Good day and welcome to the Aemetis First Quarter 2020 Earnings Review Conference Call. [Operator Instructions]. As a reminder, today's call is being recorded. It is now my pleasure to introduce your host, Mr. Todd Waltz, Executive Vice President and Chief Financial Officer of Aemetis. Mr. Waltz, you may begin, sir.

Thank you, Melinda. Welcome to the Aemetis first quarter 2020 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 earnings 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 disclosure statement. During today's call, we'll be making forward-looking statements, including, without limitation, statements with respect to our future stock performance, plans, opportunities and expectations with respect to financing activities and the execution of our business plan. These statements must be considered in conjunction with the disclosures and cautionary warnings that appear in our SEC filings. Investors are cautioned that all forward-looking statements made on this call involve risks and uncertainties, and that future events may differ materially from the statements made. For additional information, please refer to the company's Securities 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 March 31, 2020, which is available on our website. Adjusted EBITDA is defined as net income or loss plus to the extent deducted in calculating such net income, interest expense, loss 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 first quarter of 2020. Revenue during the first quarter of 2020, was $39.5 million…

Thank you, Todd. Aemetis was founded in 2006 and we've grown into four lines of business focusing on supplying low carbon and below zero carbon, renewable fuels, biochemicals and byproducts to markets including transportation, renewable natural gas and carbon dioxide. Recently, we began shipping hand sanitizer alcohol and refined glycerin into the rapidly expanding antiviral sanitizer market. We own and operate production facilities with more than 110 million gallon per year capacity in the U.S. and India including 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 Kakinada. As you may know, high quality alcohol and refined glycerin are the two key ingredients in hand sanitizer. Aemetis operates the largest production plant for high quality alcohol in California, and is one of the largest refined glycerin producers in India. The global COVID-19 crisis that began during Q1 2020 provided challenges to our business including protecting the health of our employees, while continuing to operate our California ethanol plant to supply animal feed to more than 100,000 dairy cows during a time period in which the demand for biofuels decreased significantly. Aemetis operates in three of the Federal Essential Critical Infrastructures, and has continued to operate our California ethanol plant and the construction of renewable natural gas project without interruption. To a large extent, the ability to continue to operate our California plant while fueled ethanol demand and price declined significantly during Q1 and then recovered recently in Q2 has been due to a rapid conversion of our alcohol production to produce hand sanitizer alcohol. In…

Thank you, Mr. McAfee. We will now be conducting a question-and-answer session. [Operator Instructions] And it looks like our first question will come from Ed Woo with Ascendiant Capital. Please go ahead.

Thank you for taking my question. My question is on the biogas project. You mentioned that it's going to start up in late second quarter, which is I guess the current quarter. How quickly will that ramp up in terms of revenue?

We are going to have two dairies online. So our initial revenue would be a pretty rapid ramped to approximately 20% of our projected revenue for the project. So it's about 18% of the projected revenue. And then as additional dairies come online, over the next 18 months, we'll just piecing a rapid ramp up. That rapid ramp up starts in early 2021. But we are awaiting an additional grant application we have filed that we expect to have announced in September. Soon after that we will be at full construction pace. There really will be no - nothing we're waiting for to complete the remaining dairies to end up with about a dozen dairies in this first phase.

Great. And then moving back to India, you mentioned that your class has been, I guess production is suspended, but you expected to resume by the end of this month?

That's our current expectation. They've relaxed a lot of the conditions and frankly, they've approved the operation of our facility in India. So we're in the process of just getting things organized and back in production. The demand for diesel is increased nicely. And the price, of course, never really decreased. So it's an attractive market for us. And we're looking forward to getting production going again.

And then in terms of getting into shutting down the plant and starting the plant back up again. Is there any technical challenges with that or is it as simple as once you started, you will be able to get back up to full production pretty quickly?

Yes, we actually have a maintenance cycle every winter already. And we already did the recommissioning. So we're basically already through that process of being ready to restart. So it's a rather quick process.

Great. And then pivoting back to, I guess, your ethanol plant. Congratulations on being able to make the change into the hand sanitizer market, ethanol production market. How difficult was it for you to be able to shift from fuel ethanol into the hand sanitizer market? And have you completely shifted 100% of your business or are you still selling ethanol into the fuel market as well?

The shift is very difficult for fuel alcohol producers to do, because there's a combination of a variety of qualities that come out of a fuel ethanol plant, nobody really cares what the order of fuel ethanol is, because you blend it with gasoline obviously. And so order matters a tremendous amount in this market, as well as there are some carcinogenic in fuel alcohol acetaldehyde is one that has been focused on by the FDA. And on April 15th, after about two weeks of operations by the fuel alcohol business, the FDA actually issued a notice stating that fuel alcohol producers could not produce for the hand sanitizer business unless they went through three steps with the FDA, which included disclosing the composition of their product. The FDA then went about closing down plants that had higher levels of acetaldehyde. It's a carcinogenic and obviously not a very good thing to have in hand sanitizer. So, having consistent quality and being a low acetaldehyde and other components that the FDA is not interested in seeing in hand sanitizer is not an easy task. It's one of our reasons why we have doubled our carbon filtering capacity this week, which is another substantial investment we've made is to achieve what we seek to be which is the highest quality alcohol fuel producer product. And then within the next couple months, be in a position to be shipping the traditional FDA quality, medical quality and food grade alcohol. So we're basically going through a process of a variety of changes that at every change, improve the quality and consistency of our product. And by mid-summer are seeking to be at a very high quality products which actually open up more markets, even beyond sanitizers. So it's an expansion of the business into an entirely new industry that it's been done and completed really during the stay at home orders. So you can imagine the issues of launching a new industry where you don't know who the customer is and conducting a substantial amount of transactions without ever meeting them. So we've achieved that and continue along that path.

Just for clarification, is your ethanol currently meeting the FDA requirement or will it meet later on?

We currently meet the FDA and TTB requirements that were issued for alcohol fuel producers. There's a separate set of rules that were in place prior to late March 2020 that we expect to meet over the course of the summer as we complete the distillation system upgrades, etcetera. So then the temporary waiver which ends December of 2020, will no longer be relevant to us. So, our target is to try to be six months ahead of the termination of the alcohol fuel producer quality standard and be producing at the food grade standard, long before other companies might have a chance to make the investments to get to the standard.

Great. That sounds wonderful. My last question is just on the economics. Is the ethanol that you sell into the hand sanitizer market is comparable to selling into the fuel market?

No, it's definitely a different market. There is a lot of price discovery going on in that market. And we'll see how it matures because it will continue to change as we go toward the USP and FCC grades that’s the Pharmacopoeia and Food Grades. So, we'll see over the next quarter or two, how the pricing matures.

Great. And one last question if I may. Just love to hear your view on the oil market now. Obviously, it's changed a lot last quarter. But just curious about what's your current view?

My current view is that we're going to see a rebound in gasoline demand, which we've already seen dramatic increases than any other market. But there was a significant decline. So, the perception here will be of increasing gasoline demand. At the same time, the Saudis I think have finally figured out that they can make more money selling 6 million barrels a day than they can make in 12 million barrels a day. And so with that constraint in the market and other participants in OPEC, participating along with them, we saw price of oil went from $12 to $25, in about 10 trading days. So, my personal view is there's plenty of oil in the world that there's shale oil available at $30 a barrel that will act as a lid on the market and so we're probably in a $30 oil market for quite a long time as the Saudis and the Russians constrain production and the shale oil folks continue to produce. And so $25 to $30 oil will probably be here for a while. If the Saudis and others get serious about price of crude oil, gasoline demand is absolutely recovered. There's no question about that. And so sometime later this year, could be as early as the third quarter but maybe the fourth quarter. The Saudis will be back in control of the price of oil. At that point in time, it would be not surprised at all to see a $40 to $60 price of oil. If the Saudis are very committed to this, they'll get a $60 price of oil by the end of the year, simply by putting a crimp on the global supply of oil and forcing the shale guys to try to get more capital from the debt markets, which they will have a very difficult time doing. So the play for the Saudis is to bet the shale oil guys keep on running their rigs having scared the market so badly. And I think that will win. So if the Saudis are serious, we'll have $50 or $60 or crude oil by the end of the year, because the shale oil guys which have to have 70% to 80% decline rates in their first year, they have to invest a massive amount of capital to keep drilling more wells. And we could see a rapid increase in the price of crude oil if the Saudis decide to.

Great. Well, thank you and good luck.

Thank you. I appreciate it. Thanks Ed.

Next, I apologize. Next, we go to Shane Martin with Stonegate Capital Partners. Please proceed.

Hey, guys, thanks for taking my questions. A quick follow up to, I think before me. It looks like less than 3% of your revenue was from the high proof alcohol this quarter. And again, kind of a quick follow up. Can you give me an idea on how much output you guys would be targeting there? And then also an idea of maybe some of your customers in that market? Is it several intermediaries right now or is it one singular purchaser at this time?

There were only I think, two or three days in the first quarter that included alcohol shipments because the approval was on March 27. And our expectation is we're going to have a blend of sanitizer product and fuel product until we get to a USPA grade and FCC grade sometime this summer. At which time it's very possible that a large percentage of our product is actually going to sanitizer product line and a very small amount, just mostly for balancing would be going to fuel ethanol. So I see it as an upward trend. We have had a dozen or more customers probably if I look at customer list it is probably more than 15 customers. And so we do have some large customers but we have an emerging market in which new markets are opening up for us that did not exist before. And there's entire customer bases that are coming from those markets, including international markets. So I think that the business in the second quarter will be maturing with sustained high quality product from us. And then the third quarter, when we hit USP I think it's going to stabilize with a stable of probably 10 to 12 ongoing consistent customers. And much of our production will probably be going to that market if it matures the way we think it will.

Great. And then my next question is you guys mentioned on the carbon dioxide capture system that it should benefit about $1.5 million annually to you. Is there any sort of ramp up there? And then again, assuming that there's some sort of switchover into the alcohol market. Would you still expect to have that sort of annual revenue from it as well or would it decrease or increase?

Good questions. The $1.5 million is under long-term contracts. And we don't expect that to change much. We do get an additional $4 million tax credit that we're working on monetizing that grows pretty much every year for the next five years to a little over $6 million per year. And so the overall revenue opportunity here is in excess of $7.5 million per year. But the production of hand sanitizer or ethanol does not really impact the amount of CO2 we produce. It is obviously factory is running at capacity, we produce the same amount of CO2. It comes off the fermentation process.

Okay, great. And then switching gears over to the India side. Can you give me a feel for what percentage of the sales volume decrease was due to the repairs that you guys have just general scheduled maintenance and then what was attributable to the actual COVID related shutdowns, any kind of color there?

I would say repairs, which were completed in early February would have not had much impact. It was the inability to restart in February and operate in February and March that is largely the result of the volume declines in India. And so we would have expected to have a tremendous amount of products flowing in late February and early through March, literally twice the rate of the prior year if we would have not had this shutdown.

Okay, great. And then just last question, can you give me any color for this year on working capital needs over this year and then as well as any CapEx expectations that you guys have?

Working capital has been - on one hand from operations, we’re funding an increase amount of our working capital, where we have been able to paydown several of our key vendors. India is already debt free from a term loan perspective and sits on substantial amount of cash. So we have in California replicated what our status in India and reduced our amount of cash that our vendors have extended to us. And so doing have invested more in our working capital. But we've done that all through positive cash flow from operations. And we're expecting to fund our capital expenditures from a combination of three things, cash flow from operations as well as the $21 million with the grants we've received and the $30 million of equity that is already in place and has already been partially drawn about half of it's been drawn already. So at the current time we're fully funded for all of our activities except for the Riverbank project, which requires some additional funding, which we described in our project financing plans. But the other activities we have are largely in place, I say largely because they're subject to future financings, they haven't closed yet. And why all we should throw in the COVID-19 conditions and talking about future financings.

Okay, great. Thanks for taking the question guys.

Sure. Thank you, Shane.

Next, we go to private investor, Tom Welch. Please proceed.

Thank you. Great call. I have really only one question. Everybody else covered questions that I have. But do you have any future refinancing plan that you're working on that you can talk about besides EB-5?

I would say that EB-5 had, as you saw in our earnings release this morning and the quote that I put in. It had a major breakthrough that should be understood by all investors. In the EB-5 program, there is a category called national interest expedite that takes what is otherwise a up to three year process of investor getting their application reviewed. And then being able to move the U.S. down to a 90 day process. That's what the regulation says. And so to be sitting in India, when the shutdown condition and have the prospect that within 90 days you could be approved to move the U.S. and send your kids to U.S. schools and go spend time with your family members. It's a dramatic change in the attractiveness of our process. And we have had a several hundred new interested investors happen. Each investor is $900,000 of investment by the way. And so we in our job studies have 200 investors that we showed our plant qualifies for. And so if you just do the math, you could find that's a tremendous amount of capital for our business at 0.25% interest rate. And the first phase of our funding, which we raised approximately $35 million from largely happened in one week. If you really are following the company, you would notice that, we went to China and in one week, two sets of weekends, we oversubscribed that entire offering. It was a window of time in which things lined up. And though years had passed, we closed that largely the entire $35 million in that one week. This is not one week, but the pace of interest the pace of excitement the COVID-19 shutdown restrictions in foreign countries and how it's affecting people has definitely significantly increased the interest and the real activity of people investing. And so I think investors should be fully aware of its impact on the company. And that those funds flow directly to the reduction of our senior secured debt, which is the bridge financing we use to fund these projects. Secondly, the financing of our Riverbank project, which has a USDA loan and also mentioned the municipal bond market has a component of those proceeds that also reduces our debt by refinancing it into 20-year, relatively low interest debt with no principal payments for two year periods. So that is as the impact of reducing our expensive senior debt, replacing it with long-term lower cost debt. Other than that, we do not see the bond markets or the high yield credit markets as being open to ethanol plants at this point in time and certainly if it was, we would be very active there. But currently, we don't see that those refinancing alternatives are available.

Very good. Just a clarification. The EB5 to financing was posted $50 million in the year they see the minimum required from $500,000 to $900,000 investor. And there are, I believe, you're qualified for up to 100 for those units. So has the EB5 phase two financing gone from $50 million to $90 million?

We're actually in our, what's called an exemplar business plan and project proposal that was approved by the government. It's actually 200 investors. But there's a function of the market, specifically the Chinese market that used to be the most aggressive funding of this EB5 set of projects in which they wanted to have significant coverage, because most projects never produced the number of jobs that were approved by the government. And so a project like ours with 200 jobs being created, I'm sorry, 200 investors EB5 opportunities being created. When it's marketed in China, you would typically go out and say, we have 100 slots available, and then just increase the number of slots after those hundreds are taken care of. We did that in our first offering and increase the offering by about 20%. The Chinese are no longer in this market, really. It's now primarily Indians and other countries. And because we have a plant in India, we have a lot of credibility compared to other project developers. And because we completed our first project, completed all the jobs, actually exceeded the number of jobs we originally projected. And all those investors have now been approved and many have moved to the US we are considered to be a proven developer, which opens up the opportunity for us to do 200 investors because we don't have to market the idea that we might not achieve the number of jobs available. And at $900,000 that's an additional amount of funding that isn't under the more conservative model. So we're going through a gradual process of obtaining investors filing with the US government doing in the amendments as it grows. And the project is under construction. So, you create jobs as this happens, which continues to build competence. So, we're seeing a replication of what happened last time. But this national interest expedite was an effort that took us about a year and a half and has now succeeded. And we, I believe are the only national interest expedite that we know of has been approved for the last year or so except for casino and glom. And it is considered to be in the national interest because it was an entertainment facility for military person's personnel that didn't have a lot of alternatives in glom. So, they got a small amount approved as national interest expedite. So, it's a major breakthrough that we worked on for more than a year and a half, in spite of many rejections we were successful in getting that achieved.

Very good. That answers my question. Thank you.

Sure. Thank you. Appreciate your time.

And we take our last question or comment from Massimo Siarala, a private investor. You may go ahead.

Hello, Eric. So, first of all, I want to make my own [indiscernible] first producer over [indiscernible] sanitizer in Western United States. That this according to me a big achievement because sanitizer other company warehousing production [indiscernible]. I just want to know the fact because I did some research and I saw this like ethanol for fuel were sold at around $1.05 to [indiscernible] and sanitizer is like $50 per gallon, $100 per gallon. So I wanted to know like with some or for how many gallon for ethanol and sanitizer you ship each day? And the number they give you they are analytic or they are too much [ph]?

Thank you, Massimo. Good to hear from you. We are definitely getting a higher price for the sanitizer market than we are getting in the fuel ethanol market. There's a lot of price discovery going on in the marketplace. So the range of prices is quite wide. You mentioned $50 to a $100 and actually that's true at retail, even discounted pricing is considered to be reasonable that sits in the $30 or $40 range and there's many prices that are in excess of a $100 when you're buying it in a smaller product sizes such as two to four ounces. But this is a market in which we are a major player in the Western United States. And we entered the market as a supplier of just the alcohol itself. We see the market maturing in which we're partnering with major customers to make them successful in the market. And that's really focusing on quality. So I think we're at the phase in which upgrades to our plant and our ability to sustain high quality will have a biggest impact on our ability to continue to supply the marketplace and continuing to be a leader. So we'll see as this quarter completes and we report our financial returns how that market matures. But I really do think that the third quarter is when we become a regular player, because of the USP and FCC grades that we expect to be shipping at that point in time. Until then, we're at a transitional market with a lot of up and down in terms of customers' desire for product that really the alcohol producers don't make. And so it's a transitional quarter we're in right now. Regarding our number of gallons, et cetera. It's very, very volatile. So we will get the end of the quarter and then report what it is. And I think it's one of those things where you get out and you ship a lot of different customers and learn a lot about the market. And we've done that very successfully. And then in the third quarter, I think we're going to stabilize by focusing on a small group of maybe a dozen customers and longer term relationships that are coming out of that.

So to-date how many gallons will you ship, like 700 more or less?

Yes, it is pretty volatile. So day to day numbers are all over the place.

Okay. So another question that I want to ask you, is about the $1 rule about NASDAQ because we have time to comply until end of July. And according to me its fundamental that they may be say, we will be complying with this rule because according to [indiscernible] is very important that you will be listed on that NASDAQ. Also related to this question, I will speak and also now the market capitalization is very, very low it's $15 million this is like something like very cheap. So if you commit, like for example, $5 million, it means that has to be about where [indiscernible] like 30% of the share. The future according to me will be bright because in May or in June people will tell you [indiscernible] demand will be up, the soybean will be up. There are a lot of new projects going online. There are name [indiscernible] is that according to me the best investment is [indiscernible] is to invest on itself and to buy and start buyback program. What do you think about these ones? Do you think that is capable do you want to do this one?

NASDAQ has…

[Indiscernible] what is the plan to be listed in the NASDAQ in procedure to $1 condition?

Right NASDAQ has extended our time window past the original time period by an additional 90 days. They have a large number of NASDAQ listed companies that due to the COVID-19 crisis would be delisted off the NASDAQ. So they have extended it voluntarily. We didn't apply for that or anything. They just gave it - they gave us the extension. So we're talking about approximately late August there. And we can apply for an extension after that. So we're not currently concerned about the dollar price. We think just our performance will solve that pricing issue.

Okay. And about the buyback. Do you want to comment anything relating to this $50?

I'm sorry, say that again.

The buyback. Do you think because in last month like last year, as compared to [indiscernible] plant started share buyback program? According to me, it's also a good option for maybe. So I wanted to know is there anything that maybe [indiscernible]?

A buyback of shares is absolutely in the shareholders' best interest at such a low stock price. We think the market largely doesn't understand what's happened in the fuel ethanol business. And then, of course in the case of medicine doesn't fully comprehend the positive impacts of number of things we're doing. But I think they will come to understand it as they see the combination of increased cash flow from operations and the refinancing of debt. So our expectation is that at appropriate time that a stock buyback would absolutely be in the best interests of shareholders. And we are considering that as our, our board of directors looks at shareholder value increases that we could achieve. Certainly a shareholder buyback will be something that would cause a tremendous amount of shareholder value to be created. We're buying their shares at extremely low value - low prices.

Okay, thanks a lot.

Sure. Thank you, Massimo. Good luck with what you're doing in Italy.

Thanks.

There are no further questions at this time, I'd like to turn the floor back over to management for closing comments.

Thank you, Melinda. I appreciate it very much. Thanks to Aemetis shareholders, analysts and others for joining us today. We look forward to talking with you to continue our dialogue about the growth opportunities at Aemetis.

Thank you for attending today's Aemetis earnings conference call. Please visit our Investors section of the Aemetis website where we will post a written version and an audio version this Aemetis earnings review and business update. Melinda?

This concludes our teleconference. You may disconnect your lines at this time. Thank you for your participation.