Q1 2024 Aemetis Inc Earnings Call
Thanks, David.
Okay.
Operator: Welcome to the AEMETIS First Quarter 2024 Earnings Review Conference Call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Mr. Todd Waltz, Executive Vice President and Chief Financial Officer of AEMETIS, Inc. Mr. Waltz, you may begin.
Think about this here welcome to the aim at his first quarter 'twenty 'twenty Four earnings review conference call. At this time, all participants are in a listen only mode.
Operator: Question and answer session will follow the formal presentation. As a reminder, this conference is being recorded it is now my pleasure to introduce you to your host Mr. Todd Waltz, Executive Vice President and Chief Financial Officer of AME Edison, Inc. Mr. Waltz, you may begin.
Todd A. Waltz: Thank you, Kelly. Welcome to the AEMETIS First Quarter 2024 Earnings Review Conference Call. Joining us for the call today is Eric McAfee, founder, chairman, and CEO of Aemetis. We suggest visiting our website at aemetis.com to review today's earnings press release, the Ametis corporate and investor presentations, Ametis' filing with the Securities Exchange Commission, recent press releases, and previous earnings conference calls. Before we begin our discussion today, I'd like to read you the following disclaimer statement.
Todd A. Waltz: Thank you Kelly and welcome to the <unk> first quarter 2024 earnings Review Conference call.
Todd A. Waltz: Joining us for the call today is Eric Mcafee, founder Chairman and CEO of a medicine.
Todd A. Waltz: We suggest visiting our website at <unk> Com to review today's earnings press release, the <unk> corporate and Investor presentations filing with the Securities Exchange Commission recent press releases and previous earnings Conference calls.
Todd A. Waltz: During today's call, we will be making forward-looking statements, including, without limitation, statements with respect to our future stock performance, plans, opportunities, and expectations with respect to financing activities and the execution of our business plan. These statements should be considered in conjunction with the disclosures and cautionary warnings that appear in our SEC filing. 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.
Todd A. Waltz: Before we begin our discussion today I'd like to read the following disclaimer statement.
Todd A. Waltz: 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.
Todd A. Waltz: 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.
Todd A. Waltz: For additional information, please refer to the company's Security and Exchange Commission filings, which are posted on the SEC EDGAR system and our own company website. Our discussion on this call will 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 our company's source or use of cash. A reconciliation of the non-GAAP measure to the most directly comparable GAAP measure included in our earnings release for the three months ended March 31, 2024, which is available on our website.
Todd A. Waltz: For additional information please refer to the company's security and Exchange Commission filings, which are posted on the Sec's Edgar system and our own company website.
Todd A. Waltz: Our discussion on this call will 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 our company source or use of cash a reconciliation of the non-GAAP measure to the most directly comparable GAAP measures included in our earnings release for the three months ended March.
Todd A. Waltz: 31, 2024, which is available on our website.
Todd A. Waltz: Adjusted EBITDA is defined as net income or loss plus, to the extent deducted in calculating such net income, interest expense, income tax expense, intangible and other amortization expense, accretion expense, depreciation expense, and share-based compensation expense.
Todd A. Waltz: Adjusted EBITDA is defined as net income or loss plus to the extent deducted in calculating such net income interest expense income tax expense intangible and other amortization expense accretion expense depreciation expense and share based compensation expense let's.
Todd A. Waltz: Let's review the financial results for the first quarter of 2024. Revenues during the first quarter of 2024 were $72.6 million compared to $2.2 million for the first quarter of 2023. Our Keys plant returned to full operation in the second quarter of 2023 after completing an extended maintenance cycle during the first quarter of last year. Our Dairy Renewable Natural Gas segment produced 60,300 million BTUs of renewable natural gas from eight operating dairy digesters, sold its first LCFS credits, and reported $3.8 million in revenue.
Todd A. Waltz: Let's review the financial results for the first quarter of 2024.
Todd A. Waltz: Revenues during the first quarter of 2024.
Todd A. Waltz: Were $72.6 million compared to $2 $2 million for the first quarter of 2023.
Todd A. Waltz: Our Keyes plant returned to full operation in the second quarter of 2023 after completing an extended maintenance cycle during the first quarter of last year.
Todd A. Waltz: In Q1 of this year, our dairy renewable natural gas segment produced.
Todd A. Waltz: 60000, 300 million Btu's of renewable natural gas from eight operating dairy digesters.
Todd A. Waltz: Hold its first L. C F S credits and reported $3 8 million of revenue.
Todd A. Waltz: Our India biodiesel business generated $32.7 million of revenue, primarily from sales to the three Indian oil marketing companies. Gross loss for the first quarter of 2024 was $612,000 compared to a $1.3 million gross loss during the first quarter of 2023. Selling general and administrative expenses decreased to $8.9 million during the first quarter of 2024 from $10.8 million during a similar period in 2023, driven primarily by a reduction in fixed costs of goods sold charged to selling general and administrative expenses due to the extended maintenance during the first quarter of 2023.
Todd A. Waltz: Our India biodiesel business generated $32 7 million of revenue primarily from sales to the three India oil marketing companies.
Todd A. Waltz: Gross loss for the first quarter of 2024 with $612000 compared to a $1 3 million dollar gross loss during the first quarter of 2023.
Todd A. Waltz: Selling general and administrative expenses decreased to $8 $9 million during the first quarter of 2024.
Todd A. Waltz: $10.8 million during the <unk>.
Todd A. Waltz: The similar period in 2023.
Todd A. Waltz: Driven primarily by reduction in fixed cost of goods sold charged to selling general and administrative expenses due to the extended maintenance during the first quarter of 2023.
Todd A. Waltz: Operating loss was $9.5 million for the first quarter of 2024 compared to an operating loss of $12.1 million for the same period in 2023. Net loss was $24.2 million for the first quarter of 2024 compared to a net loss of $26.4 million for the first quarter of 2023. Cash at the end of the first quarter of 2024 was $1.6 million, compared to $2.7 million at the close of the fourth quarter of 2023.
Todd A. Waltz: Operating loss was $9 $5 million for the first quarter of 2024 compared to an operating loss of $12 $1 million for the same period in 2023.
Todd A. Waltz: Net loss was $24 $2 million for the first quarter of 2024 compared to a net loss of $26 $4 million for the first quarter of 2023.
Todd A. Waltz: Cash at the end of the first quarter of 2024 was $1.6 million compared to $2.7 million at the close of the fourth quarter of 2023, we recorded investment in capital projects related to the reduction of capital intense of carbon intensity.
Todd A. Waltz: We recorded investment in capital projects related to the reduction of capital intensity, of carbon intensity, ethanol, and the construction of dairy digesters of 3.6 million for the first quarter of 2024. Now, I'd like to introduce the founder, chairman, and chief executive officer of Aemetis, Eric McAfee, for a business update.
Todd A. Waltz: Matt as ethanol and construction of dairy Digesters, a $3 6 million for the first quarter of 2024.
Eric A. McAfee: Now I'd like to introduce the founder Chairman and Chief Executive Officer of Emeritus, Eric Mcafee for a business update Eric.
Todd A. Waltz: Eric. Thank you, Todd.
Eric A. McAfee: In the Ametis biogas business, over the last year or so, we have closed $50 million in USDA-guaranteed 20-year loans to build dairy biogas digesters and to convert construction loans to term loans for digesters that have completed construction. We have signed 44 agreements with dairies and now have nine operating dairy digesters supplied with waste from 10 dairies. We plan to accelerate the rate of biogas digester development in 2024 as we expect to close $60 million of new private financing to accelerate project construction and as we expect to close an additional USDA-guaranteed REAP loans that provide 20-year debt with each closing expected to provide $25 million of additional construction funding.
Eric A. McAfee: Eric Thank you Todd and the admit as biogas business over the last year or so we have closed $50 million and USDA guaranteed 20 year loans to build there is biogas digesters and to convert construction loans the term loans for digesters that completed construction.
Eric A. McAfee: We have signed 44 agreements with dairies and now have nine operating dairy digesters supplied with waste from 10 theories we plan to accelerate the rate of died of biogas Digesters development in 'twenty 'twenty four as we expect to close $60 million of new private financing to accelerate project construction and as.
Eric A. McAfee: We expect to close an additional USDA guaranteed reap load.
Eric A. McAfee: That provide 20 year debt with each closing expected to provide $25 million of additional construction funding we.
Eric A. McAfee: We generated revenue from the sale of LCFS credits related to renewable natural gas for the first time in the first quarter of 2024. Renewable natural gas revenue is expected to significantly increase as we build new dairy digesters, as CARB approves our provisional pathway applications, including the existing digesters that we filed early last year, and as our renewable natural gas generates Inflation Reduction Act 45 Z production tax credits beginning in January 2025.
Eric A. McAfee: We generated revenue from the sale of El CFS credits related to renewable natural gas for the first time in the first quarter of 2020 for renewable natural gas revenue is expected to significantly increase as we build new dairy digesters as carb approves, our provisional pathway obligations, including the existing Digesters that we filed early last.
Eric A. McAfee: Year end.
Eric A. McAfee: And as a renewable natural gas generates inflation reduction act forty-five Z production tax credits beginning in January 2025.
Eric A. McAfee: The California Air Resources Board has stated that renewable natural gas is an important feedstock for the production of renewable hydrogen for future truck engines, allowing the trucks to be zero emission using a carbon negative fuel. We believe that Aemetis is excellently positioned to supply renewable natural gas, renewable hydrogen, and negative carbon intensity electricity to power future trucks and cars in California, enabling the transition to zero emission and below zero carbon intensity heavy duty and light duty vehicles.
Eric A. McAfee: The California Air Resources Board has stated that renewable natural gas is an important feedstock for the production of renewable hydrogen for future truck in engines, allowing the trucks to be zero emission using a carbon negative fuel.
Eric A. McAfee: We believe that the lettuce is excellently positioned to supply renewable natural gas renewable hydrogen and negative carbon intensity electricity to power future trucks and cars in California, enabling the transition to zero emission and below zero carbon intensity heavy duty and light duty vehicles.
Eric A. McAfee: The expected adoption this year by the California Air Resources Board of a 20-year mandate for the rapid decarbonization of transportation will directly benefit the lowest carbon intensity renewable fuels, as well as the feedstocks for renewable hydrogen and renewable electricity production. As we planned when we started the biogas project in 2018, Aemetis is again excellently positioned to be a significant beneficiary of the updated LCFS mandates this year. We are also well positioned to benefit from the Inflation Reduction Act 45 Z production tax credit that starts in January 2025 in the development of our Aemetis Sustainable Aviation Fuel and Renewable Diesel business.
Eric A. McAfee: We expected the adoption this year by the California Air Resources Board of a 20 year mandate for the rapid decarbonization of transportation will directly benefit the lowest carbon intensity renewable fuels as well as the feedstocks for renewable hydrogen and renewable electricity production.
Eric A. McAfee: As we planned who started the biogas project in 2018, a medicine is again excellently positioned to be a significant beneficiary of the updated L. CFS mandates. This year. We are also well positioned to benefit from the inflation reduction Act 45 Z production tax credit that starts in January 2025.
Eric A. McAfee: And the development of our aim at a sustainable aviation fuel and renewable diesel business.
Eric A. McAfee: During the first quarter, we received the authority to construct air permits for our planned 90 million gallon per year sustainable aviation fuel and renewable diesel plant to be built in Riverbank, California. When operated to produce only sustainable aviation fuel, the design capacity of the plant is about 78 million gallons per year of SAF. The authority to construct permits are a significant milestone, as we had already received the Use Permit and California Environmental Quality Act approval in 2023, which were the other key discretionary permits we needed to move forward with the project.
Eric A. McAfee: During the first quarter, we received the authority to construct air permits for a planned 90 million gallon per year sustainable aviation fuel and renewable diesel plant do built in riverbank, California.
Eric A. McAfee: What operated to produce only sustainable aviation fuel the design capacity of the plant is about 78 million gallons per year of S. A F.
Eric A. McAfee: The authority to construct permits are a significant milestone as we had already received the use permit and California Environmental quality Act approval in 'twenty, two 'twenty, three which were the other key discretionary permits we needed to move forward with the project.
Eric A. McAfee: We have signed $3.8 billion worth of supply contracts with 10 airlines and a $3.2 billion renewable diesel supply contract with a national travel stop company. The need for sustainable aviation fuel continues to increase, but the overall market supply of SAF continues to be delayed, resulting in significant supply shortages that are expected to continue for the foreseeable future as the 90 billion gallon per year global aviation fuel industry seeks to reduce carbon emissions using renewable fuels to replace petroleum jet fuel.
Eric A. McAfee: We have signed $3 $8 billion worth of supply contracts with 10 Airlines and a $3.2 billion of renewable diesel supply contract with a national travel stop company.
Eric A. McAfee: The need for sustainable aviation fuel continues to increase but the overall market supply of S. F continues to be delayed resulting in significant supply shortages that are expected to continue for the foreseeable future. He has and then the 90 billion gallon per year global aviation fuel industry seeks to reduce carbon emissions.
Eric A. McAfee: Using renewable fuel to replace petroleum jet fuel.
Eric A. McAfee: With a strong demand for SAF and limited supply, we are now discussing the use of innovative pricing structures with our airline customers to accelerate the financing, construction, and operation of the SAF plant. We're now working on the project financing for the SCF plant, with due diligence and negotiations currently underway with investors. We're receiving a high level of interest from multiple strategic and financial investors, some of whom have significant commercial interests in the success of the aviation industry, as one of the very few companies with key permits needed to construct a large-scale SAF production facility in the United States.
Eric A. McAfee: With a strong demand for S F and limited supply we are now discussing the use of innovative pricing structures with our airline customers to accelerate the financing construction and operation of the Saf plant.
Eric A. McAfee: We're now working on the project financing for the Scf plant with due diligence and negotiations currently underway with investors. We are receiving a high level of interest from multiple street strategic and financial investors some of whom have significant commercial interests in the success of the aviation industry.
Eric A. McAfee: As one of the very few companies with key permits needed to construct a large scale Saf production facility in the United States.
Eric A. McAfee: Aemetis is on track to be a leading supplier of renewable fuel to an airline market that cannot currently meet its goal of transitioning to lower carbon intensity operations. In the India biofuels business, in late 2023, we announced that we received a $150 million one-year allocation for biodiesel sales to the three Indian oil marketing companies under a cost plus contract structure. We started deliveries under this contract in October 2023 and have achieved excellent production and delivery performance.
Speaker Change: Hey, Matt this is on track to be a leading supplier of renewable fuel to an airline market that cannot currently meet its goal of transitioning to lower carbon intensity operations.
Eric A. McAfee: In the India Biofuels business in late 2023, we announced that we received a $150 million one year allocation for biodiesel sales to the three India oil marketing companies under a cost plus contract structure.
Eric A. McAfee: We started deliveries under this contract in October 2023, and have achieved excellent production and delivery performance.
Eric A. McAfee: The positive impact of cost plus pricing that is now being used by oil marketing companies to purchase biodiesel is expected to continue for the foreseeable future. The India business has positive EBITDA and funds its own operations and capacity growth.
Eric A. McAfee: The positive impact of cost plus pricing that is now being used by the oil marketing companies to purchase biodiesel is expected to continue for the foreseeable future.
Eric A. McAfee: The India business has positive EBITDA and funds its own operation and capacity growth.
Eric A. McAfee: For the Ametis ethanol business, the approval of a 15% blend of ethanol in 49 states for this summer and the EPA's recent statement that a permanent E15 approval will be adopted effective next year is expected to have a positive impact on the price of ethanol as retailers seek to provide lower cost fuel to consumers. We have completed the construction of an on-site solar energy facility with battery storage to reduce our energy costs and reduce the carbon intensity of the ethanol produced by our Keys plant, which generates more low-carbon fuel standard revenue per gallon.
Eric A. McAfee: For the medicine ethanol business the approval of a 15% blend of ethanol in 49 states for this summer and the Epa's recent statement that a permanent E 15 approval will be adopted effective next year is expected to have a positive impact on the price of ethanol as retailers seek to provide lower cost fuel.
Eric A. McAfee: To consumers.
Eric A. McAfee: We have completed construction of an onsite solar energy facility with battery storage to reduce our energy cost and reduce the carbon intensity of the ethanol produced by our Keyes plant, which generates more low carbon fuel standard revenue per gallon.
Eric A. McAfee: The next major step in improving our cash flow and energy efficiency at the Keys plant is the installation of a mechanical vapor recompression system. We have completed process design and detailed engineering and are now moving forward with the procurement of equipment. The MVR system is designed to reduce natural gas usage by 80% and increase cash flow by up to $15 million per year at the Keys plant. The MVR Energy Efficiency Project is budgeted to cost about $21 million and has been awarded $16 million in grants and tax credits from the California Energy Commission, Pacific Gas and Electric Company, the Department of Energy, and the Internal Revenue Service.
Eric A. McAfee: The next major step in improving our cash flow and energy efficiency at the Keyes plant is the installation of a mechanical vapor recompression system we.
Eric A. McAfee: We have completed process design and detailed engineering and are now moving forward with the procurement of equipment.
Eric A. McAfee: The end of the our system is designed to reduce natural gas usage by 80%.
Eric A. McAfee: And increased cash flow by up to $15 million per year at the Keyes plant.
Eric A. McAfee: The N V or energy efficiency project is budgeted to cost about $21 million and has been awarded $16 million of grants and tax credits from the California Energy Commission Pacific gas and electric company, the department of energy and the internal revenue service.
Eric A. McAfee: Our Ametis Carbon Capture subsidiary is in the process of financing the characterization well and the engineering for the EPA Class 6 permit using USDA 20-year financing. We have received California state approval to drill the characterization well, and now we are working through the USDA loan process. In summary, all five Aemetis business segments are synergistic and create what we refer to as a circular bioeconomy.
Eric A. McAfee: Our a med as carbon capture subsidiary is in the process of financing that characterization, well and the engineering for the EPA classics permit using USDA 20 year financing.
Eric A. McAfee: We have received the California state approval to drill the characterization well and now we're working through the USDA loan process.
Eric A. McAfee: In summary, all five and Medis business segments that are synergistic and create what we referred to as a circular bio economy, the growing demand for renewable natural gas.
Eric A. McAfee: Biodiesel sold under cost-plus contracts in India, the undersupplied sustainable aviation fuel market, as well as the emerging carbon sequestration market, are key areas of investment and project development at Aemetis. Our existing operations in California and India are focused on projects that expand capacity, improve energy efficiency, reduce carbon intensity, increase revenues, utilize lower cost feedstocks, and significantly improve cash flows. Our company's values include a long-term commitment to building value for stockholders, the empowerment of and respect for our employees and business partners, and making significant and positive contributions to the communities that we serve. Now, we'll take questions from our call participants. Kelly?
Eric A. McAfee: Oh diesel sold under cost plus contracts in India. The under supplied sustainable aviation fuel market as well as the emerging carbon sequestration market are key areas of investment and project development at a medicine or.
Eric A. McAfee: Our existing operations in California, and India are focused on projects to expand capacity improve energy efficiency reduce carbon intensity increase revenues utilize lower cost feedstocks.
Kelly: And significantly improved cash flows.
Kelly: Our company's values include a long term commitment to building value for stockholders the empowerment of with respect for our employees and business partners and making significant and positive contributions to the communities that we serve.
Eric A. McAfee: Now lets take questions from our call participants Kelly.
Operator: Thank you, Mr. McAfee. We will now be connecting the Q&A session. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while asking your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just a moment while we pull for questions. Your first question is coming from Manav Gupta with UBS. Please pose your question. Your line is live.
Kelly: Thank you Mr. Mcafee, we will now be connecting the Q&A session.
Manav Gupta: Any questions or comments. Please press star one on your phone at this time.
Manav Gupta: While posing your question you please pick up your handset.
Manav Gupta: To provide optimum sound corny.
Manav Gupta: Please hold.
Manav Gupta: A question.
Operator: Your first question is coming from Manav Gupta with UBS. Please proceed your question your line is less.
Manav Gupta: So, guys, my first question is, looks like CARB is looking at those balances and saying, you know, maybe we need to do more. And on that front, it looks like, you know, they might go with a 7% step down or 9% step down. You talk to those guys very often. What is the probability that they took a look at this and said, you know, we need to do more than just 5% steps and go for a 7% or 9% scenario?
Manav Gupta: So my first question is looks like God is looking at those balances and saying you know maybe you need to do more and on that front. It looks like you know they might go over the seven plus and stepped down a 9% step down you talked to those guys very often.
Manav Gupta: What is the probability that they took a look at this and say you know what we need to do more than just five buttons that stockpile.
Manav Gupta: And golf out of seven or 9% scenario again.
Eric A. McAfee: We talked to CARB, but we also talked to the researchers that provide the data that supports CARB's activity. And, as I think you know, those numbers this year are increasing at a much higher rate than they had expected. So I do believe that they're going to go with a higher than 5%. And they have looked at the automatic acceleration mechanism, which they had proposed was going to take several years before they'd put that in place.
Speaker Change: We talked to car, but we also talk to the researchers that provide the data that supports carbs activity and as I think you know those numbers. This year are increasing at a much higher rate than they had expected. So I I do believe that they're going to go with a higher than 5% and that they have.
Eric A. McAfee: Looked at.
Eric A. McAfee: The automatic acceleration mechanism, which they had proposed that was going to take several years before they put that in place they're looking closely at putting it in place earlier. So in my view, both a larger than 5% step down and a earlier adoption of the automatic acceleration mechanism is.
Eric A. McAfee: They're looking closely at putting it in place earlier. So, in my view, both a larger than 5% step down and an earlier adoption of the automatic acceleration mechanism are needed, and the market will respond positively when that's adopted. The fall in price in LCFS credits, which has been dramatic, it was roughly $75 just a couple months ago and hit $50 now, is a 30 plus percent loss in their market during the middle of them proposing an extreme measure of tightening. So it's exactly the opposite of what they thought would happen.
Eric A. McAfee: <unk> and that the market will respond positively when that's adopted the fall in price and L. CFS crew.
Eric A. McAfee: Credits, which has been dramatic it was roughly $75. It's a couple of months ago and it hit $50 now.
Eric A. McAfee: No. That's that's a 30 plus plus percent loss in their market during the middle of them proposing a extreme measure of of tightening. So it's exactly the opposite of what they thought would happen so I.
Eric A. McAfee: I think everyone has an opportunity to speak into this process and the more that wall Street speaks into the process. The more I think we're going to see a tightening they do complain that wall Street doesn't talk to them enough and that they would like to hear from Wall Street more. So your comment is very appropriate and I'll be looking to get more and more involvement with stock analysts.
Eric A. McAfee: So I think everyone has an opportunity to speak into this process. And the more that Wall Street speaks into the process, the more I think we're going to see tightening. They do complain that Wall Street doesn't talk to them enough and that they would like to hear from Wall Street more. So your comment's very appropriate, and I'll be looking to get more and more involvement with stock analysts and direct connection with the correct executives at CARB.
Eric A. McAfee: Indirect connection with the correct executives at Corp.
Manav Gupta: Perfect. My quick follow-up is here. Nine dairies on, you talked about accelerating. You're looking, looks like your funding is coming through. So, for our modeling purposes, how many dairies do you think we should have in our models by year? And I understand there's a lag here between the volumes sold and the dairies online. But just from your perspective, how many do you think would get online by year in 2024
Speaker Change: Okay. My quick follow up his head no.
Manav Gupta: <unk>, Don you talked about accelerating youre looking it looks like your funding is coming through so if.
Manav Gupta: If you for modeling purposes, how many days do you think we should have in our models by by ear and I understand there's a lag in between the volume sold in the Daddy's online, but just from your perspective, how many do you think we'll get online by year end 'twenty 'twenty four.
Eric A. McAfee: Yeah, we're still tracking 18 dairies at the end of 2024, and the acceleration we're doing will have its largest impact in 2025 if the purchase along lead time skids and that sort of material that will enable us to rapidly accelerate as we go into 2025. So it will have a direct impact on 2025 operating income and cash flows as we prime the pump, as we like to say over here. Thank you so much.
Manav Gupta: Yeah, we're still tracking 18 dairies.
Eric A. McAfee: End of 'twenty 'twenty, four and the acceleration that we're doing will have as its largest impact in 2025 is the purchase of long lead time.
Eric A. McAfee: Skids and that sort of material that will enable us to rapidly accelerate as we go into 2025. So it will have a direct impact on 2025 operating income and cash flows as we prime the pump as we like to say over here.
Manav Gupta: Thank you so much. I'll turn it over to him.
Speaker Change: Thank you so much identical.
Speaker Change: Thank you Matt.
Derrick Lee Whitfield: Your next question is coming from Derrick Whitfield with CFO. Please pose your question. Your line is live.
Manav Gupta: Your next question is coming from Derrick Whitfield with Stifel. Please pose your question your line is live.
Eric A. McAfee: Thanks, and good morning, Eric and team. Good morning, Derrick. Eric, I wanted to start with the EB-5 financing, which you recently received approval for from the U.S. Citizens and Immigration Services. Maybe if you could just speak to the progress you've made in securing investors to advance funding, because it's certainly quite impactful for you guys from a cost of capital perspective.
Derrick Lee Whitfield: Thanks, and good morning, Eric and team.
Derrick: Good morning there.
Eric A. McAfee: Yes, just so everybody's familiar with what Derrick is talking about, this is subordinated debt funding with long maturities at interest rates below 3% per year, being subordinated, of course, that it acts as equity for funding USDA and other senior secured debt financing. Approval allows us to bring in foreign investors, in this case, at $800,000 per investor. And we have already successfully raised approximately $40 million under this program. I think it's $39.5 million under this program in the past from about 70 investors. And we actually, I'm sorry, about 80 investors. And we, under this program, have been approved for another roughly 250 investors. So it is a very big milestone for our company.
Eric A. McAfee: Eric I wanted to start with the <unk> financing.
Eric A. McAfee: You recently received approval for from the U S citizens and immigration services.
Eric A. McAfee: Maybe if you could just speak to the progress you've made in security investors to advance funding.
Eric A. McAfee: Because it certainly quite impactful for you guys from a cost of capital perspective.
Eric A. McAfee: Yes, just so everybody's familiar with what they're talking about this as subordinated debt funding with long maturities at interest rates below 3% per year being subordinated of course that it acts as equity for funding USDA another senior secure.
Eric A. McAfee: Our debt financing.
Eric A. McAfee: The approve.
Eric A. McAfee: Approval allows us to bring in a foreign investors in this case at $800000 per investor and we have already successfully raised approximately $40 million under this program I think it's $39 5 million under this program in the past from about 70 investors and we are.
Eric A. McAfee: Excellent sorry about 80 investors.
Eric A. McAfee: And we under this program have been approved for another roughly 250 investors. So it is a very big milestone for our company. This is sold through brokers in foreign countries and I've spent a lot of time in both India as well as all around China doing direct presentations to groups of investors through broker.
Eric A. McAfee: This is sold through brokers in foreign countries, and I've spent a lot of time in both India as well as all around China doing direct presentations to groups of investors through brokers. The process is very slow and then very fast. We raised 80% of our prior funding in two weekends through one broker. I flew to China, raised the money, flew home, flew back, raised some more money, and we closed it out literally in two weekends.
Eric A. McAfee: The process is very slow and then very fast we raised.
Eric A. McAfee: 80% of our prior funding in two weekends through one broker.
Eric A. McAfee: Blue to try to raise the money flew home flew back raise some more money and we close it out literally them two weekends and the reason why it goes slow is that they go through a cycle of.
Eric A. McAfee: Due diligence of marketing and then the actual presentations and signing up investors at our experience goes extremely fast. So we are doing that.
Eric A. McAfee: And the reason why it goes slow is that they go through a cycle of due diligence in marketing. And then the actual presentations and signing up investors, in our experience, go extremely fast. So we are doing that fundamental work with brokers now, and we'll be looking to potentially have initial funding into the escrow account this quarter. And so we're seeing progress, and we'll continue to, as we have in the past, focus the energy on the idea that it takes a little while, but when it happens, this is very long-term, very low-cost financing that acts as equity, and it's non-dilutive; it's non-convertible into equity, by the way.
Eric A. McAfee: Fundamental work with brokers now and we'll be looking to potentially have.
Eric A. McAfee: Initial funding into the escrow account this quarter.
Eric A. McAfee: And so we're seeing progress and we'll continue to as we have in the past focusing energy on the idea that it takes a little while but when it happens. This is very long term very low cost financing to access equity and its non dilutive, it's non convertible into equity by the way.
Derrick Lee Whitfield: That's great. And then, Eric, maybe shifting over to 45Z policy, I wanted to ask what you're hearing from your sources on how the U.S. Treasury will treat ultra-low C.I., like your dairy R&G, with the emission factor. And even beyond that, I wanted to get your opinion on what you're seeing in values for your dairy R&G for 45E applications, where you could create, again, very low C.I. hydrogen that could have a nice multiplier on it as well.
Speaker Change: That's great and then maybe shifting over to a 45 day policy wanted to ask what Youre hearing from your sources on how U S. Treasury World treat ultra low Ci like Youre, Gary R&D with the emission factor and even beyond that I wanted to get your opinion on what youre seeing in values.
Eric: For your dairy Orangey 445 applications, where you could create again very low Ci.
Derrick Lee Whitfield: Hydrogen that could have a nice multi part of it as well.
Derrick Lee Whitfield: Yeah.
Eric A. McAfee: The recently released, let's call it amended GREET model that came out last week gives us guidance that there is just, like in California, whatever the calculation is, if it's carbon negative 320, then that's what the number is. And there does not seem to be any pushback on that topic by any of the people we've spoken to and inside the agencies. We just had the USDA Office of Chief Economist spend an entire day here, and that staff member sits in on these meetings with the IRS and the DOE and the White House.
Derrick Lee Whitfield: The recently released.
Eric A. McAfee: Let's call it amended greet model that came out last week.
Eric A. McAfee: Gives us guidance that there is just like in California, whatever the calculation is.
Eric A. McAfee: If its carbon negative $3 20, then thats what the number is and that does not seem to be any pushback on that topic by any of the people we've spoken to and inside the agencies.
Eric A. McAfee: We just had the USDA office of Chief Chief Economist spend an entire day here.
Eric A. McAfee: And that staff member sits in these meetings with the IRS and the OE in the Whitehouse and so there is a encouragement of ultra low Ci now we all know that biogas is the big winner in this with negative.
Derrick Lee Whitfield: And so there is an encouragement for ultra-low CI. Now, we all know that biogas is the big winner in this, with negative hundreds, 300, 400. And so carbon negative renewable hydrogen will also be another big winner. So biogas can make the replacement of diesel into engines directly or make renewable hydrogen that goes into diesel engines, replaces diesel consumption, or can go into electric vehicles. So all three of those pathways are the mechanism that biogas is using to really be probably the biggest winner in the Inflation Reduction Act, 45C, et cetera.
Derrick Lee Whitfield: Hundreds 304 hundred and so carbon negative renewable hydrogen will also be another big winter. So biogas can make their replacement of diesel engines directly or make renewable hydrogen that goes into diesel engines replace diesel consumption or can go into electric vehicles.
Derrick Lee Whitfield: All three of those pathways are are the mechanism. The biogas is using to really be the probably the biggest winner in the inflation reduction Act 40, fives et cetera.
Jordan Alexander Levy: Terrific. Thanks for the color, Eric.
Speaker Change: Terrific. Thanks for the color Eric.
Jordan Alexander Levy: Absolutely.
Jordan Alexander Levy: Your next question is coming from Jordan Levy with True Securities. Please submit your question; your line is live.
Jordan Alexander Levy: Your next question is coming from Jordan Levy with tour Securities. Please pose your question your line is live.
Jordan Alexander Levy: Yes.
Jordan Alexander Levy: Hey, all appreciate all the details, maybe appreciate the comments on the trajectory for the biogas digester buildup, maybe just in the near term, the next four quarters or so, how should we think about the ramp and LCFS credits? And where do you stand kind of in that process for moving from conditional to final pathway approval?
Jordan Alexander Levy: Hey al.
Jordan Alexander Levy: Appreciate all the details maybe I appreciate the comments on.
Jordan Alexander Levy: The trajectory for the biogas, sorry, just to build out maybe just over kind of the near term in the next three or four quarters or so how should we think about the ramp in CFS credits.
Jordan Alexander Levy: Where do you stand kind of in that process for moving from conditional the final pathway approval there.
Eric A. McAfee: Let's take it backwards. We filed in May of 2023 for our initial round of dairies. The process is basically you sit there, and nothing happens. And then all at once, they review your application. And in a very short period of time of a few months, it's approved. But there is a bottleneck of projects that has caused that as of today, they haven't actually even started looking at our project. But as soon as they look at it, it then has a very quick sort of 90 day review process and some other stuff, and it happens very quickly.
Speaker Change: Well, let's take it backwards.
Eric A. McAfee: <unk>.
Eric A. McAfee: We filed in May of 2023.
Eric A. McAfee: For our initial round dairies.
Eric A. McAfee: The process is basically you sit there and nothing happens.
Eric A. McAfee: And then all at once they review your application in a very short period of time, a few months its approved but it's a bottleneck of of projects that has caused that as of today.
Eric A. McAfee: They havent actually been started looking at our project.
Eric A. McAfee: But as soon as they look at it. It then has a very quick sort of 90 day review process and some other stuff in it. It happens very quickly. So we are expecting during the third quarter that that process will occur.
Eric A. McAfee: So we are expecting that during the third quarter that that process will occur. And because of the way that they do their approvals, in the quarter of the approval, the beginning of that quarter is when we get to do the LCFS credits. So as early as July 1, we could very easily be getting basically twice as much revenue from the low-carbon fuel standard credits than what we have today. And we are not aware of anything that would prevent it from being July 1. But on the other hand, it's all subject to the activities of staff, and they have been behind.
Eric A. McAfee: And because of the way that they do their approvals in the quarter of the approval. The beginning of that quarter is when we get to do the CFS credit. So as early as July one we could very easily be getting basically twice as much revenue from low carbon fuel standard credits than what we have today. So we are in.
Eric A. McAfee: Not aware of anything that would prevent it from being July one but on the other hand, it's all subject to the activities of staff and they have been behind so either it's going to be effective July one or sometime in the fall that we would essentially double L shape best credits.
Eric A. McAfee: So either it's going to be effective July 1 or sometime in the fall that we would essentially double our LCFS credits. The production of biogas is what generates those credits, and we are ramping up rapidly because of two factors. Number one, we're adding more dairies. We brought three more dairies on so far this spring. We'll continue to bring in more dairies. But secondly, the weather.
Eric A. McAfee: The production of biogas is what generates those credits and we are ramping up rapidly because of two factors number one we're adding more dairies.
Eric A. McAfee: We brought three more dairies on so far this spring.
Eric A. McAfee: Continue to bring on Darius, but secondly is the weather in the winter time, it's colder and therefore these passive solar digesters generate less revenue during the winter and then the summer they literally double their revenue. So you have a ramping in the springtime into <unk>.
Eric A. McAfee: In the wintertime, it's colder, and therefore these passive solar digesters generate less revenue during the winter. And in the summer, they literally double their revenue. So you have a ramping up in the springtime into summer, and it continues into the fall here in California. So we have a double ramping, the provisional plus seasonal. Now, next winter, we'll have more dairies online. So it's not like we will see much of a decline in revenue, but just the rate of growth will slow next winter.
Eric A. McAfee: And it continues into the fall here in California. So we have a double went ramping of the provisional plus seasonal.
Eric A. McAfee: Next winter with it we'll have more dairies online.
Eric A. McAfee: So.
Eric A. McAfee: We see much of a decline in revenue, but just the rate of growth will slow with next winter. So we have.
Eric A. McAfee: So we have an uncertainty, which is, will we get a July 1 effective date or a October 1 effective date? And that's based on the performance of staff. We are, of course, pushing hard for a July 1 effective date for those initial digesters, which will be approximately half a dozen digesters, by the way.
Eric A. McAfee: Uncertainty, which is will we get a July one effective date or a October one effective date and that's based upon the performances of staff. We are of course pushing hard for a July one effective date for those initial digesters now it should be approximately half dozen digesters by the way.
Jordan Alexander Levy: Got it. I appreciate that.
Speaker Change: Got it I appreciate that and then maybe just to move onto riverbank how are you.
Jordan Alexander Levy: Thinking about some high level dynamics there.
Jordan Alexander Levy: And then maybe just to move on to Riverbank and how you're thinking about some high-level dynamics there. This morning, Vertex announced that it was switching some renewable diesel production back to conventional. And we know that there are current margin headwinds in the renewable diesel space. But I also know that this isn't apples to apples necessarily because you're focused on aviation fuel, and you have some interesting feedstock opportunities. But maybe just help us think about kind of the path from where margins for SAF sit today to where you expect them to go, and also kind of the benefits you have at Riverbank when that plant comes online that will help you from a margin perspective.
Jordan Alexander Levy: This morning for tax announced that they were switching some renewable diesel production back to conventional.
Jordan Alexander Levy: We know that there is no current margin headwinds in the renewable diesel space and I also know that this isn't apples to apples necessarily because youre focused on aviation fuel and you have some interesting feedstock opportunities, but maybe just help us think about kind of the path.
Jordan Alexander Levy: Margins for ethylene so today to where you expect them to go and also kind of the benefits you have at River bank when that plant comes online that help you from a margin perspective as well.
Eric A. McAfee: Absolutely. Renewable diesel and SAF have sort of started to diverge as businesses; the production facilities were not historically designed when they were building renewable diesel plants to be able to be flexible and produce SAF. In the current designs for new plants, Topso out of Europe has been the winner, with over 90% of renewable diesel plants in North America in the last three years selecting one technology provider. That technology provider, for an additional capital expenditure spend, which could be up to $50 million for a plant of our size, does allow you to have the HydroFlex technology, where you literally can dial in moving from renewable diesel to SAF.
Jordan Alexander Levy: Absolutely.
Jordan Alexander Levy: Renewable diesel and Saf have sort of started to diverge as businesses the production facilities.
Eric A. McAfee: We're not historically design win when they were building renewable diesel plants to be able to be flexible and produce saf.
Eric A. McAfee: In the current designs for new plants.
Eric A. McAfee: Top so out of Europe has been the winner with over 90% of our new renewable diesel plant in North America in the last three years selecting one technology provider that technology provider.
Eric A. McAfee: And additional capital expense expenditure spend which can be up to $50 million for a plan of our size.
Eric A. McAfee: Does allow you to have the hydro flex technology, where you literally can dial in moving from renewable diesel the Saf, we decided to make that investment in our case, it's going to be roughly $30 million.
Eric A. McAfee: We decided to make that investment, in our case, it's going to be roughly $30 million that will allow us to produce SAF 100% or, frankly, produce RD 100%. And we think that flexibility is important because of the uncertainties in the Inflation Reduction Act and, frankly, in the Low Carbon Fuel Standard. So we also have Scope 3 emissions, which is a significant revenue source for aviation fuel that does not exist for renewable diesel. So Vertex did not have an opportunity to get Scope 3 emissions.
Eric A. McAfee: That will allow us to produce Saf, a 100% or frankly produce rd, 100% and we think that flexibility is important because of the uncertainties in the inflation reduction act and frankly in the low carbon fuel standard so we.
Eric A. McAfee: We also have scope three emissions, which are a significant revenue source for aviation fuel that does not exist for renewable diesel. So vertex did not have an opportunity to get scope three emissions. I think you guys know that there was a recent.
Eric A. McAfee: I think you guys know that there was a recent SABA transaction with Microsoft and some others for about $200 million related to 50 million gallons of SAF. So that's roughly $4 a gallon of revenue that Vertex and others that are renewable diesel players do not have access to. So our belief is having the flexibility is important. That's a $30 million investment that may never pay off for us.
Eric A. McAfee: The Saba transaction with Microsoft and some others for about $200 million related to 50 million gallons of Saf. So that's roughly $4 a gallon of revenue that vertex and others that our renewable diesel players do not have access to so our belief is having the flexibility is important that's a 30.
Eric A. McAfee: Investment that may never pay off for us we might always run this as an ACF plant, but in the uncertain condition that theres a year or two.
Eric A. McAfee: We might always run this as an SAF plant. But in the uncertain condition that there's a year or two where we need to just produce renewable diesel while incentives are being adopted, we are going to be in that position. We are very familiar with the term Vertex. I don't know if you know it, but I'm the former...
Eric A. McAfee: Where we need to just produce renewable diesel well incentives are being adopted we are going to be in that that position.
Eric A. McAfee: We are very familiar with the dirt vertex I don't know if you know what I'm the former.
Eric A. McAfee: I'm the guy that acquired Vertex and took them public. My public company, in 2006, acquired Vertex and brought in Ben Coward as the CEO and built the company. They did about $2.6 billion of revenue last year, and about $161 million of positive cash flow. We have been very close with the management team over the last 15 years, having been the guys that acquired them and made them a public company. So they are in a very special situation in which their petroleum unit will make a lot of money.
Speaker Change: Guy I'm the Guy the acquired vertex and took them public my public company in 2000.
Eric A. McAfee: Our six acquired vertex and.
Eric A. McAfee: And brought in Ben Calvert as the CEO and built the company did about $2 6 billion of revenue last year about 161 million of positive cash flow. We are very close with the management team over the last 15 years, having been been the guys.
Eric A. McAfee: At acquired them and made them a public company. So they are in a very special situation and what's their petroleum unit will make a lot of money.
Eric A. McAfee: And so we absolutely understand their situation might be a little more unusual than someone who has a dedicated research facility, and I think it's an excellent move by the management team there to maximize their opportunity. And as they noted, they've retained their flexibility to be able to produce renewable diesel in the future and potentially even upgrade to SAF. So I would keep them on the list of future SAF producers, but they're a great example of what happens when the low carbon fuel standard trends downward by 30% in a matter of a few months, and 45Z doesn't really have an incentive for SAF.
Eric A. McAfee: And so.
Eric A. McAfee: We absolutely understand their situation might be a little more unusual than someone who has a dedicated R&D plant.
Eric A. McAfee: And I think it's an excellent move by the management team there to maximize our opportunity and as I noted they retain their flexibility to be able to produce renewable diesel in the future and potentially even upgrade to saf. So.
Eric A. McAfee: I would keep them on the list of future Saf producers, but they are a great example of what happens when the low carbon fuel standard trends downward by 30% in a matter of a few months.
Eric A. McAfee: And 45 Z.
Eric A. McAfee: You have to extend 40 B in order to be able to incentivize SAF production. With those two uncertainties, I can see why Vertex would move back into petroleum. And there probably will be other producers that will be considering the same kind of move.
Eric A. McAfee: Doesn't really have an incentive for Saf you have to extend 40 b in order to be able to incentivize incentivize scf production with those two.
Eric A. McAfee: Uncertainties I can see why vertex was moved back into petroleum and that would probably probably other producers that will be considering the same kind of move.
Jordan Alexander Levy: Absolutely, that's a great insight. Thanks, Eric.
Speaker Change: Absolutely that's great insight thanks, Eric.
Speaker Change: Sure. Thank.
Speaker Change: Thank you George.
Matthew Robert Lovseth Blair: Your next question is coming from Matthew Blair with Tudor Pickering Holt. Please pose your question. Your line is live.
Jordan Alexander Levy: Your next question is coming from Matthew Blair with Tudor Pickering Holt. Please pose your question your line is live.
Matthew Robert Lovseth Blair: Thank you, and good morning. For the India biodiesel segment, Eric, could you share the EBITDA for the first quarter?
Matthew Robert Lovseth Blair: Thank you and good morning.
Matthew Robert Lovseth Blair: Biodiesel segment, Eric could you share the EBITDA in the first quarter and then for the second quarter is it reasonable to assume that that should step up as youre able to move to a cheaper feedstock.
Eric A. McAfee: Yeah, so yeah, let me take that question because I don't have a ready hand, but I do have gross profit. So for India, biodiesel, the gross profit was $2.8 million on $32.7 million of revenue.
Matthew Robert Lovseth Blair: You talked about cash flow. So yeah, let me take that question because I don't have a ready hand, EBITDA I do have gross profit so for our India biodiesel <unk> gross profit was $2 8 million.
Eric A. McAfee: On the $32 $7 million of revenue.
Eric A. McAfee: Yeah.
Eric A. McAfee: And the second half of your question, yes, wintertime requires a different feedstock because November, December, January, February, they have colder conditions in India, and so they have a different temperature at which the biodiesel has to be able not to start gelling. That requires a different feedstock. And so our March performance was significantly better than the winter, and during the summer here, we're in very good shape under both lower cost feedstocks as well as able to run the plant really as fast as we can because we have a $150 million contract to supply it by the end of September.
Eric A. McAfee: And the second half of your question, yes, the wintertime requires a different feedstock because.
Eric A. McAfee: November December January February they have colder conditions in India, and so they have a different temperature in which the biodiesel has to be able to to not start gelling that requires a different feedstock and so our.
Eric A. McAfee: March performance was significantly better than the winter time and during the summer here, we're in very very good shape.
Eric A. McAfee: Under both lower cost feedstocks as well as.
Eric A. McAfee: Able to run the plant really as fast as we can because we have $150 million contract to supply by the end of September.
Eric A. McAfee: Sounds good. And then on the dairy RNG side, so today, much of that gas is being stored, is that correct? And when you do plan to market that gas, are there any concerns about getting it into the California transportation market, just given that RNG has such a high share, I think it's up to like 98 or 99% of existing California CNG and LNG demand today?
Speaker Change: Sounds good.
Eric A. McAfee: Then on the.
Eric A. McAfee: On the dairy R&D side so today.
Eric A. McAfee: Most of that gas is being stored is that correct and when you do plan to market that gas are there any concerns about getting it into the California transportation market just given that the RMG has such a high share I think it's something like 98% 99%.
Eric A. McAfee: Existing California's gmg and LNG demand today.
Eric A. McAfee:
Eric A. McAfee: Excellent questions. Let's take them in two parts. Stored gas. The low-carbon fuel standard has a nine-month limit on how long you can store the gas. We would have preferred to have actually delayed revenue and had it all be under this essentially 2x, 100% increase, but the rules don't allow us to do that. So we have to sell all the gas on a trailing nine-month basis or three-quarter basis. So we don't have quite as big of an inventory as we would otherwise have desired to have. If they had let us do it, we would have invested in the medium term.
Speaker Change: Excellent questions, let's take them in two parts store gas the low carbon fuel standard has a nine month limit on how long you can store the gas we would have preferred to have actually delayed revenue and have it all be under this this essentially two X, 100% increase but the rules don't allow us to do that so we <unk>.
Eric A. McAfee: Have to still sell all the gas on a trailing nine months basis or three quarter basis.
Eric A. McAfee: So we don't have quite as big of that inventory as we would otherwise have desired to have if they can.
Eric A. McAfee: Let us do it we would have invested in the in the medium term and but on the other hand, we have to sell the gas. So the revenues youre looking at is gas. So we're having to sell because the rules required to do at the renewable natural gas in California comes from landfill gas, which in general I would say, it's probably a positive.
Eric A. McAfee: But on the other hand, we have to sell the gas. So the revenue you're looking at is gas that we're having to sell because the rules require us to do it. The renewable natural gas in California comes from landfill gas, which in general, I would say is probably a positive 30 carbon intensity. And it comes from dairy renewable natural gas, which is negative 320 to negative 420 carbon intensity. Because of that difference in carbon intensity, the economics for dairy renewable natural gas, I would say, are always much more compelling than landfill gas. So the very high penetration of RNG is now about displacing landfill gas with dairy renewable natural gas. So that's really what the phase we're in right now.
Eric A. McAfee: <unk> carbon intensity.
Eric A. McAfee: And it comes from dairy renewable natural gas, which is negative $3 20 to negative $4 20 carbon intensity.
Eric A. McAfee: Because of that.
Eric A. McAfee: Difference in carbon intensity, the economics for dairy renewable natural gas.
Eric A. McAfee: I'd say as always.
Eric A. McAfee: Much more compelling than landfill gas so that the very high penetration of RMG.
Eric A. McAfee: Is now about displacing landfill gas with dairy room and lots of gas. So that's really what's going to be the phase. We're in right now and interestingly enough. There's just not enough dairy renewable natural gas even for California, I don't anticipate wherever point half.
Eric A. McAfee: And interestingly enough, there's just not enough dairy renewable natural gas, even for California. I don't anticipate we're ever going to have a situation in which all the dairy renewable natural gas has been used and that there's any left over. We have a substantial shortage of that extra low or ultra low carbon intensity fuel here.
Eric A. McAfee: A situation, which all the dairy renewable natural gas.
Eric A. McAfee: <unk> has been used in that Theres any leftover we have a substantial shortage of that extra low cord or ultra low carbon intensity fuel here.
Matthew Robert Lovseth Blair: Sounds good. Thank you very much.
Speaker Change: Sounds good thank you very much.
Matthew Robert Lovseth Blair: Thank you, Jordan. I'm sorry, Matthew. Take care.
Eric A. McAfee: Thank you Jordan I'm, sorry, Matthew take care.
Speaker Change: Your next question is coming from Amit Dayal with H C. Wainwright. Please pose your question your line is open.
Amit Dayal: Your next question is coming from Amit Dayal, with HC Wainwright. Please pose your question in your line of questioning. Thank you.
Amit Dayal: Thank you. Hi Eric. Hi. With respect to the capacity expansion efforts in India, is that already underway, or is that going to begin later this year?
Amit Dayal: Thank you Eric Alright, with respect to the capacity expansion efforts in India is that already is that the work already underway.
Amit Dayal: Begin.
Amit Dayal: Later this year.
Eric A. McAfee: We have two different kinds of capacity expansion. One is the nameplate capacity, going from 60 million gallons to 100 million. We have equipment under design, and then we'll be doing fabrication and installation starting later this year. The second one is our proprietary technology to use very low-cost feedstocks, and that expansion is actually happening this quarter. So a higher percentage of our capacity will use very low-cost feedstocks, and this is a competitive advantage we have. So we're actually doing two types of expansion in India.
Amit Dayal: We have two different kinds of capacity expansion. One is nameplate going from 60 million gallons to 100 million, we have equipment under <unk>.
Eric A. McAfee: Design and then we'll be doing fabrication installation. Starting later this year. The second one is our proprietary technology to use very low cost feedstocks.
Eric A. McAfee: And that expansion actually is happening this quarter, so a higher percentage of our capacity, we will use very low cost feedstocks and this is a competitive advantage. We have so we're actually doing two types of of expansion.
Eric A. McAfee: And in India.
Speaker Change: Okay understood.
Eric A. McAfee:
Amit Dayal: And then, with respect to, you know... As the business has been changing, right, like, a year or two years ago, we were still in the midst of developing the R&J business; India was, stop and go. But, you know, the nature of the business, the revenues, and the operations have changed quite a bit in the last 18 months. In that context, your comments on the EB-5 related funding probably address that, but how should we think about balance sheet and working capital needs as you are ramping revenues, expanding operations, and getting closer to building a remote bank, etc.?
Eric A. McAfee: And then with respect to you know.
Amit Dayal: And the other business has been changing very Blake, you know where three years ago.
Amit Dayal: In the midst of developing.
Amit Dayal: The R&D boomers and there was a stop.
Amit Dayal: Stop and go.
Amit Dayal: The nature of our business the revenues then.
Amit Dayal: The operations have changed quite a bit in the last 18 months.
Amit Dayal: In that context.
Amit Dayal: Our working capital needs you know how are you sort of thinking about working capital because I know your comments around that you'd be free removing funding probably.
Amit Dayal: Address that but.
Amit Dayal: How should we think about balance sheet and working capital needs as you are.
Amit Dayal: Ramping revenues expanding operations and getting closer to.
Amit Dayal: Building on the River bank et cetera.
Eric A. McAfee: That's a very good question because we usually talk about capital budget financing being the focus of our efforts. We have a business model for all of our existing operations that do not put any working capital requirements on Aemetis. And I won't go into detail, but in general, our ethanol plant is financed by our corn supplier. They're a very large $4 billion revenue company, and they desperately desired to have us as a customer.
Speaker Change: That's a very good question, because we usually talk about the capital budget financing being the focus of our efforts we have.
Eric A. McAfee: Business model for all of our existing operations that do not put any working capital.
Eric A. McAfee: The requirements on a medicine.
Eric A. McAfee: And I won't go into deep detail, but in general our ethanol plant is financed by our corn supplier.
Eric A. McAfee: They are a very large 4 billion revenues company and they are just desperately desire to have us as a customer and so we said terrific just give us an extra five days to pay you. After we grind the corn and that will be exactly the date in which we receive our revenue. So we don't have any working capital deployed to run the $200 million plus ethanol.
Eric A. McAfee: And so we said, terrific, just give us an extra five days to pay you after we grind the corn, and that will be exactly the date on which we receive our revenue. So we don't have any working capital deployed to run the $200 million plus ethanol plant. In India, our vendor is a very long-term relationship we've had since 2008 or 2009, who is a feedstock supplier to us. And between our credit facilities, because we've been in business a long time, and that relationship, we are able to utilize a relatively small amount of our own working capital in India, instead using our vendors for the working capital supply.
Eric A. McAfee: Plant in India, our vendor is a very long term relationship we've had since 2000.
Eric A. McAfee: Eight 2009, who is a feedstock supplier to us and between our just credit facilities, because we've been in business a long time and that relationship we are able to utilize.
Eric A. McAfee: Relatively small amount of our own working capital in India, instead use our vendors for the working capital supply and then in biogas.
Eric A. McAfee: And then in biogas, we happen to be fortunate in that we're in this capital investment phase, and there are working capital budgets as a part of every Renewable Energy for America program funding. They have, usually, more than $1 million working capital built into the funding, with the idea that during construction, et cetera, there will be operating costs. So we built that into the construction process, and then after operations, which is where we're at now, we're getting positive cashflow from operations, so we don't have any working capital needs there directly.
Eric A. McAfee: We happen to be fortunate in that we're in this capital investment phase and there's working capital budgets as a part of every renewable energy for America program funding. They they have literally usually more than $1 million working capital build into the funding with the idea that during construction et cetera, there'll be operating cost.
Eric A. McAfee: So we built into the construction process and then after operations, which is where we're at now.
Eric A. McAfee: We're getting positive cash flow from operations. So we don't have any working capital needs that are directly and then on our <unk>.
Eric A. McAfee: And then, on our two emerging businesses, the SCF plant will be project financing, so working capital is a part of the initial funding for that financing. It will not require additional financing after it starts, and carbon sequestration happens to be USDA funding. So we're actually right now in the process of financing the working capital as part of the USDA 20-year financing. So working capital is structured as part of our project financing or is provided by vendors as we operate the plant.
Eric A. McAfee: Two emerging businesses the ACF plant will be a project financing so working capital as a part of the initial funding of that financing it will not require additional financing. After it starts and then carbon sequestration happens to be USDA funding. So we are.
Eric A. McAfee: Actually right now in the process of financing the working capital as part of the USDA 20 year financing. So it's a working capital as it's structured as part of our project financing or is provided by vendors as we operate the plant.
Amit Dayal: understood. That's all I have, Eric. Thank you so much. Thank you, Amet.
Eric A. McAfee: Understood.
Speaker Change: That's a lot. Thank you so much.
Amit Dayal: Thank you Amit.
David Joseph Storms: is coming from Dave Storms with Stonegate Capital Partners.
Amit Dayal: Your next question is coming from Dave storms with Stonegate capital partners.
David Joseph Storms: Your line is live.
David Joseph Storms: Good morning.
David Joseph Storms: Hello, Dave.
David Joseph Storms: You've got a couple big projects on the horizon between the Keys Plan and Riverbank. How should we think about CapEx through the year? And then additionally, for the Keys Plan upgrades, should we expect any downtime associated with that MVR project?
David Joseph Storms: You've got a couple of big projects on the horizon between the Keyes plant in riverbank, how should we think about capex patients through the year.
David Joseph Storms: And then additionally for the Keyes plant upgrades should we expect any downtime associated with that project.
Eric A. McAfee: Good question. The Keys CapEx is essentially a short-term working capital utilization because we already have $16 million worth of cash grants or tax credits we can sell for cash. So of the $21 million, and we've invested a big chunk of the $21 million already as equity, the remaining amount is essentially just putting out the money and then getting it back from the California Energy Commission or Pacific Gas and Electric or otherwise.
Speaker Change: Good question.
David Joseph Storms: The key is capex.
Eric A. McAfee: <unk> is essentially a short term working capital utilization, because we already have $16 million worth of cash grants or.
Eric A. McAfee: Tax credits, we can sell for cash so of the $21 million and we've invested a big chunk of the 21 million already as equity the remaining amount of essentially is just putting up the money and then getting it back from the California Energy Commission of Pacific gas and electric or otherwise so the timing of that Capex is going to be backward loaded for this year.
Eric A. McAfee: So the timing of that CapEx is going to be backward loaded for this year. The installations and other activities really are in Q4 and Q1 of next year. So again, it's not revenue-generating until it's fully operating, but the spend will be mostly at the back end of this year as we're bringing in equipment. And then, in terms of downtime, during last year's maintenance cycle, we did some of the heavy lifting, cutting, and preparing that would have otherwise required downtime.
Eric A. McAfee: The installations and other activity is really a Q4 and Q1 of next year.
Eric A. McAfee: So.
Eric A. McAfee: The.
Eric A. McAfee: Again, it's not revenue generating until it's fully operating but the the spend will be mostly the back end of this year as we're bringing in equipment and then in terms of downtime during last year's maintenance cycle. We did some of the heavy lifting.
Eric A. McAfee: Cutting and preparing that would have otherwise required downtime. So we are anticipating this will be relatively minimal downtime of a couple of weeks and that the.
Eric A. McAfee: So we are anticipating this will probably be minimal downtime of a couple of weeks and that the work we did last year is the longer downtime that could have caused us to be down for a month or several.
Eric A. McAfee: The work we did last year is the longer downtime that could have caused us to be down for a month or so.
David Joseph Storms: That's very helpful. Thank you. And then just one more. You mentioned in your prepared remarks that you're working on innovative pricing structures for SAF fuels. Would you be willing to share any of the options that you're looking at or what that might look like once it's all completed?
Speaker Change: That's very helpful. Thank you and then just one more you mentioned in your prepared remarks, you work on innovative pricing structures, great SaaS deals.
David Joseph Storms: Would you be willing to share any of the options that you're looking at or what that might look like once it's all clean.
Eric A. McAfee: Probably the best way to do it without taking everybody's time would be to refer to my Biofuels Digest article that I wrote on Monday of last week, biofuelsdigest.com or something, but you could just Google Eric McAfee and SAF and Biofuels Digest and it'll pop up. The success we're having in India, we think, is a template for what the airlines need to look at in order to accelerate And it becomes more of a partnership between the supplier and the airline, in which the airline is taking more of the risks around incentives, feedstock, and energy costs.
Speaker Change: Probably the best way to do it without taking everybody's time would it be to referred to my Biofuels Digest article that I wrote Monday of last week.
Eric A. McAfee: Biofuels Digest, I think dot com or something but if you could just Google Eric Mcafee.
Eric A. McAfee: Saf.
Eric A. McAfee: In Biofuels Digest no pop up.
Eric A. McAfee: The success, we're having in India. We think is a format for what the airlines need to look at in order to accelerate Saf pricing and it's a it becomes more of a partnership between the supplier and the airlines, which the airline is taking more of the risks around <unk>.
Eric A. McAfee: And in exchange, the producer gets a more known amount of cash flow from the operations, which enables long-term debt financing at lower cost. So that article, I think, gives you pretty good insight into the way that we're thinking about it, and I would invite people to take a look at that article.
Eric A. McAfee: Incentives in feedstock and energy costs.
Eric A. McAfee: In exchange they can be the producer gets.
Eric A. McAfee: More known amount of cash flow from the operations, which enables long term debt financing at lower cost So where that article I think gives you a pretty good insight the way, we're thinking about it and I would invite people to take a look at that article.
David Joseph Storms: Thank you for taking my question. Sure. Thank you, David. Your next question is coming from Edward Woo with Ascendian Capital Markets. Please post your question on your line as well.
Speaker Change: Understood. Thank you for taking my questions.
Speaker Change: Thank you Dave.
Edward Moon Woo: Your next question is coming from Edward Woo with Ascendian Capital. Those are your questions. Yeah, congratulations on all the progress.
David Joseph Storms: Your next question is coming from Edward Woo with.
Edward Moon Woo: <unk> capital markets. Please ask your question your line is open.
Edward Moon Woo: Yes, congratulations on all the progress and congratulations on the LCR as credits that you sold in the <unk>.
Edward Moon Woo: <unk>.
Edward Moon Woo: As you are getting more used to selling these credits should we expect them on a more regular quarterly basis and also are you able to increase the economics that you're getting on each deal.
Eric A. McAfee: Yes, to both of them. We will be selling them early in each quarter. They essentially will be maturing at the end of the previous quarter, but it takes a week or so for the booking to happen. So, in the first half of the first month of each quarter, we expect to be selling the LCFS credits. And second, the provisional pathways that we have applied for roughly negative 320 to negative 370 are significantly larger generators of LCFS credits than what's known as the default pathway of negative 150.
Edward Moon Woo: Yes to both of them, we will be selling them early and each quarter. They essentially will be maturing at the end of the previous quarter, but it takes a week or so for the booking to happen. So in the first half of the first month of each quarter, we expect to be selling meal CFS credits and then second.
Eric A. McAfee: The.
Eric A. McAfee: Provisional pathways that we have applied for roughly negative $3 1 million to negative $3 70 are significantly larger generators of LC LC best credits than what's known as the default pathway or a negative $1 50, So we expect to be generating between 80 and 100% more.
Eric A. McAfee: So we expect to be generating between 80 and 100 percent more LCFS credits depending on the project. And if the paperwork moves at the pace it's supposed to move based on the discussions we've been having with staff at CARB, we will have that approval in the third quarter, and we would be able to sell those then in the fourth quarter. So we're seeing that could definitely impact this year in a very material way.
Eric A. McAfee: CFS credits, depending on the project.
Eric A. McAfee: And if the paperwork moves at the pace, it's supposed to move with pace based upon discussions we've been having with with staff.
Eric A. McAfee: At Carb.
Eric A. McAfee: We will have that approval in the third quarter and we'd be able to sell those then in the fourth quarter. So we're seeing that could definitely impact us this year in a very material way.
Eric A. McAfee: Yeah.
Edward Moon Woo: Great. Well, thank you, and I wish you guys good luck. Thank you, Ed. We appreciate it.
Speaker Change: Great well, thank you and I wish you guys. Good luck.
Speaker Change: Thank you Ed we appreciate it.
Operator: There are no further questions at this time. I would like to turn the floor back over to management for closing comments.
Speaker Change: There are no further questions at this time I would like to turn the floor back over to management for closing comments.
Operator: Hi.
Operator: We have.
Eric A. McAfee: We have one more question from James Larkin. Kelly, can we let that one go through?
James Morgan: We have one more question from James <unk>, and Kelly can we let that one flow through absolutely James Morgan. Your line is live please pose your question.
Operator: Absolutely. James Larkin, your line is live. Please close your question.
James Larkin: Hi, this is James Larkin from Piper Sandler. Thanks for taking my call. Eric, I guess in a recent interview, you talked about an India IPO and the potential for raising money that way. I know you've talked about this in the past, but could you maybe have any updates on that or what kind of how much money you'd be looking to raise?
Operator: Hi, This is James Lockyer from Piper Sandler and thanks for taking my call.
James Larkin: Sure Eric I guess in a recent interview you talked about India, IPO and a potential for raising money that way.
James Larkin: I know you've talked about in the past, but could you maybe do you have any updates on that or what kind of how much money you would be looking to raise there.
Eric A. McAfee: Sure, as we expected. We are expanding our management team in India. That's really the first step of an IPO process, and we have made some great progress there, which we'll be announcing soon. And then the continued deliveries under this $150 million cost-plus contract as a part of our IPO process have been a proof of the ongoing commitment of the Indian government. This is not our first but our second contract, and we're about to enter into what we believe to be our third. So we are basically just proving out our business model, including our proprietary low-cost processing technology enabling us to use cheaper feedstocks.
Speaker Change: Sure as we.
Eric A. McAfee: Expected, we are expanding our management team in India that through the first step of an IPO process and have.
Eric A. McAfee: Some some great progress there, which we'll be announcing soon and then.
Eric A. McAfee: The.
Eric A. McAfee: Continued deliveries under the $250 million cost plus contract.
Eric A. McAfee: As as a part of our IPO process has been a proof of the ongoing commitment of the NDA government. This is not our first but our second call.
Eric A. McAfee: Contract and we're about to enter into what we believe to be our third so we are basically just.
Eric A. McAfee: For proving out our business model, including our proprietary.
Eric A. McAfee: Low cost.
Eric A. McAfee: Processing technology enables enabling us to use cheaper feedstocks. So in terms of expectations. This is not a current quarter.
James Larkin: So in terms of expectations, this is not a current quarter announcement. The IPO process in India is about a six-month process, and until you essentially have an IPO, you don't really announce it. There are some securities regulations around that, but the indicators for the market are that you just watch the press releases about new members of management, who I think you'll be very excited about, and our continued execution on the fundamentals of the business capacity expansion, the use of funds to make sustainable aviation fuel, all the things that go together to make a really exciting business in India.
James Larkin: Announcement, the IPO process in India is about a six month process and until you essentially have an IPO you don't really announce it theres some securities regulations around that but the indicators for the market or that.
James Larkin: Just watch the press releases about new members of management.
James Larkin: I think you'll be very excited about and our continued execution on the fundamentals of the business capacity expansion use of funds to make sustained believes agent aviation fuel all.
James Larkin: All the things that go together to make a really exciting business in India.
James Larkin: Yeah.
Eric A. McAfee: Great, thanks for that. And then, kind of sticking with India on the tallow feedstock, would there be a significant CI impact from importing that into the U.S.? Would it be kind of competitive with other low CI feedstocks going to different refineries there? Yeah.
Speaker Change: Great. Thanks for that and then I guess, one more question kind of sticking with India on the Tallo feedstock.
Eric A. McAfee: Would there be a significant impact from importing into the U S would it be kind of competitive with other low Ci.
Eric A. McAfee: Stocks willing to.
Eric A. McAfee: Refineries there.
James Larkin: Yeah, the India tallow product where we built a 50 million gallon refinery in India and we were using that to make refined tallow; we then turned it into biodiesel and shipped it to Europe. That's why we built the refinery.
Eric A. McAfee: Yes.
James Larkin: India's tallo product, where we built a 50 million gallon, India Tallo refinery and we're using that to make refined tallo. We then turned into biodiesel and shipped to Europe. That's why we built the refinery.
Eric A. McAfee: That tallow does have a carbon intensity that's basically the same as U.S. tallow, but when you take it across the Pacific Ocean, there is an additional carbon intensity related to that shipping. So India tallow is disadvantaged compared to what I'm going to call the carbon intensity of North American tallow. What you end up with is a price difference, though, because the Indian tallow is bought from fragmented suppliers in a country that doesn't really value tallow.
James Larkin: That tallo does have a carbon intensity.
Eric A. McAfee: That's basically the same as U S tallo, but when you take it across the Pacific Ocean There is a.
Eric A. McAfee: Additional carbon intensity related to that shipping.
Eric A. McAfee: The India Tallo is disadvantaged compared to.
Eric A. McAfee: What I'm going to call.
Eric A. McAfee: The carbon intensity of North American Tallow, which you end up with is a pricing difference, though because the India tallo is.
Eric A. McAfee: Is bought from fragmented suppliers.
Eric A. McAfee: Suppliers in the country that doesn't really value tallo.
Eric A. McAfee: It's a Hindu country, and tallow is a byproduct of the animal business. So it's not necessarily carbon intensity that's the only factor in the commercial discussions. It's all just the underlying dynamics of a fragmented supply chain and basically the lack of tallow refining in India. And so we seek to continue to make good use of that market position. Eventually, of course, it acts as a very nice hedge for our own supply chain where we can get North American products really, just around our plant in Central Valley, California, is probably as much as 50 percent of our supply chain. And yet, we have this ability to import our own product from India.
Eric A. McAfee: It's a it's a Hindu country until those are a byproduct of the animal business. So.
Eric A. McAfee: It's not necessarily carbon intensely tensity, that's the only factor in the commercial discussions. It's I'll. Just also just the underlying dynamics of a fragmented supply chain and.
Eric A. McAfee: The the basically the lack of tableau refining in India, and so we seek to continue to make good use of that market position. Eventually of course it acts as a very nice hedge for our own supply chain, where we can get north American product.
James Larkin: Awesome. Great. Thank you.
James Larkin: Really really just around our plant in Central Valley, California, as probably as much as 50% of our supply chain and yet we have this ability importer on product come from India.
James Larkin: Awesome great. Thank you.
James Larkin: Sure.
Operator: There are no further questions at this time. I would now like to turn the floor back over to management for closing comments.
Speaker Change: There are no further questions at this time I would now like to turn the floor back over to management for closing comments.
Eric A. McAfee: Thank you very much, everybody, for joining us today. Please review the Aemetis company presentation. It's posted on the homepage of the Aemetis website, and we definitely look forward to talking with you about participating in the growth opportunities at Aemetis if you have an opportunity to join us.
Speaker Change: Thank you very much everybody for joining us today. Please review the a medicine company presentation is posted on the homepage of the <unk> website.
Eric A. McAfee: And we definitely look forward to talking with you about participating in the growth opportunities at <unk>. If you have an opportunity to join us.
Operator: Thank you for attending today's Ametis Earnings Conference call. Please visit the investor section of the Ametis website, where we'll post a written version and an audio version of this Ametis Earnings Review and Business Update.
Eric A. McAfee: Thank you for attending today's <unk> earnings Conference call. Please visit the investors section of the <unk> website, where we'll post a written version and an audio version of this <unk> earnings review and business update Kelly.
Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.