GEVO - NASDAQ

Good day and thank you for standing by. Welcome to the Gevo Incorporated Quarter Three 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is recorded. I would now like to turn the conference over to your speaker today, Dr. Eric Frey, Vice President of Finance and Strategy. Eric, you may begin.

Good afternoon, everyone. Thank you for joining us today's call to discuss Gevo's third quarter 2024 results. I'm Eric Frey, Vice President of Finance and Strategy at Gevo. With us today are Gevo's CEO, Dr. Patrick Gruber; and CFO, Lynn Smull. 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. 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. 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 Eric. Good afternoon, everyone, and thanks for joining us on our call. We have filed our Form 10-Q today. We ask that you refer to it for more detailed information after this call. During the third quarter and shortly after the close of the third quarter, we achieved several important milestones. Not only do these milestones enhance our financial outlook, but they also reinforce Gevo's commitment to advancing drop-in, cost-effective, scalable carbon abatement solutions for those difficult to electrify market sectors and industries. In fact, two of the milestones we achieved are transformative to our company even when you consider them individually. Let's start with our acquisition of Red Trail Energy's low-carbon ethanol and carbon capture sequestration assets in North Dakota. This acquisition, which we expect to close by the first quarter of next year, brings a well-operated low-carbon ethanol plant along with an active CCS site into our portfolio. Red Trail assets will be a valuable addition to Gevo. In fact, they generate approximately $200 million in revenue in the fiscal year of 2023. They're going to be a great addition to our company. It's transformative. This positions us for long-term success, providing a platform for further growth by developing our carbon abatement capabilities. For example, we are exploring converting low-carbon ethanol at the site to SAF using our Verity business to track the farms and count carbon and make sure that we can account for all the carbon abatement that occurs throughout the business system. We also, by acquiring this site provides our Net-

Thanks, Pat, and good afternoon, everyone. Starting with our financial position, we ended the third quarter of 2024 with $292.9 million in cash, cash equivalents and restricted cash. Our continued strong liquidity position reflects our disciplined approach to Net

Thanks, Lynn. Before we open the line for questions, let me reiterate how proud we are of the progress we have made this quarter. This is hard work we're doing between our DOE loan commitment, our pending acquisition of Red Trail assets and the advancements in our Verity, RNG and Technologies businesses, we're making meaningful strides towards this vision of Net-

So that people forget that. This isn't like it's a free handout for carbon. No, it's not. Yes, the carbon credits -- remember, it's $1 of carbon credit value creates $6 back to the general economy according to Charles River. Well, that's pretty important. And then of course, there's the RIN value and all the rest. But those -- all those kind of values, the RINs, the LCFS, what comes down the pike from other federal programs, those things are -- they all pay for the capital. And you'll notice this thing is a conditional commitment without the finalization of the 45

Yes. No, it's very interesting. On the other major news from you guys, the Redfil acquisition merger. I know it will be early 2025. But from now until then, are there any financing discussions? Are there any other steps that need to be accomplished, milestones to be accomplished before the merger can take place?

Yeah, we're going to do debt. And so we've been doing a debt process, and it's really -- it's going quite well. We're very pleased with it.

Okay. And then the CultivateAI acquisition, of course, is there a pathway or any plan of integrating the Wei program into this? Or are these going to be independently operating?

They're going to be -- they're together. They're already being integrated, and it's a -- makes for a more complete offering. And of course, for everyone who's listening, the big game here is it's not good enough just to say, "Oh, I hope my corn is good. You got to prove it's good with real data. That's the thing that gains good bipartisan support, and it's true also in the marketplace. You got to be able to show it's not that even if it's corn or soybeans or something, it's not just growing at that counts. It's how did you process it? What energy did you use? And you got to track things all the way through the whole supply chain. This point is lost on the world at large, it seems to us, and that creates the opportunity for Verity. Now CultivateAI has some outstanding tools available for -- that are in operation and working with farmers and helps them measure their crops and how the crops are performing or what's needed in the fields, and it's valuable. And so that's one more component. And you'll look for us as we grow Verity to add in other technologies into the overall portfolio of Verity.

Interesting. No, yes, that is -- we agree, it is a big opportunity and have a wide market that you can address. On the R&D front, I know you have intentionally not sold these environmental attributes. -- do we -- the amount we see on the inventory in the balance sheet in the press release, what is the basis of the valuation for that? Is it based on a higher carbon intensity value? Or like how do we gauge -- should we say that the inventory will be translated into revenues going forward in subsequent months or it will be at a higher than the inventory that we see there?

Yes, it would be -- yes. So what we expect to happen, we're holding them right now because we expect to get the pathway approval in California. We can see that they're working on it. We've done the site visits and stuff. So we know that it's progressing. It's just a question of when it gets done. And if we hold the gas until we have the pathway done, then we can get a higher value for it rather than selling it at the 150 pathway. And so if the question is, what is it currently booked at in the inventory, that's what you were asking?

Yes, yes.

We're going to plan on monetizing it at the full value. But I'll have to get back with you and check. Lynn is telling me it's booked at minus 150.

Okay. So it is on. Okay. Got it. And then last question. Sequentially, the cost -- operating costs are slightly lower. Should we expect these new lower levels for operating costs, R&D, SG&A, those line items?

Yeah. Stacy Buchkol, who runs that plant, she's on a mission to keep driving out cost. So that's what I expect.

Thanks for taking my questions and congratulations on all the progress.

Thank you very much.

Thank you very much. One moment for our next question. Our next question comes from the line of Saumya Jain of UBS. Your line is open.

Hey. How are you guys feeling about raising your, I guess, equity portion of the project financing? Are you guys looking towards that?

Yeah. There's a lot of interest in it. The thing about having a conditional commitment from the DOE loan office is that the amount of diligence that's done is absolutely mind-boggling, detailed. And so that helps. All the questions that can be asked have pretty much been asked. So people know that there's built-in extra cost to protect the project financially, and that benefits equity holders, too. So yeah, there's a lot of interest in it. So we've got to go work through it with the equity firms.

Got it. Okay. And then how is your annualized RNG production looking this year compared to last?

Well, I think last year, the actual -- the rate -- annualized rate was at 3.25, something like that. We're up about 325,000 million BTUs last year. This year, we're going to be at like 400,000 million BTUs or so. On instantaneous rates, we're above that.

Okay. Perfect. Thank you.

Thank you very much. One moment for our next question. Our next question comes from the line of Greg Gumer [ph] at LPI. Greg, your line is open.

Hi, everybody. Can you talk more about the conditional loan with the DOE? When did you say you'd be giving us more information on that?

When they tell us we can.

Okay.

Yeah. It's one of these things where they're super du.

Dr. Gruber are you there?

Hello?

Hello?

Okay. There we go. We're back.

Okay. Dr. Gruber are you there?

Yes, I'm here.

Okay. Sorry about that. Yeah, as far as the -- so they'll let you know and then you'll pass it on to us. But the big thing I heard while go from the previous question was that this does survive the change and as far as president. So that's good.

It feels pretty good.

Okay. Because I was very concerned about that. So I'm glad to hear that.

Yeah. That's the most important thing. And the other part I was trying to get across is that our project plays to both sides of the aisle. We're in a red state. It's a creating jobs. It's rural economic development, rural infrastructure development, lift the price of corn in the region. It's a big economic impact. And it also sets a precedent and it's think of it instead of oil from under the ground, this is oil at the surface of the ground captured. And the paradigm buster is, yes, it can be cost competitive with oil. Hello, -- that's an important point. It's not that these things are just pie in the sky, it's going to cost 10x x. No, that's not the case of a project like ours. That's what makes it important. That's why we get lots of bipartisan support.

And this is something I should probably already know. But as far as fuel, it's coming from things like corn and soybeans and...

Corn starch. Corn starch -- so yes, just so the business system works like this. They do climate smart corn. And so depending upon how you grow corn, you could actually improve the carbon footprint and actually make it negative. Not that we would get credit for that anytime soon, but in the future, we would. You take the corn kernel, you fractionate the corn kernel in the process, and you're using the carbohydrate portion and making that into ethanol and then ethanol into jet fuel. In the meantime, you're generating enormous quantities of protein. In fact, on a tonnage basis, it's three times the tons for making protein than it is for jet fuel in a plant like this. And then you also get a bunch of oil that you can use for the food market or to sell it into one of the other industrial markets for oil. And so you're capturing value from the protein, the oil and then the carbohydrates is transformed into jet fuel. That's how the business system works. And then we're applying renewable energy across the whole of it, and that's what drives it down to a net zero. One of the important analyses that people need to do and pay attention to is that when we're going to very low CI scores or even negative in our business system when we include carbon capture, it's pretty darn interesting in that, that makes it more valuable. Why is it more valuable? Because when we take that net zero fuel and if I have one gallon of our net zero fuel and I blend it with one gallon of petro jet, I get -- if I got two gallons when I'm done blending, I got two gallons at a 50% reduction. Think about what that means in the marketplace. That's a big deal in terms of value that's created for the customer, right? A lot of other technologies that are out there in our space, they struggle to get to a 50% reduction. You can get two gallons for one by blending one of ours. That's what's possible here. And in the future world, I mean we're just talking with a bigger -- with a group today talking about what future looks like, and it's going to be driving the CI scores down and negative. That because it takes less gallons to move the needle in the marketplace. That's the kind of technologies we're on and why they're important and why people care.

How high quality -- to make your SAF, how high quality does the corn have to be? For instance, if we have a drought condition and that's in edible corn, can you work with that? Or does it have to be very high-quality corn?

No, no. So the corn that's grown in the United States is only 1% has actually grown for food. None of the corn that's used for food is what we're using. This is field corn. Yes, yes. So sweet corn and all that kind of stuff, that's not we're talking about here. So stuff that's in a corn flake box or in a bag of corn or a can of corn or corn in the cup, it's none of that. This is a different kind of corn. It's field corn, standard field corn. And instead of making into more high fructose corn syrup or making -- feeding it to cows and making give them a sick stomach because you know when you feed too much sugar to a cow, they get a sick stomach and they burnt methane. Well, how about this? We don't do that. We separate the protein from the carbohydrate and now they're happier cows. And in fact, that's how the world is working. So no, no, the standard field corn.

Drought conditions would not impact.

Not the way you're talking about it. And so that's one of the beauties of the supply chain is that it's well established, fundamentally no new creation of this. This is about what we've done in this business system is taking giant business systems that exist, and we're adapting them to make them decarbonized. And we're even -- the technologies that we're using in converting the carbohydrates from the corn into jet fuel, we're even co-opting things that are already existing in other industries and bringing them all together and putting it with renewable energy. And that's how we achieve a net zero. So we -- in that sense, we don't have technology risk like you do in new magical things. Yes, we're boring. We use things that work for sure at giant scale. That's what we're doing.

Speaking of co-opting, how -- do you have any relationships with other countries? Like I think at one time, maybe you still do with India, for example. Are you still having any partnerships overseas?

Yes, we do. We do. We work with Praj all the time and the other companies. So when they flew jet fuel in India that was ours, when India did. So yes, we've had many discussions. We stay involved with them and in other parts of the world, too. So it isn't just -- yes, we are very focused on execution here. We love our Net

Okay. Lastly, I'm sorry, take [indiscernible]. Is there any plans to dilute this current share base in the near term...?

I don't -- no.

Yes. Okay. I think you might be raising capital through debt. Is that what you say?

Yes, yes. We're not -- there's -- so we don't -- okay, so let me add more color to this. To finance, it's going to be a project level financing for Net-

All right. Thank you, Doctor Gruber. Appreciate it.

Got it.

Thank you very much. One moment for our next question. Our next question comes from the line of Peter Gastreich of Water Tower Research. Peter, your line is now open.

Thank you very much. So thanks for the presentation and congratulations to Doctor Gruber and team, just really a transformational quarter there. A question on CCS, the Summit Carbon pipeline appears to have hit a snag with this referendum in South Dakota. Gevo already has the industry's lowest CI score. So CCS is kind of a nice to have, so to speak, I understand that. But still would be interested in your thoughts there? And also related to that, could you discuss how Red Trail could be brought in as a CCS option for N

Yes, sure. So what was so bizarre about that referendum in South Dakota was that it was a landowner rights bill. People commonly talked about it as a pipeline referendum. It wasn't a pipeline referendum. It was about making sure that people got paid more money if a pipeline went through and they had more protections if a pipeline went through. That got defeated. That's astounding. What you saw was a bunch of activists talk about it as, oh, this is a pipeline approval. It has nothing to do with pipeline approval. That wasn't what it was. That's astounding that it even gets out that way, and that's what happens. It's like you're kidding me. Now, so it doesn't change anything. The authority rests in the Public Utilities Commission, that still hasn't changed one bit. And so this is -- nothing has changed from a fundamental real-life standpoint of what has to happen. The ball is in Summit's Court. They tell us they're moving forward. They've got a plan to move forward. Great. And we'll help them to get people educated about what really goes on with this pipeline. I mean, my goodness, people are opposing a CO2 pipeline. And guess what, it's the green -- the far active as green people who are trying to do that. And it's because they think it's somehow dangerous. What -- they need to get -- we've got so much education to do with people. So it will take some time. We'll get there. And our position is that in South Dakota, there is a -- I think -- well, when you're putting up a pipeline, you also have to respect landowners' rights and someone has done a great job of working on that, too, and making sure that people are in cooperation. This playing of is playing up of fears on all sides. That's not good for anybody. Remember, get this. This is a piece of data I want everyone to understand. For every gallon of jet fuel burned, it makes 21.5 pounds of CO2 for every gallon. That's also true of gasoline. 21.5 pounds for each time you burn a gallon of gas, that's 21.5 pounds of CO2 that goes in the air, unless, of course, you have ethanol, in which case, it's only 18. Those numbers come from the Energy Information Agency. So, people don't realize that this is a real issue. It's a big issue. It's a tremendous amount of thing. The pipeline itself is capturing biogenic carbon, biogenic carbon. That's the CO2 from the atmosphere. You see all this talk all around the world that people want that capture. Well, here's a way to do it. And now you have environmental groups opposing it directly in opposition to what they say is true, what do they want, more fossil stuff burned, are you kidding? So, it's this whole -- we got a lot of education work to do here. But I think it's a practical matter. If it's going to -- and why the people of CO2 -- people of South Dakota should be punished and have markets work around them makes no sense to me. I don't understand it. Why would you want to have disadvantaged corn? Why? I don't understand. It has to be competitive. So, it's just -- it's going to take work. But as far as decision-making goes, that ball is all about still in the PUC. Someone's got a plan. We'll work with these guys. Now, in the meantime, you know what, it could take some time to get that pipeline built. In which case, we could rail stuff up to our site up there in Richardton at our Net-

Okay, that’s great. Thanks very much.

Thank you very much. Our next question comes from the line of Emily Sorensen of Sorensen Farms. Emily, your line is open.

Yes, thank you. I guess on the coattails of that last gentleman, could you -- will you still go forward when the loans approved to build -- start building without the pipeline?

I think -- well, we're going to make sure we're going to make that case. Now the way that case has to look is, it's got to be attracted to Wall Street and the equity investors. This is the thing that we'll be focused on, and we could do that, but it is one of these cases where, like I say, we could rail stuff up and help solve the problem. There's definitely -- that's the beauty of us owning our own sequestration site. So the answer is, yes, that could happen. But I got to tell you, there's a bigger issue at play here about business in South Dakota and how will people respond. It's a bigger issue that needs to be understood, and we're going to be working on it because we have options about other places. We do. So it's just kind of a -- I can't give definitive answers other than to say, we're going to execute this project. We're going to get -- we're going to work and make N

Okay. And I guess my second question and last question is, kind of working backwards, I guess. But with the new administration, I know he is pro ethanol and pro-farmers. So I get that. If he is not pro green deal, working backwards where you give credits to the airlines for their carbon neutral, if they lose those credits, would that affect what they purchase?

Well, you know what's interesting about that is there isn't that credit that the airlines get. It's in a section -- it's IRA Section 45

And we're not talking about getting rid of jet fuel anyway. I mean we're going to work together. I mean it's not one or the other. You can work together. So you can make -- that's the thing I think people forget. You don't have to do 100% SAF. You don't have to do 100% jet fuel. You can do a combination and everybody can be happy.

You got it. And so that's the thing that is so important is this carbon abatement. The jet fuel itself is just jet fuel. It's made from renewable carbon, but it's just jet fuel. It has to meet the specs, couldn't fly it if it wasn't just jet fuel. And you're going to blend it with Petro-jet. And so the idea is that the more carbon -- the lower the carbon score we can get, the more carbon negative we can make it, the less of it we have to make to move the needle on the overall emissions of the blend. That is a big deal. And remember, this is using all existing infrastructure. But the same thing is possible with gasoline and diesel fuel. We can do the same thing. Those are all possibilities. We can do those. And so that means you can keep a combustion engine of whatever type and we can drive the emissions down. That's what this technology that we have holds as a promise. That's what makes it exciting. It's a different game to play about what's possible. And when you take it then and start thinking about energy infrastructure and energy security, you won't see -- this is going to be spread out across the country in places. It's not all concentrated on the Gulf Coast, for example. So it's a different game to play in the long run. And I think that from having all the discussions with political people over the last couple of years, it's been -- they didn't know it's possible. So we just show them the economics openly. Show them, here's what's possible. It's pretty exciting, and it changes how they think about things.

Well thank you. Thank you. And wish you all the best. I'm an investor, so I wish all the best.

You bet. Thank you for best luck.

All right. You bet.

Thank you very much. At this moment, I am showing no further questions. I would now like to turn it back to Dr. Gruber for closing remarks.