Q1 2022 Gevo Inc Earnings Call
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Thank you for standing by and welcome to the <unk>, Inc. First quarter 2022 earnings Conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.
As a reminder, today's program may be recorded and now I'd like to introduce your host for today's program Mr. John Richardson Director of Investor Relations. Please go ahead Sir.
Good afternoon, everyone.
This is John Richardson, <unk> director of Investor Relations.
Thanks for joining us to discuss <unk> first quarter results for the period ended March 31 2022.
I'd like to start by introducing today's participants from the company.
With us today are Dr. Patrick Gruber <unk>.
Chief Executive Officer.
Dr. Chris Ryan <unk>, Chief operating officer.
And Lynn Smull, <unk> Chief Financial 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 <unk> dot com.
Please be advised that our remarks today, including answers to your questions contain forward looking statements within the meaning of the private Securities Litigation Reform Act.
These forward looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated.
Those statements include projections about <unk> sustainable aviation fuel projects.
It's renewable natural gas projects and.
Other operating activities described in our filings with the Securities and Exchange Commission, which are incorporated by reference.
We disclaim any obligation to update these forward looking statements.
In addition, we may provide certain non-GAAP financial information in this call.
The relevant definitions and GAAP reconciliations may be found in our earnings release and 10-Q.
Which can be found on our website at www Dot <unk> dot com in the Investor Relations section.
Okay.
Following the prepared remarks time permitting we'll open the call to your questions.
I would like to remind everyone that this conference call is open to the media and.
And we are providing a simultaneous webcast to the public.
A replay will be available via the company's Investor Relations page at Www Dot <unk> Dot com.
I would now like to turn the call over to the CEO of <unk>, Dr. Patrick Gruber Pat.
Thanks, John Good afternoon, everyone and thanks for joining us on our call today.
We filed our Form 10-Q earlier today, we ask that you referred to it for detailed information.
The first quarter was exciting in several fronts.
Progress further down the path.
Towards becoming one of the first partial producers are verifiable net zero carbon aviation fuels, starting with residual carbohydrates.
Raw material and toward our goal of producing 1 billion gallons of this valuable high demand fuel by 2030.
We are in a unique position with our vertically integrated plant design that we believe will make it possible for <unk> to offer the transportation industry are fuel with a very low or potentially negative full lifecycle Ci score.
This can only be achieved by managing the entire system from feedstock selection through product delivery.
<unk> in the farming practices and the elimination of fossil based energy throughout the whole lifecycle is key to achieving low Ci scores.
Low Ci scores are critically important to the airlines they have limited options to decarbonize their operations.
As a reminder.
Ci score of zero means that as much as tier two is consumed in producing the fuel that is created when it is burned in engine.
During the first quarter, we announced new supply agreements with Delta British Airways for a combined total volume of 105 million gallons of sustainable aviation fuel our SaaS.
We now have contracts or the 200 million gallons per year.
These agreements further validate the airline industry's commitment to low carbon SaaS.
<unk> solution for their businesses.
Meet the environmental goals that they have identified net their customers and investors demand.
We also completed construction of our R&D plans in northwest, Iowa on time and within budget.
That plant is served by three dairies.
20000 cows plus combined.
And it is designed to produce 355000 million btu's of R&D.
Digesters or in the startup phase and should be reaching steady state production levels in a matter of weeks.
We are producing biogas and are starting up the equipment to process that gas into R&D for the pipeline distribution system.
As most of you know this R&D will be sold by BP into the California market, where it'll be used for transportation fuels.
Once you've gone through the certification process with carb and the EPA to understand the value of Bell CF in RIN credits, we could begin recognizing fully the revenue.
We expect the project level EBITDA to be in the range of $16 billion to $22 million a year, depending upon the value of those credits.
Im really proud of how well the R&D project was executed by our team and it was done completely in house <unk> is the project manager General contractor for this project. So I believe it clearly demonstrates <unk> ability to plan design and execute a large scale project, while delivering it on time and on budget.
Based on the interest that we've received from nearby farms others are excited about this team's execution of our R&D plans as well.
Last point on R&D project getting it done within budget.
Also means that we are able to.
Land correctly, even in this inflationary environment that we have these dates.
The business model very tracking continues to develop.
The recently signed Mou with farmers edge is a big step forward by a proprietary dataset.
We can use with verity blockchain technology farmers edge.
Has reported that they have.
Data on April aviculture production up more than 18 million acres and it's growing.
He is developing the software and methods to attract carpeted other sustainable attributes.
The farm to the jet exhaust.
Verity tracking to be able to be used for few products food products and EBIT industrial and oil products, It's a tool and a service that tracks data and converts it is rock solid information.
We plan to offer the product to others to develop the business I think we have something quite valuable here.
We also continue to work with EDM and other ethanol producers. We are looking at several greenfield sites that are special in their economics and ability to drive the Ci score down.
As we grow I expect that we'll have a mix of both greenfield sites and existing ethanol plant sites.
Both waste and give good economics.
There are a rising number of ethanol producers in the U S. But are interested you're providing feedstock for our scf process.
The value proposition makes perfect sense to them, but not every ethanol plant makes sensor gibeau, given the need to decarbonize the process.
There will likely be other partnerships over time, but finding the best ethanol plants in areas with favorable farming practices.
And readily deployed.
<unk> energy if you eliminate fossil fuels takes work and effort.
Working with concepts that are new.
Our critical issues are choosing site that is driving Ci score down the population of the energy.
Sourcing the phosphide electricity and heat.
Now I would like to turn the call over to Dr. Chris <unk>, our Chief operating officer.
Chris has been with Jabil for 13 years and has been CEO and president for 11 years.
Chris one of the been there done it leaders we have on our team.
He has a long track record of delivering commercial projects and technology is going back to nature works BLA.
Chris is in charge of deployment of our net zero, one project and engineering for the plants.
As we are working through the engineering and cost for ANZ, One project, Chris and his team have done a good job cutting down cost and supply chain issues.
Nothing hinders, our 2025 operational timeframe getting down information.
Is it particular hassle in this deflationary in Covid World.
We had a double and triple check equipment cost and timelines. Good news is we're on track for our 2025 startup at ANZ, one, but we have eaten into some of our slack time on the project Slack times excess time built into the project timeline for on notes I think it would be helpful for Chris to provide.
The status of our SD Wan project Chris.
Thanks, Pat and that sort of one project is coming along really well.
We're on track with site development engineering, and all the commercial contracts for like Preston site to be operational in 2025.
We're excited to receive the conditional use permit a few months ago.
The net zero one plant.
Well as the wind turbines that will power than that sort of one plant.
Those conditional use permits.
Critical Green light that we needed to move forward with the site.
Together with the land agreements that are wind partner has in place with the local landowners. The wind part of the project is moving towards the execution phase.
That's a site we're on track to break ground this year.
The land option agreement that we executed in 2020 and.
And we expect to finalize the land purchase soon.
All the necessary permits are on track and our.
Engineering is finalizing slight layout and foundation requirements needed to start moving dirt this year.
Speaking of engineering.
To take a minute to highlight the very experienced and capable engineering team we have for a net zero projects.
I can't think of a core group of more experienced engineers designing scaling up and commercially operating such a diverse set of bio based processes.
Each of our leaders has 20% to 40 years experience engineering and operating Biobased chemicals and fuel processes that are running successfully today.
The team has a track record of commercially successful renewable resource based processes.
Add to that the experience of our development and engineering partners, most of whom we have not yet disclosed.
This gives me comfort knowing that we have the capability of designing and building what we believe to be the most efficient most carbon processes with low operating risk.
All of that experience is being put to use and finding ways to minimize energy required to produce these zero carbon products using proven unit operations across the manufacturing chain.
I'd like to highlight a couple of our key partners, who are working with on the process engineering.
In our production process, we have two basic steps first we make alcohols by fermentation think of beer brewery.
Then we convert those alcohols, the hydrocarbons such as sustainable aviation fuel.
We have key engineering partners for each of those production steps.
On the fermentation plant the <unk> engineering team is working with fluid quip technologies to design, the most efficient and flexible low carbon process that we can.
Fluid quip has years of experience engineering ethanol plants in the U S and outside the U S.
Plus some of the key people at fluid quip have spent their careers on converting AG commodities.
Various products using a variety of processes.
And thats, great as we evaluate various options for how we should build out plans.
On the alcohol to hydrocarbon plant.
We're working with <unk>, who is bringing their commercially proven alcohol the hydrocarbon process.
Absence with its 2500 employees has been licensing the sort of process for 25 years into the petrochemical and refining industries across more than 100 operations.
So the alcohol the hydrocarbon process.
<unk> given us an end to end process guarantee backed by service support and constant remote monitoring.
We've been working with actions now for nearly 18 months around engineering and catalyst selection.
They are very capable organization and their engineering deliverables are really well done which makes for an easy handoff to an EPC for execution.
As we work with actions and our other partners to finalize the naturals side, we've accumulated a lot of knowhow and intellectual property.
Much of this is related to removing fossil energy from the manufacturing process by first reducing energy requirements for the process.
Self generating renewable energy at the site.
Third integrating everything to minimize our carbon footprint and achieved net zero.
Our intellectual property is around hall, how all the pieces are integrated and how the system works in concert to produce products using a low amount of fossil energy.
The novelty of the design goes beyond the core manufacturing process.
Includes designing the wind energy the green hydrogen production and the wastewater treatment plant.
For example, we're designing the green hydrogen process to work in concert with the wind turbines to utilize excess renewable electricity high wind days.
Also the biogas, we generate on site for the thermal energy will be able to be throttled with process energy needs.
Doing these things allows us to minimize fossil energy use and achieve a low carbon footprint.
And because we have a very experienced team between us and our partners.
Know how to design these processes with minimal risk because we've experienced many different biobased processes and we've lived through things that run smoothly and those that don't.
So we know how to design for low risk operability.
We also know how to plan an inflationary environment.
Have considered that in our plans.
So we have engineering on track and expect to break ground at Lake Preston later. This year. We'll also will start purchasing long lead equipment to maintain a schedule that has us beginning operations in 2025.
We expect to execute commercial agreements for the wind energy the green hydrogen production and the wastewater treatment. This year with companies who are experts at those things, which allows us to leverage their teams.
We're also currently running a process to select the EPC for the execution phase of this project.
I have been talking about net zero, one and progress there, but it's important to keep in mind were not just designing for net zero, one but for future net sort of plants. So we make this as much a cookie cutter process as we can.
That includes modular rising wherever it makes sense.
Of course, we expect future net zero plants to be even bigger than that one. So the process design has taken that into account as well.
When it comes to the cost of the <unk> project, we expect the capital cost to be in line with what we projected last year, we anticipate we'll be making much more product than we expected last year.
Now I'll turn the call over to Lynn small to review the financial results.
Thanks, Chris.
We ended the first quarter of 2022 with a strong liquidity position of $413 4 million in cash restricted cash and other liquid investments.
Long term debt outstanding is related to the northwest, Iowa, LNG project and was $67 million or corporate spend that as SG&A was approximately $8 million net of noncash stock based compensation.
During the first quarter of 2022, we invested approximately $31 $2 million comprised of $9 6 million into our net zero one project.
$18 3 million into the northwest, Iowa, LNG project, and approximately $3 $2 million into other capital projects.
I believe that the future looks bright for Jabil.
We're at the forefront of creating a new industry that blends substantial aspects of existing agriculture energy renewable energy transportation and materials industries into the new carbon reduction industry.
We sit at the Nexus of all this and have a unique perspective on the horizon that customer's financier is contractors and equipment suppliers recognize.
This perspective is holistic and drives a comprehensive approach approach to the business system development.
Central to this is the vast under supply in the market of renewable fuels and materials and most importantly, right now sustainable aviation fuel.
Taking the pronouncements of major airlines like Delta, we expect global demand for <unk> to be in the 13 billion gallon per year order of magnitude by 2030, our billion gallon initiative would obviously supply only a portion of this demand.
<unk> capital deployment is key and limited by the ability to site permit engineer and construct production capacity. We're solving these issues and showing the solutions to major financier is who want to participate in the capital formation and industry creation.
We believe our enterprise model is a realistic view on the 1 billion gallon initiative and based on what we feel are reasonable projections of future Capex revenues and opex. It indicates highly accretive value creation for the next several years we.
We have discussed the model with financier is an early stage reactions are positive.
Given our strong value proposition, we do not expect the capital availability will be a constraint.
Our mission from a finance perspective is securing the capital for growth on terms that are both accretive to <unk> shareholders and it also keeps us in the driver's seat.
We feel that remaining in control of our business plan execution is important given our unique perspectives on this newly emerging industry.
It takes substantial time and energy to explain that to people, but we believe these efforts will yield the capital resources needed to execute on our plans.
Capital will likely be supplied in various forms given the large numbers involved and the various levels at which different financier is may prefer to participate.
For example, we expect financing will come in the form of nonrecourse debt at the project SPE levels.
Third party project level equity potentially the evolution of holdco level equity and aggregated portfolio debt and corporate level equity raises to downstream funds into the projects.
Now I'll turn the call back to Pat.
Thanks Lynn.
And with that.
Think we should open it up for questions.
Certainly ladies and gentlemen, if you have any questions. At this time. Please press Star then one if your question has been answered and you'd like to move yourself from the queue.
Please press the pound key.
First question comes from the line of Derrick Whitfield from Stifel. Your question. Please.
Good afternoon, all and congrats on progressing your northwest, Iowa, R&D project on time and budget in light of the current environment.
Thank you.
So perhaps for Pat.
I wanted to see if you could speak to the importance of the farmers edge Mou and the value you expect it to contribute to your net zero and dirty tracking content.
Yeah. So.
One of the great Big issues, that's in front of all these sustainable products not just ours, but everybody is what's sustainable and what is do you have all kinds of people, creating talking about how their green or there were.
We're doing these great green credits or whatever but.
This is Bob.
Those we want to see things verified absolutely throughout the whole value chain. So that these things are verified they are verified by third parties in beautiful can't be messed with hence the block chain approach.
And.
Farmers edge has 18 million acres.
<unk>.
Army partners.
Where they collect all the data.
Thats used in agriculture, and how those people plant their crops and all the rest domestic key input for figuring out the sustainability footprint. That's just one part of the puzzle there'll be more parts to this as you see it.
You all see it unfold, but the idea is to do absolutely verified certified data from the field, obviously the energy production all the way straight through the whole supply chain out to the marketplace. We have a different point of view that almost every other company out in our space. We think it should be track that way, that's how we can be sure of it and the debates.
We will do it with data.
Great and as my.
Follow up I wanted to focus on the net zero, one inputs and outputs referenced on slide eight.
Directionally, both the inputs and outputs are higher than your Q4 update so just wanted to see if you guys could perhaps update us on the most notable processing <unk> design changes, which have led to the enhanced productivity.
It's more going through the details Chris did you want to comment on this.
At a high level, because you can't go into detail details.
Yes, I mean, we're still making some improvements to the process.
Allow us to increase the amount of product, we produce as well as reduce the inputs required so yes. It's.
It's all heading in the right direction.
Perfect. Thanks for your time.
Thank you. Our next question comes from the line of Sean <unk> from Watchtower Research. Your question. Please.
Hi, Thanks, guys.
Pat I was wondering looking forward when youre talking about ethanol plants and the right ones.
The timeframe look like for new NZ development in a plant, that's suggesting that kind of some of some compressed timeframe relative to what the first one has been obviously, but how long will that take if you have the right plant getting to production.
Well, we were trying to accelerate as much as possible. So the idea is item. That's you all want us to make a modular type of a plant from the alcohol forward. There are some things that you still have to do around optimizing for energy around ethanol, but that part of converting ethanol into jet fuel.
Do you have to do a modular approach and in which case you could put these things anywhere right quick.
However, you still got to work on the de Carbonization and that's what we're talking about we say the REIT ethanol plants, you've got to be able to decarbonize.
In order to make them into a SaaS, but the marketplace worldwide.
Yes.
Okay, so not too different of the timeframe from development, obviously envy one timeframe additional plants in the two to three using existing ethanol plants, there's going to be what degree short I'm just trying to understand how quickly they can be cookie cutter.
So the design that we're doing for ANZ one.
It could be that's going to be a modular design that can be taken directly to any other plant.
Directly.
And then the time so it can be very very quick.
To the point unusually question, we don't have risk the way normal processing staff.
These processes from excellence are well known well studied were doing the energy integrations, we're working with <unk> on the ethanol stuff.
So we have a pretty good we don't have risks like so many other processes.
So its much much better shape.
So I think we can deploy multiple things at once which I think youre asking me. The answer is yes, we can.
Yes, exactly and the second question is regarding pipeline new business, obviously the environment.
A lot of opportunity for energy diversification, let's say and looking for alternatives to oil.
That changed or impacted your pipeline given the events a year to date.
Do you mean because of all the discussion.
In particular market place like SaaS or is it no no no I'm talking about just in oil and energy security application Okay.
Russia et cetera.
Catchy macro big time, so what's happened is that people know, we're going to get liquid fuels, everyone can see that we're going to hit but liquid fuels.
And it's a question of how to Decarbonize them and we have one of the very good routes are technologies make of course, SaaS, we could make diesel fuel injection as well of course or any other.
Any of the basic chemicals and materials too.
So that need is going to be here is strong the demand is growing and the interest.
Across the whole front of everybody involved in this space is heightened.
Because of all the pressure the price of oil the price still to concerns about carbon all of that stuff comes to bear.
And theres going to be a need for the fuels fundamentally a need for the fields.
And I think that would become more clear in the next months.
Alright, thanks, guys.
Thank you. Our next question comes from the line of Amit Dayal from.
H C. Wainwright your question please.
Thank you good afternoon, everyone.
And with respect to the R&D revenues, how should we expect these to start showing up but you still are getting qualified and midstream goodwill, but by the fourth quarter. Do you think we should be able to see some more downstream from that country.
This is a question for Atlanta, I'll punt it to him.
Sure.
Were in startup now we expect to be in steady state production by June .
We'll be selling commodity right off the bat under normal terms of trade.
Revenue recognition around the environmental benefits I E rooms will be slightly delayed a few months and <unk> put it sort of delayed under the carb.
Process for pathway approvals by a few more months so by the end of the year, we hope to see some revenue recognition off of the environmental benefits and.
And then 2023 should be steady state on on a cycle of receipt of.
The receivables on that.
But we've all we modeled in that as a working capital.
Right.
The delayed receipt of revenues and.
Receipt of cash and revenue recognition. So we were fully anticipating that that's just part of this business of generating.
Environmental benefits.
It's a particular cost to all projects and in fact, we.
<unk>.
<unk> firsthand by the administration of AV administer putting those those benefits into the market and receiving the cash and revenue recognition is a great learning exercise for us to get us ready for the bigger game around net zero.
Understood. That's helpful. Thank you.
Bathroom, maybe Lynn.
You highlighted you're going to be breaking ground and then ordering long lead time equipment in the next over the next few quarters is that going to be funded through our balance sheet.
No.
What kind of risks does it create potentially from a perspective of.
We're getting the project financing in place et cetera, any thoughts on that.
Thank you.
Yes, we will be funding the development period.
Expenditures off the balance sheet.
Then when we get to financial close.
That will.
Provide the full construction budget.
<unk>, both debt and equity to complete the project it reduces the risk though because.
Walks in pricing, we will have done enough engineering to know exactly which equipment, we need and Chris can comment on this more specifically, but it actually will reduce the risk of getting to financial close and execution of the project overall, because funding of tears love to see.
Sponsored going long going at risk with a major capital project and that's what we're doing.
Understood.
Any changes to that environment in terms of.
How the market is behaving right now interest rates inflation.
Factors has that.
From a financing perspective.
No not at all.
Still have strong interest on the debt side, we feel confident that we will be able to pull the the debt and on the sort of projected levels.
Interest rates are up but the bigger.
<unk> of the interest expense is going to be the spread and the actual underlying rates are not not driving any material changes to the overall economics.
Okay understood. Thank you for that.
And you guys were also expecting to receive.
In process of receiving deliveries from project own some SaaS.
Equipment Isobutanol conversion Goodman.
So you can easily embed also sort of in the second half.
Yes.
That's a.
That's the second half of the year kind of a thing.
And we're working with them and we have some we have some more creative ideas on what to do with that equipment.
And so once those are baked then we'll tell everybody about it.
Okay.
So thats all Anders thank you so much for the country. Thank you.
Thank you.
Question is a follow up from the line of Derrick Whitfield from Stifel. Your question. Please.
Thanks, and thanks for allowing me to take a couple more questions or offer or ask a couple more questions.
As a follow up for Lynn Lynn I know you've spent a considerable amount of time developing the enterprise financial our financing plan and that efforts like the generated several learning to the process.
Could you speak to how Youre generally thinking about the chevron and ATM partnerships and any key learnings in the process to date.
Okay.
Well the enterprise model as 1 billion gallon initiative, so it's much broader than just.
ADM.
Under that memorandum of understanding or the Chevron Mou.
Its actually looking to control our own destiny with quite a lot of development of Greenfield as well as other.
<unk> potential.
Ethanol jbs or acquisitions that we talked about a little earlier and the model itself is expensive.
So very comprehensive large model thats been scrubbed backwards and forwards.
And it yields a very attractive.
Sort of view on the future with respect to accretion and value creation. So.
I think it's been very useful to form the basis of discussions with financier.
And.
It's well thought out.
We didn't have that three months or six months ago, and it's really been useful to have that plan in place.
That's great and one last follow up for Pat I wanted to touch on your decision to proceed with this late Preston.
For net zero, one as I recall from last quarter's call you were still evaluating site location as there were several greenfield sites that were at least as attractive as late Preston.
Could you perhaps elaborate on the developments that firmed up like Preston is the final site selection.
Yeah It comes down to good.
We're lucky to have a good pool of sites, we had to take a last look and like Preston with one we felt we could develop quickest.
Quick as the market is what we want.
Therefore, let's go.
That's great. Thanks again for your time.
Okay.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Dr. Gruber for any further remarks.
Thank you all very much for joining us I appreciate your support I appreciate the questions from the analysts.
It's a good experience Roger and exciting time here at <unk>, we are in a sweet spot I don't like the overall markets of course, but what.
We got a good plan and are going to drive to get things deployed and get on with success.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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