Q3 2022 Gevo Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Good day, and thank you for standing by and welcome to the <unk> third quarter 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to answer or to ask a question. During this session you will need to press star one.
One on your telephone keypad, and then you will hear an automated message advising you that you had it right.
Due to time would only like to ask one question and one follow up.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to our speaker today, John Richardson go ahead John .
Good afternoon, everyone.
This is John Richardson.
He was director of Investor Relations. Thanks.
Thanks for joining us to discuss <unk> third quarter results.
For the period ended September 32022.
I would like to start by introducing today's participants from the company.
With us today are Dr. Patrick Gruber, <unk>, Chief Executive Officer and Lee.
Small <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 the timing development engineering.
Financing and construction achieve sustainable aviation fuel projects.
Sales agreements, it's renewable natural.
Natural gas project and other activity as 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.
Following the prepared remarks time permitting.
We will open the call to your questions.
I would like to remind everyone that this conference call is open to the media 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 Dr.
Dr. Patrick Gruber.
Yes.
Thanks, John Good afternoon, everyone and thanks for joining us on our call.
Filed our Form 10-Q earlier today, and we ask that you refer to it for more detailed information.
It's been a tumultuous year, so far it's in the financial markets.
We will likely be more to come over the next few quarters.
Although our stock price is disappointing to me and to our shareholders. Our balance sheet is in great shape and <unk> team is focused on pushing forward with our net zero development plans, which I will talk about shortly.
I am confident that the value of what we are doing we will begin to be reflected in <unk> stock price.
We continue to move forward with the growth of our business and the deployment of our net zero plants starting of course with net zero one.
In the meantime, our business development team continues to see strong demand for low carbon drop in fuels from the commercial airline industry as well as from trading arms of some large integrated oil and gas companies.
Doesn't look like there is enough supply.
Coming in the future based on publicly.
Publicly announced projects that we know of.
I believe the airline industry will need every gallon of low carbon dropping fuels that can be produced and more as demand will likely grow exponentially over the next few years scalability substantially derisked, the low cost technology and Verifiably low greenhouse gas emissions across the value chain are what's important and we.
All of that <unk>, a strong position to be in.
As we noted in our company update several weeks ago, <unk> has more than 375 million gallons per year.
Predominantly take or pay fuel supply agreements in place with high quality third parties.
These agreements represent approximately $2 3 billion and expected annual revenue based on current market projections and assumptions. These agreements are critically important to satisfy the requirements of potential lenders that were working with.
<unk> project level debt financing for our net zero buildout.
Okay.
We can tell you that we have begun to generate revenue from our northwest, Iowa R&D project. The biogas production has been going well and we are still debottlenecking equipment to maximize volumes, we have begun collecting data on gas quality effort volumes, which are needed by car to getting approved pathway under <unk> you already have approval for.
<unk>.
I expect that the project will begin generating a meaningful volume of Rins in January of 2023, However, Lcs Lcs kratz will probably lag that by at least six months because of the backlog at carb to get the necessary approvals.
RMG team has worked tirelessly to.
Ensure this project stayed on schedule and I believe that we have built a state of the art R&D operation in northwest, Iowa, and it's performing well.
Okay.
In September we had the groundbreaking ceremony at our net zero wide project location and Lake pressed in South Dakota and Z. One is our first commercial scale net zero carbon sustainable aviation fuel plant construction has begun as it always does with site preparation.
We want to get the ground prepared so that we can move quickly in 2023 once engineering has progressed far enough to start full construction and once the ground thaws out.
We expect to start construction early next year with a limited notice.
Supersede even in advance of the full financial closing, which itself should happen sometime in the middle of 2023.
We intend to keep the project on schedule by beginning construction with Jabil paying the bills as needed before the financial close.
That will ultimately fund the complete construction of <unk> hundred one.
We currently project that we are on track.
For 2025 full production startup.
We've had some good news of late supply chain bottleneck seems to have plateaued for now while most of the issues around transportation delays have improved and are projected to continue to improve while obviously this is really important for a capital project.
Additionally cost of materials and long lead items look like they are starting to stabilize think about steel and the other components that can go into a project like ours. It starting to flatten out. This is good our caf across projections look reasonable and I expect a more stable price environment and materials availability as we move through next year.
It is the one in addition to using renewable energy to drive our Ci score down we intend to use carbon sequestration. The plan is to capture this year to produce through implementation for biodiesel carbon and geologically sequestered.
We recently reached an agreement with Carb summit carbon solutions, one of the leaders in the space. Some of it is expected to provide <unk> with Sidoti pipeline access to transport it safely dispose of the Sidoti produced and captured during our SaaS production process.
When combined with sustainable agricultural practices, we believe our SaaS will have a negative ci score as measured using our Dawson Creek.
Negative that's real good.
We expect to be the leader.
Low carbon Saf production.
Given the off take agreements that we've signed up it's clear that we're going to need capacity beyond net zero. One we have a good plan in place upon which we're executing this plan includes greenfield or brownfield sites, along with partners, who are interested in developing advancing projects, we aren't ready to disclose the details of the separate yet.
But it's really exciting.
We believe we are developing a reliable path to growth with ready access to the capital that we will need for these projects, while minimizing dilution to our shareholders by deploying capital at subsidiaries below Jabil, Inc.
We expect that the capital for these projects will be gathered at one of our project or platform companies below Tivo, Inc level.
We expect <unk> will maintain a controlling interest in these companies.
And the only balance sheet impact GMO would be its equity interest in the project and platform companies.
Our net zero to site selection processes, but active for several months, we have narrowed down the potential locations to a handful of very attractive sites based on a variety of factors key. Among these factors is reliable access to low carbon energy for process energy needs and abundant low carbon feedstock for ethanol that source.
For buyers with favorable farming practices, we're not ready to discuss the details around the status of these projects yet.
Because many of the fundamental details still need to be finalized.
We don't want to tip, our hand too early anyway, we're excited to have such a strong portfolio of locations identified for future <unk> projects.
Iraqi of carpet and it could be carbon reduction is essential and critically important to our business to that end, we've been making progress on verity tracking Verity tracking is a system to track carbon beginning from the far practices through land use the energy use production across the whole value chain and after the opening of a jet.
Have you been efforts bird.
Where do you use a distributed ledger technology also known as blockchain technology. The idea is to make our carbon values complete traceable trackable and beautiful and valuable.
The USDA agrees, it's a good idea they have selected us for a grant to $30 billion to help develop the system. We're still negotiating the final details of the grant, but we expect to accelerate the programs with this money.
I can tell you that very resonates in the marketplace. The idea of tracking carbon for farm level forward into products has been discussed by lots of people, but the question is that how best to do it but we think we have a good answer for that and that's very tracking we recognized severity tracking is relevance beyond our own ATK process and provide value to other jet processes biofuel to even food.
I think we're already tracking has potential to be an attractive standalone business in its own right and we plan on further investing in developing this business.
I am pleased with the progress we've made over the last year and a half <unk> skull to Decarbonize. The aviation industry. This deflationary environment has been a settling and it has impacted our expected capital costs and see what they've gone up some but we have it budgeted now how.
However, the macro environment for low carbon fuels that stayed strong and project returns appear to even be better than we originally thought the project returns are even better than we expected before.
The momentum for the momentum behind our efforts has never had such.
Our level of broad based support as we do now and I believe that it won't change.
With any potential political reshuffling that happens over the next few years.
The need for net zero fuels, whether the <unk> and the goal to reduce carbon emissions has been generally acknowledged included by <unk>.
As in the fossil fuel industry.
We know the path to success and I am confident that we have the right people internally and the right partnerships extra leap to achieve our affiliate gallon per year goal by 2030.
Now I'll turn the call over to Lynn to comment on the quarter's financial highlights.
Thanks Pat.
We ended the third quarter of 2022 with a strong liquidity position of 500.
$4 million in cash restricted cash and other liquid investments.
Restricted cash totaled $76 9 million and is associated with the northwest, Iowa, RMB bonds and certain collateral related to the development of net zero one.
Long term debt outstanding of $67 million is related to the north with dial R&D project.
Corporate spend that as SG&A was approximately $7 5 million for the quarter net of noncash stock based compensation of $3 6 million.
During the third quarter of 2022, we invested in capitalized $22 $5 million in cash in.
In capital projects.
Price of $15 million into our net zero one project seven 3 million into the northwest, Iowa, RMG project and approximately $2 million into other capital projects.
Earlier in the year, we began the process of suspending production at the <unk> facility in order to focus our attention on the net zero program planning design and financing.
During the third quarter, laburnum with idle and placed into care and maintenance status to be used for marketing testing and R&D purposes.
This change combined with Lavern history of operating losses drove an accounting requirement to perform an impairment testing on the value of the asset.
The test indicated that an impairment existed and require that the assets be written down to their estimated fair value.
For the three and nine months ended September 32022 <unk>.
$24 $7 million impairment charge represents a lower large portion of the basic and diluted net loss per share accounting for 10 and 11, respectively.
We are progressing our net zero build program and are in the process of seeking debt in equity partners for net zero or one and projects beyond the flagship project.
Third party debt and equity financings for the program are being structured on a non dilutive basis at the asset level rather than at Jabil, Inc.
The equity outreach is going well with the substantial market interest and we expect to secure one or more investors as a result of those efforts.
<unk> that process is underway with a dual tracking of commercial that sourcing and guaranteed loan sourcing both tracks are progressing well and we expect the secured nonrecourse debt for the plant construction sometime around mid 2023.
Pat mentioned, we continue to extend development and engineering capital to progress the project and maintain its timeline in advance of securing the debt.
Now I will turn the call back to Pat.
Operator, please open the call for Q&A.
Alright. Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced but limited time, we only have time for one question and a follow up so please standby, while we compile the Q&A roster.
Okay. Our first question comes from the line of Derrick Whitfield from Stifel Go ahead Derek.
Thanks Al and good afternoon.
Hey, Derik.
Sure.
My first question I wanted to ask if you could offer a general update on the ATM and Chevron partnerships.
Sure so with Chevron.
We've had the discussion we extended the contracts with them or the letter of intent with them and so that will be an ongoing discussion. We just didn't want to put it out there as a public.
Okay.
Given the turmoil thats going on in all the Ras plus we don't want to get boxed into it.
So those are still ongoing discussions regarding.
Regarding ADM same kind of thing we are working with those guys and making progress on things and those projects are really big and so if we can't do that by ourselves and so that was going to be slightly more complicated to do.
But it's plugging along and making progress our fate doesn't depend upon either one of those it isn't intended to our fate depends upon SD Wan and.
Z to building those out.
Along with the other sites, where we work with brownfield ethanol plants and there is a number of those that are attractive. So we look at it as a point of view of those the big ADM assets, a great love to see them happen, but you know what other giant projects and not bet. The ranch on those because of the Timeframes are things I got to go get built we have.
Actually it's closer to 400 million gallons.
Contracted take or pay jet fuel and what we've got to go get it done and get built out and play with people are going to get it done in time for the network.
Terrific and as my follow up I wanted to ask on the summit carbon solutions agreement are there any general economic parameters you could share with us on your take of the environmental attributes inclusive of the IRS 45 Q.
I don't think its appropriate to comment on it because we've done so many deals with so many people and I don't want I think misinterpreted, but it's a good deal. It's a fair deal for us and satisfies our needs to make sure that we have.
Ci scores and the value associated with that.
It works out economically attractive.
For both of us both them and us.
Perfect. Thank you for your question. Our next question comes from the line of Shawn Severson Watertown Research go ahead Sean.
Good afternoon, everyone.
Pat I was wondering I know you can't talk about specifics, but can you give some color on how the strategics are viewing this as.
As you are looking for investors.
On the debt.
What's the what's the bottleneck.
Each month of interest on those versus.
Right.
Well, we have one of the very important point that I want all shareholders to understand is that we don't like our stock price up here at Jabil and <unk>.
I don't want to do more dilution right. So how do you skin that cat yet we have to raise a bunch of money to go build out plans and projects well. The good news is is that we have.
Lots of demand for the product that's firm and committed and these offtake agreements.
We intend to raise money at what we call a platform level beneath.
Beneath djibo, it's a private company level, there we would take funds in to a private company.
And.
That would.
That private company beneath us would go about building these projects and adding that to the each project.
Guggenheim and city are co leads.
Banking exercise we're in the midst of the process is going good there's lots of interest it gives great comfort to everyone that we're working with accidents, which is the most prudent.
Certain technique alcohol to jet they like how we're thinking about it with how to drive the carbon scores down in EBIT negative.
Forgetting the partnerships together they all can see those people interested can see the pipeline of sites and the potential economics, which are attractive.
I think.
We're going to be successful at this and raise money and bring in some really good partners and the debt solutions.
These people to participate in that tier one to a degree and we'd also we're making progress on the debt as well we brought in <unk>.
Bankers in addition to Citi for that.
Merck Greentech Nomura Green Tech.
And.
That's going well too so there's lots of interest in the space people don't know what to do with their money there arent that many solutions that can work its about <unk>.
<unk> that it all can be properly derisked put into a project format getting the financing and as I said.
This isn't selling stock at the GP level, that's not what this is this is about investing down beneath gibeau.
Projects are groups of projects.
Yeah.
My follow up to that is when you look at the equity side.
And we want to going forward.
Something that we should expect them to have.
Equity partners or does it seem like you have one big check written from Egypt.
<unk> whoever they are going to be two or three.
Just the nature of work.
Testing the waters.
Well I think that would be the check.
I don't know exactly how the structure of that yet.
Excuse me.
I think it would come from the platform company. So we've pushed some of our money down a platform company throughout the other investors in the platform company collectively they push money down to the project and the one that is.
Right.
And that's I guess, what I'm trying to understand as you put your equity and then would you expect to have like two or three other partners per plant or do you think just goes with very strategic sliding big checks along with <unk> at the plant level, but the equity.
I think what it would be is the platform itself a platform company as.
As investors, we are committed to investing in ANZ, one and additional NZ projects.
And how that capital goes in how much actually gets spent is up specifically how much is ours versus theirs.
And how many people participate well that's part of the sausage, making that we're doing.
So when I say gosh, we got to build out 400 million gallons over the next five years and that's like what eight plant equivalent size of ANZ. One that's one area of a lot of money that's going to probably not.
One guy.
Just one partner that's going to take multiple partners working together to go deploy that.
Maybe.
Great.
And I think if you pull out.
Sure.
Just going to say, it's $3 billion to $4 billion.
$3 billion of equity the parties, we're talking through many of them can certainly write a check for that sort of one on their own but we have a we're.
We are getting quite a bit of interest so.
Up to accommodate as many people.
As we can on terms that work for us.
And just as a reminder to ask a question. Please press star one on your telephone keypad to be put in to the queue.
Our next question comes from Amit Dayal.
Thank you.
Alright go ahead Amit go ahead. Thank you. Thank you good afternoon, everyone.
Adam.
But just in terms of the cash outlay for the next say 12 months.
How should we think about your needs on that front coming up.
What are your plans in terms of.
The gas.
Usage over the next few quarters.
Sure.
I'm going to ask that question. So then what's your address low what are.
The rough expected.
Cash spending would be on SD Wan and corporate to corporate it would be something in the order of we're running at a rate of about $33 million a year run rate for our corporate burn.
We will also invest some in verity and the growers program although.
The bulk of that investment will come with our or.
Or sorry, USDA grants.
Which will help to throw a lot of the cost of the development of a verity and forwards program.
That supports that sort of once it start and other projects down the line.
RMG is.
So that shouldnt be a cash drag it should start generating cash.
And then we get to net zero one and.
I believe that.
Because.
We will probably enter into a limited notice to proceed.
Detailed engineering and further site work.
To take this to the expected close the debt.
Third party equity close date.
Could see us putting another.
Probably 90 90 million or so into necessarily want to take it to financial close now we don't intend to leave all of that in the project, we intend to be reimbursed by the project's sources of funding.
For a portion of our development expense. So that we are that <unk> been in the project is.
It's a smaller percentage of the total equity of the project.
But thats kind of the.
The equity needs for nets are one we're also we're going to be spending money on that zero to <unk>.
Possibly net zero three development work engineering and such.
That.
A little too early to know.
And the quantities around those those two projects those two and three.
So the levers we have to moderate things that we're going to wind up driving hard for ANC, one get it all of the risk at the engineering schedule.
The site work go on make sure we're getting equipment order that needs to be ordered and moving it ahead. So we hold the overall timelines and get ourselves close kind of the mid year of 2023 in that well, but it shouldn't take how much money do we take back out of that project, because we will have quite a lot of it given the what we spent so far over the years.
Plus what we are about to spend.
Or do we leave it in there and let it ride we could do either one.
Upon how we're feeling about the world in China.
And then lids right, we got to do development work at NC, two we've already begun that laboratory spending.
Real money on that.
Taste it and we have we know that other people are interested in it.
So we'll make that habit to add.
There are other sites that we have to do to it. This is about when you think about our problem that we have.
Good problem is that we have lots of demand thats contracted with take or pay contracts. We've got to go fulfill those you got to go build it out and they are ripe for project financing this category.
That whole system figured out how we go about doing that with the EPC firms.
Lansing and the debt later it out there and then what are the flavor that Jabil takes is that we were going to look more and more like a developer licensor, which is good.
Those are good they get higher returns for dogs.
And maybe someday the global change and we can have money up at our corporate balance sheet.
But the reality is we're going to use our money wisely and leverage it to leverage the heck out of it with others and attempt to grow that's what we're going to go do.
Thank you for that.
And then just.
One final one for me.
With respect to the R&D revenues and cash flows should we assume 23.
Is where you can get that growth of 16 million that you have been expecting from this deployment.
Well, that's an annualized run rate expectation of EBITDA.
Because of the play.
Delay in receipt of cash through the <unk> in particular, because harvest pretty slow and a pathway takes time.
Annualized run rate, probably won't be fully realized in 2023 because of that delay. So we won't see all of that money it won't be the full annualized run rate.
So we will see a chunk of it.
Have a clear view as to how much of the chunk that we'll see.
In 2023, it will be it's going to.
It'll be noticeable that's what I would expect but it's not going to be the full amount 22. After given the timing of everything in the way that all of the accounts work.
For the <unk>.
Alright. Thank you for your question again, if you would like to ask our presenters some questions. Please press star one on your telephone right now.
To ask a question.
We havent Derrick Whitfield again, asking for another question go ahead Jack.
Yes.
I wanted to ask another question as Todd mentioned.
The uptake and the contractual obligation associated with those agreements.
Given your commercial success and we are signing.
<unk>.
Sure.
What are your thoughts on the progression of plants.
Good luck.
One 1 billion.
Investors would have.
Would it make sense to scale the second plant beyond the size of the NP. One once you derisked the first tranches.
Yes, so here's how I think about it is our problem is how do we grow big hub.
Theres lots of these partners that we're negotiating with wanting to grow faster.
So it makes for an interesting.
It makes reducing time and remember the point of view of everybody is like look you all know how to make the ethanol you know how to decarbonize that shown that how to do it.
The T J it looks like that's Derisk technically this is all about capital deployment growth.
How do we do that math and you still got this who built things first in all that alright.
One is based on 100 million gallon ethanol plant design. It is going to be a modified ethanol plant, where we've really decarbonize the ethanol plant to lower the Ci score through all kinds of little techniques that trade secret Knowhow stuff that we're doing.
It's integrated to the Atg plant.
Based on the access design that we're modifying.
Add that all looks really good but you know what that's going to be designed it's cookie cutter. It could go apply that plant design.
Straight to any other 100 million gallon plant.
However that other 100 million gallon ethanol plant at some other site would also need to get decarbonize because ethanol plants generally are not decarbonize.
But we have that design, so think of it as the turnkey type.
Plant that we could deliver it that we just talked with engineers today about how to build that in modules in such a way that we can do that sort of thing doesn't really quickly. So that's one path. These things, but the trick is you got to have people kind of partners than on the ethanol side, who have true decarbonize plant, we're going to have to help them do that by bringing in.
Renewable energy.
That's one threat of growth that we see that's viable.
We have projects and developments on that front.
You have another one which is as the two that we referred to it it's planned to be a three times bigger than SD Wan.
And the reason we're doing that is because we wanted to get to scale quicker and there is some certain sites that we've identified that are way the heck better than others in our opinion.
And they are suitable for much much bigger plans given all things considered in the access to the fossilized energy.
And of course that same size plant design.
Applies to those ATM type plants to the same size. So we see that there's leverage in that size of that three times. The size scale, there's leverage in that that we can use with others here and ex U S.
And so that's how we think about it so think about it as NZ. One is based on 100 million gallons of ethanol, making 60 plus million gallons of hydrocarbons.
<unk>.
And the two would be three times that three 8 million gallons of ethanol converted into 180 plus million gallons of hydrocarbons, but yes, those two designs at pretty much can accommodate.
Whatever's needed anywhere and that's how we're thinking about it.
And so.
The answer is yes, as he chooses going be the plan is three times bigger thats all working at because then we're already half the 100 million gallon.
Version in the bag.
So now that we're working on the bigger.
And Pat just on that three X design.
Is there capital efficiency gains to be had with that incremental scale.
Can quantify at this point.
No we just not worth it because whatever I say I may be wrong, and everyone's going to Pat said, this and it's wrong and so yes. There is it's not worse.
Few standard engineering roles, you can figure it out, but ballparks, but it will come down to the details of how we do it.
But the answer is yes, there is going to be advantaged. It gives very attractive economic returns in general.
ATK portion of skills better than ethanol ethanol is got some efficiencies.
Two substantial.
Yeah.
Alright, thank you.
For questions right now so I would like to turn it back over to Patrick Gruber for closing remarks.
Sure. Thanks, Yeah. So thanks again for joining us this afternoon and look forward to see you folks.
As with you at the conferences in the coming quarters will be lit and I on the road along with John Richardson.
Talking to folks and educating people it can be very interesting to see how our platform fundraising turns out there's lots of interest has been a lot of money sitting on the sidelines hopefully people get it going and get it deployed our SD Wan Crouch is making very good progress.
The engineering is coming together the engineering firms are all working well with us So I feel really good about that.
In our life turned my attention as to how to locate and how does it play a bit and who are we playing with and what strategic slate what financial strategic play. So it's a very interesting game that we have to sort out that's what's in front of us.
Got to go make happen.
Okay.
Bigger than a little Opdivo. It's Gotta go play the game and we are lucky and fortunate and we did a good job getting ourselves positioned where we have very good technologies to make SaaS and their proven that a holdup scrutiny to 81. So we feel really good about all of that and get out so far.
Forward to seeing you guys in person wherever we can and then with the onset of holiday season directly head I wish you all.
Happy early happy holidays, so a bit early and in the meantime, if you have further questions.
Please reach out John Richardson, John could corral Lynn or myself.
And follow up with you if needed.
With that we conclude the conference call. Thank you.
Sure.
[music].
[music].
[music].
Good day, and thank you for standing by and welcome to the <unk> third quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to answer or to ask a question. During this session you will need to press star one.
One on your telephone keypad, and then you will hear an automated message advising you that you had it right.
Due to time would only like to ask one question and one follow up.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to our speaker today, John Richardson go ahead John .
Good afternoon, everyone.
This is John Richardson.
<unk> director of Investor Relations.
For joining us to discuss <unk> third quarter results for.
For the period ended September 32022.
I would like to start by introducing today's participants from the company.
With us today are Dr. Patrick Gruber, <unk>, Chief Executive Officer and Lee.
Lynn Smull <unk> Chief Financial Officer.
Earlier today, we issued a press release that outlines the topics we plan to discuss our.
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 the timing.
<unk> engineering.
Financing and construction will achieve a sustainable aviation fuel projects.
Sales agreements, it's renewable natural.
Natural gas projects and other activity as 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.
Following the prepared remarks time permitting.
We will open the call to your questions.
I would like to remind everyone that this conference call is open to the media 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 Tivo, Dr. Patrick Gruber.
Thanks, John Good afternoon, everyone and thanks for joining us on our call.
We filed our Form 10-Q earlier today, and we ask that you refer to it for more detailed information.
It's been a tumultuous year, so far it's in the financial markets and there will likely be more to come over the next few quarters.
Although our stock price is disappointing to me and to our shareholders. Our balance sheet is in great shape and <unk> team is focused on pushing forward with our net zero development plans, which I will talk about shortly.
Confident that the value of what we are doing we will begin to be reflected in <unk> stock price as we continue to move forward with the growth of our business and the deployment of our net zero plants starting of course with net zero one.
In the meantime, our business development team continues to see strong demand for low carbon drop in fuels from the commercial airline industry as well as from trading arms of some large integrated oil and gas companies.
It doesn't look like there is enough supply.
Coming in the future based on the <unk>.
Publicly announced projects that we know of.
I believe the airline industry will need every gallon of low carbon dropping fuels that can be produced and more as demand will likely grow exponentially over the next few years scalability substantially derisked, the low cost technology and Verifiably low greenhouse gas emissions across the value chain are what's important and we have.
All of that at G, though the strong position to be in.
As we noted in our company update several weeks ago, Jabil has more than 375 million gallons per year.
<unk> take or pay fuel supply agreements in place with high quality third parties.
These agreements represent approximately $2 3 billion and expected annual revenue based on current market projections and assumptions. These agreements are critically important to satisfy the requirements of potential lenders that we are working with to provide.
Project level debt financing for our net zero build out.
I'm pleased to tell you that we have begun to generate revenue from our northwest, Iowa R&D project. The biogas production has been going well and we are still debottlenecking equipment to maximize volumes.
We have begun collecting data on gas quality effort volumes, which are needed by car to getting approved pathway under <unk>.
Already have approval for <unk>.
I expect that the project will begin generating a meaningful volume of Rins and January of 2023, However, LCR <unk> crafts will probably lag.
That by at least six months because of the backlog at car to get the necessary approvals.
Our R&D team has worked tirelessly to ensure this project stayed on schedule and I believe that we have built a state of the art R&D operation in northwest, Iowa, and it's performing well.
In September we had the groundbreaking ceremony at our net zero wide project location and Lake pressed in South Dakota, and one is our first commercial scale net zero carbon sustainable aviation fuel plant construction has begun as it always does with site preparation.
We want to get the ground prepared so that we can move quickly in 2023 once engineering has progressed far enough to start full construction and once the ground thaws out.
We expect to start construction early next year with a limited notice.
Supersede even in advance of the full financial closing, which itself should happen sometime in the middle of 2023.
We intend to keep the project on schedule by beginning construction with Jabil paying the bills as needed before the financial close.
That will ultimately fund the complete construction of that 301.
We currently project that we are on track.
For a 2025 full production startup.
We've had some good news of late the supply chain bottlenecks seems to have plateaued for now while most of the issues around transportation delays have improved and are projected to continue to improve while obviously this is really important for a capital project.
Additionally, cost of some materials and long lead items look like they are starting to stabilize think about steel and the other components that can go into a project like ours. It starting to flatten out. This is good our capital cross projections look reasonable and expect a more stable price environment and materials availability as we move through next year.
And as the one in addition to using renewable energy to drive our Ci score down we intend to use carbon sequestration. The plan is to capture the seer to produce through implementation for biotech is carbon and geologically sequestered.
We recently reached an agreement with Carb summit carbon solutions, one of the leaders in the space. Some of it is expected to provide <unk> with Sidoti pipeline access to transport it safely dispose of the <unk> produced and captured during our SaaS production process.
When combined with sustainable agricultural practices, we believe our SaaS will have a negative ci score as measured using our greed.
Negative that's real good.
We expect to be the leader in low carbon Saf production.
Given the off take agreements that we've signed up it's clear that we're going to need capacity.
Beyond <unk>, we have a good plan in place upon which we're executing this plan includes greenfield and brownfield sites, along with partners, who are interested in developing advancing projects, we aren't ready to disclose the details of the separate yet, but it's really exciting.
We believe we are developing a reliable path to growth with ready access to the capital that we will need for these projects, while minimizing dilution to our shareholders by deploying capital at subsidiaries below <unk>, Inc.
We expect that the capital for these projects will be gathered at one of our project or platform companies below Tivo, Inc level.
We expect <unk> will maintain a controlling interest in these companies.
And the only balance sheet impact jabil would be its equity interest in the project and platform companies.
Our net zero to site selection process has been active for several months that we have narrowed down the potential locations to a handful of very attractive sites based on a variety of factors key. Among these factors is reliable access to low carbon energy for process energy needs and abundant low carbon feedstock for ethanol that source.
Borrowers with favorable farming practices, we're not ready to discuss the details around the status of these projects yet.
Because many of the fundamental details still need to be finalized.
And then we don't want to tip, our hand too early anyway. We're excited to have such a strong portfolio of locations identified for future <unk> projects.
Tracking of carbon and carbon reduction is essential and critically important to our business to that end, we've been making progress on verity tracking Verity tracking is a system to track carbon beginning from the far practices through land use the energy use production across the whole value chain and after the wing of jet.
And even efforts bird <unk>.
To use a distributed ledger technology also known as blockchain technology. The idea is to make our carbon values complete traceable trackable and beautiful it valuable.
The USDA agrees, it's a good idea they have selected us for a grant to $30 billion to help develop the system. We are still negotiating final detailed with a grant, but we expect to accelerate the programs with this money.
I can tell you that very resonates in the marketplace. The idea of tracking carbon from farm level forward into products has been discussed by lots of people, but the question is that how best to do it but we think we have a good answer for that and Thats very tracking we recognized severity tracking is relevance beyond our own ATK process and can provide value to other jet processes biofuel to even food.
I think we're already tracking has potential to be an attractive standalone business in its own right and we plan on further investing in developing this business.
I am pleased with the progress that we've made over the last year and a half on <unk> goal to Decarbonize. The aviation industry. This deflationary environment has been a settling and it has impacted our expected capital costs are and see what they've gone up some but we have it budgeted now how.
However, the macro environment for low carbon fuels that stayed strong and project returns appear to even be better than we originally thought the project returns are even better than we expected before.
The momentum for the momentum behind our efforts has never had such.
Our level of broad based support as we do now and I believe that it won't change.
With any potential political reshuffling that happens over the next few years.
The need for net zero fuels, whether the <unk> and the goal to reduce carbon emissions has been generally acknowledged included by <unk>.
As in the fossil fuel industry.
We know the path to success and I'm confident that we have the right people internally and the right partnerships externally to achieve our affiliated gallon per year goal by 2030.
Now I'll turn the call over to Lynn to comment on the quarter's financial highlights.
Thanks Pat.
We ended the third quarter of 2022 with a strong liquidity position of 500.
$4 million in cash restricted cash and other liquid investments.
Restricted cash totaled $76 9 million and is associated with the northwest, Iowa, RMB bonds and certain collateral related to the development of net zero one.
Long term debt outstanding of $67 million is related to the north with dial R&D project.
Our corporate spend that as SG&A was approximately $7 5 million for the quarter net of noncash stock based compensation of $3 6 million.
During the third quarter of 2022, we invested in capitalized $22 5 million in cash.
And capital projects comprised of $15 million into our net zero, one project $7 3 million into the northwest, Iowa, RMG project and approximately $2 million into other capital projects.
Earlier in the year, we began the process of suspending production at the <unk> facility in order to focus our intention on the net zero program planning design and financing.
During the third quarter, Laburnum was idle and placed into care and maintenance status to be used for marketing testing and R&D purposes.
This change combined with Lavern history of operating losses drove an accounting requirement to perform an impairment testing on the value of the asset.
The test indicated that an impairment existed and required that the assets be written down to their estimated fair value.
For the three and nine months ended September 32022 <unk>.
$24 $7 million impairment charge represents a lower large portion of the basic and diluted net loss per share accounting for 10 and 11, respectively.
We are progressing our net zero build program and are in the process of seeking debt in equity partners for net zero, one and projects beyond the flagship project.
Third party debt and equity financings for the program are being structured on a non dilutive basis at the asset level rather than at Jabil, Inc.
The equity outreach is going well with the substantial market interest and we expect to secure one or more investors as a result of those efforts.
So net zero or one that process is underway with a dual tracking of commercial that sourcing and guaranteed loan sourcing both tracks are progressing well and we expect the secured nonrecourse debt for the plant construction sometime around mid 2023.
As Pat mentioned, we continue to extend development and engineering capital to progress the project and maintain its timeline in advance of secured with debt.
Now I will turn the call back to Pat.
Thanks, Glenn operator, please open the call for Q&A.
Alright. Thank you at this time, we will conduct a question and answer session.
As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced but limited time, we only have time for one question and a follow up so please standby, while we compile the Q&A roster.
Our first question comes from the line of Derrick Whitfield from Stifel Go ahead, Eric.
Thanks Al and good afternoon.
Hey, Doug.
Sure.
My first question I wanted to ask if you could offer a general update on the ATM and Chevron partnerships.
Sure so with Chevron.
We've had the discussion we extended the contracts with them or the letter of intents with them and so that'll be an ongoing discussion. We just didn't want to put it out there as a public.
Given the turmoil thats going on in all the Ras plus we don't want to get boxed into it. So those are still ongoing discussions.
Regarding ADM same kind of thing, we're working with those guys and making progress on things and both projects are really big and so we can't do that by ourselves and so that was going to be slightly more complicated to do.
But it's plugging along and making progress our fate doesn't depend upon either one of those it isn't intended to our fate depends upon NZ one.
Z to building those out.
Along with the other sites, where we work with brownfield ethanol plants and there is a number of those that are attractive. So we look at it as a point of view of those both big ADM assets are great love to see them happen, but you know what other giant projects.
I am not bet the ranch on those because of the Timeframes of things I've got to go get stuff built we have.
Actually it's closer to 400 million gallons.
Contracted take or pay jet fuel and what we've got to go get it done and get built out and play with people are going to get it done in time for the network.
Terrific and as my follow up I wanted to ask on the summit carbon solutions agreement are there any general economic parameters you could share with us on your take of the environmental attributes inclusive of the IRS 45 Q.
I don't think its appropriate to comment on it because we've done so many deals with so many people and I don't want to think misinterpreted, but it's a good deal it's a fair deal for us.
<unk> needs to make sure that we have.
Ci scores and the value associated with that.
It works out economically attractive.
For both of us both them and us.
Perfect. Thank you for your question. Our next question comes from the line of Shawn Severson water Cowen Research go ahead Sean.
Good afternoon, everyone.
And Pat I was wondering I know you can't talk about specifics, but can you give some color on how the strategics are viewing this as.
As you are looking for investors.
But even on the tablet.
What's the what's the buzz.
Each month of interest on this versus.
Yes.
Well, we have one of the very important points that I want all shareholders to understand is that we don't like our stock price up here at Jabil and <unk>.
I don't want to do more dilution right. So how do you skin that cat yet we have to raise a bunch of money to go build out plans and projects. So the good news is is that we have.
Lots of demand for the product that's firm and committed and these offtake agreements.
We intend to raise money at what we call a platform level beneath djibo, it's a private company level. There we would take funds in to a private company.
Ed.
That would.
That private company beneath us would go about building these projects and adding that to the each project.
Guggenheim and city are co leads on the banking exercise we're in the midst of the process is going good there's lots of interest it gives great comfort to everyone that we're working with accidents, which is the most prudent.
Certain technique alcohol to jet they like how we think about it with how to drive the carbon scores down in EBIT negative.
Forgetting the partnerships together they all can see those people interested can see the pipeline of sites and the potential economics, which are attractive.
I think I predict we're going to be successful at this and raise money and bring in some really good partners and the debt solutions. We would expect these people to participate in a tier one to a degree and we'd also we're making progress on the debt as well we brought in <unk>.
Bankers in addition to Citi for that city.
Nomura Greentech Nomura Green Tech.
And.
That's going well too. So there is lots of interest in the space people don't know what to do with their money there arent that many solutions that can work its about.
Showing that all can be properly derisked put into a project format getting the financing and as I said.
This isn't selling stock at the <unk> level, that's not what this is this is about investing down beneath gibeau.
Projects are groups of projects.
My follow up to that is when you look at the equity side.
And we want to going forward.
Something that we should expect to have more equity partners or does it seem like you have one big check written from Egypt.
<unk> global web or they are going to be two or three.
Just the nature of what we're seeing now.
We are testing the waters.
Well I think that would be the check.
I don't know exactly how the structure of that yet.
Excuse me.
It would come from the platform company.
We've pushed some of our money down a platform company throughout the other investors in the platform company collectively they push money down to the project and the one that's why right.
Right.
That's what I'm trying to understand as you put your equity and then would you expect to have like two or three other partners per plant or do you think that goes with very strategic writing big checks along with you at the plant level, but the equity.
I think what it would be is the platform itself a platform company.
As investors, we are committed to investing in <unk> and additional ANZ projects.
And how that capital was in how much actually gets spent is up specifically of how much is ours versus theirs.
And how many people participate well that's part of the sausage, making that we're doing.
So gosh, we got to build out 400 million gallons over the next five years and that's like what eight plants equivalent size of ANZ. One that's one area of a lot of money that's going to probably not.
Not one bet.
Just one partner that's going to take multiple partners working together to go deploy that.
Maybe.
Great.
And I think if you pull out.
Just going to say, it's $3 billion to $4 billion three.
$3 $5 billion of equity the parties, we're talking through many of them can certainly write a check for one of their own but we have we're.
We're getting into quite a bit of interest so.
Up to accommodate as many people.
As we can on terms that work for us.
And just as a reminder to ask a question. Please press star one on your telephone keypad to be put in place.
Our next question comes from Amit Dayal.
Thank you.
Hello go ahead Amit go ahead. Thank you. Thank you good afternoon, everyone.
But just in terms of the cash outlay for the next say 12 months.
How should we think about your needs on that front coming up.
What are your plans in terms of.
With gas.
Usage over the next few quarters.
Yeah.
I'm going to ask that question. So then the huge Russ LOE what are.
The rough expected.
Cash spending would be on SD Wan and <unk>.
Corporate to corporate it would be something of the order of we're running at a rate of about $33 million run rate for our corporate burn.
We will also invest in verity and the growers program, although the bulk of that investment will come with our Boe.
Or sorry, USDA grant.
Which will help to throw a lot of the cost of the development of a verity and forwards program that supports that sort of want to start and other projects down the line.
RMG is.
Completed so that shouldn't be a cash drag it should start generating cash.
And then we get to net zero one and.
I believe that.
Well because.
We will probably enter into a limited notice to proceed.
Detailed engineering and further site work.
To take it to the expected close date the debt.
And third party equity close date.
I could see us putting another.
Probably not.
90, 90 million or so into net sort of want to take it to financial close now we don't intend to leave all of that in the project, we intend to be reimbursed by the project's sources of funding.
For a portion of our development expense. So that we are that you've been in the project.
It's a smaller percentage of the total equity of the project.
But thats kind of the.
The equity needs for nets are one we're also going to be spending.
That drove two.
Possibly met through III development work engineering and such.
That seemed.
A little too early to know the pace and the quantities around those those two projects those two and three.
So the levers we have to moderate things that we're going to wind up driving hard for ANC, one get it all de risk at the engineering schedule.
Get the site work go on mature getting equipment order that needs to be ordered and moving it ahead as we hold the overall timelines and get ourselves in close kind of the mid year of 2023 in that we'll have a decision to take how much money do we take back out of that project because we will have quite a lot of it given the what we spent so far over the years.
Plus what we're about to spend.
Or do we leave it in there and let it ride we could do either one as best upon how we're feeling about the world in China.
And then lids right, we've got to develop work at Etsy to we've already begun that barrier spin.
Real money on that.
Taste it and we have we know that other people are interested in it.
So we'll make that habit to add.
There is other sites that we have to do to this is about when you think about our problem that we have.
Good problem is that we have lots of demand that's contracted with take or pay contracts. We gotta go fulfill those we've got to go build it out and they are ripe for project financing you just got to go get.
That whole system figured out how we go about doing that with the EPC firms and the financing and the debt later it out there and then what the flavor of that <unk> is that we were going to look more and more like a developer licensor, which is good.
Those are good they get higher returns for dogs.
And maybe someday the global change and we could have money up at our corporate balance sheet.
But the reality is we're going to use our money wisely and leverage it to leverage the heck out of it with others and attempt to grow that's what we're going to go do.
Thank you for that.
And then.
And just one final one for me.
With respect to the R&D revenues and cash flows should we assume for any <unk>.
Is where you can get that drove the 60 million that you have been expecting from this deployment.
Well, that's an annualized run rate expectation of EBITDA.
Because of the play of.
Delay in receipt of cash through the <unk> in particular, because harvest pretty slow and a pathway takes time.
<unk>.
Annualized run rate, probably won't be fully realized in 2020 because of that delay. So we won't see all of that money it won't be the full annualized run rate.
So we will see a chunk of it.
We don't have a clear view as to how much of a chunk that we will see.
In 2023, it will be it is going to contribute it'll be noticeable that's what I would expect but it's not going to be the full amount 22 acre given the timing of everything in the way that all of the accounts work.
For the El CFS.
Alright. Thank you for your question again, if you would like to ask our presenters no questions. Please press star one on your telephone right now.
Todays tax question.
And we Havent Derrick Whitfield again, asking for another question go ahead Jack.
Yes.
Wanted to ask another question is gone.
The off takes and the contractual obligation associated with those agreements.
Even your commercial success signing.
Yes.
What are your thoughts on the progression of plants.
One 1 billion.
The investor would happen.
Would it make sense to scale the second plant beyond the size of the NP. One once you Derisk the first project.
Yes, so here's how I think about it is our promise how do we grow big hub growth.
Theres lots of these partners that we're negotiating with wanted to grow faster.
So it makes for an interesting.
It makes reducing time and remember the point of view of everybody is like look you all know how to make the ethanol you know how to decarbonize that showed that how to do it.
The T J it looks like that's Derisked technically this is all about capital deployment growth how do we do that math and you still got to go build things first an OLED alright.
One is based on 100 million gallon ethanol plant design. It is going to be a modified ethanol plant, where we've really decarbonize the ethanol plant to lower the Ci score through all kinds of little techniques that trade secret Knowhow stuff that we're doing.
It's integrated to the Atg plant.
That's based on the actual design that we're modifying.
And that all looks really good but you know what that's going to be designed it's cookie cutter. It could go apply that plant design right straight to any other 100 million gallon plant.
However that other 100 million gallon ethanol plant at some other site would also need to get Decarbonize the kind of thing.
All plants generally are not decarbonize.
But we have that design, so think of it as a turnkey type.
Plant that we could deliver it that we just talked with engineers today about how to build that in modules in such a way that we can do that sort of thing doesn't really quickly. So that's one path. These things take but the trick is you got to have people kind of partners than on the ethanol side, who have true decarbonize plant, we're going to have to help them do that by bringing in.
Renewable energy.
One threat of growth that we see that's viable.
We have projects and developments on that front.
Another one which is as the two that we referred to it it's planned to be a three times bigger than SD Wan.
And the reason we're doing that is because we want to get to scale quicker and there is some certain sites that we've identified that are way the heck better than others in our opinion.
And they are suitable for much much bigger plans given all things considered in the access to the fossilized energy.
And of course that same size plant design.
Applies to those ATM type plants. The same size. So we see that there's leverage in that size of that three times. The size scale, there's leverage in that that we can use with others here and ex U S.
And so that's how we think about it so think about it as <unk> is based on 100 million gallons of ethanol, making 60 plus million gallons of hydrocarbons.
<unk>.
And the two would be three times that three 8 million gallons of ethanol converted into 180 plus million gallons of hydrocarbons, but yes, those two designs at pretty much can accommodate.
Whatever's needed anywhere and that's how we're thinking about it.
And so.
The answer is yes as he choose it can be the plan is three times bigger Thats what were working on because then we're already half the 100 million gallon.
Version in the bank.
So now that we're working on that bigger.
And Pat just on that <unk> design.
Is there capital efficiency gains could be had with that incremental scale.
Can quantify at this point.
No it's not worth it because whatever I say I may be wrong and everyone's going to go past said this and it's wrong and so yes. There is it's not worse.
A few standard engineering roles, you can figure it out, but ballparks, but it will come down to the details of how we do it.
But the answer is yes, there is it's going to be advantaged. It gives very attractive economic returns in general.
ATK portion feels better than ethanol ethanol is got some efficiencies.
Two substantial.
Yes.
Alright, thank you.
Thats all my questions right now I would like to turn it back over to Patrick Gruber for closing remarks.
Sure. Thanks, Yeah. So thanks again for joining us afternoon, and look forward to see you folks.
As with you at the conferences in the coming quarters will be lit and I on the road along with John Richardson.
Talking to folks and educating people it can be very interesting to see how our platform fund raising turns out there's lots of interest has been a lot of money sitting on the sidelines hopefully people get it going and get it deployed our SD Wan crop is making very good progress. The engineering is coming together the engineering firms are all working well with us So I feel really good about that.
And our I turn my attention as to how to locate and how do we play a bit and who are we playing with and what strategic play what financial strategic play. So it's a very interesting game that we have to sort out that's what's in front of us.
We've got to go make happen.
Okay.
It's bigger than little Opdivo has got to play the game and we are lucky and fortunate and we did a good job and getting ourselves in a position where we have very good technologies to make SaaS and their proven that a holdup scrutiny to 81.
So we feel really good about all of that and get out of it so far.
Forward to seeing you guys in person wherever we can and then with the onset of the holiday season directly head I wish you all.
Happy early happy holidays, so a bit early and in the meantime, if you have further questions.
Please reach out to John Richardson, John Kip, Corral Lynn or myself.
And follow up with you if needed.
And with that we conclude the conference call. Thank you.