Nov 12, 2017
Executives
Todd Waltz - Executive Vice President and Chief Financial Officer Eric McAfee - Founder, Chairman, and Chief Executive Officer
Analysts
Carter Driscoll - MLV & Co.
Operator
Good day, ladies and gentlemen. Welcome to Aemetis Third Quarter 2017 Earnings Review.
All lines have been placed on a listen-only mode. The floor will be open for questions and comments following the presentation.
[Operator instructions.] At this time, it is my pleasure to turn the floor over to your host, Executive Vice President and CFO, Todd Waltz.
Sir, the floor is yours.
Todd Waltz
Thank you, Kat. Welcome to the Aemetis Third Quarter 2017 Earnings Review conference call.
We suggest visiting our website at aemetis.com to review today’s earnings press release, updated corporate presentation, filings with the Security and Exchange Commission, recent press releases, and previous earnings conference calls. This presentation is available for review or download on the aemetis.com homepage.
Before we begin our discussion today, I’d like to read the following disclaimer statement. During today’s call, we’ll be making forward-looking statements including, without limitation, statements with respect to our future stock price, plans, opportunities, and expectations with respect to financing activities.
These statements must be considered in conjunction with the disclosures 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 Security 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 September 30, 2017, which is available on our website. Adjusted EBITDA is defined as net income or loss plus to the extent deducted in calculating such net income, interest expense, loss on extinguishment, income tax expense, and tangible and other amortization expense, depreciation expense, and share-based compensation expense.
Now, I’d like to review the financial results for the third quarter of 2017. Revenues were $38.9 million for the third quarter of 2017 compared to $39.4 million for the third quarter of 2016.
Revenue increased in North America to $36 million during the third quarter of 2017 from $33.9 million during the third quarter of 2016, but was offset by softer revenues from our India operating segment due to a one quarter delay in the expected start of the BP contract and overall softening of the domestic market demand with the introduction of the Goods and Services Tax structure in India. Gross margin for the third quarter of 2017 was $2 million compared to gross profit of $3.7 million during the third quarter of 2016.
Weaker gross profit during the third quarter of 2017 compared to the same period of 2016 was primarily due to Brazilian imports of ethanol to California, which placed pricing pressure on the West Coast ethanol combined with sluggish international demand for dried distillers grain, which placed pricing pressure on locally sold wet distillers grain. Research and development costs included costs associated with the cellulosic ethanol initiative, particularly the operation of the integrated demonstration unit were $1.9 million for the third quarter of 2017 compared with the expense of $87,000 during the same quarter of 2016.
Selling, general, and administrative expenses remain constant at $3.2 million during the third quarters of both 2016 and 2017. Included in selling, general, and administrative expense for the third quarter of 2017 was $131,000 of costs associated with Goodland Advanced Fuels, Inc.
Operating loss was $3.1 million for the third quarter of 2017 compared to an operating income of $357,000 for the third quarter of 2016. Net loss attributable to Aemetis, Inc.
was $7.5 million for the third quarter of 2017 compared to a net loss of $4.1 million for the third quarter of 2016. Interest expense during the third quarter of 2017 was $5.1 million compared to $4.5 million during the third quarter of 2016.
Included in interest expense for the third quarter of 2017 was $584,000 of costs associated with Goodland Advanced Fuels, Inc. Cash at the end of the third quarter of 2017 was $1.7 million compared to $1.5 million at the end of the fourth quarter of 2016.
Now, I’d like to review the financial results for the nine months ended September 30, 2017. Revenues were $111.3 million for the first nine months of 2017 compared to $105.8 million for the first nine months of 2016.
An increase in production at the Keyes plant resulted in an increase in ethanol and wet distillers grain volumes during the first nine months of 2017 compared to the first nine months of 2016. Gross profit for the first nine months of 2017 was $3.1 million compared to $7.7 million during the first nine months of 2016.
During the first nine months of 2017, gross profit decreased due to a softening price for wet distillers grain and a rising feedstock market compared to the same period of 2016. Additionally, gross margins during the first nine months of 2016 included a one-time grant benefit of $2 million for the usage of milo as a feed stock.
Selling, general, and administrative expenses were $9.7 million during the first nine months of 2017 compared to $9.1 million during the first nine months of 2016. The increase in selling, general, and administrative expense was primarily attributable to salary increase, equity awards, and marketing costs associated with the increase in gallons of ethanol sold in North America.
Operating loss was $8.7 million for the first nine months of 2017 compared to operating loss of $1.9 million for the first nine months of 2016. Net loss attributable to Aemetis, Inc.
was $22.0 million for the first nine months of 2017 compared to a net loss of $14.2 million during the first nine months of 2016. Interest expense was $14 million during the first nine months of 2017 compared to interest expense of $12.9 million during the first nine months of 2016.
That completes our financial review of the third quarter 2017. Now, I’d like to introduce the Founder, Chairman, and Chief Executive Officer of Aemetis, Eric McAfee, for a business update.
Eric?
Eric McAfee
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 India. Included in our production portfolio is a 60 million gallon per year capacity ethanol distillers grain, and corn oil plant located in Keyes, California near Modesto.
We also built, own, and operate a 50 million gallon per year capacity distilled biodiesel and refined glycerin biorefinery on the East Coast of India near the port city of Kakinada. Today, we announced the retirement of our longtime board member, Harold Sorgenti, whom has served on the Aemetis Board of Directors for more than ten years.
Hal was the president of ARCO Chemical for more than a decade and grew the company into an industry leader that was later sold for more than $5 billion. On the Aemetis Board of Directors, Hal has provided valuable industry experience and a steady hand on the weather of corporate strategy.
I personally appreciate Hal’s friendly and supportive professional manner that has helped establish the Aemetis corporate culture. We are committed to continue to create the unique products and strategic opportunities that Hal has consistently encouraged Aemetis to acquire or develop.
Before reviewing our quarter, I would like to reiterate what we communicated during last quarter’s conference call regarding our plans for the reduction of the currently outstanding higher interest rate loans that primarily were used to acquire the Keyes plant. These bridge loans were provided by Third Eye Capital of Toronto, Canada, a reliable and supportive financing source for Aemetis acquisitions and operations since 2008.
Though $10 million of the Third Eye Capital notes are at a low 5% interest rate, Aemetis is actively working to repay or replace the higher interest rate notes from Third Eye Capital by doing the following. Number one, raising $50 million of 3% interest rate, phase two, EB-5 subordinated debt funding and then refinancing the balance of the existing debt at lower commercial bank rates using the $165 million original construction cost of the existing Aemetis assets.
We have already completed phase one of the EB-5 offering and received $35 million of EB-5 funding at 3% interest rate. Number two, improving margins from the California ethanol business.
The Keyes plant generated about $40 million of operating positive cash flow in the four quarters prior to the June 2014 Saudi decision to decrease the price of crude oil. With the Saudi’s successfully joining other OPEC countries to increase oil prices this year, the California plant is expected to generate improved cash flow in a higher priced crude oil environment.
Number three, the India plant is debt free except for inventory financing. So an expected $10 million per year of free cash flow from India operations may be used to repay debt of the Aemetis parent company.
Revenues in the India subsidiary are planned to grow to more than $100 million per year as we execute delivery under the BP Singapore supply pyramid [ph] and expand domestic sales in India. Number four, the growth of the India business may support an IPO of the India subsidiary to raise more than $75 million of equity capital to repay current company debt and expand operations in India.
The IPO will be driven by the strong 5% annual growth in the India domestic fuel market, rising crude oil prices worldwide, and the valuable patent-pending enzymatic biodiesel process technology developed by the India team. Number, five, the first 12-million gallon cellulosic ethanol expansion of the California plant is expected to generate more than $20 million of annual cash flow due to a feedstock supply agreement at an average delivery price of about $20 per ton for waste orchard wood for the first ten years and the increased value of cellulosic ethanol compared to corn ethanol.
Now let’s discuss our platform businesses in biodiesel and ethanol and important projects in advanced biofuels and then review our financing initiatives to obtain lower cost funding. To begin, let’s review our India biodiesel business.
Aemetis is the leading US-owned producer of biofuels in India, a country of 1.3 billion people that consumes about 25 billion gallons of petroleum diesel each year. Aemetis biodiesel produced at our India plant reduces harmful admissions by up to 80% and sells as a less expensive fuel than diesel.
India biodiesel and refined glycerin revenues in the third quarter of 2017 decreased on a year-over-year basis to $2.9 million from $5.5 million. The primary reason for the revenue decrease is due to the adoption of the Goods and Services Tax, known as the GST in India and a slow ramp of the BP business.
In July 2017, India transformed its federal and state tax system to simplify and enforce tax collection. A basic component of the adoption of the GST is a concept that total state and federal taxes would not change.
In the case of biodiesel, an 18% Goods and Services Tax was implemented in July 2017, which was a significant increase in taxes from a ten-year average of only 5%. This week, the India GST Committee is meeting and should be reviewing a reduction in the biodiesel GST tax rate to support the expansion of domestic biodiesel production in India.
Despite the high 18% GST tax rate since July, our India subsidiary managed to continue deliveries of a smaller amount of biodiesel to customers located nearer to the plant. We expect domestic biodiesel deliveries to expand significantly as we adopt new sources of domestic feedstock and obtain a lower GST tax rate.
A major biodiesel technology commercialization milestone was achieved by our India team this week, however. The importance of this achievement can easily be overlooked by investors.
So I encourage you to consider the global implications and opportunities resulting from our accomplishment. Aemetis is one of the first companies in the world to achieve the conversion of low-cost, high free fatty acid waste feedstocks into distilled European and US quality clear biodiesel.
At this time, Aemetis is operating probably the largest capacity enzymatic biodiesel production plant in the world capable of converting a wide variety of low-quality, high FFA feedstocks that cost up to 30% less than regular biodiesel feedstocks from soybean, grape seed, canola, and other vegetable oils. For more than two years, Aemetis has worked with Novozymes of Denmark, the world’s largest biofuel enzyme supplier, to develop a patent-pending process for the use of enzymes to extract the useful components of low-quality, low-cost feedstocks for the production of biodiesel.
In April 2017, Aemetis filed a US and worldwide patent on the process that the India subsidiary developed to enable enzymatic biodiesel production. During the fourth quarter of 2017, the production equipment instillation and commissioning for the first phase of the patent-pending enzymatic biodiesel technology was completed.
Commercial yields have now been achieved consistently and repeatedly using the low-cost, low-carbon, high free fatty acid feedstock imported from BP Singapore. This production upgrade of the India biodiesel plant is a sustainable cost advantage in both domestic and export markets that late in the fourth quarter of 2017 or in early Q1 2018, there’s expected result in the rapid expansion of shipments to both BP and our existing biodiesel customers in India.
As of today, Aemetis has used the new enzymatic commercial unit at the India plant to produce about 250,000 gallons of biodiesel. We are in the final stages of receiving BP’s final approval for the launch of full commercial deliveries of feedstock and biodiesel to Europe.
We currently expect to produce an additional 1.2 million gallons of biodiesel during Q4 2017, delivering a total of approximately 1.5 million gallons of distilled biodiesel on to a single ship to Europe in late Q4 2017 or early Q1 2018 depending on BP feedstock, delivery, and ship availability. We recognize revenue upon delivery onboard ship, not delivery to Europe.
To meet the goals of the three-year BP agreement and based on the commercial performance of our patent-pending technology and the new enzymatic biodiesel instillation at the India plant, we expect to ramp up to more than a $100 million annualized monthly run rate during 2018. Now let’s review our ethanol business.
During the third quarter of 2017, our ethanol business revenues grew 6.2% year-over-year, as we’ve produced 4% more ethanol than the same quarter last year. Ethanol pricing increased by 3.4% year-over-year.
Operating margins were weak due to excess ethanol supply in the US. In my view, the daily media chatter can cause investors to easily lose site of the strong and clear global trend towards higher blends of ethanol and other renewable fuels to replace petroleum.
Biofuels are the only significant decarbonization solution for the more than 900 million vehicles with internal combustion engines worldwide. As global agreements for the reduction of carbon emissions expand to more than 100 countries, ethanol is a renewable, low-carbon, lower cost, 113 octane, 34% oxygen fuel that can replace benzene, toluene, and other dangerous additives in gasoline to meet air pollution and greenhouse gas reduction mandates.
Ethanol makes gasoline burn cleaner due to the high oxygen content and enables the use of more efficient high compression smaller engines due to ethanol’s very high octane. In the US, the ethanol industry has created more than 800,000 domestic jobs and attracted more than $30 billion of investment to capital projects in primarily rural areas.
The previous US administration lost sight of the many important environmental fuel efficiency and economic qualities of ethanol and other biofuels, resulting in a failure to enforce the renewable fuel standard for two years during 2014 and 2015. This failure to enforce the RFS was recently tested again in the current administration, but a different outcome occurred.
Last month the RFS was fully endorsed in writing by EPA Secretary Pruitt and reaffirmed by the President, after proposals were presented to weaken the RFS that would have violated the language and the congressional intent of the law. Since about 3.2 billion gallons of ethanol were mandated by Federal law but not enforced by the prior Federal Administration, there is excess ethanol inventory nationally that we would expect will gradually decline as exports and domestic shipments grow to meet expanding demand.
Foreign countries expanding ethanol blending include a 10% ethanol blend in China and India and a 5% blend in Vietnam. These ethanol blend rates significantly exceed the domestic production capacity in these countries.
The US is the only country with significant ethanol export capacity and low-cost feedstock to meet this growing international demand. In addition to growing export demand, the US has approved 15% ethanol for use in more than 85% of the miles driven in the US comprised of vehicles manufactured after year 2001.
E15 represents additional demand of about 7 billion gallons per year in the US compared to the current 15 billion gallons. And the US now has more than 22 million vehicles that can run on 85% ethanol that can be purchased at about 4,000 gas stations with the 85 pumps.
The price of crude oil has recently risen from $44 to about $57 per barrel, reflecting a period of a sustained global oil production shortages since early 2017. As crude oil and gasoline prices rise, ethanol is increasingly attractive to fuel blenders as a less expensive source of high-octane, high-oxygen fuel.
The rising price of crude oil should continue to improve the price advantage of ethanol blends including E15 and E85 over gasoline. The enforcement of the Federal Renewable Fuel Standard Mandate for 15 billion gallons of ethanol requires about 800 million gallons more of ethanol to be consumed in the US than the current ethanol blending level.
As it becomes clear that the biofuels blending mandates will be enforced under the current administration, we expect a standard investment in biofuels blending by all refineries as obligated parties under the RFS in order to avoid the purchase of RINs to meet blending mandates. Now let us review our two important advance sales [ph] biofuel projects, the LanzaTech cellulosic ethanol upgrade to our Keyes plant and the agreement to acquire Edeniq to convert corn fiber to cellulosic ethanol.
Cellulosic ethanol is the only biofuel under the Renewable Fuel Standard with a pricing mechanism to attract capital investment regardless of the price of gasoline. Since cellulosic ethanol can reduce carbon emissions by 80% or more compared to gasoline, the California Low Carbon Fuel Standard also strongly incentivizes cellulosic ethanol production.
In total, cellulosic ethanol today is worth about $4.50 per gallon plus a $1.01 per gallon federal tax credit, which is about $3 more per gallon than conventional biofuels. Let’s start with our California project to convert Ag waste and other biomass into cellulosic ethanol as an expansion of our corn ethanol plant.
Our cellulosic ethanol project is located near the Keyes ethanol plant in the town of River Bank on the site of a former army munitions production plant that is now being converted to industrial use. We have signed a low-cost 55-year lease with options for a majority of the land and a significant portion of the buildings on the 150-acre site.
We’ve also signed a 20-year feedstock agreement with a 10-year fixed price that averages about $20 per ton of delivered orchard wood and other Ag waste feedstock for our plant. To build the cellulosic ethanol project and others in the future, Aemetis has successfully signed exclusive licenses for key rights to LanzaTech microbial fermentation of gases and the InEnTec gasification technology.
I invite investors to view the Aemetis home page for a corporate presentation that describes these breakthrough biofuels production technologies. To demonstrate the integrated production of cellulosic ethanol, this year Aemetis, LanzaTech, and InEnTec built an integrated demonstration unit in Richland, Washington.
The idea began production using orchard waste wood and nutshells in July 2017 and has completed almost four months of operations. We are very pleased with the yield and other key production data generated by the integrated demonstration plant.
The yield of cellulosic ethanol significantly exceeds our original expectations. Yield and other data from operation of the integrated demonstration unit will be provided to the US Department of Agriculture as part of completing the phase two loan guarantee process under the USDA 9003 Biorefinery Assistance Program.
Aemetis is in the final stages of the government approval of a $125 million, 20-year low-interest rate, 80% guaranteed loan for the construction of the 12 million gallons of cellulosic ethanol plant in River Bank. We expect closing of the USDA guaranteed loan in the first half of 2018 and production at the River Bank plant to begin in 2019.
Our commitment to the upgrade of corn ethanol plants to produce high value cellulosic ethanol includes the conversion of corn fiber that is already in the ethanol plant. In April of 2016, Aemetis signed an agreement to acquire Edeniq, a biofuels technology company that converts corn kernel fiber into higher-priced, lower-carbon cellulosic ethanol.
We are pleased with the progress of the litigation related to enforcement of the signed definitive agreement. We believe that documents disclosed to us in the discovery process support our demand to complete the transaction on the terms set forth in the signed acquisition agreement and substantial damages from the lead Edeniq equity investor that intervened to cause Edeniq to fail to perform under the agreement.
Let us now review our key financing initiatives. Our EB-5 update, we have received a $35 million subordinated debt offering from 70 foreign investors at a 3% interest rate from escrow.
We have launched a phase two, $50 million EB-5 offering that is currently in process. These funds are scheduled to repay the existing Third Eye Capital loan and fund expansion of company revenues and earnings, including the construction of the 12 million gallon River Bank cellulosic ethanol plant near the existing Keyes plant.
The EB-5 funding is subordinated debt at a low 3% interest rate with no principal payments for five years or more depending on the government processing backlog. Phase one is convertible into equity at $30 per share, but phase two is not convertible into equity and is entirely non-diluted to shareholders.
In summary, we believe that Aemetis is well-positioned for growth with improving fundamentals of the North America ethanol business, the potential for increased biodiesel business, shipping to domestic and foreign customers from our facility in India, significantly reduced interest costs by repayment of high interest rate debt with low interest EB-5 funding, a potential IPO of our India subsidiary driven by positive biofuels industry fundamentals in India, and with positive cash flow opportunities from the growth of the India biodiesel business and the planned LanzaTech advanced ethanol plant. Now let’s take a few questions from our call participants.
Operator?
Operator
Thank you, Mr. McAfee.
The floor is now open for questions. [Operator instructions.]
Our first question comes from Carter Driscoll. Go ahead, Carter.
Carter Driscoll
Good morning, gentlemen. Thanks for taking my question.
The first one I have is related to the ramp in India. Eric, could you comment what gives you confidence that the commission is looking to reverse the hike that was recently imposed and therefore making economics better and maybe just a little additional clarity?
I mean do you have BP’s marketing weight behind it trying to get this reduced? It seems like a significant at least near-term hurdle that was fairly arbitrary.
I have a couple follow ups. Thank you.
Eric McAfee
Actually, your last statement was correct. It was largely a basket of chemicals that they threw in biodiesels, an 18% number and didn’t really have the time to figure out what the actual number should be.
Every month there’s a meeting at the GST Committee, and they announce literally dozens of revisions of the GST as different industries come in and point out the changes in tax rates compared to what the policy is of not using the tax rate. In this particular case, we have the active involvement of the Transport Minister, who we have a personal relationship with, and his work in the government to support the biodiesel industry has been very strong and very consistent.
He also supports the ethanol industry very strongly. So we have direct contact with the highest levels of government, and this has now finally come to pass as an agenda item that they need to work on.
They didn’t realize that a 13% rise in taxes would have such a dramatic effect on the entire biodiesel industry and now it’s clear that that impact has occurred and it’s time for them to fix it. They originally thought we would just adjust prices and then keep on going, but in the dynamic of the industry in India, we have to sell at a discount to diesel, which acts as a pricing method for us.
So a 13% cost increase is not able to be passed on to customers. That’s now clear, and we expect to see progress.
I can’t guarantee it would be this week. It’s supposed to be this week, but if it’s not, it’s a process, it’s ongoing.
We do believe that there will be a decrease in the tax rate.
Carter Driscoll
Okay. Can you talk a little bit about the import market in conjunction with the RFS, some of the noise around maybe trying to limit ethanol imports to the country?
Do you think they would have a material effect of soaking up or I should say limiting supply, and therefore helping to boost price the second half of the year? I’d love to get your thoughts on where the export market stands, in particular China and the opportunity if they’re really serious about ramping up their use of ethanol, timing, potential magnitude and hurdles, if that’s the case.
Thank you.
Eric McAfee
I just returned from ten days in China, Beijing, Shanghai, Shenzhen, and then back to Beijing again. China is very serious about their 10% ethanol mandate.
They back that up with cash. They’re building an enormous corn ethanol processing facility that they expect to have online by 2020.
The 10% mandate they have is about a 4 billion gallon per year requirement. It’s estimated that their domestic production from corn will be in the 1 to 1.5 billion gallon per year range, but they’re going to have a significant gap between their domestic production and the mandate that they have.
As you know it’s an air pollution but it’s also for them an imported oil reduction strategy. So importing ethanol from us does not necessarily improve their imported fuel but it does improve their air quality and it improves the performance of their vehicles, etc.
They set the 10% mandate, which was significantly higher than their domestic production, and I am expecting to see that our foreign trade representatives would be successful at opening up that market, although I do expect it to be gradual. Regarding the other countries, I think India, which is currently a closed market to US ethanol except for the [indiscernible] and industrial ethanol markets.
So what’s happening is that we are shipping, I think about 135 million gallons over the last 4 months into India, but that is replacing the domestic production of ethanol that otherwise would go into these industrial and drinking ethanol markets. Then the domestic ethanol, there it’s going into fuels.
So as the India Government is struggling to try to increase its ethanol consumption in order to clean up air pollution, where 13 of the 20 worst polluted cities in the world are in India, they are increasingly facing pressure to buy the low-cost US-based ethanol product to enhance their domestic production. That policy has not been adopted yet by India, but I know that our foreign trade representatives again see that as a high priority and are proceeding to [indiscernible] India on it.
I think an overlooked market is Vietnam. I’ve been to Vietnam three times in the last year, India, several times, and China, several times.
I think Vietnam’s 5% mandate starts in July, I’m sorry January, it’s going to acquire substantial importation of ethanol to meet domestic mandates. They really don’t have the domestic ethanol production market they can rely upon.
So I’ve overlooked hundreds of countries that are either already expanding their ethanol mandates or considering adoption in the near future. The driver for this are these global carbon reduction goals.
Frankly, Governor Jerry Brown of California has done a marvelous job going to Asia as well as Europe and garnering the support of the national leaders in trying not to have the global temperatures rise more than 2%. So that initiative requires rapid decarbonization of the transportation sector.
As I’ve mentioned, there’s over 900 million internal combustion engines in the world. Biofuels is the only real mechanism to have a significant impact on reducing their carbon emissions.
I think that it’s easy to overlook the statistics as we focus purely on temporary, short-term rumblings about US federal policies that the oil industry doesn’t fully support.
Carter Driscoll
You don’t see any specific limitations on imports into the US being discussed?
Eric McAfee
I don’t think that has a serious opportunity as long-term policy. The reason why is the World Trade Organization.
If we put up various imported fuels, then I think we’re going to lose in the litigation and the WTO. It might be a policy they have adopted, but it would be purely for short-term political reasons, because I think all observers would know it’s going to fail in the medium term.
Carter Driscoll
Do you mind commenting on the dynamic the distillers grain market and your expectations of how that may or how long that may last in terms of softness and pricing, if there’s anything you can do specifically within Aemetis to mitigate that or is it really more of an industry-wide issue?
Eric McAfee
The price of distillers grain and the volume are somewhat related, but the price I said is more of a national number, the volume is more local. We supply over 150 local dairies in Central Valley and it’s been very successful at an aggressive customer relationship program we’ve been doing over the last year.
We are very, very pleased with the physical deliveries in the contracts for [indiscernible] distillers grain. The price though is impacted by the inability for us as a nation to export distillers grain to countries that need it starting with China.
About a year ago, China came up with a temporary blockage of US products, some concerned about GMOs or some other excuse. I think that’s very temporary and their need to feed animals with cheap feedstock, literally our product at times is one half the cost of domestic corn in China.
It means that China is playing a very short-term game. I think they were trying to get rid of domestic corn supply.
That really didn’t work and so they adopted the ethanol mandate to get rid of that corn supply, which is rapidly degrading in value. We’re seeing China’s policies in the short-term acting in their self-interest, but in the medium-term they just have a reality and that is they cannot produce enough biofuels to meet their own decarbonization and air pollution reduction goals and they can’t produce enough low-cost animal feed period.
They don’t have 90 million acres of corn production capacity in the country of China and there’s an over capacity in the US. So I think the US has a sustainable competitive advantage in distillers grain as well as in ethanol.
I expect that under the current Federal Administration we might see an increased focus on those export competitive advantages and that’s what we need. We need a US Government that’s going to stand up for what we can sustainably provide as export products that other countries need to import.
Carter Driscoll
Thank you for that commentary. Just last one from me before I get back in the queue, you mention that you see favorable progress in the Edeniq litigation, though I do note that they filed a countersuit.
Just some general comments to back up your favorable view of where litigation is heading and then any type of commentary you have on the validity of the countersuit. Thank you.
Eric McAfee
Sure. Thanks.
In general, we have a lot of detail we can disclose, but we’ve decided we’re not going to talk much about Edeniq. I would say that I was very pleased with the countersuit.
That’s an opportunity for them to come up with whatever claim that they consider to be valid and we consider the countersuit to be purely boiler plate. I was very pleased to see it frankly, because that was their shot at having some claim that we would have to worry about and apparently we don’t have any concerns about it.
We are looking forward to seeing further progress in Edeniq’s business and watching closely to see that they’re successful. So we refer customers to them at any opportunity where a customer calls us and asks for a referral, we will absolutely give them the highest recommendation and encourage people to contact Edeniq and rapidly deploy corn fiber cellulosic ethanol.
We think it’s an absolute first step that every corn ethanol plant in the US that’s a dry mill corn ethanol plant should adopt. We’re very supportive of the Edeniq technology and being the solution today.
Carter Driscoll
The specific litigation, it doesn’t sound like there’s a definable timeframe as to when the next steps are?
Eric McAfee
There is a definable timeframe. We’re currently in discovery in I believe it was July, we had filed a motion that we won and there was a court order issue that required Edeniq to deliver discovery documents.
They delivered documents basically about a half a year late and they’ve been delaying doing so. There’s good reason for it.
They disclosed some things that were very helpful to our case. That discovery delay is as expected.
That’s a strategy people would often use to test the mettle of the other litigants. In this case, we have a very long-term view and we’re very patient about it.
We’ll just go through the process and see at what point in time we decide it’s time to conclude the transaction.
Carter Driscoll
I appreciate you answering all of my questions. I’ll get back in the queue.
Thank you.
Eric McAfee
Thank you, Carter.
Operator
[Operator instructions.]
Eric McAfee
I think we’re going to wrap up the call right now, operator. We have some other things going on we need to do as well.
Thank you to the attendees on today’s call. I specifically appreciate the focus on the medium-term and long-term opportunities in decarbonizing the vehicles in the world that run on fuels.
I think there’s a great opportunity in our industry and the position that Aemetis is in. I remind investors that on our website there’s a corporate presentation that can further provide information about both our LanzaTech cellulosic ethanol process as well as our enzymatic biodiesel process.
Todd Waltz
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.
Kat?
Operator
Thank you. This does conclude today’s conference.
We thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.