Welcome to the Aemetis Third Quarter 2022 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, Paul. Welcome to the Aemetis Third Quarter 2022 Earnings Review Conference Call. Joining us for the call today is Eric McAfee, Founder, Chairman and CEO of Aemetis; and Andy Foster, President of Aemetis Advanced Fuels and Aemetis Biogas. We suggest visiting our website at aemetis.com to review today's earnings press release, the Aemetis' Corporate and Investor Presentations, filing with the Securities and Exchange Commission, recent press releases and previous earnings conference calls. The presentation for today's call is available for review or download on the Investors section of the aemetis.com website. Before we begin our discussion, I'd like to read the following disclosure -- disclaimer statement. During today's call, we'll be making forward-looking statements, including, without limitation, statements with respect to our future stock performance, plans, opportunities and expectations with respect to financing activities 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 available from the company without charge. Our discussion on this call will include a review of non-GAAP measures as a supplement to financial statements 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 three and nine months ended September 30, 2022, 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 or gain on debt extinguishment, income tax expense,…

Thank you, Todd. Aemetis is focused on producing below zero carbon intensity products, including negative carbon intensity renewable natural gas and renewable aviation and diesel fuel with renewable hydrogen and carbon sequestration. Our projects generate sustainable and innovative renewable fuels that benefit our communities and restore our environment, while generating tax and other credits from federal and state carbon reduction programs. We seek to reduce feedstock and operating costs by using waste materials and zero carbon intensity energy for the production of renewable fuels. Let's start by talking about the estimated $55 million unitholder redemption charge in the third quarter related to our Aemetis Biogas business. The unitholder redemption charges related to the repurchase of preferred units from the preferred investor in the Aemetis Biogas subsidiary. Before counting the redemption charge, Aemetis had a loss of $0.46 per share in the third quarter, which is within the range of expectations. The unitholder redemption charge is a noncash accounting entry that was taken in Q3 2022 related to an agreement that was reached between Aemetis and the biogas preferred equity investor to repurchase 100% of the outstanding preferred equity in Aemetis Biogas. The motivation for the expected redemption of the preferred equity by Aemetis includes several factors, including biogas industry transactions at high valuations that increased the value of the Aemetis Biogas preferred units as well as a discussion of whether a spin out of the subsidiary into a SPAC, IPO or sale should be considered. As most of you know, OPAL went public at a pre-money valuation of about $1.2 billion last year. And recently, Archaea was sold for $4.1 billion to BP, which included $800 million of Archaea debt. We believe these transactions are interesting comparables to Aemetis Biogas, especially considering the dairy renewable natural gas generates an estimated…

Thanks, Eric. With the recent closing of our first $25 million financing that utilized the USDA Renewable Energy for America program, the Aemetis Biogas renewable natural gas project in California is on track to deliver -- to deliver on in-service dates in Q1 2023 for several key projects. We are completing construction and commissioning of five additional dairy digesters. Our contractor has installed 40 miles of biogas pipeline and is now completing feeder pipeline interconnections as well as testing and commissioning of the final sections. We have completed construction and are now in the final testing for the centralized dairy biogas to RNG operating facility and accompanying PG&E gas interconnection unit. The new digesters pipeline, upgrading facility and utility interconnection are expected to be fully in service in Q1 2023. After receiving CARB LCFS carbon intensity pathways for the RNG, the five new digesters plus the original two digesters that have been in service since 2020 are expected to generate approximately 200,000 MMBtus per year of RNG. While we await LCFS pathways for credit generation, we plan to store the RNG produced underground to preserve maximum credit value. Due to the high volume of LCFS applications, the CARB review process and approval process can take from six to nine months. We anticipate working closely with CARB staff to help facilitate a timely approval. We are currently in the advanced stages of closing a second $25 million USDA REAP financing. Operationally, we are focused on briskly executing the construction of dairy digesters to fill the Aemetis Biogas pipeline and the centralized cleanup facility and interconnection unit. We have signed almost 30 dairy leases or participation agreements and have multiple additional dairies in process. While continued supply chain challenges for items such as compressors or rainy winter weather could temporarily slow down…

Thanks, Andy. Let's discuss our Carbon Zero sustainable aviation fuel and renewable diesel project in Riverbank, California. In December 2021, after three years of negotiations with the City of Riverbank and the U.S. Army, Aemetis signed the acquisition of the 125-acre Riverbank Industrial Complex under a sale and lease agreement. The Riverbank site is a former U.S. Army ammunition production facility with 710,000 square feet of existing manufacturing space, a rail loop with storage base for 120 railcars on site, a 20-megawatt electricity substation and 100% zero carbon intensity renewal power with a direct power line connection to a hydroelectric dam. Earlier this year, Aemetis took operational control of the Riverbank site for construction of our sustainable aviation fuel and renewable diesel plant as well as the construction of the Riverbank portion of our CO2 sequestration well project. Additionally, Aemetis has completed the purchase of 24 acres at the Riverbank site and built a heavy equipment access road and well drilling pad for the soil characterization well and the carbon capture and sequestration CO2 injection wells. We have signed and announced more than $3.8 billion of sales contracts with Delta Airlines, American Airlines, Japan Airlines, Qantas and other airlines. We've now completed offtake contracts for about 45 million gallons per year, a blended sustainable aviation fuel to be produced at the Riverbank plant. Under the sustainable aviation fuel sales agreements, the Neat SAF will be trucked from the Riverbank production plant to the San Francisco Bay Area for blending with jet fuel. The blended SAF will then be delivered via pipeline to the San Francisco Airport for use by airlines. Incentives included in the pending federal legislation, I should say, that now past federal legislation, expand the market for sustainable aviation fuel by allowing a price to airlines that is…

Thank you, Mr. McAfee. We will now be conducting a question-and-answer session. [Operator Instructions] And the first question is coming from Derrick Whitfield from Stifel. Derrick, your line is live. Please proceed with your question.

Thanks and good morning, Eric and team.

Thank you, Derrick. Good morning.

Good morning. First and foremost, congratulations on closing the USDA REAP. I know it was a lengthy process for you guys and complex based on our discussions with the industry. Perhaps for the benefit of investors, could you share with us some of the lessons learned from the first loan and then your expectations on timing for the next few? It seems to us that, that process is truly earned out financing the expansion of biogas business as significantly derisked. And finally, if I could ask, maybe if you could also touch on financing plans and the levers you have at your disposal for the Riverbank RDA SAF facility?

Good. We look at the first round that we closed of $25 million as being a onetime education process, both of Aemetis as well as, frankly, introducing the project to the commercial lender as well as USDA staff. And what we're doing now is just repeating the project documents, but not really doing a reeducation of the array of environmental consultants and other kind of feasibility study consultants, all the people that work on our side, as well as the USDA who's now very familiar with our project, and we don't have to replicate that process for sure, and the commercial lender who is very familiar with our entire project now with the 40-mile pipeline and other kind of things that are sort of onetime learning opportunities. The paperwork itself is largely just changing locations and amounts. It's not really changing the structure of our documents, and all these are special purpose entities that are set up that we borrow $25 million, which is a max under the REAP program per entity, and we contribute about $8 million of equity. This one, we contributed about $11 million of equity to the SPV in form of assets we've already built. So we are ahead of this equity investment significantly. We have about $53 million of both our preferred equity that's been invested as well as the grant center in the project. So that's a whole lot of SPVs at only $8 million of equity required for SPV, and SPV is $25 million of additional capital. So as Andy mentioned, we're working on closing the second funding here in the next month or 2, and then we'll do the third thereafter and a fourth and fifth. And it's just something we've already put the equity in. We're ahead of it on the…

Eric, just to clarify on the USDA loan, if I recall, that comprehended a 45 million-gallon facility and is expandable. Am I thinking about that correctly?

That's correct. And we're building a 90 million-gallon facility. So your math is accurate, and that we'll be doing a larger transaction than the original because that was only for -- we were originally going to do this in two phases, but the amount of interest from our customers caused us to actually double the capacity and build in just one phase rather than two phases.

And as my follow-up regarding India, it was certainly nice to see a contribution from the business even if it was only for a couple of weeks. Could you comment on your expectation for biodiesel sales in Q4 and your view on when refined tallow production could start to show up in your financials and how that business can grow over the coming years?

Q4 is already one-third done. And as I described, the orders we got for August, September got shifted to the middle of September and into October. So we have very good visibility on -- our October deliveries are done. And so we're looking at -- we announced a total revenues from all sources of $41 million, and we have shipped a majority of that already, and we still have two months to go in the quarter. So the quarter is looking very strong from a revenue perspective. We are waiting for the oil marketing companies who were expected to come out with the November tender. So we could just keep on shipping, right? And so we are expecting that to happen in November, and that will materially increase the Q4 revenues that we've already booked. So we are seeing, as I have mentioned, sort of a burdensome procurement process, but they are definitely making progress and continuing to move forward and something that will allow us to run our plant at full capacity. And I think as the OMCs learn how to do this, they'll be more proficient at it. And we won't see this sort of a start-and-stop situation that we see now with a couple of weeks of delays coming in. The tallow business is a -- facility has already completely constructed and capable of operating. We're currently just running our offtake agreement negotiations. There are approximately five renewable diesel companies in the United States that are currently under discussion. So we're working on getting that worked out in the first quarter next year and begin shipments.

Thanks Eric, thanks for your time.

Thank you.

Thank you. The next question is coming from Jordan Levy from Truist Securities. Jordan, your line is live. Please proceed with your question.

Thanks so much for taking the questions. Maybe starting on the biogas side, exciting announcement about the pref deal there. But I think it makes a lot of sense given the activity in the market, could you just provide a little more detail on the financing for that transaction and how we should expect that to kind of play out from a timing perspective?

The financing of the buyout or the financing of the underlying project?

Yes. Yes, the buyout.

Yes. We have a debt instrument opportunity, and we have an equity instrument opportunity. We have a number of large counterparties starting with oil companies, but going to strategic trading and other companies who are very interested in that preferred. This is negative 426 carbon intensity product. It's a dairy renewable natural gas. It's not positive 30 landfill natural gas. And I would actually say we're -- we're just managing which relationship we want to have, maybe even extend into other factors of our business because our counterparties all have strong interest in sustainable fuel and renewable diesel as well as even low carbon ethanol. And so we've been spending a lot of time building long-term relationships. And I think this preferred is really the first opportunity people have to come in, in a meaningful way. And I expect there will be potentially 100% preferred structure, maybe 100% debt structure. But either way, it's going to be very accretive to our interest in the biogas subsidiary. What we're doing is we're cashing in on the comparables of that OPAL and then Archaea created for us. And this is the first opportunity for institutional operational companies to get into this business in a meaningful way with Aemetis.

Got you. That makes sense. Maybe bouncing over to the SAF side. Given the provision in the IRA for sustainable aviation fuel, I think it might be helpful if you could remind us how the offtake agreements you've signed for SAF and renewable diesel are generally priced and how the federal and state incentive flow through those?

The structure is a clean structure in which until the fuel passes the flange into the customer's tank, any tax credits, Low Carbon Fuel Standard California credits, federal renewable fuel standard credits, other incentives, even ones in the future we don't want to know about, all 100% in near to the account of Aemetis. Oh, I forgot the actual value of the molecule that we're selling, the $3 plus dollar per gallon, all that is to Aemetis' account. And we received approximately a 10% premium above the price of jet fuel. So the value of this contract structure for our customer is they can hedge jet fuel, add 10% as the premium, but they get all of the airline incentives starting with CORSIA, C-O-R-S-I-A, which is the airlines trading among themselves, if they're -- let's say, somebody has access to SAF from Aemetis and they have more than what the CORSIA requirements are, they can sell those credits to other airlines. And so doing that 10% increase, let's call it, $0.30, $0.35 per gallon, for every 10 million gallons, it's about $3 million or more being paid to Aemetis, can be offset by the sale of credits by our customer to other companies. So there's a mechanism which they're paying us a premium, but then they have their own trading markets, some voluntary, some not so voluntary that, for example, boarding penalties in Europe, that can help them actually get back to the price of jet fuel. So at the end of the process, it's possible that our customers actually are largely paying the price of jet fuel, which is fully hedgeable and of course, extremely attractive to have Scope 1, Scope 2 and even Scope 3 emissions reduced from buying SAF from us.

Very helpful. Thanks for taking my questions, Eric.

Sure. Thank you Jordan.

Thank you. The next question is coming from Amit Dayal from H.C. Wainwright. Amit your line is live. You may proceed with your question.

The 180 million-gallon per month, is that for the kind of a merit that is out there? And they're [Technical Difficulty].

Amit, we're getting about 25% of your question, but the part that I got was whether the customers in India will continue to have the 100-plus million gallons per month of demand. They're seeking a 1 billion -- 250 million per year supply of biodiesel in India, which is a 5% blend of the 25 billion gallons of diesel in the country. And there is a tax passed into law earlier this year that is currently scheduled to go into place in April of 2023, so approximately five months from now, that actually taxes diesel an additional $0.10 per gallon equivalent if it's not blended with biodiesel. So if you blended a 5% blend, that is equal to $2 per gallon of biodiesel additional price that could be paid to us in order to avoid the payment of that $0.10 per gallon tax. So we do perceive that there will be this ongoing demand by oil marketing companies as well as the private refiners in India to not have to pay a $0.10 per diesel gallon penalty for failure to blend biodiesel at 5%, and that will help this be a much smoother market, especially with a cost-plus structure in procurement by the OMCs.

That was my another equation. [Technical Difficulty] just these seven are completed [Technical Difficulty].

As Andy described, the end of this year, we'll have seven digesters in the commissioning and testing process expected to be what's known as in-service. We accepted from our contractor as meeting performance specifications in the first quarter of next year. We have an additional five that are already in the process of construction, permitting, environmental approvals, that sort of thing. So we're not waiting until these are in service in Q1 before we do the next five. We're actually in the process of those next five. What's really important for all of us to recognize though is a long lead time item here was the gas utility interconnection unit with Pacific Gas & Electric, which is in commissioning and testing now and expected to be in service in the first quarter and the centralized gas cleanup and the 40-mile pipeline. Those are the long lead time items. It took us probably three years to get the PG&E unit that had to be built by them, permitted by them, managed by them. It's their project. We just put up the many millions of dollars to build it, but they actually had to do it. That's behind us. What we are doing now is building rectangular dirt football field-sized digesters in these locations that have already been signed with customers. It's a much more rapid process. And with the same contractors doing the same thing they've already done 7x. So our ability to accelerate now, especially with the financing relationship with USDA working smoothly, I think is going to meet or exceed expectations in 2023.

Thank you. And the next question is coming from Matthew Blair from TPH. Matthew your line is live.

Hey Eric, congrats on the India biodiesel program going again. Could you share the EBITDA margin on those gallons in Q3? And I know it's just going for a couple of weeks, is that EBITDA margin, is that going to be a good run rate for Q4 and beyond?

We're operating under the same contract for the Q4 deliveries we've already completed. So that was the contract that was slated for August and September got pushed back to 15th September and through the end of October. And so yes, it's the same margin, so you could just apply the number that was applied there, 11 million for the quarter, 2.8 million. That's all linear to what we continue to ship in October. We have approximately 1.5x of month's revenue in October is what we saw in the two weeks in September. So easy math to do there. We do have winter specifications. So in the winter, we use a different feedstock in order to have lower cold flow plugging point, which is the ability to handle colder weather. So we do expect lower margins in the winter time. We have, however, expectation that we'll see the revenue flow continue. And in about time we're in mid-February, we're out of the winter specs. India is a very warm country. And many of our companies -- customers start actually buying early on that. So there's a -- just a -- it's actually the procurement process is our primary issue in India, just moving smoothly to an ongoing process of every two months getting purchase orders on time is really the only issue. It's not really production for us, or even the winter specs, it's really getting the OMCs to deliver on these tender offers.

Great. Thanks. And then on the RNG side, if I heard you correctly, the long-term target is 60 dairies and 1.65 million MMBtu of dairy RNG production. And then it sounds like you have seven digesters running by the end of the year with another five under construction. Do you have any more digesters that you've won, projects that you've won that you haven't started construction on yet? I'm just trying to get a sense of how far along are you on the 60 digester target?

Andy commented, we have about 30 signed. There's let's call it a participation agreement. We have three side, we have additional working -- right now, actually, it's the opposite frustration. Our dairies are signing and then saying, but wait a minute, you can't start building this thing for mid-2024. You're 18 months plus out before you're going to be building this thing. Can't you guys hurry this thing up? We are targeting 66 in our 5-year plan that was published earlier this year. We'll be updating that in February. But about half of that is already signed in some phase of these agreements, and we're rapidly looking to fill out the other half of it over the next couple of years. But again, the frustration by the dairy owners is exactly the opposite, which is wait a minute, it's a five year plan, that means I got to wait four years before you're going to build this thing. Can't you guys hurry up, and we have every intention of doing so. Just to clarify the numbers, the seven operating in final commission and test go in service in Q1 as in-service run rates, we expect approximately 200,000 MMBtus per year. And that would then be incremented by an additional five plus whatever we start next year. So our 5-year plan has an annual number, and that annual number would be seven at the end of this year and then it increases next year.

Got it. Thank you very much.

Yes, thank you Matt.

Thank you. The next question is coming from Dave Storms from Stonegate. Dave your line is live. Please proceed with your question.

Perfect. Thanks for taking my question. Just touching back on the current credit environment. How are you seeing the -- being able to get on things like the USDA REAP program as either a competitive advantage against industry peers or conversely, again, that same credit environment being maybe an issue for end users going forward?

We have credit in the way of loan guarantees. So we use the loan guarantee process to build the project. And then the tax credit, specifically production tax credits and investment tax credits, basically reimburse us for the cost of construction. In biogas, we're eligible for up to a 50% investment tax credit. So as we make investments to build assets, we then can submit for up to 50% tax credit for that onetime investment of building the asset. On a go-forward basis, we then get production tax credits for producing natural fuels. Our ethanol plant on the clean fuels initiative is expected to be eligible for some tax credit. Certainly, biogas, as a low carbon fuel, has potential for that sustainable aviation fuel, et cetera. These are production tax credits. And then in carbon sequestration, we have a different set of tax credits with Direct Pay features and the like. So now those tax credits are separate from the loan guarantees. Loan guarantees basically make our debt much less expensive, and far more important than that is about the time that we have to repay it. Most commercial banks today would be talking a 5- to 7-year term. That's almost impossible to build a biofuels facility and have it economic that you pay back all your debt in five to seven years. So a 20-year term and a year or so during construction did not even have to pay any principal is an extremely attractive structure for building these assets. And that's exactly what we closed with the USDA in the Renewable Energy for America program, and that's what we're going to continue to do in multiple phases of that program.

That's perfect. Thank you.

Thank you, Dave.

Thank you. [Operator Instructions] The next question is coming from Ed Woo from Ascendiant Capital. Ed your line is live. Please proceed with your question.

Yes, congratulations. My question is, what is your outlook for oil price and gasoline prices and its impact on demand for ethanol?

We think that oil prices are largely under the control of OPEC+, which means OPEC plus Russia. And there are only a couple of guys that have to cooperate to make that happen, and they're sitting in Saudi Arabia and in Russia largely. And they have expressed deep concern about letting the price of crude oil fall below $80. And they said that two weeks ago when they told Joe Biden, nope, I'm not going to increase production. I'm going to actually decrease the production by 2 million barrels per day in order to drive the price of crude oil up. It has fallen down into late $70s and they wanted to push it up above $85. So I think we're in an environment in which as long as those entities are reasonably cooperative, we've got $80 plus crude oil prices. And in the United States, we have refining capacity. Remember, it's not crude oil that you buy at the pump. It's actually gasoline, diesel or sustainability fuels, you have to add the profit of the refineries. Well, in California alone, we went from 22 to 15 refineries. So refineries have tremendous pricing power as you see in the, I think, it was 500% increase in profitability of the major oil companies announced here in the last week or 2. So that oil refining margin is an additional price at the pump, which is comparable to what is actually relevant to selling our biofuel. So put in crude oil prices at $80 or higher and then high refining margins according to the CEO of Chevron for at least three years, and that's a relatively stable oil pricing model for us to produce against. And then, of course, with the Inflation Reduction Act, we're getting encouraged to make lower and lower carbon fuels, which is the point of those incentives. It's to make dramatically lower carbon intensity fuels compared to these petroleum products.

Great. Thanks for answering my questions. And I wish you guys good luck. Thank you.

Thank you.

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

Perfect. Thank you. Thanks for Aemetis shareholders, analysts and others who joined us today. Please review the company presentation and the investor presentation that's posted on the homepage of the Aemetis website. We look forward to talking with you about participating in the growth opportunities at Aemetis.

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

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