Peter Gastreich

Peter Gastreich followed up on the headcount expansion, asking if the company has reached its desired staffing level for backlog conversion or if further growth is anticipated. He also inquired about the impact of recent federal court decisions striking down wind permit freezes on the company's momentum within the wind energy sector, acknowledging the current focus on defense. Finally, Gastreich sought a high-level explanation of how Ocean Power Technologies identifies and quantifies its pipeline versus backlog, specifically regarding timing to conversion and certainty metrics.

Answer

President and CEO Philipp Stratmann stated that much of the necessary headcount work has been completed to enhance conversion efficiency, with future growth expected to be more directly tied to the conversion of larger orders. Regarding the wind energy sector, Stratmann clarified that while offshore energy remains a key civilian market, the company's primary engagement in this sector is currently international, particularly in oil and gas in the UAE and Sub-Saharan Africa, rather than the U.S. wind market. He highlighted the cost-effectiveness of USVs for various civilian applications globally. For pipeline versus backlog, Stratmann defined pipeline as qualified opportunities with potential customers under NDA discussing actual projects, distinct from broader market metrics. Backlog, he explained, represents confirmed contracted purchase orders, either for immediate or future delivery, with the pipeline being opportunities qualified for conversion into backlog.

Peter Gastreich, Managing Director at Water Tower Research, followed up on headcount, asking if current expansion is sufficient for backlog conversion or if further growth is anticipated. He then inquired about the impact of recent federal court decisions striking down wind permit freezes on Ocean Power Technologies' momentum in the U.S. wind energy sector, and sought color on the magnitude of international offshore energy work compared to U.S. wind. Finally, Gastreich requested a high-level refresher on how the company identifies and quantifies its pipeline versus backlog, specifically regarding conversion timing and certainty metrics.

Answer

President and CEO Philipp Stratmann stated that most of the necessary headcount expansion for effective backlog conversion has been completed, with future growth expected to be more directly tied to larger order conversions. Regarding the U.S. wind energy sector, Dr. Stratmann clarified that while offshore energy is a key civilian sector, Ocean Power Technologies' primary engagement is currently outside the U.S., particularly in the UAE and Sub-Saharan Africa, focusing on oil and gas. He emphasized that USVs offer cost-effective solutions for various civilian survey needs globally, including ordnance detection and general survey work for oil pipelines, wind installations, and critical minerals, reducing both OpEx and CapEx for customers. Dr. Stratmann defined 'pipeline' as qualified opportunities with potential customers under NDA discussing actual projects, distinct from TAM/SAM, and 'backlog' as confirmed contracted purchase orders for immediate or future delivery.

Peter Gastreich asked for a breakdown of the record backlog by product type and inquired about the recent decline in gross margin and how it is expected to evolve going forward.

Answer

President & CEO Philipp Stratmann responded that the backlog contains a 'healthy split' between buoys, vehicles, and associated services, noting a particular increase in service revenues like training. On margins, Stratmann attributed the recent decline to large-scale demonstration projects and stated that he expects margins to see an 'uptick' as the company transitions to more operational deployments and higher-margin recurring service revenues.

Peter Gastreich of Water Tower Research LLC inquired about a recent community event's impact on local support for the Carbon Capture and Sequestration (CCS) project, the status of a utility interconnection issue, and the outlook for co-product margins in the second half of the year.

Answer

Executive Chairman Stuart Rose explained that the event at the One Earth facility was a success, attended by local officials and shareholders, which helped build more favor in the community. CEO Zafar Rizvi confirmed that the utility interconnection issue with Ameren has been resolved. Regarding co-products, Stuart Rose noted that corn oil remains strong, but Dry Distiller Grains (DDG) prices are weak relative to corn, a point Zafar Rizvi attributed to a drop in DDG exports.

Peter Gastreich of Water Tower Research LLC asked about the key drivers of REX's consistent profitability, potential regulatory changes that could benefit the company, and the overall outlook for ethanol industry fundamentals and margins.

Answer

Executive Chairman Stuart Rose attributed the company's success to top-tier management, particularly CEO Zafar Rizvi's detailed oversight, and high-quality plant personnel. CEO Zafar Rizvi added that strong team communication and disciplined profit-locking strategies are crucial. Regarding regulation, Stuart Rose described the situation in Washington as being in 'great limbo,' while Zafar Rizvi highlighted positive state-level developments in Illinois for their carbon capture project and noted the EPA's permit timeline remains a moving target. On the industry outlook, Zafar Rizvi expressed positivity for 2025, citing strong ethanol exports, a potentially large corn crop, and possible tariff reductions, while also monitoring natural gas prices as a key cost factor.

Peter Gastreich of Water Tower Research LLC asked about Nauticus's strategy for prioritizing opportunities across different sectors like oil & gas and wind, the impact of recent policy on carbon capture and drone technology, and any resulting acceleration in customer discussions.

Answer

President and CEO John Gibson stated that projects are prioritized based on the highest margin and asset utilization, noting that the company's services are fungible across sectors. Gibson sees carbon capture as a long-term opportunity but is not forecasting near-term revenue. CTO JD Yamokoski added that the underwater drone defense market is 'incredibly active' and emphasized the strategic alliance with Leidos.

Peter Gastreich of Water Tower Research LLC questioned how the 45Z outcome affects capital allocation at the North Dakota site and asked for an update on the Verity platform's customer count and sales pipeline.

Answer

CEO Patrick Gruber and COO Chris Ryan explained that 45Z primarily influences shorter-term opportunities like ethanol expansion, rather than the long-term ATJ projects. CBO Paul Bloom reported that Verity currently has five ethanol plant customers and is focused on demonstrating its full capabilities at Gevo's own North Dakota facility to drive future growth.

Peter Gastreich of Water Tower Research asked if the customers for the 50% sold-out capacity of the new ATJ-30 project were new or existing. He also inquired about the theoretical expansion potential for alcohol-to-jet production at the Gevo North Dakota site.

Answer

CEO Patrick Gruber explained that the customers for the ATJ-30 project are different, as its equity-based financing allows for more flexible contract structures compared to the debt-financed ATJ-60 project. Regarding expansion, Gruber stated the North Dakota site has room to expand its ethanol production and could accommodate another ATJ-30 plant, highlighting the project's modular design as key to their global deployment strategy.

Peter Gastreich of Water Tower Research questioned the timing of cash flow from carbon credits at the North Dakota plant, the assumptions behind its $30-$60 million adjusted EBITDA projection, and the nature of the internal control weakness disclosed in the 10-K.

Answer

VP of Corporate Development Eric Frey explained that the 45Z tax credit is a major driver of the EBITDA range, potentially contributing $30-$40 million alone based on the plant's low carbon intensity score. CEO Patrick Gruber added that the range also accounts for ethanol margin variability. Regarding the control weakness, Gruber stated it was due to mischaracterizing certain project expenses that should have been capitalized, an error that has been identified and is being remediated.

Peter Gastreich of Water Tower Research asked about the impact of a recent South Dakota referendum on the Summit Carbon pipeline and inquired about the logistical feasibility of using the newly acquired Red Trail facility as a CCS option for the Net-Zero 1 project.

Answer

CEO Dr. Patrick Gruber explained that the referendum was about landowner rights, not pipeline approval, and that authority remains with the Public Utilities Commission. He stated that while they expect the pipeline to proceed, Gevo has a viable contingency plan to transport CO2 by rail from Net-Zero 1 to the Red Trail sequestration site, noting that the economics for this option appear to work.

Peter Gastreich from Water Tower Research LLC inquired if the company could provide more details about the potential non-Chinese backup feedstock supplier.

Answer

Frank Bakker, President and CEO, responded that Westwater Resources is currently under a non-disclosure agreement (NDA) and cannot share further details at this time, but confirmed they are in advanced stages of securing a backup supply agreement.

Peter Gastreich asked about the revenue scale and timeline for the Spruce PRO business following the ADT deal, the refinancing environment for the SP 1 loan, the high concentration of SREC revenue in the SP 5 portfolio, the recent CFO transition, and the durability of Spruce's business model under the new political administration.

Answer

CEO Christopher Hayes explained that Spruce PRO is a capital-light, high-margin business with a strong prospect pipeline. Regarding financing, he expressed high confidence in refinancing the SP 1 loan due in April 2026, noting they can secure like-for-like terms or potentially more favorable options. Hayes attributed the high SREC revenue in the SP 5 portfolio to New Jersey's deep and liquid SREC market, which he expects to be a recurring revenue source. He clarified the CFO transition was a personal decision by Sarah Wells and a search for a replacement is underway. Finally, Hayes affirmed the business model's resilience, as Spruce acquires assets post-installation and tax credit monetization, making it less susceptible to policy shifts and able to benefit from rising utility rates.

The analyst asked a series of questions covering the company's recent acquisition announcement, the Spruce Pro servicing business, the impact of the election, macro power demand trends, fourth-quarter guidance, and the company's stock valuation and investor sentiment.

Answer

The company expressed excitement about the pending acquisition and the Spruce Pro MOU but declined to provide specific financial details, citing confidentiality until deals are closed. They view their business model as resilient to political changes and see rising utility rates from macro demand as a tailwind. Management reiterated their full-year guidance without providing a Q4-specific update and pointed to their share buyback program and the resolution of one-time legal costs as positive signals for the stock, stating they are bullish on growth prospects.

Peter Gastreich of Water Tower Research asked a macro-level question about what Arq's GAC expansion challenges imply for the broader industry's ability to bring new supply online. He also inquired if the company still sees potential for enhanced production from GAC Phase 1 and asked what percentage of that phase's production is currently contracted.

Answer

CEO Robert Rasmus stated that Arq's challenges, despite having a first-class team, suggest that competitors will also face significant hurdles and delays in bringing new GAC capacity online, reinforcing a favorable long-term supply/demand imbalance. He confirmed the company still sees the potential for enhanced production beyond nameplate capacity for Phase 1 once it reaches full run rate. Rasmus also noted that approximately 60% of Phase 1 production is currently contracted, with the remainder being held back for the higher-margin RNG market.

Peter Gastreich asked a macro-level question about what Arq's GAC expansion challenges imply for the broader industry's ability to ramp up supply. He also asked if the company still sees potential for enhanced production from GAC Phase 1 and inquired about the current contracted percentage of that phase's output.

Answer

CEO Robert Rasmus stated that Arq's challenges suggest competitors will also face significant hurdles and long timelines (2-3+ years) to bring new GAC capacity online, reinforcing a favorable long-term supply/demand dynamic. He confirmed the company still sees potential for enhanced production beyond nameplate capacity for Phase 1 after reaching full run rate. Rasmus also disclosed that approximately 60% of Phase 1 production is currently contracted, with the remainder being held back for the higher-margin RNG market.

Inquired about the implications of their GAC commissioning challenges for the broader industry supply, the potential for enhanced production from Phase 1, and the current contracted percentage of Phase 1 capacity.

Answer

The company's challenges highlight the difficulty and long lead times for the industry to bring new GAC supply online, reinforcing a tight market outlook. They still see potential for enhanced production capacity after achieving the initial full run rate. Currently, about 60% of Phase 1 capacity is contracted, with the remainder held back for the higher-margin RNG market.

Sought confirmation on CapEx for Phase 1's excess capacity, asked for color on Q4 results excluding one-time impacts like outages and take-or-pay, and questioned the potential impact of tariffs on the U.S. activated carbon market.

Answer

The CEO confirmed no additional CapEx is needed to produce above the 25 million pound nameplate capacity for Phase 1. He explained that on an apples-to-apples basis, Q4 revenue was up, and margins would have been similar without the unplanned outages. Tariffs are viewed as beneficial to Arq, as its domestic supply chain is insulated from import costs faced by competitors, creating a margin enhancement opportunity.

Peter Gastreich sought confirmation that expanding Phase 1 GAC capacity beyond its nameplate would not require more CapEx, asked for color on Q4 results adjusted for outages and take-or-pay contracts, and inquired about potential tariff implications for the market.

Answer

Robert Rasmus, CEO and President, confirmed that producing above the 25 million pound nameplate capacity for Phase 1 will not require additional CapEx. He clarified that Q4 2024 operational results were strong, with revenue up on an apples-to-apples basis when excluding the large take-or-pay benefit from Q4 2023. He also noted that potential tariffs on imported carbon would be beneficial for Arq due to its fully domestic supply chain, creating a margin enhancement opportunity.

Peter Gastreich asked about the timeline for the market to assign value to low-carbon ammonia in fertilizer applications, particularly in the context of growing demand for sustainable aviation fuel and low-carbon ethanol.

Answer

Chairman and CEO Mark Behrman stated that farmers paying a premium for low-carbon fertilizer is 'light years away' without a direct economic benefit. However, he identified a significant, nearer-term opportunity in the low-carbon ethanol market for sustainable aviation fuel. He explained that ethanol producers might incentivize farmers to use low-carbon fertilizer to lower their product's carbon intensity score, but this development is contingent on the extension of the 45Z tax credit.