Aemetis (NASDAQ:AMTX) Q2 2026 Earnings Call

0:00 Hello, and welcome to the Aemetis Second Quarter twenty twenty six Earnings Conference Call. Joining us today are Eric McAfee, Chairman and Chief Executive Officer Todd Walz, Chief Financial Officer and Andy Foster, President of Aemetis Advanced Fuels. I will now turn the call over to Mr. Todd Walls.

0:20 Thank you, and welcome, everyone. Before we begin, I'd like to remind you that during the call, we'll make forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risk and uncertainty 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. For the second quarter of twenty twenty six, revenue grew 20% to $62,700,000 compared to $52,200,000 in the second quarter of twenty twenty five, with growth in both the California ethanol and dairy renewable natural gas operating segments. Biodiesel revenue relied upon sales from private customers.

1:09 The three India oil marketing company customers issued about $17,000,000 of allocations to our India subsidiary in late July, allowing us to begin biodiesel shipments under this new tender. Operating income improved by $16,400,000 to $5,800,000 in Q2 twenty twenty six, compared with an operating loss of $10,700,000 for the second quarter of twenty twenty five. Net loss improved by $14,000,000 to $9,400,000 compared to $23,400,000 in the second quarter twenty twenty five. Adjusted EBITDA increased by $15,500,000 to $9,700,000 in the second quarter twenty twenty six, compared with a negative $5,800,000 in the second quarter twenty twenty five.

2:05 The reconciliation of adjusted EBITDA to net loss is described in our earnings release issued today. An important new revenue component should be noted. Section 45Z credits contributed $8,600,000 $2,200,000 in dairy renewable natural gas and $6,400,000 in California ethanol. Excluding 45Z credits entirely, Q2 gross profit of $13,800,000 still improved by more than

2:38 $8,000,000 year over year, driven by lower priced corn at $6.07 a bushel versus $6.42 a bushel, a 12% increase in ethanol volume, ethanol pricing up 9%, and a significant 38% increase in RNG volume. Cash at the end of the quarter was $1,000,000 On July 9, we announced that we received $17,600,000 in net cash proceeds from the sale of Section 45C credits. Capital investments supporting our energy efficiency projects and investments in biogas production were $8,600,000 in the quarter and $15,100,000 for the first half.

3:26 With that overview, I'll turn the call over to Eric. Thank you, Todd. Let's highlight three key takeaways from the second quarter. First, Q2 continues the financial inflection points we noted during the last earnings call. We grew consolidated revenue 20% year over year, posted an improvement in operating income of $16,400,000 and increased adjusted EBITDA by $15,500,000 compared to the second quarter of twenty twenty five.

3:58 Second, we benefited from the California Air Resources Board approval 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 three eighty compared with the negative 150 default carbon intensity score for these digesters shown in Q2 twenty twenty five revenue. The approval of seven biogas digesters has been providing additional revenue at the higher LCFS value each quarter since Q3 twenty twenty five, and six 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.

4:46 And third, our capital projects are advancing. 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 MMBtu 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 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 three eighty generates substantially more credit per MMBtu than the negative 150 default score.

5:40 We have seven approved LCFS pathways averaging negative three eighty, with six more in the CARB process. For the 45Z production tax credit, the credits we sold in July were valued at $15.20 per MMBtu at a negative 42 emissions rate, an emissions rate which generates significantly less revenue than required under the one big beautiful bill. We anticipate that the Department of Energy will correct this oversight with an updated emissions rate that more accurately reflects the carbon reductions created by the renewable natural gas that we produce. As dairy renewable natural gas volume grows, all four revenue streams grow, but the approval of LCFS pathways in California and a correct emissions rate issued by the Department of Energy are expected to create significant increases in revenues from the same level of renewable natural gas production.

6:38 We are waiting for the six pending digesters to be approved under the California LCFS and the corrected 45C emissions rate to be implemented by the Department of Energy so we can generate renewable natural gas revenues that are consistent with existing laws in California and at the federal level. Congress and the California legislature already passed the underlying laws that allow for these improvements. We now need the carbon pathways and the LCFS the 45Z calculations to be implemented to generate the full amount of revenues from our RNG production. We operate 12 biogas digesters today, taking waste from 15 dairies and transporting biogas through a 36 mile pipeline to our RNG production facility that is connected to utility gas pipeline.

7:26 We have more than 50 dairies under contract. Two more methane capture digesters are scheduled to be completed within a month, And we have received 10 of the 15 cleanup and compression units that will be located at the next 15 digesters to come online. Regarding our California ethanol business, we had a good quarter and have two projects that are slated to significantly improve our financial performance, in addition to the expected reduction in corn emission rates that will increase 45Z revenues. Our mechanical vapor recompression system installation is an energy efficiency project that is expected to add approximately $32,000,000 in annual cash flow from three positive impacts on our operations.

8:14 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 gas lowers the carbon intensity of our ethanol, which raises the value of the 45Z credit and LCFS credits generated by every gallon of ethanol. The MDR project is making excellent progress. The key equipment arrived in June, including six three thousand five hundred horsepower turbofans, and the final large component arrived on-site this week. Foundation concrete was poured in the past week, and the system is expected to be operational by the end of twenty twenty six. The MDR project has received approximately $19,700,000 in grants and Section 48C tax credits from the California Energy Commission, Pacific Gas and Electric Company, and the IRS.

9:10 Second, we are installing upgraded corn oil separation units. Distillers corn oil is recovered from the ethanol process and sold as a low carbon feedstock into the renewable diesel and sustainable aviation fuel markets, where demand has strengthened this year with higher federal renewable volume obligations. We have two of the three corn oil extraction units in operation with a third scheduled for later this fall. Combined, the units are expected to approximately double corn oil production compared to our first quarter production rate. Our India biofuels business is shipping biodiesel to oil marketing companies and to private customers. Biodiesel revenue was $2,500,000 in the quarter, down sequentially as the oil marketing companies worked through their tender process that concluded in late July.

10:03 On August 4, we announced allocations to supply more than 18,000,000 liters to India's three government owned oil marketing companies over a three month period, which is expected to generate approximately 17,000,000 in revenue. Deliveries under the tender allocation are underway. We are also expecting to increase supply to private commercial customers due to increases in the price of India petroleum diesel this year. India's stated goal is to raise biodiesel blending from 1% today to 5% by 2030, which would create about 1,200,000,000 gallons of annual biodiesel consumption. We continue to prepare documentation for a potential public offering of a minority stake in Universal Biofuels subject to market conditions.

10:50 Our outlook on milestones and typing includes two dairy digesters completing within a month, the third corn oil unit operational later this fall, doubling corn oil production over Q1 twenty twenty six, MDR operational at the ethanol plant by the end of twenty twenty six, Six additional low carbon fuel standard pathways moving through CARB with the customary look back on approval. Dairy RNG and corn ethanol feedstock 45Z CF GREET updates from the Department of Energy, generating significant increases in renewable natural gas and ethanol revenues. And lastly, India deliveries across the current allocation period with additional orders anticipated before year end.

11:39 Thank you to our shareholders, analysts and partners for your continued support. Operator, let's take some questions.

11:47 Thank you. Ladies and gentlemen, at this time, we will be conducting our question and answer Our first question today is coming from Derek Whitfield with Texas Capital. Your line is live. Good morning, Eric and team. Hello, Derek.

12:34 Wanted to start on 45Z. Given the likely positive revision you'll receive in your CI score when the PER is finalized in November policy, do you have a sense of the amount of uplift you'll receive and the potential catch up value for past molecules that have been processed under existing policy. We have three different 45Z updates we're expecting, two of which we have high confidence and the third of which we have moderate level competence. The first is the renewable dairy, renewable natural gas calculation. A month ago was determined it was yet to be determined. So that number in California

13:17 converted into kilograms would be about a negative four twenty under the federal 45 Z calculator. We're currently at negative 42. We do not have good clarity on where we're going to land between negative 42 and negative four twenty. So can't give a whole lot of guidance on that. And unfortunately, the Department of Energy has not been really open about their process either.

13:46 But the calculator is currently generally about $15.20 We have posted on our presentation showing that we could earn over $75 per MMBtu at negative three seventy five. So the range is rather wide about what we should see per MMBtu. In ethanol, the corn emission rate improvement would be anywhere from 6,000,000 to $24,000,000 of actual net cash improvement. And that range is more defined because of the USDA calculator. What is not defined yet is exactly what periods of apply to Treasury guidance has shown it would start 01/01/2025.

14:33 And so if it does, and we'll have about an eighteen month look back at a one time recapture of that year and a half. And then we share a portion of that with other parties involved with calculating the emissions rate and the farmers of course. So the annual impact will be probably in the $6 to $12,000,000 per year, but with a one time catch up in emissions rate. The last and third 45Z update is CO2 reuse. We currently reuse all of our CO2. We produce roughly 150,000 plus tons a year of CO2. And we have a facility that's operated by the Messer company of Germany. And so we currently do not get any 45Z calculation value for that. Under 45Q, the reuse of CO2 generates value, but under 45Z currently it does not, and we're working to fix that. So the economic value of that would be somewhere probably in the 12,000,000 to $15,000,000 a year range as we optimize CO2.

15:37 And then lastly, I'll just mention this, the MVR will generate a significant amount of additional 45Z revenue by decreasing our natural gas use by 80%.

15:49 Great update and very detailed. Want to shift over to California LCFS with my follow-up. Want to get your thoughts on the recovery of low carbon fuel standard credits just based on what we saw last week in the 1Q card report and also the proliferation of the markets that we're seeing and we're increasingly seeing some of your competitors sell into the CFR market as well. So we'd love your thoughts on how how to expect the recovery of LTDX credit prices.

16:21 Andy, do you want to talk about CFR? Just briefly that we're going through the process of qualifying for CFR. As you know, Derek, it's about a nine month process to get registered and all the rest. We're seeing significantly better values for the gas sold to Canada. So obviously that's an appealing market and as more companies start to do that, obviously that'll probably normalize some of the values that we're seeing, but we are actively underway and going through the registration process in Canada. And the California LCFS predictably is in deficit. What I think the market is learning is that as renewable diesel capacity increases, you have two constraints on generating more LCFS credits.

17:08 First constraint is that there's only certain amount of low carbon feedstock in the market, tallow, UCO, distillers corn oil is very limited. And so you can double your renewable diesel capacity, but you're not doubling number of LCFS credits when more soybeans and canola is used as the

17:26 number of gallons increased. The second various real constraint is that over 80% of the diesel in California, about a 4,000,000,000 gallon market is already renewable diesel. So if you look back over the last thirty six six months and say, wow, we're going to double the amount of renewable diesel used in California, you run out of trucks. So those two very significant constraints means that you're not seeing this growth rate of LCFS credits. Technically, see a decrease over the last two quarters in LCFS credits produced by renewable diesel. Also

18:03 electricity was down, renewable diesel was down. You're seeing declines in the production of LCFS credits at the same time, as you know, every single year, the number of LCFS credits that have to be delivered is increased. So this is resulting in a larger deficit every quarter. We expect this will go on for approximately the next fifteen years. If you just read the data, that's sort of the way it's going to work. And at some point in time, will realize it's cheaper to buy $100 or $200 LCFS credit than to run out of the LCFS bank and have to pay the max, which is today over $270 per credit. Very helpful. Thanks for your time.

18:50 Thank you. Our next question will be coming from Ed Woo with Ascendiant Capital. Your line is live. Yes. Congratulations on all the progress. Going back to the LCFS credit recovery, the pricing has gone from about $55 ton to about $80 a ton recently. Do you have any guidance on how high do you think it can go?

19:18 Excellent. Well, the cap is $2.70, so we know the regulators. It's $200 plus the cost of living index starting in 2016 is the calculator. We fully expect that the oil industry is doing what it can to try to convince California regulators not to enforce the rules. I think the reality is this is a twenty year program that was adopted in July 2025. And there's a very limited amount of appetite

19:51 for people to go back through what was a four year process of putting this in place. And so we expect that the program itself will continue to generate deficits and we're largely just measuring how long it will take for major purchasers and obligated parties to decide that they should load up and be well positioned for the longer term. Right now, think people are relying upon

20:16 the large amount of credits in the bank, But as that excess pile of credits gets rapidly depleted, I think more and more traders will look out three to four years and decide they don't want to pay $270 per credit.

20:34 Great. That sounds good. Thanks for answering my questions, and I wish you, guys good luck. Thank you. Thanks, Ed. Thank you. Our next question is coming from Aemetis Dayal with H. C. Wainwright. Your line is live. Thank you. Good afternoon, Eric and team. With respect to sort of the India IPO process for the India biodiesel plant, I mean, the start and stop nature of operations over there, is that becoming a little bit of an overhang on the process, Eric? Or how should we think about that item being checked off in 2026?

21:12 Or does this get pushed out to 2027? The start stop of our operations certainly has an impact, no question at all about that. But having an equal, if maybe even a stronger impact is the global increase in the price of crude oil as a result of the Iranian war and the politics between The US and India, in which The US now kind of controls India's purchases from Russia of crude oil.

21:40 That has caused the India domestic diesel price to be increased multiple times in the last few months. And so the external drivers in favor of biodiesel adoption are very positive. What's having a bigger impact on our business than the OMCs this month or next month or ordering as much as they could, is just the impact of the higher energy prices for both liquefied natural gas, as well as for liquid fuels, resulting from the Iranian war on the overall stock market. The overall stock market in India in the first three quarters of the year had some trouble. People expected that higher energy prices would hit earnings.

22:28 There's been a bit of a recovery in the last month or so, and we've seen some IPOs that have now gone through. But there was a bottleneck in the IPO pipeline because of the overall market price decrease that happened in the first few months or

22:44 first actually two quarters of twenty twenty six. That is what's directly impacting our timing. And as we talk about the IPO in India, we talk about market conditions. It's really the IPO market conditions that we're talking about. They're getting IPOs done now, but there was and is a pipeline of IPOs in process in India. We are very well positioned for growth in India as well as diversification. We have talked about additional biodiesel sites that's actively in process. Our strategy is to place our biodiesel plants close to sources of supply.

23:20 We are the largest biodiesel producer in the country. We tend to stay that way. And we're working on diversification. Our diversification is into what they call compressed biogas, but we call it renewable natural gas, as well as into sustainable aviation fuel. So we're executing on our plan. We have increasing confidence that the IPO market is showing some robustness. And we have engaged outside lawyers, accountants, IPO managers. We have a new CFO that joined us last year. We have new CEO that joined us a while ago. We have an IPO in process in India and subject to market conditions, it'll happen as soon as the market is available for us to be the next one in line.

24:10 Understood, Eric. Thank you for that. You also mentioned some of that capacity is going to private parties, not the high marketing companies. Is this sort of a new development or have you always been supplying some of that capacity to private players over there?

24:27 It's a very good question. It is a new development. It is a very large market. The price of diesel in India has been controlled by the government. It's a part of their policy. And with the inability for Russia to supply cheap crude oil into India, the India government's been forced to push up the price of diesel several times in the last few months. As a result, commercial customers can buy from us at attractive prices that are a discount of 3% to 5% below what they have to pay for diesel at the pump. They also get some other benefits like lower particulate emissions and some other indirect benefits, but a savings of up to 5% on fuel is certainly material.

25:15 So we have large commercial customers that we are either already shipping or expanding our relationship with that could be very significant volumes for us. Understood. Just last one for me. Are you comfortable with your liquidity position? Right now, the balance sheet seems to have quite a bit of current debt. So just wondering how you are planning to sort of address that part of the story? We have had a very positive and productive working relationship with our private credit provider, Third Eye Capital, since 2018. And just within the last couple of months had a visit by all the principals in the firm and a very productive multi day project tour and update. And we are looking forward to continued very successful relationship with Third Eye Capital.

26:10 I should note that about $120,000,000 of our funding with Third Eye is an effective interest rate about 5%. And we have some more expensive debt with them as well. But our goal is to continue pay downs as we do these catch ups on 45Z and other events are very large cash events that should be happening later on this year and that we can refinance the balance of those amounts to all to longer term and lower interest rates. Thank you, Eric. That's all I have. Appreciate it. Thanks, Aemetis. Thank you. Our next question is coming from Dave Storms with Stonegate. Your line is live. Hello, and thank you for taking my questions.

26:57 Just maybe want to start with the gross margin profile, expecting that you'll be entering 2027 with an even stronger profile following the MBR coming online. As we're thinking through the impact of that, do you think there will be more leverage to the gross margin on the revenue gains from the MBR coming online or the cost takeouts that are also associated with that? Very good question. About $8,000,000 of the $32,000,000 so approximately one quarter comes from the petroleum natural gas cost reduction every month that we have to currently endure. So we're reducing natural fossil natural gas by about 80%. The 45Z and LCFS value adds up to about $24,000,000 a year. As LCFS credits increase, the value of that 24,000,000 increases.

27:54 And so we do anticipate actually to have more than 32,000,000 of ongoing value, especially as LCFS credits, which are currently an $80 range up from a little over $50 earlier this year as they are expected to exceed $100 and then eventually exceed 150 that'll increasingly reward us for this energy efficiency project at the ethanol plant. That's great color, I appreciate that. Turning to your MMBTUs, back of the envelope map has your digesters running 40,000 to 50,000 MMBTUs per year. Obviously with variances based on the weather, when it gets colder, the digesters digest less. Is that maybe a fair run rate though, for these two new digesters that are coming online?

28:43 Or are there other variables we should keep in mind? The size of the dairy is the number one criteria. And so we will be updating some of that information over the next quarters. But dairies in general are 25,000 to 30,000 MBTs per year. That's what our average dairy generation is. And these dairies are approximately average dairy size. That's perfect. Thank you for taking my questions and welcome to next quarter. Thank you, Dave. Thank you. We have reached the end of our question and answer session. So I'd like to turn the call back over to Mr. McAfee for any closing remarks.

29:30 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. Todd? Thank you for attending today's Aemetis earnings conference call. A written and audio version of this earnings review will be posted to the Investors section of the Aemetis website. Ollie? Thank you. Thank you, ladies and gentlemen. This does conclude today's call, and you may disconnect your lines at this time. And we thank you for your participation.