Welcome to the Aemetis Second Quarter 2019 Earnings Review Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Todd Waltz, Executive Vice President and Chief Financial Officer of Aemetis, Inc. Mr. Waltz, you may begin.

Thank you, Kristi. Welcome to the Aemetis second quarter 2019 earnings review conference call. We suggest visiting our website at aemetis.com to review today’s earnings press release, updated corporate presentation, filing with the Securities and Exchange Commission, recent press releases and previous earning conference calls. This presentation is available for review or download on the aemetis.com homepage. 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 limitations statements with respect to our future stock performance, plans, opportunities and expectations with respect to financing activities and the execution of our business plan. These statements must be considered in conjunction with the disclosure and cautionary warnings that appear in our SEC filings. Investors are cautioned that all forward-looking statements made on this call involve risks and uncertainties and that future events may differ materially from the statements made. For additional information, please refer to the company’s Security and Exchange Commission filings, which are posted on our website and are available from the company without charge. Our discussion on this call 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 June 30, 2019, which is available on our website. Adjusted EBITDA is defined as net income or loss plus to the extent deduced in calculating such net income; interest expense, loss on extinguishment, income tax expense, intangible and other amortization expense, accretion expense, depreciation expense, loss contingency on litigation and share-based compensation expense. Now I’d like to review the financial results for the second quarter of 2019. Revenues were $50.6 million for the second quarter of 2019, compared…

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 production facilities with more than 110 million gallons per year of renewable fuel capacity in the U.S. and India. Included in our production portfolio is a 60 million gallon per year capacity ethanol, distillers grain and corn oil 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 on the East Coast of India near the port city of the Kakinada. Last year, we signed $30 million of funding and launched a renewable natural gas project to build biogas digesters at about a dozen local dairies, construct a pipeline connecting the digesters to our Keyes ethanol plant and installed gas conditioning to produce carbon negative renewable natural gas to displace diesel in trucks. Earlier this year, we signed term sheets for funding $175 million advanced ethanol production facility in California to convert waste orchard wood and other waste biomass into about 12 million gallons of cellulosic ethanol per year. The combination of these growth and cost reduction initiatives are expected to increase our revenue run rate to more than $350 million per year and annual cash flow to more than $100 million per year. This projected growth in revenues reflects certain planned and completed upgrades of our existing plants and plant completion of new dairy renewable natural gas and cellulosic ethanol production facilities. With a consistent support of California regulators and continued strong California Low Carbon Fuel Standard credit prices, Aemetis made positive progress in each of our four core businesses during the second quarter of 2019. Let’s first…

Thank you. Mr. McAfee. We will now be conducting a question-and-answer session. [Operator Instructions] And we’ll take our first question from Ed Woo with Ascendiant Capital. Please go ahead with your question.

Yes. Thank you for taking my question. My question is on your outlook for ethanol pricing and also your outlook for the oil pricing in the near-term?

Outlook on ethanol pricing is – in the United States facing an overproduction that only in the last week has really started to turn. You may have noted in the last week, national inventories in the U.S. decreased by more than 5%, which was a higher, larger decrease than analysts had projected actually. But it reflects what appears to be very strong exports coming out of the Gulf. And this is all entirely without any China customer stepping in and taking a larger portion of our exports. So our expectation with ethanol pricing is, it’s going to reflect the price of corn. And so if we see a increase in the price of corn or even a decrease, we expect that the ethanol price will move along with the price of corn due to oversupply that’s hopefully temporary. There have been increasing reports of plants in the Midwest and certainly in the Eastern U.S., who have a corn supply problem, in that they do not have shuttle train capability that the destination ethanol plant, such as our plant in California have, we bring in roughly 100 rail cars every week, and we can supply that all the way from Minnesota to Texas, I think, we actually use more than 20 locations to supply our plant. So the probability of destination ethanol plants and – at this time period in which there’s flooding and other concerns about Midwestern corn supply is much, much higher and much better, frankly, than their Western corn plants, some of which not only have to pay premiums that are very high, but might physically not be able to bring in corn at all, without trucking it very long distances, so they just become completely economic. So we have seen less than a dozen, but a large…

Great. Thanks for the explanation. Then my question is on the Riverbank project and the biogas project. It’s incorrect that it seems like it’s a little bit delayed [indiscernible] and whatnot?

Let’s start with the biogas project first. We announced the funding, I believe, late last year, so certainly, signed the funding in December, and we are on track with the biogas funding. Our first production will be in the fourth quarter this year, roughly a year after announcing the financing. And then the expanded production of roughly a dozen dairies is on track for next year. So we’re on track on actual financing, engineering, permitting and actually construction, and what you should look for ongoing press releases about the project – progress, especially as we get down into the construction phase. So biogas is very much on target. Second, the second project you talked about was Riverbank, this is cellulosic ethanol project. We were delayed, because about a 15-month approval process to get the White House approval of the USDA loan guarantee. That is now completed. And as we announced that conditional letter earlier this year, we are now completing the conditions in the letter, which includes engineering and then a construction agreement. So we are in the process of doing that. I would say we’re on track with that process considering that we just – we’re able to get the USDA approval earlier this year. But the the general market conditions for our project has continued to be very strong in California. And so we’re moving forward steadily to breaking ground and building that facility.

Great. It seems [ph] roughly, when you start your biogas, would you actually start producing revenue in the fourth quarter?

Biogas should have revenue in the fourth quarter. Yes, that’s correct.

Okay. And when do you think the Riverbank project may go live?

Riverbank projects currently slated to be early 2021. It was a little over 18 months from now. So, barring changes the mark conditions or something else, but that’s our current projection.

Great. Well, thanks a lot. Best of luck.

Thank you, and I appreciate.

[Operator Instructions] And we’ll take our next question from James Stone, an Investor. Please go ahead.

Hi, Eric, it’s been a long time since we’ve talked.

Hi, Jim, good to hear from you.

Yes. I’m wondering, can you give us a little feel for how the large debt that you have? How that’s going to be paid off? And when you expect to see it get down to more reasonable levels?

That’s – it’s a good question. We have mentioned in the past that we raised about $35 million as a part of our Keyes ethanol plant, our corn ethanol plant through a federal investment program that creates jobs in the U.S. called EB-5. The interest rate on that program was 1% interest. And this year, we have launched our second funding under that program, and this is to fund our Riverbank cellulosic ethanol project. And we have completed about five investors, which is $2.5 million. The interest rate has fallen to 0.25%. So for every $10 million that we have in the program, we pay $25,000 a year of interest. We are in the process of raising in excess of $50 million into that program actually, will qualify for $100 million, again, at 0.25%. That’s interest, expensive, only about $250,000 per year for $100 million of subordinated financing. So some very positive things have developed in that area in the regulation in the last month or so. And so we’re pushing aggressively to complete that financing. It’s going to take a while. It’s just – it’s a slow process because of how many investors are involved, $100 million is about 200 investors. But we are making steady progress and look forward to providing everybody updates on that process. Now separately, from that refinancing, which, of course, would be incredibly significant for the company, we are generating positive cash flow from our India plant already, which has no long-term debt. And we’re in – as we’re developing our Keyes plant, our corn ethanol plant, we continue to improve positive cash flow, including the project that we completed in May, where we’re just getting this margin advantage that happens when we have lower carbon intensity than other providers in the market. So we are – I think, we have three different projects, first of which is completed; second and third of which are slated be completed over the next six months. That should have a very significant impact on the positive cash flow from the Keyes plant. And with biogas contributing some cash flows during the fourth quarter, certainly, the cellulosic ethanol plant has an opportunity to be a major contributor with 50 million per year of positive cash flow for its financing. Operationally, we can pay down our debt, but it’s just a longer plan. So the EB-5 funding is the most short-term avenue for us to significantly pay down our senior debt.

Well, I’m thinking also of your good friends who increased their loans rather large amounts, almost when you started the company. When is – what you will hold them? Do you see that amount beginning to decrease or when will it?

If we do the EB-5 funding in the process of which we’re currently doing, all those funds are used to repay the senior secured debt, who was, as you correctly pointed out, have been financial backers of the company since 2008, and have been excellent sources of funding, including the equity we received last December. So they’re not only a lender to us, but they also arranged equity funding of $30 million. So we have had the good fortune of having a long-term relationship. And it’s enabled us to take advantage of some market opportunities that other companies may not have been able to. And so I’m expecting that we’ll continue to make almost monthly payments on that reduction, and then hopefully see the rapid acceleration as this EB-5 funding accelerates.

Can you possibly give us a little more information on that whatever you all omit at the moment? But when would you think it, at least, cut it in half? Is that next year or the year after?

I think next year will be a reasonable projection. The $100 million of EB-5 funding that we qualify for, it could potentially be this year, but it’s not a reasonable expectation that we receive it this year that there’s some ramping up in the program that just started a few weeks ago. But I’d like to have another quarter to be able to project when that was – would close. Certainly, there is a opportunity that all 100 investors could fund in the next two quarters. And by the end of this year, we could have $100 million of pay down in our senior debt. I think that’s unnecessarily optimistic. And I’d like to have a little more view before I project what’s going to happen, but certainly a 50% pay down by next year is a very reasonable expectation.

When you say next year, is that middle and/or beginning?

Yes, middle – by middle of next year.

Okay.

In the middle of 202.

And then just one more question. When do you expect to turn into positive earnings?

We – our projecting positive earnings would be after our cellulosic ethanol is operational unless we have an EB-5 funding that occurs. So EB-5 funding removes what – almost all of our interest expense, as you can imagine. And so we could easily turn into positive earnings by completing the EB-5 funding.

By when – I’m sorry, I missed…

By – yes, by completing the EB-5 funding, we would be removing the large majority of our interest costs. So we – at that point in time, with India and having no debt and positive cash flow already, certainly, the Keyes plant moving forward towards positive cash flow, we could easily be in a position of positive earnings based upon getting that EB-5 funding completed. So it’s really – earnings will be driven by that.

Well, can you give you us anymore information on the timing of that? Is that late this year, early next year, whatever?

I think the idea that within 12 months that we could get a 50% reduction and our debt is probably a – and I’m talking about senior secured debt is probably a workable target for us. It should be faster than that. But let’s get another quarter behind us and before we project them.

Okay, thank you. Thank you very much. I think, you keep this up or cut the stock up to a reasonable price.

Thanks, Jim. I appreciate your support.

And there are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Thanks, Kristi. Thanks to the Aemetis shareholders and analysts and others for joining us today. We look forward to meeting with you and continue 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 audio version of this earnings review and business update.