Aemetis Inc (AMTX) 2015 Q4 法說會逐字稿

Greetings and welcome to the Aemetis fourth-quarter 2015 earnings review conference call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Todd Waltz, CFO of Aemetis.

Thank you, Michelle. We welcome our shareholders and financial market professionals to today's Aemetis fourth-quarter 2015 earnings release conference call. We suggest visiting the Aemetis website at Aemetis.com to review today's earnings press release, the updated Aemetis corporate presentation, Aemetis' filings with the SEC, recent press releases, and previous Aemetis earnings conference calls.

Before we begin our presentation, I would like to read the following disclaimer statement. During today's call we will be making forward-looking statements including, without limitation, statements with respect to our future stock performance, plans, opportunities, and expectations with respect to financial activities. These statements must be considered in conjunction with the disclosure and cautionary warnings that appear in our SEC filings.

Investors are cautioned that all forward-looking statements made on this call involve risks and uncertainties and that future events may differ materially from the statements made. For additional information, please refer to the Company's Securities and Exchange Commission filings, which are posted on our website and are available from the Company without charge.

Our discussion on this call will include a review of non-GAAP measures as a supplement to financial results based on GAAP. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the quarter ended on December 31, 2015, which is available on our website.

Adjusted EBITDA is defined as net income or loss plus, to the extent deducted in calculating net income, interest expense, loss on extinguishment, income tax expense, intangible and other amortization expense, depreciation expense, and share-based compensation expense.

Now I would like to review the financial results for the fourth-quarter 2015 and for the total year of 2015. Revenues of $147 million during 2015 represented 29% year-over-year decline from the revenues of $208 million during 2014. For the year ended December 31, 2015, 56 million gallons of ethanol and 360,000 tons of wet distillers grain were produced at our Keyes plant and sold at an average price of $1.74 per gallon and $80 per ton, respectively.

For the year ended December 31, 2014, 60 million gallons of ethanol and 408,000 tons of wet distillers grain were produced at our Keyes plant and sold at an average sales price of $2.54 per gallon and $92 per ton, respectively.

An overall softness in the ethanol market led us to operate the Keyes plant at 101% of nameplate capacity during 2015, compared to 109% of nameplate capacity during 2014. Combined with the decrease in the average sales price per gallon of ethanol sold, these lower production levels resulted in lower sales from our North America segment.

Our India subsidiary produced 19,523 metric tons of biodiesel and 4,653 metric tons of refined glycerin, resulting in 2015 revenue of $17 million, representing growth of 41% year over year from 2014. Significantly, biodiesel revenues from domestic India customers during 2015 were $14.1 million, a 265% increase from revenues of $3.86 million during 2014, with major milestones achieved in August 2015 from the approval of bulk biodiesel sales and in October 2015 from the removal of the tax on feedstock for biodiesel production.

Gross profit during 2015 of $4.2 million was down from the gross profit of $37 million during 2014, primarily due to excess ethanol supply and the spread between ethanol and corn pricing in the market. Operating loss during 2015 was $8.6 million, down from the operating income of $24 million in 2014.

Selling and general and administrative expenses were largely unchanged from $12.3 million during the year ended December 31, 2015, to $12.6 million during the same period of 2014. Interest expense during the year ended December 31, 2015, of $17.2 million was largely unchanged from the interest expense of $17.4 million during the same period of 2014, primarily due to the delay in realizing EB-5 money from the escrow account and lower levels of expense acceleration due to loss on debt extinguishment.

The net loss during 2015 of $27 million, or $1.37 per share -- per diluted share, compares to net income of $7.1 million, or $0.34 per diluted share, during 2014. Adjusted EBITDA for the 12 months ended December 31, 2015, was a loss of $3.1 million compared to adjusted EBITDA of $30 million for the same period in 2014.

Let's review Q4 2015 results. Revenues of $35.3 million in the fourth quarter 2015 declined 15% from $14.5 million in the fourth quarter of 2014, primarily due to a decline in ethanol sales price per gallon as well as lower wet distillers grain per ton. During the fourth quarter 2015, gross profit declined to $1.4 million from $2.5 million during the fourth quarter of 2015.

During the fourth quarter of 2014, selling, general, and administrative expenses decreased slightly to $2.8 million compared to selling, general, and administrative expenses of $3.3 million during the fourth quarter of 2014. Interest and amortization expense slightly increased to $3.8 million in the fourth quarter of 2015, compared to $3 million in the fourth quarter of 2014 due to higher cost of debt repayment.

The operating loss for the fourth quarter 2015 of $6.5 billion compares to $3.7 million of operating income during the same period in 2014. Adjusted EBITDA during the fourth quarter 2015 resulting in a loss of $260,000 compared to a gain of $655,000 of adjusted EBITDA for the same period of 2014.

That completes our financial review of the fourth quarter and year-end for 2015. Now I would like to introduce the founder, Chairman, and Chief Executive Officer of Aemetis, Eric McAfee, for a business update. Eric?

Thank you, Todd. For those of you who may be new to our company, let me take a moment to provide some brief background information.

Aemetis was founded in 2006 and we own and operate facilities with more than 110 million gallons per year of renewable fuel capacity in the US and in India. Included in our production portfolio is a 60 million gallon-per-year capacity ethanol plant located in Keyes, California, near Modesto. We also build, own, and operate a 50 million gallon-per-year capacity distilled biodiesel and refined glycerin biorefinery production plant on the East Coast of India near the port city of Kakinada.

Headquartered in Cupertino, California, Aemetis has developed and acquired a portfolio of technologies related to advanced biofuels and biochemicals. We recently filed a broad provisional patent on a breakthrough process for the production of high energy density biofuels, isoprene for rubber, and other high-value products from any sugar source. This technology was developed by the team of scientists working at our Maryland molecular biology laboratory.

Let's discuss our businesses, starting with India. The India domestic biodiesel market is growing and important policy changes to accelerate this growth occurred in the second half of 2015 after elimination of the $10 billion per year annual diesel subsidy in October 2014. In August 2015, direct sales to bulk users by biodiesel plants was approved. In October 2015, the 20% tax on biodiesel feedstocks was ended.

And we were recently informed that after extensive independent testing with our biofuel, 100% distilled biodiesel has been approved by the Transport Ministry as a full replacement for diesel fuel. The B100 approval opens the entire bulk customer market as potential purchasers of our biodiesel in India.

Each year about 25 billion gallons of diesel is consumed in India. Biodiesel reduces greenhouse gas and pollution emissions by about 80% compared to diesel. The distilled biodiesel produced at our Kakinada plant is unique in India due to its 98% purity and high cetane value. Our B100 customers include operators of thousands of buses, trucks, and other diesel equipment from Volvo, Scania, and other leading manufacturers.

As a result of these supported policies, our India domestic biodiesel revenues in 2015 of $14.1 million represent a 356% growth from revenues of $3.8 million during 2014. The annualized revenue run rate during Q4 for India domestic sales exceeded $20 million per year, despite the cooler winter season.

During the winter months in India, both customers blend biodiesel with petroleum diesel to prevent the biodiesel from gelling. As of March, customers are increasing blends up to B100, meaning 100% biodiesel, as the temperatures in India have risen.

The price of diesel relative to the price of steering feedstock is currently the constraint on revenue growth in India. With the recent significant increase in the price of crude oil from January 2016 lows, we expect further increases in the price of diesel and biodiesel in India that will allow our business to grow.

After more than a year of work, on January 27, 2016, we received approval to import used cooking oil and tallow-based biodiesel from our India plant into California under the low carbon fuel standard. In today's market, the low carbon fuel standard adds about $1.20 per gallon of value for UCO biodiesel. We are aggressively seeking approval from the India government to import used cooking oil into India for the purpose of exported biodiesel to California.

We believe India biodiesel and glycerin revenue growth in 2016 will continue through increased domestic India revenues and exports to California under the recent approval. Our goal is to reach the approximately $150 million per year revenue run rate that will occur at the full 50 million gallon per year capacity. Then, to expand the India plant with biodiesel and renewable diesel capacity to supply the large India and California markets.

Now let's discuss several important milestones achieved in the growth of our ethanol business in the US, specifically the expansion into the production of advanced ethanol and related products.

This week we announced two important technology agreements that will enable our Keyes plant in California to produce advanced ethanol from non-corn sources, lowering feedstock costs and increasing revenues per gallon. Edeniq is a technology company based in central California that has invested about $100 million in the development of its patented equipment, enzymes, and analytical processes. After years of work by Edeniq to demonstrate the accuracy in yields of its process, the EPA approved a pathway allowing corn ethanol plants to convert corn fiber into cellulosic ethanol using the Edeniq process, including proprietary cellulosic ethanol analytic capabilities.

The Edeniq Cellunator device is a highly-reliable device shaped like a small turbine which shears the corn kernel after milling. This shear reduces particle size and creates consistency, allowing the proprietary cellulase enzymes to convert significantly higher amounts of starch to ethanol, as well as to convert cellulosic sugars derived from corn fiber into ethanol.

In the short term, the acquisition of the Edeniq patented equipment and enzymes technology expands the production rate at the Keyes plant by an estimated 5% of additional ethanol from the same amount of existing feedstock. Of this 5%, about 2.5% is increased starch ethanol production worth about $1.60 per gallon, but about 2.5% to cellulosic ethanol worth up to $4 per gallon. In addition, the amount of high-value oil extracted for animal feed is increased.

The revenue increase from the Edeniq process is potentially more than $8 million per year, comprised of about 1.5 million gallons of starch ethanol currently worth about $2.4 million per year and about 1.5 million gallons of cellulosic ethanol worth about $6 million per year, including the Low Carbon Fuel Standard and EPA D3 RIN value. EPA and LCFS approvals for the Keyes plant are expected to be received after completion of the installation of the Edeniq equipment, which is expected to occur by Q4 2016.

Though the Edeniq equipment enzymes and proprietary analytics quickly begin the production of advanced ethanol at the Keyes plant at a capital cost of only about $2 billion, the increase in ethanol production is limited to about 5% cellulosic ethanol, even using expanded pretreatment systems in the future.

Our second technology announcement removes this limitation. The LanzaTech process breaks this cellulosic ethanol-producing barrier, allowing for the conversion of first-generation ethanol plants to advanced ethanol production through the use of a gasifier to produce syngas and then a unique microbe to produce advanced ethanol. The LanzaTech license agreement announced this week provides Aemetis with exclusive rights to the technology for the state of California for up to 12 years for a broad range of biomass feedstocks.

LanzaTech was founded in New Zealand in 2006, the same year as Aemetis's founding, and has invested about $200 million in the development of their advanced ethanol technology, including six demonstration plants completed and two commercial plants in construction. The LanzaTech process uses a microbe that lives on hydrogen and carbon monoxide gases found near thermal vents in the ocean. By converting ag waste, dairy waste, forest waste, construction waste, and even hazardous waste in a gasifier into a clean gas, primarily comprised of hydrogen and carbon monoxide, the microbe can convert a wide variety of wastes into cellulosic ethanol that commands a premium price in the fuels market.

With corn costing more than $150 per ton at the Keyes plant and large volumes of hazardous materials and other biomass generating tipping fees of up to $500 per ton of potential revenues for our plant, the LanzaTech process transforms the financial model of first-generation ethanol plants by turning feedstock into a revenue source while increasing the value of the ethanol by about $3 per gallon through D3 RIN, LCFS credits, and the $1.01 per gallon federal tax credit.

Though LanzaTech is building commercial plants in Europe with the world's largest steel company as well as in China, the Aemetis agreement is the first deployment of the LanzaTech technology for syngas to ethanol in North America. The agreement provides for an initial unit producing 8 million gallons per year to be built by the fourth quarter of 2017, followed by 8 million gallon units until 32 million gallons of production is achieved at the Keyes plant. Each 8 million gallon per year capacity LanzaTech unit will consume an estimated 100 tons per day of waste materials, generating up to $500 per ton of tipping fees and providing up to $18 million per year of revenues from our feedstock along with 325 tons per day of orchard wood or other waste biomass.

Please note that due to the low cost of solar and wind renewable electric energy in California, the Central Valley recently has had a significant challenge disposing of ag waste due to the closing of more than half of the biomass-to-energy plants. Assuming more than $4 per gallon of revenues from 8 million gallons of advanced ethanol, total revenues at the Keyes plant could increase by up to $18 million from the tipping fees and $32 million from advanced ethanol for a total of about $50 million of new revenues at a nominal cost of ag waste feedstock by installing the LanzaTech system.

Our funding plan for the installation of the Edeniq and the LanzaTech units into the Keyes plant include a new $29 million credit facility being established this week with Third Eye Capital in Toronto, Canada, a $50 million EB-5 subordinated debt funding at 3% interest rate that was launched last week in China, a USDA loan guarantee for senior debt, California Energy Commission grants, and California cap and trade grant funding.

Since more than 60% of the carbon reduction under the California carbon credit system has been generated by corn ethanol at only a 20% decrease in carbon emissions compared to gasoline, the estimated 80% decrease in carbon emissions from cellulosic ethanol has received strong support from key managers at the California Energy Commission and California Air Resources Board. This year up to $2 billion will be distributed from cap and trade funds for the purpose of reducing carbon emissions in California.

Regarding EB-5 funding, we are pleased to report that all of the $36 million in Phase 1 of the Keyes plant financing has been subscribed and all of the jobs have already been created more than two years ahead of schedule. The $50 million EB-5 funding for Phase 2 of the Keyes plant to fund expansion of the Edeniq and LanzaTech advanced biofuels units has already attracted several large EB-5 brokers due to the completion of our first project. We remain firmly committed to strengthening our financial position to expand our opportunities for future growth and profitability.

Now let's take a few questions from our call participants. Michelle?

(Operator Instructions) Scott Ozer, Sandlapper Securities.

Thank you. Good morning, Eric. I have a couple of questions. One I noticed in the last release you said that there was $22 million of EB-5 funding, or actually $23.5 million, and then this one is $22.5 million of EB-5 funding has been released from the Company.

I was wondering what happened to the $1.5 million. Or was that a clerical error? And when will the money actually be used to pay down debt, if that's the intention?

I think what you might be citing is the $12.5 million still in escrow, because we have received $23.5 million from the escrow account into the Company and the total of $36 million is the total funded amount. So I think it's just the amount in escrow. If you want to send me an email as a follow-up where we cited it, should be -- we've received $23.5 million and then have $12.5 million in escrow.

Yes, I'm looking at it. I'll send it to you because it says $22.5 million of EB-5 funding released to the Company from escrow during 2015. That was on the first page of the fourth quarter (multiple speakers).

Oh, yes, during -- that's correct. Actually during the year that's the amount that was released. The total amount that has been released is -- includes some funds that were released before 2015. That's where you get the $23.5 million.

All right. And I don't know how to convert 19,522 metric tons of biodiesel into figuring out what kind of percentage the plant is operating at. Do you have that number?

Each metric ton, just for simple math, is about 300 gallons, and so you do the math on that. And we are running at roughly approximately 15% capacity on that number, but the key message here was that our European sales faced a change in policy in the middle of 2014, which discontinued our sales into Europe, and so we ramped up our India sales. So it's a curve going from the first through the fourth quarter that is rapidly increasing.

We actually -- the fourth quarter at a $20 million-plus annualized run rate, up from a very low annualized run rate in the first quarter. So it's the domestic India growth that is actually the trend that we are tracking there.

Okay, and have you -- did you mention, maybe I missed it -- anything about getting a customer for the biofuel -- the biodiesel? Or anything about the IPO advancements over there?

I didn't mention anything about it, but we are -- as I think we've mentioned, we have an investment banker we have retained. The stock markets worldwide had a difficult first quarter, but our business continues to grow aggressively. And, frankly, the supportive government policies in India, such as the approval of the 100% biodiesel replacement diesel, has created a lot of interest in what we're doing and expanded customer distribution, etc. So we do expect the market conditions will improve for the IPO of our subsidiary in India.

Our California opportunity was more than a year's worth of work and that now being in place helps us expand shipments. Not only in India, but actually higher-margin opportunities in California, so we think that will help drive the IPO opportunity in India.

Of course, we are currently in March. We've got a long way to go in 2016 and we are well-positioned to take advantage of the public markets in India as we see things happening. I would mention that if we would've had this call just about 60 days ago, we would have been talking about $25 and $27 crude oil prices.

Today we're talking about $38 to $40 crude oil prices. So crude oil has moved up by 50%-plus and that has had a very direct positive impact on the appetite in India, because we sell our product in direct competition with diesel. So as the price of crude oil continues to move up, the price of diesel continues to move up, and our commodity potentially is a much less expensive solution.

And with the recent approvals that we cited -- the removal of the feedstock tax, removal of the barriers to selling to bulk customers, now the removal of the barrier of us being able to sell 100% product -- we really are well-positioned to grow extremely rapidly as the price of diesel continues to move upward.

Okay. Did you actually say when you are going to use some of the EB-5 money to pay down the Third Eye Capital debt?

We have applied of the EB-5 money to payment of the higher interest Third Eye Capital debt. The EB-5 money, of course, is only 3% interest rate, so we apply all the proceeds immediately to paying down the higher interest rate debt. So the $12.5 million we have in escrow right now, really functionally is just an offset to the outstanding principal amount we have to Third Eye. And so we are already anticipating, of course, the lower interest cost and lower principal balance that will occur when the EB-5 funding occurs.

Interestingly enough, on our next project, the $50 million offering, we have received approval for a release of escrow of a significant portion of the funds. The vast majority of the funds would be released upon funding. Currently the escrow requires we have to wait until the federal government has approved the I-526 form with the investor, which can take up to 18 months.

The trend in the EB-5 community has been to allow the investor to start generating some investment return and not have the funds sit in escrow so long, because obviously the investor doesn't earn any return when it's sitting in escrow. Because of that trend, the next offering we're doing is expected to have a release of approximately 80% of the funds upon funding and that will have a very positive impact on our pay down of our credit line in Canada.

That credit line in Canada is structured as a bridge funding so that we can do these EB-5 offerings and then pay them off. And with the success of our first EB-5 offering it has now become a source of capital for us, not just to do this one phase two project, but also further projects past that. The recent Chinese presentation that happened over the last week resulted in a half-dozen large brokers who are now competing to underwrite the next rollout we're doing now at this current offering.

So we expect the pace to be much better. Certainly the lack of an escrow will be a dramatic improvement in our pace of paying down Third Eye and, quite frankly, $50 million plus $12.5 million is almost the amount of money that's outstanding to Third Eye right now. So we see 3% money replacing our more expensive Third Eye money just by execution of our business model.

Okay, that's good. When do you think you will be at 50% capacity over in India and 100% capacity?

It's really depending on market conditions. We did a structural upgrade of the plant in the fourth quarter of last year, new electrical substation and a variety of other things, so that we can have 100% production capability. The ramp-up coming out of winter is really being hampered primarily by the price of palm stearin.

The El Nino effect has caused some hedge funds to come in and get excited about the price of palm oil, push the price of palm oil up; pushed up all the other oils. And so we are transitioning through a scenario where price of diesel continues to rise and, frankly, the place of stearin, which is the waste product from edible palm oil, has risen but is now weakening.

So as that margin improves, we will accelerate our shipments in India. We have recently had the Volvo bus company as well as, frankly, just yesterday the Scania bus company, both of them are European bus companies, come out strongly in favor of our product. Scania yesterday used 100% distilled biodiesel and advertised that they were completely replacing diesel in their buses by using our 100% distilled biodiesel.

And I think you probably recall, Scott, that we're the only distilled biodiesel producer in India, so the other competitors are restricted to 10% or 20% biodiesel due to their contaminants and lower cetane values. So we're very well-positioned for rapid expansion in India and right now it's primarily feedstock and diesel margin management that we are dealing with in terms of scale of pace. We do believe we can get to full production this year by just having favorable dynamics of the crude oil market and, frankly, just a little bit of the excitement about El Nino settling down, which we have already seen.

Okay, that sounds good. Any comments about the jet fuel or any other chemicals or the carbon process?

Yes, we have two comments about it. First of all, the initiatives we announced this week are major upgrades to our California plant. I would say that these are technologies that we have been working on for several years.

Frankly, the CEO of LanzaTech we have owned since she was at Honeywell five years ago. So these are long-term relationships. Edeniq, I think, falls in that category as well. We have been in close association with them since 2012.

What we did not have is we did not have both federal, state, or even federal tax policy that was being enforced. I think you recall that November 30 last year, after a two-year delay, the EPA began to enforce (technical difficulty) renewable fuel standard again. And in California, for approximately two years, litigation delayed the enforcement of the carbon credit program under the Low Carbon Fuel Standard, so in December that litigation was resolved. And also in December the $1.01 per gallon tax credit for cellulosic ethanol and the $1 per gallon tax credit for diesel was signed into law by President Obama.

So in the course of about a month in late 2015, the policies supporting advanced biofuels were adopted at federal and state levels. And so that has been the reason that we have now moved forward with these initiatives; that we now have certainty of having market adoption of the product at values that are somewhat determinable in the current market.

Okay. All right, great. Let me ask -- let me have anybody else ask their questions. Thank you.

(Operator Instructions) [James Stone], private investor.

Good afternoon, folks. I wonder if you can tell us what the issues are that are controlling the rollout of the ethanol in California, because I would think that you would want to start that almost immediately. So what are some of the things that are controlling it and when do you expect to see first revenue out of that?

Good question, Jim. Thank you. The Edeniq technology has a lead time of approximately six months to installation, and this is the fabrication of the equipment, so we announced Q4 is when we expect to be operating. We have some opportunities to speed that up a little bit, so it could be a Q3 revenue opportunity, but we are currently projecting Q4 is when we would install.

Parallel to that, we have applications that need to go through the process at the EPA and then for full value of the fuel, we also have applications at the California Air Resources Board. So there's an administrative process that will be going parallel.

We are waiting for what we consider to be excellent news. There is a pending application by Pacific Ethanol for their cellulosic ethanol pathway to be approved, and that should happen sometime soon. Who knows? It's the EPA. But we do expect that approval to happen certainly within the six-month timeframe with getting our plant going.

And that ethanol is extremely similar to our application and should become a well-trod path to the EPA for the production of cellulosic ethanol from corn fiber. It is potentially a situation which we could open units and get our federal D3 RIN, which is worth about $1.38 a gallon right now, at the same time. California Air Resources Board has a similar process that will probably take a little bit longer, but we certainly would be in a position to get the $1.01 per gallon tax credit, the D3 RIN, and potentially even the Low Carbon Fuel Standard value, which is about $0.80 a gallon, certainly within 12 months from today.

So it's a ramp-up to the full value of the molecule, but when completed, including the $1.01 per gallon tax credit, today's math would show about $4.60 total cash value, which is of course $3 more than a corn ethanol molecule. And so producing 1.5 million gallons at a $4.68 number means over $6 million of additional revenue -- this is revenue we currently do not get -- because it's converting the sugars in the corn fiber, in the cellulose that is already in the plant but is currently not being converted because we currently are not using cellulosic enzymes and not using this shearing device. So it really is brand-new margin and at very favorable net margins to us.

Okay. I'm still a little confused. So you would expect to see revenue from this in Q3 or Q4?

Q4 is what we are currently projecting.

Okay. And what do you expect the buildout curve to look like? Is that going to be a quick ramp, a staircase? What type of a rollout?

We would be installing three of their devices. Each device handles approximately 20 million gallons worth of biofuel, so the three devices cover our entire 60 million gallons. And they would be fully operational within a matter of weeks of installation, so the ramp is extremely rapid. It's certainly -- in less than a month we would be at full production.

Judging by some of the difficulties we have had ramping up in India, then would we expect them by the end of the first half of next year? That we would be at that initial step-up in revenue? Or is that going to be shorter or longer than that?

Yes, India ramp-up has virtually nothing to do with the plant's production capacity. It has all to do with the taxes on feedstock and the inability to sell to customers directly and policy, government policy. And I'd say, likewise, the EPA and California Air Resources Board opening the door for cellulosic ethanol in December of 2015 is what opened the door for this.

But this is an in-line process. We currently mill corn down into a flour and then we go through the process of making it into an ethanol. This is a device that is put in place after you mill the corn and it reduces the size of the particles such that the starch can be extracted more easily and the sugars in the cellulose can be extracted by the cellulosic enzyme.

You discussed earlier. I understand that, but what I'm trying to understand is will revenue be a substantial lag to when you get the plant completed or will the revenue ramp be fairly close to the build schedule?

The revenue ramp would be actually immediate. You turn the devices on and it happens that day. The only, quote, ramp-up is if for whatever reason your mechanical testing or something else requires an amount of adjustment time, but you are talking a week or two. This is an in-process device that just immediately increases yields so there's no ramp-up period, per se, from an investor perspective.

The only ramp-up really is the regulatory side. We have applications with the EPA and applications with California in order to garner the roughly today $1.38 a gallon of cash from a D3 RIN. That's what Pacific Ethanol is doing right now and they expect to have approval very, very soon. Same goes with California.

So the ramp-up is not in production. We will be producing cellulosic ethanol within a matter of hours of installing the unit. The real process is just getting the full $4.60 of value that could be obtained, including the tax credit.

Okay. When should we expect to see revenue from shipping biodiesel to the US? And what are the issues that are controlling that ramp-up?

There is really only one issue controlling it. We have all the California approvals; that took us about two years. It was completed on January 27 of this year, 2016.

The only approval we are awaiting, and we are working aggressively on this, is the approval to bring used cooking oil into India so we can do the bulk shipments that enable us to meet the requirements for shipping. You're talking a 3,000 metric ton minimum in order to bulk ship across the ocean.

And so the importation of UCO into India has been publicly supported in articles and interviews by the Transport Minister, who, among other ministers, is directly involved in this process. And so we're going just through the administrative process of getting approval for importation of UCO into India from other Asian countries for then export to the US.

It is a process of working with the Indian government and so it is not a determinable process in which we have some defined period of time. But that being said, we're down to one remaining minister and that is the minister that actually issues the license. I can assure you we have had extensive meetings with that minister as well as the other ministers who have now signed off.

It's a bit of the process of chasing paper around the government and now we've gotten it to the final department for approval. So I would say we are making excellent progress. I do not have a projection of when we're going to get that approval, but when we do we will immediately start importing and then exporting to California.

So do you think by the time you report the next quarter that you will begin to have some revenue?

I think by the time we report next quarter it's highly likely we will have approval (inaudible). Then you go through the process of importing and exporting.

Depending on how we're selling, we could be selling FOB the India plant, which saves about six weeks in the revenue cycle. Because if we ship in to California and then distribute in California that process is about a six-week process. So depending on how we do the sales, which we have existing customers that would buy directly from India but at lower margin, we will make a margin decision about the timing of revenues on that.

We have significant additional value we can garner by bringing the product into California and then distributed it to the more than 50 fuel racks that are spread around California. So you get it close to the customer and there's a significant amount of additional revenue that is available to us.

We are working with several few investigators that we have long relationships with about executing on that strategy with us. And that would have the effect of delaying revenue roughly two months from when we otherwise could get it, but the margins would be significantly higher. So we are working on those relationships in California now ahead of having the approval bringing UCO into India and then export to California.

Okay. Is there any possibility that you can ship smaller loads that wouldn't need all this approval, but could generate revenue? At this point I would think any revenue would be of help to us.

We have shipped, I don't know the number, it's probably $50 million of product into Europe and so we are very familiar and quite successful, frankly, and profitable at selling in foreign markets. It needs to be a bulk business. When you chop it up into smaller pieces and put it in [C train] or something like that, the costs of doing that exceed the margin.

It really is a bulk business. It's a large volume business that is shipping 1 million gallons or more per shipment. It's the business we want to do, obviously, because we are a 50 million gallon plant. Our desire is to do a couple million gallons a month into California and then end up with essentially a good problem in India where we just don't have enough supply to keep up with our customers.

And so that -- the margins in California appear to be excellent, especially if we work on a distribution plan that gets us closer to customers. California is a 4 billion gallon per year diesel market. At a 20% blend it would be about 800 million gallons a year of biodiesel into California.

Our estimation is that currently it's only really consuming about 250 million gallons a year, so our calculations are that there's about 0.5 billion gallons of additional biodiesel that can be brought into state. And we would like to be a major player in that because -- for a variety of reasons, but, frankly, the margins are very good.

Question -- I don't fully understand. About a year ago you were saying we should be at near full capacity for biodiesel by the end of the year. That obviously didn't happen and I'm wondering what sort of things came up or what unexpected issues appeared that really kept you from making that goal.

I would cite the primary constraint we had was the tax on our feedstock, which we removed in October, actually October 21, 2015. We had a 20% tax on our feedstock that the government had verbally supported removing, but it just took them, literally, a year longer than what it should have to get that removal to happen. That tax made it very, very difficult to ramp-up our purchase of feedstock.

As I mentioned, we got the approval to sell to bulk customers in August and so we have ramped up from virtually zero to a $20 million annualized number in a very short period time. And with the onset of winter, which this is the first winter in which we have gone through selling essentially a B100, or 100% biodiesel product to Indian customers, and we had to develop blend ratios for different segments of the Indian geography. Cooler areas had different blend ratios than warmer.

That is -- it's a constraint we expected, but we now see that constraint not really being an issue for us. India is warm about 10 months a year and so we're back into the warm months, especially southern India.

And we have ramped up credibility with customers. Our largest customer has 4,000 trucks and buses and we have more than half-dozen tanks at their locations and they are, frankly, chomping at the bit looking for more product. So we are now just dealing with what everyone is dealing with, which is the low price of crude oil. When it hit $25 in January, we had to sell product against a $25 crude oil price for diesel and we sell biodiesel at a discount to diesel. So when the price of diesel went down to $25 or $27 West Texas Intermediate, we had to be selling at a discount to that.

Now the price of diesel is moving up. We expect it, over the course of the year, to continue to move up gradually and this is all very good news for our business.

As you can probably appreciate, we don't need much of a positive margin in order to do extremely well. Our India biodiesel plant has very little debt on it and we have very low cost of operations. We have been successful in achieving the regulatory approvals to be able to now operate without these unusual taxes and, as we get the margin of stearin and diesel to be fairly positive, then I think we can ramp up very easily in India.

And we certainly have the customers for it. We've been very successful at getting a now much longer track record with these customers. That track record now, in 2016, being translated into growth.

And I must mention we have a challenge as we start shipping into California. You are starting to pull out millions of gallons of supply out of India and that puts a crimp on our India scale up, because unfortunately, we only have a 50 million gallon plant. So a couple million gallons a month to California means that half of the plant capacity is gone and we very quickly have a need for additional production capacity, which is what we projected in the middle last year.

To me that is a good problem. Say you got to start building another -- building your expansion and then maybe even building another plant.

It is, and it's also what is driving our IPO in India is the expected announcement that we are fully deployed and, frankly, in need of additional capacity. Going to market at that time is, I believe, something that the public market is going to look on favorably.

There are only about five producers in all of India. There is only one distilled biodiesel producer that gives us a product that can be a 100% replacement of fuel, so we are -- we standalone in a very big field of 25 billion gallons a year of diesel.

And I must tell you, we are running at the pace of the India government and the India government has sped up its pace. If you read much about the India business environment, you'll find that it is moving up the ranks of best places to do business in the world. The Canadian pension fund, one of the leading funds, just put $150 million dedicated to clean tech investments in India, citing it was the number one emerging market in which investors should do business.

(multiple speakers) I hate to see us lose our winning position in India by not being able to build plants, so I assume you've got that problem under control.

Yes, I agree. I think we are in very, very good shape and we just have to be patient with the continuing growth of the market.

Our regulatory step that we need to do now is the used cooking oil importation step that opens up cheap, nonfood feedstock that in California has a 24 carbon intensity compared to 100 for diesel. So 100 minus 24 is 76% is the reduction of carbon content when you bring in our used cooking oil biodiesel from India. That provides about $1.20 a gallon of additional value in California by bringing in used cooking oil-based biodiesel from India.

So it is a very attractive business. We are committed to being successful and have completed the California side, which did take since 2014. It was no overnight thing to accomplish and will be difficult for any other plant to replicate.

So we're extremely well-positioned and I believe with the UCO approval from India we will then be actually facing a problem of how do we increase capacity.

One last question and then I will get back in the queue. And that is you have mentioned that one of the barriers to growth has been that you couldn't import your feedstock, but I was under the impression that, at least for the near term, there has been sufficient feedstock coming from India and you didn't need to import. I'm wondering if you could clarify that issue for me.

We use stearin in India, which is a product that works well in warm climates, but it's not a product that is incentivized to be brought into California. And so we have two pathways that are approved in California. One is used cooking oil, which is about -- well, it is a 24 carbon intensity. It's a 76% reduction.

And then tallow. Animal oils are known as tallow, which is a 57 carbonate intensity, which as you can see by the math would mean that it has less economic value in California and has a different cloud point.

So UCO into California is the product which we are seeking to ship. We found the domestic supply of used cooking oil in India is very limited. We dedicated two people to that procurement cycle over a long period of time and have basically obtained an amount which is not sufficient to support a large export business.

So we have, parallel to that, been spending a lot of time in New Delhi with government ministers and staff to get a UCO approval because we can bring in used cooking oil from China and elsewhere in bulk and the product is really available to us. So that is the product that allows us to come into California in volume.

Okay. I thank you very much for clarifying those issues. I am being called at this point. I'm supposedly on vacation and the sun is shining on the beach, so I will stop the questions at this point.

Thank you, Jim. I appreciate your call.

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

Thank you very much to our Aemetis shareholders and analysts and others for joining us today. We look forward to meeting with you and continuing our dialogue about growth opportunities for Aemetis.

Thank you for attending today's Aemetis earnings conference call. Please visit the investor section of the Aemetis website, where we will post a written version and an audio version of this Aemetis earnings review and business update.