actually here that are running the risk of having to go into back in India. After after you know in bidding or an entire family in the U.S. So the Indian population is really the most attractive.
And it sounds like.
Our relationship with India has.
Jumped up a couple inox is at least the most recent visit by positive comp.
Yeah.
A couple of watches and Tom something else. It's interesting is that we we have a 50 million gallon plant and an 80 employees in India headquarters in Hyderabad, and we find that these industries have as there are number one risk.
There you know there half a world away and they just don't have confidence that giving a lot of their money to some guy in California, making big promises.
Has any business behind it right. So we're a NASDAQ listed public company, but we have a physical facilities are they going to visit in India. So we haven't at a very very unique 14 year, India presence that gives us credibility that is is significantly different than any other developed where I know in the U.S.
Fantastic.
One final question.
I see that Minnesota.
As now proposed legislation.
Changing the.
Minimum blend rate from 10% to 15% essentially all the done has gone in with HF 36 94.
I'll start the 10% lines.
He was legislation and so you're down 15% mandatory Glenn great.
That's that's a heck of a change.
I think that you can pull into any Paul.
Possibly.
Got it having normal blend rate of 10%, 15% brand right now on virtually all the path.
And it looks like it's kind of pass.
We want so just pure speculation here, but I would be interested in European.
Whether or not we see.
Similar legislation in California.
Your.
And the all the other corn belt state.
The.
The answer is yes, the EPA did.
Testing that.
Was equivalent to six times the moon in back in terms of number of miles driven.
Showing that you could have a 20% blend and then any vehicle that was a younger than 2001. So is manufactured 2001 or later that the requirements of the engine. If you lines would allow you to two actually run 20% ethanol and they went to Congress in 2009 and said we're going to it.
Approved 20% ethanol and Congress at the time.
Under pressure and the whole industry said, Oh My gosh, we we can't do that we can do that and they approved 15%.
Thereafter, they will industry sued the EPA and in 2012 that lawsuit was completed and actually since 2012, 15% has been approved by the EPA for any vehicle, that's 2001 or or or younger now we're almost a decade. After 2012 now and so the percentage of cars that are older than.
2001 is decreased significantly and so states such as Nebraska, Minnesota.
Wisconsin, Iowa.
On the corn states have a tremendous amount of pressure to say why are we at least at 15%. It's 20% was approved by the Department Energy Congress approved de 15 afterward arm wrestle with the oil industry why are we at least at the National standard of each 15, California.
Is the only stayed in the country. That's allowed to have its own fuel blend because we want cleaner air in California, and we want to Supreme Court judgment, a couple of decades ago, allowing us to set our own rules in California Efifteen is in the the final regulatory process and is slated in the next year to come up.
Or approval and if it is approved will have cleaner air in California, and lower cost fuel in California, and that would be a bellwether state. If you see California come up with the 15 by the way that represents about 700 million gallons additional demand just in California and so.
We're we're talking about going from a 15 billion gallon national markets over 20 billion gallon national market and these states are really leading the way while the EPA kind of Slogs, along with some political factors that.
Seem to confuse them, but the state's don't seem to be confused at all and so I'm I'm very encouraged by governors that are coming out and one governor Nebraska by the way just completed a multi year, 30% ethanol.
Test showed that the vehicles get actually run a 30% ethanol motor Britain, even cleaner and lower cost fuel and is proposing a 30% not mandate, but an approval. So you can go to a pump you can get he 15, but also get E 30 at the same pump and that's going toward the Brazilian model, which gives the consumer choice at the pump and in Brazil.
55% to fuel is biofuel chosen by the consumer because they have a choice the pump or what the blend is gonna be and that's really where we should end up in the United States.
Very good.
Thank you.
Thank you.
Thank you Tom will move next to the line of Masimo Fiorello private Investor welcome off now.
I don't know Erica nice behaviour.
Little must know I know do you you run a hospital in Italy. So you must have some stories you can give me a call afterwards, and let's let's talk about how Italy's doing but it was good to see recently and love to hear would question do you have.
Yes, and you have you need only situation that's quite staff I am I getting absorbed now yeah, but either way I just want to do my congratulation on a point on your own in South Korea for say there.
I'm doing very well. So you said there but that does have nameplate capacity is 120, but tend to do something global amazing I just had been like the manual having been <unk> I like that 90% in the best Chicago, So when I suddenly you're not doing very well and I am happy to see that do you mean, there but center.
So nameplate capacity really the increasing growth like 51 cents. So I think that light fusion little we'd be but I thought the company My U haul me walk me through the short because I never get worried because you're not comply young we'd there.
And now that the listing fees you write off of now less than one goal not a slug of my credit spreads still [laughter] to us before you reach actual do you want to implement the north of two good compliance would not go for me. It's very important that you are at least there'd be no back then, but you need to begin by young men and.
If you bought according to you to stop or maybe like the fight back or like we see shutting in open market because it would be very useful to increase bisha by very low and you can get like cash flow from India to finance the.
But bacteria or in meeting the nail the market.
[noise] Masamilla, you're exactly correct that the stock price today reflects extra exar external factors it really.
Contradicts the great progress we've made in in our operations a stock buyback hasn't been adopted by a couple of other of the Biofuels companies and it had a very positive impact on their stock price a stock back buyback right now would be very beneficial to shareholders because we're buying it back in a very very low evaluate.
And with a as we heard from this call literally a matter of a couple of months, we're seeing new revenue streams from biogas et cetera.
Seo too and so.
This would be a time window in which a stock buyback would be good for overall shareholders.
And I'd. It definitely is an action item that I think we'll we'll continue to continue to pay attention to.
We are focused on completing our fundamental operational goals and that's the first use of our capital is is to get those bills.
But with such a inexpensive stock a it it would be of great benefit to shareholders for us to go and take it away from some some people that might be willing to sell at this price and have our remaining shareholders enjoy a much much higher stock price. So I. Appreciate your your your interest in that and I agree with you that is definitely an area.
Focus for us over the next couple of months.
Okay. Thanks, Hello, So I really hope that the but that's going on we thought to pursue mouse around on a comp I mean, they affect or.
I'm doing the optimal so yes, and another great. So for you and Wolanski yeah. So on both the telecom no I mean, you want to Tom felt like amazing According to my being able to growth operationally, you're not probably the best based on the plant that you know you're not extended because no one demod coverage.
I mean, one on the differently, but centre and I am hopeful created by walk is going to doing the next fall. So be goes on there, but also do we go online will definitely improved cash flow and you are doing quite well. According to me I won't give greystone about yeah because.
We.
Have you had in a number of from for me and that I had that you like 15% and I'm plan could possibly be 2018 in 2019 ready run your goals you bought but all that being front from <unk> that'd be Cooper standard like that most of them DAPL and I want to walk through you worked out.
And your forecast for 2020, reclaim the beach I don't know cost if you could see what we've been medium shouldn't audio fraud.
You mean.
The the the tenders from the oil marketing companies was actually issued earlier this week.
And our capacity the plant is about 50 million gallons as we described their tender was for a little over 300 million gallons.
Which is slightly more than the entire production capacity available in the country. They are actually trying to encourage people to expand production capacity. So at this point time, it's really negotiating price we.
And in terms of course always matter, but we we have the potential to double our revenues again in India, but it's completely subject to the.
The input costs and this tender of Mark price. It we're going to get on whether I can solidly say, we're going to double revenues again, we did double revenues in 2018 19, and we're we're planning to double revenues again this year and I will know probably the next 90 days on.
Whether that is easily achieved or whether it takes a little more heavy lifting by selling more directly to the regional bus companies et cetera, but our goal certainly is to double that 32% to 64% this year and that would put us at a roughly 80 million to 100 million revenues out of India.
Yeah, so expecting.
That goal to be.
Largely achieved I I in this scenario, where the government alone would take a 100% of our capacity that will be 150 million revenues to the government alone. So we'll we'll be able to hopefully in our next earnings call talk about what came out of that that purchase order from the customer.
Yes, so I won't got examples I am glad with you and build the view portability similar to some of the two broad I really think that into numbers next month with new broadband going go line right. So we've been pretty easily go like getting back then.
Lisa or do they like the country's rational about walk by year Gold reported we go through that's not only Michael inside of me very very important really no not that you have lagged the blind to reach a one goal not a runway show mean June on July you've already map. It out so now so I would really after today to you.
The next month the goal by me to both of them to go up I don't know how to walk the United States, It really and community bank of the market the Todd who bought data no market because were still not immediate goal not over all the going by me said, we'd be groups. According to my you'll be young so I really all that.
That you will they be sale opportunity and to do it if I back there or by shed on dollar market.
Great. Thank you bought some talk you soon.
Okay.
Ladies and gentlemen, we do appreciate your questions and comments today at this time there are no further questions from our phone audience. So I'm pleased to turn the floor back to our leadership team for any additional or closing remarks.
Thanks, Jim appreciate that.
Thanks to our metal shareholders, a stock analysts and others for joining US today, we look forward to talking with you to continue our dialogue about the growth opportunities other matters.
Thank you for attending todays Aemetis earnings Conference call. Please visit the Investor section of the impetus website, where we'll post a written version and audio version of this Aemetis earnings review and business update Jim.
Gentlemen, thank you for your remarks today and to our phone audience. This does conclude today's teleconference. And you may disconnect. Your lines at this time, we hope you enjoy the rest of your day. Thank you all for joining us.
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