Gevo - Earnings Call - Q1 2019

Transcript

Speaker 0

Good the Gevo Incorporated Q1 twenty nineteen Earnings Conference Call. My name is Sheryl and I will be your operator for today's call. This time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference call is being recorded.

I will now turn the call over to Jeffrey T. Williams, Jr. Sir, you may begin.

Speaker 1

Good afternoon, everyone, and thank you for joining Gevo's first quarter twenty nineteen earnings conference call. I would like to start today by introducing the participants from the company. With us today is Patrick Gruber, Gevo's Chief Executive Officer and Bradford Town, Gevo's Chief Accounting Officer. Earlier today, we issued a press release that outlines the topics we plan to discuss today. A copy of this press release is available on our website at www.gevo.com.

I would like to remind our listeners that this conference call is open to the media and that we are providing a simultaneous webcast of this call to the public. A replay of today's call will be available on Gevo's website. On the call today and on this webcast, you will hear discussions of certain non GAAP financial measures. Non GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in accordance with GAAP. Reconciliation of these non GAAP financial measures to the most directly comparable GAAP financial measures is contained in the press release distributed today and which is posted on our website.

We will also make certain forward looking statements about events and circumstances that have not yet occurred, including, but not limited to, projections about Gevo's operating activities for the remainder of 2019 and beyond. These forward looking statements are based on management's current beliefs, expectations and assumptions and are subject to significant risks and uncertainties, including those disclosed in Gevo's Form 10 ks for the year ended December 3138, which was filed with the U. S. Securities and Exchange Commission, or SEC, on or about March 2739, and in subsequent reports and other filings made with the SEC by Gevo, including Gevo's quarterly reports on Form 10 Q. Investors are cautioned not to place undue reliance on any such forward looking statements.

Such forward looking statements speak only as of today's date, and Gevo disclaims any obligation to update information contained in these forward looking statements, whether as a result of new information, future events or otherwise. On today's call, Pat will begin with a discussion of Gevo's business developments. Bradford will then review Gevo's financial results for the first quarter of twenty nineteen. Following the presentation, we will open up the call for questions. I'll now turn the call over to Pat.

Speaker 2

Thank you, Jeff, and thank you all for joining us today. I believe we are at or near a tipping point. We finalized several agreements that I'll touch on shortly. We have turned our balance sheet around, which enabled our auditors to remove the going concern qualification in our audit report at the March. And we're making overall very good progress.

In terms of the balance sheet, as of today, we have approximately $33,000,000 of cash on hand and less than $14,000,000 of debt. The improved capitalization of the company, of course, should make a difference going forward. As of today, we don't have any current plans to raise equity. Instead, we are focused on debt. Our projects and products appear to be financeable more along the lines of project financing.

We'll keep you updated as we make progress. We are actively working on projects to decarbonize or defossilize the energy used at our Luverne facility. The intent is to lower our carbon score or the measure of fossil greenhouse gas emissions at Luverne. Of course, it leverages into isobutanol and hydrocarbon production as well. We are working on renewable electricity and renewable natural gas.

We expect that accomplishing these projects should make Luverne profitable, even just selling low carbon ethanol. When we combined the margin uplift from defossilization with the margin uplift from the value added feed products we are in the midst of producing using the Shockwave dry fractionation technology, we expect that Chivo as a whole could possibly become profitable within the next eighteen months depending upon the overall market dynamics, how much we're spending on the commercialization of isobutanol, jet fuel, and the rest. Production of low carbon ethanol for the California market combined with animal feed is something we are doing simply to make money. Our growth in the long run is all about the isobutanol, the jet fuel, and very importantly, the isooctane for gasoline. We continue to develop the enormous markets for these products.

Today, we announced that the city of Seattle's fleet vehicles began utilizing a blend of Gevo's renewable isobutanol with conventional gasoline in its pilot program to reduce the carbon intensity, the CI levels of its fuels. Additionally, Gevo will collaborate with the city to supply a renewable drop in gasoline to further reduce the carbon intensity of the fleet. The city of Seattle has the potential to lead the way in showing what is possible in breaking away from fossil based fuels and related pollution. We see Pacific Northwest, with its abundance of wood resources, has great potential for the development and commercialization for fossil free fuel production plants. We'll have to take a look at the opportunities for production in that region.

Now imagine replacing the whole gallon of gasoline with a low carbon renewable gasoline that has high performance, yet it really does reduce pollution. The potential is to use the low carbon clean fuels to get off the fossil based fuels and all their pollution, including the particulates, and to establish new business systems that creates jobs. And in that region, it would cut across sectors from forestry to bioprocessing to refining. In April, we signed a binding definitive construction license agreement with PRASH Industries to commercialize the production of renewable isobutanol with sugary based feedstocks such as juice, syrup, molasses made from sugarcane or sugar beets. And this is important for a couple reasons.

First, that we could actually complete a complicated set of license agreements. That's a big deal in and of itself, even though it doesn't seem like it. And second, this agreement is set up so we are truly licensors rather than being capital providers. It's other people's money putting our technology to work. That's the intent.

As the market demand takes off, we need to be in a position where the licensing is fully baked and ready to go. This was a great first step in getting that done. In addition to the construction license agreement, we also signed a memorandum of understanding with Praj to commercialize our renewable hydrocarbon technology and products in India, including our renewable alcohol to jet fuel and renewable isooctane derived from renewable isobutanol. Now this is a potentially big deal in that rice straw residues are a problem in India. The straw is simply burned to get rid of it and creates a lot of smog and pollution.

It's a problem. A better use would be to convert it into fuels. Proj reports that they have four rice straw to ethanol plants under construction in India. Proj is undertaking the effort to adapt the rice straw to fermentable sugar conversion technology for the production of isobutanol and jet fuel and isooctane. I think it's going be a good opportunity in India for these hydrocarbons.

The isooctane and gasoline markets are continuing to develop. We've expanded our capacity at Silsbee to produce more isooctane and jet fuel. Hultmann Carlos and Adfuels are purchasing the product produced at Silsbee. We have a project on the table to expand the hydrocarbon capacity in order of magnitude to about 1,000,000 gallons per year. This will be up at Luverne, Minnesota.

We already have contracts in place that would make this a profitable exercise. We expect to line up debt financing to get this capacity built. We also have roughly 50% of our planned Luverne expansion for the isobutanol jet fuel and isooctane committed to customers who are under contract. Tim Sisarc, our Chief Commercial Officer, is making progress. We still need to work out the balancing act of how much jet fuel to produce compared to isooctane.

Isoctane, of course, is expected to carry more margin, that is being more valuable in the marketplace than jet fuel. Now we're in the midst of sorting through the opportunities in our contract terms. We're confident we'll get them finished, and they'll be good enough so we can use them to do project financing for the full build out. Now speaking of that, we have modified our plans. I've mentioned it before, but it's worth restating.

We plan on making the Luverne facility profitable with low carbon ethanol and value added animal feed. In the future, assuming the plant is in fact profitable as we expect, we would keep running it. We wouldn't shut off the ethanol and the animal feed. That would make no sense. It would be, at that point, a cash cow.

And we'd wanna add additional capacity, additional grind, so that we can produce isobutanol hydrocarbons. We do this in two steps. First, we'd add some equipment for isobutanol hydrocarbons at Luverne so that we could produce hydrocarbons at Luverne. And two, build out a large capacity for isobutanol hydrocarbons at Luverne, about 18,000,000 gallons of isobutanol and eight to 10,000,000 gallons of hydrocarbons. The isobutanol expansions are expected to be done side by side.

In other words, I don't plan on shutting down that low carbon ethanol plant. It would be making money, we expect. I want the ethanol to sell to California and other places where the defossilization is valuable, and I want that ethanol as a raw material to make other products in the future because our chemistry translates across alcohols. So here's what a summary of what to expect going forth in the rest of 2019. Expect more, announcements for customers in the marketplace development of isobutanol, isooctane, and jet fuel.

Expect

Speaker 3

us

Speaker 2

to announce more commercial agreements. This again is going be about jet fuel, isooctane, and isobutanol. We would announce the progress and milestones of the other projects beyond the Luverne facility. Currently, have six licensing development projects in discussion. Two have MOUs in place with diligence and planning underway.

We would be announcing the details of our wind to renewable natural gas products as we get those going, and we can speak publicly about it. And then, of course, I do expect to be announcing the various financings for our projects, and I expect them to be debt oriented. We are in a crusade to defossilize liquid transportation fuels. We know that our technologies work. We're keen to enter the market correctly with the right customer mix and financing structures.

I expect us to continue to make a lot of progress throughout this year. Now I'll turn the call over to Bradford, who will take us through the financials. Bradford?

Speaker 4

Thank you, Pat. Gevo reported revenue in the 2019 of $6,400,000 as compared to $8,200,000 in the same period in 2018. Cost of goods sold was $9,000,000 in the 2019 versus $10,600,000 in the same period in 2018. Cost of goods sold included approximately $7,400,000 associated with the production of ethanol, isobutanol and related products and approximately $1,600,000 in depreciation expense. Gross loss was $2,600,000 for the 2019 versus $2,300,000 for the first quarter of twenty eighteen.

Research and development expense increased by $200,000 during the first quarter compared with the same period in 2018 due primarily to consulting expenses. Selling, general and administrative expense increased by $200,000 during the 2019 compared with the same period in 2018 due primarily to an increase in employee related expenses and consulting expenses. Within total operating expenses for the first quarter of twenty nineteen, we reported approximately $200,000 for non cash stock based compensation. For the first quarter of twenty nineteen, we reported a loss from operations of $5,600,000 compared to $5,000,000 for the same period in 2018. In the first quarter of twenty nineteen, cash EBITDA loss, a non GAAP measure, which is calculated by adding back depreciation and non cash stock based compensation to GAAP loss from operations was $3,800,000 compared with $3,300,000 in the same quarter of 2018.

Interest expense for the 2019 was $800,000 a slight decrease compared to the same period in 2018. For the first quarter of twenty nineteen, we reported a net loss of 6,200,000.0 or a loss of $0.60 a share based on a weighted average shares outstanding of 10,153,873. This compares to a loss of $2,500,000 in the 2018 or a loss of $2.22 per share. In the first quarter of twenty nineteen, Ingevo recognized net non cash gains totaling $200,000 due to changes in the fair value of certain of our financial instruments such as warrants and embedded derivatives. Adding back these non cash gains resulted in a non GAAP adjusted net loss of $6,400,000 in the 2019 or a non GAAP adjusted net loss per share of $0.63 This compares to a non GAAP adjusted net loss of $5,800,000 in the 2018 or a non GAAP adjusted net loss per share of $5.16 Having a stronger balance sheet is important to moving our business forward, developing our business and growing our business.

With that, I would like to thank all of our shareholders for their continued interest and support in Gevo. Let's open up the call for questions. Operator?

Speaker 0

Thank you. We will now begin the question and answer session.

Speaker 2

Session.

Speaker 0

And our first question comes from Amit Dayal from H. C. Wainwright. Your line is open.

Speaker 3

Thank you. Good afternoon, Pat.

Speaker 2

Hey, Amit. How are doing?

Speaker 3

Good, good.

Speaker 5

In regards to the PRAG agreements and milestones, are there any specific sort of events that could translate into revenues for the company in the next few quarters? Or is this a little bit more longer term?

Speaker 2

It's to get anything organized, it translates to revenue, something would have to get built. And so that, of course, translates to a little bit longer time. What I do expect to have happen, and I think I alluded to it or said it in my comments, is that we have several of these discussions underway for licensing. We now are up to a half dozen of them. They use feedstocks of different types from various places around the world.

And we have to progress those and make them happen. I think we've seen a shift of how people think about where we are and what's being done. So where Praj is very interesting is because of the molasses, of course, and some of the work that they've done on straw. I think the straw thing is quite interesting, and they also have done bagasse. So those types of things I think, will lead to meaningful milestones in we're in the midst of figuring out economically what makes sense in what location because each place is quite different.

Each location is quite different.

Speaker 5

And then in with respect to the Seattle announcement today

Speaker 2

Mhmm.

Speaker 5

Are you delivering, you know, to to that municipality, or is this going to come in the next few few quarters?

Speaker 2

No. It's already been done. So it's already underway. And it's, you know, it's a one of the things that's interesting is that there is a very let's say, accelerated interest in the last month where people have been talking about greenhouse gases and the importance. And and and a lot of lot of folk are tired of waiting around for the federal government to do something.

And so they're figuring out figuring out how to lower their carbon scores by themselves. And so as you see, here's an effort by Seattle to put in higher performing fuels and move to get on a trajectory to lower the carbon index. You know, it starts off with isobutanol, but eventually, we'll get it to the whole gallon of gasoline. And so when you think about that model, it's kinda interesting because these are municipalities basically thinking proving it out so that they can say, this is the direction we're gonna go in the long run and move to larger volumes. And I expect this would probably translate to other municipalities as well.

Speaker 5

Understood. And just maybe one final one from me. On the cash burn front, how are we situated over the next twelve months? I know you're talking about potentially hitting profitability in the next eighteen months. How will this play out in terms of your progress towards that goal?

Speaker 2

Well, I think our burn is going to be relatively modest a long over this course of this year. We'll spend some millions on capital, but not huge amounts. And because even we're doing the biogas and the wind, these are things that we'll be using. Other people's money will be put up for that, and we become a customer, at least, of the wind and well, the biogas too. So but I don't wanna give exact numbers because things can change, but our burn was our burn should be relatively in line with what we've talked about before.

Okay. All right.

Speaker 3

Yes. Understood. So that's all I have for now. I will follow-up with you after the call. Thank you.

Speaker 2

Yes, you bet.

Speaker 0

Our next question comes from Sameer Joshi from H. C. Wainwright.

Speaker 3

Following up on Amit's questions. In terms of I know you mentioned that you will continue to operate the ethanol, but what level of revenues or what level of capacity do you expect to utilize over the next eight to nine months?

Speaker 2

We have the run rate for that plant is about 20,000,000 gallons a year. It actually can be a little higher. When ethanol margins are low, we tend to run the plant slightly slower. And then we did shut down for a couple weeks while we tied in the Shockwave dry frac technology. So it'll be something less than 20,000,000 gallons by the time we're at the end of the year, but it won't be too far off of that.

The revenue numbers, we'd still we'd give the same kind of guidance that we gave before. It's just that that's in our slide deck on our website.

Speaker 3

Right, right. And then the other thing I noticed is that the R and D has come down nicely. So should we expect it to remain at this sub million dollar level going forward? Or you expect to invest more as you have agreements with project and other things catching steam?

Speaker 2

Nothing major. We may see it go up you know, a little bit here and there as we might do a we do projects externally sometimes and depending upon what we do and how we structure it. But, generally, I would expect us to see a relatively low level. I don't have anything that would cause us to increase millions of dollars or anything like that or even a million dollars. I don't have anything like that.

Wirebugs are coming along nicely in terms of optimization. We do have some external contracts that we're utilizing, but a lot of those are milestone payment type things. If people are successfully hit what we want, then then we would have to pay them as we commercialize. So I think that should be pretty stable. So going forward, if you look at the revenue that we've talked about where we have, the 34,000,000 $35,000,000 ish kind of a range, that seems to feel about right.

Our burn levels should be relatively consistent with what we talked about. I think this quarter would be relatively typical. And then we'll have to deploy some capital, relatively small amounts for doing the wind and the biogas as we do our equity portions of the project financing. So I think we're in pretty good shape. Understood.

Speaker 3

Thanks for taking my question.

Speaker 2

Yes.

Speaker 0

Next question comes from Andrew Marquesse. Andrew, your line is

Speaker 3

open. Patrick,

Speaker 2

can hear Hey, Andrew. Yes, how are doing? How are you? I'm doing well, thanks.

Speaker 5

Thank you.

Speaker 6

Perfect. So first of all, congratulations on the recent announcement regarding the development of the rubber product, obviously. Just curious, Patrick, just one small question. Is there any potential to develop that out? Or where is that going?

Or is there can you comment on anything regarding that?

Speaker 2

Sure. For everybody's benefit, what Andrew is asking about is the isoprene. This is interesting. So one of the things that Gevo has done is developed a series of technologies around the conversion of alcohols and hydrocarbon products. We talk a lot about jet fuel and isooctane from isobutanol, but we've also developed technology to convert ethanol into hydrocarbon products as well that can go into the diesel fuel, can go into jet fuel, or we can make intermediates for plastics and polymers.

This was a development effort that we've already well along the way. And the thing that Andrew is asking about specifically is we have developed a technology. It's very highly related to what we did for isobutanol ethanol. It's to convert fusel oils into isoprene, which is a key constituent of synthetic rubber. The fusel oils are made as a byproduct of fermentation from the ethanol industry, and there's quite a large amount of them available.

So I think as there's several there's a couple different things we can do related to that. We have we can take that chemistry, and and it really makes isoprene and high yield. And I think it's the from what I've seen, it's in the realm of, if not the best, economic system from what we can tell and what our projections are. And it's a proprietary catalyst that we use, that we've developed and owned. And I think we'll see progress on that over the next couple quarters from what I'm told.

The other thing that is possible to do with a variant of that chemistry is to convert some of those kinds of things into flavors and fragrances. And so this would be into various it really is going for that really fine chemical specialty niche is where that potential lies. We have some we're we're not trying to become the we're not gonna build out those business per se in terms of we aren't gonna become the marketers and things like that. So that we're in the midst of lining up the partnerships. What I'd rather be is a supplier of alcohols, raw materials, catalytic the catalyst, licensing the technology is how we approach it.

So we just haven't talked about much of this publicly, but that's how we're thinking about it. And I think over the next probably two quarters, I'll know which way it's headed, how positive or if it's going to take longer or what's going on. I hope I have something material in that timeframe.

Speaker 6

Okay. Well, Patrick, I just want to say I'm looking forward to these additional announcements forthcoming and the definite successes that you will be having soon. Congratulations. You bet. Thanks.

Speaker 0

And speakers at this time I show no further questions in queue.

Speaker 2

All right then. I wish everyone a great day. Thanks for joining us today and thank you for your interest in Jibo and your support. Bye now.

Speaker 0

And thank you, ladies and gentlemen. That concludes today's conference call. Thank you for your participation. You may now disconnect.