Q1 2020 Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the Jeep incorporated first quarter 2020, <unk> earnings Conference call at this time, all participants' lines.
After the speakers presentation, there will be a question and answer session to ask a question. During the session you need to press Star then one on your telephone.
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I would now like Dan the converts over to your host today.
Jefferies Sir please begin.
[music] good afternoon, everyone and thank you for joining Giovanni's first quarter 2020, <unk> earnings conference call.
I would like to start by introducing today's participants from the company.
What is today as Patrick Gruber, Jugos, Chief Executive Officer, Carlin Romero cheap as 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 Chivo Dot com.
I would like to remind our listeners that this conference call. Its open to the media and that we are providing a simultaneous webcast of this call to the public.
Replay of todays call will be available on GBS 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 gap.
Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is contained in the press release distributed today, 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 euros operating activities for the remainder of Twentytwenty and beyond.
These forward looking statements are based on management's current beliefs expectations and assumptions and are subject to significant risks and uncertainties.
I didn't notice was Ngls form 10-K for the year ended December 31 2018.
Which was filed with the FCC and and subsequent and other filings made with the FCC by Tivo, 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. They do youve a 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 that will begin with the discussion a few of those business developments.
Carolyn will then review Jugos financial results for the first quarter of Twentytwenty.
Following the presentation, we'll open up the call for questions I'll now turn the call over to Pat.
Thanks, Jeff.
In the first quarter, we engage citigroup global markets to assist us in exploring project financing for our planned plant build out.
City will be working with us on both project equity and debt pretty filled out.
We envision that we're going to need 60 to 70 million gallons per your capacity in 2024, that's way more than a 17 million gallons per year. We currently have under contract.
The project economics look attractive.
We all believe that oil pricing is expected to come back to reasonable prices are the time to build outs are in line.
And value for low fossil carbon products are expected to increase.
It's with this background that our customers continue to negotiate additional off take agreement.
Even in spite of the recent crazy oil market and cobot.
I hope to get these contracts renewable gasoline and jet fuel done soon that help us in the project financing.
We see the opportunity for building out three projects. One of course is to expand the luverne plant to make renewable premium gasoline and renewable jet fuel.
We currently believe that we will need to additional plant production site.
The discussion for the <unk> to secure those sites are already underway.
Now Cobot 19 has provided for an interesting and challenging backdrop for everyone.
As previously announced we shut down ethanol production at the burn in the first quarter. Initially we suspended ethanol production operations as we've done in the past simply because the margins were too low but this time, we ultimately shut down the ethanol production for the foreseeable future duty impacts of cobot.
In particular, we did this considering that ethanol prices are too low.
Be ethanol market for our plant would have been very negative.
C and this is a really important we don't have a line of sight to a strong ethanol turnaround.
D ethanol isn't strategic for us and importantly, we can to conserve cash by doing so unfortunately, though tickets are cash we had to lay off members of our team.
The plant Silsbee, Texas continues to make renewable premium gasoline renewable jet fuel and we continue to sell products that demand hasn't slowed down it's been encouraging to see that even in the midst. The cold. It we actually have new inquiries to buy or jet fuel, it's clear that customers are looking beyond cobot.
It's also encouraging to note that carbon value has held.
Through co bid and there's a lot of talk from governments to push for cleaner fuel products as everyone gets back to work in the economy's come back I think that with the air clearing around the world because of the reduction not burning fossil fuel it's easier for people to understand the potential products like ours delivers.
No greenhouse gas emissions and law missions for the pollutants that costs air pollution.
We are busy working with our advisors to raise the money that we're going to need.
Clearly, we're going to need to refinance white box again.
We're also working on the project financing with Citigroup.
And as we do these things we also need to work on financing for GE, but what the corporate level.
Many people have pointed out that as we work on these financings for the projects.
Additional doors for strategic options for Giebel Inc. could open.
Specially given the attractiveness of our build up projects.
It seems that we hit a lot of key points with what yes, she investors talk about.
We need to continue to catalyze these things.
Now I'll turn it over to Carolyn will take us through the financials.
Hi, Carolyn.
Thank you Pat.
Chivo reported revenue in the first quarter of 20 $23.8 million as compared to $6.4 million in the same period and 29 team.
During the first quarter of 2020 hydrocarbon revenue was $8.1 million compared with point 7 billion in the same period in 2019.
Hydrocarbon sales decreased because of lower production volumes at the South Hampton resources, Inc. facility and so the Texas.
During the first quarter of 2020 revenue derived at Luverne facility from ethanol sales and related products was $3.7 million compared with 5.7 billion during the same period and 29 team.
As a result of unfavorable come yet commodity environment. During the three months ended March 31, 2020, compared with the same period and 29 team we've reduced our production of ethanol and distillers grain, which resulted in lower sales for the period.
Cost of goods sold was 8.1 million in the first quarter 2020 versus nine point Onemillion are the same period in 2019.
Cost of goods sold it included approximately 6.5 million associated with the production of ethanol ice abuse, no and related products and approximately 1.6 million in depreciation expense.
Gross loss was $4.3 million for the first quarter 2020 versus 2.6 million for the first quarter of 29 team.
Research and development expense decreased 5.4 million during the first quarter 2020, compared with the same period and 29 team due primarily to a decrease in personnel and consulting expenses.
Selling general and administrative expense increased 5.7 million during the first quarter 2020, compared with the same period and 29 team due primarily to an increase in personnel consulting.
Partially offset by decreases and professional fees.
We incurred point threemillion of restructuring expenses related to the termination of a total of 30 employees and renegotiating contracts in March 2020.
Within total operating expenses for the first quarter 2020 reported approximately point 2 million for noncash stock based compensation.
For the first quarter 2020, we reported a loss from operations of $8 million compared to 5.6 million for the same period in 29 team.
In the first quarter of 2020 cash EBITDA loss, a non-GAAP measure that is calculated by adding back depreciation and noncash stock based compensation to GAAP loss from operations was 6.2 million compared with 3.8 billion in the same quarter of 29 team.
Interest expense for the first quarter 20, 21.5 million a slight decrease compared to the same period and 29 team.
We incurred point sevenmillion of legal and professional fees related to the modification of the 2020 notes during first quarter of 2020.
For the first quarter 2020, we reported a net loss of 9.3 million or a loss of 64 cents per share based on weighted average.
Shares outstanding a 14 million 472798.
This compares to a loss of 6.1 million in the first quarter 29 team or a loss of 60 cents per share.
And the first quarter 2020 people recognize.
A net noncash loss totaling <unk> point 1 million due to changes in fair value of certain of our financial instruments, such as Lawrence and embedded derivatives.
Adding back these noncash losses resulted in a non-GAAP adjusted net loss of 8.5 million in the first quarter 2020, or non-GAAP adjusted net loss per share of 59 cents. This compares to a non-GAAP adjusted net loss of 6.4 million in the first quarter 29 team.
Well, a non-GAAP adjusted net loss per share of 63 cents.
I'll turn it back over to pass to wrap things up Pat.
Thanks, Carolyn let's open up the call for questions operator.
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Well take a second for Q2 Uh huh.
Our first question or comment comes from a line of amid the all from H.C. Wainwright. Your line is open.
Thank you good afternoon, everyone.
So with respect to learn I mean, what would it take in terms of we don't changes in the market for you guys to consider chosen or are you starting production on the there or should we expect disturbing.
Oh the commission for the rest of the year.
I think for the rest of this year it'll be out of commission based on what we see you for demand for gasoline and then how to balance ethanol wasn't the first place.
So next year, there's possibility we'd run it.
But we'd have to see a turnaround across the industry in total the it's a substantial amount of savings that we make bye.
Having a reduced staff up there the plant we still have step up there just reduced.
And so the margins have to overcome all that be profitable as the when the wind power is up and running that's useful we have our biogas projects moving forward. So we'd want to see those things online and operational in order tried to carbon score down so that makes more margin. So that would probably be the latter half next year.
We did it but by then we should be well into the build outs.
As well the in mid May be the started construction.
The big plant expansion so.
Well just have to see how it unfolds.
So it's all the sort of.
You know layoffs I guess.
We expect that facility.
What Glenn operating costs sort of look like over the next few quarters fan base.
Operating costs for the Luverne plant or how do you think it tell me that we just thinking about in terms of model, what you're talking about or in terms of.
You feel I cant Robert.
At the corporate loan and do they get all the cost cutting measures you've taken.
No that's kind of bigger operating costs.
We should be we should be series zeroing in on a million a month or less.
Okay.
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I mean, this 2.7 million in inventories that are you not shrinking the balance you'd what does it comprises.
Yeah.
Hey, when are you on the line.
Yes, well, what I Didnt, Doug I didn't fully here the question.
No I was asking about the $2.7 million into inventory.
In the balance sheet I was just wondering what it comprises though.
Those inventories are mostly corn based inventories.
With you know we work with that see stone for corn purchases.
And just to clarify for you it'll be in our footnote number five but 1.5 million of that is related to spare parts.
Understood.
And then maybe lastly on you know any progress towards securing.
Oh, the project financing for the two additional Thompson with generics.
Not in terms of something I can't point, you announced the say here. It is was done but we're making progress in terms of the models aren't really good shape.
The reason that this is interesting for people is that the projected levered pretax ire ours are 20% to 25%.
The amount of capital that we're talking about is quite large upwards of $700 million across the expansion of will burn plus two additional plant sites.
We have already under our belt $600 million off contracts under take or pay bills are closed and Thats cross the life of the contract we have another billion and a half dollars of take or pay contracts that were negotiating and what's been surprising for me is that.
Folks have still been plugging along negotiating even with the craziness in the oil. The these people who are people who play in oil.
They're continuing to negotiate with us and try to get these contracts done so they almost everybody that we talked to hasn't view that this oil.
Devaluation is temporary it'll come back, especially as oils cheap and gasoline becomes chief people drive more.
And so it's oddly enough it's been.
Slightly people just kept after it even in the face of all this so when you take those projects you add them up you have a a 20, 25% lever levered pre tax IR projection.
That's pretty darn interesting for people.
And so the models are good.
We're beginning the outreach and ER.
You know city feels pretty good about it.
So.
That makes me feel good about it.
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With respect to regulations, you touched on to little bit I mean has there been anything.
Brought into place specifically with respect to jet fusion, that's part of all this bailouts et cetera, that's no discussion with respect to airlines right now.
Oh, you know there's been talk but I haven't seen anything concrete that's going to stick. There's been talk so that people are talking about bringing the airline industry back and having it be green.
There was a language put into the bill so far that got taken back out by the Senate, but that would have caught funded projects.
[noise] that build cleaner greener jet fuel.
It's possible, it's something that get back in there we see some interest from some of the Senate offices some of the house players.
They definitely are interested in Europe.
It's it's there it's been more of a doubling down people are saying it comes back it's gonna come back Green and that's where hearing out of our European partner customers is there going to make it you know put more requirement said.
So that's good.
California, it's been something to watch you should everybody should take a look and see how carbon values are trading they've actually gone up that's fascinating.
The underlying fuels demand has gone down.
So that bodes well and as we've talked to the past. Many other states are working to adopt the California like system and that work continues.
So.
I think the airline industry because some of them are down to just what five or 10% capacity or something its could take a little while for them to recover one of the important things. When you look at Gibault, everyone should understand this is that we're doing that premium renewable gasoline that's our isooctane its premium renewable gasoline, it's a premium product that worked exceptionally well hydrocarbon and that's actually.
And a greater demand then is the jet fuel and so we're not in one trick pony. Thank God.
Good.
That's all I have I will get back in queue. Thank you.
Yeah.
Thank you. Our next question or comment comes from a line of hope Frac from Noble capital markets. Your line is open.
Good afternoon pad.
If you could just clarify your million dollar a month expenses is where's that can you are we looking that's DNA.
And our de it's a total of 3 million per quarter, roughly or sort of where where we're going to see that hit on the income statement. It yeah.
Yeah, that's right it would be S.U.S.G. R&D.
Okay, and then you're going to be running the hydro can't carbon plant down in Texas.
There that'll change your cost of goods sold structure, what will happen to your we continue to depreciate the were burned plant or will that essentially.
Since it becoming a held for investment or something like that.
Well first on the.
Right, Yes, we never did shut down the hydrocarbon plant on Silsbee. We've continued to run that we plan to continue to run its nothing changes on that front.
So we have Isobutanol, we'll continue to run and make a premarin premium renewable gasoline ship it to Europe, and we'll make jet fuel and.
And I think we might even turn up with some new customers for jet fuel.
As far as how we're treating the plant at the burn in terms of depreciation Carol and you want to answer that question. Yes is it since it is still operationally we tend to use it going forward. It is continuing to be depreciated.
Great and.
[laughter] does this change your.
Sort of shutting down the near term B operations on it or you know I'm pretty following at Luverne does that change your biograph strategy at all or those are you going to continue to move forward on the biogas strip.
We're continuing to move forward and about gas strategy, we've actually signed a Ah accessory exclusive part deal so far with someone we haven't announced yet who is looking at putting up the money to build the plant and then we're taking a developer role and so we get paid back out of that it's.
Possible, depending on how things unfold and how people view it.
That we may want to roll those into one of the bigger projects I don't know, but the timing will work for that but what I can say is that we have a serious counterparty that we're working with during their diligence phase. They are in the way that this deal would work is I get the gas that I need for mobile Libre and plant, but they take on all that capital burden.
Okay, Great and then when you talk about starting up I think the one power.
Generation started up or days ago.
We'll see that as far as any value potential there Corona your equity investment to power is that correct or whether it be yes, that's true right.
No I don't expect cash we have renewable energy energy credits a trade.
And work with jewel on that and but we'll do it for the benefit of the project because you know we invested what a million half dollars.
Out of the nine point something million to get a built in so that's where it would accrue is on that side.
Okay, Great and then when I look at it you know to the impact on your cash burn it should it looks like you might be able to get the cash burned down to ended up 4 million dollar quarter per quarter range.
It is set up yes, roughly EUR 45 million Bucks.
She left dimension.
I think it should be to the lower side of that.
Oh, because you probably won't have any capex to so and then we don't yet we're done yeah. We've done. This most of the spent the spending that we had planned due for this year. We already did so yeah, we should be pretty low so yes, that's right.
And then when you look at I think since last quarter you did you.
Yes, the framing it was a little more.
More aggressive on the total size the capital commitment or the Cat you know capital projects and it sounds like you may have added there are a third plant or did you break the second plant that you expected into sort or two parts to get some geographic diversity or can you help US you know I understand.
Yes, it develop and plant has maybe changed a little bit since last call. Yes, sure should we previously disclosed that we had about 70 million gallons. We expected that we expect to have about 70 million gallons under contract and of course.
When we talk about those contracts or take a big contracts say, they collectively add up over a couple billion dollars your revenue across late to the contract. So.
We feel pretty good about where those are now we were looking at the size of plants, we'd need and how to think about it and we're looking to doing the capital optimization work and come out of some of what can be done with Citi and optimizations of capital and trying to improve returns. So there's a size.
At the burn that makes a lot of sense.
Call. It 10 to 12 million gallons of hydrocarbons, we've already installed much of the capital on the Isobutanol side for that so if we stay within that kind of a boundary.
That is already some capital thought we've already been using it works.
We'd have to add hydrocarbon plant that's save some money in person returns and then we looked at and said bulk. It will look now we got to cover. The next you know 55 to 60 million gallons, a where do we do that and how do we do it in which we get probably the best deals.
Yeah, because we're gonna have to work with existing ethanol plants and so many of them are shut down now. So we started looking at that and it is generally true that the bigger the plant in the ethanol business, the better and more economical it is generally.
And so yeah, you know what we should do is we should look at some of these medium sized plant 50 million gallon ethanol plants that would be about right or 30 million gallons of hydrocarbons.
And so we found some very interesting opportunities there with so we're in that we're in the diligence phase with several parties looking at their sites in detail and of course, we care about is the production costs the infrastructure, how it fits and sustainability footprint, you know, where we're keen on having the renewable energy source.
The headed for the net zero carbon emissions mentality. That's we're out for what we're finding some pretty good candidates and that's why we're doing it that way.
Great and when you look at it parent.
No.
Your next sort or trigger if you will or gating factor is.
Is it.
Isn't dependent it's you planned contingent on signing.
Or I.
I guess, how many how many additional gallons to.
Before you.
Fully <unk> before the 700 million dollar Capex plan is fully committed is are we 75% there sort of I guess I'm trying to figure out which is what sort of the gating factor is yeah. As you move forward through this process.
Yes, so I think it'll come you should think of it and stages. So I don't think we'll do.
This will get do those three plants, maybe be slightly staggered we wouldn't do exactly the same time close you know and Luverne. We already have more gallons. We can produce sorry have part of the capacity was second plant sale Doug.
I think that as we do the next set of contracts that will exceed the capacity. The second plant will be ended the third and then as we do that final deal with one of the customers that would fill out that last plant it'd be that kind of a sequence all those things are.
Vince for the next few months.
In terms of getting the contracts in place.
And then in parallel we are working it one of the interesting thing here in project financing is that the probably the people who do financings for the projects they get to see things under confidentiality. So they know who do counterparties are going up conversational Murray.
So it's a little bit different game, then if we're trying to do this public company stuff, it's different game because their private separate companies that were talking about right.
Setting up as a project off balance sheet.
Okay, Great and then you know you ran through you know refund you need to refinance the white box yeah.
And you need to do the project financing and then you third we mentioned that you know the potential for opportunities at the corporate bubble can you expand on that as floors isn't.
It's part of your potential development.
You know role or could you just expand on your comment as far as the corporate opportunities.
Yes, so the role that we play as a developer license or is that we when you do development you have to do the engineering and preliminary work and show people what it is pin it down get the what's called if you all three engineering done stuff like that and we'll have to raise money to go do that at some point now what's interesting is that kind of goes hand in hand with the projects too. So it's all question.
Timing of things and how they unfold.
So.
We'll have to raise some money to do that because you know everyone can look at our balance sheet and go well gosh are you going to make it till the end of the year well yeah. It looks like can do that.
So it's a but why what we got it we can do about white box. Okay. We've got to refinance white box can you bring any money in without doing deletion. What's your question, we're going to try what happens if it can you. Maybe you know can you how can you raise money in a tap into equity markets. We're working on it we're certain that part out to how do you do it in a way that makes the most sense model working on that too.
How do you do it in a way that creates the most value overall, that's we're working on so.
All those things are part of the overall discussions we continue to work with Wainwright, we continue to work with.
You know city, everybody is working well together and it's it's gonna be interesting to see how we piece it together because it's all about timing.
Great. Thank so much.
Thank you.
I'm showing no additional questions in the queue at this time or let me turn the conference back over to Mr. group or for any closing remarks.
Well. Thank you all its finishing time with the co. Good I hate that we've had to ER.
You know shutdown the ethanol part the ethanol margins are so bad that it's there is the right thing to do it does save us money well I like the fact that are projects are turning out very good in terms of what they have the potential to return based upon the pricing that we had been those and that's even in light of all the world changes that we see.
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Regarding the oil industry.
So we feel pretty good about that and there aren't that many projects like cars, especially not that touch gasoline as well as jet fuel.
So thank you all for joining us today on this call.
Have agreed evening.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
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