Q2 2020 Gevo Inc Earnings Call
Ladies and gentlemen, please remain on your line the G. Inc. second quarter 2020 earnings conference call will be getting all the.
Once again, the GP Holdings second quarter 2020 earnings conference call will begin momentarily. Please your money a lot. Thank you.
[music].
Welcome to Chico's second quarter 2020, <unk> earnings Conference call.
My name is easy when I'll be your operator for today's call.
This time, all participants are in listen only mode.
Later will be conducting a question and answer session. Please.
Please note this conference is being recorded.
Ill now turn the call over to Jeffrey Williams equals General Counsel and Secretary. Please go ahead Mr. William.
Good afternoon, everyone and thank your for joining GE, both second quarter.
2020, <unk> earnings conference call.
I would like to start by introducing today's participants from the company with US today as Patrick Robert You Best Chief Executive Officer Lens fall, She was Chief Financial Officer, Carlin Romero, our 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 tree, both dot com.
I would like to remind our listeners that this conference calls opens for media 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 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 you both operating activities for the remainder of 2020 <unk> and beyond.
These forward looking statements are based on management's current beliefs expectations and assumptions and are subject to significant significant risks and uncertainties, including those disclose Ngls form 10-K for the year ended December 31st 2019, which was filed with the Securities and Exchange Commission Yeah.
Subsequent reports and other filings made with the FCC by GE, though including GE Rose 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 Gibault disclaims any obligation to update information contained in these forward looking statements whatever as a result of new information future events or otherwise.
On today's call will begin with a discussion of Jugos business developments.
Carolyn will then review Jugos financial results for the second quarter of 2020.
And following the presentation, we will open up the call for questions I'll now turn the call over to Pat.
Thanks, Jeff.
We continue to produce and sell hydrocarbon products from the hydrocarbons.
The interest in our products remained strong and Pat on the business development front, we continue to make progress and additional contracts and we'll get them done pretty soon I expect.
These contracts actually should be our biggest however, yeah, they're taking a lot longer to get done that I wanted to but we are focused on getting them completed in the near term and so are the counterparties.
We believe that the size of these contracts collectively should enable us to change our business model to the to that of a developer.
Project developer, a technology licensor and plant Topwin.
Phil to fulfill the man from these contracts, we expect that we will need to treat plant sites.
More plant sites in addition to that at Melbourne.
In fact, we have two additional sites under him a lie at our developing more auction.
As it turns out it's a good time for acquiring ethanol plants, given given the duralast, they're under with cobot.
We plan on setting up special purpose entity.
Whereby each plant build out.
Project and other people investor capital, well debt and equity in the project, while Gibault would retain a minority ownership interest.
This would be something we'll talk about this adds off balance sheet financing.
Project financing approach.
On this project based approach, we are working with Citigroup Teresa debt equity needed to build these plants. So far we're getting additional interest from several potential investors, having gotten measured meetings, whereby we explained the details of our projects, including what appear to be attractive project returns.
Pro forma Unlevered returns at the project level County for all the construction.
Hard and soft costs.
Including the various fees paid to achieve all over the project construction operating periods are in excess of 15% that's good.
It could be higher depending upon financing that structure.
It makes the <unk>, it's three turns that make us interesting for people, especially combined with the potential for whole gallons hydrocarbon fuels would that zero greenhouse greenhouse gas emissions.
We are getting good time and attention from prospective investors.
The questions are good.
We have lots of work to make it all come together, we need to bring it home get it done.
We are encouraged by the discussions Citigroup tells me that they are encouraged.
We have the numbers in a mix of financial groups and strategic investors that citigroup expected to happen. When we began the process. So it looks to be on track.
At the table Wink level, we're working on refinancing the white box secured notes, we have approximately $12.5 million debt millions of debt due on December 31st.
Having some cash and the balance sheet and helps us great.
You get partially paid white box down again extension until April 1st 2021, which gives us along the runway secured debt from other potential by others.
You will develop the options over the next few months and she is.
I expect that we will have some significant enough that soon both on the optic side and for licensing I.
I would like to talk about them today, but you agree missing to be finalized completely almost there.
Looking forward, we expect to get the contracts done conductor plant sites beyond the bird figure out who is partnering with us to build those assets and finish up on the refinancing of the white box no.
Now I will turn old turn call over to Carolyn will take us through the financials Carolyn.
Thank you Pat.
Gevo reported revenue in the second quarter 20, $21 million, that's compared to 5.1 billion in the same period at 29 team.
During the second quarter 2020 hydrocarbon revenue was.
9 million compared to point 1 million in the same period at 29 hydrocarbon sales increased because of higher shipments of finished products from our demonstration plant at the South Hampton resources Inc. facility itself be Texas.
During the second quarter 2020 revenue derived at the Luverne facility for ethanol sales and related products was point 1 million compared to five point onebillion. During the same period in 29 team.
As a result of cobot 19, and on favorable commodity environment, we terminated our production of ethanol and distillers grains in March 2020, which resulted in lower sales for the second quarter.
Cost of goods sold was 2.6 million in the second quarter 2020 versus 8.5 million in the same period and 2019.
Cost of goods sold included approximately one point onemillion.
Associated with the production of I'd be a related products and maintenance of the Luverne facility and approximately one point sixmillion and depreciation expense.
Gross loss was 1.7 billion for the second quarter 2020 versus 3.3 million for the second quarter 2019.
Research and development expense decreased by <unk> point Threemillion during the second quarter 2020, compared to the same period and 29 team.
Due primarily to a decrease in personnel and consulting expenses.
Selling general and administrative expense increased 5.7 billion during the second quarter 2020, compared with the same period and 29 team due primarily to an increase of personnel consulting and insurance expenses and professional fees.
The second quarter 2020 reported a loss from operations of 5.3 million compared to 6.5 million for the same period and 29 King.
In the second quarter 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 3.1 million compared to 4.8 billion or the same quarter 29 team.
Interest expense for the second quarter 2021 point Fivemillion, a slight decrease compared to the same period and 29 team as a result of lower amortization of origin.
Original issue discount and debt issuance cost.
For the second quarter 2020, we reported a net loss of six point onemillion or a loss of 40 cents per share based on weighted average shares outstanding a 15 million 71105 shares. This compares to a loss.
Oh 7.1 billion in the second quarter, 2019, or a loss of 60 cents per share.
In the second quarter 2020, Gibault recognized net noncash loss totaling point 2 million due to changes in fair value of certain of our financial instruments, such as warrants and embedded derivatives.
Adding back these non cash losses resulted in a non-GAAP adjusted net loss of 5.8 million in the second quarter 2020, or a non-GAAP adjusted net loss per share of 39 cents. This compares to a non-GAAP adjusted net loss of 7.2 billion in the second quarter 2019.
Our non-GAAP adjusted net loss per share 61 cents no I'll turn it back over to pass to wrap things up pets.
Thanks Carolyn.
And with that I think we can open it up for questions operator.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then one on your telephone.
Your question, it's been answered all you wish to remove your question. Please press the pound Keith please standby, while the compound the culinary roster.
And our first question comes from the line of amid the Ya'll H.C. Wainwright.
Hey.
Hey, good afternoon, everyone. Thank you for taking my questions.
So I'm happy with.
Hi, Brad any color on those two.
Actual agreements. So you highlighted in the press release. It does this relate to the off streak of the licensing agreements you touched on or is it something else.
It does both those Oh and what's happened is that.
You know as you look forward in the world of hydrocarbons you'd have to step back everyone gets really focused on jet fuel and jet fuel is good you know, but this year one dose take to hit it will be back in people you don't need to be greening up their jet fuel steel on their can ever escape. It. That's just reality, it's being driven from pretty much most of the points of the.
World You know.
And so that's important now with gasoline and remember we make you know renewable gasoline, it's high octane renewable gasoline well. The world has moved in is continuing to move towards higher compression engines and that means that premium grade to collect gasoline are gonna be increased demand and that's driving.
Demand for our core products.
And so I think the agreements that reflects that.
And then you'd also make progress and announce what we're doing in licensing from true.
Understood. Our these threeq Fourq you gave guidance.
[laughter] Man you know.
This is easier once you've been working on four months already and I would love say you know I really get expected we haven't done already should we could say something about today, but they just aren't ready yet so I think they should be done.
Rather than.
Not far away.
At least the beginning of these we have a series of them and so sooner rather than later, but I hate to you know.
These days.
Yes pinned it's a pain, sometimes just to get a thing trying to piece of paper properly.
[laughter] under sickness.
And then deal.
That's all excited I mean, your comment sort of alluded to it's been a lot of.
Distressed assets potentially in the market for you guys do you look out as a photograph wants to know.
Moving to more of a project development I, probably won't but then you know sort of a separate question on that front, given some ethanol companies at Lowe's too.
Listed to producing high quality Alcoholics line sanitizing et cetera.
Are you looking into anything along those lines to support cashews itself.
Well, we ticket investment at a plant like ours to do that and it's not mainstream and doesn't overlap mainstream or strategy and it doesn't overlap with production of Isobutanol. So that would just be a capital outlay doesn't have to make to go do it and the thing is that any any company any ethanol copy on first if they want to can do.
That's the guys who are trying to ethanol players are we'd better position to do that because there is data small distillation column to get to the purity and degrees that they need to make that stuff for hand, sanitizer, we can't compete with economically and if the ethanol industry holds true it'll drive that price down as well. So we just look at it and say yes.
I could said great opportunity spend a bunch of capital by the time, we got it installed and build the margins to be gone and we'll get we would make money. So it's just an end it's not what we intend to do what are you is every bit of our capital to commercialize the hydrocarbons the jet fuel the renewable gasoline that's our focus in life.
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Then going back to sort of the Citigroup efforts.
Are you highlighted little weren't clustering potentially additional plant sites.
That's right. So yeah, we considered with working on like these three opportunities or is it just focused on maybe one or two of them any color on how they're thinking functional.
Yeah.
Yeah with the contracts we have line of sight to we can see that we're going to need three plants and that results in about 70 million gallons.
Offtake demand on a take or pay basis.
Ballpark and.
We see good contracts.
Because we're doing this stuff for comedy out confidentiality discussions other players were negotiating with us they can see where they are to see already know.
And Citigroups working with us and all three sought to fulfill about demand. We think we're going to be three plants. We would be we feel about the burn to something like 13 million gallons and then we'd have to other 30 million gallon hydrocarbon plants. Those you know so think of that as 50 million gallon ethanol plants, but by the time, we're done with them and we're making into hydrocarbon play.
Lance probably around 30 million gallons.
That's the way to think of it.
Okay. Okay.
Yeah.
But that's the last batch I'm, taking all the questions offline. Thank you so much.
You bet you.
Thank you enter next question comes from the line of Shaanxi person with water Chow research.
Thanks Pat.
Hi, Sean it.
Can you go back to you answered on this question can you expand a little bit on how the isooctane renewable gasoline is good to be used to me, you're talking about blending or or complete dropping fuel replacement. Obviously, you can reach reaches a carbon reduction targets I'm. So I'm curious as to how that gets into the market. If you do you.
Sure. So the thing with when we're talking about isooctane. It really is the basis of gasoline itself. Okay, yes granted when traditional gasoline and typical gasolines made from fossil resources ours isn't ours has made from isooctane, there's a product that's in the petrochemical.
Fuels industry called alkali stuff that used to make premium gasoline.
Well, that's really what our stuff is lives, which we had no particulates no solve for nitrogen that means we don't have.
Pollute the same way and of course, it has potentially net zero so.
Octane is the major component of gasoline, it's upwards of 80%, 90% from gasoline. It's in that range and then you put in other like 10% ethanol in some other products that help start cold start things like that and so it's a pretty it's a really good product now as the world moves marches forward and.
Demand for higher mileage engines goes on.
Hi compression engines that he is.
That needs ice high levels of acting isooctane, well, that's what we're making insulin and so we fit perfectly with where that segment of the gasoline is now when you look out for the future and this is an amazing thing if you look out for the future.
You know well first look at today and look at how much fossil fuels are being burned the 555 Bill truly billion gallon winter 55 billion gallons sold today and you look out. The 2050, you know why it's in the same order of magnitude Oh fuels being sold even with TV, which is astounding. So then I would shocks people because everyone is while we're just.
To use either solve a problem Oh Wow, you know what if you eat forgot to retool and redo all fleets everywhere all people have to have new cars, and we FW infrastructure into electricity. So it's a not yeah in the fullness of time sure Big progress, but you know what here's a product that.
Isn't required change by consumer behavior, they just by it.
Doesn't require it just goes into the drops into the system you can blend it to whatever level you why do you can make a complete gasoline to your point that you asked about you could if someone someone wants to do that yeah ore blending you still get a carbon reduction present, a carbon footprint sobo. So it's a very different kind of a paradigm to solve that problem and even in 2050 Didnt.
Gasoline is the major contributor to greenhouse gases, it's not jet fuel jet fuels minor.
And it's not even the diesel fuel that's minor compared to gasoline even out and 2050. So it's it's one of these things and that's pretty astounding now we did proving out our performance for years, working with culture, and Carlos and the European that fundraising circuit and so our softest, it's really good products and so that's why there's interest and.
Are.
That's your question.
Yeah, no, but how does the cost curve work on this too so let's say a volume as soon as your plants get up and running I mean, it's just something that becomes a you know again like you mentioned, a blending opportunity or how would it be used and how would it be from a cost competitive basis, the oil that 50 or $60 a gallon.
Yeah, I think what I think would be is that we can deliver.
We are using carbon values.
And.
Let me say differently.
You think of our product if it gets a premium gasoline products. So what's at the high end of what would normally pricey, but even if you could make it from fossil based so it's just the underlying price, though that's based on gasoline premium gasoline Becker carbon.
And we have agreed bag. So now there's enough reliable mechanisms low carbon fuel standard, California, or European read our E D policies, where carpet could be valued and so enough. So that customers leave that it's going to be there investors believe it's going to be there.
That's a change over what we had just even a few years ago. So what we do then is the cost of our manufacturing pasta returns, we need we take and look at the.
Carbon value and we share that with a customer.
And that brings that cost to their gate their plant there facility down to be near or not too far away from the petroleum based products and it gives us.
Enough money to make for attractive returns that's how the business system works then they can blend that at whatever level wherever they want because they usually have to do something to account for their carbon to reduce their obligated parties frequently.
Okay. Thanks for that and just another question on Praj any update there I'm aware things that enough and works in a long time or you know hardener of years, where things stand.
We were plugging along we're going to get it done I can see it based that it's a matter of getting it done it's gonna be interesting it'll surprise people, what we're doing and it's good because India is a place with tremendous amount of cultural resource you don't think of it that way, but does.
Thanks, but mid does they also have no oil so as a strategic thing for India as a country, having the ability to make renewable resource base hydrocarbons in the good thing and I'll be able to talk more about that.
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Understood. Just my last question is back to the airlines.
Obviously under quite a bit of Duralast I mean have you seen I haven't seen anything out in the marketplace and I think specific but have they backed off of those objectives that they set out I believe for 2025 or next sort of change their Pos stream as as you see it out there in regards to.
Emissions targets and carbon carbon goals.
You know what they're definitely discussion and change you know talking about at the I can really get away from though because its companies could be a lot money, there's going to be pretty requirements, particularly in Europe, and so and then I don't think at a fund them. There's a real fundamentally interesting thing going on and that is.
I think weve crossed the tipping point, where.
Shareholders at large there you can't get away from greenhouse gas and you've got to do something about it you can't do business as usual include Europe as usual.
And you know people you know have realized you're starting to realize and companies need held accountable for their greenhouse gas emissions.
Even with activist shareholder activism.
And it isn't just the airline companies, it's the customers the airline company.
Or held accountable and so there's this movement afoot, that's pretty big and I think that's probably what drives some of the behavior of airlines. So well I think at the airlines are going to try to find a way to you know by themselves more time and you know after 2020 isn't so bad for that certainly understand it makes sense.
You know as things come back.
Hey, there'd be practical products like ours that should give them fuels better in the in the right price.
So that they can get it done.
And that wasn't available before so that's part of the store you have to have an alternative to turn to.
But I think the pressure will continue to increase because just imagine it's what I said before we plan on burn in all these fossil fuels.
For the next 50 years.
And even with bringing on electric vehicles, it's still a huge analysis. So I could I can say with confidence that we're going to see.
Significant increases in greenhouse gases and that's going to cause additional pressure to occur. So it's a mega trend it isn't going to go away.
Alright, Thanks, that'll take less my questions addressed with you.
Thank you thanks Bye.
Thank you next question comes from lineup Poe Fratt with noble capital markets.
Good afternoon pad.
Hey, Paul can you.
Could you talk about you know the project financing, whether you know you train screen total amount could you're looking for I think previously talked about.
Potentially project financing in the 700 million dollar range.
Yes, that's got their own.
Yeah, and that's sort of way to.
Yes, the way to think of that is it's about yeah in that range and that that's a fully baked fully loaded fully packed on fully everything delivered project basis.
So that's you know as compared to if I had the balance sheet mr. spending than what it myself I save a lot of money.
Right.
Because you have to do all the reserves and all the other stuff with it and so it's a typical project finance type of a situation.
In the way. It works is that you do 20 or 30% equity.
70% debt and it looks like we have good opportunities there and then we wind up with retained interest. We also get paid the development fees the licensing fees et cetera. So there's pretty good cash flow coming out of those projects toward Gibault and makes for a problem. We would expect it to make us a profitable company.
So it's a it looks like it could work because it gives the these attractive returns for people who like big infrastructure.
And then looking at your next set of commercial agreements, where they're going to renewable gasoline or licensing agreement.
Or or even you know you talked about cars.
Or any of these potential agreements can generate any cash.
You know when they're signed doors and everything.
On the come still.
Now to help it's always when the delivery. So the company you know we have we have some contracts of course are ready that as we make product at our out of our silsbee plant.
Yes, they do continue but we got to get to larger quantities and so these are these take or pay contracts to either set up is that the companies are are promising something on their balance sheet, we make it they're buying it but that kind of an approach that we're taking and there's no new with flavors, but that's enough.
Since the basic concept underneath and so in the question are there wasn't anything up yeah, they're putting up the most important pick a ball is that is de risking for an investor that there will be someone on the other end at the plant gets built.
Okay, Great and then could you do a crosswalk on this matter you know you ended the quarter with about 6.3 million a cash you gave in entered the two line number 21.4.
That implies that.
At least from what I can tell that you might not have burned much cash July is that fair right could you just sort of give us an idea of Sudan, where you stand right now.
Yeah.
Cash burn standpoint, I guess.
Yes to do what we're doing rate today, you know we're in that range of about a million a month or so million that it can go off that might be billion too, but we don't have.
Oh, we're producing ethanol there is like automatically a 500000 dollar extra hits or 1.5, and then the ethanol margins really bad to be higher.
So we save money by not producing ethanol and.
You know we have project related expenses that will have to spend eventually but real time, those as we get better clarity on the timing of the projects when people pay us back. So it's a balance we're doing a balancing act game right now.
Yeah, you know executing the business executing the plan executing getting more contracts, bringing home getting the financeable getting the financial project baked.
And all that.
Great and then when you actually the basket before but on the project financing I think previously talked about a financial closing the first quarter 2021 is that still target or do you think that might be well that's still targets.
I think it's a yet you know like if any of my wildest dreams target given away with things have gone slower with the covert stuff, but I think it's a mid year next year admitted that there maybe third quarter, you say something like that as what I would say, but I think that.
I don't have great line of sight to it until we have the parties pin down in exactly what they're willing to do how they're going to do it acceptable to us somewhere in the midst of those discussions.
Okay, and then could we just talk about your current shares outstanding is just whether I'm looking to Chris the right way at the ended the quarter you have to 15.5 million.
You issued 30 million in the equity offering to raise 18 gross and then you have got conversion of into 2 million goes into 4.2 million common shares I.
Anything else Cienas floors.
Your current shares outstanding should be close to.
What 50 million right now.
Yes in that range Carolyn.
There they are 53.8 million.
Okay got it.
Karen 53.8 assets today is correct.
And does that mean that any of the warrants being exercised or does that include <unk> I guess could you give me an idea if any warrants.
Exercise yet none of the a warrants have been exercise.
None okay.
So it looks is there something I'm missing as far as if I go 15.5, plus 30 plus 4.2.
53.8, so like higher than that is there another component.
Good.
We had.
Uh huh.
Restricted stock issuances inside the out inside the business.
Okay, Great and then.
I noticed that you've got SP eight loans that the about a million dollars are those.
Can you just describe what those weren't loans are and if any of them or potentially you know forgivable or outright grants.
They are part of that PPP long process they are forgivable.
And we're going to the calculations currently to determine how much.
It can be forgiven and then we will apply for those forgivenesses.
Along the way, we've got a till November to get it done.
Okay, great. Thank you so much.
You bet.
Thank you next question comes from the line of Shawn Severson with water Shout research.
I think better [laughter], a quick follow up on city I noticed that things are progressing there, but can you help you understand what that means I mean, how do you know how do you quantify I guess or in qualify the interest and thus as you as you've been in the process now for a while ended there any particular push backs or any.
The thing or things that I really liked about im trying to understand how the pipeline looks in higher jobs the progress of it.
Yeah. So good question Yeah. That's a you know we ask ourselves and same thing all the time is how do you know, we're making progress so.
Well, we started off on this you know you wind up putting together a really detailed management that gets like a confidential memorandum, but it's in the form of a Powerpoint presentation. What we're doing is unusual in that we're doing this renewable gasoline its jet fuel we had been carbohydrates. The technology has scaled up so we're a little different.
Less than what most people have seen before because normally they think right away all ethanol or biodiesel and renewable diesel we aren't any of those things were something that's a higher performing product and its and its economical and it gives good returns and all the route.
And so it saw and it's done a sustainable way that can get to extremely low or you can negative greenhouse gas course, which is astounding that's not in that whole gallons that your ambition thats not a concept people heard before and so with Citi has done is gone through the process.
DEFINITY is route 12, a bunch of people followed up with them had like half hour discussions maybe longer with them and screen them. All and then found people who want to learn more than Screenname again, and then we bring him in for management meetings, we've had now.
I want to manage meeting so it's in though we more than 2000. So 16. So 16, if it's a split between call it.
Two thirds.
Financially oriented people, who invested big projects like this with the rest are strategics.
And strategic should be people interested in investing in the business or in the fuels business or whatever their to players there and so it's interesting and the amount of time that these meetings takes with them to do the match presentation is a couple hours.
Hubs of the top management.
And then it's also.
Following up and other discussions and so the time and attention that we're getting having it's really good I mean, it's really quite impressive.
So we'll see you say you know the tight everybody's waiting to see a little bit I think on you know are we getting the second wave of coal bed.
So I think that people were were.
More robust prior to the fourth of July and after the fourth of July everyone's going to war wait a second here is the world changing or is it stealing you know what's going on so all that stuff is in the background happening. We've got people are still working on it.
And we've got a lot of interest so it looks like it's good. It's it is what we set out to do so far so its meeting those kind of milestones that we had set up off having this kind of mix this kind of numbers.
Could get to where we want to be.
So.
We just got to go through it and the question will be you know that we'll have to sort out is how will they actually want to do so if someone is interested and they want to step up and put money and how will that equity deal be done how would it.
I would it exactly work and of course in an idea where we have multiple people.
And Bob So that we can make sure that we have options.
Thanks, Matt.
Thank you.
Now I'd like to turn the conference back over to director and CEO, Pat Gruber for closing remarks.
Thank you all for joining us and I appreciate it you're so your support I look forward to progress you're going to make even after these announcements. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
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