Aemetis, Inc. Q2 FY2025 earnings call

• Dairy RNG: Scaling up gas production, new digester online, 7 dairies CARB-approved with higher LCFS credits, 4 more under review, qualify for Section 48 tax credits, sold $83M in credits to date.
• Ethanol Plant: $30M MVR system in progress, ethanol pricing improved, production increased, CA E15 year-round legislation advancing.
• India Business: Resumed biodiesel deliveries, targeting India subsidiary IPO in early 2026, seeking ethanol expansion.
• Future Projects: SAF/renewable diesel facility in CA has air permits, carbon capture project at Riverbank progressing.
• Regulatory Support: LCFS amendments effective, D3 RINs understated, Section 45Z credits increasing, E15 expansion progress.

Revenues were $52.2 million, up from Q1. Biodiesel in India contributed $11.9 million in Q2. California Ethanol produced 13.8 million gallons. California Dairy Renewable Natural Gas recognized $3.1 million from 11 operating digesters. Operating loss improved, net loss was $23.4 million. Cash at year-end was $1.6 million.

Multiple revenue streams expected to ramp up in second half 2025. Cash flow expected to increase, focus on debt reduction. SAF/renewable diesel project awaits clarity on 45Z and biofuel mandates for financing.

• Uncertainties in regulatory interpretations for 45Z and D3 RINs.
• Market price fluctuations for LCFS credits and ethanol.
• Dependence on timely approval of regulatory changes for project financing.

Q: Congrats on getting the CARB approval for the 7 dairies at the end of the second quarter. I think you mentioned that, that did not flow into your financial results. Could you talk about at current LCFS prices around $60, what kind of EBITDA impact that might have for Aemetis? And are you currently waiting any other LCFS pathway approvals?

A: Sure. Thanks, Matt. We have 7 dairies already effective. We have 4 more pending right now, and then have additional ones that we'll be filing in the fourth quarter that are currently in the 90-day testing period. So we would be expected to exit the year with a total of 7-plus another 5 minimum. So at least 12 dairies either granted or soon to be granted. The new process, by the way, Tier 1 is significantly shorter than the 2-year process we went with Tier 2. So the financial impact, I think I'm going to get back to you on that one because it's highly correlated with the price of the credits. So when we were at 42, it was 1/3 less revenue than it is at $60. I think we cited it's roughly $19 per MMBtu, if I recall correctly. But we -- let's get back to you with a memo on this. The formula is well known, but the price is moving quickly. So we're trying to give investors a range of values per MMBtu for the LCFS. So we'll also endeavor to see if we can include that in some press releases, so people can see the impact as those prices change.

Q: Your next question is coming from Derrick Whitfield from Texas Capital. Derrick Lee Whitfield: Eric, could you update us on the progress of 45Z as you understand it, with respect to timing of final rules from treasury and the GREET model that will be used for the provisional emission rate calculations?

A: We are in the thick of it right now. And there is an update to the GREET model that has been presented to the DOE. And if accepted and adopted, it could matter -- be a matter of a few weeks at most, maybe even a 1-week span that they could update the GREET model. They've already updated twice a year after the initial filing in January. So this would be a third update. That update would allow us to then generate 45Z credits in the month of August and sell them in August or September. So the quick and easy way forward is for industry is for the Department of Energy to simply add a few cells. I think it's 6 or 7 cells to the foreground of the GREET model. The 45Z final rules, which in your -- there's proposed guidance and then final guidance. We currently have guidance. It's a January 2025 guidance. It's called intention to propose guidance, but it says on its face, this guidance can be used for transactions. So we do have guidance. And frankly, that guidance is sufficient for us to transact 45Zs if the GREET model is updated and we're happy with the calculations. The reason why industry has to do this effort is that they were in a hurry. They admit they were in a hurry. And so, they took all of the methane emissions and divided by -- from all the animals in the United States and divided by all the estimated animals and said, okay, if you're going to make RNG, this is your average number. And whether your project is better or worse doesn't matter, here's your number. And they acknowledge that's not correct. We are working to fix that. And the OBBB signed on July 4 helped clarify for the regulators exactly how the 45Z is going to work starting January 1, 2026, which helped clarify for them what 2025 should look like. So we're working to get that implemented. I would tell you that it's largely down to 1 or 2 people at this point in time, and our company has been very proactive in getting those formulas in front of the DOE, so we don't have to delay in terms of what kind of work needs to be done on the GREET model itself.

Q: Amit Dayal from H.C. Wainwright: Just a question on the monetization strategy for your production tax credits going forward. It's been a little lumpy in the past. But going forward, with this regulatory backdrop, do you think we can see a little bit more consistent monetization going forward?

A: Yes. The Section 48 investment tax credits, as we, I think, commented probably a year ago, were expected to be lumpy as we do investments, and we go through a several quarter cycle of putting them all together and then selling them. And we are in the process of doing another Section 48 tax credit sale, which we would hope to close this quarter. But 45Z is more akin to revenue. And so, we've already done a transaction in which a single customer signed up to multiple closings of tax credit purchases. We would anticipate that, that's the format we're going to use for 45Z with the expectation in the worst-case scenario of one sale every quarter, probably the most optimistic scenario would be a sale every 45 days, but certainly every quarter. So 45Z should become a recurring quarterly revenue item. Somewhat harkening back to what Derrick Whitfield just said, we've been generating 45Z since January. We have not reflected any of the revenue because our revenue recognition policy is that upon the sale and receipt of cash, then we recognize the revenue. So if you look at our Q1 and Q2 revenues, you're not actually seeing any 45Z revenues and frankly, not seeing any LCFS revenues in those quarters. Those -- both those types of credits, we recognize when they're sold. And so our dairy pathways approved in the second quarter are actually credits received literally in the last few days of the second quarter, and then are sold in the third quarter. So third quarter is going to be one of those quarters, which we would expect would have some of the catch-up on the LCFS, certainly catch-up for the first half of the year on the 45Z if the Department of Energy files the amended a GREET model. And so that you'll see this onetime lumpiness on quite a lot of cash and a lot of profit showing up, and then it will become more of a quarterly correlated with production.

Q: Dave Storms from Stonegate: I just want to -- could you remind us with your RNGs that are expected to get approval by the end of this year, are those approvals backwards looking? Will you be able to take advantage of those higher credits?

A: No. We have 7 that are already approved, the 4 that are pending would be expected to be approved next year and pack back to best case scenario is probably the fourth quarter of this year. Todd Waltz: Yes.

A: Yes, probably the fourth quarter this year. So we might have some impact this year. The way they do it is sort of a 6-month look back kind of a situation. So if we get approved by March of next year, then it could be effective in the fourth quarter of this year. So currently, though, I would say we've taken a conservative view, which is probably first quarter next year is the first time we'd see those 4 additional pathways have an impact. We hope to see an upside, but I think that would be our projection right now.

Q: Ed Woo from Ascendiant Capital: Congratulations on all your progress. Thanks for the update in terms of California and possibly allowing usage of E15 gasoline. If it gets passed, how quickly do you think it will get implemented? And how quickly will you see the increase in demand for your ethanol?

A: The implementation will not be immediate at every one of the stations in California. But because we're selling a commodity, it's that last gallon that really prices everything. So 600 million gallons of additional demand is actually enough to push the entire country from oversupply to a sort of a more balanced environment. And then with E15 and 49 other states, there is certainly the expectation that we're just going to be short ethanol. We currently export almost 2 billion gallons of ethanol to foreign countries. And if E15 becomes adopted in California this year, which is a better than 75% chance that's going to happen. And if Congress picks it up and gets approved this year, which is better than 50% chance, you're just going to be short. It's going to end up getting the value it should be getting, which is more on par with gasoline. And since we're replacing aromatics, and aromatics are typically $0.20 to $0.50 a gallon more expensive than gasoline, and we're doing 113 octane versus 84 octane, which is gasoline-based octane. We have a very valuable molecule that's been undervalued because of this 10% limitation, too much supply, not enough demand. That is expected to move to the opposite, which would be excessive demand because of how valuable the molecule is, and that should generate additional value per gallon for us. I do think it's a gradual trend, though. It's probably an 18-month cycle before you're going to see significant need for additional construction of facilities, but that's certainly what's coming. If we add 5 billion gallons of demand to the U.S. ethanol industry, that's far in excess of capacity in the industry. The entire industry's production capacity today is about 17 billion gallons, and that's going to increase to over 20 billion in rather short order with E15. So it's just a question of when. Does it happen earlier or later, but sometime over the next -- by the end of 2026, I think you're going to see people proposing new facilities because of how profitable the industry is and a need for more of the molecule. Andy, do you have any comments on that? Andrew B. Foster: No. I think from an implementation perspective, it's really up to the blenders, how fast they want to go with this in terms of putting it out. There's no physical change that needs to take place. It's just a question of what they -- how fast they want to implement it. And I believe that the CEQA reform also allows for an expedited price process on building additional storage facilities, which has been a big issue in California. California does not have enough fuel storage facilities. And so a lot of times, it's the trade-offs between things like ethanol and RD and sort of what's driving the demand for those things. But I believe that the CEQA reform that the governor just recently signed will help streamline the process of building some additional tankage in California, which is desperately needed. So that should help as well.