Q4 2019 Earnings Call
Well kept picky about corporate Cutie, Mark Twain actually New earnings Conference call. My name is Adriana now the operator for today's call at this time.
And our another phenomenon.
Later, we'll conduct a question answer session.
The question answer session.
Chen Please press Star then one and you touched on phone. Please note. This conference is being recorded I now turn the call or General Counsel Jeffrey T. Williams Chenier Jeffrey lanes Junior you may begin.
Good afternoon, everyone and thank you for joining Jugos fourth quarter 2019 earnings conference call.
I would like to start by introducing today's participants from the company.
With us today, that's Patrick Gruber, Jugos, Chief Executive Officer, Lend small GE Boes, Chief Financial Officer, and Carolyn Romero GE, both Vice President controller.
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 Dot GE, though dot 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 Jugos 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 an isolation from or as a substitute for financial information presented in accordance with gap.
Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is contained in the press release distributor 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 jugos operating activities for 2020 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 GBS form 10-K for the year ended December 31 2019.
Which was filed with the U.S. Securities and Exchange Commission or FCC add and subsequent reports and other filings made with the FCC by GE, though including Jugos 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 you know 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 the discussion of GE. Both business developments Lynn will then discuss a few of US financing efforts and lastly, Carolyn will review GE, both financial results for the fourth quarter 2019.
Following the presentation, we'll open up the call for questions.
Ill now turn the call over to Pat Pat.
Jeff.
Our goal at 2019, what to secure 10 million gallons per year, a combination of isooctane for gasoline and renewable jet fuel under take or pay contracts.
Instead, we chief 17 million gallons per year. These contracts represent over approximately 500 million a revenue.
I'd like to the contracts.
We were able to successfully five pricing that should work for us and the customer that is a big deal a major milestones.
For us.
That was the last big outstanding question in the marketplace.
We had to be able to five pricing that gives attractive returns.
We can attract investors to build out the capacity we need.
It certainly used to get this many gallup locked up and see that there are many more potentially coming.
The all saw relieved to have these galv under take or pay contracts, we needed to take or pays to stand a chance of obtaining the project financing that we're going to need our story our products. Our technology are resonating in the market. The vision whole gallons net neutral fuels that catches people's attention and causes that I think.
Differently about what is possible.
Paul Gallant means that our technology has the potential overtime to form the basis for a whole Gallup you no matter, whether it is jet gasoline or diesel fuel and we've been able to show that there is potential to do that with a net zero or even negative greenhouse gas emissions.
Now in order to accomplish net zero emissions it requires a carbon sources sustainable and renewable.
That will reduce or eliminate the fossil resources required for the energy or production.
That I mean, the electricity or the gas for the boilers.
Just last week, we had the ribbon cutting for the Grand opening of the wind towers dedicated to supply or the burnt site.
Goodbye to fossil based electricity for Lipper.
We're also developing biogas projects that would you say north of feedstock and then the biogas output will be used to displace the fossil based natural gas at Luverne plant, we expect to get these biogas projects funded this year and operational next year more of that a bit.
Now going back to the bigger picture permit.
The demand for renewable jet fuel decreasing as their lives at other fuel users to suppliers are being pressured to address greenhouse gas emissions.
We think that this pressure just going to continue and feel over the long run.
Already countries, such as Sweden, Afras have you got to mandate sustainable fuels, which is why FCS and air Totalys customers.
In California, the low carbon fuels policy provides a sign ups the low carbon fuel products and that California policy has become even more solid and trashed it isn't going away and that gives investors confidence.
Not only that similar types policies have been adopted a new York in Oregon.
Washington, several Midwestern states are likewise discussing how to make low carbon fuel policies habit ward accrete other incentives.
In the European Union, they're pushing ahead with requirements to reduce fossil carbon emissions with the ray in red to policies companies have to comply.
In addition policies. We're also seeing major brands recognize that they need to do something about their fossil footprint consumers demand it.
S.G. investors demanded in fact already we are supplying some companies quietly from a limited capacity that we have.
We're seeing increased demand for renewable isooctane for gasoline because the demand for high octane gasoline at the pump as increasing.
This is due to consumer demand because of new cars with new high miles per gallon edges.
What better product to deliver high octane octane itself like we make.
I think the demand for our Ferraris, so octane could be at least as big if not bigger than jet fuel over the long run.
As a side note I was looking at projections for liquid transportation fuels out to 2050, I was surprised that the EPA and the EPA.
Even when taking into account growth in electric vehicles.
The demand for liquid transportation fuels is roughly similar asked today.
That is scary for greenhouse gas point of view.
In addition to the 17 billion gallons per year that we currently have under contract we expect to have more take or pay gallons under contract soon and the additional volume makes us believe that we will need yet another plant built with much bigger volume that lever.
And we believe we'd likely need havent come online soon even maybe in the same timeframe as lumber.
So to that at we're already looking at several new sites for production.
Our plan is for our large scale build out to be on March 2023, assuming we get the financing in place.
With the take or pay contract that we have and will have in place. We got a tiger by the tail. That's good problem to have for our business.
So it was 17 million gallons that considering the next.
Large chunk accounts, we're going to get we're able to shift our commercialization plans a bit.
Previously, we assume we need a smaller plants that libre about 10 million gallons per year hydrocarbons and that we would have to raise money as you go Inc. and you go eight equity for the plant capacity built.
Instead.
A few away putting up the equity need for the plants, we plan to step into the role of developer licensor plants, operator, but not an owner per se.
Perhaps as minority participation for contributions already made.
As we feel dock capacity, we believe that the assets and liabilities will not be part of GE boasts balance sheet.
With the increasing concern over greenhouse gas emissions and their impact on climate change, we expect to attract both equity and debt fund answers as a result.
We've all seen how equity funds that banks are shifting away from investments of fossil fuels.
Saying they want to move toward sustainable products. Good. Good that's good for us the momentum for lower R&D Fossilised fuels in the marketplace is in our favor.
We are in the process of hiring strategic advisor in the near future. The helped by sort out our strategic options and to Asia, securing financing for the large scale build outs were planning.
The economics are plant build outs as project look attractive.
We've achieved another important set a milestones in 2019 that folks might have missed.
We obtained certifications from I. FCC it RSP, both of whom are well known sustainability auditors.
By obtaining these certifications we are proving that carbon reductions are real and then a business system like ours really cab lower carbon footprint fuels or even eliminate them.
These certifications havent noticed in the marketplace and contribute to us getting contracts Doug.
Now back to our biogas projects.
Instead of Chivo investing in our biogas projects, we're planning a taking a developer approach here too that means we currently do not have plas what best you go inks money into the biogas projects other than what we've already spent as a developer.
We do expect to be come off takers for the portion the bio gas that we need to lower carbon footprint at delivered plant.
We believe that the active acts the bio gas project will attract equity and ask you mentioned before we've already raised the debt.
We expect that the bio gas would become available to us for our Oilers effort in 2021.
You all probably know that we have ethanol capacity at Luverne plant.
I haven't said this next part quite this partly before but I want everyone to understand this ethanol is a non strategic product for tivo.
As we develop plans for larger hydrocarbon capacity at the Lebron facility, we may see Seth about production once expanded isobutanol and hydrocarbon plant began operation around 2023.
In 2019, we ran ethanol when we believe we had positive contribution margin. It was a hard year for ethanol the marketplace is terrible.
Now in 2020, we plan on doing the same thing between now and 2023, we do expect to approve the profit margins for our ethanol even if the basic ethanol commodity markets are crazy.
You do this by qualify for at the low carbon fuel standard in California first for using renewable electricity and by implementing other plant improvements to reduce our carpet score that we'd expect to translate to approve march but ethanol.
Then in 2021.
We expect that buyout gas for our Luverne plant will be online lowering our carbon score further increasing our margins further.
Those margins are expected to help the profitability of the Luverne plant.
Of course, we should keep in mind that renewable electricity and renewable biogas or something we want in place for our jet fuel and isooctane.
Buildout.
Turning to recent events.
Asked about the impact of Corona virus on our jet contracts.
The simple answer is that we don't have any.
Airline certainly do have their hands full today, but the reality is that we've already have the jet galv that we needed under contract actually we have more of the plan.
And it's good I suppose that we don't have to deliver fuel.
Until 2023 2024 timeframe for those large contracts.
Of course over the long run airline travel isn't going away will be back.
Neither way as it comes back there's still have their fossil fuel footprint that has to be dealt with their greenhouse gases and the pollution problems.
Even in the midst of all its term while they're still players even with all of us traction over the last few weeks, who need jet fuel a future. They know they need it may haven't lost focus.
And they are still moving forward contracts. So I suspect I believe we'll give some additional contracts not too distant future.
Now our isooctane customers don't appear to be impacted at all isooctane is needed is clear.
As far as the Saudi Russian oil price, where goes whilst terrible timing it too will pass I don't know where oil prices will settle eventually the good news is that we've already assumed pretty cheap oil prices when calculating returns from our big plant project build outs.
There are attractive.
And as we know from history oil can swing wildly.
Paul and whole none of us know what the future halls, it's worth noting that our production costs don't have the volatility that oil brings sustainable corn as a feedstock as a result of hedge both from the protein feed products that track with the value of corn and in the future.
I think that the current value us tied to court will also be of help too.
Now on the market side consumers aren't going to give fossil fuels pass.
It's the belief probably even heightened these days that climate change is an existential threat to the Earth. It's simply a question of when we crossed the point of no return.
That seems to be the gripe lead to consumers, especially younger ones.
Products, such as ours are designed to directly address greenhouse gas issues associated with transportation fuels and be part of the solution.
The potential Paul gallant net zero or lower emissions demand is increasing we have a solution that works, we need to make it a big business.
Look reducing eliminated greenhouse gas that solution across business systems matters, even in this crazy world and more so in the future.
Okay.
This year, it's all about arranging financing both equity and debt.
We also expect Atlantic more contracts picosecond site and get on with building this business.
We recognize the potential to make this business really large is real we're seeing the contracts we figured out the pricing.
We note that pricing can drive large scale.
Yes, we will have to raise money no question.
But the vast bulk that we would be expected to raise be off balance sheet project financing.
We've done the economics around the projects they're attractive.
We already know from initial conversations with potential finance heirs that they like what they're seeing.
We just got to bring it.
Bringing home and get it done.
And now that brings me the introducing Lin small who are higher specifically because if it's project development expertise.
Lynn.
I hand, the call over to you.
Thank you Pat This is my first earnings call I'm very happy to be here I join zero, because I could see that the technology has proven the products are increasingly in demand in my career experience, particularly around project finance can be put to immediate use.
Because we have take or pay contracts in the business has been substantially de risk we are well positioned to secure both debt and third party equity for the project financings for Pat mentioned.
We expect to establish the financings at sub company special purpose entity levels, which will avoid dilution that would normally be associated with on balance sheet plant construction.
As Pat mentioned contract terms are settling down and with that cornerstone detailed modeling indicates the projects will yield pro forma financial returns that are attractive on a risk adjusted basis, thereby enabling us to secure necessary debt and equity construction capital.
We're also in the process of engage in a blue chip financial advisor to take on the project capital structuring and placement lead on both debt and equity as well as to perform strategic advisory roles at the parent entity level.
We are moving along in the process of selecting a credible and capable EGPC from that can mitigate completion risks to the levels customary and the project finance discipline as well as commencing various other development activities necessary for financing.
Im delighted to be here Im looking forward to getting the initial projects off the ground and to positioning zibo for financial success.
Now I'll turn the call over to Carolyn who will take us through the financials shearling.
Thank you there.
Recorded revenue in the fourth quarter of 29 team our 6.9 million.
Compared to $6.6 million number so period and try 18.
Looking at three months ended December 31 train 19 hydrocarbon route.
I'm very on dollars compared with 100 pounds in the summer period 2018.
Hydrocarbon sales increased because of higher production volumes our profile.
During the three months ended December 31, 2018, Cambridge production, our preferred after preferred to upgrade.
And to double production capacity.
During the three month ended December 31, 2019 revenue derived delivered 30 for up not sales related products with 5.9 million a decrease of approximately 8.6 million from the same period in 2018.
As a result of the not favorable commodity environment. During the three of our credit December 31, 2019, compared with the Frontera until 2018.
Kibo reduced its production of about current crane, which resulted in lower sales for a period.
Cost of goods sold.
400, timber fourth quarter, 2019% 9.7 million and the same period and 28 team.
Merely as a result decreased production powertrain between 19 corridor.
Production decreased due to run on favorable commodity environment. Obviously, the result of greater corn cost thats compared to national markets that the reach attested correctly.
Gross loss for 2.5 million for the fourth quarter, 2019% 3.0.
For the fourth quarter 2018.
Research and development expense decreased 5.9 billion during the fourth quarter 2019 compared to for a period of 28 team.
Primarily to decrease costs associated with our Southampton facility, partially offset by increased personnel and consulting expenses.
Selling general and administrative expenses increased by one point are very our during the fourth quarter pretty 19, compared with a phone period in 2018.
Primarily turn increased the person now greenco consulting and Investor relations costs, partially offset by a decrease.
Our strategy.
Total operating expenses for the fourth quarter 2019 reported approximately <unk> point fourmillion from non cash.
Based compensation.
For the fourth quarter 2019, we recorded a loss from operations six point Tim.
Compared to 6.7 million per phone period at 28 team.
Fourth quarter, 2019, cash EBITDA, Ross and non-GAAP measure, which is calculated by adding depreciation and noncash stock based compensation to GAAP loss from operations.
Four point Onemillion compared to 4.7 million in the third quarter 2018.
Interest expense for the fourth quarter of 2019.
<unk> point 6 billion.
Increased compared to both period in 2018.
For the fourth quarter 2019, we reported a net loss.
No.
50 cent per share.
Weighted average shares outstanding a 13.659 million 944.
This compares to a loss of 7.1 billion in the fourth quarter 2018, or a loss of 83 cents per share.
In the fourth quarter 2019, chief are recognized not non cash.
Totaling $13000 due to changes the fair value.
Our financial.
Such as warrant embedded derivatives.
Adding back the noncash gain resulting in our non-GAAP adjusted net loss of 6.8 million in the fourth quarter 2019, or a non-GAAP adjusted loss per share.
First compared to non-GAAP adjusted net loss of 7.5 earlier in the fourth quarter 2018, or a non-GAAP adjusted net loss per share up 80 cents sorry.
Having a strong balance sheet is important moving our business forward developing and growing our performance.
I would like to thank all of our shareholders for their continued interest and support and gave up.
Open up the call for questions operator.
Thank you, we'll now begin question answer session.
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C. Wainwright your line is open.
Thank you good afternoon, everyone.
Taking my question Hi, bad.
So just.
With respect to learn this fully green production now room and that transpire in Green agreement.
Im sorry fully green production you mean.
I'm not sure exactly what you mean by then.
In terms of all the energy consumption is it on renewables.
I know the electricity as displays so what's interesting about learn is that we have a large portion of it comes from.
You know South Dakota, whereas hydro powered and then we have five megawatts that we that are up now and so that in essence takes us off the grid and so no more fossil based electricity. So it gets rid of all that and then that's enough capacity for us and our big plans as well as we build it out the we would.
When we add renewable biogas for our boilers next year that we'll take our footprint down further.
Yeah.
We havent, we don't I don't think we need to get too.
Zero renewable or zero fossil based energy I was just.
We don't read our contracts that way to kits is down to zero, even though we see as possible, we could agriculture to take us down to a net zero mission with ethanol. It's not the main focus we're trying to improve the margins for sure and lower the CIA score.
For sure because that improves margins, but.
The other day, we're very focused on making sure we got hydrocarbon game all figured out.
No.
With respect to the garden market environment, a lot of volatility how is impacting your financing plans to these capacity buildup.
Well, what's interesting is that we have good take or pay contracts. They are backed by real players. The people who are under in da know who it is that we're talking with next for the next set of gallons. They can cm, they're real players and PSG funds and other people who are keep talking about.
You are moving away from fossil based resources what are they going to invest in you can best in when you can best electricity, we can invest it you collector cars, yes sure batteries yet.
But you know what our solution has different our solution goes for the potential for enormous.
Portion of a gallon if not the whole gallon and we can drive carbon footprint extremely low and we've been able to prove that it's like as in eliminated.
So thats pretty darn interesting for people and the process technology works you put that story together you put together project, Here's where Lynn has done a great job of going through put putting in the very detailed.
Project Pro Formas with all costs in bake them all in.
And at the end of it the returns are pretty good net catches people's attention. Hence you know hey, we've got a good list of strategic advisors that we're talking to we're going to pick one.
And they think it plays I think it plays based on feedback from them wonders that we've talked to so far I think it plays into one at something Lin here.
Well I was also going to point out that the lead time for these projects as long as you can imagine so.
Current market conditions today.
I have some time to work through the system before they whatever impact what we're doing project finance people the profession the discipline.
Is much more dampened and looks over the long term. So we're continuing development and financing activities on those projects.
No.
To your commentary on.
This topic one is.
As airlines seem to be looking for bailouts et cetera.
I know your timeline is 23 24 for bringing all of this into commercialization, but we'll do.
This potentially impact your discussions et cetera.
These partners.
Well, what's interesting is we've already sold more gallons into the jet market than I was originally counting on or so we're pre sold them, we're going to get a bunch more but there it's a.
People, who have a long run view in a different kind of in issued different kind of problem. There trying to solve then an airline per se. So I was trying to people trying to position themselves greatly in the supply chain.
But remember our business and this is an extremely important point we make.
Both isooctane for gasoline and jet fuel, we can control the ratios isooctane generally is worth more money per gallon the jet fuel that everyone should not everyone to keep that might have mentioned many times over the years and so we're keen on selling isooctane and we like that will we see coming down the road at us in additional contracts should be.
The weighted I expect towards Isooctane, that's a good thing.
And that's because isooctane market is people believe it is going to be short in the future as octane at the pump.
Needs to increase.
So we're that's okay now regarding the bailouts I have I get brief several times a day rate now from potential legislation is pretty interesting. There is definitely going to be bail out right now the number that thrown around the United States 50 billion 200 billion worldwide, there's actually proposals.
That to loan money to airlines and then the Theres, even one proposal I saw from that we'll see I actually like this one of course, but it's that yet Bob the loans could get deferred or reduced the used sustainable aviation fuel is the feedstock, but who knows they're going to get helped they had we the world has to have.
Airlines and so yes.
Problem their strategic industry, they're going to get bailed out.
Maybe some consolidation.
But it hasnt impacted anything we're doing but again like I said in haven't been.
Today at this date in time.
We havent been.
Trying to rack up.
Additionally, in the gallons of jet fuel, we're trying to keep a balanced portfolio approach.
Great well make sense and Thats a good coverage.
On the commercialization from.
It looks like its plans of she is a little bit from.
The last quarter update.
You are looking.
Moreover, developer and operator, we will see the majority owner.
Right, Yes, this coming from sort of the parties, you're having these discussions with or are you sort of trying to minimize your wrist.
How do the economics.
And just taking a scenario for you.
Well, what's interesting about the reason for it is previously radical of 10 million gallons per year of hydrocarbons, we can make a business and be a pretty good business very profitable that'd be the first stepping stone. What's happened is we secured contracts or 17 million gallons per year, that's bigger than originally thought we might do at Luverne. In fact, I haven't decided that I'm going to do 17 million Gal.
Is that lipper and I might add it back up but it's I mean, it could be up as high as 20, so thats sort of what we're looking at however, the gallons that I see coming at us in the near term in the contracts are way way bigger than that in which case, then I get to think about a separate site much larger that liberty.
And as we do that we got to do kind of balanced portfolio thing on production as well and we got deliberate and the same timeframe what that means is now theres more gallons available.
To support us on if we for licensing or if we were going to be the plant operators. That's for sure. Because this is a new technology were expert in it we got to teach people how to do it. So we'll get paid for that we get paid for development along the way and this is.
Please refer to this as a capital light model I know that one of the concerns that shareholders have had his book got Pat how you're going to raise all that money for the equity portion of the capital well you know what because we have so much business coming at US we don't have to Theres. Other people, who are interested in that and so GBS cash flows with Tom.
From various fees lend you want to comment further on this.
Just outlined the fees well.
Technology licensing fees during the construction period recovery of development capital financial close as a common project finance.
Structural elements. So the money we used to develop the projects will be coming back out us out of the proceeds of financial close of the project financing will also perform a project management role during construction to ensure it gets built the right way.
And then we'll be operator and asset manager in both those functions will tie us into the projects long term and we'll have a carry on the back in some type of residual equity interest that will negotiate with a third party equity investors.
And the projects are rich enough to support all of those streams for Gibault. So when you look at the actual dollars out for development capital versus what we can expect back onto the development development model, it's quite attractive and fairly low risk given the fact that we don't start development until.
We know we have offtake contracts, yet and it's a pretty interesting game to play and what enabled this was us being able to figure out the right pricing. So that it works for the customer and works for ourselves and get the project returns and that and be able that everyone can share that common view of what it might look like.
Thats whats changed and Thats, because the roll to roll that large knows they're going to be held accountable for carbon and that's not going away no. Even in this turmoil, it's still not going away maybe gets maybe you could get a reprieve for a month or two but you know what.
No I said earlier people keep ask meaningful cash are doing gasoline.
What about ease aren't that are they going to take over the market, yes, no. The art nobody predicts that the might take a share growth and so do you think that people are going to tolerate spewing out these greenhouse gases into the future or they're going to continue to.
Well.
Raise havoc in the future.
That's the question and so brands are already figuring it out that they've got to do something they are going to get away from at legislation already is happening around the world. You you read to policies are good policies, France, and Sweden have already made down like on the went down the mandate path at for jet fuel. So the world has.
As changes just hard to keep up with all these days.
My last question Pat.
With.
With respect to the cash in hand, and your burn how we manage inducing the current environment and are you comfortable with how you are situated right now.
We have we start hunkering down a while ago because I saw the reports from the Cronto wires.
And so in here here, we already started hunkering down you saw that we reported that we had $60 million.
At beginning of the year and we're going to spend every dollar wisely.
Along the way and that I think are ready the amount of money. We had I think what a surprise people because they were predicting has to have that much and.
We will be managing our burn extremely carefully still trying to move the ball head right now, we're hunker down like everyone else literally hunker down.
Because of the way the world is work it but.
You've had many many call equity finance finance front, but people are all start working.
So thats good.
On the project Finance front, we're all continued to do our jobs because literally for a project that won't commence construction till next year for delivering in 2023.
Every retasked test to be done the current market conditions really don't impact that so we'll try and stretch it out further of course after the situation. That's what you got to do.
And then maybe one last one for you with respect to project financing is this something that could materialize over the next few quarters only just restart.
Little bit further.
No the reality of developing a project to the level of sort of quality that meets a project finance disciplines.
Requirements will take time to properly developing mitigating risk.
That is the discipline, a project financings risk mitigation and allocation to the parties that can best price the risk.
For example, completion risk will help to get to a global.
Credible and and capable.
From to take on performance risk and that takes time. So theres lot of engineering work has to be done and I don't think that there's any possibility of a project financing materializing in six months.
Understood. That's all that what is interesting. So so I'm at what is interesting though is that we've had enough discussions at to know that our story of what we're talking about here is something that they haven't heard before it says we start shown on the data around what we can do with jet fuel and gasoline and we're sitting there.
Talking to gasoline of doing whole gallons and look at here, how we can drive it to nets or even negative carbon emissions. That's possible to do we have to whole businesses come up and running of course.
But that's pretty interesting because that can make a material difference it fall square and the camp.
Dead on for sustainability play and it's been de risked absolutely as much as possible because we've done all the stuff at full scale and it's known in the product salt work in our qualified the marketplace. This customer standing on the other side.
That's interesting now as equity players look at US we've already had conversations where they say.
If I'm going to invest this here at this project level at night invested at the corporate level too and these are questions that we just got to get down the road further to see how all of this unfolds and yet time matters. It does matter and so we're trying to make fit those pieces together. Our next big thing that we're going to be higher strategic advisor.
The strategic advisor look at all options for the company. Because this is what is cases where to grow our business. When you have very large amounts of capital to grow the plants right and I think it'll always be done at a project level for the first bunch of gallons.
And.
We're going to get help from Big does who can help us that's what we're going to do and I think it'll be interesting to see thats like.
[music].
So we're looking forward to get non with it and get on with the discussions I don't like to terminal that we have right now in the marketplace obviously.
Right.
Thank you bet that some of them appreciated.
Thank you.
Your next question comes from culprits from Noble capital markets.
Hi, good afternoon, Pat and good afternoon Lynn.
Hi, I know you probably don't want to courts too much but can you just talked about how you're looking at the additional site that you're looking at whether geographically you you find that youd, rather not be up in the upper Midwest or just sort of super.
Frame, a little bit what you're looking for as far as that site.
What are the.
Potential.
Features you're looking at.
Sure as a.
We the things that we consider our the cost of a carbohydrate that's number one and this is entering quarter number two rate.
Goes with it is the sustainability profile of that we can't have some of these products that people want to put forth. They just are not sustainable I mean I was in a discussion earlier today was that you got to Kidding me, so that carbon footprints too high for that so yes, it's cheap so at that balancing act of driving that footprint down how do we acquire those carbohydrate what does it made from does it fit.
The sustainability profile that we want for the long run number three would be accessed renewable energy renewable energy is important part of our story of the greenhouse gas footprint that we would have in our products in large part would come from electricity and the use of natural gas and so we're keen on picking sites, where we can mitigate those things.
We have the ability to mitigate those things number for would be transportation in and out we like rail.
In long run we can use pipelines, but really its rail that matters. Most are good and I can't imagine that we would go somewhere that doesn't have rail and so we start looking at places and there is some interesting places I could see in California, because thats closer to the where a lot of this market is going to be I can see please.
Places in the Midwest.
Civic northwest with his places that have been suggested down in.
The southeast.
The weighted I think this unfolds is we're going to partner with somebody who wants to do something else with their ethanol assets because ethanol margins really are bad like as in historically never this bad before that's just the way the market is the only hope is that someone can save their ethanol business I think is to shift away from us.
At all to something else and maybe that some places can lower the carbon footprint enough to make money by some stuff in the California that could be something we can do we'll find out next year in.
If that works.
But even from our Luverne plant and that'll help mitigate some cash but how are people going to solve their problems. So a world where we've been doing is having a series of conversations with folk and it's going to come down to having multiple candidates and sorting out the best deal also meet those PC criteria Lynn.
Well, it's a choice between straight up M&A back on an acquisition and fine finance in inside of project finance sources of funds or a joint venture combination with the assets contributed inclined either way the markets are looking attractive for acquisitions or jvs with this.
Yes, because people recognize said, it's a better deal to take that asset that doesn't make any money or loses money in turn into something that make a bunch of money and jacquet needs investment, but theres investors, who want to invest so that's why I think it unfolds.
So you're looking at.
With centric modifying existing plant.
Yes, yes, we've seen it.
Yes, yes.
Any any date.
Are you at the point, where you're talking about some state incentives are local incentives. We said two four down the road.
That would that would be a next step and that go definitely goes into the thinking what we might pull off that might be available.
Jet fuel, let at Scf is interesting because people do want it and its a.
Part of the long run plan, even though it doesn't it's hard to believe in this day at age when people are worried about their existence, but they're going to get bailed out.
And this octane thing is a big deal so.
That's one that everyone always wants to shop aside because I don't want to think about it but not really east can only do so much and I'm, telling you look at all the projections for the future how much gasoline is planned to be sold its enormous but it's also going to higher octane gasoline it has to because for the high the engines that get higher mileage.
We can help solve that problem.
And then a victory because you're talking about 17 million gallons per year at least and then scaling up.
Lead to 70 billion.
Per year.
On your base I mean, you have contracts that were 17 million already so what component. What's your what's your preferred ratio of ISO to essentially FCF have you sort of thought about that is it 50, 50 were 25 75 or sort of what.
Component of that.
Production award that hydrocarbon capacity will be ISO versions.
Yes.
Well, it's I think 50 50 is a good place to think about and that's kind of where things are kind unfolding and what's interesting about it is this technology lends itself that we can swing at around a bit so even if I have an asset that is hydrocarbon I have an asset that hydrocarbons I can change ratios on the fly Fi want so.
We don't have to lock in and build out for any one particular dedicated thing, but the we're contracts are unfolding, it's kind of split.
And then when you look at sort of.
Perfect.
Pat City.
You would you look at have been some available from a merchant standpoint, we're would you be working at just your take or pay.
We primarily have it driven by take or pay reserve some capacity for the merchant market because as you know from other businesses. When this happens you're building to spec like we are Undertaker pace, having some merchant capacity.
It's usually very profitable because other people need to get the product and the only way you can get it is from people like us.
Right and I think third party equity third party equity investors in the projects will also.
Off too.
Have a bit of optionality on on the spot.
Yes sure to think in 80 515 were 70 525 floors 15, 25% capacity that potentially is gives you that optionality.
It depends a little bit on the on the dynamic on the debt side and calculating debt service coverage ratios under stress to cases.
As to how much we need to have contracted vis-a-vis spot, but but I think thats decent starting point, but maybe a little less spot and I think I think the way it'll come out because of.
Now we're during the first please the first projects. It's it will be less probably yes. That's what I think you just for exactly the reason is the way. The analysis gets done as you look at all the things that can go wrong and plan for those and if the economics still look like you can cover debt and making some money than people go okay, well, that's what our model shows we should be able to do all that survival.
That.
And but even with some.
Some of the capacity.
Well I don't think.
Yes, it won't be 15% idle, but this is an ongoing discussion I think in your project few future projects. After we get what we call bundle one done.
And prove that concept that future projects will allow for a little bit more risk taking on the on the spot. Yes go ahead.
And I was going to phase, we should get up the learning curve you de bottleneck in potentially we've been generating improvements I mean, typically you got it refinery refinery capacity creep, it's historically been 3% to 5%.
Lynn Lin when you talked about the different fee streams.
And then the one that did.
I think what's the big what's the big component was the recovery of development costs should financial close.
Can you put it a number on that recovery of development concept financial close or is that something that will.
Be dependent on the timing of when you actually do the financial close.
The number of things it's dependent on and for example.
We could align ourselves with and you see contractor earlier, rather than later that would do the bulk of what we call. The appeal three engineering that could save quite a lot of money.
But but generally speaking.
No. It's an expense that's absolutely required to get a project to close.
And then you get a pay back as the project closes and so the overall the amount of that.
It's work the way, we think about it pretty much of a standard development model. There's one twist, though we on all the election property. We are the experts in it and so that makes it a little bit different and how the things go. We also are the market makers. This and other subtlety about this business model, where the people out there and continue to be out there developing the marketplace.
In writing contracts, we see that off into the future as well.
Different so theres the developer sort of top codelco slush Yieldco model that you might see in some of the other renewable power sector. It's a completely different model because of the nature of our unique technology, we're not selling just the ability to snap together.
Our projects, we are selling the technology itself and we're actually developing a market.
That is much different than responding to say RFP use for power projects.
We're in a dynamic and growing market.
Instead of one cents.
Relatively flat, so our developer characteristics or substance with different.
It is and the other thing would be active on a worldwide basis as well Thats again, another subtlety year.
And in other places, we we might just simply take a licensing approach for instance in India, There, India working with price those price and I don't talk about a much those projects are moving forward and so it'll be fun. When we can announce who it is that's a customer and how big the optics are but that kind of stuff is half.
Opening we just.
I can't talk about it quite yet.
And likewise in Europe. It's the same kind of thing is that there is demand for these fuels and as it makes sense to ship of from Luverne, while everybody makes money. If we do that it works it lowers the carbon footprint the way, we want but optimal no and so you'd start often luverne, but shortly you'd be having a conversation who wants to play the real gain in.
In Europe.
But the same criteria, what's cost the product for more carbohydrates source, what's the sustainability footprint look like what's the carbon score was logistics to get into who wants the product in exactly the right location and that's the kind of stuff we are doing.
Great just.
Couple of.
Just two more if you wouldn't mind onto your build out the development costs are that capital cost required to do at least 17 million gallons per year.
You quantified exactly how much it's going to cost to build a gallon.
Capacity.
Well, what we've talked about previously is that if we built out 10 to 12 million gallons year that might cost 130 to 150.
And it by building 17 to 20, you might multiply by too.
Ballpark range and.
And then when you look good.
The gating factor to refinance the white box dead.
It looks like project financing not going to be done soon enough to to generate.
Any funds to refinance those notes.
We'll what's the gating factor.
As you may make the statement in the press release that you expected refinancing can you give us an idea.
How thats going to happen.
Yes, I think there's a couple different past we've had.
We're engaged with people, who could do straight up Rifai type things and will fit we have to figure out what the best dealers and we'll do it but it there say I think that some of these people are interested in the projects they recognize that white boxes, there and.
We have to work through it needs they recognize that that's an issue.
And white box has been a cooperative partner with us too. So they also are trying to make money out as whole deal too and recognize that there is a growth business here potentially we just got to get the right thing organized to get it finance the same way. So I have a bunch of capable players around the table who are all we had this figure out the pieces.
And.
Now this week last week is Crazy next we probably some decrease two week after.
It should be settling down we'll know what's what are the meantime, all the discussions of the financings in who we who were working with the banker is as we get more color and get on with who will want to do this project really and when that changes things.
Theres bridge financing solutions that I could do we could do Brittany bridge financing things, we can do stuff like that lot of companies and are in that situation, where they have a piece of debt like that they do that so.
It we ideally we want them take to be paid off as our refinance as part of the overall built this is questionable who watt where how and we've also have some strategic square here waiting to see how the pieces come together so.
We just got a lot of pieces that got it.
Come together and sequence that but.
Critical work it out.
Great. Thanks for your time.
Yep.
That concludes the question answer session I'll now turn the Petco Deco Cooper for final remarks, yes. Thanks, all for joining us I. Appreciate it I know they took time like your day and it's like us that crazy world, None of us likes where our stock prices I can tell you that and it doesn't make a whole lot of sense, given where the progress we've made in the marketplace.
And I actually heated.
You know I look forward.
To the future here, we do you have these big contracts in place and that creates a whole new set of options for us creates a whole new level of discussions with players.
More of the marketplace, but also the financing world that we would have been able to have before and like I said with Lin here has been able to turn this stuff into like really solid.
Project Corp, Pro Formas professionally done here, they are and they've been thought through you know I can already see that theyre attractive to get people around the table and talk to US and of course, you now the basic fundamentals we have customers. The technologies work products are de risks. This business works how many other plays are they're out there real.
Early that can solve big time sustainability issues I about fainted a few weeks ago. When I was looking at projections of fuels for the future of because everyone keeps asking me well what about those MVC out say about the fees. Good for them, we need all of them. Although we can get good and it's still going to be hundreds of billions again.
The fossil fuels out for the next 30 to 50 years.
That's a problem and it has to be dealt with a technology like ours does that and you know what will be able to find people who share that same point of view.
So we're off to play this new game and get on with it Yeah, we don't like the turmoil.
Yes, Thanks for your all of your support.
And your investment I appreciate it.
But.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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