Q2 2021 Aemetis Inc Earnings Call
[music].
Welcome to the game out of second quarter 'twenty 'twenty One earnings review conference call. At this time, all participants are in a listen only mode.
Great question and answer session will follow the formal presentation. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. Todd Waltz, Executive Vice President and Chief Financial Officer for a meta. Thank Mr. Waltz, you may begin.
Thank you Karen welcome to the Amyris.
Second quarter 2021 earnings review conference call.
Joining us today for the call is Eric Mcafee, founder Chairman and CEO of the Madison and Andy Foster President of a medicine advanced fuels.
We suggest visiting our website at <unk> Com to review today's earnings press release corporate presentation filings with the security and Exchange Commission recent press releases and previous earnings Conference calls.
The presentation for today's call is available for review or download on the investors section of the <unk> 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 regard to our future stock performance plans opportunities and expectations with respect to financing activities and execution of our business plan.
These statements must be considered in conjunction with the disclosures and cautionary warnings that appear in our SEC filings.
Yours are cautioned that all forward looking statements made on this call involve risks and uncertainties and that future events may differ materially from the statements made for.
For additional information please refer to the company's security and Exchange Commission filings, which are posted on our website and are available from the company without charge.
Our discussion on this call will include a review of non-GAAP measures as a supplement to financial results based on GAAP, a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the quarter ended on June 32021, 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 gain on extinguishment.
Income tax expense intangible and other amortization expense accretion and other expense of series a preferred units.
Depreciation expense and share based compensation expense.
Now I'd like to review the financial results for the second quarter 2021.
Revenues during the second quarter of 2021.
For $54.9 million compared to $47.8 million for the second quarter of 2020.
Our North American operation in the second quarter of 2021 as compared to the second quarter of 2020 experienced steady growth volume with an increase in the selling price of ethanol from $2.63 per gallon to $2.78 per gallon and an increased in the deliver corn.
Rice from an average of $4.55 per bushel to $8.04 per bushel.
Increased covid 19 infection rates and high steering cost negatively impacted sales in India.
Gross profit for the second quarter, 2021 was $3.6 million compared to $14.1 million during the second quarter of 2020, our North America segment accounted for substantially all of the reported consolidated gross profit in both periods.
Selling general and administrative expenses were $5.8 million during the second quarter of 2021 compared to $4 million. During the second quarter of 2020 as a result of period expenses incurred as part of the development of our ultra low carbon initiatives.
Operating loss was $2.1 million for the second quarter of 2021 compared to an operating income of $10 million for the second quarter of 2020.
Resulting from a combination of lower demand for the higher profitability industrial alcohol products and rice and corn prices.
Interest expense during the second quarter of 2021 was $5.2 million <unk>.
Excluding accretion and other expenses in connection with series a preferred units in our <unk> biogas LLC subsidiary compared to $6.2 million during the second quarter of 2020.
Additionally, our <unk> biogas LLC subsidiary recognized $3.8 million of accretion and other expense in connection with preference payments.
On its preferred stock during the second quarter of 2021 compared to $1.4 million during the second quarter of 2020.
Net loss was $10.6 million for the second quarter of 2021 compared to net income of $2.2 million during the second quarter of 2020.
Cash at the end of the second quarter of 2021 increased to $7.2 million.
<unk> two.
$600000 at the end of 2020.
Capital expenditures increased property plant and equipment by $12.9 million driven by.
Our investments and our ultra low carbon initiatives.
Company debt decreased by $48.7 million compared to December 31, 2020.
That completes our financial review for the second quarter of 2021, now I'd like to introduce the founder Chairman and Chief Executive Officer of <unk>, Eric Mcafee for a business update Eric. Thank you Todd as we discuss the results from Q2.2021, I encourage you to consider reviewing the <unk>.
Presentation, which can be found on the homepage of the <unk> com website.
<unk> is focused on producing below zero carbon intensity products, including the production of negative carbon intensity renewable natural gas and renewable fuels our projects maximize the value of carbon credits under the California, low carbon fuel standard the federal renewable fuel standard and IRS 45, Q tax credits, while reducing operating costs by.
Using waste materials as feedstock.
We own and operate production facilities with more than 110 million gallons per year of production capacity in the U S and India included in our production portfolio is a largest ethanol plant in California.
65 million gallon per year fuel ethanol plant located in Keyes, California near Modesto.
We leased in 2009 retrofitted for 18 months started operations in mid 2011 and have owned since 2012, when the original shareholders converted their ethanol plant ownership into about 10% of the common stock Covid medicine.
We also built owned and operated 50 million gallon per year capacity distilled biodiesel and refined glycerin bio refinery on the east coast of India near the Port City of Kakinada. This plant was designed to use vegetable oils and animal tallow feedstock and a medicine has unique access to low carbon intensity low cost renewable waste.
Oil feedstocks in India for use domestically or for export to using our future, California production plants.
We work to improve our communities in which we operate by reducing air pollution and offsetting the carbon emissions that contribute to global climate change.
Our capital investments and the ongoing operations of our Biofuels digester and production plants create thousands of direct and indirect jobs feeding in housing hundreds of families that depend on us to sustain and expand our business.
Despite the extraordinary circumstances of the past year, we have maintained 100% of employment at all of our facilities, we seek to build a strong sustainable valuable company by supporting our resilient supportive corporate culture, among our teams to work together to build and operate our projects.
Financing the past 15 years of growth that <unk> has placed us on a path to become a 1 billion revenues business without heavily diluting shareholders.
It was not easy.
Took hard work and sacrifice some extreme commitment to our shareholders by our management team and our board of directors.
<unk> top management team has more than 12 years of tenure at the company with our President Andy Foster joined the company during the founding in 2006, and our head of a medicine International Sanjiv Gupta joining in 2007.
We have one in May of this board of directors member. This are for 14 years, formerly serving as the secretary of the U S Department of Agriculture.
And two of our board members were formerly long term executives that Chevron Corporation.
Our audit Committee Chairman and lead independent Director has served as the Chief financial Officer of five public companies each of which had more than $1 billion of revenues and the largest largest had $16 billion of revenues.
We have a deeply committed and experienced team.
That has been working for many years to execute our long term vision and to build value for shareholders.
<unk> the positive regulatory trends for renewable fuels and the leading role of Biofuels and decreasing carbon emissions have provided government policy support for our medicines businesses.
Long term low interest rate 20 year guaranteed loans from the U S Department of Agriculture, The department of Energy and California tax free municipal private activity project financing opportunities are now being pursued as financing tools by <unk> instead of highly dilutive equity financing.
We have executed on our financing strategy of funding rapid growth utilizing short term high interest rate borrowings, which are then refinanced using long term low interest rate debt.
During the second quarter of 2021, <unk> achieved important milestones towards revenue growth and the sustained profitability of each of our four lines of business.
Now Andy Foster President of the <unk> North America business will review highlights of our renewable natural gas and ethanol businesses Andi.
Thank you Eric.
As Eric mentioned it a met US we're focused on producing below zero carbon intensity products, including including negative carbon intensity renewable natural gas and renewable fuels.
A prime example is our dairy based renewable natural gas business, which will mark the one year anniversary of commercial production in September.
Me.
RMG as the negative carbon renewable fuel that perfectly exemplifies the circular bio economy that Eric often refers to when describing our approach to reducing greenhouse gas emissions, while producing sustainable below zero carbon transportation fuels.
The LNG initiative has many synergies with our Keyes ethanol plant, which uses agricultural feedstock that absorbs sidoti from the atmosphere during plant growth from which our production facility produces ethanol and high value animals.
The ethanol <unk> plant produces about 65 million gallons per year of renewable ethanol, but also produces about 2 million pounds per day of wet distillers grains that supply about 80, local dairies, which feeds more than 100000 dairy cows.
Those cows, each renewable feedstock produced by a met us and create waste, which in turn produces methane.
<unk> captures the dairy methane emissions by building large covered anaerobic digesters. We then transport the biogas a medicine owned pipeline to the medicine ethanol plant, where it is used as an energy source for ethanol production or is upgraded to produce renewable natural gas for use and transfer.
Rotation.
In addition to supplying compressed natural gas stations throughout California, RMG from the from a metal can fuel RMG trucks at our Keyes plant to carry our wet distillers grains to the 80 dairies as well as transport biofuels to customers throughout northern California.
This process is a sustainable negative carbon intensity circular bio economy that productively uses dairy waste its fuel and significantly reduces air pollutants and carbon emissions statewide.
Trucks can be fueled our RMG by RMG at any compressed natural gas station connected to a utility pipeline in California, as our RMG interconnection to the <unk> pipeline will enable us to send RMG to other fueling stations that we either build our own.
Or are owned by others. This end to end system is scheduled to be operating by the end of 2021.
Let me just take a moment to update you on some key milestones achieved as we build our network of dairy Digesters and the supporting infrastructure that will deliver RMG to the California market.
In September 2020, we completed phase one of the <unk> biogas central dairy Digester project.
<unk> commenced operation of the first two covered lagoon digesters and the Amyris biogas central dairy Digester project, including on site biogas cleanup at pressurization, a four mile pipeline owned by Us and our boiler unit two to utilize the biogas as process energy at the Keyes plant.
We are now building phase II of the project.
During Q Q1 of this year 2021, the California Air Resources Board issued an updated carbon intensity fuel pathway for the Keyes ethanol plant utilizing a negative $4.26, Ci score for our biogas compared to approximately a positive 100 carbon intensity for petroleum natural gas both <unk>.
Digesters onsite hydrogen sulfide remove removal and pressurization, the biogas pipeline and the ethanol plant boiler unit have been in continuous operation since last September, allowing us to reduce the use of petroleum natural gas at the Keyes facility.
In the second quarter, we began construction of the RMG biogas upgrading facility that is co located at the Keyes plant as of Tuesday. The Foundation was completed and we will begin mechanical installation of the gas processing equipment in approximately two weeks with expected completion of the biogas upgrading facility in Q4 of this year with commissioning and.
Interconnection to the <unk> pipeline to follow shortly thereafter.
The <unk> fueling station also co Lake co located at the Keyes plant has been fully engineered and the production of major equipment began in the second quarter of this year.
We expect to complete installation and commissioning of the RMG fueling station at approximately the same time as the centralized biogas upgrading facility.
After after a two year process of engineering permitting and equipment fabrication in the fourth quarter of this year, we expect to have the <unk> gas pipeline interconnections completed, allowing us to flow upgraded RMG to customers throughout California and.
A medicine is currently engaged with a number of potential biogas offtake.
Partners and we expect to have contracts in place during the third quarter.
Another significant milestone for the LNG project was achieved last week when <unk> was granted an encroachment permit to use the county right of way for construction of the 21 mile Stanislaus County segment of our pressurized biogas pipeline. This will allow us to begin construction of phase II pipeline in the third quarter, which will connect the next series of dairy.
Gestures with the RMG upgrading facility, we are planning to build an additional 15 dairy digesters and 32 miles of pipeline in the next four quarters Seabee operational in 2022.
Five additional digester projects will begin construction in 2021 with expected completion in the first half first half of 2022.
Three of the Digesters had been fully permitted with the remaining two expected to be permitted by the end of this month engineering has been completed for the Merced County, digester projects and permits for the Digesters and that segment of pipeline have been submitted for review.
Construction for the Merced County segment of the Digester project is scheduled to begin in early 2022.
Overall, the first half of 2021 has been extremely productive for advancing the construction of the <unk> dairy renewable natural gas project and we continue to sign up additional areas and to further expand our digester network. We've made some key new hires on our biogas team and expect an additional to add additional team members.
In the coming months to date <unk> has been awarded about $23 million of grants from the California Energy Commission, the PGD and other government agencies for the dairy biogas project and production of renewable natural gas.
Let me take a moment to discuss progress at our California ethanol plant as Todd mentioned earlier, we saw a 16% year over year increase in revenues from ethanol ethanol sales in the second quarter.
Since the economy began to reopen in the first half of 2021 demand for ethanol has been robust through the first half of the year.
And ethanol pricing has been favorable as well.
Corn pricing remains a drag on higher profitability, however, with smaller than with a smaller than normal corn supply this year and ongoing logistical issues with the railroads.
While domestic gasoline demand has been favorable it's at about 95% of 2019 levels U S exports have lagged and are down by about 9% year over year for the first half of 2021.
Ethanol imports, especially from two California from Brazil, where especially persistent in the second quarter of 2021.
Strong demand and favorable pricing for both wet distillers grains, and distillers corn oil remain bright spots in the overall product mix and we expect this trend to continue.
Despite ongoing challenges related to covid over the past year and a half the Keyes plant has continued to demonstrate strong and consistent operations were excited about the progress. We've made on multiple projects underway that will dramatically transform the keyes plant and allow us to significantly reduce the use of petroleum based natural gas and the carbon intensity of our products.
Let me just take a moment to give you a few updates on the projects that are expected to increase cash flow by approximately $23 million per year once completed.
First in the next month, we expect to complete the installation and commissioning of the $8 million.
Zebra zeolite membrane dehydration unit for Mitsubishi that will reduce natural gas use at the ethanol plant by replacing our molecular sieves molecular sieves, which are use a significant amount of petroleum gas to generate steam.
With an ethanol water separation unit that operates electrically.
With electrically powered equipment. This upgrade to using an electric ethanol dehydration system is expected to reduce the carbon intensity of our fuel and was partially funded by a $1.5 million energy efficiency grant and about $5 million of debt funding from Mitsubishi chemical.
Second in June we installed five new stainless steel tanks stainless steel storage tanks, and loadout, increasing our storage capacity by about 250000 gallons.
Which will provide us additional flexibility for operation of the new dehydration system in the plant for other applications.
Three.
We installed.
Installing a $10 million solar panel and micro grid array with battery backup to further reduce natural gas consumption by replacing carbon based natural gas with zero carbon intensity solar electricity, while optimizing energy used throughout the ethanol plant. This solar project is funded by an $8 million, California energy.
Commission Grant we are in the final engineering stages of.
The PV Microgrid system and expect to make an announcement shortly regarding our solar construction partner and will launch construction in the third quarter of this year.
We are designing and building fourth and last our last to upgrade project, we are designing and building and.
An electrically driven mechanical vapor recompression also known as MPR system to significantly reduce petroleum natural gas use which is designed to reduce more than 60% of the steam utilizing steam at the Keyes plant. This is partially funded by a $6 million, California Energy Commission Grant the initial process engineering.
Been completed for the MPR system, and we're expected to announce the launch of the project and design build partners in the third quarter as well.
When completed these upgrades are designed to significantly reduced or even potentially eliminate petroleum natural gas use at the ethanol plant and keys.
And reduce or eliminate our steam driven co gen system saving approximately $8 million per year of natural gas and utility pipeline transmission costs are.
Our California by a refinery is being upgraded to primarily operate using high efficiency electric motors and pumps powered by renewable power sources, including our solar micro grid system.
The combination of these new electric.
The new electric membrane dehydration system zero, Sypolt solar and the use of RMG as well as the MBR system is expected to result in a significant reduction in carbon intensity for the fuel produced at our Keyes ethanol plant, making the Keyes plant are sustainable profitable supplier to the <unk>.
California, Biofuels market, Eric Thank you Andy.
Let's review, our new subsidiary <unk> carbon capture.
In October 2020, the <unk> plant in California was identified in our study issued by the Stanford University Center for carbon capture as one of three ethanol plants Sidoti sources in California that have the highest potential return on investment from building a carbon capture and sequestration facility.
<unk> to the oil refineries cement plants and natural gas power plants are comprised of 61 largest <unk> emission sources in California.
Our ethanol plant already captures about 150000 metric tons per Europe cotwo.
And already compresses, the cotwo and the messer liquid location plant into transportable liquid carbon dioxide.
From which we already generate IRS 45, Q tax credits for Sidoti reuse.
Now completing a two month confirmation review of the underground Cotr sequestration formations that were cited in the Stanford study.
We have determined that the keyes plant and the riverbank plant plant site.
Our located above about 7000 foot deep strategy known as a cap rock.
And an 8000 foot deep strata known as a basement rock.
Between the two layers of saline formation that was cited by Stanford as ideal for carbon dioxide sequestration over a long period of time, the cotwo reacts with ceiling to form a mineral that is permanently sequestered underground and does not return to the atmosphere.
We expanded the team managing the <unk> carbon capture subsidiary by adding Megan Hopkins as manager of regulatory and compliance to lead the EPA classics Sidoti injection, well permitting process as well as manage other permitting and regulatory opportunities related to the riverbank site and our diesel plant.
Development process in.
In addition to California permitting experience for industrial and commercial projects Megan worked at Chevron for 10 years, and recently managed chevron's global waste remediation.
And phase one of the <unk> carbon capture project, we plan to inject up to 400000 metric tons per year of Sidoti emissions from our biogas ethanol and jet diesel plants into two sequestration wells, which you plan to drill near our two Biofuels plant sites in California, we are expecting to construct <unk> injection wells.
<unk> that have a minimum of four 1 million metric tons per year of injection capacity per well.
Then build the above ground compression facility for an additional $1.6 million metric tons per year of Cotwo gas compression capacity. After the initial the initial 400000 tons per year is operational.
We are in active discussions with multiple <unk> emission sources that would generate <unk> credits and IRS 45, Q credits, including major oil refineries in California, and direct air capture companies.
Regarding the supply to embed us of up to 2 million metric tons per Europe <unk> for phase two of the <unk> carbon capture project.
The initial phase of construction includes drilling to characterization wells to provide empirical data for the EPA classics permit.
The injection wells will then be drilled after receiving EPA and other permits we are currently in the engineering and permitting process for the two characterizations wells with the expectation that we can drill the first characterization well in Q1 of next year.
Let's discuss our carbon zero renewable jet and diesel fuel project using negative carbon intensity hydrogen.
In riverbank, California.
We are pleased that the <unk> carbon zero by refinery underdevelopment in riverbank, California near Modesto continues to achieve major milestones after.
After several years of work earlier this year, we announced the issuance of 19 separate air permits related to the riverbank refinery otherwise known as the ATC or authority construct to construct permits.
Further amendments to the permits are planned as a part of final engineering work.
We are currently in the engineering phase of the jet diesel plant to support the closing of 20 year USDA debt financing.
During Q1.2021, we signed a technology agreement with actions of France for the catalyst and process technology for the jet diesel plant. We also signed an agreement with Coke project solutions as a project manager for the engineering phase of the jet diesel project, which accelerated the pace of project development toward construction we.
Recently completed the engineering scope of work that was managed by Coke.
Now moving to the EPC engineering and contracting agreements with the expected EPC contractor.
We have engaged <unk> as the owners engineer for the jet diesel plant based on more than five years of work on projects with a medicine. We also announced that Cook project solutions had signed a design and engineering agreement with Worley, a $7 billion Global engineering firm that is doing engineering work for the large Phillips 66 renewable diesel plant.
In the San Francisco Bay area.
<unk> has now completed its primary scope of work and is working with <unk> to support the completion of the EPC agreement.
Recently, we identified a global EPC that is is converting a california oil refinery into a renewable diesel plant and last year completed the initial engineering design for a facility using the <unk> technology.
The goal of the permitting and engineering process is the financial closing of the 20 year debt fund funding since a medicine has already invested about $32 million of equity and grants into the project.
The riverbank jet diesel plant is designed to produce 45 million gallons per year of renewable jet and diesel generating more than $230 million per year of revenue and more than $65 million per year of positive cash flow.
We plan to expand production to 90 million gallons per year at the riverbank site by year 2025, as part of our five year plan to generate approximately $460 million of revenues from renewable diesel and aviation fuel and $130 million of annual patch positive cash flow.
The riverbank plant is designed to use waste orchard wood and other waste biomass such as dead Forest wood to produce cellulosic hydrogen, which will hydro treat vegetable and other renewable oils to produce jet and diesel fuel.
Let's review, our biodiesel business in India.
Our Universal Biofuels subsidiary in India bid on a portion of our $900 million biodiesel purchase tender offer for about 225 million gallons issued by the three India government oil marketing companies do.
Due to increased feedstock prices the OFC bidding process for months in 2021 have not resulted in prices that have been accepted by biodiesel producers.
The process continues with a higher price of crude oil, resulting in higher prices for diesel in India, and increasing the bid prices offered by overseas for biodiesel.
Since our Indian subsidiary has no debt.
He is fully constructed and fully commissioned we are well positioned for rapid revenue increase as large government purchases of renewable biodiesel.
Begin to occur to meet climate change and air quality goals. Once the current Covid crisis facing India begins to subside and the India government procurement activities for biodiesel are expanded.
Let's finish with a brief review of an important innovation, which is in the commercialization process from the <unk> technology development group.
Millions of acres of wildfires, each year and other adverse impacts of climate change continued to create significant losses of property and life, causing alternative uses of Westwood to become a focus of government policy and funding.
Headed by Dr. Gotham Murray as our vice President of Technology development.
Working with our laboratory staff in Minnesota, and at the Keyes ethanol plant in California.
The <unk> technology development team worked with the federally funded joint Bioenergy Institute in Berkeley, California for more than three years and the development of a patented process to extract sugars from low cost waste Orchard and forest Wood feedstocks.
We now hold exclusive licenses to two issued patents that protect us sugar extraction technology for use with waste biomass and with wood from non commercial forests.
By extracting negative carbon intensity <unk> and C. Five sugars from waste wood, we plan to reduce the amount of cornstarch used in our ethanol production process by using negative carbon intensity sugars from wasteful to produce cellulosic ethanol.
Every 10% of our feedstock for ethanol production that is obtained from waste wood sugars. Instead of cornstarch is expected to generate about $30 million per year of increased EBITDA from the Keyes ethanol plant.
The remaining lignin and non converted sugars are designed to be the feedstock for our gas fired unit at the riverbank jet diesel plant.
To produce carbon negative cellulosic hydrogen for the hydro treatment of vegetable and other oils to produce sustainable and diesel fuels.
$3 million, California Energy Commission Grant was awarded to JV, and embed us, which partially funded the years of collaborative work and lab testing that led to the granted patents.
Recently <unk> was awarded a awarded a one $250000 U S Forest service grant to further develop the sugar extraction technology.
After being notified by the department of energy of our successful production plant proposal for sugar extraction from waste Wood. We have now completed the application for $1 million U S Department of energy Grant.
This grant is unique in.
In the event that <unk> awarded the $1 million grant, which will be used for engineering and permitted permitting a production facility. The Doa has set aside up to $40 million of additional grant funding to fund the production plant to extract sugars from locally sourced orchard and forest waste would.
We expect commercial operations to pre extract.
<unk> sugars from Westwood, when the riverbank renewable jet and diesel plant becomes operational.
In summary, <unk> is expanding a diversified portfolio of negative negative carbon intensity projects from dairy renewable natural gas and low carbon ethanol to renewable jet and diesel fuel or.
Our company's values, our long term commitment to building value for shareholders empowerment, 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 taryn.
Thank you Mr. Mcafee, we will now be conducting a question and answer session. If you do have a question. Please press star one on your telephone keypad at this time, if youre using a speaker phone, we ask that while posing your question you pick up your handset to provide the best sound quality.
Again, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time we.
We will take our first question from Manav Gupta with credit Suisse. Please go ahead.
Hey, Andy Thank you for the update on the LNG developments help us understand this a little better.
You expect to have 17 billion online by the end of Q2.
Pipe is coming in by the end of the year Youre RMG trucks are coming in by the end of the year. Instead of only few of these dairies can come online by end of <unk> and similarly from the Samsung <unk> and <unk> like should we expect all 15 to turn up into <unk> of 'twenty, two or will there be a ramp here and if you could walk us through the ramp.
In my remarks, I said that.
I thought we would.
We would be getting the next five dairies on by the end of Q.
Q2 of next year not not the entire 15.
We will begin construction.
On.
The next five within I'm going against within the next 30 to 45 days.
<unk>.
Depending on our permitting status if we can get the subsequent five after that Dan will begin them.
At the end of this year the beginning of next year and then we will sequentially go from there. So I think the I think the goal is to have everything completed by the end of 2022 not by the middle of 2022.
Okay.
22, Okay fine and also help us understand your overall aim to hit with the phase III 52, dairies. How many have you already signed up because the <unk> do you have two advantages do you have a pipe and you have existing relationships on the with the.
Farmers, but then there are some bigger players bigger balance sheet. So how many more data do you need to sign up to get to that 52, and do you think you'd be able to do it when there is competition from the bigger players.
So currently we have about 18 dairies that or.
Either under contract or in process of being under contract will be under contract with <unk>.
Leases signed by all of the next 30 days.
We're in discussions with I'm going to say at least 20 more.
Theories that were in various stages of discussion with some that are located near the pipeline and some that are not some that are that are further away that we would be able to service in different ways going forward. So.
We're still we're still finding a lot of interest from the dairies I think California car.
Carb put out a report.
Believe it was a week or two ago that essentially indicated that the dairy industry was not meeting its goals.
As per <unk>.
Senate Bill of <unk> 83 in terms of the overall reduction so I think that got a lot of people's attention.
<unk> been hearing from from dairy owners that they are concerned about this so I think I think the market continues to be strong for us and we're meeting.
We're meeting a lot of a lot of new dairy so.
To be honest with you I am finding that time is the hardest part in getting out to meet all these folks but we are.
We're still getting a lot of interest and I don't see any challenge in us hitting hitting the.
The stated goal.
In terms of the overall build out certainly not within the next year, but as <unk> announced a five year plan, we expect to be able to stay on track with that.
Okay, and then last quick follow up on a headache is hey, you have our guidance out there of $325 million EBITDA, which has no contribution from carbon capture and sequestration, but even if you stick to 325 is there any other opinion anything that has changed because of which you think that $300.
$5 million will not be achievable, excluding the carbon capture and sequestration.
No I would say the only thing that.
Has had any material impact on the company over the last six months is that there has generally been a lack of enforcement of the renewable fuel standard by the by the administration and this is a bit of a vote.
Wall Street investors, we're making is that they've been voting in favor of the idea that the buy demonstration would comply with federal law and fully reserved.
Enforced the RFS, Michael Reagan's appointments at the EPA.
Specifically condition upon him, saying to Congress that he would fully enforce federal law, including the renewable fuel standard and he was asked that question by Senator Grassley.
We are now in August 2021, and the.
The renewable fuel standard requires.
November of last year, the renewable volume obligation would have been announced now August and has not been announced.
Bit of a test and I think wall Street is watching it closely on how the by the administration.
<unk> supports the two federal court orders that at state of the EPA has been in violation of the RFS and now these to comply with the RFS and so we as an industry.
Are watching that closely as well I think we'll do fine as a medicine, but as an industry. This should be a very strongly sustainable profitable industry. Today. This minute by enforcing federal law and we have not seen that yet so that's an upside that I'm looking forward to seeing happen.
I would say that that upon that enforcement the $345 million becomes very very comfortable within the range of what we're achieving here.
That enforcement, we hit the 325, but it's just the.
<unk> opportunity that the President's should recognize and should follow up on its campaign commitment and enforce the RFS.
Thank you so much for taking my questions.
Sure. Thank you Manav.
We will take our next question from Derrick Whitfield with Stifel. Please go ahead.
Thanks, Ken Good afternoon all.
Hello, there Eric.
Beginning with your carbon zero business I wanted to focus on a couple of feedstock comments from your prepared remarks.
Year to date increase we've observed and feedstock Carl cost across the U S. AUM to ask if you could share your views on the global feedstock markets and speak to the opportunities you could pursue to mitigate some of those feedstock pressures at Europe that Youre riverbank plant.
The jet and diesel feedstock.
Feedstock is different than our current ethanol business as you know our ethanol business uses sugar currently derive derived from corn starch in the future waste wood is also going to be unexpected feedstock used for that but the vegetable and animal oils, which are used in renewable diesel and sustainable aviation fuel.
Our as you know a highly competitive feedstock marketplace, we are uniquely positioned because in India.
India is a second largest export of meat in the world and produces a significant amount of animal tallow, but that tableau product is very difficult to transport. It is essentially a solid at room temperature and so transporting at 1000 miles and then converting it upgrading it to meet the technical specifications of renewable diesel production.
<unk>.
Much less transporting it across the Pacific Ocean has been a very significant barrier to its use in renewable products. However were the largest biodiesel producer in India. We've operated our plant on animal tallow and have.
They have a relationship with a market player that has controlled or about 70% of the market and is seeking a special relationship with a company that has the infrastructure and the approvals to be able to use tallo. So not only can we use tallow and our India plant, but also quite frankly export the product to California produce in our plant in California.
So we plan to use that have unique access to over $1.3 billion peoples used cooking oil and.
And tallow waste product to be able to supply our California plant with what is today.
Do you expect this to continue a very significant discount from the current price of feedstock to use for renewable diesel production.
Terrific and it sounds like certainty.
A great positive for your business.
Perhaps shifting over to the financial side of the equation could you comment on the general purpose of the mix. So you've followed in late July and speak to your interest in raising equity at these levels.
Todd you want to talk about the yes, I'd be happy too so the the shelf as a tool that I think you'd see a lot of companies our size.
Put up in res we are.
We haven't set up as a general purpose shelf covering a variety.
We have it we have mostly put it in place so that when.
When we see that the markets are sort of available and favorable to us that we can we can file an instrument and take advantage of it it takes a while to get a shelf together and up and so we.
We put it up recently just as part of.
Sort of overall corporate hygiene.
Sure that's very helpful. Thanks for your time guys.
Thank you thank you Sir.
We'll take our next question from Amit Dayal with H C. Wainwright. Please go ahead.
Thank you good afternoon, everyone.
Eric.
With regards to the timeline for the initial set of 17.18 dairy Digesters I think in the earlier part of this year you said.
These will be coming online by the second quarter of two integrate to mow. The timeline seems to have moved towards the end of 2022.
Could you help us understand what's driving some of this push out or is it just permitting.
Permitting issues is there anything else that we should be aware of.
Actually I wouldn't even say, it's permitting issues Andi is just being I think accurate in our current visibility is it will take all of 2022 to put 15 digesters and the ground.
The reality is our execution is on time with our biogas upgrading unit or PGD injection unit in our RMG fueling station and Digesters in and of themselves are not particularly.
The difficult thing for us is not a technology.
Our other challenge so it's largely up to how fast our contractors execute.
And we could see an upside to it.
Year end 'twenty to forecast, but I don't think today, we have visibility into what that timing is so I think Andy accurately is assessing our current view, which is it could easily take us into third or fourth quarter next year to complete all 15 of them, but there is certainly an upside to that if we see the contractors move a little quicker than otherwise expect.
We are still operating in Covid and I think unfortunately, probably unexpectedly there've been.
New restrictions on operations in California.
Those are currently not hampering our process, but seemed to show up in surprising ways that we're trying to access labor for these projects. So I think Andy accurately assess that.
Third and fourth quarter next year would be a wrap up of those remaining 10 <unk>.
Digesters in general, though we continue to do even the most difficult part of the process, which is the upgrading units interconnection unit and the <unk> fueling stations on schedule for completion. This year and then it's just a matter of this commodity process of installing.
The digesters at the dairy and interconnecting to our pipeline, which again. We're also building. So the most difficult part is getting done the easiest part assembly labor and execution phase of digester construction.
Should we be looking at.
Those revenues to be recognized.
2023, or when they start so slowly ramping for anybody doing so.
Yes, no. So good question and I guess it gives me the opportunity. This is Andy by the way to further clarify what I was talking about earlier. So so we've got the permit to to build the pipeline. We have a 12 month construction schedule for 32 miles of pipeline most of the contractors have told us they can do it at 10.
<unk> in a little bit of slip time, there because you don't you just don't know what's going to happen when you start digging into the ground, but but we will.
Start construction on the next five dairies.
Said within the next.
30% to 45 days.
The Digesters actually go along pretty quickly it doesn't take very long to build the digesters, especially with the weather we had in California everything is pretty dry. So it's the digester is fairly easy to build.
So we're going to build the pipeline in segments as we add the dairies and so standard source counties 21 miles, we're going to be building that out and.
And the dairies that or the next five years that are connected to that will be obviously the priority. The first part of the pipeline thats going to be built so as we get into the spring of next year and start bringing those first these next five areas.
Onto online and it could be February depending on the kind of winter. We have that does have a little bit of impact as youre digging the digesters and the pipeline, but let's assume that if I'm reading the weather correctly, they are saying thats going to be another la Nina year, which means it'll be dry in California.
We have a favorable construction season, we will start recognizing revenue from those from those.
Digesters as they are brought on we're going to be able to start transmitting gas through the pipeline, we will have our PGD.
By that point and we can start as we bring on the next five areas we will start.
Recognizing that revenue and then as we bring on the five after that we'll start bringing in and so it's not a wait till the end until we until we start doing that it'll it'll happen sequentially as we bring these these new digesters online.
Understood. Thank you for that answer your question.
Yes, yes, okay.
Let's go.
Just last one for me you guys on the Capex side with the progress, we're making with permitting and getting everything ready and the engineering side.
It is.
A lot of that capex going to be felt.
'twenty two.
Or will that start.
Already showing up in.
What are you wanted some.
We announced about $12 million of Capex in the first two quarters of 2021.
Assuming we were going to we haven't done the math on it but we will see another gas cleanup unit pipeline in itself will probably see another $20 million plus in the second half of 2021, maybe $30 million I think about the guests upgrading some other things.
And then in 2022 first two quarters will be completion of the pipeline.
And.
I have another $12 million plus the digesters. So we're seeing quarterly of roughly roughly $10 million a quarter of capex happening.
Thank you.
Alright, guys Thats all I have thank you so much.
Sure. Thanks, I Shouldnt remark again these are onetime costs, we have with gas up.
Grading interconnect R&D fueling stations, even the pipeline or sort of one time.
That then get spread over the Digesters. So after this cycle of construction that Andy was talking about then we just have the onsite dairy digester and hydrogen sulfide cleanup.
That interconnects to the pipeline so.
With the pace of our digester construction is expected to accelerate as we move into that phase right now, bringing on a dairy digester in the next 30 days would generate no revenue at all.
Without.
Without a pipeline and interconnection. So are our rollout here is to get pipeline and in connection in our first three.
<unk> started immediately and then scale up with additional Digesters.
Andy mentioned, you didn't put a timing on it but.
<unk> a digesters at 90 to 120 day process as long as you have reasonably favorable weather.
So it's not a it's not a long one year process we're doing.
Well move to our next question from Jordan Levy with tourists Securities. Please go ahead.
Thanks for all the commentary equivalent great to hear.
<unk> I wanted to.
Talk quickly on the carbon capture side of things good for new business that seems to be progressing relatively quickly, which is certainly encouraging just wanted to get a sense of how you are all thinking about the capital requirements there outside of the injection wells themselves.
We work with the third parties to secure off take agreements and for internal capture volumes.
Our plan with our carbon sequestration process is to build the two characterization wells each wells budgets about $4 million and spend a couple of million dollars in the permitting process consultants.
<unk> and <unk> seismic and some other stuff going on.
All in it's about a $10 million, we estimate about 18 months process, that's highly variable depending on how the EPA resources their process, but we think getting to characterization wells and the empirical data in front of the EPA gives us an opportunity to.
Potentially get a classic license by the end of next year, and we would then be well positioned to actually drill the injection wells in 2023.
<unk>.
The actual process, though of equity funding would be the $10 million after that and the USDA renewable energy for America program as well as several programs with the department of energy.
Would be able to match that that $10 million with Doe funding or USDA funding to build the actual 1 million tons per year of underground capacity, so thats the casing.
<unk> and the other well development will be funded using government guaranteed debt.
Once we do that we have 400000 tons per year of capacity from our existing biofuels plants.
Would have up ground above ground equipment, compressing that and injecting into the wells and would have been basically funded with $10 million of equity and then USDA or do loans at that point, we have contracts, we're negotiating with major oil companies and actually a couple of direct air capture companies.
We would bring online and would incur additional capex for above ground compression. So the above below ground construction would be completed but the above ground compression units would then be installed and that that would be a secondary financing, but we based upon running a business that at that point in time is estimated to have.
Roughly 75 billion GAAP revenue.
I am sorry represented 5 million of cash flow from about 100 million of revenue just off of our own cotwo. So as you can see what we've designed this to be as reflective of where the real risk is which is getting the two characterizations wells drilled and getting the EPA classics license once you have that.
Fairly easy to debt finance, the rest of the process and we're doing that debt financing in two phases take advantage spec we control.
Certain amount of the Cotwo sales.
<unk> can generate positive cash flow from that that generates the equity for the rest of it.
The reason we've done this phasing as we have no appetite for a large equity raise at this price.
Even in this range of prices.
Our shelf offering is set up with the idea it gives us flexibility as the evaluation of the company.
Increases significantly reflecting the value of this operation we are doing in biogas, our offtake agreements with renewable jet and diesel project. So just a number of other things we're doing with significant milestones that were continuing to achieve.
But we do not have any appetite to use a significant equity raise to fund carbon sequestration.
With a budget of only $10 million of next 18 months.
To create a tremendous amount of shareholder value. We are I think well positioned to do this without potentially any dilution to shareholders.
Thanks for that Eric and that's a nice segue into my next question on the financing side of things.
We noticed in your 10.
<unk> 10-Q.
Some changing in wording around the ability to extend maturities to 2023 on most of your debt structure.
I know you've talked to this briefly in your prepared remarks, just wanted to get a little more color on that and then additionally, what sort of options between might look into as a means of simplifying some of that debt structure as we move forward and some of the longer term growth projects you're working on.
Sure.
We have a what.
12 year plus relationship with third eye capital that has had more than 25 amendments in the course of that relationship and so yes, we've extended that relationship out over the past 12 months, but.
Market conditions are such that we're now seeing.
A lot of appetite for environmental social and governance ESG kinds of projects and certainly transition investors, formerly in oil and gas now looking to get in renewables have brought additional capital in the market and climate change focus capital has become.
Our focus on this market. So we recently saw renewable energy group completed a $550 million.
Green bond that was at five 8% interest rate it has traded well post offering and we.
We also this week saw.
Opa with the Sanofi.
The solar.
Solar company completed a $400 million Green bond again at about five 8% was sold at a slight discount, but it seems to be trading wells and so we're seeing institutional investors come into the debt side of the balance sheets of renewable energy companies and this is a rather new development. It shows our confidence in the rates.
Tori framework that these companies operate under.
And I think our company is well positioned to be one of those green.
Green bond participants as well as I've already mentioned, the United States Department, The department of energy and the California.
Pollution control district private activity bonds three markets. We're already in in addition to the Green bond market. So we are working diligently with what we consider to be.
Some of the world's leading investment banks in these markets and certainly looking to simplify our capital structure with longer term financing but.
Lower our cash cost so we can invest our equity and growth and I think that strategy is well positioned in the current marketplace to be successful in the third and fourth quarter of this year.
Thank you very much Eric and thank you, Todd and Andy as well.
Thanks, Thank you.
We will take our next question from Todd Firestone with Evercore. Please go ahead.
Okay. Thanks for taking my question.
A couple of marathon.
I'm trying to think about what can be the Max Cadillac.
Riverbank, what would you be.
A little color of what we should be looking for SEC.
Half of 'twenty, one or in the 2022.
There are off take agreements that we announced in I think it was late Q1 for renewable diesel as well as sustained late to enable aviation fuel. We are currently in contract negotiations with multiple airlines and actually a consortium of airlines for sustainable aviation fuel and we have.
Three primary renewable diesel off takers that we're currently.
Basically selecting which relationship we're going to be moving forward with but we have three very active.
Bidders, let's call it and our renewable diesel business. So those would be milestones I would expect we would achieved in the third quarter. Those offtake agreements are going to be matched with milestones and engineering gave some disclosure today about some of the progress we've made on the engineering and permitting side of the business and that continues to move very steadily.
Toward a closing of project financing, which I currently expect it's going to be a Q1.
Next year so.
That's a slight slip from Q4, but Q4 is definitely possible possible. We've just seen a re.
Mission of this COVID-19 kind of.
News and it seems to slowdown in government and commercial lenders. So I think it's Q1 of next year's one project financing is currently expected to occur.
That's great. Thanks.
Maybe just one on India.
Quite a bit of color.
How business can improve the size of the market how can we think about.
The timing of a real step change in revenue generation or is that a 2023 upon or maybe.
Maybe a little color on what needs to happen to.
Kind of.
Transmission that revenue too.
Materially higher revenue.
There is there is two things that could.
The upside opportunities for India for US number one is simply the government.
Despite the Covid.
Delays moving forward with its national Biofuels policy, which is a 5% blend of about $1.5 billion gallons of biodiesel.
That's 1 billion gallons more than the current capacity in the country. There is increasing focus on climate change certainly in the United Nations issuing its recent report, claiming that we're already past the point of no return on climate change.
Theres just a lot of factors that would lead the Indian government to want to more.
More aggressively enforce its current law, that's really the number one factor for US is that everybody's is showing the right.
Steps in the right direction does slow steps have been slow the second would be a fall in feedstock prices, we have sourcing as I mentioned of tallow and we're going through a.
The current process in which we potentially could be using that.
And production in.
Much more expanded basis so.
Access to lower cost local feedstocks is certainly part of our strategy that could position us well for rapid growth in India, So either one or both of those coming together.
Could could rapidly expand our India plant.
That's great I appreciate it thank you.
Sure. Thank you.
We will take our next question from Ed Woo with <unk> capital. Please go ahead.
Yes. Thanks for taking my question a quick housekeeping question have you guys recognize any revenue from the App.
Biogas project GAAP.
Yeah.
We are currently showing that through our ethanol plant, we are using that biogas to run our ethanol plant. So our ethanol carbon intensity is lower now that we've got a pathway approved.
But it's being monetized through ethanol revenues right now.
Great and then my last question is.
What do you view as the price of oil and how would that impact you absent any changes in the renewable fuel standard that doesn't change how would the price of oil impact your ethanol business.
Hi.
I don't think the price of oil is going to directly have a very material impact on ethanol. We will definitely have a material impact would be a strong enforcement of the renewable fuel standard, which is 15 billion gallons per year, plus a 500 million gallons quarter order issued by the federal Court in July of 2017.
Biden administration simply follows federal law will have a $15.5 billion gallon market demand, which will be a very robust.
Demand for the ethanol molecule and I think that has the most direct impact on our margins in the current market.
Alright, great well, thank you for answering my questions and good luck.
Thank you Matthew.
We will take our next question from Marco Rodriguez with Stonegate capital. Please go ahead.
Hey, guys. This is Dylan <unk> filling in for Marko today.
But thank you for taking my question.
I just wanted to see if you all could provide.
A quick update on your investment in Evo Motors.
Sure.
We have a strategic ownership in NEVA.
And we have kept the specifics of the operation of the knee, though off the radar screen, primarily because of the rapid expansion of our core business, including entering the carbon sequestration business, which occurred after our NEVA motors activity. So NEVA is a stated.
Our goal already of using Biofuels as range extenders for electric trucks and that strategy continues to get a lot of investor attention and so we see future activity at <unk> that will be very beneficial to shareholders, we own a little less than 20% of the company, but it is.
Utilizing a medicines existing existing infrastructure.
Biogas fuelling facilities at for Everbank and other things, we have as a medicine, rather than our cash and so our.
Our expectation is that over the next 12 months, we'll see some.
More public disclosure of the knee, though product line and how that strategy is being implemented but we have not highlighted it because we don't want investors to be confused that a medicine. How is an electric truck company, because we own some shareholdings in a.
Expanding biofuels range extender application of our existing core business.
Got it got it.
And then one more question, there's just been a lot of discussion of climate change and is in big pushes by governments.
Automakers to drive significant levels of electric vehicle sales and how are you all kind of looking at this trend impact your business.
I think that.
Investors event.
Increasingly are looking at how do you make electricity is something thats not carbon intensive over 50% of electricity in the United States is made from coal or petroleum natural gas, which is very highly carbon intensive more than frankly gasoline.
So our biogas negative 426 carbon intensity.
Is certainly one of the most carbon negative electricity sources in the world and easily displaces petroleum natural gas is a better.
Energy source for electric vehicles, and so as these initiatives are adopted to rapidly expand charging infrastructure.
Electric vehicle.
Models increase in number.
The carbon intensity of fuel I think is going to become a central issue running electric vehicles on coal.
Isn't necessarily a step forward when that coal carbon intensity is higher than that of gasoline or diesel and so I think our biogas is an expanding market opportunity feeding the electric vehicle Revolution.
And as our discussion we just had about NEVA motors.
I think that the electrical vehicle Revolution as you start carrying heavier cargos ends are demanding more and more of batteries and that the range in capacity of larger vehicles needs a range extender at that range extender is petroleum diesel or petroleum gasoline the carbon intensive.
<unk> of that electric vehicle ends up being impeded. So you end up having an opportunity for our biofuels such as ethanol.
Or biogas to be Houston.
And range extenders to basically make your electric vehicle carry a heavy cargo and go farther than what the batteries can contain so.
We ended up at <unk>, playing both the electricity roll in electric vehicle and also the biofuel range extender fuel when that electric electricity has run out and the battery is no longer.
Can can carry what was originally obtained from the wall SEC and essentially.
And I think investors increasingly are going to start understanding it's really about carbon intensity.
Even a gasoline or diesel vehicle can have electric drivetrain.
It's really worthy.
Electricity come from what energy sources of income from whether it was cole or petroleum natural gas or negative 426 carbon intensity of medicine biogas is going to end up being the primary driver of these discussions as people understand that climate change is what really fighting here, it's not really a question of the drivetrain drivetrain.
Vehicle.
Got it I appreciate the color. Thanks.
Thank you Dylan.
There are no further questions at this time I would like to turn the floor back over to management for closing comments.
Alright, thank you.
We appreciate the med as shareholders and analysts and others, who joined US today. Please review the <unk> corporate presentation, which is on the <unk> website.
And we look forward to talking with you about participating in the growth opportunities at <unk> in the future.
Thank you for attending today's <unk> earnings Conference call. Please visit the investors section of the <unk> website, where we'll post a written version and an audio version of this <unk> earnings review and business update.
Karen.
Thank you. This does conclude today's teleconference. We thank you again for your participation you may disconnect. Your lines at this time and have a great day.
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