Operator
Hello, and welcome to the AMETIS Third Quarter 2026 Earnings Conference Call. Joining us on today's call are Eric McAfee, the Chairman and Chief Executive Officer, Todd Waltz, Chief Financial Officer, and Andy Foster, President of AMETIS Advanced Fuels. I will now turn the call over to Todd Waltz.
Thank you, and welcome, everyone. Before we begin, I'd like to remind you that during the call, we'll be making forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995. These statements involve risk and uncertainties that could cause actual results to differ materially from those expressed or implied. Please refer to our earnings release and SEC filings for a discussion of these risks. We will also refer to adjusted EBITDA, a non-GAAP measure. A reconciliation to the most recently comparable gap measures included in our earnings release. Before reviewing detail, I want to highlight that the company posted net income of $5.2 million, or $0.07 per basic share, in the third quarter and adjusted EBITDA of $24.8 million. For the third quarter of 2026, revenues grew 49% to $88.2 million, compared with $59.2 million in the third quarter of 2025. With growth in both the California ethanol and dairy renewable natural gas operating segments from both operations and 45Z clean fuel production tax credits, Section 45Z production tax credit revenue was $24.7 million in the quarter, comprised of $20.1 million from dairy renewable natural gas and $4.6 million from California ethanol. 45 Z revenue included an $11 million cumulative true-up for the first and second quarter of 2026 from the regulatory updates to the 45 ZF GREET model. Biodiesel sales in the third quarter were $7.3 million. Rebounding from $2.5 million in the second quarter as delivery to three India oil marketing companies resumed under a $17 million allocation to our India subsidiary. Operating income was $20.9 million in the third quarter, an improvement of $29.4 million compared to the third quarter of 2025, which had an operating loss of $8.5 million. Net income was $5.2 million, equal to $0.07 per basic share, an improvement of $29 million compared to a $23.7 million loss in the third quarter of 2025. Adjusted EBITDA was $24.8 million in the third quarter, an increase of $29.8 million compared to the negative $5 million in the third quarter of 2025. For the first nine months of 2026, adjusted EBITDA was $33.2 million compared with negative $21.5 million during the same period of 2025. Cash at quarter end was $3.4 million. In September, we received $22.4 million from the sale of Section 45C production tax credits. In August, a Metis Biogas amended its Series A preferred unit agreement to extend the redemption date to December 31, 2026, and to reduce the interest rate on the credit agreement that would apply if the units are not redeemed to the greater or prime plus 5 or 12 percent. Capital investments supporting our energy efficiency projects and investments in biogas production were $20.2 million in the third quarter and $35.3 million for the first nine months of 2026. With that overview, I'll turn the call over to Eric McAfee. Thanks, Todd.
Let's highlight three key takeaways from the third quarter. First, Q3 continues the financial inflection points we noted during the Q2 earnings call with the posting of net income of $5.2 million and adjusted EBITDA of $24.8 million during the third quarter. We continue to grow with consolidated revenue up 49% year-over-year. An improvement in operating income of $29.4 million and increased adjusted EBITDA by $29.8 million compared to the third quarter of 2025. Second, we now generate higher revenues due to the California Air Resources Board approval about a year ago of seven new low-carbon fuel standard pathways for our renewable natural gas business at an average carbon intensity score of negative 380. Compared with the negative 150 default carbon intensity score for these digesters, which was shown in Q2 2025 revenue. The approval of seven biogas digesters has been providing additional revenue with a higher LCFS value each quarter since Q3 2025, and additional biogas digester pathways are nearing approval. These LCFS pathway approvals substantially expand the LCFS credit generation per MMBTU of RNG produced, and will continue to drive meaningful revenue increases as we scale production. And third, our capital projects are advancing with $20.2 million of investment during the quarter. Let's review these projects and how we continue to create value as federal and state laws are being implemented. In our dairy renewable natural gas business, Every MMB2 of Dairy RNG generates four revenue streams, the natural gas molecule, a California low-carbon fuel standard credit that is sold to oil companies, a federal D3 RIN that is also sold to oil companies, and a Section 45Z production tax credit. The LCFS credit and the 45Z tax credit are calculated using the carbon intensity of our biofuel, so credits are generated in proportion to how far below the standard a biofuel is scored. An LCFS pathway at negative 380 generates substantially more credit per MMBTU than the negative 150 default score. We have seven approved California LCFS pathways averaging negative 380 carbon intensity, with six more pathways nearing approval by CARB. For the 45Z production tax credit, the Department of Energy issued its updated 45Z CF GREET model on September 8th of this year, which decreased the carbon intensity scores used to calculate 45Z credits for dairy R&G. The credits we sold in July were valued at $15.20 per MMBTU. The credits we sold in September, generated from ethanol and RNG production during 2026, represent a tax credit value of approximately $62 for MMBTU for dairy RNG and $0.33 per gallon of ethanol for 2026, before sales discounts and transaction costs. We received $22.4 million from the September 45-Z tax credit sale, and our third quarter results included an approximately $11 million cumulative true-up for R&G dispensed in the first half of the year. As dairy renewable natural gas volume grows, all four revenue streams grow, but the approval of LCFS pathways in California is expected to create significant increases in revenues from the renewable natural gas production. We operate 14 biogas digesters today, taking waste from 17 dairies and transporting biogas through a 36-mile pipeline to our RNG production facility that is connected to the utility gas pipeline. We have more than 50 dairies that have signed participation agreements. Two new methane capture digesters were completed last month, and we have received 13 additional cleanup and compression units that will be located at the next 13 digesters to come online. Regarding our California ethanol business, we have two projects that are slated to significantly improve our financial performance, in addition to further improvements in 45Z values and expected increases in LCFS credit prices. Our mechanical vapor recompression system installation is an energy efficiency project that is expected to add approximately $32 million in annual cash flow from three positive impacts on our operations. We will reduce about 80% of the natural gas needed for our operations at the Keyes ethanol plant, which is a direct cost reduction that begins at commissioning. Removing fossil natural gas lowers the carbon intensity of our ethanol, which raises the value of the 45Z credit and the LCFS credit generated by every gallon of ethanol. The MVR project is making excellent progress. Key equipment arrived this summer, and we have completed major steps in construction of the system, including placement of the six 3,500-horsepower turbofans. Foundation concrete has been completed, and electricity transformers are scheduled to arrive in the next month. The MVR project has been awarded approximately $19.7 million in grants and Section 48c tax credits from the California Energy Commission, Pacific Gas and Electric Company, and the IRS. Second, in the past few months, we have installed two of the planned three corn oil separation units at the ethanol plant, with the third unit slated to be operating by the end of this year. Distillers corn oil is recovered from the ethanol process and sold as a low-carbon feedstock into the renewable diesel, biodiesel, and sustainable aviation fuel markets, where demand has strengthened this year with higher federal renewable volume obligations issued by the federal EPA. Combined, the units are expected to approximately double corn oil production compared to our first quarter production rate, and prices having increased significantly this year. Our India biofuels business shipped biodiesel to oil marketing companies and commercial customers during Q3 2026. Biodiesel sales rebounded to $7.3 million as we delivered biodiesel to the oil marketing companies under their new tender. We're also building our base of private commercial customers due to increases in the price of India petroleum diesel this year, and we have applied to the India and EU governments for approval to export biodiesel to Europe. India's stated goal is to raise biodiesel blending from less than 1% today to 5% by 2030, which would create about 1.2 billion gallons of additional biodiesel consumption. We continue to prepare documentation for a potential public offering of a minority stake in universal biofuels, our subsidiary, subject to market conditions. Of the milestones we outlined last quarter, the two new dairy digesters are now operating, and the Department of Energy has issued the dairy R&G update to the 45 ZCF GREET model. Our outlook on short-term milestones and timing is... The third corn oil unit is scheduled to be operational in December, doubling corn oil productions over Q1-2026. The Ametis Dairy RNG Fuel Station is scheduled to begin RNG deliveries to truck fleets this month. MVR construction is progressing toward completion. Additional LCFS pathways are moving through CARB with a customary look back on approval. And India deliveries across the current allocation period with a focus on exports to Europe after receiving our government approvals. Thank you to our shareholders, analysts, and our partners for your continued support.
Operator
Operator, let's take some questions. Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. And once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Amit Dail from H.C. Wainwright. Your line is live.
Thank you. Good afternoon, everyone. So, Eric, congrats on, you know, pretty solid results and cash flows this quarter. Just going to the MVR, it looks like, you know, all the equipment is in place, you know, the work is underway. The benefits from this, should we expect that to come through in 2027 financials or 2028 financials?
Those are 2027 financials for sure.
I mean, we shouldn't say for sure. We should say we fully expect delivery in early 2027 as we are completing construction. And the milestones we've stated, the foundations placing the units, we have extensive construction going on. Andy, you want to give us an update?
Yeah, I would say the system, we're making good progress on construction. As you can imagine, with the demand for materials for data centers in particular is creating kind of a crunch on some of the... Uh, electric components, but I think we're pretty well lined up with that. So our estimate right now is that we'll have the project completed by the end of the first quarter. I say that loosely. We're saying kind of the first half, but, you know, who knows, Super El Nino and some other things that could play into that. But we're making good progress and expect, hopefully, by March, we'll be completed with construction. So commissioning will take some time. It's a new system. And so I would say, you know, in terms of financial impact, you're probably going to see it more in the second half of next year than you will in the first half of next year, because we'll be completing construction, sort of commissioning the system, getting it up and running, and then we'll start to see that impact. The natural gas impact will happen pretty quickly, though, because once we switch over to the MBR system, we won't be drawing down the 3,700 MMBTUs that we're currently using daily. So we'll start to see a financial impact almost immediately on the gas side. But as far as, you know, getting things lined out, it'll probably take a month or two to get that system lined out and then be really, you know, kind of cranking it by the second half of the year. Understood.
And just as a follow-up to that, guys, there was an audit process, etc., and there was a little bit of lag between when the credits were being generated versus monetized. Should we expect something similar for MVR to play out as well, or would this be a little bit different?
Our revenue recognition for 45Z revenue is now quarterly, so we would potentially have receivables at the end of the month that are non-monetized 45Zs, which will have a tendency to line up the quarter in which we generate the production, generate 45Z. The cash, however, may be deferred into further later quarters. The initial startup of 45Z in the... The first half of 2027 is by necessity going to require us to have a new LCFS pathway update. That will cause us to, as Andy said, push much of the cash into the second half of the year. But we're going to try to accrue revenue as it's generated. And for things that are not investment tax credits, it should show up in the quarter in which they're generated.
And this last one, I guess, this India biodiesel to Europe sounds very interesting. How long could this approval process take, and would you be capped at what portion of that capacity can be exported?
The approvals are largely in process. We do expect them to be completed in the fourth quarter of this year, and we have not a cap on export. It's called an export-oriented unit, so in theory, we could send our entire 80 million gallons of capacity to foreign shores. We have just practical execution of inbound shipments of feedstock and outbound shipments of biodiesel that will be larger constraints on the amount we shift. But we will have an operational cap.
And then as a part of this, can we maybe expect some announcement around an offtaker for this volume?
Probably not an off-taker. We've done this before. We used to be the largest biodiesel supplier to Europe from India until Europe changed their rules. Now they've changed their rules again, and so India has again started shipping to Europe. There's roughly half a dozen suppliers that have started this business over the last year or so. And so we are cooperating with existing suppliers. I think this is one of the strengths of the business. It will be importing feedstock together and we'll be exporting to the same customers in Europe. I do not expect to do it on a long-term offtake arrangement. I think we'll just be doing a supply chain sales to traders out of Singapore and Europe.
That's all, Eric. Thank you so much, and congrats on the call.
Operator
Thanks, Ahmed. Thank you. Your next question is coming from Derek Whitefield from Texas CAP. Your line is live.
Good morning, Eric. Thanks for taking my questions. I wanted to start with ethanol. Arguably, the quarter, while strong, still doesn't reflect the full value of where your ethanol margins could grow over time. With that said, could you provide just a walkthrough on where margins currently sit per gallon and where you expect them to be post-MBR CO2 reuse and the benefit of potentially lower CI coin?
The MVR is projected to generate about $32 million on a levelized basis annually from decreased cost of natural gas and increased LCFS and 45Z revenue. That comes in at roughly 50 cents a gallon. Of additional margin, and that is in cash. So that's a significant, sustainable competitive advantage that we will have. I believe we're the first installer of NBRs in this cycle. I think ADM might have had one at some point or something, but I think we'll be the first one in the country. And what's unique about our plant is that we're located on the California electricity grid, which has a very diligent commitment to getting to zero carbon intensity. So as the grid decarbonizes in California using more solar, wind, and hydroelectric, that directly will improve our CI score. So tapping into that decarbonized grid is an advantage we have here in California that not all states provide. So the MVR is a uniquely energy-efficient implementation in our particular plant. We also have the impact of E15. We didn't talk about E15 on this call, but California is the first state in the country to adopt year-round E15. At the state level, as you know, California is the only state can set its own fuel rules. And so the Senate Bill 795 recently passed, and it has implementation slated for January 1, 2027. That will be additional capacity requirements about equal to 10 of our plants. So somebody across the country has to either build a new plant or expand their existing plant. To meet this California capacity requirement. And then nationally, of course, the House has already approved and the Senate is pending approval of V15. We don't have any particular projections on when that would happen, but certainly the recent So, political events would support biofuels in rural areas. So, we think that E15 has some strength in it. That is our underlying margin. The last time we actually had support for the national demand for ethanol, we made $40 million of positive cash flow. So, in the actual molecule, this business should be a 50 cent or more per gallon molecule. And then lastly is the LCFS credit price, even generating the same number of credits. Last year, we only got $42 per credit. Now we're at $90. The cap is $275 this year. There's a long way to run, and LCFS credits have continued to be not produced at the rate necessary to meet compliance. So there's a deficit, and there's over 10 million credits that disappeared out of the excess bank over the last 12 months. We expect that to continue, and there should be theoretically no excess inventory of credits within the next 24 months. So we are going to benefit from that. Our revenue goes up equal to the same number of gallons. So we have a number of significant drivers. Last point I want to make is we haven't talked much about corn oil. But corn oil is the most attractive, lowest emission rate feedstock for renewable diesel, biodiesel, and sustainable aviation fuel. It only has a 10 emissions rate. Tallow is 18 to 20. UCO is 20 to 25. Soybeans is 30. So, the use of DeSoto's corn oil as renewable diesel or sustainable aviation fuel feedstock should really be a top priority for all those producers, and we are the largest producer of DeSoto's corn oil in California, and through Andy's team's implementation of two, of three, but by the end of this quarter, we'll have three operating units separating corn oil. We'll be doubling our corn oil production at a time which the price has roughly doubled. So it's a very promising additional margin for the business. It's, of course, very sustainable.
Great. And, Eric, maybe just touching on a point that you kind of highlighted there on policy, biofields generally tend to be supported by both Democrat and Republicans. But, again, given what we've seen with the change, Given the Democratic sweep, I mean, are you expecting any changes or anything that might have occurred in California that was surprised? Anything that you could offer as color as to how you see policy coming together at both the federal and state level would be appreciated?
I would say that generally rural areas and farmers played an outsized role in this election. And I think we have Democrats now as governors in Iowa and senators from Texas that are Democrats, but that are being voted into play in these rural states. And that's always good for corn and soybeans, which is good for ethanol. Really, the only growth market for corn is E15 ethanol. So the initiative we're looking for, I think, will be supported. A second factor, and I'll make this very brief, is we're going to have a Congress that really can't get things through the White House and a White House that really can't get things through Congress, which is very, very good for the biofuels business. Stability in policy is just tremendously supportive of our financing efforts, our growth efforts. It is really a wonderful situation we find ourselves where we don't have to worry about Congress coming up with an idea and immediately implementing it. It's probably the opposite of what investors are thinking, but I can tell you, as operators of this business, we are looking forward to the stability in policy, which we should see, and supportive policy when it happens.
Eric, one last, if I could, just on the dairy RNG business. As you look out into next year and the pipeline of the farms that you guys have to bring on, what kind of pace would you expect for next year?
We have financing in process right now. I think that news is something we'll be reporting here over the next couple of months. And we have 13 long lead time items that we've received very strong support from a vendor to get built. So our ability to deploy those 13 rapidly is certainly in place. We just need the financial closing to accelerate beyond the current place that we have right now.
Terrific. Thanks for your time, Eric. Thank you, Derek.
Operator
Thank you. Your next question is coming from Dave Storms from Stonegate. Your line is live.
Morning, and thank you for taking my questions. I wanted to start maybe with RNG. Morning. When I'm thinking about RNG production, it looks like the last two quarters you were running about 600,000 MMBTUs on an annualized basis. I know in the recent release in October, It was also reiterated that the $600,000 should be a good run rate. With the addition, you know, again, up to the $14,000, though, how should we be thinking about the out year in terms of MMBTU generation?
We have a seasonality directly correlated to the weather. Our technology is a passive solar. Dairy biogas digester. So the solar component of that means that during the wintertime, there's less solar energy. We don't have quite as much production. So if you look back over a six-month span, you're looking back over the summer. And when you analyze from that, yes, 600,000 plus would easily be calculated. I can say, though, that we had performed above expectation. Andy, you want to talk about yields and some other things?
Yeah, so we're, I mean, I think originally on our models, we had ourselves at about 13 MMBTUs per wet cow equivalent, and we're running closer to 15 at this point. So we, I think, run a very efficient operation. And as Eric mentioned, you know, during the summer months, obviously things crank. You know, ambient temperature digesters do get impacted seasonally. So as we head into the cooler months, that number probably goes down a little bit. But we have found that our systems are very efficient, and our production has exceeded our forecast for the last two years. So I would anticipate as we continue to add digesters that that trend will continue.
Understood. That's great commentary. Thank you. Turning to the 45Z production tax credits, you know, it's mentioned that there's obviously a discount that you receive in the market. With the update to the model, are you starting to see those discounts decrease, or just maybe any comments you have on the tax credit marketplace?
Yeah, our observation has been that the production tax credit market has not changed very much. We usually model about a 15% discount all in, including insurance and lawyers and brokers and tax lawyers and more tax lawyers. That's probably more of a discount than we're actually getting, but that's the way we usually model it.
That includes a discount to the buyer.
Understood. And then maybe just one more, if I could, looking at what you mentioned earlier in the call, Super El Nino, just any thoughts on the impact that might have on ethanol in the coming 12 to 15 months?
It sort of depends on where the weather pattern settles in, but all the forecasts that we've looked at are showing a warmer, drier, upper Midwest kind of plain states, winter. And that's generally when we think about the impact, it's really in transportation. It's in rail, getting the corn to California. If you go back to, and I don't remember what year it was, 2015, somewhere in there, where we had a series of these polar vortexes where the railroads were severely impacted. Good morning, everyone. It's going to be impacted. You know, some of the trains do come through the south through Texas. That could be a liability if there's ice storms down there. At this point, I'd say we're not really worried from the perspective of ongoing operations unless we start seeing major disruption in the rail system in the United States. That could cause us some issues.
And we happen to have two things that come to California that impact our business. Number one is corn. There's 1.7 million dairy cows in California that have to be fed, including corn. So that tends to be a high-priority cargo coming to California. In the past, there's been a lot of hand-wringing and issues, but for some reason, they always seem to get the corn through just at the last minute, which is good. The other thing coming to California is ethanol, and with California adopting 15% ethanol, another 600 million gallons, that's coming from California. And a couple times, the polar vortex has just been this magic moment in which California is very short ethanol, and they decide not to bring the ethanol cars through. That's nothing to plan on. It's just something that happens once in a while, and that would be one of the factors in our business model is does ethanol. A flow to California at a slower rate because of some trackout positions.
And I would just add in those scenarios, the railroads tend to prioritize feed over fuel because there's live animals on the other side of it. So if you go back again, when we've had rail disruptions, they typically... Find a way to prioritize corn because you have, whether it's chick poultry or cattle that are being fed and rely upon that, they tend to get prioritization. But again, you know, the way the current weather pattern, at least what we've been looking at, is setting up, you know, hopefully it won't be a big impact from a rail perspective. As the Midwest doesn't look to be having a real super cold winter with a lot of precipitation.
One other item that I'm sure everybody's looking at is, is corn going to be in short supply and therefore a price increase? The opposite was what the USDA came out with recently, which I think was a bit of a surprise to the market and caused the price of corn to go down quite a bit. So there'll be a little struggling around the idea of, is there a lot more current coming out of South America or even Ukraine or elsewhere than what people expected?
Understood. Thanks for all that commentary, and good luck in the next quarter. Thank you. Appreciate it.
Operator
Thank you. Your next question is coming from Ed Wu from Ascindiant Capital. Your line is live.
Yeah, congratulations on the quarter. My question is going back to India. You said, you know, you guys are preparing still for the IPO, the minority stake, due to market conditions. What are the market conditions right now for listings on the India stock market?
India's stock market has had a tough year. They have had a five-year run with excellent IPOs, and now they're about to start recovering. The IPO of GEO, the largest cell phone company owned by the Family Owns Reliance, is sort of a rejuvenation of the India market. One thing that has been resilient in India is retail investors, and it's a socialist country, so 50% of every IPO must be sold to retail. And retail has been very resilient in India. So with what we expect to be, what we plan to be, the start of exports to Europe, that would drive revenues as well as profits out of India operations. And we're excited how that would be lined up in an IPO transaction.
I wish you guys good luck. Thank you. Thank you, Ed.
Operator
Thank you. This concludes our Q&A session. I'll now hand the conference back to Eric McAfee for closing remarks. Please go ahead.
Thank you to Emetis stockholders, analysts, and others for joining us today. We look forward to talking with you about participating in the growth opportunities at Emetis. Todd?
Thank you for attending today's AMETIS earnings conference call. A written and audio version of this earnings review will be posted to the Investors section of the AMETIS website.
Operator
Matthew? This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
