Q3 2021 Aemetis Inc Earnings Call
Okay.
Welcome to the Amyris third quarter 2021 earnings Review conference call. At this time, all participants are in a listen only mode.
Brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. Todd Waltz, Executive Vice President and Chief Financial Officer of a medicine. Mr. Waltz, you may begin.
Thank you Paul and welcome to the <unk> third quarter 2021 earnings Review Conference call.
Winning us today for the call is Eric Mcafee, founder Chairman and CEO of <unk> and Andy Foster President of a medicine advanced fuels and a modest biogas.
We suggest visiting our website at <unk> Dot Com to review today's earnings press release, the <unk> corporate and Investor presentations filing with the Securities 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> Dot Com website.
Before we begin our discussion today I'd like to read the following disclaimer statement.
During today's call, we'll be making forward looking statements, including without limitation statements with respect to our future stock performance plans opportunities and expectations with respect to financing activities and the execution of our business plan. These.
These statements must be considered in conjunction with the disclosures and cautionary warnings that appear in our SEC filings.
Investors 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 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 the call today 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 September 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.
Now I'd like to review the financial results for the third quarter of 2021.
Revenues during the third quarter 2021 were $49 9 million compared to $40 $9 million for the third quarter of 2020, our North America operation in the third quarter of 2021 as compared to the third quarter of 2020 experienced an increase in the selling price of ethanol from one.
<unk> 59 per gallon to $2.84 per gallon.
But also saw an increase in the delivered corn price from an average of $4 92 per bushel during the third quarter of 2020 to $7 99 per bushel during the third quarter of 2021.
Gross loss for the third quarter, 2021 was $4 $8 million compared to a gross income of $771000 during the third quarter of 2020.
Gross margin was negatively impacted by the establishment of a reserve of $5 3 million for California emission compliant credits for the Keyes plant in September.
Selling general and administrative expense were $5 $1 million during the third quarter 2021, compared to $4 $6 million during the third quarter 2020, as a result of period expenses, specifically personnel and insurance incurred as part of the development of our low carbon and negative carbon intensity.
<unk>.
Operating loss was $9 9 million for the third quarter 2021, compared to an operating loss of $3 8 million for the third quarter of 2020, principally driven by the establishment of a reserve of $5 3 million for California emission compliance credits related to our ethanol plant operations.
Interest expense during the third quarter of 2021 was $5 $5 million.
Excluding accretion and other expense in connection with series a preferred units in our Metis biogas LLC subsidiary compared to $6 $5 million during the third quarter of 2020. Additionally.
Additionally, our <unk> biogas subsidiary recognized $2 $2 million of accretion and other expenses in connection with preference payments on its preferred stock during the third quarter of 2021 compared to $1 $8 million during the third quarter of 2020.
Net loss was $17 6 million for the third quarter of 2021 compared to a net loss of $12 2 million for the third quarter of 2020.
After adjusting for the establishment of a $5 $3 million compliance reserve net loss would have been $12 2 million or 39 cents per share.
Cash at the end of the third quarter 2021 increased to $6 $4 million compared to $592000 at the end of 2020.
Capital expenditures increased property plant and equipment by $18 $8 million driven by investments in our low carbon and negative carbon intensity initiatives.
Company debt decreased by $44 $6 million by the end of the third quarter of 2021 compared to December 31 2020.
As we enter into the fourth quarter ethanol pricing is rebound strongly with current pricing at $3 50 per gallon in todays market. While at the same time. The average delivered cost of corn has decreased to about $7 50 per bushel.
These market changes indicate a healthy fourth quarter for our traditional fuels business, while our construction teams continue to move forward with the engineering and construction of the low carbon projects.
That completes our financial review of the third 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.
Eric.
Thank you Todd.
<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.
45, <unk> carbon sequestration tax credits and blenders tax credits, while reducing operating costs by using waste materials is feedstock.
In early 2021, we announced a five year plan to grow to more than $1 billion of revenue and $325 million of annual cash flow. We are on track with the five year plan. This year, we have paid $63 million on the higher interest rate bridge loans from third eye capital. We're also on track with financing growth.
Using long term 20 year low interest rate project financing from the USDA Department of energy and municipal bond markets.
Importantly, our third quarter earnings are on track with the five year plan after adjusting for the establishment of a one time $5 $3 million reserve for Californian emission credits related to the Keyes ethanol plant. Our net loss would have been $12 2 million for the third quarter, which is a negative <unk> 39 per share which is in line with our growth.
Both plan.
Positive regulatory trends for renewable fuels have continued to improve by the passage of the federal infrastructure investment and jobs Act last week. This legislation supports all of the medicines low carbon renewable fuels businesses in both the U S and in India in various ways.
The USDA and department of energy loan programs have received of billions of dollars of expanded funding to provide 20 year, 6% to 8% low interest rate government guaranteed or direct loans, a medicines working closely with these organizations to provide funding for the 52 dairy biogas Digesters pipeline project.
The sustainable aviation fuel and renewable diesel plant and the carbon sequestration project that is under development.
Second the biodiesel and renewable diesel products to be produced at the riverbank carbon zero plant will benefit from the five year extension of the $1 per gallon tax credit instead of requiring Congress to act annually.
It adds greater stability and predictability as we proceed with our project to produce renewable diesel and sustainable aviation fuel.
Third in.
In addition, the sustainable aviation fuel produced by the riverbank plant will generate up to $1 75 per gallon tax credit.
Fourth the carbon sequestration projects will receive $85 per metric ton of federal tax credit up from $60 per ton.
The tax credits are expected to be paid in cash each year under the direct pay structure with our planned 2 million metric tons per year of <unk> injection. The direct pay program could provide $170 million per year of funding to the <unk> carbon capture and sequestration project directly trans.
<unk> from the federal government.
During the third quarter of 2021 and met its achieved important milestones towards revenue growth and sustained profitability in each of our four lines of business.
Now Andy Foster the president of the Meadows biogas and a medicine advanced fuels businesses will review highlights of our renewable natural gas and ethanol businesses Andy Thanks, Eric.
Excuse me as Eric mentioned, we are focused on producing below zero carbon intensity products and.
Including the production of negative carbon intensity renewable natural gas and renewable fuels.
Excuse me a Prime example is our dairy based renewable natural gas business, which recently marked the one year anniversary of commercial production in September are in.
<unk> is a 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.
Let me take a moment to update you on some key milestones achieved as we build out 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 and commenced operation of the first two covered lagoon, digesters, including onsite dairy biogas cleanup and pressurization.
Four mile pipeline owned by aim at us in a boiler unit used to.
Boiler unit to utilize the biogas as process energy at the Keyes plant, which allows us to monetize the <unk> credits through a lower Ci score for the ethanol produced.
During Q1 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 and natural gas.
In addition to the two dairy Digesters and four miles of gas pipeline. Currently in operation. We are now building phase two of the biogas project, including the main biogas cleanup facility the utility pipeline interconnection unit and RMG fueling station at the Keyes plant and an additional 15 days.
Digesters and 32 miles of biogas pipeline.
Each of these project components are on schedule for completion of phase two in the third quarter of next year.
We have now signed agreements with 22 dairies to install Digesters. We are in advanced discussions with five more dairies, representing approximately 10000 cows that we expect to sign in the current quarter and have more than a dozen additional dairies in under discussion.
As the pipeline in Digesters or built we are also receiving inquiries from other local dairies in the area, who would like to participate in the <unk> Biogas project.
This week Pacific gas and electric achieved mechanical completion of the gas interconnection unit that connects the <unk> biogas cleanup facility to the <unk> natural gas pipeline, we expect the interconnection system to be fully installed by Thanksgiving with commissioning to be completed in January 2022, when the <unk>.
Gas upgrading facility becomes operational.
During the third quarter, we began construction of the main biogas upgrading facility located ease ethanol plant to convert dairy biogas into renewable natural gas. The foundations have been completed the major equipment has been placed the roof structure and fire prevention systems have all been completed and now electrical systems and.
<unk> equipment are being installed.
Biogas upgrading facility is scheduled to be completed in January 2022.
During the third quarter, a medicine was granted an encroachment permit to use the right of way and local county roads for construction of the 'twenty to 'twenty, one mile Stanislaus County segment of our pressurized biogas pipeline.
Five additional digest your projects are now permitted and construction is underway with expected completion of these five digesters and related pipeline in the first half of 2022.
To connect the next five dairy is to our existing biogas pipeline. The installation of six five miles of the seven miles required for the new biogas pipeline will be completed weather permitting in the next few weeks.
Excavation of two of the next five dairy Digesters has been completed and the remaining three digesters will be under construction in the next two weeks.
The next five died dairy digester biogas cleanup skids, which are fully modularized modularized will be delivered next week for installation at the five <unk> currently under construction.
A USDA guaranteed loan under the renewable energy for America program known as reap is nearing completion for our $50 million financing for dairy Digesters gas cleanup and pipeline construction in about at about a 6% interest rate to be repaid over 20 years. The term sheet was signed with the bank.
In May of 2021, and closing is expected by the end of this quarter subject of course to delays associated with upcoming holidays and.
An additional $50 million USDA refinancing is in process for closing in Q2 of 2022 with another $50 million expected to close in Q4 of 2022 on the same terms.
Overall, the second half of 2021 has been highly productive to have been a highly productive period for advancing the construction of the merit a medicine dairy renewable gas project and we continue to sign up additional dairies to further expand our digester network. We've made some key new hires on our biogas team, including an experienced.
Senior dairy digester operations manager, who recently managed 10 theory biogas Digesters in California Central Valley, and a construction supervisor with extensive civil engineering and construction project management experience.
Our pipeline construction manager, a 30 year industry veteran who supervise the installation of our phase one pipeline, while working for our lead contractor has instituted a number of best management practices that have resulted in cost savings and scheduled acceleration.
The <unk> R&D team is in contract review with a number of expected RMG Offtake partners and we expect to begin announcing these agreements by the end of the current quarter.
To date a minutes as has been awarded approximately $23 million worth of grants from the California Department of food and Agriculture, The California Energy Commission <unk> energy efficiency program and other government agencies for the dairy biogas project in the production of renewable natural gas.
The <unk> initiative has many natural synergies with our Keyes ethanol plant, which uses agricultural feedstock that absorbs cotwo from the atmosphere during plant growth from which our production facility produces ethanol in our high value animal feed.
The <unk> ethanol plant produces approximately 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 to feed more than 100000 cows those cows eat the renewable feedstock.
Produced by <unk> and create waste, which in turn produces the methane we capture for the production of RMG.
Trucks involved in our ethanol animal feed sustainable aviation fuel renewable diesel and carbon sequestration businesses will be we'll be able to be fueled by our RMG.
By our RMG at compressed natural gas fueling stations at locations throughout California, or at our onsite RMG fueling station at the Keyes plant.
Let's take a moment to discuss our California ethanol plant.
As Todd mentioned earlier, we saw a 50% year over year increase in revenues from ethanol sales in the third quarter compared to last year since the economy began to reopen in the first half of 2021 demand for ethanol has been robust and ethanol margins have improved significantly in the current quarter high.
High corn prices reduced profitability in the third quarter with a tighter corn supply and ongoing logistical issues with the railroads.
An increase in the price of ethanol from about $2 50 per gallon to today's $3 50 per gallon in California has significantly improved margins. While margins also posit were also positively impacted by a decrease in the delivered price of corn over the past few months for more than $9 per bushel.
This past summer to today's $7 50 per bushel.
While U S domestic gasoline demand has been favorable at approximately 95% of 2019 levels.
S ethanol exports have lagged for the first three quarters of 2021.
<unk> imports, especially.
California from Brazil, Brazil, especially persistent in the third quarter of 2021 due to higher fuel prices higher prices received by Brazil ethanol producers as a result of California's low carbon fuel standard.
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 that to continue.
Let me just take a few moments to provide an update on the projects that are expected to increase cash flow by approximately $23 million when the projects are fully completed.
The Keyes ethanol plant is operating at full capacity of about 65 million gallons per year, taking advantage of strong ethanol distillers corn oil and distillers grain pricing.
The ethanol plant is completely sold out of wet distillers grain with more than $2 2 million pounds per day being delivered to dairies using about 45 truckloads per day.
We are delivering more than 30000 gallons per week of distillers corn oil at favorable prices driven by the use of non edible corn oil and biodiesel and renewable diesel production as well as poultry feed.
The Keyes plant produces approximately 400 metric tons per day of Cotwo, which is being upgraded compressed compressed and delivered to local food processors by messer, which generates about $4 $5 million per year of tax credits at $30 per metric ton under the current law.
The Mitsubishi Zebra, <unk> unit, which separates ethanol and water has been fully installed test runs have been completed and the system has been meeting or exceeding the key system design milestones the goal of significantly reducing steam consumption in the plant has been demonstrated in stable operations with a reduction of from.
21000 pounds of steam per hour to less than 5000 pounds of steam per hour. Since steam is currently mostly produced from carbon intensive expensive petroleum natural gas the 75% reduction in steam used for ethanol dehydration reduces our operating costs and increases our revenues through lower carbon intensity ethanol.
Additional optimization is currently underway and we expect to commission the <unk> system during Q1 of 2022.
Additionally, we expect to sign an EPC contract with Sunpower for the installation of $12 million solar array with battery backup and micro grid by the end of this month <unk>.
Detailed engineering is already underway permitting is in process.
Power interconnection agreement with the utility district is being arranged and equipment procurement is expected to begin in December.
The solar unit is designed to generate approximately one five megawatts of zero carbon intensity electric power at low cost, especially considering the $8 million, California Energy Commission grant that funds two thirds of the total project cost.
Finally, the mechanical vapor recompression system to further reduce our petroleum natural gas and steam use is moving forward with detailed negotiations underway for engineering procurement and construction.
When completed these upgrades to the Keyes ethanol plant are designed to significantly reduce or even potentially eliminate petroleum natural gas use at the ethanol plant.
We also expect to reduce or eliminate our steam driven turbine cogeneration system saving up to $14 million per year of natural gas and utility pipe transmission costs.
Our California bio refinery is being upgraded to primarily operate using high efficiency electric motors and pumps powered by zero carbon intensity renewable power sources, including our solar array in local hydroelectric power.
In summary, operational performance and project milestones for the <unk> biogas, an ethanol plant businesses are on track with the five year plan Eric.
Thank you Andy Thank you all for for all the excellent work that your team is doing.
Let's discuss our carbon zero renewable jet and diesel fuel project using negative carbon intensity hydrogen from waste Orchard wood in riverbank, California, we're pleased that the <unk> carbon zero by refinery underdeveloped in the riverbank near Modesto continues to achieve major milestones.
Recently, we announced a $1 billion sales agreement with Delta Airlines to supply 250 million gallons of blended sustainable aviation fuel over 10 years at the rate of 25 million gallons per year.
One is blended Saf the contract provides for 10 million gallons of neat and blended Saf combined with 15 million gallons of petroleum jet fuel each year.
Under the Delta Airlines agreement the meat Saf will be trucked from the riverbank production plant to a tank farm and the bay area for blending with jet fuel the blended scf will be delivered via pipeline to San Francisco Airport Airport for use by Delta Airlines.
We are in final contract review for additional aviation fuel agreements with other major airlines, including Foreign Airlines that service, the San Francisco and Los Angeles airports, we expect to announce about $3 5 billion.
Of additional aviation fuel sales agreements starting later this month and continuing through the second quarter of 2022.
In addition to major U S and International Airlines, we've received a high level of interest from leading private jet FBS due to corporate jet owner interest and sustainable aviation fuel for example.
Oh chains with California locations have requested us to truck blended sustainable aviation fuel to Aspen and Vale airports for use by corporate and private Jets. In addition to California locations.
In addition to the $4 5 billion.
<unk> sustainable aviation fuel sales agreements that we have signed or expect decided in the next few months.
We are in final contract review for a $3 billion of renewable diesel sales agreement to deliver 45 million gallons per year under a 10 year sales contract with a major truck stop chain for its California locations.
Construction of the renewable jet and diesel plant is moving forward steadily. We are currently in the engineering phase to support the closing of the $125 million of 20 year USDA debt financing because its already been side with the USDA and an additional $100 million of USDA renewable energy for America funding that has been reviewed with the USDA.
Yeah.
We announced that the $2 billion global EPC contractors see PCI has begun the engineering work to support completion of the permits and the EPC agreement.
<unk> is currently constructing a 225 million gallon renewable diesel plant in Bakersfield, California, just south of our location with planned completion in mid 'twenty two.
2022, I'm, sorry, and is ideally suited to construct the <unk> plant quickly and efficiently.
The <unk> five year plan announced that phase one of the riverbank jet diesel plant is designed to produce 45 million gallons per year of renewable jet and diesel fuel generating more than $230 million of annual revenue and more than $65 million per year of positive cash flow.
We plan to expand production in phase II plant construction 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 and $130 million of annual positive cash flow from renewable jet and diesel production.
However.
The five year plan that we announced in Q1 'twenty. One 2021 did not include the value of the $1 per gallon federal tax credit due to the uncertainty of the incentive the recent passage of the infrastructure Act has provided stability in the incentives. So we expect to add the $1 per gallon for 45 million.
As per year of renewable diesel and $1 75 per gallon for 45 million gallons per year of sustainable aviation fuel to our updated five year plan that we expect to release in Q1 2022.
The riverbank plant is designed to use waste orchard wood and other waste biomass such as dead Forest wood to produce cellulosic hydrogen using zero carbon intensity hydroelectric power and vegetable and other renewable oils to produce sustainable aviation fuel and renewable diesel fuel combined with carbon sequestration asked.
Riverbank site, we expect a negative 10 carbon intensity for our aviation fuel and renewable diesel.
Let's review, our new subsidiary in Medicine carbon capture.
In October 2020, the <unk> plant in California was identified in our study issued by the California, I'm sorry, the Stanford University Center for carbon capture.
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.
Compared to oil refineries cement plants and natural gas power plants that comprised of 61 largest cotr mission sources in California.
Our ethanol plant already captures about 150000 metric tons per year of Cotwo and already compresses. The cotwo in the Messer liquefacient plant into transportable liquid carbon dioxide from which we already generate IRS 45 tax credits worth $30 per metric ton from CEO to reuse.
Current operations generate up to $4 $5 million per year of tax credits for the medicine.
We selected Baker Hughes as the drilling vendor for the carbon sequestration project.
A $20 billion market value company operating in more than 120 countries. Baker Hughes was originally founded in the west side of the Central Valley of California about 100 years ago and the company is very familiar with the formations and the former inland ocean that form the central Valley.
Carbon sequestration study prepared by Baker Hughes determined that the <unk> Keyes plant and the riverbank plant site are located above a 7000 foot deep strata known as a cap rock.
And an 8000 foot deep strategy known as a basement rock between the two layers is a saline formation that was cited by Stanford University as ideal for carbon dioxide sequestration.
For a long period of time.
<unk> reacts with ceiling to form a mineral that is permanently sequestered underground, it's not returned 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 to manage other permitting and regulatory opportunities related to the riverbank site and our jet diesel plant development process.
In addition to central California, permitting experience for industrial and commercial product 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 <unk> emissions from our own biogas ethanol and jet diesel plants into two sequestration wells, which we plan to drill and there are two biofuels plant sites in California.
We are expecting to construct <unk> injection wells that each have a minimum of 1 million metric tons per year of injection capacity with additional <unk> and.
In addition to our own.
Supplied by oil refineries and other sources to inject a total of 2 million metric tons per year of Cotwo.
The initial phase of construction includes drilling to characterization of wells to provide empirical data for the EPA classics permit the injection wells will then be drilled at the same site after receiving EPA and EPA and other permits. We are currently in the engineering and permitting process for the two characterization of wells with an expectation that we can drill the first characters.
<unk> well in the first quarter of next year.
Let's review, our biodiesel business in India.
Our universal biofuel subsidiary in India bid on a portion of our $900 million biodiesel purchased tender offer for about 225 million gallons by the three India government oil marketing companies.
Due to increased feedstock prices the <unk> bidding process in 2021 has not resulted in pricing that has been accepted by biodiesel producers.
Bidding process continues with a higher price of crude oil, resulting in higher prices for diesel in India and <unk>.
Increasing the bid prices offered by the India marketing companies.
However, a major approval is in process in India for our distilled biodiesel production plant.
We are expecting to receive an approval to export biodiesel opening the export market, which has been previously prohibited under the India National Biofuels policy.
The price of biodiesel in California are significantly higher than India, and our riverbank facility is well positioned to manage product reheating and trans loading for local truck delivery in California.
Since our India subsidiary.
Subsidiary has no debt and is fully constructed and commissioned we are well positioned for a rapid revenue increase as we expand biodiesel exports. We do expect large government purchases of renewable biodiesel to occur to meet climate change and air quality goals. Once the current Covid crisis facing India begins to subside and India government.
<unk> activities for biodiesel are expanded.
Let's then 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 waste would you become a focus of government policy and funding.
Headed by Dr. Gottlieb Mary as our Vice President of Technology development, working with our laboratory staff in Minnesota and at the Keyes ethanol plant in California the.
The <unk> technology development team worked with the federally funded joint Bioenergy Institute in Berkeley, California for more than three years in the development of our patented process to extract sugars from low cost waste Orchard and reports to wood feedstocks.
We now hold exclusive licenses to two issued patents that protect us sugar extraction technology for use with waste biomass and wood wood from noncommercial forests.
Extracting negative carbon intensity <unk> sugars from Westwood, we plan to reduce the amount of cornstarch used in our ethanol production process by using negative carbon intensity sugars from wastewater to produce cellulosic ethanol.
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 lignum and non converted sugars are designed to be the feedstock for our gasifier EBIT at the riverbank jet and diesel plant to produce carbon negative cellulosic hydrogen for the hydro treatment of vegetable and other oils to produce sustainable.
<unk> and diesel fuels.
A $3 million I'm, sorry, a $3 million, California Energy Commission Grant was awarded to J P and about this which partially funded the years of collaborative work and lab testing that led to the granted patents recently and that this was award awarded a $250000 U S Forest service grant to further develop the sugar extraction technology.
By extracting sugars from locally sourced orchard enforced Westwood.
We expect commercial operations to pre extract cellulosic sugars from wastewater when the riverbank renewable jet and diesel plant becomes operational.
In summary.
Strongly supported by the infrastructure Act, a medicines expanding a diversified portfolio of negative carbon intensity projects from dairy renewable natural gas and low carbon ethanol to renewable jet and diesel fuel to waste wood sugars to produce ethanol and carbon sequestration of Sidoti.
All of these projects are highly synergistic and create a circular bio economy in which we use byproducts and waste materials, its feedstock to produce low and negative carbon intensity renewable fuels.
Our company's values include a long term commitment to building value for shareholders. The.
The 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 Paul.
Thank you Mr. Mcafee, we will now be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.
How about posing your question you. Please pick up your handset if listening on a speaker phone to provide optimum sound quality.
Once again, please press star one if you wish to enter the queue to ask a question.
And we did have some questions in queue. The first question is coming from Manav Gupta from Credit Suisse. Please proceed with your question.
Hey, Eric and team congrats on the Delta being in all the other positive developments that are happening.
One 5 billion in net contract negotiations.
First quick clarification here, Eric and thought is.
Our 2025 guidance doesn't have BTC and when we look at what was being.
Being proposed and build back better and you mentioned it it's about $1 BTC point Hardy and 1.75 for SaaS and most likely you would completely qualify for it there's 2031 very simply adding those numbers in your guidance means your EBITDA jumped by about one <unk>.
That's a 38% increase and because BTC is not taxable at all.
Net income jumped by 55 now.
Are those numbers, making sense is the math adds up basically I'm, just taking on adding DTC to your existing guidance I guess, if you could walk us through that Matson will go back.
Thank you Manav and thank you for pulling out the calculator and doing the math, but youre exactly correct. It's 45 million gallons times. The dollar that's our renewable diesel business and then a 45 million gallons times of $1 75.
And those are effectively are.
$123 million of additional.
The tax credits that we received and largely it comes to US is basically just additional profit because as you know our costs don't change at all the reason why we did not include that in our first quarter five year plan was because we thought it was very unstable policy with every year Congress kind of running to the end of the year at Sundance past the end of the year.
Before they would pass the tax credits and we thought it would not be.
Supportive of the execution of our five year plan to increase that cash increase our cash flow by including it what has come to pass.
Is frankly, what we expected which is at aviation fuel requires a larger tax credit in order to overcome some of the lower yields and higher capital costs that occur in the production of sustainable aviation fuel, we selected a technology from actions in France that is a native aviation fuels. So we actually.
Designed our plant with the intention of producing 50% aviation fuel.
Most of the other producers renewable diesel do not have renewable aviation fuel capacity. If they wanted to upgrade their plant they have to build essentially a separate facility and take a bit of a yield hit in doing that so.
Our focus on what we believe to be the necessary role.
Low carbon arcades carbon negative.
Renewable fuels in aviation was a good strategy and has paid out I think better than we expected and we.
<unk> in the first quarter to include that in our updated five year plan.
Okay.
And thinking and very quick follow up here is you do speak to a lot of people at Cogs and as they understand you speak to the higher level people that as this bear case being floated that as they start to come on Lcs Faisal come under a lot of pressure and part of it is just sit on the sidelines, let does if thats price crash.
Is that feeding you'll get when you talk with these people are there is more to develop feeling over there that they actually want to lower the carbon intensity of fuels and they would try and help companies like yours or actually making a difference here and in the process whatever they have to do they have to do but then find and be supportive of a minimum kind of carbon price.
And not that it dipped to something like 80 or 70 with project economics comes under pressure. So if you could just talk about that.
Absolutely for those who've been in California operating active production units February of 2019 was an interesting month because of the California Air Resources Board met and decided to change the.
Number of carbon credits required for the next 12 years, all the way until.
2030, they just in one meeting decided that the price of the <unk> credits was not high enough to support projects and so they changed the rules I made at one 5% every single year and that of course caused the price of the credits to rise from about $120 to $200.
And as you may know in the original negotiations roughly 10 years ago $200 plus the cost of living index increase every year.
<unk> set up as an informal.
Price limit.
So we hit almost $220 within about a year or so after.
They had taken this action and what occurred then was they held public hearings, saying that they wanted to talk about putting more credits in the marketplace, giving them to electric utilities for example to make charging stations as a pure tool to tell the markets.
They are not going to let the price go to 300 or $500 and cause a program to fail. We're now at the final phase of this where.
We think that the.
The California Air Resources Board.
It's absolutely committed to taking whatever necessary steps are needed to try to target a 200 dollar kind of price and a $200 plus comfortably building index would not be.
Too far to ask them to go so they are very concerned that their actions would not support what <unk> is doing and are working closely with us to take necessary steps over the next year or two give us the CFS credit value necessary to fund our projects.
Thank you so much for taking my questions and congrats on all the positive developments.
Thanks for that.
Thank you.
Next question is coming from Nate Pendleton from Stifel.
Please proceed with your question.
Good morning, all and thanks for taking my questions for my first question regarding dairy LNG could you provide an update on where your operation stand relative to your initial plan from both the build out and a sign up perspective.
Andy.
So we've been fully operating our first our first two dairies for a year now and they are meeting or exceeding expectations from a production perspective.
As far as additional dairies, we have 22 dairies that we or have under contract right now.
We have five additional dairies that we expect to close.
By the end of this year and then there is about <unk>.
<unk> 12, or so that we are in active discussions with so I think we're feeling like we're right on track with our goals in terms of.
The overall scope of the project.
Great. Thank you and for my follow up regarding Ccs could you speak to how the medicine is differentiated from a geologic perspective compared to others in the Central Valley and how you were able to qualify for IRS 45, Q credits given.
To capture thresholds are quite high and serve as a barrier for other smaller potential operations.
One of the Big advantages, we have is we have our own <unk>.
And so the minimum thresholds, we exceed with what were already producing from our own facilities, which is helpful component for us the Central Valley of California has very extensive natural gas and oil production, especially as you get down to your vacancies, but frankly, if you go north of US much you you get a lot of natural gas fields and carbon sequestration.
<unk> requires sequestration, which means that if you got natural gas field with a lot of holes in your cap rock when you put an injection of liquid cotwo with very high pressure more than 2000 psi below that that shale layer.
You actually up holes that allow that.
<unk> to turn into a gas come back up so it's not really effective if you go to a place that has a lot of natural gas or oil production and youre using those formations for sequestration because you have to buy every single well within probably five miles of your facility and go in and spend up to $5 million per well capping the well.
So it's a it's a very difficult business proposition to have to go and buy every single well in an area and that restricts the number of areas that really are appropriate you have to have the correct underground formation.
Don't really want a population of people on the surface.
You need to be in really a rural or agricultural area. It can not be up against the mountains because youre slope is too much. So you're you're CFT doesn't faces questions actually just goes up the slope. So you start looking at where the footprint is of putting these wells and you end up with kind of a.
Some spots that work in a lot of spots that don't work and Central Valley and so we spent a lot of time with Baker Hughes and our other.
Partners on this and I think we've identified certainly the two locations. We have Stanford was correct. These were excellent locations, but in that area around us we can potentially could do with additional wells and have certainly a first mover advantage.
Great. Thanks for your time.
Thank you Nate.
Thank you and the next question is coming from Jordan Levy from <unk> Securities. Please proceed with your question.
Nothing at all.
Wanted to start with a question on riverbank, specifically, Eric if you could talk us through how you view the unit economics there.
Maybe more so.
Why you do this.
Combination of technologies to deploy and.
The reason I ask is given some of the recent buzz around things like.
Alcohol to jet or ethanol to Jeff maybe you could talk through how you view the economic comparison between.
The gasification for hydrogen.
Movement.
Veg oils, and other oils, who renewable diesel business.
So you have versus some of the other technologies out there.
Okay, I'll give you a really short.
Answer.
There are basically two jet production technologies are being popularised today.
One is alcohol to jet and the other one is what I would call oils to jet.
And the current production of renewable diesel worldwide, it's virtually all oilseeds, yet and it's a highly profitable business. You just look at nasty look at Valero and regi in U S and it's very publicly known that the margins are $2 50 to $3 28 per gallon because thats, what they reported last quarter.
And that's taking a renewable oil grown by a plant usually in the field.
And.
Increasing its energy by adding hydrogen to it typically the hydrogens petroleum natural gas comes out of the ground and it's about our carbon intensity about a positive 150 under the pathway is proof in California, and then use electricity and most electricity usually is coal because thats the cheapest.
Energy source in Asia, and most of the Midwest. So what we did is we looked at and said well. That's interesting we are the largest distillers corn oil producer in California. So we got a part of our feedstock we happen to have 100% zero carbon intensity hydro electric power. It comes off of the dam.
So we have zero Ci electricity, instead petroleum natural gasoline Christy our coal electricity and we also happen to have what I call the Saudi Arabia of carbon negative.
Wood waste.
The almonds in the Central Valley of California, our renewable source of wood waste that is currently being burned or sits in the field in terms of the methane. So it has a negative 100 carbon intensity and by turning that wood waste into hydrogen we ended up with approximately a negative 80 hydrogen input. So we looked at the existing formula are the most profitable come.
<unk> in the Biofuels business in renewable diesel and derivatives.
Sustainable aviation fuel and we just said, what's just improve on the carbon intensity of those inputs because we're sitting in the middle of these tremendous feedstocks to make cellulosic hydrogen.
Et cetera. So.
Obviously, we think if the margins are strong for those folks using those carbon intensive inputs and shipping into California. We think we have a sustainable let's call it competitive advantage by having lower cost.
Lower carbon inputs and therefore more valuable output.
Alcohol to jet interest Interestingly is also one of our businesses, we don't talk about it but we happen to be the largest ethanol producer in California and as soon as the economics work well for alcohol to jet we are.
As closely with.
With the companies that are in that business as anybody and I think we're very well positioned to take full advantage of optimizing the value of our ethanol if that optimal value is to turn it into jet fuel you could imagine you're going to hear about that from US currently we are enjoying very very positive.
Support for our ethanol business in California, and especially with the recovery in <unk> prices, which we expect next year through actions by Carb I think we're going to continue to enjoy good margins in the ethanol business and be well positioned to do an upgrade to alcohol to jet if and when that opportunity as necessary.
That's great thanks for that Eric.
Maybe just a follow up more specific to the biodiesel business owner to see if you could just talk to if theres been any change at all in how youre thinking about.
Dnb of biodiesel facility and how it fits into your five year plan and also any potential means you see to bring forward. The news out of that plant near term as you wait to see what happens with government purchases and that sort of thing.
Yes, our India biodiesel plant is operating in sort of an on off switch the differential between feedstock in government purchase prices.
If you just get slightly positive suddenly.
Literally a $150 million revenue business in India, The India government.
Largely due to Covid, it's been very very slow at moving their prices up so while oil doubled from $40 to 80, they havent doubled the prices for biodiesel they've just been going through this recurring process every three months of sending out a new price and everybody, saying gosh, that's that's not keeping up with the price of oil. We do think the India government will catch up and if you listen to.
Prime Minister Modi presentation of Cop 26 in Glasgow They are certainly.
Committed to.
Playing a role and de Carbonization. So we think India will catch up and play the role they would like to play what we've been trying to achieve though is to have a global market for our India product and India has a view that they have such a strong demand 5% to 25 billion gallons a year is one 2%.
5 billion gallons of biodiesel that stated in their national Biofuels policy.
But they've not been able to execute against that and so we went to the government and said we have a substantial investment we have a lot of employees, we have 100% of our employees still working for us.
And we are well positioned to create additional investment and frankly revenue for India by exporting out of India, which is tremendous for their balance of trade.
So we are within hopefully weeks and maybe even days of getting an approval that took us many years to get and natural market is California, where of course, we're very well positioned because when it's shipped across the ocean. The biodiesel turns into a solid it's kind of cold on the ocean and so when it arrives <unk> can't put into a tanker into a truck you actually.
We have logistics of steam.
Heating the tanks and turning it back in the liquid meant trans loading into trucks and we have the riverbank facility. That's ideally situated to handle this kind of logistics, we have a 120 railcar.
Rail line already in place and so we are able to deal with.
It's very low cost and pretty much just with our existing team able to become a supplier of biodiesel into California at what we believe to be very high margins.
Thanks, so much.
Sure.
Thank you and the next question is coming from Amit Dayal from H C. Wainwright.
Please proceed with your questions.
Alright, guys. Thank you for taking my questions just coming through some of the near term execution priorities.
Are there any changes to the deployment schedule for 2017 Digest.
Supply chain challenges et cetera that all of them getting in the market right now.
Not since last quarter.
I think we are.
We proactively bought a bunch of.
Materials required for the whole thing Andy.
During during Covid, we were able to take advantage of.
It's interesting to think about the price of oil today versus where it was in April or may of 2020, when it actually went below zero, we were able to go out and pre purchase materials for 10 Digesters the liner material at about 50% of the cost of the original two we were able to go out and purchase.
The.
HCP pipe pipeline that we used for the transmission of the gas at similar margin savings, So I think probably 40% margin.
So we've already sort of jumped ahead of the supply chain fortuitous fully taking advantage of that during COVID-19.
To take advantage of the lower pricing so from a liner perspective as far as that goes and pipeline. We're in very good shape of being ahead of the curve.
When the economy really started to pick up.
We also went ahead and preordered five of our dairy based biogas cleanup skids, we do a little pre treatment at the dairy before we send it to the main hub.
And those are now modularized they were built.
During the summer time and into the early fall there'll be delivered to US next week. So the next five digesters will have everything that they need and we're currently in the RFP process for the for the next five after that for those.
Just your skin.
<unk>.
So it's not out of question to say that we do see.
Delays in materials, but but we don't think theres any one piece that we've overlooked that will we will create a substantial delay for us where we're trying to stay ahead of it as much as possible bye bye.
Preordering equipment for the.
The next phase of Digesters to be built so that we're staying trying to stay ahead of the global supply chain challenges.
Okay. Thank you for them.
Hum.
And cash flows from Digesters deployed are you starting to receive those.
A little bit of lag.
And highlighted there were some.
Quality checks et cetera that needed to happen before you start receiving those crashes.
So the way we're monetizing that currently through the CFS.
The ethanol produced at the plant. So we received a pathway approval in March of this year.
Which lowered the Ci score for the ethanol plant and keys from call. It 67% to 65. So we've got about a two point reduction of close to a two point reduction and so we're able to monetize the CFS by taking the dairy biogas from the two existing digesters and utilizing it in a boiler.
At the plant to replace renewable carbon based natural gas as a source for energy at the plant. So so we've been able to already monetize the.
Gas coming off those first two dairies through the production of ethanol that kind of gives us a little bit of an advantage over some of the other developers who have to sit around and wait for Ci score to be issued for the pipeline as soon as we are able to complete our pipeline interconnect, which will happen in the next.
45 to 50 days something like 60 days.
We will have access to the <unk> pipeline will then apply for the pipeline pathway for those two areas and then all the dairies that come after that so so when it's all said and done we will have three different pathways for each dairy one for using the biogas as process energy at the ethanol plant one for transmission to the.
Utility pipeline and one for our onsite <unk> fueling station. So we'll have maximum flexibility in terms of where we can send those send the gas too and we will be able to monetize but as far as to your question about when can we monetize the pipeline, we'll do that as soon as our interconnection begins and as you know there is about a 30 day.
Our 60 day and I'm, sorry, 90 day data collection period, and then Carb takes about another 90 days to give you the approval on the pathway. So.
We can either take the provisional pathway, that's granted or we can store those molecules and then monetize the full amount once the pathway has been granted which usually takes from start to finish it's about a.
120 day or 180 day process.
Okay. Okay understood. Thank you for that.
And then.
These offtake agreements with dose.
Some others that you are working on should we view the definitive agreement.
And for Us.
Yes. These are not the memorandum of understanding or non binding term sheets or napkins at the local restaurants. These are fully.
<unk>.
Lawyers Reeves.
Reviewed signed there is nothing to do except start ship Sip product.
Delta Airlines.
Tremendous organization to work with we worked with their global group and just a wonderful group of people and we are currently working with several other airlines have that size as well and we've just found a sincere commitment to sustainable aviation fuel and they do not really see other ways forward that are going to be quick.
Or fit in with their existing it.
Equipment and certainly electricity.
It's tough to see in cargo or passenger jets anytime soon.
<unk>.
Hydrogen probably isn't similar situation. So they have a sincere appetite to decarbonize and they also understand the incentives are coming along the course of the airline.
Airline incentives are.
A meaningful number for them and so we've got it's a it's a very proactive community and we have to.
Interestingly no a lot of the people in that community because of our background and it's gone very quickly certainly more quickly than I would've expected. If you would asked me six months ago.
I am very very pleased with the progress we're making there.
Okay, and just one last one.
You get the approval for exports and India how quickly can.
The planned delays et cetera.
That process.
We would be in production with a matter of a few days of the plants fully.
Capable of operation and does operate.
This would just be higher volume and then the.
Export process takes some scheduling, but our initial shipments will not be bulk shipments. So we're not going to have to schedule entire ship will be using what it knows ISO tanks.
8000 gallons per and that's got a lot of flexibility around it we're doing that on purpose just to be able to not have to wait for bulk shipments to be a range and so we could easily be shipping in the first quarter.
Okay.
That's all I have thank you so much.
Thank you Amit.
Paul we're running out of time, let's take one maybe two more calls.
Okay. There are two left in queue at the first one is coming from Ed Woo from <unk> capital.
Please proceed with your question.
Yes, congratulations on all the milestones my question is on riverbank when do you anticipate groundbreaking and when do you think that the plant will be operational.
We are expecting groundbreaking is going to be third quarter of next year I think that operational would be roughly 24 months after that I'd say roughly because that particular contract. We are working with us completing a 225 million gallon plant and already has the vendors and supervising staff and they are just.
Really ahead of the game. So I think we're going to need to amend those those times as they get on the ground.
These plants are usually run by the long lead time equipment, and we are finding ourselves in a position of which because of the contract. We are using we have some some distinctive advantage that's going to save us a lot of time here. So.
We'll be updating those numbers as we get closer to the third quarter next year.
Great. Thanks for the update and good luck.
Thank you Ed.
Okay.
Okay.
Paul is there any any additional colors.
Our questions.
We did have a question coming from Marco Rodriguez <unk>. Your line is live Mako is calling from.
Stonegate capital.
Good afternoon, guys. Thanks for taking my question.
Most have been asked and answered just kind of wanted to.
It goes through or just a real quick housekeeping item on the gross loss in the quarter.
I believe you made some comments in your prepared remarks, you just unfortunate wasn't able to get it all down.
But even if I took a look at excluding the reserves it still looks like it was down year over year can you maybe talk a little bit about the drivers behind that.
On what was then I didn't get the metrics.
The gross profit.
We have a one point I'm, sorry, a $5 $3 million.
The reserve for.
The California emissions credits that caused the cost of goods sold during the quarter to be in.
Increased by $5 3 million, if thats, what youre comparing it would put us as Todd It would put us really level with with the same quarter last year last year, we recorded $12. Two this year, we're reporting $17 five adjusting for the five three.
Really really sets from net loss of exactly what it was last quarter.
I'm, sorry quarter to a year ago.
All right. Thanks I appreciate it.
Thank you Marco.
Okay.
Thank you there are no further questions at this time.
I would like thank you to the administration of managements.
Thank you Paul Thanks to the <unk> shareholders analysts and others for joining US today. Please review the <unk> corporate presentation EMEA industrial presentation that was on the <unk> website.
We look forward to talking with you about participating in the growth opportunities at a medicine Todd. Thank you for attending today's <unk> earnings Conference call. Please visit the investors section of the <unk> website.
Where we will post a written version and an audio version of this <unk> earnings review and business update call.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
Okay.