Good day, ladies and gentlemen and welcome to the Aemetis Second Quarter 2017 Earnings Review Conference Call. At this time, all lines have been placed on a listen-only mode. [Operator instructions]. There will be a short Q&A after the presentation. At this time it is my pleasure to turn the floor over to your host, Todd Waltz, Executive Vice President and Chief Financial Officer of Aemetis, Inc. Sir, the floor is yours.

Thank you, Angelica. Welcome to the Second Quarter 2017 Earnings Review Conference Call. We suggest visiting our website at aemetis.com to review today’s earnings press release, updated corporate presentation, filings with the SEC, recent press releases and previous earnings conference calls. This presentation is available for review or download on the aemetis.com home page. 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. The statements must be considered in conjunction with disclosures and cautionary warnings that appear in our SEC filing. Investors are cautioned that all forward-looking statements made on this call involve risk and uncertainty 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 will include a review of non-GAAP measures as a supplement to financial results based on GAAP. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the quarter ended on June 30, 2017, which is available on our website. Adjusted EBITDA is defined as net income or loss, plus to the extent deductible in calculating such net income, interest expense, loss on extinguishment, income tax expense, intangible and other amortization expense, depreciation expense and share-based compensation expense. Now, I’d like to review the financial results for the second quarter of 2017. Revenues were $40.8 million for the second quarter of 2017, compared to $33.1 million for the second quarter of 2016. The increase in revenue was primarily attributable…

Thank you, Todd. For those of you who may be new to our company let me take a moment to provide some brief background information. Aemetis was founded in 2006, and we own and operate facilities with more than 110 million gallons per year of renewable fuel capacity in the US and India. Included in our production portfolio is a 60 million gallon per year capacity ethanol plant located in Keyes, California, near Modesto. We also built, own and operate a 50 million gallon per year capacity distilled biodiesel and refined glycerin biorefinery production plant on the East Coast of India near the port city of Kakinada. Before going into specifics, I would like to address the fundamental concern among many investors, which is debt. We are actively working to pay off or reduce the high interest rate debt, including the following action steps. Number one. Raising the Phase 2 $50 million 3% interest rate EB-5 subordinated debt funding, which can replace our high cost 14% plus debt. Number two. The three year India plant supply contract with BP Singapore is expected to ramp up this year. The India plant is debt free except for inventory financing, so excess cash flow is available to pay down debt at the parent company, Aemetis. Number three. The growth of the India business may create an opportunity for an IPO or sale of a portion of the India business due to the patent-pending technology, the BP Singapore supply agreement and the 5% growth in the India domestic fuel market. Number four. Cellulosic ethanol is expected to be a highly profitable, strong cash flow business. We are working on the design and the construction of a 10 million gallon cellulosic ethanol plant that could be operational within 18 months. This project can have a…

Thank you. The floor is now open for questions. [Operator instructions]. Please hold while we poll for questions. Our first question comes from Carter Driscoll of FBR Capital. You may now state your question.

Good morning, Eric and Todd.

Hello, Carter.

Can you break out your expectations of which of the buckets of opportunities where biodiesel increasing sales in the second half of year will be bulk, BP, just to get a sense of both by customer and then maybe a ramp in the first couple of quarters, whether by range of volumes. And as a follow up to that, is it take and pay contracts, or I think you communicated in the past they would take as much as you could produce and you’re mainly limited by feedstock availability, or at least low cost feedstock availability. And then I have a couple follow ups. Thank you.

Thanks. Our India business is ramping up under the three year BP Singapore supply agreement. Under the BP Singapore supply agreement we are not limited by our working capital access or otherwise, and, by the way, we’re also not limited by their appetite to bring in biodiesel. They need several multiples of the entire capacity of our plant to supply their European business demand. But the constraint is just the ramp up of our feedstock supply from BP Singapore. Under the agreement they actually ship the feedstock to us and then we turn around and produce biodiesel, ship it back to them, and we pay for the feedstock after they have paid for the biodiesel. So, it’s effectively a positive cash flow activity for us and not impeded by feedstock purchases. The scale up of their logistic supply chain is currently in process, and they have several loads that are on the water. We’ve actually received the first feedstock delivery from them, and there are several others in process right now. We are dependent upon how fast their logistic supply chain scales up. Certainly they would expect to be at 80% of our capacity. It’s a 12,500 ton per month plant, so 80% is 10,000 tons per month, and that would drive their business expectations as it would also drive ours. Because of its effect on our supply of our domestic India government customers and bulk customers, and now that the retail market has also opened up in India, we would expect we’d need to expand our production capacity in India to match the market growth. But it’s a ramping up of the BP Singapore relationship and over the next, literally every month we are expecting a rapid increase in the amount of feedstock we’re receiving from them and then…

What I’m trying understand a little bit better is, so BP is essentially supplying you with that feedstock, which you’re turning around and giving the finished biodiesel, but you wouldn’t use that feedstock necessarily to supply to bulk customers. I guess I’m trying to get a sense of how you prioritize. Given the demand is so strong from multiple parties, how do you prioritize who you’re shipping to? Are you getting a better price because you’re getting the feedstock direct from BP? I’m just trying to get a sense of that, plus, just an idea of how it ramps from an actual volume perspective. Are you expecting to do 80% every month? Is it going to ramp over the next six months for that target? Just maybe a little bit more clarity. Thank you.

Again, we’re being constrained by the ramp up pace at which BP can deliver, and so the expectation is that we should be able to get up to 50% of our plant capacity allocated to BP over the course of the next two quarters. And 80% of course is more than 50%, so I’m hoping that we can get to our 80% number, but we’re constrained by their supply chain, not ours, and we are helping them. But at this point in time we don’t have commitments from their traders as to what the volumes are out six months. What we do have is commitments over the next 60 days and ramping this business up to full commercial. There are very significant accounting, legal and logistics processes, not barriers but processes at BP Singapore that we have completed and in order to receive just the first shipment of any size there are enormous processes that they have accomplished internally. We are now closer to just pushing the button, and whether the volumes are 5,000 tons a month or 10,000, they just push buttons and they don’t have to repeat these internal processes. So, it’s been a year since we started our first meeting with BP and it is now at the transactional phase of just focusing on supply chain. So, it could ramp up extremely quickly, I do not expect that, but it’s primarily because we’ve been talking to lawyers and accountants and logistics people and now we’re talking mostly to traders. So, we’ll see how fast the traders can obtain feedstock and get it to our shores.

Okay. Thank you for that. Just switching gears, as you hopefully begin to fill up the 10 million gallon cellulosic facility what do you think your cellulosic percentage of total ethanol production can reach, say, over the next one to two years and what types of yields do you expect maybe initially and then as the new facility begins to ramp what are the internal expectations? Thank you.

Our internal expectations is that cellulosic ethanol pre-treatment using our LanzaTech and InEnTec technologies is an expansion of production capacity, and for a variety of process reasons it does not decrease the amount of grinding capacity we have at our corn ethanol plant. So, we currently are roughly a 60 million gallon plus corn ethanol plant and this would be 10 million gallons incremental to that, so call it 15%, 10 million gallons into 70 total million gallons would be our blend. But it’s really just incremental, we’re not decreasing our corn ethanol production to do this, we’re just incrementing. And if you do the math at $4.50 a gallon plus we have an animal feed byproduct, you’re at over $5 a gallon of revenue with 10 million gallons, so you’re adding 50 million of revenue at very, very high gross margins.

And then maybe just taking a step back at a larger picture given your deep expertise in the space, talk about the composition of the light duty passenger vehicle fleet and moving above 10% blend wall and maybe the E15 adoption number of retail stations beginning to offer the RFS. Do you think that has largely been put to bed in terms of both point of obligation and the legal outcome of just a short while ago in terms of changing the way they constantly fiddle with the mandated supply of ethanol? And then maybe just your big take on supply and demand, export and import markets, and how that would play into your expectation for ethanol prices in the latter half of the year or beyond. Thank you.

Thank you. That’s a very good question, and I think very relevant to equity investors. One of the most important events in the past decade in the biofuels industry occurred last week, and that was the determination by the judicial branch, by the court system that Congress’ original intent in 2005 with the First Renewable Fuel Standard was very clear that if the oil industry was able to determine the demand for biofuels, then biofuels would not be able to replace petroleum-based fuels in the United States. And the court stated in its 85-page legal opinion, which I read, very clearly that actual Congressional process included the deletion of including demand, by the way, a 10% blended cap is a demand function, and Congress specifically stated, we are not going to include a lack of demand in the mandates of biofuels in the United States. Literally a week ago or so is when for the first time in the history of the Renewable Fuel Standard we now have the third branch of government, not just the White House and not just Congress, but the court system adjudicating very clearly that Congress’ established minimum mandates, including the 15 billion gallon mandate for corn ethanol and the up to 16 billion gallon mandate for cellulosic ethanol, which must by law equal to or exceed actual production capacity, is the clear language that must be enforced by the EPA. Now, for the traders in the audience, this put the EPA into a short position of 500 million RINs, which the court requires would have to be canceled, these are the 2016 RINs that the EPA had erred and not appropriately required to be delivered by lenders. We currently have a 500 million short, that’s 500 million gallons of ethanol, 500 million RINs, in…

Unless you’re short RIMS [ph] as a refiner and—

If you’re short RIMS as a refiner, you need to get into blending. You’ll see more refiners getting into blending.

Understood. Thanks for that discussion. Maybe just two quick others from me before I pass along. What’s your expectation, given the little bit of uncertainty with the ongoing debate in this country on immigration policy, what that could do the timing of your spaced JV financing? Obviously you’ve done the groundwork, but depending if that pulled through it might be a little challenging. Is there any other alternatives to the EB-5 if the uncertainty extends beyond your internal timeframe for paying down Third Eye? Are there other alternatives that you can do to help refinance that portion of the debt position?

Very good question, let’s take on the integration question first. There was a high level of uncertainty starting November of last year. To a large extent that has now been resolved. The EB-5 law was extended without changes in April, and there are certain people in the current administration that actually are raising money under EB-5. So what had initially been a concern about the program is now resolving into is it going to be a situation in which rural markets and high unemployment areas, which is what our project is in, get increased requirements under the law, because certain leaders in Congress have signed a letter saying we want to change this to emphasize non-urban skyscrapers in downtown New York, we want this money to flow as it was intended to, to job creation in high unemployment areas and specifically favoring world markets. We think we’re on the rights side of the history with EB-5. We’ve been very patient with the program. We are the most successful biofuels company in the program, and we expect that we will continue to receive a lot of attention especially with our low carbon, non-food projects that we’re doing. That is something that is very, very attractive in renewable energy. So, from an integration and EB-5 point of view, we’re fine. Now, the second part of the question was timing with Third Eye Capital. Third Eye Capital has been funding us since May of 2008, and they have funded us through two crises. First was the general economic crisis of 2008, they were the money that came in when all of the other fundings, specifically the State Bank of India, got delayed. And so in 2012, when Congress had canceled the blenders tax credit and we had excess ethanol and margins went negative,…

Then just last question from me, you talked about, and I’m sure you can’t comment too directly, but Edeniq and the discovery process and I think there was some evidence that supports your claim that they did breach the agreement. Any update on the timing, or have you had any amicable discussions with them about resolving this without legal process?

The legal process is in the discovery phase. There is some required mediation actually in October under the regular court process. There was a court order issued approximately two weeks ago in which Edeniq was ordered to deliver their documents under discovery. They had been avoiding trying to, for a variety of different things, not disclose the vast majority of their documents, and they lost the court order two weeks ago in which they do have to deliver this month. We expect the discovery process will wrap up and we’ll get into a mediation process in October, and we’re certainly prepared to just go to court and enforce the agreements. It’s a pretty simple transaction, and we delivered all of the requirements under the agreement, and we’re just waiting for them to take their shareholder vote of stock or cash that they want at closing and then go to closing.

There’s not necessarily any recourse in the fact they didn’t close the original date?

The recourse is just specific performance, which is that they are required to close. They’re avoiding that, and we’re seeking to have the court affirm that they need to close. There’s also damages as a result from that but that’s largely just a part of the court process as damages occur when people don’t do the things they’re supposed to do.

Understood. Thanks for taking all my questions.

Good. Thank you, Carter.

Thank you. Our next question comes from Tom Welch of Ameriprise. You may now state your question.

Hi, Eric. Thanks for taking my call. Dialing it back to the whole buyer diesel arena, just some of the nuts and bolts if you could clarify some things. My first question is when BP ships raw material, can you give us a rough idea of how big that is on a per shipment basis? Are we talking—

It’s scaling up to 5,000 tons per shipment. That happens to be roughly the amount that’s most economical to put into the ships that come in to our ports, so about 5,000 tons per shipment.

Okay. And you said they have a couple shipments basically heading in your direction on the water right now, so I’m guessing maybe they have, what, maybe ten tons raw material heading your direction right now?

The initial shipments are being done through a smaller size per shipment so that we can get initial production done and they can come and review additional logistics requirements, etc. over the next few weeks, and then we’ll be scaling up to the 4,000 and 5,000 ton per shipment phase. Our expectation is that that would happen in September.

Okay. Another nuts and bolts question here on biodiesel, you are developing enzymatic capacity in phases. You said we’ve just finished phase 1. What’s our current enzymatic biodiesel capacity under phase 1?

We are at roughly a little less than half of our entire plants production to be done with enzymatic biodiesel. We don’t have any real time constraint on expanding that production capacity, so we’ll be going to two-thirds and then 100% over the next few months actually. We’re just matching the BP process. It’s a pre-treatment unit, so we’re building tanks and process equipment that are in front of our biodiesel plants. The biodiesel plants are already at 100%. It’s this ability to take some of the feedstock and run it through pre-treatment that is really a BP-focused transaction opportunity that we’re scaling up production vastly to match. The key technology milestone is your first commercial production. You can always just put up more tanks and expand it and that’s already been completed.

Got it. So no way to know for sure, but looking at that first commercial finished product getting shipped back to BP, can you give some kind of a rough time horizon?

A rough time horizon is that we expect that’s going to be in early fourth quarter just with the logistics processes that we’re going through right now. It could be accelerated. I wouldn’t be surprised to see it accelerated as BP is looking at a very, very nice business here and the faster that they move the better it is for them, but current expectations is it would be early fourth quarter.

Okay, very good. Another nuts and bolts question, are we, is Aemetis going to be allowed to use a portion of the raw materials from BP for domestic supply of biodiesel, or is this contract for literally just for 100% export?

It’s 100% export with the BP inventory. Separately we have a feedstock credit line with a very, very large company that is funding our acquisition of both biodiesel feedstock and glycerin, crude glycerin. We’re one of the largest importers of crude glycerin form Argentina and Europe and elsewhere into India, and that business is going very nicely for us. So we use that credit line for the purchase of other feedstocks we bring into India that supply our bulk customers, the oil marketing company, government customers, and expanding retail sales.

Would that be, I read through the Q2, would that be Gemini Edibles?

Gemini, yes. That's correct.

I was encouraged in that it looked like our raw material costs, and I’m guessing, maybe you can put some color on this because it’s Gemini Edibles, our raw material costs for biodiesel have literally just dropped and cut in half from what I’m looking at. A year ago we were looking at almost $1,000 a ton, and now we’re looking at around $500 a ton on raw materials. Can we attribute that to Gemini Edibles, is that their—

No, and if you look at the last page of our earnings release, we disclose not the cost of goods sold, that has other costs in it, labor and other things, chemicals, but the actual number of tons purchased and the average cost per ton for glycerin and biodiesel combined together. The actual cost from 2016 to 2017 increased in both of those categories, but the prices related to those businesses are also disclosed, so you’ll get biodiesel prices also to increase very significantly. We’re in a rising price environment so costs increased as well as revenue increased.

Okay. I must have misread that. Final question, obviously there’s still a big question in the air as far as the EB-5 financing, whether it’s the reality or whether it’s just perception doesn’t really matter it’s just the simple fact that foreign investors are not jumping all over the opportunity for EB-5 financing right now. So what’s the possibility of dusting off the public sale of a portion of our biodiesel business to the investors in India? I would point out that we have contracts in hand for more than 100% of capacity, we have the India stock market hitting all-time record highs. It just seems like it would be a fantastic alternative to be able to have $300 million or $400 million worth of liquidable [ph] assets sitting in the bank as far as publicly traded stock and still being able to whack down $50 million worth of our long-term debt and eliminate it with an equity offering on India.

You are correct, and you’re seeing actually the same thing that we’re seeing. What we’re getting is a, well what we have gotten as feedback is that we need to start our commercial shipments which as we described in this call, we’re only talking about 60 days from now or less. Just signing the agreement itself is very exciting and very interesting, but the actual delivery of products under that agreement is a component that’s needed in order to be able to do something in India. We do expect in this quarter and next quarter, really accelerating next quarter that we’ll have some very serious discussions with the existing investment bank, which we’ve already signed up in India and see if there’s an opportunity that we can execute on. The India IPO process is not the one-year process it is here in the US, and the process is really driven by the investment banking firm and as a result is very quick, and so we’re talking about 90 to 180 days for an IPO effort in India. We are looking to take full advantage of our leadership position there, our patented technology, our low cost feedstock we can use because of the patented technology, which is a sustainable additional profit that other people in the industry don’t have, and the BP relationship. So I think we have all the factors. We’ve been talking about this over a number of years, of course, going back two years, and we’re just executing on the plan that we said we were going to do.

I guess that answers my questions. Thank you, Eric.

Good. Thank you very much.

Thank you. Our next question comes from Scott Ozer of Sandlapper Securities. You many now state your question.

Hi, Eric. The previous gentlemen just hit all the areas that I wanted to touch on. My question was about the IPO and an update on Edeniq that was handled earlier, so congratulations.

Thank you, and we’re working hard to just follow up on the strategy we’ve already laid out, so I appreciate your support.

Thank you. I'll turn it back over to you, Todd, to end the call.

Well, I’ll tell you what, Angelica, I’ll take care of this. Thank you to the administer [ph] holders, analysts, and others for joining us today. We look forward to meeting with you and continuing our dialogue about pursuing growth opportunities at Aemetis.

Thank you for attending today’s Aemetis Earnings Conference Call. Please visit the Investor Section of the Aemetis website where we’ll post a written version and an audio version of this Aemetis Earnings Review and Business Update.

Thank you. This does conclude today's conference call. We thank you for your participation. You may now disconnect your lines at this time and have a great day.