Welcome to the Aemetis Second Quarter 2020 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, today's call is being recorded. It is 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, Melinda. Welcome to Aemetis second 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 activity 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 June 30, 2020, 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, tangible 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 2020. Revenues were $47.8 million for the second quarter of 2020 compared to $50.6…

Thanks, Todd. Aemetis was founded in 2006. We have grown into four lines of business, which are focused on supplying health products, including high-grade alcohol, refined glycerin, blended hand sanitizer gel and liquid, as well as packaged sanitizer products. Renewable fuels, including low carbon and below zero carbon ethanol, biodiesel, waste wood ethanol and byproducts, including carbon dioxide and corn oil, dairy biogas, including renewable natural gas for transportation fuel and technology development to maximize the value of our products and processes. We own and operate production facilities with more than 110 million gallons per year of capacity in the U.S. and India. Included in our production portfolio is a 65 million gallon per year high-grade alcohol, fuel 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 refined glycerin and distilled biodiesel biorefinery on the East Coast of India near the port City of Kakinada. Aemetis made positive progress towards increasing revenues and sustained profitability in each of our four businesses during the second quarter of 2020. Let's review our new Aemetis Health Products business, which grew rapidly during the second quarter as well as our fuel ethanol business returned to strong profit margins during the end of the second quarter. In response to a national shortage of hand sanitizer used to slow the spread of the COVID-19 virus, in late March 2020, the FDA and the Treasury Department's TTB agency issued temporary regulations allowing fuel ethanol plants to produce alcohol for hand sanitizer. Responding to this approval and the spike in demand for sensitizer products, Aemetis delivered our first sanitizer alcohol within a few days thereafter. Through a post processing arrangement it was formed with a local wine and spirits producer. Then…

[Operator Instructions]. And first we go to Ed Woo with Ascendiant Capital. Please go ahead, sir.

Congratulations on the quarter. Obviously, it was a very special quarter in terms of the high demand for any type of protection type devices including hand sanitizers. How sustainable do you think that's going to be heading into the back half of this -- possibly into next year?

As we launched them as health products, it was a strategic decision to expand our exposure to the sanitizer alcohol market by not only selling bulk alcohol, but also selling blended liquid and gel products, which have additional margin because of the value-added component there. And also the launch package, which basically in this case is mostly bottled products under both other companies’ names as well as our own. And we're anticipating the second half of this year is going to become more of a stable operating environment rather than the spike in demand that we experienced in Q2. But we're also seeing a significant reduction in competitor products as over a 100% products that have been recalled or basically been taken out of the market by the FDA and Health Canada regulations. A lot of that was product from Mexico containing methanol, but also products that contained high levels of acetaldehyde, which is a cancer causing component that can be dominant in fuel ethanol. And also this restriction on the transportation of high-grade ethanol that you can't hold around in fuel ethanol tanks is a significant constraint. And as those rules actually more and more enforced, I think we're going to find that there's fewer suppliers in the market. So the second half of 2020 is going to be a market rationalization phase. What we're seeing is continued substantial demand. We have direct relationships with very large customers and retailers, and there is a sustained demand for high-grade alcohol that is occurring. And you'll see other suppliers of high-grade alcohol are announcing long-term contracts that they put in place. Many of them are actually sold out for this current year. And so it's definitely an opportunity for us to continue to upgrade process and complete the construction of our USP grade facility. That'll make us roughly a 5 million gallons per month supplier and be very uniquely positioned as the -- certainly the largest capacity supplier in the Western United States by a long shot. I mean the number two is really going to be non-consequential to us. So we see the solidifying of that strategic position over the next six months. And certainly going to market with these higher margin generating products is going to be an expansion that we'll see over the course of Q3 and Q4.

What percentage of your ethanol output is for hand sanitizer market today?

It is a volatile business. So it is expanding and we're anticipating that, as we supply into our own Aemetis Health Products subsidiary, we will see better visibility in terms of what the total volumes are over time. Especially since some of the contracts we're bidding on federal government kind of contracts tend to be longer and more stable. And so, at the turn time, we're seeing an opportunity to expand our commitment there, but we are continuing to ship fuel ethanol until we get own packaged products in the marketplace, at which time it's very possible that our fuel ethanol production capacity is going to be curtailed significantly. I could anticipate a time which we would not have any fuel ethanol production capacity at all. Now whether that occurs in the next six months or occurs in the next 18 months, I'm not quite sure, but we'll certainly be positioned for that from a technology perspective because our upgrades are being estimated to convert all 5 million gallons per month to this USP high-grade alcohol.

Just to clarify my understanding. So once you start converting it to these high-quality ethanol for other uses, can you still produce fuel ethanol or once you make this shift you cannot do it anymore?

We will still be able to produce fuel ethanol.

Next we go to the line of Marco Rodriguez with Stonegate Capital. Please go ahead.

Good afternoon. Thank you for taking my questions. I was wondering if you could maybe talk a little bit about the margin profile of the high-grade alcohol. It kind of looks like just looking at your numbers that it might be somewhere in the 60% plus range. Can you give us a sense of that if that's correct, then also if whether or not that's kind of a normalized run rate for the margin?

We have a couple of different entry points in the market. We have our bulk alcohol business. We have a blended gel and liquid alcohol business, and then we have our packaged alcohol business. And what you'll see in industry is the bulk alcohol business ranges from low numbers to moderate numbers. So it's going to be somewhere in the 20% to 50% range in the bulk alcohol business. In the gel and the liquid business, largely the same range. Again, depends on volume, 20% to 50% probably would accurate. And then in packaged products, because we have to be the supplier of -- in the liquid hand sanitizer, basically 98% of what costs any money inside the bottle comes from our plant. The margins are usually in excess of 50%. So, largely determined by volume. The smaller volume customers tend to be the higher margin customers. And then the inverse of course with larger volume customers.

Great. And then also you mentioned obviously you have a competitive advantage versus a lot of other high-grade alcohol producers given your location and the shipping aspect. Can you give us a sense as far as who are the -- I guess the competitors pre-COVID that were in the market kind of supplying this?

In general, Pacific Ethanol Pekin, Illinois plant was a major producer. We also have MGP in the Midwest that’s played a significant role. There are some other players in the market that are not disclosing their level of participation but ADM and in a couple of the other traditional ethanol players have some USP production. But there will probably be another, I'm going to guess, a half a dozen ethanol producers that during the course of 2020 will make the substantial investment of both money and as well as time to upgrade USP. So there was an estimate about six players were in the market in January, and will probably exit the year be with probably nine or 10 players and then by early next year have probably a dozen players. And of those dozen players, one will be West of Iowa, and all the other 10 or 11 are in the Upper Midwest, Minnesota, level down to Kansas. So there's really no ethanol plants in Texas, there's really not much going on the Southeast. And in the U.S. -- Western U.S. it's basically us, as the only announced hand sanitizer producer. So it's going to be largely Upper Midwest, Iowa, Minnesota kind of -- and Illinois, kind of a location which is 2,000 miles away from the Western United States.

Our next question or comment comes from the line of private investor, Tom Welch. Please go ahead.

Wondering if you can provide some color on your time horizon for finishing some of the targets you mentioned? The distillation columns, Zebrex membrane, heat exchangers, solar, kind of micro grids, vapor recompression systems?

We would categorize those in two categories. One is the systems required for USP production and those are all structured to be completed by Q1 of 2021. So we would be able to ship the higher grade alcohols into these markets in that time frame. The solar array power system and the MVR, which is essentially changing the use of steam, so we reuse it, therefore don't have to produce as much. Those projects are stretched out over the next year into the third and fourth quarter of next year for solar. It seems like with some of the changes in market, the solar guys might be able to work a lot quicker because of the lack of other projects that used to be delaying the thing. So we'll probably see the solar project relatively quickly. And then the MVR project would be taking us into probably 2022 for completion. It is a change in using our renewable natural gas. That is remarkable and is a very strong financial impact to the company. But the design and engineering phase is going to take most of the rest of this year. So 2021 will be a construction year and I currently would expect to be 2022 we’d get the MVR installed. So that might be accelerated again, because some of the other construction contracts have slowed down and us moving forward has gotten a lot more attention from the contractors and engineers than we otherwise were getting.

In regards to the engineering on the cellulosic ethanol plant, I know you've been working on -- hard on that engineering for more than two years now, I'm sure you're looking for that Indian site moment. Do you have a target date for finishing the engineering plan and submitting them to the U.S. Department of Agriculture?

Yes, most of our engineering is around permitting. So in order to close our project financing, we need what to know as an authority to construct permit, it’s from the air board. And so much of our engineering is simply responding to the air board's let's call it process of reviewing emissions, et cetera. And in California, we have what's called CEQA, the California Environmental Quality Act, which has to be completed before they issue the authority construct. So we are working through the last steps of that CEQA and air permitting process. And so when I say engineering, it's not necessarily just a bunch of guys sitting around saying, here's what we're going to design. It's more stringent matter, it's really a very active process with a group of consultants, these permitting issues, which you've probably heard California is pretty strict about these things, we're essentially building an oil refinery. And so to get to the point which we're almost getting approval for the authority construct, literally in the next quarter I would expect, to get that approved is quite a remarkable achievement. As soon as that's achieved, we can then close up our EPC agreement and complete the project financing. So we're currently anticipating project financing in Q1 of next year. And all these plants can be impacted by new orders for shut down or stay-at-home orders or something like that. But in general, our current process would enable financing close in Q1 of 2021.

Okay. Can you add some more color to your financing plan for the cellulosic ethanol plant? I know you've talked about U.S. Department of Agriculture on -- potentially it's an EB-5. But you also -- in the Q1 conference call, I think you mentioned something about a municipal bond?

Thank you for listening to Q1 actually. I was wondering whether everybody actually heard that. There are two venues for us to receive 20 year of bond financing. One is our commitment letters already signed with the U.S. Department of Agriculture. That provides 80% of project financing, Aemetis has largely funded the other 20% or received grants for the balance. So we're well-positioned to move forward and close that, that the amount of that USDA financing will be adjusted depending on the final EPC contract, the one that has the maximum price construction. We'll go back to one more cycle USDA. Parallel to that though, there have been a couple of projects that have been funded by municipal bond tax free financing that have successfully raised substantial amount of funding in several hundred million dollars per project. And so we are working with investment bankers, have engaged counsel and are well along the process of closing a municipal bond financing that is attractive because of the lower cost obtained through a tax refinancing and it’s a fixed interest rate. So, if the municipal bond market is available to us, it kind of runs hot and cold. And as you can imagine with the current confusion in the market it’s going through a bit of a transition, but if it is open, we would expect to move forward with municipal bond financing, which is a substantial decrease in interest costs over the life of the project. So we are proceeding with both of them having essentially already a commitment from the U.S. Department of Ag. It gives us an opportunity to focus on municipal bond market and if it doesn’t work, then we can just close with USDA.

Thank you. One final question. I’m seeing a record number of companies that are using alternate means of being able to do consulting. Typically like using smart glasses where you dawn a pair of smart glasses in California, the engineers - dawn a pair of smart glasses and they don’t even have to travel to California they have got a hand full of five years in hand, basically virtual reality link. And we see it going on a lot around the world now with all the restrictions on flights and travel. Have you guys explored that at all?

The smart glasses we use is called iPhone Face-time so yes, I do think though you are correct in that remote distance communication and collaboration is definitely a rapidly growing segment and running a production plant in which people can’t communicate face-to-face as you can imagine is a bit of a transition for even our company. I think we have adopted well because we were already global company and already had the discipline in place for how we collaborate across time zones, et cetera, but certainly tools that can allow people to essentially participate as if they were there. We will see a growing application and industry.

I have been watching a company that makes virtual reality smart glasses for business, called media and their business has literally gone through the roof in the last six months as you can imagine -.

I think it is normal. I appreciate your questions. Thank you very much.

Yes, thank you.

Next we go to the line of [Massimo Theorala] (Ph), private investor. Please go ahead.

Hello, first of all I want to give my compliments for your results. I was really impressed from the fact that you run 100% nameplate capacity and like your competitor you are more or less 50%, 60%, so I’m very glad to see that after all the procedures operationally you are doing very well and as it was pointed out before you are like the only player in all West of United States. It is like the richest part of the world with 100 million that are using their i.e., I will call it handsome ideas. so I’m really glad about the future of the company. I have some questions that I want to portrait, I want to ask is it possible to know f you provide like [indiscernible] from the second half of 2020 about EBITDA and debt reduction.

We do anticipate that our production rates, which you correctly pointed out are very high especially being in the Western United States were probably the highest production rate of any plant by large margin. I do not have a EBITDA projections for the third and fourth quarter. I know that specific ethanol announced a range of EBITDA that was very strong for the second half of 2020. And they are obviously in a similar business client as us which is expanding production of high grade alcohol. They are already a USP producer. We are producing a high grade alcohol, but will not be as USP grade until early next year. But we see this as a transition period in which us obtaining higher margins through value added products, such as blended gel, which is a very, very high demand right now. And branded frankly packaged products enable us to obtain much the margin otherwise might be obtained by USP. The next couple quarters, we will see these as transition growth quarters for us. And then I wouldn’t be surprised at all to see long-term contracts be announced as we get into the first quarter and end up basically in a similar position as specific ethanol.

Okay, thanks a lot. I want to know another question. So [indiscernible] that you forecast like first dollar of revenue of your gas in September 2020 is this correct?

I’m sorry how much, I didn’t hear that.

You spoke about your gas revenue and you told that you think to get the first dollar of revenue in September 2020, correct?

Yes it is correct. Yes our biogas project is being commissioned and it will start generating revenue next month.

Perfect. And what about Mitsubishi [indiscernible] about this project.

We would anticipate that would start to impact Q4 revenues. We are currently being restricted by some of the international travel restrictions are frankly impacting our ability to condition the project. And so over the next couple of months we expect to get that.

Perfect. Then my biggest worries about the company, like three months ago, the last quarter was not [indiscernible] company, because you are getting some because you are a 15% interest rate. So I would like to know what are the action that you are going to do about the decreasing of these [indiscernible] If you think ever in the next, cash flow. So if you have high cash flow you can pay back debt [indiscernible] what do you think to do about that.

We have already raised $39 million of EB-5 funding, which is approximately 1% interest rate. And we, I believe announced that we received the national interest expedite which is unusual identification that our project is strategic to the government of the United States. And that national interest expedite allows our EB-5 investors to have their applications reviewed and adjudicated in a three to six-month time period that of approximately three to five-year time period for all other projects. And so we have seen substantial increase in the number of interested investors and are proceeding forward and expect cash deposits to occur this quarter. And the total number of investors that our job studies shows that we could have is a total of 200 investors. The average amount or its not average - CEP amount per investor is $900,000 per investor So, as we proceed forward we have a substantial fundraising opportunity with 200 investors at $900,000 per investor. We have already closed eight investors that occurred in 2019 and we anticipate to close gross margin from more as we continue forward for the [indiscernible] process.

Okay. The last two question. The question, one of the reasons because I am basically and maybe same like [indiscernible] is because alcohol I believe in you and on the management team and I’m very glad about this amazing results. The second one is will take you into that like what is happening the electric car market, there like some company in electric car company, in electric car market that are like huge valuation because like the U.S. government supporting like electric cars. So if there is one thing that the U.S. government has to support those ethanol [indiscernible] facility care goes to the owner. I don’t live in the [indiscernible] and probably there is also some people from the California say, so I want you to know, last interview about these possible incentives that maybe or will be given to their sector?

That is a very good question, actually. And if you have the answer, please email me after the call. The reality is that no one really knows yet. What the incentives are going to be for ethanol in the United States. There is a proposal for a $0.45 per gallon funding that the company in the United States Department of Ag. It has not passed through Congress yet, but would probably be an item that would be included in this current COVID-19 economic recovery powder package. But I wouldn’t say with a high degree of confidence that is going to occur. Since our plant produces approximately five million gallons per month throughout this entire cycle. $0.45 per gallon for, let’s say a three-month period could be a significant amount of money we would be talking $7 million or $8 million so funding program such as that. Separately, probably more relevant to our underlying business is in [inaudible] of the fuel standard, and not granting waivers to oil companies, especially highly profitable companies do not comply with partial funding and that is pending right now at the EPA. And I would expect between now and the end of the year, we will see some developments concurrent with the U.S. federal government imposes a stable fuel standard. By enforcing [indiscernible] we end up with a fundamental market access that we don’t have. Though refineries that allowed to just continue using gasoline and not blending modules. And essentially, in California, for example, we have an 90% mandate for petroleum, which in the inverse means a 10% ethanol blend. And on national basis, E-15 approved if we can see an enforcement of renewable fuel standards we will see a growing market of which we have not seeing literally for five-years, due to these theories to enforced -. So I see it as constantly cash funding with the ethanol industry deserves. I think we just deserve market access. We need sort of blender pumps that allow consumers to decide whether they want lower cost domestically produced renewable low carbon fuel or whether they want to use imported high cost high carbon polluting material from some foreign entity and that choices currently be made by government by blocking the use of fossil fuels in United States not using one plus.

Then it is possible I have a question about India. So as it was pointed out before, like there are only for a time of planting all California this is like a tank with 40 million people. There is one from you to from [indiscernible] so like the matches that are used because you are the only one over there. I wanted to know in India, India is a huge market because over there, there are more than 1 billion people, why don’t you do the same thing that you need in the United States [indiscernible] because over there the market is huge?

The Indian market is an export market opportunity for us and because we are probably the largest biodiesel producer in the country, and certainly, easily one of the largest refining glycerin producers we have very good market access to India. Currently, the next batch to our plants from exporting India are not as attractive as selling our high grade ethanol right here in California. But certainly I agree with you, there is multiple markets that have high margins for a USP grade sanitizer alcohol and the export markets are very attractive, but we have to be in probably the most attractive sanitizer market of the world right here in California and we will be have feeding supply focusing our efforts.

Last one. So another thing that I was really impressed that you like it sold [indiscernible] $2.6 per gallon if you are [indiscernible]. Just to understand in the July and August, do you project to sell a more or less the same quantity that now you are using seem to be stable. Do you think that July your orders will increase also because you have [indiscernible] of the company in order to sell the product do you mean to sell the base user, what is like different for July or August compared to May and June, because as you mentioned before, you didn’t provide the answer, instead of other companies but just to understand if more or less the number of gallons sold at this stage so I can do some math on my own.

The spring of 2020 had a very large spike in demand. April, May, which were two of the three months of 2020, allowed our company participated as you know, in March, we were not allowed to participate in making hand sanitizer until the 27th of March at which time the rules changed. So we really had only about two months out of the second quarter - sorry, in that, in the spring only had a two months, really April and May in which the rules were very lax. Starting June 1, the FDA set out standards for high-grade ethanol alcohol, which substantially reduced the number of suppliers that can supply into the industry. And we mentioned that we started food grade alcohol in the month of June to Canada, as well as the customers in the U.S. And so, we see a transition happening in which we will be producing more value added products such as blended gels and liquids, shipped in totes rather than bulk alcohol. And we see longer term contracts. One is a very large contract we are participating in, that is a government agency. So this is a transition period in which we see as longer term commitments. And certainly a lot of competitors have had to leave the industry. Basically all the Mexicans competitors have left the industry and that to participate in this big run up in the second quarter. So like Pacific Ethanol, we see longer term arrangements being sort of more common and fewer suppliers that can meet the needs.

Okay. Thanks lot.

Thank you.

Next we go to Ed Woo with Ascendiant Capital.

Yes. Thank you for taking up my follow-up questions, going back to the economics of hand sanitizer ethanol versus fuel ethanol. What is the price differential that you could get per gallon?

Fuel ethanol versus sanitizer alcohol price differential. Is that what you asked?

Yes. Yes.

Price differential between the two ranges from $3 to $8 per gallon. Yes, probably $9 per gallon, actually $3 to $9.

Great. And then going back to you know you mentioned that bio gas, I guess the plant will be starting up in September. Do you think it will be a major contributor to 2020 results.

I wouldn’t say a major contributor. No, it will definitely I think for institutional investors provide good visibility into what 2021 and future years looks like. It is a pipeline business where you are clipping coupons. There is really no cost of goods. Right. The gas comes for free out of the goon. And there is a little bit of electricity involved with processing, but largely the cost of operation are nominal and the cost of labor is virtually nothing. Because there is no real manual labor involved with [Technical Difficulty] it is a little bit of a maintenance support. And so it is a very, very high margin business. It is a 80% plus percent margin business and a recurring cash stream that goes on for 20-years. These are 20-year contracts. So I think the discussions we are going to have with investors will be around the amount of visibility they have on these 20-year contract relationships with very low cost and very low uncertainty around operating components. So, I think we will get a evaluation from that project that will I think be very, very substantial. So, we signed 17 dairies, but I mentioned we supply a hundred of them. So I wouldn’t be surprised at all to see an expansion of that beyond 17 dairies. And, as you do the math around 30 dairies or even 50 dairies it becomes a very, very substantial cash flow stream and a significant amount of equity value to us.

Again you said you have two dairy by the end of this year and an additional 15 next year.

Yes. Actually two dairies by the end of next month and then we are adding another 15 dairies against subject to COVID-19 timing over the next 18-months to build 15 dairy digesters would certainly be a goal we would have and we will see how our contractors can perform against that goal. Our equity funding relationship with that capital has been a strategic advantage for the project, the third eyes a $3 billion plus investment firm who funded our company for more than 12-years. And so we have a well established relationship. We think very, very highly of the relationship and worked diligently to have that as a strategic capability that we can bring to the table that other biogas producers cannot. And so our initial relationship was $30 million in signed equity funding. We are expecting to increase that to $55 million. And so we are able to move very, very quickly on these projects, save a lot of money to take advantage of price declines that occurred in the raw materials, for example, that had substantial cost reductions this past quarter. And, hopefully be able to, by the end of next year, exited with this first phase one and phase two completed and be working on phase three at the time.

Great and then on my last question is if you do close the rural project financing in the first quarter of 2021, when do you think you would be able to have the plant completed and operational?

It depends on the EPC final contractor view of things, but our strategy would be to try to pull it in 18-months timeframe. And what we have seen is it is largely around how much other activities going on. So if we have long lead times on certain components, because there is a lot of activity in the marketplace, that is extends our project. Because of the COVID-19 crisis we have seen some of these - branch potentially shorten and obviously the impact in our project.

Great. Thank you for answering my questions and I wish you guys good luck again.

Okay. Thank you. Operator.

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

Thank you to another shareholders and analysts and others for joining us today. We look forward to talking with you to continue our dialogue about the growth opportunities in Aemetis.

Thank you for attending today’s Aemetis earnings conference call. Please visit the investors section of the Aemetis website where we will post a written version and audio version of this Aemetis earnings review and business update. Operator?

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