Welcome to the Aemetis [Third] 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, this 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, Inc. Mr. Waltz, you may begin.

Thank you, Kate. Welcome to Aemetis fourth quarter 2020 earnings review call. We suggest visiting our Web site at aemetis.com to review today's earnings press release, updated corporate presentation, filings with the Securities and Exchange Commission, recent press releases and previous earnings conference call. The presentation is available for review or download on the Investor section of the aemetis.com Web site. Before we begin our discussion today, I'd like to read the following disclosure statements. 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 risk 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 Web site 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 December 31, 2020, which is available on our Web site. 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 fourth quarter and year ended 2020. Revenues were…

Thank you, Todd. The earnings release that was sent out this morning has a link to the updated Aemetis presentation that we will refer to today. As we discuss results from 2020, I encourage you to consider viewing our updated slide presentation, which can be found on the investor page of our Web site under this conference call. Aemetis was founded in 2006. We have grown into four lines of business which are focused on producing renewable natural gas, including below zero carbon intensity dairy biogas for transportation fuel, renewable fuels, including low carbon and below zero carbon intensity ethanol, high grade distilled biodiesel, renewable jet and diesel using cellulosic hydrogen from waste wood and byproducts, including carbon dioxide and corn oil, health safety products, including sanitizer, alcohol, refined glycerin, blended hand sanitizer and other health safety products 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 US and India. Included in our production portfolio was 65 million gallon per year fuel ethanol, hybrid alcohol, wet distillers grains and distillers corn oil plant located in Keyes, California, near Modesto. We also build, own and operate 15 million gallon per year capacity to still buy diesel and refined glycerin biorefinery on the east coast of India near the port City of Kakinada. Before discussing our business, I'd like to comment about the social and environmental impact of our company and projects. The circular bio-economy created by our California dairy renewable natural gas project, are soon to be solar powered ethanol plants, our renewable jet and diesel plant under development to use Cellulosic Hydrogen from waste orchard, wood and our sanitizer alcohol business provide benefits to the local environment and communities.…

[Operator Instructions] Our first question today is coming from Amit Dayal at H.C. Wainwright.

On the renewable natural gas efforts, could you talk about your contribution from the two completed dairy digesters in the fourth quarter, if any? And how should we think about deployments for the additional 15, 16 for the next year or so? And any color on changes to expectations around CapEx requirements, et cetera, related to this. Just an update would be very helpful. Thank you.

The process of recognizing revenue from our dairy renewable natural gas is there's a three months processes of actually measuring the amount of biogas produced, then about three to six months process of the California Resources Board doing their verification and approval process. And then you get your actual approval but you go back to in earlier quarter to begin revenue generation. So it's going to show up as an upside surprise, when we currently expect in the second quarter of 2021 to reflect revenue starting October 1, 2020. So literally six months after we start generating revenue, we then end up low carbon fuel standard approval. It shows up in the computer as a number of credits that we've already earned. And it will from a financial perspective show up in Q2 2021. So we did not currently show any revenues of any material sort in the fourth quarter of 2020 or expected to show in the first quarter of 2021, unless there's some sort of accrual we make or something. But practically speaking, there is a six month delay before you show up. It doesn't mean you're not getting the revenues but the way we're doing it and we're getting a lot of cooperation from carb. Within a few weeks of our start up in the middle of September, we would start generating credits as of October 1. And the California Resources Board has been tremendously helpful in working with us and understands the importance of not running these projects for half a year or three quarters of year with no revenues at all. And so the ability to tap back to the original start up date is extremely important to the rapid expansion of these projects and the carb team has been very helpful in doing that.…

And I know you've previously sort of indicated that funding for the Phase 1 and 2, probably you already have those. But for Phase 3 of the 35 days digesters in Phase 3, how are you thinking about funding those deployments?

Phase 3 is in the aggregate 35 dairies, whether we decide to break that into two parts or not, we'll make a decision on later on this year. But to simplify, what we will be generating is over $40 million of cash flow from Phase 1 and Phase 2, and we are expecting $75 million of USDA debt funding, which enables us actually to not only fund fully Phase 1 and Phase 2, but also prepare ourselves well for Phase 3, because of the infrastructure we're putting in place. You don't have to rebuild the pipeline that will be at the time 35 miles of pipeline. So adding additional dairies to that pipeline, in some cases, might be only a matter of running a quarter mile of pipeline, you don't have to put 35 miles of pipeline in place and centralized dairy hub, gas clean up, interconnection with utility, all those are already in place, the renewable natural gas dispensing stations already in place. So our capital expenditure for the Phase 3 is somewhat less, and is driven by the cash flow we're getting from Phase 1 and Phase 2, which enables us to use basically debt instruments. Currently, USDA renewable energy for America program is ideally suited for the $75 million of build out that we're doing over the next 18 months. But our existing institutional investors strongly supported the project, has already funded $30 million and is already working with us to extend us an additional $25 million on the same terms. This is equity and we have an expectation that that would certainly be available to us at any time. They've been extraordinarily supportive of the project, and continued to be very bullish about how important it is, frankly, that we execute on time. And so I would say that, in addition to the $75 million to have their $25 million in place, gives us over $100 million of capital. And if you look at our budget, we only need about half of that. So we're substantially over funded by probably $50 million more than what we actually need to deploy to do a Phase 1 and Phase 2, which positions us very well to make strides on Phase 3 in the next five quarters.

Eric, how should investors think about offtake agreements or supply agreements with customers who will potentially be buying this renewable natural gas from you?

Currently our strategy is to capture all of the $137 to $142 of revenue per MMBTU Million British Thermal Units by putting it into our own renewable natural gas trucks or our own dispensing fueling station on site. We, of course, can sell into the utility pipeline and market anybody in California but the economics of that are less attractive, the margins are excellent, it's certainly a fine situation to find yourself in. But we think that there's easily another, probably at full project scale, $15 million per year of revenue that we don't have to give to other parties in order to dispense R&D. And so we're working on a business model that would allow us to use as much of it as possible internally and then have one or two outside parties who would be able to use whatever's leftover. We're looking at this as 52 dairies over 60 months. And when we're done with 52 dairies, we're looking to optimize the return on investment, which potentially would mean that we consume all the renewable natural gas with our internal requirements for truck fueling and even potentially some in the ethanol plant, because we will need a small amount in the ethanol plant. So our model is to optimize the return on investment and to minimize dependence on third parties.

With respect to sort of the debt side of the story, I know you've previously highlighted efforts to convert a large portion of the existing debt to low interest debt. Is that something that could play out in 2021? Any updates on that front would be helpful.

There are two primary paths that we're taking before our existing bridge loan debt, which is what we've been using to build these projects. Number one is we have an ongoing program, we've already raised about $39.5 million under which is a approximately 1% interest rate program under EB-5, and we have an additional $172 million approved under the exemplar under that program. And yes, it's true. We could make tremendous strides on that anywhere from $25 million to $172 million of that could be funded this year. It's all really dependent mostly on how immigration policy is going. And under previous administration there were some significant concerns related to immigration policy, and so investors were reluctant to put themselves in situation of having invested but then couldn't get the paperwork process. I think that that tone has changed significantly. And so there is an upside opportunity where some amount of that $172 million is funded this year, and it all goes for senior debt conversion into 1% interest rate subordinated debt. Now why is that valuable, because we can put senior debt in place, it's just that senior debt would have $172 million of additional equity underneath it from the perspective of lenders. And so that's a process is ongoing. Again, we have almost $40 million of that capital we’ve already received approximately 1% interest rate. The second is that we have expected restructuring arrangement with a potential new refinancing could be easily tax free bonds over 20 year amortization. Certainly, there's an expectation the Department of Energy is actually serious about carbon reduction, and with Jennifer Granholm and Jigar Shah now in control of $40 billion of federal money, I am looking for them to demonstrate with cash that they're actually serious about their proposals about carbon intensity reduction in the United States. And as you know from our company, we are one of the few diversified below zero carbon companies in the market today, and $0.5 billion DoE funding similar to Tesla's $475 million funding would be the appropriate indication by the current administration that they're actually serious about carbon reduction. So we're giving them that opportunity and we'll see whether they have the foresight and appetite to respond to that opportunity. So debt restructuring with expansion capital stretched out over a very long period of time at low interest rates would be certainly the goal we'll kind of do that.

Just going back to the renewable natural gas digester deployments, Eric. Have you had any issues et cetera with those deployments, the two deployments you've completed, has everything been running smoothly relatively?

Everything's been running very smoothly. The nice thing about the renewable natural gas business is that there's functionally no operations, it's basically electric motors running, doing pushing gas around and through filters and that sort of thing. So we've had really no significant operational activities to tell you about because compared to running an ethanol plant where you're actually physically moving mash around 4.5 million gallons of fermentation, this is a very, very simple business. So we already have a full maintenance team, a full operations management team and everything. And so nothing here is -- it's been very, very difficult.

Thank you. Our next question is coming from Derrick Whitfield at Stifel.

Eric, perhaps at a high level with my first question, as you think about your five year outlook on Page 11. What are the greatest execution or regulatory risks embedded in this plan in your view? And I asked this because the market is seemingly over risking this plan in light of your valuation versus market peers.

The risk of execution here is really just frankly built around whether the US federal government employs the Renewable Fuel Standard the way Congress intended. The last time the federal Renewable Fuel Standard was enforced was in 2013. And in the last four quarters in which the RFS was enforced, our existing ethanol plant bought corn from the same suppliers, sold ethanol to the same customers and made $40 million of positive cash flow, over four quarters about $10 million per quarter. And that is the structure under which further investment and expansion of low carbon and below zero carbon renewable fuels was designed to occur. For a combination of political reasons, the renewable fuel standard was just not enforced for three years. They just didn't announce the renewable volume obligations. And then under the last administration, they actively issued waivers to oil companies that were deemed to eventually be illegal, just as not issuing volume obligations that seem to be illegal. So there's two federal court cases that said the EPA violated the law not one way but twice, and total 7.2 billion gallons of ethanol demand disappeared as a result. So the current administration has an opportunity and that opportunity is just simply don't violate federal law for renewable fuels, and you will have a very strong cycled investment in the over 1 billion tons of waste biomass at available in the US under $40 per ton. And that's the cycle we're and our company we believe is a leader in that cycle.

And as my follow-up regarding the cellulosic sugar extraction process from orchid waste wood. Could you speak to the event path for the commercialization of this development, and also speak to the downstream constraints, if any, and the utilization of this sugar in place of corn starche at your Keyes plant?

First of all, the economics of this are not reflected in our five year plan. So we are just disclosing has along the way to additional profitability of our Keyes plant. And if you look at our Keyes plant over the next five years, we're not expecting rapid [March] expansion in that business. So this is all upside to the five year plan. The next step of scaling this up is a pilot plant and we already have two different grants pending in the application process with the US Forest Service, a division of the US Department of Agriculture, to fund the pilot plant and we would be looking to get that construction going this year, be up and operating next year. And then after the pilot plant, the next scale up would be to commercial production. This is a pre extraction of sugar from waste wood. So think of that as coming in from the field and then first thing you do is you put it through a pre extraction process extract sugars. And then the reason why this isn't used widely in industry is that up to 75% of your waste wood is still remaining, it's a waste product from the sugar extraction. And unless you have something to do with just tons of waste wood, you never can do the sugar extraction economically. Well we happen to have it and it's called the jet diesel plant. And we use that waste wood to make the renewable hydrogen that is used in hydro treating edible oils and animals oils to make renewable jet diesels. We have an enormous use for -- or enormously valuable use, which is make renewable cellulosic hydrogen from the remaining waste wood. So it's not a waste for us, it actually becomes a very valuable feedstock for a jet and diesel plant. So our commercial operations would be scaled to occur at the same time as our jet and diesel plant operation startup.

Again, just to clarify, I think with every 10% increase in utilization of cellulosic sugar, which again is not your numbers, there will be $30 million EBITDA increase. Are there any limitations around how much of this sugar can be used at the Keyes plant?

Yes, our Keyes plant is basically a facility to seed sugar to yeast, that's basically what we're doing, it has to be today we're getting the sugar from starch that comes from corn. But if that sugar came from the six carbon sugar or the five carbon sugars that’s in wood, which comprises about 55% of the biomass in wood it’s C5 and C6 sugars, the yeast actually would not care whether it's 6 carbon sugar from corn or six carbon sugar from wood, it's biomass that originally was carbon dioxide from the atmosphere absorbed by either a tree material or a corn material and then those sugars are used. So the answer to your questions is it’s linear. In other words, there's no tapering off whereas we pass 20% someday the yield goes down to something, we're physically just not using corn starch based sugars, we take starch, we treat it with enzymes that breaks them down into sugars. We're just not using that for our six carbon sugar, we're actually using wood to produce the six carbon sugar and then the five carbon sugars as well. So there is some modification of the yeast if we were going to use, for example, 50% of wood material, be a higher percentage of five carbon sugars. And so we would be using an upgraded yeast but those are currently in the marketplace as well. It is directly linear. And what I think most people don't appreciate is that we spend almost $15 million per month buying corn, that's a variable price, so it goes around. But when you can displace 10% of something, it's costing you $15 million a month, that's $18 million per year, just in corn savings. And then you have carbon intensity reduction, which means that our ethanol is worth more. So we're selling our ethanol, including $1 per gallon tax credit at over $6.50 a gallon. So instead of selling ethanol at $1.80 or $2 a gallon, you're selling at $6 plus a gallon, same molecule but it just came from a different feedstock with lower carbon intensity. And then the last point is that you're getting a D3 cellulosic renewable identification number, which as of yesterday was worth $2.90 a gallon versus the six corn ethanol, which as of yesterday was worth a buck 30. So you have $1.60 of additional value in the D3 RIN that that is a driver of that, so low carbon fuel standard D3 RINs are driving $6.50 plus molecule instead of $1 or $2 molecule.

Extremely impactful. That's very helpful. Thanks for your time.

But I want to just repeat for everybody, that is not in our five year projection. It is all upside and as we get closer over the course of the year and into next year, we'll update people about timing, all of that 30 million per 10% is going to be an upgrade to our five year plan.

Our next question today is coming from Ed Woo at Ascendiant Capital.

Great, congratulations on all the progress that you made on all the various projects you're working on. Recently you decided or you announced that you made investment in an EV company? Are we going to expect you guys to do more in that area?

We're in the business of electric vehicles. The market just doesn't understand it yet. And here's why? When you make electricity, it doesn't just magically show up. It is actually as a molecule that's converted to electron. What are the molecules we currently use? We use carbon intensive coal and worldwide that is the most rapidly growing source of our electricity is actually coal, which produces a tremendous amount of carbon that goes in the atmosphere and I think everybody recognizes that's not a great idea. We use petroleum natural gas, which again, was carbon to the ground in the form of petroleum. And once it's combusted, it ends up in the atmosphere, I think most people would agree a positive 100 carbon intensity, which is higher than gasoline and higher than diesel is probably not a great way to make electricity either. But over 50% of electricity in the United States is made by coal, or petroleum natural gas. So our dairy renewable natural gas, which is negative 416 carbon intensity is an offset to the greenhouse gases going up in the atmosphere from coal and from petroleum natural gas. So the more electricity we make from natural gas but that comes from CO2 that was absorbed from the atmosphere into a plant, eaten by it and animal, in this case, a dairy cow, captured this biogas from the waste and then converted into electrons. The more of that we do, the greener that Tesla motor cars and lucid cars and electric trucks are going to be, because that's actually how you actually help carbon emissions, you don't help carbon emissions by running your Tesla motorcar on coal or petroleum natural gas, which is actually worse than gasoline or diesel. So we believe the word in the middle of…

Our final question today is coming from Marco Rodriguez at Stonegate Capital Partners.

Eric, I was wondering if maybe you could spend a little bit more time just on kind of the five year plan that you guys have sketched out in your presentation. Just kind of wondering if you can maybe help frame the total CapEx that would be necessary for you guys to ramp that particular plan. And if you can maybe talk a little bit about the timing of that CapEx would be kind of helpful. Thanks.

We haven't put out a balance sheet to line up with the five year plan. We will be working on doing that just to provide some guidance for everybody. We did include all those in our financial projection in terms of interest calculations and everything else. So the numbers are there derivatively through the income statement, but we think about it on a business unit basis. Dairy renewable natural gas, as we discussed described is basically just using USDA funding, which is about 10 year funding and it's very low interest rate. And the renewable energy for America program is limited to $25 million blocks. So you put, let's say, five dairies in a given project, they get a senior loan against it and then you amortize it out over 10 years. But because of cash flow is so strong, you easily are just building up a lot of cash from that entity. So what do we do with that cash? We use it to fund the next five dairies and the next dairies. So essentially, we're fully funded for the entire project, just on the first $75 million from the USDA and can go back and get another $25 million or $50 million as needed, but it's a self funding mechanism using debt. So the CapEx is kind of an interesting factor, but what's more interesting to me is, is there a dilution to shareholders involved? And the answer is no. There's no dilution to our parent company shareholders at all. Even in our preferred stock structure, it is automatically redeemable by cash flow and there's no interest rate or given the substantial just related to our preferred stock. So it's a self financing entity without any dilution of parent company and the numbers that you see in our…

We do have a question coming from Jordan Levy at Truist Securities.

Just wanted to quickly get your thoughts on the potential for the renewable hydrogen outside of feeding into the renewable diesel, renewable jet plant and how you see that kind of structure and technology fitting into a lot of the news flow we see on the hydrogen side of things?

We seriously considered whether we should just produce renewable hydrogen from orchard waste wood and have carbon negative renewable hydrogen as a product that we would sell in the market. We have some industry leaders that are on our Board of Directors and in our shareholder base. And after analyzing it, we determine there were less than 10,000 hydrogen vehicles in California and less than 50 fueling stations. We met with several of the large automotive companies that have hydrogen vehicles, and got a good sense of the timing of their fueling stations and their vehicle rollouts and determined that the amount of renewable hydrogen we could produce would significantly exceed what the market actually physically needs. And we would have to be betting that in some time in the future, one, two, three, four years, whatever it is that the market dramatically grows. So our decision was to instead use a waste product, a byproduct I guess would be more proper to say, from our Keyes ethanol plant, which is a very low carbon, nonedible distillers corn oil, and use very standard technology used by every single oil company in the world at their oil refining complex called hydro treating to take that hydrogen and inject it into corn oil, as you guys are familiar down there. And so we just made a business decision that we should spend the extra time, energy and money to end up with a low carbon/negative carbon jet and diesel. With no blend wall, there's approximately 12 billion gallons of diesel used by trucks in the US. And you can displace every single gallon and get LCFS credits for any of those that are in California and federal renewable standard RINs for its for the rest of it, you basically have -- California…

Thank you. That's all the time we have for questions today. I would like to turn the floor back over to management for closing comments.

Thank you, Kate. I appreciate it. Thanks, everybody for listening today. And we will be posting on our Web site, the audio as well as the transcript. And I do invite you to our investor segment of the Web site. We do have an earnings focus presentation for you there that has Slide 5 and Slide 6 that talks specifically to 2020, but also has a number of slides that describe our five year plan. And I would like our shareholders to be well informed about what the plans of the company are over the next five years. I think it will make you much more effective as shareholders in the company. And I also would look forward to talking to you. Feel free to send me an email and if possible, we will find time get on the phone and have discussion. Thank you for attending today's Aemetis earnings conference call. Please visit the Investors section of the Aemetis Web site where we'll post a written version and the audio version of this earnings -- Aemetis earnings review and business update. Okay.

Thank you. This concludes today's teleconference event. You may disconnect your lines at this time, and thank you for your participation.