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Edited Transcript of GEVO.OQ earnings conference call or presentation 10-Nov-20 9:30pm GMT

·40 min read

Q3 2020 Gevo Inc Earnings Call ENGLEWOOD Nov 19, 2020 (Thomson StreetEvents) -- Edited Transcript of Gevo Inc earnings conference call or presentation Tuesday, November 10, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Carolyn Romero Gevo, Inc. - VP, Controller & Principal Accounting Officer * Geoffrey Thomas Williams Gevo, Inc. - VP, General Counsel & Secretary * L. Lynn Smull Gevo, Inc. - CFO * Patrick R. Gruber Gevo, Inc. - CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Amit Dayal H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst * Charles Kennedy Fratt NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst * Shawn Severson;Water Tower Research;Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Welcome to Gevo's Third Quarter 2020 Earnings Conference Call. My name is Catherine, and I'll be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded. I will now turn the call over to Geoffrey Williams, Gevo's Vice President, General Counsel and Secretary. Please go ahead, Mr. Williams. -------------------------------------------------------------------------------- Geoffrey Thomas Williams, Gevo, Inc. - VP, General Counsel & Secretary [2] -------------------------------------------------------------------------------- Good afternoon, everyone, and thank you for joining Gevo's Third Quarter 2020 Earnings Conference Call. I would like to start by introducing today's participants from the company. With us today is Patrick Gruber, Gevo's Chief Executive Officer; Lynn Smull, Gevo's Chief Financial Officer; and Carolyn Romero, Gevo's Vice President and Controller. 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 at www.gevo.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 of this call to the public. A replay of today's call will be available on Gevo's 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 Gevo's business development plans and operating activities for the remainder of 2020 and beyond. These forward-looking statements are based on management's current beliefs, expectations and assumptions and are subject to certain or significant risks and uncertainties, including those disclosed in Gevo's Form 10-K for the year ended December 31, 2019, that was filed with the U.S. Securities and Exchange Commission, and in subsequent reports and other filings made with the SEC by Gevo, including Gevo's quarterly reports on Form 10-Q. Investors are cautioned not to place undue reliance on any such forward-looking statements. Such forward-looking statements speak only as of today's date, and 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 Gevo's business developments, Lynn will discuss the status of the Citigroup financing process, and Carolyn will then review Gevo's financial results for the third quarter of 2020. Following the presentation, we'll open up the call for questions. I'll now turn the call over to Pat. -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Geoff. This past quarter was extremely significant for us. We now have about 48 million gallons per year of take-or-pay off-take agreements in place representing approximately $1.5 billion across the life of those contracts, which will run about 6 to 7 years from the start of full scale production. These take-or-pay contracts are being used to secure the funding to build plants. Not that long ago, we were working hard just to sell out the capacity of our Luverne facility. Our business has now changed. We now have demand for our products and with contracts that justify more than one production facility. Luverne is not big enough to service the contracts we already have signed. The increased demand is significant because it shows potential investors that our plant projects offer significant growth potential beyond just Luverne. That's important because people want to see platforms of projects. Not only that, potential investors in the projects see clearly that we have the funds to fully pay off Whitebox. Before we raised money this past quarter, there had been a real question of how we deal with Whitebox. Whitebox, from a potential investor point of view, complicated future deals because Whitebox, who, by the way, has been an outstanding partner over the last 7 years, has a senior secured position in all of Gevo assets, the physical and intellectual property. Well, now we have the money in the bank to pay off Whitebox and remove the liens. Being able to pay them off clearly is a big deal. Nothing can prevent that from happening by year end. We also now have the money to do the required project engineering and development work necessary to secure project financing; in fact, we've already started to move forward on this. We are in the midst of choosing additional plant sites. Our choice of plant sites is impacted by the ideas of our potential equity investors. Yes, you heard me right. While we haven't announced who our potential equity investors are, we are working with several potential partners. Lynn will talk more about the Citigroup financing project in a couple minutes. On the business development front, we are expected to secure additional large off-take agreements. Negotiations are progressing, albeit not fast enough for my taste. I would prefer to announce them already, but they aren't inked yet. We have more players in the mix wanting more volume; that's great. But we need the details pinned down, the contract signed so that we can then pin down additional plant sites as well as the total number of plants. In the meantime, we are getting on with the engineering for the 48 million gallons per year of plant projects that are already under the contracts. I expect that in the near future we will announce the names of the engineering firms that we'll be using to engineer and build the projects. So that for the first time in many years, and this is a big deal, we aren't in the mode of having to raise money just simply to stay alive. Now it's all about project execution and growth. It's about leveraging our technology, the marketplace development that we already have in place and getting the project financing secure to build multiple projects. With that, I will turn the call over to Lynn to provide more details on the project finance process with Citigroup. Lynn? -------------------------------------------------------------------------------- L. Lynn Smull, Gevo, Inc. - CFO [4] -------------------------------------------------------------------------------- Thank you, Pat. The Citigroup process to assist Gevo in securing financing to build out our production capacity is going well. Recall that we're trying to raise about $700 million at the project level, which would finance 3 plant construction projects to supply about 70 million gallons per year. We anticipate that this financing would require about $200 million in equity and $500 million in debt. Citigroup is helping us with both the debt and the equity. The $700 million in funding would be invested in special purpose project entities that are nonrecourse to Gevo. We anticipate that Gevo will be a minority equity holder in the SPVs. By raising money at the project level, we avoid a couple of issues. First, it's not dilutive to Gevo, Inc., stock. And second, it allows us access to capital from companies and funds who may have limitations on investing in Gevo stock and may have preferences for specific project exposures. On the equity side, we have several term sheets that are more than enough to cover the equity needed. Each of these potential investors is deep into diligence. This isn't like investing in penny stocks where people buy them knowing nothing. In project finance, investors go through every detail, they hire experts who have to vet the information from technology to commercial structure to pro forma financial results. Project investors, both debt and equity, require a complete understanding of the risk return proposition. After they complete their diligence, we would move to finalizing equity investment terms. The timeline for diligence typically takes months even if we weren't in a COVID world. Despite COVID, we've become pretty adept at dealing with COVID by increasing our use of video conferencing. Once the diligence phase is complete and we've agreed on financial terms, we would enter into binding agreements for the investments and advance the work to meet typical project-style conditions precedent to financial close. On the debt front, Citigroup has been figuring out the best options, and we believe we have a clear path to a debt format and structure that should appeal to investors. The debt to build out the plants doesn't get into place unless the equity commitment is assured and vice versa. These closings are essentially simultaneous. We're also paying attention to timing. We have approximately 48 million gallons per year under contract. The city projects contemplate 70 million gallons per year. We don't have to do all 70 million gallons at once, which is why Pat said we are moving forward on the first 2 plant sites now. As we pin down the next set of customer contracts and their volumes, we'll also pin down a third site and begin development work in engineering for that site as well. We have strong players who have strong strategic and financial reasons for wanting to invest in Gevo's projects. Stay tuned. Now I'll turn the call over to Carolyn, who will take us through the financials. Carolyn? -------------------------------------------------------------------------------- Carolyn Romero, Gevo, Inc. - VP, Controller & Principal Accounting Officer [5] -------------------------------------------------------------------------------- Thank you, Lynn. Gevo reported revenue in the third quarter of 2020 of $0.2 million as compared to $6.1 million in the same period in 2019. During the third quarter of 2020, hydrocarbon revenue was $0.1 million compared to $0.6 million in the same period in 2019. Hydrocarbon sales decreased because of lower shipments of finished products from our demonstration plant at the South Hampton Resources Facility in Silsbee, Texas. During the third quarter of 2020, revenue derived at the Luverne facility from ethanol sales and related products was $0.02 million compared with $5.6 million during the same period in 2019. As a result of COVID-19 and unfavorable commodity environment, we terminated our production of ethanol and distillers grain in March 2020, which resulted in lower sales for the third quarter. Cost of goods sold with $2.3 million in the third quarter of 2020, versus $9.9 million in the same period in 2019. Cost of goods sold included approximately $0.9 million associated with the production of IBA and related products and the maintenance of the Luverne facility and approximately $1.4 million in depreciation expense. The gross loss was $2.1 million for the third quarter of 2020 versus $3.8 million for the third quarter of 2019. Research and development expense decreased by $0.9 million during the third quarter of 2020, compared with the same period in 2019, due primarily to a decrease in personnel and consulting expenses. Selling, general and administrative expense increased by $0.8 million during the third quarter of 2020, compared with the same period in 2019, due primarily to an increase in personnel, consulting and insurance expenses and then professional fees, offset by a decrease in investor relation expense. For the third quarter of 2020, we reported a loss from operations of $6.1 million compared to $8.0 million for the same period in 2019. In the third quarter of 2020, cash EBITDA loss, a non-GAAP measure that is calculated by adding back depreciation and non-cash stock-based compensation to GAAP loss from operations was $4 million compared to $5.8 million in the same quarter of 2019. Interest expense for the third quarter of 2020 was $0.5 million, a slight decrease compared to the same period in 2019 as a result of lower amortization of original issue discounts and debt issuance costs and the conversion of $2 million of the 2020/'21 notes to common stock during July of 2020. For the third quarter 2020, we reported a net loss of $6.8 million or a loss of $0.09 per share based on a weighted average shares outstanding of 77,049,896 shares. This compares to a loss of $8.6 million in the third quarter of 2019, or a loss of $0.66 per share based on a weighted average share outstanding of 12,968,265 shares. In the third quarter 2020, we recognized net non-cash gain totaling $0.2 million due to changes in the fair value of certain of our financial instruments such as warrants and embedded derivatives. Also during the third quarter of 2020, we incurred a $0.5 million loss related to the conversion of $2 million of the 2020/'21 notes into common stock during July 2020. Adding back these non-cash losses resulted in a non-GAAP adjusted net loss of $6.5 million in the third quarter of 2020 or a non-GAAP adjusted net loss per share of $0.08 based on a weighted average shares outstanding of 77,049,896 shares. This compares to a non-GAAP adjusted net loss of $8.6 million in the third quarter of 2019, or a non-GAAP adjusted net loss per share of $0.66 based on weighted average shares outstanding of 12,968,265 shares. Now I'll turn it back over to Pat to wrap things up. -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [6] -------------------------------------------------------------------------------- Thanks, Carolyn. I've got a couple other points to touch upon. Praj continues to make progress. Recall that they are working to license and build plants in India with the idea that the Indian Air Force would be the ultimate customer. I have a suspicion that other airlines might become customers, too. That'll continue to make progress over the coming months and over the next year. We are also continuing the development of our biogas projects. These projects are financially attractive, offering significant cash flows and returns. We have the development engineering money needed to secure project financing, so we're moving forward with that rather than being stuck having to raise development expense capital. And we also have the equity needed to move forward. We have to work on and we continue to work on getting the debt terms arranged. That's a nice project; it generates nice cash flows. Now looking forward, I expect I will soon announce the engineering firms and additional plant sites. These things, more rather than less, are timing that we can influence. I expect that we will soon have additional customer contracts to announce and that they should be substantial and they're being worked on. We are always faster than the big companies we're negotiating with, and timing is in their hands. As I said before, the contracts are progressing, it just isn't fast enough for me. Finally, I expect that as we finalize the equity investors in our plant production projects and get those deals done to the point of where they are allowed to be visible, we're going to be very glad to tell you about that too. We've heard from some of you that you may have noticed more activity up at our Luverne site. Well, you're right; there's more going on there. We're in the midst of running a campaign to produce more isobutanol to replenish our inventory. We use the isobutanol that we produce there as a feedstock for the hydrocarbon plant down in Texas. Haltermann and others want the products. We still see no reason to run ethanol, it would just lose money. So with that, let's open up the call for questions. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Our first question comes from the line of Shawn Severson with Water Tower Research. -------------------------------------------------------------------------------- Shawn Severson;Water Tower Research;Analyst, [2] -------------------------------------------------------------------------------- Pat, can you just give a little more color on who you're talking to? And specifically I'm addressing strategic versus financial investors and maybe compare and contrast, I guess which one will be preferred by you and why. -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Well, what's interesting about what we're doing, if you stop and really look at it, is we're capturing renewable energy. It happens to be that we're putting that renewable energy into the form of our liquid fuel. Our liquid fuels can be used in the gasoline sector for automobiles, it can be done for trucks, of course, for airplanes. We're using wind energy, biogas energy, photosynthetic energy, which touches on agriculture. And so when you start thinking about -- and hydrogen, too, because if you had excess wind, you could do something with it, will be involved with hydrogen as well. So you start to look at that and who might be interested. It makes for a different slate of people than one might expect because the whole game, that is the whole greenhouse gas issue that needs to be solved is how do we get off of coal, fossil-based natural gas, fossil-based electricity? A businesses system like ours allows and enables the capture of all those different things and packs that energy into a fungible fuel in the form of a liquid hydrocarbon, which, of course, can be taken to any market. That's interesting. So it's different groups of people are interested in these things. And then as far as the individuals of whether the companies, whether they're funds or strategics, is that because the, I think that carbon is more valuable -- reductions of carbon are more valuable to strategics because they have to do something about it. So that's what we're seeing in the midst of all this investment like in renewable diesel. And you have all these big energy companies who not that long ago, you would have said no way would they ever invest in such things, and now that's what they're starting to do. You have that kind of thing they have to do something and there's no more escaping. -------------------------------------------------------------------------------- Shawn Severson;Water Tower Research;Analyst, [4] -------------------------------------------------------------------------------- I just have a follow-up. Looking at liquid fuels, I guess, and kind of comparing that as a renewable solution, I mean relative to wind and bio and fuel cell, fuel cell electric vehicles, renewable natural gas, a lot of different technologies. And obviously sometimes I think liquid fuels gets left by the wayside a bit. But can you compare and contrast how that fits into the renewable future? -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [5] -------------------------------------------------------------------------------- Sure. When you look at projections of energy for the future and actually what vehicles are even being sold, and you look out to like 2050, it's pretty much the same kind of energy profile that we have today, although there is a bigger component of renewable attached. So think of it this way; the growth gets taken up by renewable energy. And of course, we have growth because economies are planned on developing still. But we still wind up with the same kind of a size of a fossil fuel need unless something changes. Now when you think about trying to use electricity, you've got to have new vehicles, you got to have batteries and you've got to be able to have a good supply of the batteries, they have to work long enough. You actually have to have renewable electricity to deliver to those batteries and it has to be done in a concentrated way so that you can get the bang for the buck in terms of vehicles. Think of it this way with ours. We're taking that renewable energy, packing it into a liquid fuel and then it uses all the existing infrastructure. There's no change required on the part of the consumer, no change required on the part of a fleet owner. It's just a different game to play. And so it isn't one or the other. We're going to need them all because the amount of fuel that has to be replaced, the fossil-based stuff is so freaking enormous that it's going to take any and all solutions. So I think it's a question of in some places it's going to make terrific sense to have EV, other places, not so much, like in a rural place. Or it might be that you think about, I mentioned that, for instance, you mentioned fuel cells and I mentioned hydrogen earlier. You know what? If we had wind towers and we're making excess wind because the wind's blowing and I don't need it for the plant, you know what? I think maybe I ought to make hydrogen out of it and maybe we turn it into something and play in that market sector too. So when I think -- I look at the future, I see that it's going to take multiple solutions. We have an interesting one because we're not hung up with infrastructure. We can leverage existing infrastructure. We're not hung up with having to get new fleets and talking everyone into buying a new vehicle. You know what? You get to use the same old vehicle, lower your carbon footprint by using our products directly. People haven't thought of it much because we've been unaware of these types of things; they just don't know yet. And they still look at us and go, what? You're doing gasoline? You mean ethanol? No, we're not doing ethanol. Ethanol is like the 10%. We're doing the other 90%. What? You can do that? And then we run into this all the time. People just -- they're still learning that it's possible. So it's interesting. But of course, this is why Trafigura did sign up with us, because they get it. Haltermann Carless gets it. And there'll be others who get it as well. -------------------------------------------------------------------------------- Shawn Severson;Water Tower Research;Analyst, [6] -------------------------------------------------------------------------------- My last question, I'll step out, is on cash flow. Is this quarter a pretty good proxy going forward for cash burn or is there going to be any other changes or investments you think you need over the next couple of quarters? -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [7] -------------------------------------------------------------------------------- I think it's pretty typical. They're going to creep up incrementally a little bit, as you know, because we had reduced staff. And so we got to bring back a few more people. So it should be pretty typical. We're going to have chunks that get spent at various times for engineering projects. So these aren't like your typical R&D burn-type thing. These are going to be now we're doing engineering work, paying it to a company to deliver on a project and we expect to be reimbursed as the project closes. So we'll have some of those types expenses, and we'll be able to give more color on those. So in terms of your basic burn, we're in pretty good shape. What's interesting about this is, and the question I get most asked is, hey, when are you going to raise money again? Well, I don't have plans to raise money anytime soon. Although, I do recognize that as we get these projects deployed and we have a good partnership with equity investors, it might behoove us to invest with them, and that might be useful. But that's down the road some time. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- And our next question comes from the line of Amit Dayal with H.C. Wainwright. -------------------------------------------------------------------------------- Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [9] -------------------------------------------------------------------------------- Great to see the little pieces coming together on moving these plans forward. So did I hear it correctly, Pat, that you have equity investors for 48 million gallons already in place? You're trying to see if you can get additional investors to come to that [20] million gallon. If that doesn't come in within a certain time frame, you are happy to move forward with this 48 million-gallon financing that is shaping up for you? -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [10] -------------------------------------------------------------------------------- Actually, it's slightly different than that. We actually have equity investors who are willing to put up the equity for all 70 million gallons. However, we'll probably tranche it because we have the contract, the take-or-pay contracts in place for 48 million gallons. And so that's clear, we can move on with it. And then depending upon who takes that next tranche, and there's a couple of them who could do it, then that would dictate where we might want to locate a plant and it'll influence a little bit of the decision. But we already have the equity players. We have term sheets from them to do the whole build-out of the first 3 plants. -------------------------------------------------------------------------------- Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [11] -------------------------------------------------------------------------------- Okay. Understood. So that's a really big development. And alongside that, you are finalizing the engineering firms or have you already sort of finalized it and you are waiting for a certain catalyst before you announce who the engineering firm will be? -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [12] -------------------------------------------------------------------------------- Well, yes, we have our lead horse and we're already engaging him. And we have to go through, there's initial step of engineering they have to do. And then once you do the lock -- the whole turnkey project, there's a couple other people whose names have surfaced lately that we have to look at. So it's about -- we'll announce them at the appropriate time. We're definitely engaged, Amit. We're definitely engaged. It's about -- there's 2 -- so there's like an engineering part and then they're saying, here's who's going to build out the whole giant plants or the 2 plants with whatever turnkey project; those are 2 separate things. -------------------------------------------------------------------------------- Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [13] -------------------------------------------------------------------------------- Right. So based from this commentary, is any of this sort of news flow coming, potentially going to come before the end of 2020, or should we expect announcements around these to happen in early '21? -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [14] -------------------------------------------------------------------------------- Don't know yet. It's like, you know it's not my -- I'll do stuff when it's signed. And the engineering stuff like I think is more in our control, the site selection's more in our control, so those could happen sooner rather than later. But we'll announce them when they're ready to announce. But they could be sooner. So I'd expect those to be sooner. Regarding the customers, this is one of these ones where I see it growing, so that I see the list of people who want product is growing. And I see that the contracts are being negotiated. There's a couple contracts that I'd have thought had been done by now, but they got caught up in stuff with the other company that had nothing to do with us or nothing to do with our product, it was their whole what's going on with them in the world? And it'll get done eventually. And so those could take a little bit longer. But no, the stuff is still moving forward. I don't know. It's just it'll -- this year's somewhat unpredictable anyway, that's why I even hate making predictions. But in terms of the engineering firms, in terms of site selection, that's stuff I'd expect to happen sooner rather than later. But I'll announce it when it's ready to announce. -------------------------------------------------------------------------------- Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [15] -------------------------------------------------------------------------------- So based on how all this sort of falls in place, and if happen to fall in place, say, by the first half of '21, at that point, going into the second half of '21, do you potentially start getting paid for development work that you will be putting into this? -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [16] -------------------------------------------------------------------------------- Yes. Right. So the way that this should unfold is that we do the development work upfront then we get reimbursed for it. If the things hold to schedule, we should start to see some of that money coming back to us late in 2021. So and the late meaning the latter half. Don't know exactly when, depends upon how things get done and their timing. We have couple of these partners want to go faster rather than slower, which, of course, that suits us too. So what should happen is we'll announce the engineering firms, announce the sites, we'll announce additional customers. We'll announce then who it is that these equity partners are in the project. We'll announce who it is and how we're doing the debt side simultaneously, as Lynn mentioned. Then it'll be moving it forward to the financial close. And the financial close, then we get reimbursed for the money we just spent on the engineering and the other stuff and licensing fees and things like that. And so yes, that should matter a lot and it's material. And the good news is we have enough money on our balance sheet that if it takes longer, we're still in good shape. So I don't have any reason to think it would take longer, other than the practical reality of stuff sometimes does. But you know what? They're working through, well, the next milestone on the equity -- on the project front, plant project front is to get those equity investors locked down. Now I also mentioned the biogas in my comments. The biogas thing is interesting because biogas is a -- we need it. We want it for feeding our boilers at our plant because it gets us off natural gas partially, and that reduces our carbon scores. And of course, we get paid for carbon score. It matters. However, guess what? We also can sell that to California and we'll be doing that initially, we expected. And that should start up in the latter half if things go right. We still got work to do on the financing front. They're on the debt side. But that should be generating revenue maybe late next year too; it should be. So I would expect a couple of revenue streams we haven't seen before. And of course, if ethanol ever does come back to be something where it's profitable, we can always turn that back on too. -------------------------------------------------------------------------------- Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [17] -------------------------------------------------------------------------------- Okay. Understood. And then with this time line that you now have there's a lot more clarity versus maybe even last quarter on this. Are you comfortable that you will be able to sort of meet your agreement with Trafigura for the [25] million gallons per year by the 2023 time line? -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [18] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [19] -------------------------------------------------------------------------------- Okay. Understood. And then with respect to sort of the 50,000 production that is ongoing right now from South Hampton, which customers is this product going to? Is it all going to go to 1 or 2 customers or are these multiple clients that you’re [putting in]? -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [20] -------------------------------------------------------------------------------- Yes. So what we're doing is remember the capacity for our plant down in Silsbee, Texas, is about a 100,000 gallons per year, right? And we have the ability to move the output from jet fuel to gasoline, the renewable gasoline. Haltermann Carless, it always seems to me that they want more hydrocarbon, more isooctane, and there's other people like them. The [isooctane] is particularly interesting. Jet fuel, sure, people want to use it and test it. But we don't have enough capacity to move a needle anywhere, except for some corporate aviation stuff that someday I hope to be able to announce because people will find it interesting as to who's been buying it. We just aren't allowed to say who it is. What we're running now up at Luverne, so we did start our Luverne plant up. It's not running ethanol. It's running isobutanol. And we're running a campaign to make isobutanol gallons so that we can feed them down into our plant in Texas. -------------------------------------------------------------------------------- Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [21] -------------------------------------------------------------------------------- Okay. Understood. Yes, those are all my questions, Pat. -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [22] -------------------------------------------------------------------------------- Yes, it's kind of fun to be running our isobutanol again, because how often do I get asked, well, hey, you all can't run it; yes, we do. It's just we need renewable isobutanol so we got to go make it ourselves and we have a team in place to do that. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- And our next question comes from the line of Poe Fratt with NOBLE Capital Markets. -------------------------------------------------------------------------------- Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [24] -------------------------------------------------------------------------------- Busy quarter last quarter. Looks like this quarter's going to be -- the big event is going to be the payoff of the Whitebox debt at the end of the quarter. When you talk about the biogas investment, I think you've talked before about a certain amount. And can you remind me of the amount of that potential equity investment and then what the timing might be? -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [25] -------------------------------------------------------------------------------- It will depend upon having the debt side. I think the best answer to this is it's not an outrageous investment. I don't know the amount that we'll have to put in because there's been some equity players, player -- players who have indicated some interest in co-investing with us. We have to decide, does it make sense or not? I hope it does, although I do like the returns from this project. And then there's the debt side. So I think this is one where because I have moving parts, I don't want to speak out of turn. It's not huge capital, though, in any case. So it's like $15 million would be the full equity amount if we had to pay it, but I don't think we will. -------------------------------------------------------------------------------- Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [26] -------------------------------------------------------------------------------- It'll be a fraction of that. -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [27] -------------------------------------------------------------------------------- Yes, that's what I guess, but I just don't know. And this is, again, strictly a financial return. A project like this has financial returns that are ridiculously high IRRs. And so there is that real question we're going to have a look at ourselves and say, hmm, maybe we want that money for ourselves because I might want the cash flow. So that's the kind of stuff that we have to evaluate yet. I just don't know. -------------------------------------------------------------------------------- Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [28] -------------------------------------------------------------------------------- And then can you talk about just the term sheets that are outstanding with both the financial and the strategic equity players? I think on previous calls, you talked about having LOIs on 2 plants location. Does the strategic bring potentially another plant location replacing one of those LOIs? Or can you just sort of talk about the LOIs that you previously had on plant locations and then also potentially when you expect to move on those LOIs and close? -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [29] -------------------------------------------------------------------------------- Okay. Okay. So 2 separate things. So we got -- let's de-convolute this first. We got the term sheets from equity investors. They definitely have ideas about where they want product, how they want to do it, how fast they want to go, can we accelerate it, stuff like that, okay? And that influences how we think about things. And it'll be interesting for people once we can actually talk about it clearly and openly. It's going to be interesting. Now as we add in more gallons, we continue our search and continue to look at other sites for like taking over an ethanol plant or building a side-by-side isobutanol/ hydrocarbon plant. We have several players who they're interesting in that we could do it on their sites. They're open to it. We have LOIs. We have them already. And so we could do that. It's a question of which one makes the most economic sense in light of who it is that we're working with on the equity side of the project. So we have multiple sites already that we could use. We think there's a better one. -------------------------------------------------------------------------------- Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [30] -------------------------------------------------------------------------------- Okay. And then when we look at the nonrecourse [FCDs] that you've structured and then you'll retain a minority interest, can you -- I guess Lynn alluded to that the debt structure has been finalized. Can you share with us the final terms on the debt side? And then also what potentially minority interest level you might see Gevo retain at the [LTV] level? -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [31] -------------------------------------------------------------------------------- Well, what's interesting is -- I'll answer the last part first kind of, and that is, I don't want -- I'm not sure of what our minority interest will be exactly because it depends upon how much we invest. We have enough cash on our balance sheet to make a good investment in those projects, and that would lift our portion of that project. And the returns on these projects are attractive. So that would be good for us in a cash flow sense. We already have money that we could invest without raising any more. So there's a question of, do we do that or not? So that impacts then how big our minority interest is. Of course, just by being a developer [and] licensing technology and all the rest, we would expect to get some minority interest typical of what would be market in a developer, although we're also a licensor. And for us and as we make money as Gevo, remember, we get money from license fees, operating fees because who's going to operate these plants? It's going to be Gevo. We get paid to operate these things. So out of that, before the project pays off returns to the investors, we've got to get paid to operate the plants and do those kind of things. So that's all part of this overall equation. And then the debt structure itself, it is -- we have a very clear view of how to do it, what to do, who's going to do it? Could it be subject to change still? Yes. Like so I don't want to give a specific percentage interest rate with the specific terms, because this all depends upon who plays, how they play, do we tranche it, what do we do? So there's a bunch of things that still could move around. I just don't want someone sending me 50 billion emails on, well, you said this. It's not ready for it yet. -------------------------------------------------------------------------------- Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [32] -------------------------------------------------------------------------------- Okay. Granted. And then if you could talk about the engineering plans. It sounds like that you -- it's 2-phased, you have the FEED player in place already, the design work's under way. And then once that's all finalized, then you'll go out and get it to a whole EPC contractor. Is the EPC contractor, is that potentially done at financial close or near financial close or is there potential that you put that out to bid through. -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [33] -------------------------------------------------------------------------------- Sooner. Much sooner. -------------------------------------------------------------------------------- Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [34] -------------------------------------------------------------------------------- Okay. And then are you still -- I think before we talked about financial growth in the first half of 2021, towards the later, probably later rather than sooner, course of the mid-2021… -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [35] -------------------------------------------------------------------------------- Well, no, it would be -- yes, yes, yes. Timing works like this. FEED, so FEED is, for everyone else, FEED means the full engineering work. It's kind of an acronym we all use. And you need that done, it gives you a final engineering. And then you turn around to an EPC contractor or engineering firm who builds the plant, constructs it and stuff like that. We are working on FEED right now; we're going to get that pinned down. The people we're working with could be the EPC. We'd expect them to -- they're certainly capable of it. But there's other people who maybe have a sweeter deal and they're perfectly capable of it too. This is partly what you do when you're negotiating contracts that are in the hundreds of millions. So then we'd announce those things. There's going to be the financial close, the plant actually gets built after financial close. The equity partners would be announced long before the equity, long before the equity close. We're going to have to tell people about it. That's just the reality of it because we won't be able to hide it. We're going to have to put it out there and tell everybody. That I'd expect in the first half of the year. The close itself, it depends on how all the pieces come together when all the site work is -- everything is completed, everything is done and buttoned up and we can get to a project financial close. And these projects are onerous in terms of the amount of detail and work that they take and the amount of diligence stuff that goes into it and the amount of reports and expert stuff that has to be done. And so we planned for that in the second half of the year. -------------------------------------------------------------------------------- Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [36] -------------------------------------------------------------------------------- Okay. Yes, that seems a little later than what was contemplated before, but still within… -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [37] -------------------------------------------------------------------------------- Well, actually it's the same. Yes, actually it's the same. If you go back and look, we talked about it being the second half of the year. Takes one year even at doing the gas from -- on the project to get something to close. But we talked about doing the financial close for biogas, I would expect in the first half of the year. -------------------------------------------------------------------------------- Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [38] -------------------------------------------------------------------------------- Okay. And then any comment on what potentially happens under, good, bad or indifferent, under a Biden administration… -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [39] -------------------------------------------------------------------------------- That's interesting to see. Yes, so that should be interesting. It should bode well for us, I would think so because this is a chance for some of the greenhouse gas stuff to get put into policy. Hopefully it'll be done in a good, constructive way. They got to win over the Midwest, the Dems do. And so that's good for agriculture. There's a whole bunch of new techniques called regenerative agriculture. But it's a, how do you capture carbon in soil? That does come into play. People are waking up to the fact that it isn't food we're -- growing stuff doesn't necessarily pollute the air; it depends on how you do it. Well, we've known that for years, have been talking about it. Good. People are listening. And so I think overall it's good for us, there's no question about it. It's just now got to see what happens in Georgia. Does the whole thing turn blue or is it going to be more incremental if the Senate stays red? So overall, it's got to be good for us, right, because we happen to have one of the few technologies, maybe the only one that I'm aware that can be scaled up to deal with gasoline itself, the hydrocarbon portion of gasoline. And of course, we have the ability to make the jet fuel or diesel fuel too, plus if the people are as aggressive as they say they're going to be about chemicals and materials, good. I have the building blocks for those too. So let's go. Let's get on with it. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- And I'm showing no further questions at this time, and I would like to turn the conference back over to Patrick Gruber for any further remarks. -------------------------------------------------------------------------------- Patrick R. Gruber, Gevo, Inc. - CEO & Director [41] -------------------------------------------------------------------------------- Great. Thank you all for joining us. It's an exciting time for us. It's quite a different position that this company's in now. It was not that long ago, right, when we were having to -- how are we going to live through the year? I'm looking forward to paying off Whitebox and getting out from under that debt. I've heard from many of you that that's an important thing and it's crystal clear that that's going to happen. We're moving forward on these engineering projects, moving forward on biogas. It's good. We're going -- there's like -- it's interesting and momentum seems to be going in our favor across the board and including with the election. And so we're pretty darn excited about what's going on and our partners seem to be too. Just got to get them over the line on everything. So thanks for your support. Thanks for joining us. Have a great evening. Bye. -------------------------------------------------------------------------------- Operator [42] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.