Welcome to the Aemetis Fourth Quarter 2022 Earnings Review Conference Call. [Operator Instructions] 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, Matthew. Welcome to the Aemetis Fourth Quarter and Year-End 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 the 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 today, I'd like to read the following 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 are available from the company without charge. Our discussion on this call may include a review of non-GAAP measures as a supplement to financial results based on GAAP because we believe these non-GAAP measures serve as a proxy for the company's source or use of cash during the period presented. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the 3 and 12 months ended December 31, 2022, which is available on our website. Adjusted EBITDA is defined as…

Thank you, Todd. Aemetis is focused on producing below 0 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. Aemetis grew revenues 21% in 2022, representing $45 million of new sales. For 2023, we are excited about the strong and growing positive cash flow expected from biogas, biodiesel and renewable oil feedstock refining facilities coming into full production this year, driving the strong growth in revenues and cash flow planned for the next 5 years. Interestingly, all of our India biodiesel, glycerin and feedstock refining facilities are already built and are debt-free. Due to the time delays related to carbon pathways for biogas production, all 6 of the 2023 California biogas facilities that are expected to generate revenues this year are already built and are awaiting approval of their LCFS pathways. Until the California Resources Board approval is processed, and we are able to begin selling into the renewable natural gas market as full LCFS value, we will be storing the renewable natural gas that we produce underground and carrying it on our books as inventory. As we will discuss later this month, we are completing a maintenance upgrade cycle for our Keyes ethanol plant that save millions of dollars while accelerating our reduction of energy costs and driving the lower carbon intensity of our biofuel by installing a new decision control system with artificial intelligence capabilities, along with several other important process upgrades. The…

Thanks, Eric. With the recent closing of our first $25 million financing utilizing the USDA Renewable Energy for America program, the Aemetis Biogas renewable natural gas business in California delivered in-service dates in Q1 2023 for several projects. We completed the installation of 40 miles of Biogas pipeline. We completed commissioning of the biogas to RNG upgrading facility. We completed the commissioning of the RNG interconnection unit with PG&E's pipeline. We completed 4 new digesters and now have 6 fully operating. We will complete construction on the seventh digester by the end of March with 2 additional digesters slated for completion by midyear. Additionally, we'll begin construction of up to 10 more digesters by the end of 2023, depending on the timing of permitting and USDA financing. We've also signed up a number of new dairies and now have approximately 40 dairies in the Aemetis RNG network. After receiving CARB LCFS carbon intensity pathways for this RNG, these 7 dairy digesters are expected to generate approximately 200,000 MMBtus per year of RNG. We have submitted our RNG production data to obtain LCFS pathway approval that will allow us to begin generating LCFS credits. While we await the approval of LCFS pathways, we are storing the RNG underground and carrying as inventory, as Eric mentioned. Due to the high volume of LCFS applications and limited staff resources at CARB, the CARB review and approval process can take up to 1 year or longer but we anticipate working closely with CARB staff to help facilitate a more timely approval. Operationally, we are focused on executing the construction of dairy digesters to fill the Aemetis Biogas pipeline, the centralized biogas to RNG production facility and the PG&E interconnection unit, all of which are in operation now. To date, Aemetis has been awarded $23…

Thank you, Andy. Let's discuss our carbon zero sustainable aviation fuel and renewable diesel project in Riverbank, California. A year ago, Aemetis took operational control of the 125-acre Riverbank site for construction of our sustainable aviation fuel and renewable diesel plant as well as the Riverbank portion of our CO2 sequestration well project. 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 have now completed offtake contracts for about 45 million gallons per year of 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 petroleum jet fuel. The blended SAF will then be delivered via pipeline to the San Francisco Airport for use by airlines. In addition, we signed a $3.2 billion renewable diesel sales agreement to deliver 45 million gallons per year under a 10-year sales contract with the major travel stop chain for its Northern California locations. Incentives included in the recently passed IRA legislation expand the market for sustainable aviation fuel by allowing a price to airlines is about 10% higher than petroleum jet fuel and is partially or even entirely offset by CORSIA carbon credits generated by the airlines. We look forward to completing engineering and permitting in order to begin construction of the Riverbank renewable jet diesel plant later this year. Let's review our subsidiary, Aemetis Carbon Capture. Aemetis currently captures the 150,000 metric tons per year of CO2 emissions from our ethanol plant near Modesto, and reuses the CO2 for local customers. In October 2020, the Aemetis ethanol plant in California was identified in a study issued by Stanford University…

[Operator Instructions] Your first question is coming from Jordan Levy from Truist Securities.

Eric, maybe just to start out on the investor deck, you outlined your estimates for the tax credits for each of the segments under IRA. Knowing there's a lot of details still being worked out with the agencies, can you just give us your high-level thoughts on how you're thinking about monetizing those tax credits within each of the segments?

The IRA provides for what we call a certificate mechanism for investors to participate in the tax credit value. Under solar and wind, it's an allocation mechanism, which they have to actually become an owner in the project. The transfer of the certificates 1 time to an investor opens up a wide array of potential buyers. We currently are working with the brokerage firm that has done over $6 billion of state and federal tax credits and insurance broker that has over 60% market share in the guaranteeing of tax credit instruments for investors and directly with multiple investors who have hundreds of millions of dollars per year of tax liability. I think that over the course of the next 12 months, greater clarity will come in from the IRS about exactly what forms to file for the transferability, et cetera. But clearly, there is a strong amount of investor appetite at this point in time and a desire to do larger transactions. And so we happen to be in a unique position of having more than $24 million of tax credits we generated in January and in February. And so we are negotiating actual transactions where many other parties are more projecting potential future investment or production tax credits.

And maybe just as a follow-up, going back to your comments, and I appreciate the color you gave on the preferred equity for biogas. Maybe if you could just expand a little on what that process looks like as you enter midyear and maybe look to do a transaction there and how we should think about sort of the moving pieces there?

I think the best way to look at it is that Third Capital is seeking some liquidity from a very, very successful investment that they believe that they made. Certainly, when you look at the comps, it's a very successful set of comparables. And so we have decided to pick up some additional acceleration growth capital that will enable us to not only achieve our 5-year plan, but probably even exceed the pace of building the digesters, et cetera, but looking to do it at very low or even zero dilution to shareholders. So we've engaged investment bank. We have operating documents. We have investors already interested and we're going through a process that I expect in Q2 will result in a refinancing of the Third Eye preferred as well as providing some additional growth capital. And currently, we're expected to take -- we're expecting to have low or zero -- our target is zero dilution to shareholders.

Your next question is coming from Amit Dayal from H.C. Wainwright.

Eric, would you mean giving us a bridge to your working capital and CapEx needs for 2023. There's a lot of sort of investment activity going on as well as just your own operations are growing along with it. So just wanted to understand how we are looking to bridge working capital needs and other operating cost needs in [2023]

Thank you, Amit. The $100 million credit line we signed with Third Eye Capital approximately a year ago has been approximately 50% utilized. There is $50 million of potential availability that's, of course, depending on combined with terms and conditions of the arrangement. But we perceive that as being attractive low-cost capital and is slated to fully fund all the -- what you could see as equity in our project companies for this year. On top of that, we have 3 additional $25 million funding totaled $75 million from USDA. That funding includes working capital and contingencies that we don't utilize that adds up to millions of dollars of available funding for the working capital activities of the company. And then positive cash flow. As we reported today, our India biodiesel business generated about $8.3 million of margin in this most recent OMC sales, oil marketing company sales in India. We are going into a process that should result in about 9 months' worth of sales. April 1 is when the tax begins, we believe that's when shipping starts under our renewed contracts with oil marketing companies. And that business alone is a business that can generate several million dollars a month of positive cash flow. And has proven itself capable of generating $8 million in less than 2 months. So on top of that, we have our India tallow business, where we're expecting shipments to begin. That's a 50 million-gallon of opportunity at $6 a gallon. We won't get to full production this year due to just the supply chain, but that $6 and 50 million gallons is what the opportunity is there, and it's a very strong margin business. And biogas, our 90 days of testing for production of renewable natural gas and injection underground was completed. The process of CARB approval is pending and we would expect mid this year to sometime later this year to begin generating a significant amount of cash flow from biogas, partially because we're storing the revenues underground right now. So when they come out of the ground, they tend to be accelerated. So it's faster than the pace of current production. And where we have 7 digesters. We're looking to substantially increase that this year. So our positive cash flow biogas business is a contributor to the overall needs of the company. So all in all, we're an operating company that has operating cash flow, and then we increment that with the Third Eye Capital credit line and long-term financing from the USDA.

Your next question is coming from Derrick Whitfield from Stifel.

Eric, we and several investors for that matter, admire the synergistic nature of your business, your unrelenting focus on avoiding dilution and the unappreciated nature of your assets. Having said that, the stock is under immense pressure as a result of the capital plans for the Riverbank facility and the implied interest on your Third Eye reserve facility. Given the capital-light aspects of your business in India and the Keyes ethanol business from here, the huge PTC tailwinds you have for both RNG and ethanol in the U.S. in 2025 and the fact that you could build and refinance RNG with REAP money, is there a scenario where you could delay funding for the RD SAF business by a year or carve it out to remove the implicit threat?

We receive that project funding as being basically unrelated to our other business activities. It is a project funding. So the way we've currently slated it, we have about $40 million, we've already invested over the last 5 years in the project. And the coming together, project financing is primarily long-term debt and preferred equity. It's not a parent company transaction, it is a subsidiary company transaction. We've already put in our $40 million of equity. So the constraint for us actually is engineering and permitting phase that we are looking to complete. And then we've already signed USDA 9003 Biorefinery Assistance Program, low commitment letter. We have already shown that we can do renewable energy for America program funding, again, guaranteed by the USDA and other producers in California have been very successful with municipal tax-free long-term financing. So we are -- we believe that it's not a transaction that's, frankly, even related to the parent company dilution at all. We've already done our investment. It's primarily just a procedural process to complete permitting and complete the financing. So the timing, unfortunately, is going to run at the pace of those programs. So any delay is really not our effort to try to minimize dilution because we're not actually structured to have any dilution in the transaction, it's all just procedural. And we do have $3.8 billion of airlines and $3 2 billion of a travel staff company, all looking for product in 2025 and we're currently on track to be able to achieve that. So we continue to push forward aggressively to achieve our goals of minimizing dilution but also achieve the expansion plans.

And Eric, just to be clear on that point, some of the long time -- long lead time items, they would not be procured or advanced until you have the project financing in place?

That is correct.

Okay. And then as a follow-up, I wanted to ask if you could offer color on the dairy RNG competitive landscape. And specifically, are you seeing greater competition as a result of the LCFS pricing CARB is suggesting or the PTC impact on dairy RNG volumes out in 2025?

The dairy RNG business is a very local business. It's basically 1 dairy 1 pipeline and then our process of turning into renewable natural gas. The dairies actually produced biogas, which is 40% CO2 and has a substantial amount of processing and interconnect issues that have to happen. So the state of California will be definitely attracting more growth and investment. But our particular local area where our 40-mile pipeline is in place. We have almost 40 dairies signed many of whom are coming in now that they're sitting in the neighborhood -- neighbors involved. Andy, do you have any comments you want to make about RNG?

No, I would affirm that, Eric. I would say to your question, Derrick, there are more people that are interested in developing projects in California. I think the scoping plan will have a lot to do with how many out-of-state folks want to come and really play in California. You've got some that are already here. I mean the 3 main established developers in state, obviously, are Aemetis, [MOS], and CalBio but we have seen some other state guys come in. But I think a lot is going to have to do with how the scoping plan ends up and what CARB does in terms of the program going forward.

Your next question is coming from Manav Gupta from UBS.

Eric, my question is based on Slide 18. I think the Slide 18 is showing 7 dairies right now and then 66 by year-end 2027. should we -- given the work you've done on pipelines and stuff, should we assume a linear progression? Or is there any reason these come on in clusters?

The best way to look at that is on an annual basis because of the pace of permitting and primarily CARB approvals to be frank with you, CARB very possibly will be approving 4 of our digesters all at once. So from a financial investor perspective, it would look like we built 4 all at once. What really happened was we're building at an average pace of 1 or so a month, and then the CARB approvals come in, in sort of bunches. So we are being what I think is accurate and that it means we're being conservative by estimating a 14-month delay between when we start producing RNG and storing it underground and when we actually receive our CARB approval. So in our 5-year plan, we show virtually no revenues in the current 2023 year because we're expecting that our CARB approvals do not occur until the end of the fourth quarter, and revenues really start next year. We'll get some more evidence here over the next few months as the pace of CARB actual approvals. And I doubt if we'll update our 5-year plan. But you should look for press releases about our CARB approvals and that will give you a sense of what the actual is. Our 14-month projection, we think is conservatively accurate.

Okay. And then the second question is, Eric, I mean, yes, you are -- you want higher carbon prices but there is an opposing force out there. There are the refiners out there who love this low carbon price environment, and they're pushing for a lower carbon price. So I'm just trying to understand like how do we go from here? What really gives you confidence that ultimately CARB will swing to your side and do things to raise the carbon price versus refiners who are out there saying you do this and you cause the gasoline price to go up. We don't want you to do that. So if you could talk us through that.

Andy, do you want to comment?

Yes, Manav, this is Andy. Great question. I think CARB has heard very clearly over the last year from renewable producers across different technologies, whether it's RNG or other liquid fuels or hydrogen or you name it, this low LCFS price is bad for everybody. And the only group at rewards are the people who are the petroleum, 90% mandated petroleum use in the United States right now. And I don't think CARB wants that look. I don't think that's what they desire to do. I think it's part of the rescoping plan is addressing that. And as you saw, I'm sure, Manav, you were probably on the workshop a couple of weeks ago, they showed a slide that showed a dramatically different result as far as the LCFS pricing over $200. So clearly, that message has made it through. I think now it's balancing -- making the program more aggressive, which they announced they're going to do. We'd like to push them even further. Rather than 30%, we'd like to see 35%. We'd like to see that -- really take that aggressively. But I think a lot of it has been sort of waiting to see what's CARB going to do with this rescoping plan. And I think now that, that's becoming more clear. And you're going to see a lot more of these projects moving forward. So yes, it's obviously something that we've all been frustrated with, but I think we and other producers have spent a lot of time having, I think, very good constructive discussions with the CARB staff about this. And again, at the end of the day, it's not a good look for CARB or any other state that the oil producers are the winners here. And so I think that process will work itself through and reverse itself here over the next 12 months.

Last question. If CARB puts in provisions, which basically mean that in-state dairy RNG is fine, and out of state dairy RNG is not so good. Does that benefit you disproportionately?

You're talking about the book and claim proposal that they're considering. It's good for the -- yes, we think even as an end-state producer, I think our view is that it's good for the industry to have open borders, so to speak, when it comes to natural gas production. We don't necessarily support that proposed change to book and claim. It's important for California to recognize that a lot of the renewable natural gas that's currently being used in the state is being brought in from out of state. In-state production is now starting to catch up but really the foundation of this program was helped along by out-of-state producers. And at the end of the day, what they're doing is providing environmental benefits to the area wherever they're doing it. It's helping to support California's program. So we don't think it's a great idea to erect those kind of barriers. And I'm not even sure -- I mean there could be some potential benefit to us, but I think looking at it from a larger perspective, Manav, we think it's good to continue to support out-of-state production. If California wants to reward in-state producers with sort of a localized health impact credit, we support that, and we've made that clear to CARB. And I think out-of-state producers have actually told us they support that, too. So our view on it is that we think it's good for the industry to have a fungible network of gas produced -- production across the country supporting California's goals.

Your next question is coming from Matthew Blair from TPH.

I was hoping to ask about this [8,400] MMBtu of external RNG sales in the fourth quarter. It looks like that's the first quarter that you've had external sales. So I guess, number one, does that imply that you did receive an LCFS pathway that allows you to have external sales? And then number two...

No. Just -- yes, just to clarify, that's gas that has been sent to storage. And obviously, we go through a process where we're keeping the environmental attributes of the gas. But we do put that gas into storage. So there is incremental revenue that comes out of doing that. But no, we have not been approved our pathway yet. We were approved for -- the initial 2 dairies were approved for utilizing the gas in the ethanol plant. But now that we're interconnected with the pipeline, we have to go back through the process of getting all of the -- currently, the 6 dairies that we have operating through that LCFS pathway.

Okay. So that was going to be my follow-up. So -- and that's why the RNG I guess, approval, the pathway approval wouldn't come through until, I think you said mid to late 2023.

Yes, we're hopeful. It's a process that has currently got something like over -- I think, over 50 or 55 applications that are in the queue right now. And I know CARB has heard a lot of input on that from producers as well, and they're working to improve that by adding additional resources. And then one of the other proposals in the scoping plan is to move to a Tier 1 application process, which will greatly expedite that. That unfortunately, that's not going to be until next year, but that's something hopeful to look forward to as we continue to build out our development is that we'll go into a more streamlined Tier 1 application process that should really help alleviate a lot of these delays that all producers and developers have been seeing.

Okay. That's helpful. And then my follow-up is on the India biodiesel segment. We're a couple of months into the first quarter. Could you talk about your overall expectations for the first quarter here. I know you mentioned that coming in April, there could be some nice tailwinds on both biodiesel sales and the glycerin -- sorry, not the glycerin, the tallow exports. But what are your expectations for Q1 for India biodiesel?

Current expectations is that this has proved positive that the India government is very talented at doing things slowly. But once it actually occurs, it's very, very good for us. So I do not expect anything out of the first quarter. I do expect very good news out of the first quarter. So since the market hopefully will be informed about what's coming in April, there will be good news in the first quarter. But other than buying feedstock, which we have done, we bought almost $10 million worth of feedstock and operating the plant, which we have done to be able to get ready for shipments. The actual revenues that occur upon delivery won't start until April.

Your next question is coming from [Jed Fareed] from Alliance Bernstein.

Derrick already asked my questions.

Your next question is coming from Ed Woo from Ascendiant Capital.

Congratulations on the progress. My question is on India. It looks like you guys are getting back to relatively normal operations and you mentioned that there's no debt there. Have you guys considered any type of monetization of that asset since it seems to be a very valuable asset that has no debt.

Our current monetization of it is just getting it to full production, and that has proven to be a very, very positive cash flow business for us in this new cost-plus environment. And tallow exports will be a new source of revenue for us. So that's our current strategy to generate cash from those assets. However, the India stock market has also been very interested in the new $0.10 per diesel gallon tax that gets implemented in a couple of weeks in India. And we are the leading biodiesel company in India, therefore, the leading beneficiary of a 5% blend of diesel with biodiesel and -- I'm sorry, biodiesel, diesel. So we do anticipate there will be certainly opportunities for an IPO or other kind of private equity structure that will come out of that. But our current goal is every dollar of production we do there in margin that is generated from that is actually just free cash flow for the parent company. So we see that as a terrific source of tens of millions of dollars of cash for the parent company, supporting the overall 5-year plan initiatives.

Your next question is coming from Dave Storms from Stonegate Capital Partners.

Congrats on adding the 36 additional miles to that biogas pipeline. My question is now that you have the 40 miles or so completed, should we expect any more infrastructure spending on the biogas side of things? Or is it more about getting the LCF approval at your current digesters and all the other goals you've outlined for the year?

No, we'll continue to spend on infrastructure because we're obviously building out more dairies. As far as that level, a 40-mile pipeline probably not another one of those. As we connect the dairies that we have now, there will be some additional small amounts of pipeline that a mile or 2 to connect various dairies. But primarily, the spending is going to be around building out the digesters and the associated equipment that goes with that, the pretreatment units that are at the dairies. I'd say one other thing that I kind of keep your eye on it. I think this will be true for development in the state is as we get adding in the sort of the final dairies that are kind of still out there tend to be further away from pipelines and the infrastructure that's been built by Aemetis or the other developers. So you're going to see some trucking solutions that are going to be deployed, and that will have some associated infrastructure as well.

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

Thank you, and thanks to the Aemetis shareholders, analysts and others who joined us today. Please review the Aemetis company presentation that is posted on the home page of the Aemetis website along with our 5-year plan. We look forward to talking with you about participating in the growth opportunities at Aemetis. Todd?

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 an audio version of this Aemetis earnings review and business update. Matthew?

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