Q2 2019 Earnings Call
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<unk> second quarter 2018 earnings Conference call. My name is Shirley and I will be your operator for today's call. At this time all participants are in a listen only mode. Later, we will be conducting a question and answer session.
Please note that this conference call is being recorded I will now turn the call over to Jeffrey Williams, Chief Both General Counsel and Secretary. Please go ahead Mr. Williams.
Good afternoon, everyone and thank you for joining GE, most second quarter 2019 earnings conference call.
I would like to start by.
It is in today's participants from the company.
With us today is Patrick Gruber, Chief Rose, Chief Executive Officer, and Carolyn Romero, Jugos, Vice President controller, and principal accounting officer.
Earlier today, we issued a press release that outlines the topics we plan to discuss today.
A copy of this press release is available on our website.
Www Dot dot com.
I would like to remind our listeners that this conference call is open to the media and that we are providing a simultaneous webcast.
This call to the public.
A replay of today's call will be available on Jugos website.
On the call today and on this webcast you will hear discussions of certain non-GAAP financial measures non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in accordance with GAAP.
Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is contained in the press release distributed today, which is posted on our website.
We will also make certain forward looking statements about events and circumstances that have not yet occurred, including but not limited to projections about gross operating activities for the remainder of 2019 and beyond.
These forward looking statements are based on management's current beliefs expectations and assumptions and are subject to significant risks and uncertainties, including those disclosed in Gevos Form 10-K for the year ended December 31 2018.
Which was filed with the US Securities and Exchange Commission or SEC.
And in subsequent reports and other filings made with the SEC by Djibo, including G. those quarterly reports on Form 10-Q .
Investors are cautioned not to place undue reliance on any such forward looking statements such forward looking statements speak only as of todays date and Gevo disclaims any obligation to update information contained in these forward looking statements, whether as a result of new information future events or otherwise.
On today's call Pat will begin with a discussion of G. those business and strategy.
Caroline will then review Tivo its financial results for the second quarter of 2019.
And following the presentation, we will open up the call for questions.
I will now turn the call over to Pat.
Thanks, Jeff.
Did you have a short presentation that makes clear our plans and our status now this presentation is available on our website.
In a part of the webcast under the investors webcast tab.
Before I get to that though here some short takeaways.
We're making great progress on our commercial offtake agreements.
We're very glad to have total signed up you can read the press release, we don't need to go into it here, it's good news though.
And it's a sign of things to come.
We are engaged with more energy companies airlines than ever before in fact, we have something like over 100 million gallons of jet nice so octane under discussion for contracts.
We only have about 5 million gallons to sell.
To justify building out our big plants on Libre in Minnesota that we've been talking about for a while.
100 million gallons on a negotiation 5 million gallons of soft.
I'm pretty sure we're going to get that done.
In fact, it's my hope that we maybe we'll even get to build much more than a 10 12 million gallon hydrocarbon plant and maybe it needs to be much much bigger that'd be great.
We have several otherwise or letters of intent for potential lenders and investors on the table. This is good.
I'm very confident we'll be able to get debt deals done to fund what we want to do.
We also have some.
Who want to invest equity in our production assets will be sorting. This out over the next few months you'll have to stay tuned because this comes together its can be very exciting.
Now I'm going to take you through this deck this presentation.
It will help put into context some of our recent announcement.
And what's coming.
Slide two is the standard disclaimer.
On slide three one of the very important things I want to drive home is that we're going after the whole gallons of fuel not 10% not 15% not 30% like ethanol, we're going after the whole gatland, yes. It can be done yes, it will take time and work, but it changes the perception of what Biofuels can do now imagine this the whole gallon of gasoline with a net zero carbon footprint imagine if it was negative.
That would be better than what electricity can do.
Same thing with jet fuel.
We see our products as enablers to go after that whole gallon of gasoline or jet fuel.
Now the place to start is with isooctane, that's the basis of gasoline and our sustainable aviation fuel our jet fuel.
We drive the carbon footprint down by selecting the right raw materials to begin with start to make the fuel and by developing the right energy sources for our manufacturing process and delivering products that meet all the market requirements for performance.
People often ask me if I'm worried about electric cars I liked electric cars and I think that can be an important contribution to reducing greenhouse gases.
Yes, and only if we reduce the greenhouse gases from electricity production.
If the greenhouse gases from electricity production go down the companies like us who use electricity also benefit.
Our fuel GHG footprint goes down as the electrical grid becomes more green so let's get after it.
Even with successful electrification, though and the green of electricity.
I doubt that all cars that use gasoline are going to be eliminated I'm happy going after the giant niche of gasoline for those areas were electrification can't workers and practical or just simply takes too long.
Same story with jet fuel.
I doubt jets are going to be electrified soon.
Lets reduce eliminate the ghgs from their fuel.
Slide four.
As a reminder of what we have to consider in making our fuel with low or no net carbon greenhouse gas emissions.
We use renewable carbon that originates from carbon dioxide that C O two in the atmosphere.
We too are capturing carbon from the atmosphere for our raw material, we just do it through plants the things that grow.
Raw material is part of what we need low carbon green energy is the other part.
When we measure our carbon footprint the majority of our admissions come from the fossil based natural gas and fossil based electricity use.
Eliminating the fossil carbon from energy sources makes a major reduction in our carbon footprint.
Slide five shows the way to think about our business system, we are working to set up at Luverne.
Carbon dioxide is captured by corn notice our corn is happy that's because farmers in our area are very good and use good farming techniques better than most in the USA.
With their advanced farming techniques, they are capturing and sequestering carbon in the soil.
We calculate about two pounds of carbon dioxide per gallon of jet fuel actually sequestered in the soil based on past studies and I think that we still see increases.
Going well beyond that because farmer techniques have improved further.
Note that the corn wheat that we use is not the stuff of corn on the cob. It is not the stuff in Cannes corn.
It is not would cornflakes are made from no. This corn isn't even easy to get into the food chain without significant processing.
The corn has grown for its protein and carbohydrates. That's why this corn is grown and it's very efficient at generating protein.
We separate the protein from the carbohydrates, we use the carbohydrates to make our alcohol by fermentation.
We can sell those up a halls, that's the ethanol and isobutanol as a gasoline blendstock or better yet use them as raw materials to make gasoline and jet fuel using chemistry.
It's a large amount of protein we produce it's about 10 pounds per gallon on a jet fuel basis.
We sell the protein and the food chain its food and fuel for US here at Gtwoe I know of no. Other process that generates this much protein for the food chain, while making jet fuel or gasoline.
No we sell our protein as animal feed the animals eat the protein feed the feed they make money or.
We are working on setting up a subsidiary that takes the money or digests it to make renewable natural gas.
We can take back to our plan for our production process or sell to the pipeline, we are well along and getting this established and we expect to finalize the deal soon.
We also have several options for financing with debt proposals on the table.
We'll be sorting it out in the next month or two we are planning to call. This renewable natural gas subsidiary business Tivo energy you would supply renewable natural gas store at Luverne plant and the pipeline, it's a good opportunity.
We are planning on reducing our electrical load by working with jewel energy to establish wind power. This project is very far along we are waiting for the final documents I appreciate the city of Luverne and all the parties that are working to make this happen they're doing a great job.
We expect that what we will pay the city for electricity will remain the same but we'll get the value from the renewable credits.
Renewable electricity renewable natural gas reduce our footprint. That's what this game is about and then capturing the value through delivered fuels.
One final point on this slide.
You saw the press release.
Lucas just last week Lucas has technology that could boost the amount of carbon capture in the soil by a lot maybe even an order of magnitude or more so instead of talking about two pounds per gallon, maybe it'll be much much more we're keen to find out I really believe that improved agriculture offers a tremendous opportunity for capturing carbon while growing raw materials for people like us.
Maybe you folks saw the article last week in New York Times, how farmers, maybe the answer to Ghgs.
I think that with the right systems in place that reward improvement back to the farm level agriculture will be increasingly important.
Instead of running away from the food and fuel.
We can see how to generate lots of protein for food not giving up anything on that front and capture more carbon reducing our footprint even further.
On slide six the purpose of this one is to remind us all that.
Our production technology works with other feedstocks too.
I care that the feedstocks are sustainable available and cost effective we can use egg residues wood waste wood municipal solid waste, where even food waste.
All are fair game for US now one of my favorites is rice straw, we worked with Praj on that for India using race trust potential to solve a waste problem, while making jet fuel and gasoline.
Slide seven shows the greenhouse gas reduction potential of our hydrocarbon fuels on the left is the greenhouse gas profile of jet fuel isooctane.
If we replace the carbon in energy, we can get to very low levels of net emissions.
On the right side of the slide shows we are tending to do it at Luverne.
The chart on the right of this slide has lots of dots.
The dots represent fuel ethanol plants by various feedstocks.
These values are the reported carbon index scores for individual production plants.
We are targeting to be well below all the others.
That's what I'm showing by the Green line.
If we replace the fossil based natural gas with renewable natural gas and replace the fossil based what tourist city with renewable electricity, we expect to be at or below that green line that I've shown on that chart using the California type scoring system.
Moving to slide eight.
The left side of slide eight shows the greenhouse gas profiles, a farmers who supply us on average our farmers generate 50% lower greenhouse gas emissions compared to the national average.
If you look at the bars on the left side of that graph you can see that some farmers can do negative greenhouse gas emissions.
The note in the Blue Arrow above that chart declares or intent, we intend to track how things are grown at individual farms and create a reward for farmers, who supply a lower carbon footprint corn.
On the right side of this slide there's a chart that shows the greenhouse gas profile.
For growing corn depends in large part on telling practices.
And also on how one uses nitrogen fertilizer.
The Blue box is pointing at a bar.
Talking about reduced tillage practices.
We had announcement last week.
For an I. FCC plus certification there are certifying agency in the EU.
And they certified.
This type of corn supply through our isobutanol at our plant.
We are pleased that they determined that same amount of emissions that we had measured and predicted.
Note that the bar to the right of where that arrows pointing is negative that's because of how they use when you were on the fields displacing some nitrogen and that they use no tail because thats instead of doing stripped feeling or piling it would be using drills for example.
And on this next slide slide I'm going to show you why it matters.
On the chart in slide nine shows the greenhouse gas footprint of our hydrocarbon fuels using the methodology required under Europe's you read to policy. The first Green bar next to the Black bar shows that using our farmers and the average values from the collection of farmers, we do very well being below the requirements for the Red policy.
The next bar over is negative thinking about that negative carbon fuel or isooctane negative.
This is the result of using corn and Isobutanol, we just certified with IC C plus.
That's a big deal negative carbon.
Fuels.
Yes, it can be done.
Moving to the right you can see that the values for greenhouse gas emissions could even go more negative.
No till corn would give a negative 30 to 40.
If we count techniques like locusts suggest that it might be possible to get a much much much more negative carbon profile.
These negative profiles, a game changing imagined gasoline, whether its greenhouse gas profile eliminated while the raw material of certified to be sustainable and while producing large amounts of protein for the food chain.
It's potentially game changing.
To accomplish all this improve what we are doing though we're going to have to track farms corn, how its produce what the sustainability practices are.
Get it all certified and we have to track, where we send our fuel.
We have some very extremely creative ideas on how to do all this tracking using DLP technology I will talk more about that in the future.
Slide 10.
Shows the business system, we are trying to build the burn the stage one it includes dry frac, which we've already deployed wind power, which is in the process of being deployed in a million gallon hydrocarbon plant that would produce jet fuel and isooctane. The purpose of the million gallon plant is not approved technology very did that.
But to provide larger amounts of isooctane for halterman supply at fuels and the supply Air hotel as well as some others.
The capacity. This plan is already sold out and makes for an attractive investment and that's why that lenders are interested in this.
We project that it'll be about a $60 million investment to build a 1 million gallon plant and its backed by take or pay contracts.
On slide 11, the shows how we're thinking of setting up gevo and its subsidiaries Agri energy is actually the official name for our Libre insight and its production assets. We plan on building the 1 million gallon hydrocarbon plant at Luverne. Once we get financing we expect that it can be deployed in 12 months or less because it could be skid mounted and delivered mostly built we plan and setting up people energy, which develops renewable natural gas projects, we already have an ela why in place.
For our first bio gas project. This is contemplated to be done with U.S.T. a loan guarantees even.
The note at the top of the slide in yellow tell us what we are working on $40 million a dead achievable. If we are able to get the $40 million, we would use about $50 million to pay off white box or Alternatively, we may refinance our debt with white box, who has been a very good partner for us.
We would use $60 million to build the million gallon hydrocarbon plant and the remaining money, we would use to contribute equity djibo energy or for other purposes. Now suppose we did all of what I. Just described we would have about 20 million gallons of low carbon footprint ethanol that we would get.
Into California, that's where we'd be targeting in about 1 million gallon hydrocarbons.
The ethanol that we target for California shouldn't be thought of as just general commodity ethanol. So like a specialty product that's value added because of its low carbon footprint, they which should give us preference on.
People, but wanting to buy our stuff and paying a premium price because of lower carbon footprint.
Now the cash flow for all this set of activities models out to project that we could generate enough cash to be profitable.
Depending upon how much we spend to do the development to build a big business with Isobutanol and jet fuel.
It's pretty exciting.
The next two slides 12, and 13 show what we call step to this includes the build out of large isobutanol plant.
And the 10 to 12 million gallon per your hydrocarbon plant. This is what we actually are targeting and I'm trying to get accomplished and have been for so long and we're getting they're making progress. The gating item still is large offtake agreements for the remaining unsold 5 million gallons of capacity I mentioned earlier that Tim's got 100 million gallons in discussion I think he's going to get the 5 million gallons pinned down would take or pays and we'll get on with US we're going to get it nailed pretty soon.
I hope that we get enough contracts, we can build an even bigger plant much bigger than that 10 to 12 million gallons per year. That's my hope.
We'll see.
We already have lenders in discussion and draft term sheets on the table for this step two project. In fact, we have some people were interested in financing both step one and step two.
Now the key thing, though as we those customer contracts and then we'll be off to the races.
Slide 14 is here to remind everyone that we're still developing projects in other places in the world things are looking good for us.
I love, having active negotiations on these dead deals.
We have multiple lenders who understand what we're doing they see that customers are interested they see that the contracts are being negotiated they recognize their products and processes are far along having largely been de risked.
We also have several potentially a large equity partners.
We're also beginning discussions with us they can see the potential as well I really love the uptick in interest in our jet fuel in our other products.
I believe that we can make a really big profitable business now I will turn the call over to Carolyn who will take us through the financials Carolyn.
Thank you Pat.
She for reported revenue in the second quarter, 2000, $19 million to $5.1 million as compared to $9.4 million in the same period in 2018.
Cost of goods sold was 8.5 million.
In the second quarter 2019 versus 10.7 million in the same period in 2018.
Cost of goods sold included approximately 6.9 million associated with production of ethanol as of yet no and related products and approximately 1.6 billion in depreciation.
Gross loss was $3.4 million for the second quarter 2019 versus $1.3 million for the first quarter.
Hey.
Research and development expense decreased by 1.5 million during the second quarter and 2019 compared to the same period in 2018.
Due primarily to a decrease in costs associated with our south Hampton facility offset by an increase in personnel Celtic expense.
Selling general and administrative expenses increased 5.5 million.
During the second quarter 2019, compared to the same period in 2018, due primarily to an increase in personnel travel legal.
Thats relations.
Hi, a decrease in professional fees.
Within total operating expenses for the second quarter, Tony nineties, we recorded approximately $2.1 million for non cash stock based compensation.
For the second quarter 2019, we reported a loss from operations of $6.5 million compared to $4.4 million for the same period in 2018.
And then second quarter 2019.
Cash EBITDA loss, not matter, which is calculated by adding back depreciation and non cash stock based.
Compensation to cap loss from operations was $4.7 million compared to few showing in the same quarter in 2018.
Interest expense for the second quarter, 2000, 19.8 million a slight decrease compared to the same period in 2018.
For the second quarter 29 team, we reported a net loss of 7.1 million or a loss of 60 cents per share based on weighted average shares outstanding of 11 million 885520 a share.
This compares to a loss of 11.5 million in the second quarter 2018, or a loss of $7.19 per share.
In the second quarter 2019, Djibo recognized net non cash gains totaling 21 million due to changes in fair value of certain of our financial instrument, such as warrant and embedded derivatives.
Adding back the non cash gain resulted in a non-GAAP adjusted net loss of $7.2 million in the second quarter 2018, our non-GAAP adjusted net loss per share 0.1.
This compares to a non-GAAP adjusted net loss of $5.3 million in the second quarter 2018, our non-GAAP adjusted net loss per share $3 31.
Having a stronger balance sheet is important to moving our business forward developing and growing our business.
With that I would like to thank all of our shareholders for their continued interest and support in Geneva.
Let's open the call for questions.
Operator.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone. If you are using a speaker phone you need to pick up your handset first before pursuing any numbers. Once again, if you do have a question. Please press star then the number one on your Touchtone phone standing by for questions.
And our first question comes from Amit Dayal from H.C. Wainwright, Sir Your line is open.
Thank you Hi, Ben.
Yes.
So from your comments, but it seems that there is quite a large job today for your Gentiva nice offering products. I know you are negotiating financing et cetera to build everything out.
The question I guess in you know are you moving as fast as you can or are you just held up a little bit because of.
Bureaucracy formalities processes et cetera, what is the timeline on.
Securing all this and we're starting to.
Actually need.
This type of customer demand at least over the 1 million gallon levels first and then going on to step two of your plan.
Right.
So the there's several parts of this right one of them is the de carbonization, because that's almost a prerequisite that we have to reduce the carbon footprint in that it gives us the most secure and profitable position for delivering or fuels. The jewel energy wind project is very far along I expect the signed definitive documents very soon it's just a matter of days or weeks could be I suppose is the lawyers get into it and the final details, but it's something very very soon.
And that's a big deal because that wipes out the vast majority of our electrical footprint.
The bio gas projects, we're going to get them under way and then we'll get Tivo energy going we have several parties interested in both off taking gas from us, but I want that gas for our plant because it lowers our carbon footprint, we think it's more valuable putting it through a biofuel in is the selling it to a pipeline.
And we have a number of people offering to finance that so we're in the midst of we have lots of.
You know, we got to get deals the finish off the deals with the farmers the dairies.
The banks et cetera, but that's going to happen I think I'm very very confident in it and that's a that's a nice business unto itself and it's going to lower our carbon footprint.
Then as far as the Buildouts go.
We have several parties interested in financing the 16 million gallon.
Or sorry, the 1 million gallon hydrocarbon plant. It's already designed is ready to be built that's just waiting on the financing I don't want to spend the money that I currently have on the balance sheet for that because we have good take or pay off take agreements in place to profitable plant good paybacks.
It's a nice deal and people can see that.
On the debt side and they like it so we're going to try and get ourselves set up. So we can take advantage of that and then in the overall the big plant.
We are get we're going to have I think I hope, we'll have the financing in place as Tim delivers these contracts would be ready to go so that means they won't take very long so.
The timeline would be in 12 months from now we could have our 1 million gallon hydrocarbon plant online I would expect something like that maybe would be 13 months or 14 months, but it's in that kind of a range.
Because it will be skid mounted to build a big plant is going to probably take you know two and a half years.
Or less maybe two years and so we got to get it financed and that'll be the gating item, but like I said, we got lots of people now negotiating with us on financing things.
Understood.
With respect to sort of you know how you're managing the business right now.
No pricing pressure in the market at this point.
How are you planning to manage production for the rest of the two.
Okay.
Yeah minimum book.
Yes, sure I'm glad you asked that because this is like one of my irritating things is that our profitability is driven by ethanol were more of a milestone business. Yet we have to report these things like earnings per share, it's quite irritating to see.
These uh huh spontaneous reports about how we miss.
We are lucky you know we were able to.
Slow down or grind reduce or grind reproduce less when the <unk> or stop even or put a pause on it when ethanol prices are low and corn prices go up it's stupid to keep grinding once you're going to negative contribution margin space. So we don't we don't do that as a policy. We just don't do that so throughout the year, you're gonna compared to what we thought the margins we're going to be from the beginning of the year, we're going to have less overall margin less overall revenue.
From ethanol.
Animal feeds have been doing pretty good.
But we turned it down and we you know we had to install the dry frac system, which by the way is working pretty good.
You know, we just didnt hurried rush turn it back on when corn prices are high that'd be stupid and self defeating.
On the press release and stackable.
Carbon shipments being delivered this quarter.
Yeah could you give any learn what happened or.
Part of it was due to electrical outages down in the Houston area them. So it will be.
And that was partly due to storms, probably just just plain old infrastructure issues like a transformer blew or something like that and that caused power to be down that cost stuff to fall by their production. They made up the production of plants working quite well and then you know try to get the stuff out the door. So we could hit this quarter, but it just didnt make it in time.
Understood and then just one final one for me domes or inventory right now what is in it.
The total number of recovery.
We have a little bit.
Yeah, we've got a lot we've got quite a lot of Isobutanol. Our hydrocarbons were as we don't have very much in inventory per se not because their plants are generally small there anyway.
But we're shipping that stuff.
As soon as we generally as soon as we can we have some jet fuel that is now committed because of total.
And that fuels.
Got it.
Hey, This goes back to know I will take one other question and thank you. So much thanks, Yeah no problem.
And we have no further questions in queue at this time.
Alright.
In that case, then I. Thank you all for participating in this conference call. These slides are important ticket really good look at them. This is really a telling what we're intending to do planning to do better in our business.
There's a lot of interest a lot of excitement the financing thing is quite a different story. These are debt financings were talking about here and it's quite interesting and it's based on having these offtake agreements in place, which in part we have already.
Thanks for joining us.
Bye bye.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.
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