Q2 2021 Gevo Inc Earnings Call
[music].
Welcome to <unk> second quarter 2021 earnings conference call My.
My name is Liz and ill be your operator for today.
At this time all participants are in a listen only mode.
Later, we will be conducting a question and answer session.
Please note that this conference is being recorded.
I will now turn the call over to Geoffrey Williams, keeping us Vice President General Counsel and Secretary. Please go ahead Mr. Williams.
Good afternoon, everyone and thank you for joining <unk> second quarter 2021 earnings conference call I would like to start by introducing today's participants from the company.
With us today is Patrick Gruber, <unk>, Chief Executive Officer, and Carolyn Romero <unk>, Chief Accounting Officer.
Earlier today, we issued a press release that outlines the topics we plan to discuss.
A copy of this press release is available on our website at www dot achieve a dot com.
I would like to remind our listeners that this conference call is open to the media that we are providing a simultaneous webcast of this call to the public.
A replay of today's call will be available on <unk> 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 information presented in accordance with GAAP.
Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is contained in the press release distributed earlier 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 <unk> net zero, one project and our operating activities for the remainder of 2021 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 <unk> Form 10-K for the year ended December 31, 2020 that was filed with the U S Securities and Exchange Commission and in our <unk>.
Subsequent reports and other filings made with the SEC by <unk>, including <unk> 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 <unk> disclaims any obligation to update information.
And 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 <unk> business developments.
Lynn will then review <unk> financial results for the second quarter of 2021 and following the presentation, we'll open up the call for questions.
I'll now turn the call over to Patrick Gruber Pat.
Thanks, Jeff.
Today I'm pleased to be able to report an update on our engineering work and financial projections for net zero one results are good.
We are on track to complete the next phase of engineering work for the next generation. If you will by the end of December. This year. This next iteration, we'll tighten up the capital estimates further of course. This is all in preparation for the debt deal getting done in the first half of 2022.
Now hydrocarbon capacity is sold out in fact, it's oversubscribed based upon our take or pay contracts already in place. This is very very good.
We did decide to change the scope of necessarily want a little bit because we figured out how to potentially make more money sooner. We have added capacity for increased amounts of isobutanol about 44 million pounds per year, which we plan on selling as a specialty chemical. In addition, we are planning to increase our production.
<unk> nutritional products like protein and animal feed.
By 40 million pounds.
Brings us to a total of 340 million pounds of those products and then we plan on making 46 million gallons per year of hydrocarbon resin 45.
And we still expect to produce about 30 million pounds of corn oil.
Now as a result of that change scope and with updated pricing assumptions based upon the pricing in our existing contracts.
Zero one logic revenue is currently projected to be.
Approximately $340 million to $350 million per year. This.
This includes the hydrocarbon products carbon values nutritional product value the corn oil value and the revenue from <unk> that we expect to produce in excess of what is needed.
For the feedstock for the hydrocarbon capacity now the really good part is that the current projected EBITDA for the net zero. One project is approximately $150 million to $160 million per year, now basket increase of approximately $50 million to $60 million compared to what we had previously discussed previously.
Previously had told investors.
That's really good news.
The current projected Levered IRR to <unk> was approximately 18% to 20% and includes all the revenue streams and that's the distributable cash the OEM fees and all the rest they distributed cash to Jabil from the net zero one project after debt service of major maintenance is currently projected to be approximately $80 million to $90 million once the <unk>.
<unk> is up at steady state and that's based upon an assumed 65% debt load.
The capital cost projection is currently expected to be approximately $720 million for equipment and build out those are the installed hard costs now on fully financed fully installed base is fully deployed and paying for all the provisional interest during construction that reserves and all the rest that brings.
It up to a total of $980 million.
Included in these costs with increased capacity for the hydrocarbon and this additional additional capital for more IPA capacity to serve the specialty markets.
Infrastructure to facilitate.
Easier capacity expansion and then adoption of certain unit operations to facilitate greenhouse gas reduction more efficiently and then of course, the increased cost of steel and equipment based on the latest data in the market.
Wastewater treatment and onsite biogas production are currently planned to be a separate project with separate funding and anticipated cost of capital commensurate with infrastructure returns using a third party build on operate model.
Onsite biogas production is expected to meet the thermal demand for the plant.
It may be that we choose to finance the water treatment plant that is a future decision.
A separate but related wind power project is being developed to meet the majority of the net zero one electricity demand the wind project would be wider directly to net zero one the wind project would be a separate project with separate funding again anticipated lower cost of capital using a build on operate model.
We also plan on making green hydrogen current scope of Capex includes the capacity of hydrogen we need for our products, we're still determining if and how much excess to make for the marketplace and the corresponding economic benefit to <unk> now we know the world wants green hydrogen since we are developing the capability to make it we are working to figure out the best way.
To make excess quantities and take it to market.
I am extremely pleased with these results we are continuing to optimize and try to figure out ways to bring more cash and profit back to geos sooner, while reducing risk in our operations and business systems as we get that sort of one operational now for more information. Please see our updated investor presentation that is available on our on our website at www.
<unk> Dot Com, we're also planning to do a fireside chat on Wednesday August 18th at four PM Eastern daylight time, with Chris Ryan, Our President and COO and Lynn small, our CFO, who will together take questions and discuss the net zero, one project and give a little more detail as to what's going on there and how we're thinking about it.
Please join Chris Atlanta, if you can.
We expect to be announcing the location in customers for our second net zero project in the near future our discussions with potential potential customers have shifted their much much much larger and youll see that in the in the updated deck and looking at it the customer pipeline is now approaching about $20 billion of contracts and discussion.
<unk>.
That's quite something and we are working out then how to figure out how to grow capacity much faster. So we can achieve many hundreds of millions of gallons of production and sales within five years. So a lot of moving parts. The game has changed bigger faster that's what we're driving for and Thats, what I'm driving my team four at G go to achieve.
Switching gears to R&D I am pleased to report that our LNG project is on track in terms of construction, we expect it to start up on time and began producing gas early next year I am pleased to work with BP to sell the LNG it'll be produced.
On Monday of next week, we expect to publish our first ESG report on our website. This ESG report is I think well done it youll see our thinking and if you invest in US please read it.
Overall, we had excellent quarter and we continue to make progress on our goals for this year now I will turn the call over to Carolyn who will take us through the financials Carolyn.
Thank you Pat.
<unk> reported revenue in the second quarter of 2021 of $24 million as compared to $1 million in the same period in 2020.
During the second quarter of 2021 hydrocarbon revenue was <unk> 3 million compared with <unk> 9 million in the same period in 2020.
Hydrocarbon sales decreased because of lower production volumes at the South Hampton resources facility in Silsbee, Texas.
During the second quarter of 2020, no revenue was derived at the <unk> facility from ethanol sales and related products compared to <unk>.
$1 million during the same period in 2020 as a result of an unfavorable commodity market.
During the three months ended March 31, 2020, we turn donated our production of ethanol and distillers grains, which resulted in no sales for the period.
Cost of goods sold was $2.8 million in the second quarter of 2021 versus $2.6 million in the same period in 2020, we increased maintenance and preparation for Isobutanol production that began in July 2021 cost of goods sold included approximately $1.6 million associated with the maintenance of those.
Laverne facility and approximately $1.2 million and depreciation expense.
Gross loss was $2.4 million for the second quarter of 2021 versus $1.7 million for the second quarter of 2020.
Research and development expense increased $5.7 million during the second quarter of 2021 compared with the same period in 2020, due primarily to an increase in personnel and consulting expenses as we work to improve our process for growing implementing new strains.
Selling general and administrative expense increased by $2.1 million during the second quarter 2021, compared with the same period in 2020, due primarily to increases in personnel professional fees and insurance to support the growth in our operations and then increase in consulting related to creating our first.
Environmental personal government report.
And documenting our compliance with section 440 of the Sarbanes Oxley Act.
Preliminary stage project costs increased by $5.3 million during the three months ended June 32021, compared with the same period in 2020, due primarily to an increase in consulting from preliminary engineering costs and personnel expenses to support the growth in business activity.
Net zero projects.
As a result of the business activities noted above during the second quarter 2021, we reported a loss from operations of $19.1 million compared to $5.3 million for the same period in 2020.
In the second quarter of 2021 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 $17.1 million compared to $3.1 million in the same quarter of 2020.
Interest expense in the three months ended June 32021 was $6000 a decrease of $5 million as compared to the same period in 2020 due to the conversion of all of our 12% convertible senior secured notes.
Due 2021 to common stock during 2020.
As a result of the business activities noted above during the second quarter 2021, we reported a net loss of $18.3 million or a loss of nine cents per share based on a weighted average shares outstanding of $198 million 137420 <unk>.
This compares to a loss of $6 million in the second quarter 2020, or a loss of <unk> 40 per share based on weighted average shares outstanding of 15 million 71105.
In the second quarter of 2021, <unk> recognized net noncash gain totaling 43000.
Due to the changes in fair value of certain of our financial instruments, such as warrant embedded derivatives, adding back. These non cash losses resulted in non-GAAP adjusted net loss of $18.3 million in the second quarter 2020, our non-GAAP adjusted net loss per share of nine cents.
This compares to a non-GAAP adjusted net loss of $5.8 million in the second quarter of 2020 or non-GAAP adjusted net loss per share of 39%.
Now I'll turn it back over to Pat to wrap things up.
Thanks Carolyn.
So we're looking forward to this we have a lot of exciting things coming and we are fired up our engineering work is whenever you do these things. It's an enormous quantity of work that were cramming into a small period of time given that we just got the money to do these things at the beginning of 2021, and we're making great progress and the engineering results really are good I like having.
Our EBITDA go up that's exciting and I certainly like the way our pipeline pipeline is growing and I know everybody wants us to get more contracts signed.
Faster.
But you know these are really big.
Thats, what they look like so we're excited looking forward to it with that we'll take questions.
If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
To withdraw your question press the pound key.
Again that is star then one if you'd like to ask a question at this time.
Our first question comes from the line of Sameer Joshi with H C. Wainwright.
Good afternoon.
Thanks for taking my questions.
So.
So with this increased scope.
6 million gallons per year.
How does that.
But effect.
<unk> net zero projects that you would do.
Will those be off the largest sizes level and.
The plan going forward.
Okay.
So let me comment first to just say that one thing to do we just put up and published on our Investor presentation on our website all the stuff that I just set out loud. So you can see it written down and so it makes it much easier and then to answer your question specifically as we think about it as we've done the work in the engineering for.
We're in the.
The process of it for this net zero, one we could translate that directly directly and to make it a similar sized plant. So think of it as a copy of that is a real one.
Thats the comment period. However, we've got people, who are working really quite challenging us to think much bigger and so we're asking ourselves that question as to how to go about doing that so we're running.
It's a very simple pass.
Can you just simply <unk>.
Alright, so thats kind of the income but hypothesis.
And it makes sense because the demand is so much greater than the product supply. So we're asking things like well why not why not 100 million gallon plant.
How can we go bigger hockey you achieve five to 700 million gallons in five years, that's the kind of stuff, we're trying to adjust.
Address and of course, there is a whole bunch of chicken and egg here, because alright people, who actually going to buy this exactly and when and what are you going to do and yes. We can do it. This technically possible. It's just a matter of capital. So it's getting to be quite interesting for us right now, but there's definitely definitely definitely a shift that has occurred in the last set.
Months.
Yes, yes, no that was the reason for the call that four to 6 million gallons wondering for you would be able to do bigger.
Industry demands it.
Yes, we can there is no limit so the reason what we're doing right. Now is we took what we had were trying to stay with its something we already have well defined and we're trying to optimize the returns on capital. So I noted that in our models. The project debt to EBITDA has increased from about $100 million.
So you talked about.
Pretty good.
Brick and 50% increase from optimizing I think we should spend money on optimizing.
It's exciting certainly.
Yes.
I mean that was a better result than I ever expected from our people well done.
Ed.
So many variables and staff everybody always asked me well what happens yes.
Corn stays high forever.
You know what we've got enough economics to work with and we have additional things we can do with the technology, where we feel pretty comfortable that we're in a good a good spot in terms of what projected yes. The details are going to move around a little bit in terms of specific to ours.
Overall, we feel pretty well.
We got a handle on it much.
Incredible speed I think so yes, yes.
And just one more clarification on that zero the green hydrogen.
That is going to be produced as part of the $720 to $980 million.
Capex.
Then for the excess that Youre planning to or me.
Produce is that any additional capex incremental to this $918 million.
Yes, so on the $980 million right now.
For us the other projects you would be $720 million is the number to use to compare us to other people. Once it is financed and install that you do the prepaid accounts and all the other crap that goes with project financing that I really don't like by the way you add all that up now you get to 980.
In addition to the 700000 would it take additional capital if we want to make a whole lot more IGT answers, yes. So the game plan for us to figure out who actually wants to buy hygiene, where what does it make sense to just do your do the calculation and if it makes economic sense. It can get equivalent returns are better than so if it has attractive returns 18% to 20%.
Better something then we'd say that maybe it where the use of our capital.
That's how we think about it.
<unk>.
Yes, no thanks for that clarification.
Moving to the LNG.
355000 Btu plus.
Capacity is that all going to be taken by BP.
Recent rescue just wanted to clarify.
It is youre going to Senate down we're going to set it down the pipeline to California, because that's how you maximize value and thats attractive and we could.
Later on take take gas up till the burn, which we do.
We are running it again, but we could take it up there as we expand liberty and make it into a hydrocarbon plant Watson Thats your one but right now the way you make the most money to send it to California to BP.
Great.
And this next question probably has been asked before but just wanted to understand.
The preliminary stage project costs.
<unk> expense as against capitalized.
Because they're not associated with a particular project, but to just two.
The project is that correct.
Yes, I was going to say.
Some that we capitalize the sum that we sell that Carol can explain.
Right. So the R&D related costs are being capitalized effective with the second quarter.
That's because we've got the financing and we're able to move forward with the project the cost related.
Aro are being Expensed until we get past all of the <unk> III.
Okay. Okay. So they could.
Yes, it will be when we get to when we get to the near the closings and stuff is what she is talking about.
Well.
Shorthand lingo for some of the focus to call. It <unk> III <unk> III is not well understood by a broad group what it is that plus or minus when we get down to that plus or -10% level and say, we're going to do the financing now here. It is that's the time when did this stuff will be capitalized and will it be a look back as well because we are keeping track of our expenses and putting them into buckets.
A very onerous process of tracking all of our time Carolyn makes us do it didn't make sense to do it.
Yes.
Okay. Thanks, that's all I have right now congratulations on the browser with him good luck.
Thanks.
As a reminder that is star then one to ask a question.
Our next question comes from Poe, <unk> with noble capital markets.
Good afternoon Pat.
How are you doing.
I'm doing well thank you.
I was hoping to.
With the project costs moving around a little bit I was hoping to get your current estimate of what you think the equity.
Investment from Cheapo into their first <unk> would be.
We're assuming 65% debt. So if it's 980, that's like 340.
Or something like them in linear.
Linear there that I got that right.
We're at 45.
Yes.
Yes, Greg.
That's up from $2.70 is what we thought earlier.
But again, it's all in the space of good Mason doable and.
Getting those one of the questions that has come up over and over again, if you've been asked me.
How can you get more return sooner back how more distributable cash sooner well here you go.
We deploy more capital sooner with good returns sooner.
And then have you.
Have you firmed up or is there any potential.
Or could you give us.
Maybe potential timing of net zero too.
You know if you.
And I know, it's tough Patrick.
Patrick can you take a stab at when we're going to see additional.
Capacity at zero to slowdown.
We've already sold since earlier this year, we've announced like 10 million more gallons. So there I think we're up because the.
The 10 million Mark that's a lot more gallons sold to do another 35 million gallons I think what's going to happen is we're going to be well over.
That so we're probably we're up about another 50 or 60 million gallons immediately in discussions for several hundred million GAAP actual.
Real stuffy negotiate that's way way way bigger like order of magnitude bigger but.
So we're sitting here trying to figure out how to do it. So the opportunity is here in front of us as an outstanding problem to have but how do we go bigger.
Sooner much bigger.
And that is part of the question, yes, we can keep the point zero copies kind of like that because that can understand it straightforward, it's relatively bite size for this market space.
We want to be bigger and we have one of the very few technologies that actually works. So we got to figure it out.
One of the active things, we're working on sulfur as far as back to your question when kind of announce that.
Zero two I'd expect soon I always say that though Paul and I expected and I expect these contracts to be done they're not done.
And I know why there is this final negotiations these are big contracts remember at <unk> 45.
Million gallon car.
Contract.
Offtake, that's worth about a $1 billion $5 across the life of it.
So these arent chump change for people.
I'll play serious and doing it and they're in Qunar, along <unk> getting done.
But then I think we'll see.
Ones that are bigger or intent for ones that are bigger.
Understood.
So on the engineering work that Youre doing <unk>, you've got the.
Sure.
The estimate down to plus or -30%.
Think I heard you say that you need to get to plus or -10%.
The.
Get the bond closed.
Do you expect it sounded like you might expect that bike we ended the year is that.
Is that what I heard.
I think that's what we'll see is it mostly in that range by the end of the year, but what we're going to really need to get it closed is take those numbers and have the EPC company.
Who will then we will announce in the not too distant future.
Yeah.
Who are they say here's the ramp that goes with it that's actually what's needed to get to the bond financing and so what will happen is we will get those engineering numbers refined.
Around the end of the year kind of thing and we'll continue to work on it and keep refining will never we won't stop the engineering, we'll just keep plugging along but we will get to a point where now the EPC company goes curious enough that they're willing to guarantee.
Okay, and then do you have a working estimate for the wastewater and then the component of net tier one.
Yeah.
And what's the the wastewater treatment plant is 100.
<unk>.
Yeah.
It's less than that.
A little less than $100 million, but these numbers are incorporated in our models as cost of service.
Estimating the capital cost return of and on capital to a build on operate as well as their operating for them.
That's the same thing we've been doing all along with the wind we're doing the same thing now with water wastewater and <unk>.
So what you should expect I think and what all of US expect what I expect is that we'll wind up being a KOL investor with other people to get everybody can see it in our REIT feels more comfort when we do that just like we did with our wind projects out on the brand and then we go build it out and we have lots of several parties, who want to play with US here. So that's that's.
Good.
Yes, I just wanted to make clarify and make sure that the $720 million does not include the wastewater nor the wind at this point in time.
Youll see that in our slide deck that we just put up when you get a chance to go through it so and we tried to we tried to be for all of you listening who go looking at her we put out an enormous quantity of data into that slide deck that we just put up it goes on and really trying to be crystal clear about the assumptions, we're making of what we're thinking about things, we're trying to be really true.
<unk>, but I need everyone understand where we are we're in the midst of sorting out making sausage figuring things out we're trying to manage it even laid out principles of how we're thinking about things as we design.
Easy to go Super Super fast and a lot of people go tell me Pat go faster hockey stick goes yes, I can go faster than I can waste like a $100 million or $200 million. That's what I can do or we can do it. We just did optimize it figured out incrementally increased capital and boost the ebitdas and distribute distributions and so that.
That's the work to be done here is to be smart about how we figured this out to make the most money at least risk.
Yeah, Yeah. It looked at slide 28, and so I was just trying to figure out what else what other capital cost.
Might be associated with the entire project.
Yes.
Paul Let me just go back.
So what do you look on slide 28, Youll see that table.
And there is enough information there now people can feel a pretty darn good model and didn't do sensitivities around it with various assumptions. So look at slide 29 as well.
And on slide 29, you'll see some more information we decided to just put that out there one of the things about people like to ask you about your corn or what happens if corn stays at this high priced well guess what that has a relatively minor impact.
The overall project now.
What.
50% of the cost decline is offset by the co products nutritional products in corn oil value. That's that's.
That's an internal hedge we have but that helps us that says what helps make these projects attractive.
It isn't quite as volatile as people would think just looking at simple commodities.
Sure.
Yes, that's right those two slides are really helpful.
If we could talk about the timing of Capex now.
Arent you bond financing proceeds are on your balance sheet or on your financial statements.
Can you talk about the timing of Capex on R&D plan.
Lynn.
Yes, it will be complete.
The project is on schedule and the anticipation is that we'll start up operations and begin producing very early next year.
The the way it works is we.
With their contractors and then we submit to the trustee for reimbursements out of those bond proceeds so theres always a lag of a month or so from when we put the cash out till we get it back.
And so that that full Lynn <unk> with.
With $70 million will be.
<unk> laid out and reimbursed over laid out over the next three quarters.
Is that sort of how we should cash walk that down.
No I think it will we expect to be complete by year end. So that we will have done all the work and paid all the bills, but it made drip into the first quarter on a recovery of the lost Bill lost the contract opinions.
Okay, Great and then on net zero wondering if you could just highlight what you are going to spend in the third and fourth quarter.
On that project.
Okay.
I'll take that.
The.
I think the the.
Largest uncertainty is around the long lead equipment deposits, we have budgeted $20 million for long lead deposits. The timing of that is uncertain, but we need to get that out.
For year end to secure.
Equipment to maintain schedule.
We're probably.
I don't really have the numbers in front of me in terms of our cash burn for the other elements around engineering and.
Site development.
But.
It's going to it's going to be a fairly substantial number I think we've always said that the total development cost, including engineering and long lead in financing up to close would be somewhere around $45 million.
And then we recovered that at financial close contributed equity.
Perfect great. Thanks for your time.
Yes, you bet.
That concludes today's question and answer session I would like to turn the call back to Patrick Gruber for closing remarks.
Well. Thank you all for joining us I encourage you to take a good look at that.
A recent investor presentation, you will see that we did go into more detail about <unk>.
Where we are on a net zero project. How are you thinking about capital. The results are turning out as I said better than I expected in.
In fact, the EBITDA has gone up it's tough yet we still got a lot of work to do to sort it out we're working it.
Customer pipeline thing is a big deal and Theres no one more patients were getting contracts done than me give me quite people crazy.
From bugging them, but we're moving it forward and the size of the discussions either like getting to be big it's in the billions of dollars of capital. Many many billions of dollars of capital in the future.
And people wanting to participate with us and so all of those things have to be sorted out.
Zero to much more straightforward that one's far along and I could see that would be net zero a copy of the net zero one.
But we got to grow bigger and faster and that's where our attention is turning how will we do that.
There'll be more and more to come as this all unfolds, but it's an interesting time in place.
Thanks for joining us.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Yes.
[music].
[music].
[music].
Welcome to <unk> second quarter 2021 earnings conference call.
My name is Liz and I will be your operator for today.
At this time all participants are in a listen only mode.
Later, we will be conducting a question and answer session.
Please note that this conference is being recorded.
I will now turn the call over to Geoffrey Williams, She was vice President General Counsel and Secretary. Please go ahead Mr. Williams.
Good afternoon, everyone and thank you for joining <unk> second quarter 2021 earnings conference call I would like to start by introducing today's participants from the company with US today is <unk>.
Gruber, <unk>, Chief Executive Officer, and Carolyn Romero Cheetos, Chief Accounting Officer.
Earlier today, we issued a press release that outlines the topics we plan to discuss a copy of this press release is available on our website at www dot achieve a dot com I.
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 <unk> 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 information presented in accordance with GAAP.
Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is contained in the press release distributed earlier 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 <unk> net zero, one project and our operating activities for the remainder of 2021 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 <unk> Form 10-K for the year ended December 31, 2020 that was filed with the U S Securities and Exchange Commission and in our <unk>.
Subsequent reports and other filings made with the SEC by <unk>, including <unk> 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 <unk> disclaims any obligation to update information.
And these forward looking statements, whether as a result of new information future events or otherwise.
On today's call Pat will begin with a discussion of G. Those business developments.
Lynn will then review <unk> financial results for the second quarter of 2021 and following the presentation, we will open up the call for questions.
I'll now turn the call over to Patrick Gruber Pat.
Thanks, Jeff.
Today I'm pleased to be able to report an update on our engineering work and financial projections for net zero one results are good.
We are on track to complete the next phase of engineering work. The next iteration. If you will by the end of December. This year. This next iteration, we'll tighten up the capital estimates further of course. This is all in preparation for the debt deal getting done in the first half of 2022.
Now hydrocarbon capacity is sold out in fact, it's oversubscribed based upon our take or pay contracts already in place. This is very very good.
We did decide to change the scope of necessarily want a little bit because we figured out how to potentially make more money sooner. We've added capacity for increased amounts of isobutanol about 44 million pounds per year, which we plan on selling as a specialty chemical. In addition, we are planning to increase our production.
<unk> nutritional products like protein and animal feed.
By 40 million pounds.
Brings us to a total of 340 million pounds of those products and then we plan on making 46 million gallons per year of hydrocarbon resin 45.
And we still expect to produce about 30 million pounds of corn oil.
Now as a result of that change scope and with updated pricing assumptions based upon the pricing in our existing contracts. The net zero. One logic revenue is currently projected to be <unk>.
Approximately $340 million to $350 million per year. This includes the hydrocarbon products the carbon values of nutritional product value the corn oil value and the revenue from <unk> that we expect to produce in excess of what is needed.
For the feedstock for the hydrocarbon capacity now the really good part is that the current projected EBITDA for the net zero. One project is approximately $150 million to $160 million per year now thats, an increase of approximately $50 million to $60 million compared to what we have previously discussed previously.
Previously had.
All the investors.
That's really good news.
Yes.
The current projected Levered IRR to <unk> was approximately 80% to 20% and includes all the revenue streams.
The distributable cash the OEM piece and all the rest they distributed cash to Jabil from the net zero one project after debt service of major maintenance is currently projected to be approximately $80 million to $90 million. Once the plant is up at steady state and that's based upon an assumed 65% debt load.
The capital cost projection.
It is currently expected to be approximately $720 million for equipment and build out those are the installed hard costs now on a fully financed fully installed base is fully deployed and paying for all the provisional interest during construction that reserves and all the rest that brings it up to a total of $980 million.
Now included in these costs with increased capacity for the hydrocarbon and this additional additional capital from our IPA capacity to serve the specialty markets.
Infrastructure to facilitate.
And easier capacity expansion and then adoption of certain unit operations to facilitate greenhouse gas reduction more efficiently and then of course, the increased cost of steel and equipment based on the latest data in the market.
Wastewater treatment and onsite biogas production are currently planned to be a separate project with separate funding and anticipated cost of capital measure it with infrastructure returns using a third party build on operate model.
On site biogas production is expected to meet the thermal demand for the plant.
It may be that we choose to finance the water treatment plant that is the future decision.
A separate but related wind power project is being developed to meet the majority of the necessarily one electricity demand. The wind project would be wire directly to net zero on the wind project would be a separate project with separate funding again anticipated lower cost of capital using a build on operate model.
We also plan on making green hydrogen current scope of Capex includes the capacity of hydrogen we need for our products, we're still determining if and how much excess to make for the marketplace and the corresponding economic benefit to <unk> now we know the world wants green hydrogen since we are developing the capability to make it we are working to figure out the best ways to.
Vic excess quantities and take it to market now I am extremely pleased with these results we are continuing to optimize and try to figure out ways to bring more cash and profit back to geos sooner, while reducing risk in our operations and business systems as we get that sort of one operational now for more information. Please see our updated investor presentation that is available on our.
On our website at Www Dot Chievo Dot Com. We're also planning to do a fireside chat on Wednesday August 18th at four PM Eastern daylight time, with Chris Ryan, Our President and COO and Lynn small, our CFO, who will together take questions and discuss the net zero, one project and give a little more detail as to what's going on there.
And how we're thinking about it please.
Please join Chris Atlanta, if you can.
We expect to be announcing a location in customers for our second net through a project in the near future our discussions with potential potential customers have shifted they are much much much larger and youll see that in the updated deck and looking at it the customer pipeline is now approaching about $20 billion of contracts and discussion.
<unk>.
That's quite something and we are working out then how to figure out how to grow capacity much faster. So we can achieve many hundreds of millions of gallons of production and sales within five years for a lot of moving parts. The game has changed bigger faster that's what we're driving for and Thats, what I'm driving my team four at G go to achieve.
Switching gears to R&D I am pleased to report their LNG project is on track in terms of construction, we expect it to start up on time and began producing gas early next year I am pleased to work with BP to Saudi <unk> it'll be produced on.
On Monday of next week, we expect to publish our first ESG report on our website. This ESG report is I think well done in it youll see our thinking and if you invest in US please read it.
Overall, we had excellent quarter and we continue to make progress on our goals for this year now I will turn the call over to Carolyn who will take us through the financials Carolyn.
Thank you Pat.
<unk> reported revenue in the second quarter of 2021.
$4 million as compared to $1 million in the same period in 2020.
During the second quarter of 2021 hydrocarbon revenue was <unk> 3 million compared with <unk> 9 million in the same period in 2020.
Hydrocarbon sales decreased because of lower production volumes at the South Hampton resources.
<unk> and sales and taxes.
The second quarter of 2020, no revenue was derived at the <unk> facility from ethanol sales and related products.
Third point.
1 billion during the same period in 2020 as a result of an unfavorable commodity market.
During the three months ended March 31, 2020, we turn donated our production of ethanol and distillers grains, which resulted in no sales for the period.
Cost of goods sold was $2.8 million in the second quarter 2021 versus $2.6 million in the same period in 2020, we increased maintenance and preparation for Isobutanol production that began in July 2021 cost of goods sold included approximately one 6 million associated with the maintenance of those.
Lavern facility and approximately $1.2 million and depreciation expense.
Gross loss was $2.4 million for the second quarter of 2021 versus $1.7 million for the second quarter of 2020.
Research and development expense increased by <unk> 7 million during the second quarter of 2021.
<unk> with the same period in 2020, due primarily to an increase in personnel and consulting expenses as we work to improve our process for growing and fermented strains.
Selling general and administrative expense increased by $2.1 million during the second quarter 2021, compared with the same period in 2020, due primarily to increases in personnel professional fees and insurance to support the growth in our operations and then increase in consulting related to creating our first.
Environmental personal government report.
And documenting our compliance with section 440 of the Sarbanes Oxley Act.
Preliminary stage project costs increased by $5.3 million during the three months ended June 32021, compared with the same period in 2020, due primarily to an increase in consulting for preliminary engineering costs and personnel expenses to support the growth in business activity.
Net zero projects.
As a result of the business activities noted above during the second quarter 2021, we reported a loss from operations of $19.1 million compared to $5.3 million for the same period in 2020.
In the second quarter of 2021 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 $17.1 million compared to $3.1 million in the same quarter of 2020.
Interest expense in the three months ended June 32021 was $6000 a decrease of <unk> 5 million as compared to the same period in 2020 due to the conversion of all of our 12% convertible senior secured notes.
2021 to common stock during 2020.
As a result of the business activity as noted above during the second quarter 2021, we reported a net loss of $18.3 million or a loss of nine cents per share based on a weighted average shares outstanding of $198 million 137420.
This compares to a loss of $6 million in the second quarter 2020, or a loss of <unk> 40 per share based on weighted average shares outstanding of $15 million 71105 and.
In the second quarter of 2021, <unk> recognized net noncash gain totaling 43000.
Due to the 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 $18.3 million in the second quarter 2020, our non-GAAP adjusted net loss per share of nine cents.
This compares to a non-GAAP adjusted net loss of $5.8 million in the second quarter of 2020 or a non-GAAP adjusted net loss per share of 39.
Now I'll turn it back over to Pat to wrap things up.
Thanks Carolyn.
We're looking forward to this we have a lot of exciting things coming and we are fired up our engineering work is whenever you do these things. It's an enormous quantity of work that were cramming into a small period of time given that we just got the money to do these things at the beginning of 2021, and we're making great progress and the engineering results really are good I like having.
And our EBITDA go up that's exciting and I certainly like the way our pipeline pipeline is growing and I know everybody wants us to get more contracts signed.
Faster.
But you know these are really big.
That's what they look like so we're excited looking forward to it with that we'll take questions.
If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
To withdraw your question press the pound key.
Again that is star then one if you'd like to ask a question at this time.
Our first question comes from the line of Sameer Joshi with H C. Wainwright.
Good afternoon.
Got it.
Thanks for taking my questions.
Sure.
So with this increased scope.
6 million gallons per year.
How does that.
But.
The subsequent net zero projects that you would do.
Will those be off the largest sizes level and.
What is the plan going forward.
Well so let me comment first did you say that one thing to do we just put up and published on our Investor presentation on our website all the stuff that I just set out loud. So you can see it written down and so it makes it much easier.
Then to answer your question, specifically as we think about it as we've done the work in the engineering for this.
The process up but for this tier one we could translate that directly directly and to make it a similar sized plant. So think of it as a poppy if thats. Your one that's the comment paradigm. However, we've got people working world quite challenging us to think much bigger and so we're asking ourselves that question as to how to go about doing that so we're running.
It's a very simple cost.
Can you just simply <unk>.
Right. So that's kind of the incumbent hypothesis.
And it makes sense because the demand is so much greater than the product supply. So we're asking things like well why not why not 100 million gallon plant.
Let me go bigger hockey you achieve five to 700 million gallons in five years, if that's the kind of stuff we're trying to adjust.
Address and of course, there is a whole bunch of chicken and eggs here, because alright people, who actually has been above us exactly and when and what are you going to do it yes, we can do it this technically possible, it's just a matter of capital.
It's getting to be quite interesting for us right now, but there is definitely definitely definitely a shift that has occurred in the last several months.
Yes, yes, no that was the reason for the call that internal 46 million gallons, what for you would be able to do bigger.
Industry demands it.
Yes, we can there is no limit so the reason what we're doing right. Now is we took what we had and we're trying to stay with it something we already have well defined and we're trying to optimize the returns on capital. So I noted that in our models. They project that the EBITDA increase from about $100 million a year that you have.
You talked about.
Pretty good.
Brick and 50% increase from optimizing I think we should spend money on optimizing.
It's exciting now certainly.
Yes.
I mean that was a better result than I ever expected from our people well done.
Ed.
So many variables and staff everybody I was asked me well what happens if corn stays high forever.
You know what we've got enough economics to work with and we have additional things we can do with the technology, where we feel pretty comfortable that we're in a good a good spot in terms of what project and you have the details are going to move around a little bit in terms of specific to ours.
But overall, we feel pretty.
We got a handle on it much.
Incredible speed I think so yes, yes.
And just one more clarification on net zero the green hydrogen.
That doesn't go into it produced as part of the $720 to $980 million.
Capex.
But then for the <unk>.
<unk> that Youre planning to all me.
Produce is there any additional capex incremental to this $918 million.
Yes, so on the $980 million right now.
First other projects you'd be 720 billion is the number to use to compare or some other people. Once it's financed and install that you do the prepaid accounts with all the other crap that goes with project financing that I really don't like by the way.
You add all that up now you get to 980.
So in addition to the 700000 would it take additional capital if we want to make a whole lot more hygiene answers, yes. So the game plan for us to figure out who actually wants to buy hygiene, where what does it make sense just do your do the calculation and if it makes economic sense. It can get equivalent returns are better than so if it has attractive returns 18% to 20%.
Or better something then we'd say that maybe it where the use of our capital.
That's how we think about.
No.
Yes, no thanks for that clarification.
We could all LNG.
The 350000 Btu plus.
Our capacity is that all going to be taken by BP.
Recent press release, just wanted to clarify.
It is we're going to Senate down we're going to set it down the pipeline to California, because that's how you maximize value and thats attractive and we could.
Later on take two.
<unk> gas up till the burn, which we do we.
We are running it again, but we could take it up there as we expand liberty and make it into a hydrocarbon plant what is it that youre, one but right now the way you make the most money to send it to California to BP.
Right right and this next question probably has been asked before but just wanted to understand.
The preliminary stage project costs are being expensed as against capitalized.
Because they're not associated with a particular project, but to just to put it.
The project is that correct.
No no I know that yeah, I was going to say there is some that we capitalized some that we'd sell material can explain.
Right. So the RMG related costs are being capitalized effective with the second quarter.
That's because we've got the financing and we're able to move forward with the project the cost related to net zero are being expensed until we get past all of the phase III.
Okay. Okay. So they could.
Yes, it will be when we get to when we get to the near the closings and stuff is what she is talking about.
Well.
Shorthand lingo for some of the focus to call. It <unk> III <unk> III is not well understood by record what it is.
Plus or minus when we get down to that plus or -10% level and say, we're going to do the financing now here. It is that's the time when did this stuff will be capitalized and what will be a look back as well because we are keeping track of our expenses and putting them into buckets in a very onerous process of tracking all of our time Carolyn makes us do it.
Do it.
Yes.
Good okay. Thanks, that's all I have right now congratulations on the progress and good luck.
Thanks.
As a reminder that is star then one to ask a question.
Our next question comes from Poe, <unk> with noble capital markets.
Good afternoon Pat.
Alright.
I'm doing well thank you.
I was hoping to.
With the project costs moving around a little bit I was hoping to get your current estimate of what you think the equity.
Investment from Cheapo into their first SCB would be.
We're assuming 65% debt. So it's 980, that's like 340.
Or something like them in linear linear there that I got that right.
We're at 45.
Yes.
Yes, Greg.
That's up from $2.70 is what we thought earlier.
It's all in the space of good Mason doable and.
Getting those one of them.
The questions that has come up over and over again, if you've been asked me.
How can you get more return sooner back how long distributable cash sooner well here you go.
We deploy more capital sooner with good returns sooner.
And then have you.
Have you firmed up or is there any potential.
Or could you give us maybe potential timing of net zero too.
You know if you manav.
And I know, it's tough, but can you take a stab at when we're going to see additional.
Capacity at zero to slowdown.
We've already sold since earlier this year, we've announced like 10 million more gallons. So there I think we're up.
$10 million, that's a lot more gallons sold to do another 35 million gallon. So I think what's going to happen because we are going to be well over.
That so we're probably we're up about another 50 or 60 million gallons immediately in discussions for several hundred million GAAP actual.
Real stuffy negotiate that's way way way bigger like order of magnitude bigger.
But.
So we're sitting here trying to figure out how to do it so the opportunities here in front of US it's an outstanding problem to have but how do we go bigger.
Sooner much bigger.
And that is part of the question, yes, we can keep the point zero copies kind of like that because I can understand it straightforward, it's relatively bite size for this market space.
We want to be bigger and we have one of the very few technologies that actually works. So we got to figure it out and that's one of the active things we're working on sulfur as far back to your question when can I announce the net zero two I'd expect soon I always say that though Paul and I expected and I expect these contracts we've done they're not done.
And I know why there is this final negotiations these are big contracts remember at <unk> 45.
Million gallon.
Sure.
<unk>, that's worth about a $1 billion or $5 across the life of it.
So these arent chump change for people.
Serious and doing it and they're inching, along <unk> getting done.
But then I think we'll see.
Ones that are bigger or intent for ones that are bigger.
Understood.
So on the engineering work that Youre doing <unk>, you've got the.
The estimate down to plus or -30% I think I heard you say that you need to get to plus or -10% to get the.
You know get the bond closed.
Do you expect it sounded like you might expect that pipe. We ended the year is that is that what I heard.
I think that what we'll see is it mostly in that range by the end of the year, but what we're going to really need to get it closed is take those numbers and have the EPC company.
Who will then we will announce in the not too distant future.
Who are they say here's the ramp that goes with it that's actually what's needed to get to the bond financing.
And so what will happen is we will get those engineering numbers refined.
While the end of the year kind of a thing and we'll continue to work on and keep refining will not we won't stop the engineering, we'll just keep plugging along but we'll get to a point where now the EPC company goes curious of the number of people that they are willing to guarantee.
Okay, and then do you have a working estimate for the wastewater and then the component of net tier one.
Lynn what's the wastewater treatment plant is what 100.
Million ish.
It's less than that.
It's a little less than $100 million, but these numbers are incorporated in our models as cost of service estimating the capital cost returned oven on capital to a build on operate as well as their operating for.
That's the same thing we've been doing all along with the wind we're doing the same thing now with water wastewater and <unk>.
So what you should expect I think and what all of US expect what I expect is that we'll wind up being a KOL investor with other people to get everybody see it and everybody feels more comfort when we do that just like we did with our wind project out on the burn and then we go build it out and we have lots of several parties, who want to play with US here. So that's that's.
Good.
Yes, I just wanted to make clarify and make sure that the $720 million does not include the wastewater nor the wind at this point in time.
You'll see that in our slide deck that we just put up when you get a chance to go through it so.
We tried to we tried to be for all of you listening who go looking at her we put out an enormous quantity of data into that slide deck that we just put up.
And really tried to be crystal clear about the assumptions, we're making on what we're thinking about things, we're trying to be really transparent, but I need everyone understand where we are we're in the midst of sorting out making sausage figuring things out we're trying to manage it even laid out principles of how we're thinking about things as we design.
Yeah again easy to go Super Super fast and a lot of people go tell me Pat go faster hockey stick goes yes, I can go faster than I can waste like $100 million or $200 million. That's what I can do or we can do it. We just did optimize it figure it out incrementally increased capital and boost the ebitdas and distribute distributions and so that.
That's the work to be done here is to be smart about how we figure this out to make the most money at least risk.
Yes, it looked at slide 28, and so I was just trying to figure out what else what other capital cost.
Might be associated with the entire project.
Yeah. So.
Paul Let me just go back.
So what you look on slide 28, Youll see that table.
And there is enough information there now people can feel a pretty darn good model and then view sensitivities around it with various assumptions I look at slide 29 as well.
And on slide 29, you'll see some more information we decided to just put that out there one of the things about people always ask you about your corn Oh, what happens if corn stays at this high priced well guess what that has a relatively minor impact.
The overall project now guess what.
Over 50% of the cost decline is offset by the co products nutritional products in corn oil value.
That's an internal hedge we have but that helps us that says what helps make these projects attractive is it isn't quite as volatile as people would think just looking at simple commodities.
Yes, that's right those two slides are really helpful.
If we could talk about the timing of Capex now.
The Orange you bond financing proceeds are on your balance sheet or on your financial statements can you talk about the timing of Capex on the R&D plan.
Lynn.
Yes, it will be complete.
The project is on schedule and the anticipation is that we'll start up operations and begin producing very early next year.
The the way it works is we.
There are contractors and then we submit to the trustee for reimbursements out of those bond proceeds so theres always a lag of a month or so from when we put the cash out till we get it back.
And so that that full.
When that tool.
With $70 million will be.
<unk> laid out and reimbursed over laid out over the next three quarters.
Is that sort of how we should cash walk that down.
No I think it will we expect to be complete by year end. So that we will have done all the work and paid all the bills, but it made drip into the first quarter on a recovery of the lost Bill lost the contract opinions.
Okay, Great and then on net zero wondering if you could.
Just highlight what you are going to spend in the third and fourth quarter.
On that project.
I'll take that.
<unk>.
I think the the.
Largest uncertainty is around the long lead equipment deposits, we have budgeted $20 million for long lead deposits. The timing of that is uncertain, but we need to get that out.
For year end to secure.
Equipment to maintain schedule.
Probably.
I don't really have the numbers in front of me in terms of our cash burn for the other elements around engineering and.
Site development.
But.
It's going to it's going to be a fairly substantial number I think we've always said that the total development cost, including engineering and long lead in financing up to close would be somewhere around $45 million.
And then we recover that at financial close as contributed equity.
Perfect great. Thanks for your time.
Yes, you bet.
That concludes today's question and answer session I would like to turn the call back to Patrick Gruber for closing remarks.
Well. Thank you all for joining us I encourage you to take a good look at that.
A recent investor presentation, you will see that we did go into more detail about <unk>.
Where we are on a net zero project. How are you thinking about capital. The results are turning out as I said better than I expected in.
In fact, the Ebitdas have gone up and stuff.
We still got a lot of work to do to sort it out we're working it.
Customer pipeline thing is a big deal and Theres no one more patients were getting contracts done than me give me quite people crazy.
From bugging them, but we're moving it forward and the size of the discussions either like getting to be big it's in the billions of dollars of capital. Many many billions of dollars of capital in the future.
And people wanting to participate with us and so all of those things have to be sorted out that zero to much more straightforward that one's far along and I can see that would be in that zero a copy of the net zero, one, but we got to grow bigger and faster and Thats, where our attention is turning how will you do that.
There'll be more more to come as this all unfolds, but it's an interesting time in place.
Thanks for joining us.
This concludes today's conference call. Thank you for participating you may now disconnect.