Q4 2022 Aemetis Inc Earnings Call
Welcome to the image is fourth quarter 2022 earnings review conference call.
At this time, all participants are on listen only mode.
A 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 Amateurs, Inc. Mr. Waltz, you may begin.
Thank you Matthew welcome to the fourth quarter and year end 2022 earnings Review conference call.
Joining us for the call today is Eric Mcafee, founder Chairman and CEO of a medicine and Andy Foster President of the Medicine advanced fuels and a <unk> biogas we.
We suggest visiting our web site at <unk> Com to review today's earnings press release, the medicine, 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> 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 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 this call May include a review of non-GAAP measures as a supplement to financial results based on GAAP, because we believe these non-GAAP measures serve as a proxy for the companys source or use of cash during the period presented a reconciliation of the non-GAAP measures to the most directly comparable GAAP.
<unk> measures is included in our earnings release for the three and 12 months ended December 31, 2022, which is available on our website.
Adjusted EBITDA is defined as net income or loss plus to the extent deducted in calculating such net income interest expense loss.
Loss or gain on debt extinguishment income tax expense intangible and other amortization expense accretion and other expensive series a preferred unit.
On lease terminations of certain cash grants gain on litigation depreciation expense and share based compensation expense.
Now I'd like to review the financial results for the fourth quarter of 2022.
Revenues revenues were $66 $7 million for the fourth quarter of 2022 compared to $64 $4 million for the fourth quarter of 2021, the selling price of ethanol decreased from $3.36 per gallon during the fourth quarter of 2021 to $2 six.
Five per gallon during the fourth quarter of 2022.
Oh diesel sales of 10700 metric ton occurred during the fourth quarter of 2022 at a price of $1511 per metric ton or.
Our California ethanol segment accounted for 90, 14, nine $4 million of revenues and.
And our India biodiesel.
[noise] accounted for $17 $2 million of revenue during the period.
Cost of goods sold increased from $51 $7 million during the fourth quarter of 2021 to $67 $9 million during the fourth quarter of 2022, resulting principally from deliberate corn price increasing from an average of $7 23 per bushel during the fourth quarter of <unk>.
2021 to $10.05 per bushel during the fourth quarter of 2022.
And the incremental sales in our India biodiesel segment.
Gross loss for the fourth quarter, 2022 was $1 $1 million compared to a gross profit of $12 $7 million during the same period in 2021.
Selling general and administrative expenses remained flat at seven $5 million during the fourth quarter of 2022 and 2021.
Operating loss was $8 $7 million for the fourth quarter of 2022 compared to an operating profit of $5 $2 million during the fourth quarter of 2021.
Net loss was $22 $4 million for the fourth quarter of 2022 compared to a net loss of 881000 for the fourth quarter of 2021.
Cash at the end of the fourth quarter of 2022 was $4 $3 million compared to $7 $8 million at the end of the fourth quarter of 2021.
This completes our review of the fourth quarter of 2022.
Now I'd like to introduce the founder Chairman and Chief Executive Officer of HAE Medicine, Eric Mcafee for a business update.
Thank you Todd a medicine is focused on producing below zero carbon intensity products, including negative carbon intensity renewable natural gas and renewable aviation and diesel fuel.
Renewable hydrogen and carbon sequestration.
Projects generate a sustainable and innovative for renewable.
Fuels that benefit our communities and restore environment, while generating tax and other credits from federal and state carbon reduction programs, we seek to reduce feedstock and operating costs by using waste materials and zero carbon intensity of energy for the production of renewable fuels.
<unk> grew revenues, 21% in 2022, representing $45 million of new sales for 2023, we are excited about the strong and growing positive cash flow expected from biogas.
Diesel and renewable oil feedstock refining facilities coming into full production. This year driving the strong growth in revenues and cash flow plan for the next five years.
Interestingly all of our India, biodiesel glycerin and feedstock refining facilities are already built and are debt free.
Due to the time delays related to carbon pathways for biogas production all six of the 2023, California biogas facilities are expected to generate revenues. This year are already built and are awaiting approval of their all CFS pathways.
Until the California Air Resource Board approval is processed and we were able to begin selling into the renewable natural gas market as full L. CFS value we.
We will be storing the renewable natural gas that we produce underground and carrying it on our books as inventory.
As we will discuss later this month, we are completing in maintenance upgrade cycle for our Keyes ethanol plant that save millions of dollars, while accelerating a reduction of energy costs and driving the lower carbon intensity of our biofuel, but.
Installing a new decision control system with artificial intelligence capabilities, along with several other important process upgrades.
The external political and regulatory environment for renewable fuels and the reduction of carbon pollution in the U S and India has improved significantly during the past year. The passage of the inflation reduction Act and August 22, 2022 provides an estimated $400 billion of funding towards renewable energy and carbon reject rich.
<unk> projects.
Last month, the California Air Resources Board held an L. CFM scoping planned webinar, where their staff stated that carbon plans to significantly increase the number of credits required under the low carbon fuel standard program, starting in 2024 with sufficiently expanding the Bayou sufficiently.
Expanding the LCM best mandates to increase the price credits to more than $240 for credit in the next two years from about $60 a day.
We are encouraged that carbon strong support of the Lcs program and while significant details need to be addressed in the scoping plan. We're working closely with our fellow biofuel producers and carb staff to achieve a positive outcome.
As we have expected for the last couple of years, we believe that L. CFS credit prices will rebound to more than $200 per credit as about them as the markets recognize the large number of L. CFS credits that will be required to meet the expanded de carbonization goals set forth by carbon.
During 2022, we achieved important milestones in the construction of 36 additional miles of biogas pipeline upgrades to the Keyes ethanol plant growth to profitable operations by the India biodiesel plant and many other key achievements.
Last month, we updated the <unk> five year plan, which now projects $2 billion of revenues $496 million of net income.
And $682 million of positive EBITDA in year 2027, the fifth year of the plan.
The updated five year plan reflects continued growth in production revenues during the five year period.
While adding the significant positive impact of the inflation reduction act that was passed into law in August 2022.
And increased California, low carbon fuel standard credit prices.
The <unk> five year plan assumes L. CFS credit prices that are 35% lower than carbs plan.
As we took what we believe to be a conservative view.
Our estimate of revenues from <unk> credits being lower than carbs projections. Therefore provides a significant upside to our profitability and should enhance the pace of our growth.
The federal inflation reduction act is expected to provide a large amount of funding for medicine during.
During the next five years, we expect to receive more than $820 million from the sale of investment in production tax credits generated by the construction and operation of renewable fuels plants renewable hydrogen production facilities and C O two sequestration facilities.
The expected sale of buyer rate tax credits provides important project financing to build facilities not to just be a source of cash flow. After production has begun.
The transferability of tax credits under the IRA has opened a new large market from investors seeking to offset tax liabilities by purchasing tax credits for medicine and other renewable energy producers. We are currently working to complete our first tax credit sale.
Monetizing our investment tax credits in C O to reuse tax credits that we began generating in January of this year.
To date, we believe that we have generated more than $24 million of investment tax credits, primarily from biogas project investments and we expect to generate more than $60 million of irate tax credits this year.
During 2022, we continue to make progress in reducing our average interest rate on that the best and most recent example of our reduced cost of borrowing is the 6% interest rate obtained in October 2022.
For a $25 million 20 year low that is 80% guaranteed by the U S Department of agriculture.
The initial interest rate is fixed for five years and we believe the rate is significantly below the prevailing interest rates for renewable fuels projects.
As our senior lender third eye capital was a key contributor to our progress in 2022.
In 'twenty, one and 'twenty, two a madis repaid more than $90 million to third eye capital to reduce higher interest rate bridge loans, which expanded our access to lower interest rate funding from the past year, a medicines drawn more than $50 million on our new lower interest rate credit facilities from third eye capital.
Look forward to continued progress with third eye capital as we continue to repay higher interest rate loans and utilize the lower interest rate credit facilities.
For many investors named US the planned redemption of the third eye capital preferred stock investment in our med as biogas business has been confusing and a source of concern.
The third eye investment of $30 million of preferred equity into a met this biogas starting in late 2018 enable that led us to attract $23 million of grant funding.
We use the $53 million of combined funding to begin building the biogas project without debt until we added $25 million of USDA guaranteed long term funding in October 2022.
In the fourth quarter of 2022, a medicine negotiated an extension on the redemption of the preferred equity of already medicine biogas subsidiary from third eye capital.
Early this year, we extended this redemption to May 2023, and may agree to extend the redemption again if needed.
We are seeking to refinance the Mets biogas preferred stock and have strong indications of investment interest from multiple parties.
And we are working to complete the redemption during Q2 2023. However.
However, our primary goal is to attract quality investors, who share our envision vision for the long term growth of our company.
Our overall plan is to fund growth by using positive cash flow from our ethanol biogas, India, biodiesel glycerin and India refined tallo feedstock production facilities.
Enhanced by up to $100 million of working capital and project development financing from the credit facility that was signed with third eye capital in March 2022.
In the past two quarters, we've received funding of about $50 million from the two credit facilities provided by 30 to provide capital reduced interest rates.
We plan to obtain more than $200 million in the aggregate of 20 year $25 million USDA guaranteed project financings under the renewable energy for America program known as reap.
We are in the process of closing three more $25 million re flows this year for our biogas business as well as other long term debt funding for our jet diesel business.
We are investing a significant amount of time and resources to develop and implement specific business structures that should maximize the value of the tax credits available under the inflation reduction Act.
These regulations are driven by initiatives to Decarbonize transportation, the need to reduce the cost of fuels as petroleum prices increase.
A renewed interest in energy security and a desire to reduce greenhouse gas emissions.
Let's briefly review our biodiesel business in India.
The National Biofuels policy in India was updated in 2022 and that was being implemented to achieve a 5% blend of biodiesel is equal to about 125 billion gallons per year in India.
On April 1st of this year, a new biodiesel tax is scheduled to go into effect in India, which is a tax on diesel.
Three government oil marketing companies are expected to issue a tender offer to purchase up to the entire production capacity of the meadows biodiesel plant under a feedstock plus pricing formula that was used very successfully last fall to bring biodiesel plants into full production.
The pricing formula and timing of the two month tender by the oil marketing companies is expected to be the ongoing format for sales to the oil marketing companies. We expect the formula to be a successful mechanism for the rapid growth of biodiesel production and need the India due to the predictability of the pricing.
This year, India is expected to achieve a 1% biodiesel blend which would fully utilize all of the existing production capacity in the country.
Our plant in India is uniquely situated to benefit since importing biodiesel or renewable diesel is not allowed under India law.
The Tallo feedstock pretreatment unit in India is expected to be utilized to refine crude tallow for export to the U S and Europe furthering the production of renewable diesel and sustainable aviation fuel.
Negotiations have refined tallo off take agreements have been underway since late last year and refined tallow production is expected to begin in Q2 2023 to support exports to the U S renewable diesel production plants.
Since our India subsidiary has no debt and the 50 million gallon per year of biodiesel plant the glycerin client and the tolerance finding facility are fully constructed we are well positioned for profitable operations at full capacity.
Now Andy Foster the president of the Meadows biogas and they met this advanced fuels businesses will review some highlights Andy.
Thanks, Eric with the recent closing of our first $25 million financing.
Financing utilizing the USDA renewable energy for America program.
The <unk> biogas renewable natural gas business in California and delivered in service dates.
In Q1 2023 for several projects, we completed the installation of 40 miles of biogas pipeline, we completed commissioning of the biogas to RMG upgrading facility. We completed the commissioning of the RMG interconnection unit with PGE nice pipeline.
We completed four new Digesters and now have six fully operating we will complete construction on the seventh digestion by the end of March with two additional digesters slated for completion by mid year.
<unk> will begin construction of up to 10 more digesters by the end of 2023, depending on the timing of permitting and USDA financing.
We've also signed up a number of new dairies and now have approximately 40 dairies in the <unk> RMG networks.
After receiving carb L CFS carbon intensity pathways for for this RMG. These seven dairy digesters are expected to generate approximately 200000 M M b to use per year of RMG.
We have submitted our RMG production data to obtain L. CFS pathway approval that will allow us to begin generating L. CFS credits, while we await the approval of L. CFM Pat L. CFS pathways, we're storing the RMG underground and carrying as inventory.
Sure.
Due to the high volume of L. CFS applications in unlimited and limited staff resources of Carb. The carpet review and approval process can take up to one year or longer, but we anticipate working closely with carb staff to help facilitate a more timely approval.
Operationally, we are focused on executing the construction of dairy digesters to fill the <unk> biogas pipeline the centralized biogas to RMG production facility and the PGD interconnection unit all of which are in operation now.
To date, a medicine has been awarded $23 million worth of grants related to the biogas project from the Department of California Department of Food and Agriculture, California Energy Commission P. Genie and other government agencies for dairy biogas project in the production of renewable natural gas.
Let's take a moment to discuss progress in our California ethanol plant demand for ethanol in California, steady wet distillers grains pricing and increasing value for distillers corn oil used as animal feed or for renewable.
Production has helped to offset the increased cost of corn and energy in 2022.
Due to insufficient natural gas storage and inventory planning.
By California's large gas utilities and restrictions on the El Paso pipeline that feeds, California natural gas prices spiked by more than 500% in December creating an extremely unfavorable margin environment.
We decided to turn this challenge into an opportunity and undertaken extended maintenance cycle turnaround and accelerate the implementation of several important ethanol energy efficiency plant upgrades during Q1 and during this period of high natural gas prices, which extended into January and February is.
Well.
Our California ethanol plant upgrades will allow us to operate using high efficiency electric motors and pumps powered by low or zero carbon intensity renewable power sources, including our solar micro grid in local renewable electricity.
As a strong endorsement of this strategy a medicine has been awarded $16 million of energy efficiency and other grants by PGE, the CPUC and other entities to support to supplement our own funding to complete these projects.
Our goal is to significantly reduce or completely eliminate the use of petroleum based natural gas at the Keyes ethanol plant. This.
This approach is in keeping with the state's focus to reduce or eliminate carbon based energy sources and will result in significantly improved L. CFS value for our renewable fuel ethanol.
Let me take a moment to provide a few updates on the keyes ethanol plant projects that are expected to materially increase cash flow. When these projects are fully completed.
First the Mitsubishi <unk> electric.
Electric ethanol dehydration unit has been installed and operated in full production mode for more than three months.
We continue to work closely with Mitsubishi to fine tune and refine the operation of the Zebra <unk> unit and our but our early results are extremely positive the zebra <unk> unit reduced our natural gas used by almost 25%.
Which when annualized is expected to save a met its millions of dollars in energy costs and reduce the carbon intensity of our ethanol, thereby increasing the value of our biofuel we.
We are currently implementing implementing some design improvements as a result of testing and expected completely commission the upgraded <unk> unit this summer to maximize maximize the value value of the system.
We are in the middle of construction of the solar micro grid with battery backup system.
Working closely with our EPC and technology provider total we are installing the solar micro grid with battery backup for load balancing and emergency operations. This project is supported by an $8 million grant from the CEC.
The solar unit is designed to generate approximately 1.9 megawatts of zero carbon zero carbon intensity electric power at low cost per operation of our ethanol plant, we expect to compete complete the solar installation in 2023.
And lower energy costs, and thereby reduce the carbon intensity of our ethanol.
The mechanical vapor recompression or N V. Our system will further reduce petroleum natural gas and steam use.
And is in the final detailed engineering and equipment procurement phase, we expect the MPR system to reduce our fossil natural gas use by approximately 65% at the Keyes plant when the system becomes operational in 2024.
Currently natural gas costs to the Keyes plant exceeds $10 million per year, So a 65% savings in natural gas costs and a significant reduction in ethanol carbon intensity is expected. After the MBR system is operational this expected cost reduction and carbon intensity improvement is in addition to.
20% of natural gas reduction expected.
As expected from the Z bricks dehydration system.
One additional item of note in April we will begin the process of changing the ethanol production enzymes that will then allow us to recognize a portion of our ethanol production as Cellulosic. This will add additional L CFS value and with the recent rule announced by the EPA is expected to qualify the cellulosic gallons for valuable <unk>.
Free rents and a federal tax credit of $1 one per gallon of Cellulosic ethanol the over overall financial impact is expected to between to be between six and $10 million annually.
In summary, operational performance and project milestones for the <unk> biogas, an ethanol plant business continue to be on track with our five year plan.
Eric Thank you Andy.
Discuss our carbon zero sustainable aviation fuel and renewable diesel project in riverbank, California.
A year ago and administered operational control of the 125 acre riverbank site for construction of our sustainable aviation fuel and renewable diesel plant as well as the riverbank portion of our C O two sequestration well project.
We have signed and announced more than $3 $8 billion of sales contracts with Delta Airlines American Airlines, Japan Airlines, Qantas and other airlines.
We've now completed off take contracts for about 45 million gallons per year of blended sustainable aviation fuel to be produced at the riverbank plant.
Under this sustainable aviation fuel sales agreements the neat Saf will be trucked from the riverbank production plant to the San Francisco Bay area for blending with petroleum jet fuel. The blended SCO will then be delivered via pipeline to the San Francisco Airport for use by Airlines.
In addition, we signed a $3 2 billion dollar renewable diesel sales agreement deliver 45 million gallons per year under a 10 year sales contract with a major travel stopped chain for its northern California locations.
Incentives included in the recently passed irate legislation expand the market for sustainable aviation fuel by allowing a price two airlines, there's about 10% higher than petroleum jet fuel and is partially or even entirely offset by corsi of carbon credits generated by the airlines, we look forward to completing engineering and.
Fitting in order to begin construction at the Rupert banker nimble jet diesel plant later this year.
Now, let's review our subsidiary admit as carbon capture.
A medicine currently captures the 150000 metric tons per year of C. O two emissions from our ethanol plant near Modesto and reuse is the cotwo for local customers.
In October 2020, the meadows ethanol plant in California was identified in this study issued by Stanford University Center for carbon capture as one of three ethanol plant C O two sources in California.
Have the highest potential return on investment from building, a carbon capture and sequestration facility compared to the oil refineries cement plants and natural gas power plants and comprise 61 largest cotr mission sources in California.
Phase one of the <unk> carbon capture project, we plan to inject up to 400000 metric tons per year of C. O two emissions from our own biogas ethanol and jet deal diesel plants into two sequestration wells, which we plan to drill near our two biofuels plant sites in California.
We expect to construct two C O two injection wells that each have a minimum of 1 million metric tons per year of injection capacity with additional <unk> supply rather emission sources to sequester planned total of more than 2 million metric tons per year of Cotwo.
The initial phase of construction includes drilling to characterization well to provide empirical data for the EPA classics permit.
During 2022, a med has completed the purchase of 24 acres at the riverbank site and built a heavy equipment access road and a well drilling pad for the soil characterization well to provide data for our EPA classics injection well permit we are currently in the engineering and permitting permitting process for the two.
Characterization wells with an expectation that we will drill the first characterization well after bank site.
The direct pay feature of the inflation reduction Act provides a federal tax credit of $85 per metric ton of C. O two as a cash refund to a medicine each year for the first five years of production.
The planned 2 million metric tons of Cotwo year from the <unk> carbon capture project would generate an expected $170 million per year from the federal direct pay tax credit.
As well as an estimated $400 billion per year at a projected $200 per ton of sequestered Sidoti from the low carbon fuel standard.
We believe that fixed amount of $850 million provided by the direct pay funding over the first five years of the project could support funding the estimated $250 million cap cost of the two injection wells and related equipment.
In summary, a medicines expanding a diversified portfolio of negative carbon intensity projects.
Dairy renewable natural gas.
Oh diesel in India, sustainable aviation and renewable diesel fuel low carbon ethanol using zero carbon intensity electricity renewable hydrogen and cotwo sequestration.
All of these projects are synergistic and create what we refer to as a circular bioecology within a met us and which we use byproducts of waste fraud waste products from our facilities in local areas as feedstock to produce low or negative carbon intensity renewable fuels.
Our company's values include a long term commitment to building value for shareholders. The empowerment of in 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 operator.
Thank you Mr Mcafee and I'll be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.
We do ask them about posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Once again, if you have any questions or comments. Please press star one on your phone.
Please hold while we poll for questions.
Your first question is coming from Jordan Levy from choose Securities. Please proceed with your question.
After new year.
Maybe just to start out.
On the Investor deck, you outlined your estimates for the tax credits for each of the segments under IRA.
Knowing there's a lot of details still being worked out.
With the agencies can you just give us your high level thoughts on how youre thinking about monetizing those tax credits within each of the segments.
The IRA it provides for a what we call a certificate mechanism for investors to participate in the tax credit value under solar and wind at some allocation mechanism, which they have to actually become an owner in the project.
The transfer of the certificates, one time too and investor opens up a wide array of potential buyers. We currently are working with a brokerage firm that says done over $6 billion of state and federal tax credits and insurance.
Broker that has over 60% market share in the guaranteeing of tax credit instruments for investors and directly with multiple investors, who have hundreds of millions of dollars per year of tax liability.
I think that over the course next 12 months greater clarity will come in from the IRS about exactly what forms to file for the transferability et cetera, but clear.
Clearly there is a strong amount of investor appetite at this point in time and a desire to do larger transactions and so we happen to be the unique position of having more than $24 million of tax credits, we generated in January and in February and so we are negotiating actual transactions, where many other parties or more projecting.
<unk> future investment or production tax credits.
Thanks for that Eric and maybe just as a follow up.
Going back to your comments and I. Appreciate the color you gave on the preferred equity for biogas, maybe if you could just.
Expand a little on what that process looks like as you enter mid year, and maybe look to do a transaction there and how we should think about sort of the moving pieces there.
I think best way to look at it is that the third eye capital is seeking some liquidity from a very very successful investment.
Dave.
Believes that they made as certainly when you look at the comps it's a very successful.
Set of comparable.
So we have decided to pick up some additional acceleration growth capital that will enable us to not only achieve our five year plan, but probably even exceed the pace of building digesters et cetera, but looking to do it at very low or even zero dilution to shareholders. So we've engaged investment bank.
We have.
Offering documents, we are investors already interested in we're going through a process.
In Q2 will result in.
A refinancing in the third I preferred as well as providing some additional growth capital and currently we're expecting to see we're expecting to have lowered or zero.
Targeted zero dilution to shareholders.
That's great. Thanks, so much for the color guys.
Thank you Jordan.
Thank you. Your next question is coming from Amit Dayal from H C. Wainwright.
Please proceed with your question.
Thank you good afternoon, everyone.
Eric.
Giving us a bridge to your working capital and Capex needs for any green tree.
There's a lot of them.
Sort of investment activity going on as well as.
Your own operations are growing along with it. So just wanted to understand you know how we are looking to bridge.
Working capital needs.
Other.
Operating cost needs.
Okay.
Thank you Amit.
The.
<unk> hundred billion dollars credit line, we signed with third eye capital approximately a year ago has been approximately 50% utilized there is $50 million of potential availability that's of course, depending.
Depending on the combined with terms and conditions of the arrangement, but we perceive that as being attractive low cost capital and is slated to fully fund all of the what you could see us equity in our project companies for this year on top of that we have three additional $25 million fundings totaled.
$75 million from the USDA that that funding includes working capital and contingencies that we don't utilize that adds up to millions of dollars of available funding for the working capital activities of the company and then.
Positive cash flow and as we reported today, our India biodiesel business generated about $8 3 million of of.
Of margin in this most recent.
<unk> sales were a marketing company sales in India, we are going into a process that should result in about nine months worth of sales April one is when the.
Tax begins we believe vessel and shipping starts under our.
Renewed.
Contracts with oil marketing companies and that business alone.
As a business can generate several million dollars a month.
The positive cash flow.
Proven itself capable of generating $8 million in less than two months.
So on top of that we have our India tallo business, where were expecting shipments begin.
50 million gallon opportunity at $6, a gallon we won't get the full production. This year due to just the supply chain, but that $6 to 50 million gallons is what the opportunity is there and it's a very strong margin business and biogas or 90 days of <unk>.
Testing for production of renewable natural gas and injection underground was completed.
The process of Carb approval is pending and we would expect mid this year to sometime later this year to begin generating a significant amount of cash flow from biogas, partially because we're storing the revenues underground right now so when they come out of the ground they tend to be accelerated it's faster than the pace of.
Of current production and we have seven digesters were looking to substantially increase that this year. So our positive cash flow biogas business as a contributor to the overall.
It needs of the company. So all in all we're an operating company that has operating cash flow and then we increment that with the.
The third eye capital credit line and long term financing from the USDA.
Awesome. Thank you.
Thank you.
Thank you. Your next question is coming from Derrick Whitfield from Stifel.
Please proceed with your question.
Thanks, and good morning, Eric and team.
Good morning, good morning.
Eric.
We and several investors for that matter admire the synergistic nature of your business your unrelenting focus on avoiding dilution and the unappreciated nature of your asset.
Having said that the stock is under immense pressure as a result of the capital plans for the riverbank facility and the implied interest on your third I Reserve facility.
Given the capital light aspects of your business in India, and the Keyes ethanol business from here.
Huge PTC tailwind you have for both R&D and ethanol in the U S. In 2025.
And the fact that you could build and refinance R&D with REIT money is there a scenario where you could delay funding for the Rd, Saf business by year or carve it out to remove the implicit threat.
We.
Receiver that project funding is being basically unrelated to our other business activities is project funding so it.
Hey, we've currently slated at we have about $40 million have already invested over the last five years in the project.
The coming together of project financing is primarily long term debt.
And the preferred equity its not a parent company transaction. It is a subsidiary company transaction, we've already put in our $40 million of equity so the.
The constraint for us actually is our engineering and permitting phase that we are looking to complete and then we've already signed the USDA <unk> zero-zero three by refinery assistance program.
Low commitment letter we have already shown that we can do renewable energy for America program funding again guaranteed by the USDA.
And other producers in California have been very successful with municipal tax free long term financing.
So we are we believe that it's not a transaction that's frankly, even related to the parent company dilution at all we've already done our investment its primarily just a procedural process to <unk>.
Permitting and complete the financing so the tie.
Timing Unfortunately is going to run at the pace of those those programs. So any delay is really not our effort to try to minimize dilution because we're not actually a structured to have any dilution in the transaction. It's all just procedural and we do have $3 8 billion of airlines at $3 2 billion of the travel stop company all looking.
For product in 2025.
<unk> on track to be able to achieve that so we continue to push forward aggressively to.
Steve our goals of minimizing dilution, but also achieved the expansion plans.
And Eric just to be clear on that point some of the long time long lead time items, they would not be procured our advanced until you have the project financing in place.
That is correct.
Okay.
And then as a follow up I wanted to ask if you could offer color on the dairy R&D competitive landscape and specifically are you seeing greater competition as a result of the <unk>.
TFS pricing carbon, suggesting or the PTC impact on dairy orangey volumes out in 2025.
The dairy or LNG business is a very local business is basically one dairy one pipeline and our.
Process attorney into renewable natural gas the dairies actually produce biogas, which is 40% cotwo and has a substantial amount of processing and interconnect issues that have to happen. So the state of California will be definitely attracting more growth and investment, but our particular local area where are afforded mile pipeline is in <unk>.
We have almost 40 dairy signed many of whom are coming in now that theyre seeing their neighborhood Nabors involved Andy do you have any comments you want to make about <unk>.
LNG.
I would.
Affirm that Eric I would say to.
To your question the Derrick.
There are more people that are interested in developing projects in California, I think I think the scoping plan, we'll have a lot to do with.
How many out of state folks want to come and really play in California, you've got you've got some that are already here I mean, the three main.
Established developers in state, obviously are a menace Mas and Cal bio, but we have seen some out of state guys come in but I think a lot is going to have to do with how the scoping plan ends up and what what carb does in terms of in terms of the.
The program going forward.
That's great. Thanks for your time.
Thank you Sir.
Thank you.
Your next question is coming from Manav Gupta from UBS. Please proceed with your question.
I think my question is based on Slide 18, I think the slide 18, showing.
Seven bodies right now and then 66 by year end 2027 should be given the work you've done on pipelines and stuff should we assume a linear progression or is that any reason these come on in clusters.
The.
Best way to look at that is on an annual basis because of the pace of permitting and primarily carb approvals to be Frank with you.
Car very possibly will be approving for of our Digesters all at once so from a financial Investor perspective. It would look like we built for all at once what really happened was we're building at an average pace of one or so a month.
And then the carb approvals come in.
Bunches. So we are being what I think is accurate and that it means we're being conservative by estimating a.
14 months delay between when we start producing RMG and sorting it underground and when we actually receive our carb approval, so and our five year plan and we show virtually no revenues in the current 2023 year, because we are expecting that our carpet approvals do not occur until the end of the fourth quarter and revenues.
Starting next year, we will get some more evidence here over the next few months as the pace car of carbon actual approvals and I doubt if it will up update our five year plan, but.
You should look for press releases about our carb approvals and that'll give you a sense of what the actual is our 14 months.
<unk>, we think is a conservatively accurate.
And then the second question is.
I mean, yes, you are you want higher carbon prices, but there is an opposing forces out there.
The refiners out there, who who loved this low carbon price environment, and they're pushing for a lower carbon price. So I'm just trying to understand like how do we go from here, what really gives you confidence that.
<unk> God.
Switching to our site and do things to raise the carbon price versus refiners what out there, saying you would do that because the gasoline price to go up we don't want you to do that so if you could talk us through that.
Andy you want to comment I mean now this is Andy.
Great question I think.
Carbon is heard very clearly over the last year from renewable producers across different technologies, whether it's R&D or other liquid fuels or hydrogen or you name it.
This.
Low L. CFS price is bad for everybody and the only group that rewards are the people.
Who are the petroleum, 90% mandated petroleum use in the United States right now and I don't think carb once that look I don't think that's what they desire to do I think it's part of the re scoping plan is addressing that and as you saw I'm sure.
Manav you were probably on the workshop a couple of weeks ago. They showed a slide that showed a dramatically different result, as far as the <unk> pricing and over $200. So clearly that message has made it through I think now it's it's balancing.
Making the program more aggressive, which they announced theyre going to do we'd like to push them even further.
Rather than 30%, we'd like to see 35%, we'd like to see that really take that take that aggressively but I think I think a lot of it has been.
Sort of waiting to see what's carb going to deal with this re scoping plan and I think now that that's becoming more clear.
And youre going to see a lot more of these projects moving forward. So.
Yes, it's obviously something that we've all been frustrated with but I think we.
We and other producers have spent a lot of time, having I think very good constructive discussions with carb staff about this and.
Again at the end of the day, it's not a good look for carbon or any other state that the oil producers are the winters here and so I think I think that process will work itself through in reverse itself here over the next.
12 months.
Last question.
If carb.
Woodson provisions.
Basically mean that instinct Daddy RMG is fine and out of state. The LNG is not so good does that benefit you disproportionately.
You're talking about the book and claim proposal that they're considering.
We think it's good for the yeah, we think as a even even as an end state producer I think our view is that it's it's good for the industry to have open borders so to speak when it comes to natural gas production. We don't we don't necessarily support that that proposed change to book and claim it's important for California.
Recognize that a lot of the renewable natural gas.
Currently being used in the state is being brought in from out of state.
In state production is now starting to catch up but really the foundation of this program was helped along by out of state producers and at the end of the day, what Theyre doing is providing environmental benefits to the area wherever theyre doing it it is helping support California's program. So so we don't think it's a great idea to Iraq those kind of barrier.
And I'm not even sure I mean, there could be some potential benefit to us, but I think looking at it from a larger perspective Manav. We think we think it's good to continue to support out of state production, if California wants to to reward in state producers with sort of a localized health impact credit.
We support that and we've made that clear to carbon I think out of state producers have actually told us they support that too.
So our view on it is that we think it's good for the industry to have a fungible network of gas produced production across the country supporting California's goals.
Thank you so much.
Thanks Manav.
Thank you. Your next question is coming from Matthew Blair from T. P. H.
Please proceed with your question.
Hey.
Good morning, everyone I was hoping to ask about this.
Eight four.
Thousand M Btu of external RMG sales in the fourth quarter.
It looks like that's the first quarter that you've had external sales.
So I guess number one does that imply that.
You did receive an L CFS pathway.
That allowed you to have external sales and then number two no. Just just yes, just to clarify that that's gas that has been sent to storage.
And obviously, we go through a process, where we're keeping the environmental attributes of the gas, but we do put that gas into storage. So there's incremental revenue that comes out of doing that but but no. We have not we have not been approved for a pathway. Yet we were approved for the initial two dairies were approved.
We're utilizing the gas and the ethanol plant, but now that we're now that were in your connected with the pipeline. We have to go back through the process of getting all of the currently the six series that we have operating through that <unk> pathway.
Ah Okay. So that was going to be my follow ups. So the and that's why the the RMG.
I guess approval the pathway approval wouldn't come through and so I think you said mid to late 2023.
Yes, we're hopeful.
It's probably it's a process that is currently got something like over I think over 50 or 55 applications are in the queue right now.
I know carb has heard a lot of input on that from producers as well and are working to.
To improve that by adding additional resources and then you know one of the other proposals in the scoping plan is too.
Is to move to a tier one application process, which will greatly expedite that unfortunately, that's not going to be until next year, but but but that's something hopeful to look forward to as we continue to build out our development is that will go into a more streamlined tier one application process that should should really help alleviate a lot of these delays that all <unk>.
<unk> and developers have been seeing.
Okay.
Helpful. And then my follow up is on the India biodiesel segment.
Right now we're a couple months into the first quarter could you talk about your your overall expectations for the first quarter here I know you mentioned that.
Coming in in April there could be some nice tailwind from both biodiesel sales and the glycerin.
Sorry, not the Pulitzer M D.
Tallo exports, but but what are your expectations for Q1 for India biodiesel. Thanks.
Current expectations is that this is proof positive that the India government has very talented doing things slowly, but once it actually occurs its very very good for us. So I do not expect anything out of the first quarter I do expect very good news out of the first quarter. So.
Since the market hopefully will be informed about what's coming in in April that'll be good news in the first quarter, but.
Other than buying feedstock, which we have done we bought almost.
Almost $10 million with the feedstock and operating the plant, which we have done to be able to get ready for shipments.
Okay that makes sense. Thank you.
Thank you.
Thank you. Your next question is coming from jet Syriac from Alliance Bernstein.
Your line is live.
Hey, guys Derek already asked my questions, but thank you.
Alright, thanks, Thanks, Jeff and good luck.
Yeah.
Thank you. Your next question is coming from Ed Woo from <unk> capital.
Yeah, Congratulations Justin Yeah. Congratulations on the progress my question is on India.
Looks like you guys are getting back to relatively normal operations that you mentioned that there's no debt. There have you guys are considered.
Type of monetization of that asset.
It seems to be a very valuable asset that has no debt.
Our current monetization of it is just getting it to full production.
And that has proven to be a very very positive cash flow business for us.
And this new cost plus environment and tell exports will be a new source of revenue for us.
So that's.
That's our current strategy to generate cash from those assets. However, the India stock market has also been very interested in the new 10 cent per diesel gallon tax that it gets implemented in a couple of weeks in India and we are the leading biodiesel company.
India, Therefore, the leading beneficiary of a 5% blend of.
Diesel with biodiesel and sorry, biodiesel with diesel so we do.
We anticipate there will be certainly opportunities for an IPO or other kind of private equity structure that.
We will come out of that but our current goal is.
Every dollar production, we do there and margin that is generated from that is actually just free cash flow for the parent company. So we see that as a terrific source of tens of millions of dollars of cash for the parent company supporting the overall five year plan initiatives.
Great well that sounds great and I wish you guys. Good luck. Thank you.
Thank you Ed.
Thank you. Your next question is coming from Dave storms from Stonegate capital partners.
Please proceed with your question.
Hey, Thanks for taking my call and congrats on Adam.
Any such additional mouse to the biogas pipeline.
My question is now that you have 40 miles or so completed should we expect any more infrastructure spending on the biogas side of things or is it more about getting the Lcs approval aircraft Digesters.
Other cycles, you've outlined for the year.
No we will continue to spend on infrastructure, because we're we're obviously building out more dairies.
As far as far as that level of 40 mile pipeline, probably not another one of those.
As we.
Connect the dairies that we have now there will be some additional small amounts of pipeline that will for a mile or two to connect various theories, but primarily the spending is going to be around building out the digesters and the associated equipment that goes with that the pretreatment units that are at the dairies.
I'd say one other thing to kind of keep your eye on and I think this will be true for development in the state is as we get.
Adding in the sort of the final dairies that are kind of still out there.
Tend to be further away from.
Pipelines and the infrastructure, that's been built by <unk> or the other developers so youre going to see some some trucking solutions that are going to be deployed and that will have some associated infrastructure as well.
That's perfect.
Thank you Dave.
Thank you there are no further questions at this time I would like to turn the floor back over to management for closing remarks.
Thank you and thanks to the meadows shareholders analysts and others, who joined US today. Please review the <unk> company presentation that is posted on the homepage of the <unk> website, along with a five year plan. We look forward to talking with you about participating in the growth opportunities at <unk> Todd. Thank you for attending today's.
A medicine 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 Matthew.
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