Q2 2024 Gevo Inc Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to the Gevo Incorporated Q2 2024 Earnings
Operator: Welcome to the 2024 Earnings Conference Call. At this time, all participants are in a 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 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Dr. Eric Frey, Vice President of Finance and Strategy. You may go ahead.
Speaker Change: conference call.
Speaker Change: At this time, all participants are in a 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.
Speaker Change: Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Dr. Eric Frey, Vice President of Finance and Strategy. You may go ahead.
Eric Frey: Good afternoon, everyone. This is Eric Frey, Vice President of Finance and Strategy. Thanks for joining us to discuss Gevo's second quarter results for the period ended June 30, 2024. I'd like to start by introducing today's participants from the company. With us today are Dr. Patrick Gruber, Chief Executive Officer, and Lynn Small, Chief Financial Officer. We also have Dr. Paul Bloom, Chief Carbon Officer and Chief Innovation Officer, joining us today.
Speaker Change: Good afternoon, everyone. This is Eric Frey, Vice President of Finance and Strategy. Thanks for joining us to discuss Gevo's second quarter results for the period ended June 30, 2024. I'd like to start by introducing today's participants from the company. With us today are Dr. Patrick Gruber, Chief Executive Officer, and Lynn Small, Chief Financial Officer.
Speaker Change: We also have Dr. Paul Bloom, Chief Carbon Officer and Chief Innovation Officer, joining us today.
Eric Frey: 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.gevo.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.
Speaker Change: Earlier today, we issued a press release that outlines the topics we plan to discuss.
Eric Frey: Those statements include projections about the timing, development, engineering, financing, and construction of our sustainable aviation fuel projects, our recently executed agreements, our renewable natural gas project, and other 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.
Speaker Change: A copy of this press release is available on our website at www.gevo.com.
Speaker Change: 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.
Speaker Change: Those statements include projections about the timing, development, engineering, financing, and construction of our sustainable aviation fuel projects, our recently executed agreements, our renewable natural gas project, and other activities described in our filings with the Securities and Exchange Commission, which are incorporated by reference.
Speaker Change: We disclaim any obligation to update these forward-looking statements. In addition, we may provide certain non-GAAP financial information on this call. The relevant definitions and GAAP reconciliations may be found in our earnings release, which can be found on our website at www.gevo.com in the Investor Relations section.
Eric Frey: In addition, we may provide certain non-GAAP financial information on this call. The relevant definitions and GAAP reconciliations may be found in our earnings release, which can be found on our website at www.gevo.com in the investor relations section. Following the prepared remarks, we'll open the call for questions. I'd 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 of this call and other past events will be available via the company's investor relations page at www.gevo.com. I'd now like to turn the call over to the CEO of Gevo, Dr. Patrick Gruber. Pat? Thanks.
Speaker Change: Following the prepared remarks, we'll open the call for questions. I'd 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 of this call and other past events will be available via the company's investor relations page at www.gevo.com.
Patrick Gruber: Thanks, Eric. Good afternoon, everybody, and thanks for joining us on our call. We are filing our Form 10-Q today, and we ask that you refer to it for more detailed information after this call. Now, at the outset of the year, we outlined three areas on which we will report. Net Zero One, DOE Loan, and Project.
Speaker Change: I'd now like to turn the call over to the CEO of Geo, Dr. Patrick Gruber.
Speaker Change: Thanks Eric. Good afternoon everybody and thanks for joining us on our call. We are filing our Form 10-Q today and we ask that you refer to it for more detailed information after this call.
Speaker Change: Now at the outset of the year, we outlined three areas on which we will report, Net Zero One, DOE Loan, and Project Financing.
Patrick Gruber: Achieving revenue from Verity and our R&G business. Today, we'll give up the, Now, we believe that each of those things can create tremendous value for us. And, of course, the first two are game-changers.
Speaker Change: Achieving Revenue from Verity, and our R&G business.
Speaker Change: Today we'll give updates on each of those.
Speaker Change: Now we believe that each of those things can create tremendous value for us, and of course the first two are game changers.
Patrick Gruber: So from the outside, it might seem like we've been kind of quiet. But here on the inside, there's been an incredible amount of work in progress. Now, we're not permitted to talk about specifics regarding the DOE loan process.
Speaker Change: So from the outside, it might seem like we've been kind of quiet.
Speaker Change: But, here on the inside, it's been an incredible amount of work in progress. Now, we're not permitted to talk about specifics regarding the DOE loan process.
Patrick Gruber: I can say that the amount of diligence work required is truly impressive and thorough. There are a lot of third parties who are hired by the DOE to poke holes in what we are doing. Everybody's working hard, staying on task. It's on track, and so we can finally give better guidance. We are working to get, and we expect the project finance of Grand V1 to be closed by the end of the year.
Speaker Change: I can say that the amount of diligence work required is truly impressive and thorough. There are a lot of third parties who are hired by the DOE to poke holes in what we are doing. Everybody is working hard, staying on task.
Speaker Change: It's on track, and so we can finally give better guidance.
Speaker Change: We are working to get, and we expect, the Project Finance of Grand V1 to be closed by the end of the year.
Patrick Gruber: That's pretty important from the point of view that we can finally, We very much look forward to that and to being able to announce everything else we are working so hard on. So stay tuned. But we also have good news on the NZ1 development cost. Lynn Small, our CFO, is going to give an update on that and our operations. Then Paul Bloom will talk about our progress on our
Speaker Change: A pretty important point of view that we can finally articulate.
Speaker Change: We very much look forward to that, and to being able to announce everything else we are working so hard on. So stay tuned.
Speaker Change: But we also have good news on the NZ-1 development costs. Lynn Small, our CFO , is going to give an update on that and our operations. Then Paul Bloom will talk about our progress.
Paul Bloom: on our Verity business.
Lynn Small: As Pat mentioned, we are excited to report that the U.S. Department of Energy loan guarantee process is progressing as expected, and we are targeting a financial close by the end of 2024. We are also pleased to report that our total NZ1 development spend to financial close is tracking under the range of $90 to $125 million that we disclosed earlier this year for the spend expected between January and financial close. At financial close, we expect all of Gevo's cumulative development capital expenditure to be recovered, and then all or a portion of that recovery to be contributed as equity alongside the third-party debt and equity funding commitments that are necessary to fully construct and commission the project.
Paul Bloom: Wim?
Wim: Thanks, Pat.
Wim: As Pat mentioned, we are excited to report that the U.S. Department of Energy loan guarantee process is progressing as expected, and we are targeting a financial close by the end of 2024.
Lynn Small: We are also pleased to report that our total NZ1 development spend to financial close is tracking under the range of $90 to $125 million that we disclosed earlier this year for the spend expected between January and financial close.
Speaker Change: At financial close, we expect all of Gevo's cumulative development capital spend to be recovered and then all or a portion of that recovery to be contributed as equity alongside the third-party debt and equity funding commitments that are necessary to fully construct and commission the project.
Lynn Small: After financial close for the project, we do not expect to incur additional cash expenditure during the construction phase. Net Zero One's financial close will be a game changer for us. It's been a long road, but if things continue the way they are going now, then we believe we are in the homestretch.
Speaker Change: After financial close for the project, we do not expect to incur additional cash spend during the construction phase.
Speaker Change: Net Zero One's financial close will be a game changer for us. It has been a long road, but if things continue the way they are going now, then we believe we are in the home stretch. We look forward to sharing more details soon.
Lynn Small: We look forward to sharing more details. Regarding results of operations, in the second quarter of 2024, the R&G business's de-bottlenecking and expansion projects allowed the project to achieve an annualized production rate of approximately 400,000 MMBTU, an increase of approximately 22% compared to the same period last year. We sold approximately 95,000 MMBTU of RNG during Q2. R&G revenue of $4.3 million for Q2 included R&D sales of $0.1 million, and $4.2 million net proceeds from the sale of environmental attributes related to our environment. Gevo's Q2 combined revenue and interest income was $9.4 million.
Speaker Change: Regarding results of Operation, in the second quarter of 2024, the R&G Businesses D-Bottle Making and Expansion Projects allowed the project to achieve an annualized production rate of approximately 400,000 MMB to you, and increased of approximately 22% compared to the same period last year.
Speaker Change: We sold approximately 95,000 MMBTU of RNG during Q2.
Speaker Change: R&G revenue of $4.3 million for Q2 included R&G sales of $0.1 million and $4.2 million net proceeds from the sale of environmental attributes related to R&G.
Speaker Change: Jebo's Q2 combined revenue and interest income was 9.4 million. Our corporate spend that is SG&A, with 7 million for the quarter, excluding non-cash, spot-based compensation of $4.5 million.
Lynn Small: Our corporate spend, that is, SG&A, was $7 million for the quarter, excluding non-cash stock-based compensation of $4.5 million, which is a 0.4 million increase from the second quarter of 2023 mainly due to increased personnel costs. We ended the second quarter of 2024 with a liquidity position of $315.3 million in cash, restricted cash, and other liquid investments. The restricted cash portion is $69.6 million, and collateralized is our RNG bond letter of credit.
Speaker Change: which is a 0.4 million increase from the second quarter of 2023, mainly due to increased personnel costs.
Speaker Change: We ended the second quarter of 2024 with a liquidity position of $315.3 million in cash, restricted cash, and other liquid investments.
Speaker Change: The restricted cash portion is $69.6 million and collateralized our RNG bond letter of credit.
Lynn Small: During the six months ended June 30, 2024, we had $26.7 million in cash used in investing activities, comprised of $15.3 million for NZ1 development, $9.9 million in the NZ program for modularization, design, and engineering work, $1 million in the R&G project, and about half a million in skid transportation costs.
Speaker Change: During the six months ended June 30, 2024, we had $26.7 million in cash used in investing activities.
Speaker Change: comprised of $15.3 million for NZ1 development, $9.9 million in the NZ program modularization design and engineering work, $1 million in the R&G project, and about a half a million in skid transportation costs.
Paul Bloom: Gevo continued to utilize its previously announced Stock Repurchase Program in Q2, and year-to-date, through August 8, 2024, we've repurchased approximately 7.2 million shares of our common stock for 4.7 million, leaving 20.3 million available under the Stock Repurchase Program. Please note that under the Stock Repurchase Program, we may purchase shares from time to time in the open market or through privately negotiated transactions. However, we are subject to various restrictions on our ability to buy back our shares, such as blackout periods under our insider trading policies when we have earnings coming up, or we have other material non-public information.
Speaker Change: Gevo continued to utilize its previously announced stock repurchase program in Q2.
Speaker Change: And year-to-date through August 8, 2024, we've purchased approximately 7.2 million shares.
Speaker Change: of our Common Stocks for $4.7 million, leaving $20.3 million available under the Stock Repurchase Program.
Speaker Change: Please note that under the stock repurchase program, we may purchase shares from time to time in the open market or through privately negotiated transactions.
Speaker Change: However, we are subject to various restrictions on our ability to buy back our shares, such as blackout periods under our insider trading policies when we have earnings coming up or we have other material non-public information.
Paul Bloom: There are also restrictions on the intraday timing and maximum volumes we can repurchase on any given day. The timing, volume, and nature of future stock repurchases, if any, will be at our sole discretion and will be dependent on market conditions, applicable security laws, and other factors. I will now hand it over to Paul Bloom, our Chief Carbon Officer and Chief Innovation Officer, to share the latest on our wholly-owned subsidiary, Verity Holdings,
Speaker Change: There are also restrictions on the intraday timing and maximum volumes we can repurchase on any given day. The timing, volume, and nature of future stock repurchases, if any, will be our sole discretion and will be dependent on market conditions, applicable security laws, and other factors.
Paul Bloom: I will now hand it over to Paul Bloom, our Chief Carbon Officer and Chief Innovation Officer, to share the latest of our wholly owned subsidiary, Verity Holdings, LLC.
Paul Bloom: Lynn. Verity is our digital end-to-end carbon accounting tech startup that we launched a few years ago and then formed our wholly owned subsidiary, Verity Holdings LLC, earlier this year. Originally, we designed Verity to track and prove the carbon intensity of Gevo's SAF production from field to seat on the aircraft. Starting in 2023, we opened up our proprietary platform to provide carbon accounting and supply chain traceability solutions to other biofuel producers, farmers, and value chain partners.
Paul Bloom: Thanks Lynn. Verity is our digital end-to-end carbon accounting tech startup that we launched a few years ago and then formed our wholly owned subsidiary Verity Holdings LLC earlier this year.
Speaker Change: Originally, we designed Verity's track and prove the carbon intensity of Givo's south production from sealed to seat on the aircraft.
Speaker Change: Starting in 2023, we opened up our proprietary platform to provide carbon accounting and supply chain traceability solutions to other bio-filled producers, farmers and value chain partners.
Paul Bloom: Verity plans to derive the majority of its revenue from software as a service or SAS fees and profit sharing with biofuels partners, while helping to reward farmers for reducing their carbon footprint with climate smart agriculture done right. As previously mentioned, we anticipate our first revenue at Verity this year, and we'll share more details as that happens. We have a number of updates on Verity in the second quarter, and I'll cover those now. But first, I'd like to highlight our efforts in product enhancement.
Bearity: Verity plans to derive the majority of our revenue from software-as-a-service, or SAS fees, and profit-sharing with biofuels partners while helping to reward farmers for reducing their carbon footprint with climate-smart agriculture done right.
Speaker Change: As previously mentioned, we anticipate first revenue at Verity this year, and we'll share more details as that happens.
Speaker Change: We have a number of updates on Verity in the second quarter and I'll cover those now.
Paul Bloom: Verity is working with Google to accelerate the integration of artificial intelligence, known as AI, into our platform. We're very excited about this as AI is expected to provide an improved customer experience and help our users further optimize carbon intensity reductions throughout their business systems and supply chain. The benefits you get from AI make a lot of sense relative to the high-quality, data-driven environment of Verity, and we are thrilled to be working with Google on this initiative. Second, let me highlight a few new collaborations.
Speaker Change: First, I'd like to highlight our efforts on product enhancements.
Speaker Change: Verity is working with Google to accelerate the integration of artificial intelligence, known as AI, into our platform.
Speaker Change: We're very excited about this, as AI is expected to provide an improved customer experience and help our users further optimize carbon intensity reductions throughout their business systems and supply chains.
Speaker Change: The benefits you get from AI make a lot of sense relative to the high-quality data-driven environment severity and we're thrilled to be working with Google on this initiative.
Paul Bloom: Verity and Landis, a leading farmer-owned cooperative, signed a letter of intent to work together to provide full end-to-end low carbon commodity solutions for biofuel producers. We intend to do this by leveraging Landis' deep expertise and outstanding grower network, coupled with our proprietary carbon accounting platform. Landis touches 34 states and 16 countries while serving over 5,500 farmers and their families. In addition, we previously announced that Verity and Clear Flame initiated a collaboration to drive decarbonization traceability from field to fleet for the road transportation market, which consumes an estimated 29 billion gallons of fuel every year.
Speaker Change: Second, let me highlight a few new collaborations.
Speaker Change: Verity and Landis, a leading farmer owned cooperative, signed a letter of intent to work together to provide full end-to-end low-carbon commodity solutions for biofuel producers.
Speaker Change: We intend to do this by leveraging Landis' deep expertise and outstanding grower network, coupled with our proprietary carbon accounting platform.
Speaker Change: Landis touches 34 states and 16 countries while serving over 5,500 farmers and their families.
Speaker Change: In addition, we previously announced that Verity and Clear Flame initiated a collaboration to drive decarbonization traceability from field to fleet for the road transportation market, which consumes an estimated 29 billion gallons of fuel every year.
Paul Bloom: Finally... At the end of the second quarter, Verity had 100% farmer retention in our growers programs, comprising approximately 76,000 acres, which includes Gevo's Farm to Flight USDA Climate Smart Commodities Grant. This represents an increase of 17% from the previously disclosed 65,000 acres. We look forward to the continued progress to drive our field-level tracking well beyond 100,000 acres next year. That's an overview of the major updates on the Verity Front this past quarter. Obviously, there's a lot going on, so I'm happy to answer questions about this to the extent that we can. Now, I'll hand it back over to Pat. Thanks, Paul.
Speaker Change: Finally, as the end of the second quarter, there he had a 100% former retention in our growers programs, comprising approximately 76,000 acres, which includes GVL's farm supply, USDA climate smart commodity grant.
Speaker Change: This represents an increase of 17% from the previously disclosed 65,000 acres.
Speaker Change: We look forward to the continued progress to drive our field-level tracking well beyond 100,000 acres next year.
Patrick Gruber: That's an overview of the major updates on the variety front this past quarter. Obviously there's a lot going on, so happy to answer questions about this to the extent we can. Now I'll hand it back over to Patrick.
Patrick Gruber: Let's next touch on our Renewable Natural Gas business. Now, the project itself is already cash flow positive and helping to cover some of our corporate costs. And that's a great thing.
Patrick Gruber: Thanks, Paul. Let's next touch on our Renewable Natural Gas business.
Patrick Gruber: Now the project itself is already cash flow positive and helping to cover some of our corporate costs, and that's a great thing.
Patrick Gruber: Now, we expanded our capacity from about 350,000 to 400,000 million BTUs per year, and it's been operating well. We're now exploring further expansion through incremental de-bottlenecking in order to achieve an annual RNG production capacity of 500,000 million BTUs per year, and that's with a minimal additional capital expense. We have learned a heck of a lot about that business. It's been tremendous, and the team is doing a great job. We are starting to develop a line of sight for the timeline we can expect to receive approval under California's Low Carbon Fuel Standards, the LCFS program, for our final pathway for the RNG project. It looks like another six to nine months, which we don't like, but you know what? At least we can see it now.
Speaker Change: Now, we expanded our capacity from about 350,000 to 400,000 million BTUs per year and it's been operating well. We're now exploring further expansion through incremental de-bottlenecking.
Speaker Change: in order to achieve an annual R&G production capacity towards 500,000 million BTUs per year. And that's with a minimal additional capital expense.
Speaker Change: Minor.
Speaker Change: We have learned a heck of a lot about that business. It's been tremendous, and the team is doing a great job.
Speaker Change: We are starting to develop a line of sight for the timeline we can expect to receive approval under California's Low Carbon Fuel Standards, the LCFS program.
Speaker Change: for our final pass, wait for the energy project.
Speaker Change: It looks like another six to nine months, which we don't like, but you know what? At least we can see it now. We know it's being worked on.
Patrick Gruber: We know it's being worked on. This would allow WASP to reduce our carbon intensity score for the project to approximately minus 350, as the CI score, rather than the temporary score of minus 150, under which we have been operating with a temporary path. This approval would be expected to significantly increase the revenue from our R&G project. With the final pathway, and if we see a recovery in California carbon prices, the R&G business could get downright exciting, especially with the expanded capacity.
Speaker Change: This would allow us to produce a carbon intensity score for the project to approximately
Speaker Change: as a CI score rather than the temporary score of a minus 150 under which we have been operating with temporary pathway.
Speaker Change: This approval would be expected to significantly increase the revenue from our R&G project.
Speaker Change: with the final pathway, and if we see a recovery in California carbon prices, the RNG business could get downright exciting, especially with the expanded capacity.
Patrick Gruber: Okay. To reiterate, this is an NC project. We are targeting completion of the project level financing of net zero one by the end of this year. I'm glad we can finally say that out loud. We also have been moving forward on another potential net zero site. This one ought to catch people's attention and help people understand what else we've been up to. I look very much forward to telling you all about it as soon as we can, so stay tuned. All right then, let's open it up for questions. Thank you.
Speaker Change: Okay, to reiterate on NC projects
Speaker Change: We are targeting completion of the project level financing of net zero one by the end of this year I'm glad we can finally say that out loud
Speaker Change: We also have been moving forward on another potential net zero site. This one ought to catch people's attention and help people understand what else we've been up to.
Speaker Change: We look very much forward to telling you all about it as soon as we can, so stay tuned.
Operator: 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 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A list. Our first question comes from the line of Salmia Jane at UBS. Salmia, your line is now open.
Speaker Change: All right then, let's open it up for questions.
Speaker Change: 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 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.
Speaker Change: [inaudible]
Speaker Change: Our first question comes from the line of Somia Jane at UBS, Somia your line is now open.
Salmia Jane: Hey, I guess I was wondering if you guys could provide more color on the stock repurchase program. I know you mentioned a bit that you guys had repurchased about 7.2 million shares this year, so I guess how are you looking at that for the coming quarters?
Somia Jane: Hey, I guess I was wondering if you guys could provide more color on the stock repurchase program. I know you mentioned a bit that you guys had repurchures about 7.2 million shares. The series, I guess, how are you looking at that for the next, for the coming quarters.
Patrick Gruber: Well, we can't really offer any comment on that. I think Linda outlined some of the restrictions we're under.
Speaker Change: Well, we can't really offer any comment on that. I think Linda outlined some of the restrictions we're under.
Salmia Jane: Alright, got it. And then, could you, um, I guess, any updates on the collaboration with LG Chem? Yeah, that one's going well.
Speaker Change: Alright, got it. And then, could you, um, I guess, any updates on the, um...
Patrick Gruber: Yeah, that one's going great. So we had a milestone, you know; we're scaling up this technology called Ito. Ito technology, to refresh everybody's memory, is a technology that converts ethanol into olefins, hence ETO, ethanol to olefins. And it is an innovative technology that addresses the main problem of converting ethanol into these hydrocarbon products. It cuts down capital and operating costs by significant amounts.
Speaker Change: on the collaboration with LG Chem.
Speaker Change: Yeah, that one's going great. So we had a milestone, you know, we're scaling up this technology called Ito, Ito technology to refresh everybody's memory.
Speaker Change: He's a technology that converts ethanol into olefin, hence, eto, ethanol, eto olefin.
Speaker Change: And it is an innovative technology that addresses the main problem in converting ethanol into these hydrocarbon products. It cuts down the capital and operating costs by significant amounts. That project is working very well. It also has the ability to make propylene.
Patrick Gruber: That project is working very well. It also has the ability to make propylene. So we had a set of milestones set up that proved it out at a, it's bigger than a bench, not quite the size of a giant demo plant, but it's a bigger, reasonably sized plant. Where we did test it out, it looks like it hit all the boxes for the next stage of scale up.
Speaker Change: So, we had a set of milestones set up that proved it out at a, it's bigger than a bench, not quite the size of a giant demo plant, but it's a bigger, it's reasonably sized plant.
Speaker Change: where we did test it out. It looks like it hit all the, checked all the boxes for the next stage of scale up. So we're working with LG Chem on that program. The great thing about that is LG Chem puts the bill, they pay us the royalty and
Patrick Gruber: So we're working with LG Chem on that program. The great thing about that is LG Chem foots the bill, they pay us the royalty, and they've been a great partner. And they want to see this commercialized, and it's all about getting renewable propylene. Now, all of the technology that we develop and the techniques that we develop also apply to us in trying to make hydrocarbon fuels. So it's hitting its milestone, and it's doing well. And the next step will be to get it scaled up to a bigger plant. And those plans are being put in place right now. I thank you. Thank you.
Operator: Thank you. Our next question comes from the line of Peter Guest-Dreyf, from Watertower Research. Peter, your line is now open.
Speaker Change: They've been a great partner and they want to see this commercialized and it's all about getting renewable propylene. Now, all of the technology that we develop and the techniques that we develop also apply over to us in trying to make hydrocarbon fuels.
Speaker Change: So, it's hitting its milestone and it's doing well, and the next step will be to get it scaled up to a bigger plant, and those plans are being put in place right now.
Speaker Change: I don't think you.
Speaker Change: Thank you. Our next question comes from the line of Peter Guest-Drake.
Peter Guest-Drake: from Water Tower Research.
Speaker Change: Peter, your line is no open.
Speaker Change: www.globalonenessproject.org
Speaker Change: [inaudible]
Peter Guest-Dreyf: I'm sorry. So, yeah, so thank you very much for the call today. It's great to hear the status on MC1 financial close kind of zeroing in a little bit. I think your last guidance was potentially into early 2025, so hearing by the end of 2024 is really great to hear.
Speaker Change: Peter, your line is now open.
Peter: I'm sorry, I'm here today, apologies. So yeah, so thank you very much for the call today. It's great to hear, you know, the status on NC1 financial close kind of
Speaker Change: during a little bit i think your last iteance was potentially into you know early two thousand and twenty five so hearing by of two thousand and twenty four really great to hear just a couple of questions the first one would be just you know related to the l c f p market i won if you give you know any kind of a guidance to kind of where things are standing you know going into the third quarter and
Peter Guest-Dreyf: Just a couple of questions. The first one would be, you know, related to the LCFS market. I wonder if you could give, you know, any kind of guidance to kind of where things are standing, you know, going into the third quarter and kind of what you think might need to fall in place to kind of start seeing that turn around. And the second one is kind of, I know this isn't a crystal ball, but, you know, this is a year we have the election cycle sort of coming through.
Speaker Change: kind of what you think, you know, what kind of might need to fall in place to kind of start seeing that turn around. And the second one is kind of, I know there's,
Speaker Change: No one has a crystal ball, but you know, this is a year we have election cycles sort of coming through and I'm just kind of curious your thoughts, you know, there's any.
Peter Guest-Dreyf: And I'm just kind of curious about your thoughts, you know, if there are certain components of the SAF industry which may face more risk or not. I'm just kind of asking that because I think that there are certain aspects of the industry, which, to me, just seem to, you know, have some potential for finding agreements on sort of both sides of the aisle. You know, for example, the fact that, you know, SAF is potentially very beneficial to the agricultural industry.
Speaker Change: certain components of the SAP industry, you know, which, you know, which may face more risk or not. I'm just kind of asking that because I think that there are certain aspects of the industry which
Speaker Change: To me, they just seem to, you know, have some potential for finding agreements on sort of both sides of the aisle. You know, for example, the fact that, you know, SAPS is very...
Speaker Change: beneficial potentially to agricultural industry. It seems there is some agreement both sides of the aisle with you know carbon capture as well so I just be curious kind of your you know top-down thoughts on that as well again just given that we've got an election cycle coming up. Thank you very much.
Peter Guest-Dreyf: It seems there is some agreement on both sides of the aisle with, you know, carbon capture as well. So I would be curious kind of your, you know, top down thoughts on that as well. Again, just given that we've got an election cycle coming up.
Patrick Gruber: Sure, so first off, in California, the LCFS market, it's hard to predict what's going to happen with the carbon price, and they all, you know, when we have, when we look at all the consultants and analyst reports, everything's going to increase eventually. And so for us, that's going to be good in the long run. But you know what? When we're selling jet fuel, when we have NZ1 running, It isn't gonna go to California anyway; it's gonna go to Illinois where there's a dollar and a half tax benefit or might go up to, you know, Washington State or Oregon or Minnesota or one of these other places where there's state-level tax credits. So it really is not one of these things where it is; it's not being built to send it to California.
Patrick Gruber: Thank you very much. Sure. So first off,
Speaker Change: Sure, so first off, in California, the LCFF's market, it's hard to predict what's going to happen with the carbon price, and they all, you know, when we have, when we look at all the
Speaker Change: consultants and analyst reports, everybody thinks it's going to increase eventually. And so for us, that's going to be good in the long run. But you know what, when we're selling jet fuel, when we have NZ1 running,
Speaker Change: It isn't going to all go to California anyway. It's going to go to Illinois where there's a dollar and a half.
Speaker Change: Tax benefit or might go up to Washington State or Oregon or Minnesota or one of these other places where there's
Speaker Change: state level tax credits. So it really is not one of these things where it's not being built to send it to California. It's going to be built wherever they're sent to the highest margin environment, and everybody is oriented that way. So it's pretty interesting.
Patrick Gruber: It's going to be built wherever they're and sent to the highest margin environment, and everybody is oriented that way. So it's pretty interesting in that sense, and it's going well. And then in terms of the, what's interesting about a business like ours is that it's an infrastructure development business, we're creating new infrastructure, it's energy security, it is Yes, we're solving a carbon problem. And we do it cost effectively. We have published our McKinsey results previously, and anyone who you should all look at that carefully. You'll see that we have the lowest cash cost production. We have capital costs that have to be paid back.
Speaker Change: going well. And then in terms of the what's interesting about the business like ours is that it's an infrastructure development business. We're creating new infrastructure, it's energy security, it is
Speaker Change: Yes, we're solving a carbon problem. We're doing it cost effectively. We have published our McKinsey results.
Speaker Change: previously and anyone who you should all look at that carefully. And you'll see that we have the lowest cash cost production. We have capital costs that have to be paid back. Great. That's what government incentives pay for. But the payback is quite great for those government incentives.
Patrick Gruber: There are a lot of good things to rally around and that we can solve a problem. It's a drop in fuel, you don't have to create all new infrastructure, it's leveraging existing infrastructure, and we're building new renewable energy infrastructure in concert with jet fuel. So it's... There's a lot that is good about this, and it's in rural America, and it helps Climate Smart Agriculture, it helps rural farms, and it helps the environment.
Speaker Change: So it's E.
Speaker Change: There's a lot of...
Speaker Change: Good things to rally around and that we can solve a problem, it's a drop-in fuel, you don't have to create all new infrastructure, it's leveraging existing infrastructure, we're building new renewable energy infrastructure in concert with the jet fuel.
Speaker Change: So it's a
Speaker Change: There's a lot that is good about this, and it's in rural America, and it helps.
Patrick Gruber: So both sides of the aisle like what we're doing, near as we can tell. And so we are a project that, uh, we see people, lots of folk, political folk of all types are keeping an eye on us because we're, we're trying to get it done, right? So it makes sense. We're not trying to say, give me the windfall. We aren't doing a windfall.
Speaker Change: Climate Smart Agriculture, it helps rural farms, it helps...
Speaker Change: The environment
Speaker Change: So...
Speaker Change: Both sides of the aisle like what we're doing near as we can tell and so we are a project that
Speaker Change: We see people, lots of folk, political folk.
Speaker Change: of all types are keeping an eye on us because we're trying to get it done right. So it makes sense. We're not trying to say, give me the windfall. We aren't doing a windfall. We aren't asking for a windfall. Incremental progress will show the results. We can prove that we've done well. We've reduced carbon. We can prove it.
Patrick Gruber: We aren't asking for a windfall, incremental progress. We'll show the results. We can prove that we've done well, we've reduced carbon. We can prove it. You know, we're building up the infrastructure, creating a whole bunch of jobs. And you'll stay tuned; we're going to publish a report about this tomorrow. But it is, it's good.
Speaker Change: You know, we're building up the infrastructure, creating a whole bunch of jobs.
Speaker Change: And you'll stay tuned, we're going to publish a report about this.
Patrick Gruber: It's really it's a good story played politically. So we're an example of that where. It can be done right, and so I think that helps as a rally point. Now, in terms of what is coming into policy, then, what you have to take into account is the IRA bill so far and the precedent set under 40B was pretty darn good in that it did enshrine the GREET model, albeit a modified GREET model, but still, it's pretty good what they did, and it's enshrined, so that eliminates that doubt for the future. And then it That's good. And it did enshrine at least the beginnings of how to account for Agriculture and Inputs for raw materials.
Speaker Change: Tomorrow, but it's good. It's a good story, it plays politically. So, we're an example where...
Speaker Change: It can be done right.
Speaker Change: And so I think that helps the rally point. Now, in terms of what coming into policy then.
Speaker Change: What you have to take into account is the IRA bill so far and the precedent set under 40B is pretty darn good in that it did enshrine the GREET model, albeit a modified GREET model.
Speaker Change: Still, it's pretty good what they did and it's enshrined so that eliminates that doubt for the future and then it also enshrined carbon sequestration. That's good. And it did enshrine at least the beginnings of how to account for
Patrick Gruber: And that's important. They did it by bundling and some other things, and that'll get modified over time. But you know what? It's a great step in the right direction. And so we're liking all the steps that we see. We know that talking with lots of people on both sides of the aisle, people want it, they like it when you can prove that you did something to get something from the government. That plays pretty darn well. And so I think that trend will continue. I think there's support on both sides of the aisle for extending. 45 Z or 40 B, but probably it'd be 45 Z.
Speaker Change: Ager Culture, and Inputs.
Speaker Change: for the raw materials. And that's important. They did it with by bundling and some other things and that'll get modified over time.
Speaker Change: But you know what? It's a great step in the right direction. And so it's a, we're like in all the steps that we see, we know that talking with lots of people on both sides of the aisle, people, they want it, they like it when you can prove.
Speaker Change: That you did something to get something from the government.
Speaker Change: That plays pretty darn well, and so I think that trend will continue. So I think there's support on both sides of the aisle for extending.
Patrick Gruber: And I think we'll see that support. I, you know, I'd heard there was a letter today that was. A bunch of Republicans got together in the House and were saying that they want to see it extended. So we'll see, you know, it's a good spot. And of course, as we're planning, our economy has to withstand all challenges for the future. Well, the good news is it looks like it does. So, we're in pretty good shape overall.
Speaker Change: 45Z or 40B, but probably it'll be 45Z. And I think we'll see that support. I, you know, I'd heard there was a letter today that was sent, a bunch of Republicans got together in the house and were saying that they want to see it extended.
Speaker Change: So we'll see, you know, it's a, we're in a good spot and of course, it was we're planning our economics path with stand-all challenges for the future. Well, I'm good news is it looks like it does. So...
Speaker Change: We're in pretty good shape overall.
Operator: Thank you. Our next question comes from the line of Amit Dayal from HC Wainwright. Your line is now open.
Speaker Change: Great, thank you very much.
Speaker Change: Thank you. Our next question comes from the line of Amit Dayal from HC Wainwright.
Amit Dayal: Thank you. Good afternoon, everyone.
Speaker Change: Your line is now open.
Amit Dayal: Thank you for offering everyone, P.M. So, me, bad.
Patrick Gruber: So, hey, Pat. With respect to the non-GAAP adjusted EBITDA range, you know, 7 to 16 million for RNG, it's a pretty wide range, but, like, you know, what are the drivers? Is it just the CFS pricing that is going to sort of drive this, or is there something else? No, no, this year, this year, we thought we were going to, originally, we should have, in a normal world, when normal operating systems and all the rest, we should have had the minus 350 pathway approved at the beginning of the year.
Speaker Change: With respect to the non-GAAP adjusted EBITDA range, you know, $7-16 million for RNG, it's a pretty wide range. Pat, like, you know, one of the drivers, is it just the CFS pricing that is going to sort of drive?
Speaker Change: You know where you come up with this, or is there something else? No, no. This year, this year, we thought we were going to, we originally, we should have, in a normal world, when normal operating systems and all the rest, we should have had the minus 350 pathway approved.
Patrick Gruber: That's what should have happened, but they had everything on hold in California while they were doing whatever they were doing. Now they picked up the pen again, and now they're working on it. So that delay, we would have been in that range solidly just with that pass. Now, carbon prices have been low, so we would have probably been near the low end of that range of 7 to 16. But that is really due to the fact that we just didn't get the pathway approved. It was out of our control. That's the trouble with these countries.
Speaker Change: at the beginning of the year. That's what should have happened. But they had everything on hold in California while they were doing whatever they were doing. Now they picked up Pentagon and now they're working on it. So, that delay, we would have been in that range, solely just with that pathway.
Speaker Change: Change.
Speaker Change: Now, the carbon prices have been low, so we would have probably been near the low end, but that range of 7 to 16, but that is really due to the fact that we just didn't get the pathway approved. It was out of our control. That's the trouble with these kinds of businesses.
Patrick Gruber: Good news! We know for sure they're working on it right now. So that's a really good thing. And then I think what I also like that our team has done is figured out ways to cheaply expand our operation and Make More Gas. I like that, you know; we were already in the top five size of projects in the country for dairy manure, and I think we could be even bigger now.
Speaker Change: Good news. We know for sure they're working on it right now. So that's a really good thing. And then I think what I also like that our team has done is figured out ways to
Speaker Change: Cheaply, expand our operation.
Speaker Change: and make board gas. I like that. You know, we're already in the top five size of projects in the country for a dairy manure and I think we'll be even bigger now. That's a pretty big operation if we get to the 500,000 million BTUs.
Patrick Gruber: I mean, that's pretty, that's a pretty big operation if we get to the 500,000 million BTUs. So, it's good. It's gonna, should generate nice profit. Okay, so if these two things come into play, say, by this time next year, would you be sort of even above this range for the non-adjusted, you know, gap contribution, EBITDA gap contribution from this?
Speaker Change: It's good. It should generate nice profit.
Speaker Change: Okay, so if these two things come into play, say, by this time next year?
Speaker Change: Will you be sort of even above this range for the non-adjusted...
Patrick Gruber: You know, if the carbon price, it's been the carbon price, so more gas, good, minus 350 pathway, that would double the revenue from California straight away, right? So you would say that automatically, we're at minus 150 and where we'd be at minus 350, you would think, and we did 1 million dollars of EBITDA positive cash flow, well, that will at least double that a quarter.
Speaker Change: You know, GAP contribution, EBITDA GAP contribution from this.
Speaker Change: You know, if the carbon price, it's been the carbon price, so more gas, good.
Speaker Change: Minus 350 pathway, that would double the revenue from California straight away, right? So you would say that automatically we're at minus 150 and we'd be at minus 350, you'd think, and we did $1 million of EBITDA positive.
Patrick Gruber: So it's something like that, and that's at a really low carbon price. So if carbon prices come back, there's quite a lot of leverage here, plus we'll have more gas. So that's how you should look at it. You've got three variables, more gas, you have the carbon price, and that is really one of the biggest lepers of all. If we were anywhere back to normal, this business would be a pretty damn big business. And then you have, you know, the
Speaker Change: Cash Flow, well that will at least double that a quarter.
Speaker Change: So it's something like that and that's that really low carbon brace.
Speaker Change: So if carbon prices come back, there's quite a lot of leverage here, plus we'll have more gas.
Speaker Change: So that's how you should look at it. You've got three variables, more gas, you got carbon price, and that's carbon price is really one of the biggest leper of all. If we were anywhere back to normal, this business would be a pretty damn big business. And then you have
Amit Dayal: I must know that. That's very helpful. Thank you.
Speaker Change: You know, the pathway.
Speaker Change: That's very helpful, thank you.
Speaker Change: Um...
Amit Dayal: With respect to the DOE loan, are there any specific catalysts or any specific aspects of the NZ-1 build-out that the DOE is looking into, or is it just the whole application that they are going through? Any color on that would be helpful.
Speaker Change: With respect to the DOE loan, are there any specific catalysts or any specific aspects of the NZ-1 build-out that the DOE is looking into, or is it just the whole application that they are going through?
Patrick Gruber: No, I can't give any specifics. We're under orders not to talk about it. The only thing I can say, though, is the amount of, you can't, nobody. We're going to have to do an after action when it's all done.
Speaker Change: Any any color of that good reveal? No, we can't give any anything. I can't give any specifics. We're under orders, not to talk about it.
Speaker Change: Hi, the only thing I can say, though, is the amount you can let nobody ask, we're going to have to do an after action when it's all done, and all complete, and all booked.
Patrick Gruber: We'll have to do an after action report about what it takes to get something done. It's mind-boggling as to the amount of effort. And the thing is, everyone is doing a good job, super professional, super thorough, really cooperative. It's just an immense amount of work. And what's good about this is they're so thorough; that should help us when it comes time to the equity part of the race, too, because the diligence work's already been done, and it's done by people who are skeptics. So you think about that, you know, the DOE isn't trying to hand out the money.
Speaker Change: We'll have to do an after-action report about what it takes to get something done.
Speaker Change: It's mind-boggling as to the amount of effort. And the thing is, everyone is doing a good job, super professional, super thorough.
Speaker Change: really cooperative. It's just an immense amount of work and what's good about this is there's so thorough that should help us when it comes time to the equity part of the race too because the diligence works already been done.
Speaker Change: and it's done by people who are skeptics.
Patrick Gruber: They're trying to prove why they should, you know, when they bring in a third party, and the questions are all around, hi, we're not going to give, we're going to poke holes in this and say no. And we're going to find ways to say no. So you have to overcome all those challenges. And so it's a pretty robust process, that's all I can say, and it's going okay. Pat, can you remind us?
Speaker Change: So
Speaker Change: You think about that, you know, the deal we isn't trying to hand the money out, they're trying to prove about why they should, you know, when they bring you the third party and the questions are all around, Hi, we're not going to give, we're going to pull holes in this and say no, and we're going to find ways to say no. So you got to go overcome all those challenges, and so it's a pretty robust process, that's all I can say.
Amit Dayal: And Pat, can you remind us how much the application is for? Is it like $900 million? Or a different amount?
Speaker Change: and I'm going to have a chance to remind us how much is the application for, is it like $900 million?
Speaker Change: or a different amount. It's in it's in it's it's in that in that.
Patrick Gruber: Yeah, it's, it's, it's, it's, it's, it's, it's, it's, it's a big grant. It's a, it's a, it's a DOE loan guarantee. And it's in that range. It's in a quanta, it's in that quantum.
Speaker Change: Quantum
Speaker Change: Okay, okay, understood.
Speaker Change: Yeah, it's a big grant. It's a DOE loan guarantee, and it's in that range. It's in that quantum.
Amit Dayal: Okay. Just last one for me, Google's involvement in Verity, are they making any investments, or are they just sort of, you know, supporting the effort and maybe providing other resources to, you know, get more, um, Action and Development going for this offering?
Speaker Change: [inaudible]
Paul Bloom: Paul, why don't you talk to them or talk about it? Yeah, thanks.
Speaker Change: Paul, why don't you talk to them? Talk about it. Address it.
Paul Bloom: Thanks, Amit, for the question. So Google's been a partner with us on the USDA grant that we've got for some time, so we've got a great relationship with them. But basically, we're implementing the AI tools that they have available into the Verity platform. So that's really how we think about it.
Paul Bloom: Yeah, thanks, thanks for the question. So Google's been a partner with us on
Speaker Change: on the USDA grant that we've got for some time. So we've got a great relationship with them, but basically we're implementing the AI tools that they have available into the Verity platform. So that's really how to think about it.
Amit Dayal: All right, you know, it looks like you're making good progress on that front, so congratulations. Yeah, thank you. Yeah, that's all I have, guys. I'll take my other questions offline. Thank you.
Speaker Change: Okay, I'm sorry.
Speaker Change: All right. It looks like you're making good progress on that front, so congratulations. Thank you. Yeah. That's all I have, guys. I'll take my other questions offline.
Operator: Thank you. This concludes the question and answer session. I would now like to turn it back to Dr. Patrick Gruber for closing remarks.
Speaker Change: [inaudible]
Speaker Change: Thank you. This concludes the question and answer session. I would not like to turn it back to Dr. Patrick Gruber for closing remarks.
Patrick Gruber: Well, it's, it's been a, uh, the amount of stuff that's going on behind the scenes is, uh, pretty profound. We're hitting all of our internal milestones that we had set. And we feel pretty good about that. And we're making progress, and soon, we'll be able to talk about things more robustly and explain them. But it's a, you know, we have a great cash position. We do. We see good opportunities in front of us to invest cash.
Patrick Gruber: Well, it's been a, this is the amount of stuff that's going on behind the scenes is, uh,
Speaker Change: and we're hitting all of our internal milestones that we had set and we feel pretty good about that and we're making progress and soon we'll talk about things more robustly and explain them. But it's a, you know, we're a great cash position. We are, we see.
Patrick Gruber: And we see that... You know, we're in the tunnel, and I can see that there's light. I've got it. I can see it, and our team, I think, feels that way. So we're getting there. We're getting there. And I also like our opportunities to generate cash and start to work towards being a profitable company because I think that has. With that, I want to thank you all for joining us and have a good afternoon. Thanks.
Speaker Change: Good opportunities in front of us to invest cash.
Speaker Change: You know, we're in the tunnel and I can see that there's the light. I got it. I can see it. And our team I think feels that way. So we're getting there. We're getting there. And I also like our opportunities to generate cash and start to work towards being a profitable company because I think that has potential as well.
Speaker Change: With that, I want to thank you all for joining us and have a good afternoon. Thanks.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Patrick Gruber: Great. That's what government incentives pay for. But the payback is quite great for those government incentives. So it's a win-win.