Aemetis, Inc Q2 FY2025 Earnings Call

Welcome to the Aemetis Second Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. Joining us on today's call is Eric McAfee, the Chairman and CEO of Aemetis; Andy Foster, the President of Aemetis Advanced Fuels; and Todd Waltz, the Chief Financial Officer of Aemetis. It is now my pleasure to introduce your host, Mr. Todd Waltz, the Executive Vice President and Chief Financial Officer of Aemetis, Inc. Mr. Waltz, you may begin.

Thank you, Matthew, and welcome, everyone. Before we begin, I'd like to remind everyone that during this call, we'll be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, but are not limited to, those factors discussed in our earnings release issued today and in our most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission under the caption Risk Factors and Management Discussion and Analysis of Financial Condition and Results of Operations, as well as in our other filings with the SEC. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments, or otherwise, except as required by law. Please refer to our earnings release and our SEC filings for a more detailed discussion of these risks and uncertainties. Full financial details can be found in our second quarter 2025 earnings release and Form 10-Q available on the Aemetis website and EDGAR. I'll briefly highlight the key items. Revenues were $52.2 million, up by $9.3 million from the first quarter revenue, primarily due to the fulfillment of biodiesel orders with oil marketing companies in India. California Ethanol saw a slightly lower production rate of 13.8 million gallons to maximize margins during the quarter. California Dairy Renewable Natural Gas recognized $3.1 million of revenue from 11 operating digesters during Q2 using the CARB-approved LCFS pathway for 7 of the digesters. As we will discuss later, Section 45Z tax credit revenue from the production of dairy renewable natural gas was not included in the second quarter since we recognize revenue when credits are sold. Operating loss improved by $4.9 million from the first quarter of 2025, reflecting reduced SG&A in the second quarter of 2025. Interest expense, excluding the Series A preferred unit accretion, rose to $12.3 million, in line with our capital structure and investment phase. We reported a net loss of $23.4 million, roughly flat versus Q2 last year after adjusting for the nonrecurring charge during the prior quarter of last year. Cash at year-end was $1.6 million following $3.6 million of investment in carbon intensity reduction and dairy renewable natural gas production expansion. As Eric will describe shortly, we expect multiple revenue streams from India, LCFS credits, and federal tax incentives to ramp up as the year progresses, positioning us for a stronger second half of 2025. Further, we remain focused on improving our capital structure. With cash flow expected to increase in the second half of this year, we anticipate further progress on debt reduction and are actively pursuing low-cost financing and refinancing alternatives. Now Eric McAfee, our Chairman and CEO, will review our businesses.

Thanks, Todd. I'll start with the business segment update, followed by updates on future projects and supportive regulations. In our dairy RNG business, we are steadily scaling up gas production with a new multi-dairy digester coming online this month that is expected to increase RNG production by 30%. As planned, we expect to reach 550,000 MMBtus of renewable natural gas production capacity this year and grow to a 1 million MMBtu annual run rate by the end of 2026. We are now operating or building digesters at 18 dairies funded by equity and $50 million of USDA guaranteed financing with 20-year repayment terms and attractive interest rates. Seven of our dairy pathways were approved by CARB during the second quarter at a blended negative carbon intensity score of 384, unlocking about 120% more LCFS credit revenue for those dairies starting this quarter compared to digesters with the negative 150 default pathway score. Four more pathways are currently under review with CARB and are expected to be approved under the faster Tier 1 pathway process that was adopted by CARB last month. Additionally, these dairy RNG facilities qualify for federal Section 48 investment tax credits. To date, we have sold $83 million in investment tax credits related to our RNG facilities and received approximately $70 million in cash. We monetize the production of dairy RNG in multiple ways. Until this year, we have generated revenues primarily through the sale of the gas molecule, the sale of California low carbon fuel standard credits, and the sale of federal D3 renewable identification numbers. Since January 1, 2025, we've been generating transferable Section 45Z production tax credits, which we are working to sell and generate additional income this quarter. On July 1, 2025, the California Air Resources Board amendments to the LCFS program that will apply for the next 20 years became effective, resulting in an increase in LCFS credit prices from about $42 to about $60 in the past month or so. The current cap on the price of LCFS credits is $268 for the year 2025. The LCFS program is expected to incur deficits this year that would reduce the inventory of available LCFS credits and be expected to continue to increase credit prices. Collectively, molecule revenues, LCFS credit sales, D3 RIN sales, and the sale of 45Z production tax credits are expected to generate strong positive cash flow from operations this year, and expanding operating cash flow in 2026 as new production comes online. At our ethanol plant, our key vendors are fabricating equipment for the $30 million mechanical vapor recompression system. The MVR project is expected to reduce natural gas use by 80% and add an estimated $32 million in annual cash flow starting in 2026. We have been awarded $20 million in grants and tax credits to help fund the MVR system. Ethanol pricing has improved since earlier this year, and the recent EPA approval of summer E15 blending and lower corn prices have improved margins. We decreased production during the spring in order to optimize margins, but recently increased ethanol production to support market demand and participate in the higher-margin environment. California legislation to approve E15 year-round passed the assembly with a unanimous vote and now is advancing through the state Senate for approval that is expected later this year. In India, we resumed biodiesel deliveries to government oil marketing companies in April following a six-month pause on OMC purchasing, shipping $11.9 million of biodiesel and co-products in the second quarter. We are targeting an IPO of our India subsidiary in early 2026 and recently appointed a new Chief Financial Officer at our India subsidiary to lead the process. We are also actively seeking to expand into ethanol production in India, which is strongly supported by government policies and pricing. Let's look at our future projects. For our sustainable aviation fuel and renewable diesel project, we have received the authority to construct air permits and a conditional use permit for our 90 million gallon per year SAF and renewable diesel facility at the Riverbank site in California. When operated solely for sustainable aviation fuel, capacity will be approximately 78 million gallons per year. We are in active discussions on financing structures and are awaiting further clarity on the 45Z production tax credit and biofuel mandates to support project financing. For our carbon capture project at the Riverbank site, we have completed initial site work and conductor installation for our geologic characterization well. The data we obtained from the next phase of drilling will support our Class 6 CO2 sequestration permit application with the EPA. Once permitted, the site is expected to sequester up to 1.4 million tons of CO2 annually. Let's review some regulatory events that support a strong growth outlook for Aemetis and the biofuels and biogas industries. Aemetis is positioned to benefit from a range of federal and state policies that directly enhance the value of its low-carbon biofuel and biogas operations. The California Low Carbon Fuel Standard amendments adopted by CARB to establish a 20-year framework for reducing transportation fuel emissions became effective on July 1. In response, LCFS credit prices rose by nearly 50% and are expected to continue to increase as credit supply tightens and credit demand increases. We expect further strengthening during the second half of 2025 and for the foreseeable future. The Federal Renewable Fuel Standard: the sale of renewable natural gas qualifies for D3 RINs, currently adding $19 per MMBtu in value at today's prices. Section 45Z production tax credits effective January 1, 2025, support low-emission ethanol and RNG production. Aemetis is currently applying treasury guidance to calculate and market these credits for both our Keyes plant ethanol production and our RNG sales, with additional clarification expected later this year. In addition to any further clarification in 2025, the Section 45Z credits will increase in 2026 under the recent one big, beautiful bill, which removes indirect land use from the ethanol plant calculation and requires dairy-specific CI scores for renewable natural gas. We estimate this will double the 45Z credits in 2026 for each business, even with no further changes to the current treasury guidance. Section 48 investment tax credits: Aemetis received $19 million in cash proceeds in Q1 2025 from the sale of solar and biogas-related investment tax credits. We expect additional sales of both investment and production tax credits in Q3 2025 and in Q1 2026 for the balance of 2025 production tax credits, plus additional sales of both PTCs and ITCs later in 2026. E15 ethanol blend expansion: the U.S. EPA has approved temporary summer use of 15% ethanol in 49 states, and new legislation is advancing to allow year-round use, including in California. E15 approval in all 50 states would expand the potential U.S. ethanol market by more than 5 billion gallons per year from the current 14 billion gallons per year while lowering fuel prices for consumers. In California, E15 should decrease fuel prices at the pump by $2.7 billion per year according to a recent UC Berkeley study while increasing the ethanol market by an estimated 600 million gallons per year. In California, Governor Newsom has directed CARB to expedite the process for allowing the sale of E15 gasoline in the state. And as previously mentioned, the state House unanimously approved legislation that would allow for E15. California is currently the only U.S. state that does not allow the sale of gasoline with higher than a 10% ethanol blend. These aligned policy developments in the U.S. are expected to significantly strengthen Aemetis' revenue, cash flow, and project economics across its RNG, ethanol, carbon capture, and SAF and RD businesses. Our India business is expected to grow with support from the Indian government for the benefits of biodiesel, ethanol, and other biofuels to farmers, consumers, and the environment. With aligned regulatory support and milestone execution underway, Aemetis is positioned for growth and improved cash flow through year-end and throughout 2026. Now let's take some questions from our call participants.

Your first question is coming from Matthew Blair from TPH.

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 for any other LCFS pathway approvals?

Sure. Thanks, Matt. We have seven dairies already effective. We have four 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 expect 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 two-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 one-third less revenue than it is at $60. I think we cited it's roughly $19 per MMBtu, if I recall correctly. But 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.

Sounds good. And then could I get your view on the D3 RIN supply-demand outlook? This year, I think we're tracking for around like 1.6 billion D3 RINs generated. You're looking at RVO for 2025 around 1.1 billion for '26 and '27, I think the proposal is around like 1.3 billion, 1.4 billion. Do you have any hope that the EPA may revise up those initial 2026 and 2027 D3 RVOs?

As you know, we're in a comment period that ends tomorrow, and there is a universal opinion in biofuels that the D3 RIN is being understated. There was a mistake by the EPA, and it was filed in the Federal Register, so it was printed for everybody to read that through no fault of their own, the oil industry is being forced to buy DJ RINs. As I think everybody knows, that's exactly opposite of what the renewable fuel standard was written to do. As George Bush, the President, who signed the Renewable Fuel Standard said, if you left up to the oil companies, we would all just be buying oil from the Middle East. So the point of the entire Renewable Fuel Standard is to cause the adoption and to be focused on the availability of production, not on the amount of consumption. So those comments, which you can read as public filings, you'll see ours as well, are focusing on what the actual renewable fuel standard regulation requires. Andy, do you want to make a comment on that?

No, I think you are right, Eric. It might not be entirely a mistake by some players in the industry to lean that way, but the law is the law, and we will highlight that in our remarks along with many other biofuel producers across the country.

Your next question is coming from Derrick Whitfield from Texas Capital.

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?

We are currently in the midst of things. An update to the GREET model has been submitted to the Department of Energy, and if it is accepted, the update could happen in a matter of weeks, possibly just one week. They have already updated the model twice since the initial filing in January, so this would be the third update. This update would enable us to generate 45Z credits in August and sell them during that month or in September. The straightforward solution for the industry is for the Department of Energy to simply add a few cells—around 6 or 7—to the GREET model. There are proposed guidance and final guidance for the 45Z regulations, and we currently have guidance labeled as January 2025. This guidance indicates it can be used for transactions, which is sufficient for us to operate with 45Zs if the GREET model is updated favorably. The industry is undertaking this effort due to the urgency acknowledged by regulators; they hastily averaged methane emissions without considering individual project variances. We are actively working to address that issue, and the OBBB signed on July 4 clarified how the 45Z will function starting January 1, 2026, providing guidance on the expectations for 2025. We are coordinating to implement this, and the process mainly relies on just a couple of individuals at this stage. Our company has been proactive in presenting these formulas to the Department of Energy to avoid any delays in updating the GREET model.

And not to belabor the point, Eric, and we've had conversations on it because it could be a material number for you guys for your dairy business. But as you kind of think about where you stand or Aemetis stands today as it relates to attending the registrations and tax ID numbers, and whether you would expect the credit to be retroactive for first half sales, I'd love your perspective on that. And again, we're still thinking about this as potentially a $60 to $80 per MMBtu type metric that we could see. Is that a reasonable range as well?

The current calculation should be about $82 per MMBtu. And what we're missing is the DOE GREET model that allows the foreground cells to be input to the site to put in what state you're in, et cetera, if you're an anaerobic digester in order to put out the emissions rate that would generate that number. So we expect that the DOE will put out a model for 2025. That is not their current process. Currently, they're focusing on January 2026. The industry, in general, is having to motivate them to see the value of putting out an amended model for 2025. But the values when we're done with it, between the combination of the model plus the provisional emissions rate process, which is an opportunity for us to say, we're not happy with the total numbers that come out of the model, let's go ahead and get some project-specific information from them. Between the two of them, we should end up at roughly $82. That goes up, by the way, by the rate of inflation. So next year, it will be larger, and the year after that, larger. But current target is in the $82 per MMBtu range.

And Eric, just one part of that question I wanted to have you comment on too, is just where you or Aemetis stands in attaining the registrations and tax ID numbers?

We're fully registered. Andy, do you have any comment on this? Ethanol plant is fully registered. Our RNG production facility. I would disclose to people that you don't have to register each one of the digesters because they're not producers of renewable natural gas; they produce biogas. So it's just our RNG production facility that's required to be registered. So we're fully registered and have acknowledgments from the IRS of that registration. That was also done in a timely basis. So we don't have any issues there.

Your next question is coming from 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?

Yes. The Section 48 investment tax credits were expected to be irregular due to how we approach our investments, going through several quarters of assembling and then selling them. We are currently preparing for another Section 48 tax credit sale, which we aim to complete this quarter. On the other hand, 45Z operates more like revenue. We have already completed a transaction where a single customer committed to multiple tax credit purchases. We expect to follow this format for 45Z, anticipating a worst-case scenario of one sale per quarter and a most optimistic scenario of every 45 days, but definitely no less than once a quarter. Therefore, 45Z should evolve into a recurring quarterly revenue stream. As Derrick Whitfield mentioned, we've been generating 45Z revenues since January, but we haven't reflected any on our financial statements because we recognize revenue only upon sale and receipt of cash. Consequently, our revenues for Q1 and Q2 do not showcase any 45Z revenues, nor do they reflect any LCFS revenues in those periods. Both credit types are recognized upon sale. Our dairy pathways approved in the second quarter correspond to credits received right at the end of that quarter, which will be sold in the third quarter. We expect the third quarter to include some catch-up on LCFS and certainly a catch-up for the first half of the year on 45Z, contingent on the Department of Energy filing the amended GREET model. Thus, we will see a one-time lumpiness in cash and profit, followed by a more consistent quarterly alignment with production.

Understood. Regarding the India IPO, is there an official process that has started, or is this just your preparation before formally moving towards going public for that business?

We have our new CFO on site. He joined us in July. So we're not even, I think, a month into having him on board. I think it was about July 15. And so we're well into the process. There's not a public filing early in the process. The public filing comes after some review of documentation by the investment banking firm and some other parties. So we would expect to see sometime this fall that there would be public filing documents that people would be able to read. I don't think we're going to press release that, but it will certainly become known. We'll mention it on our earnings calls, et cetera. But it will be an administrative process with SEBI, which is the regulator in India.

Understood. And then the use of proceeds, if this comes through within that timeline, like what are you thinking, Eric? Is it to pay down debt or any other strategic initiatives?

We have the capability to transfer funds to the parent company, although the specific amount will depend significantly on market conditions. There will certainly be a transfer of funds, and I expect that a portion will likely be used for debt repayment. However, as Todd mentioned earlier, we are currently engaged in substantial refinancing, which may allow us to not have any immediate payment obligations. We are reamortizing our senior debt over extended periods of 20 to 30 years. If that is the case, it will enhance the cash position of the parent company and provide us with increased flexibility for project development. I would estimate that around 25% of the IPO proceeds will go to the parent company, with the rest allocated for the development of our assets in India. The ethanol industry in India is rapidly expanding, projected to grow by 50% over the next five years. The Indian government is implementing measures to strengthen its agricultural sector while simultaneously reducing fuel costs and delivering environmental advantages. The ethanol sector in India has solid support, with the government establishing prices for both ethanol and corn, making it an appealing market. We are actively developing two sites for ethanol production, and a key aspect of our IPO in India includes our core biodiesel business, which is also growing, but we are aggressively expanding into ethanol. Recent news about heavy tariffs on India is seen by Bloomberg and others as a lever to encourage negotiations. One significant point is that India does not permit genetically modified corn, leading to much lower corn yields compared to the U.S. This makes U.S. corn comparatively cheaper. We'll see how the trade discussions unfold, as the situation remains uncertain for many involved. However, a potential outcome could be that India opens up as a market for U.S. corn, but solely for ethanol usage. This is important because India is opposed to its population consuming genetically modified corn. By limiting it to ethanol, Aemetis could uniquely benefit from a thriving ethanol market supplied by U.S. corn, while also offering distilled grain and low-cost fuel along with environmental advantages for the Indian economy. The domestic ethanol market in India looks very promising.

I really appreciate that additional color, Eric. It looks like you guys are positioned well on multiple fronts from this point.

Your next question is coming from Dave Storms from Stonegate.

I would like to ask if you could remind us about your RNGs that are expected to receive approval by the end of this year. Are those approvals based on past performance? Will you be able to benefit from the higher credits?

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.

Yes.

Yes, probably the fourth quarter this year. So we might have some impact this year. The way they do it is sort of a six-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 four additional pathways have an impact. We hope to see an upside, but I think that would be our projection right now.

Understood. Could you provide more details about the refinancing process? How far along are you, and are there any specific options you are considering? Additionally, what is the expected timeline for completing this? Any information on that would be very helpful.

We are very deep in a refinancing process with a counterparty. And I would say by the end of August, we'll be through most of the due diligence and documentation work. The dependence we have on that refinancing, and I would say almost all refinancings will be for us to prove out our 45Z production tax credit revenue. Not that it won't happen; it's federal law. It's the calculation for renewable natural gas and the calculation for ethanol plant. If the DOE model is done properly, then we're able to show the DOE model. We sell tax credits. We'll get, frankly, tens of millions of dollars from that in the first transaction, and we'll be showing that to our lender, and they would be able to plug it into their formulas. Currently, the formulas work okay, but with that number included in revenues, it actually becomes a very, very attractive 5-year stream of after-tax cash flow to the company. So we need to prove that out. And I say prove it out as in everybody knows what the math is, but do we have the cash? Not yet. So let's get the cash in, and then the conversation can lead to final documentation and closing.

Your next question is coming from 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?

The implementation will not occur immediately at all stations in California. However, since we are selling a commodity, the last gallon significantly impacts pricing. An additional demand of 600 million gallons is enough to shift the entire country from an oversupply to a more balanced market. With E15 in 49 other states, we expect to face a shortage of ethanol. Currently, we export nearly 2 billion gallons of ethanol internationally. If E15 is adopted in California this year, which has a better than 75% chance of happening, and if Congress approves it, which has a better than 50% chance, we will experience a shortage. This will increase the value of ethanol to align more closely with gasoline prices. Since we're replacing aromatics, which are typically more expensive than gasoline, and we are dealing with 113 octane compared to gasoline's 84 octane, we possess a highly valuable molecule that has been undervalued due to the 10% limitation, oversupply, and insufficient demand. This situation is expected to reverse, leading to excessive demand due to the molecule's value, which should enhance our earnings per gallon. I believe this will be a gradual trend, likely taking about 18 months before we see a significant need for new facility construction, but that is indeed on the horizon. If we add 5 billion gallons of demand to the U.S. ethanol industry, that will exceed the industry's current capacity of approximately 17 billion gallons, which is expected to rise to over 20 billion soon due to E15. It becomes a question of timing—whether it happens sooner or later—but by the end of 2026, I anticipate proposals for new facilities will emerge due to the industry's profitability and the need for more of the molecule. Andy, do you have any remarks on that?

No. I believe that the speed of implementation depends entirely on the blenders and their willingness to move forward. There is no need for any physical changes; it really comes down to their pace of implementation. Additionally, the recent CEQA reform allows for a quicker process to build more storage facilities, which has been a significant problem in California due to an insufficient number of fuel storage facilities. There are trade-offs to consider between ethanol and renewable diesel, influencing their demand. However, I think the CEQA reform will simplify the process of constructing much-needed storage tanks in California, which should be beneficial.

Thank you. That concludes our Q&A session. I will now hand the conference back to Eric McAfee, Chairman and CEO, for closing remarks. Please go ahead.

Thank you to Aemetis stockholders, analysts, and others for joining us today. 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. Matthew?

Thank you. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.