Geoff Williams - General Counsel and Secretary Pat Gruber - CEO Mike Willis - CFO.

Jeff Osborne - Cowen and Company.

Welcome to the Gevo First Quarter 2016 Earnings Conference Call. My name is Ann 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 conduct a question-and-answer session. Please note that this conference is being recorded. I’ll now turn the call over to Geoff Williams. Please go ahead..

Good afternoon and thank you for joining Gevo’s first quarter 2016 conference call. I’d like to start by introducing today’s participants from the Company. We have with us today Pat Gruber, Gevo’s Chief Executive Officer; and Mike Willis, Gevo’s Chief Financial Officer.

Earlier today we issued a press release which outlines the topics that we plan to discuss today. A copy of this press release is available on our Web site at www.gevo.com. I would like to remind our listeners that this conference call is open to the media and we are providing a simultaneous webcast of this call to the public.

A replay of today’s call will be unavailable on Gevo’s Web site. 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 and which is posted on our Web site.

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 operating activities for the remainder of 2016 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 Gevo’s most recent annual report on Form 10-K which was filed with the U.S Securities and Exchange Commission or SEC on March 30, 2016 and in subsequent reports and other filings made with the SEC by Gevo.

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.

Please refer to Gevo’s SEC filings for a detailed discussion of the relevant risks and uncertainties. On today’s call Pat will begin with a review of Gevo’s recent business developments. Mike will then review Gevo’s financial results for the fourth quarter of 2015 and the year ended December 31, 2015.

Following the presentation, we will open up the call for questions. I’ll now turn the call over to Pat..

Thank you, Jeff. Before today I’d like to focus my update on the variant and the progress we’ve been making since the restart of the isobutanol side of the plant in mid-March. As recall, in September 2015 we announced that we were going to invest approximately $5 million into Luverne.

The upgrades we were looking to make were designed to decrease the cost of production for isobutanol by bringing on-site certain parts of the production process that has previously been done off-site by third parties.

There were three key pieces of equipment associated with approximately $5 million of capital improvement projects that we completed in March. The first thing we did regarding equipment was replace one of the carbon steel production fermenters with a new stainless steel fermenter as the old fermenter was nearing the end of its useful life.

By installing a new stainless steel fermenter, this allows for a more robust operating environment for either isobutanol or ethanol production. The second piece of equipment was a second installation system, designed to handle the output of our isobutanol fermentation train.

Previously we only had one distillation system at Luverne, which we’re configured for ethanol given the larger production and revenues coming from the ethanol side of the plant. Without this distillation equipment, for isobutanol we were forced to send our [indiscernible] off-side to a third-party to peer fly.

And that added about a $1.50 to $2 per gallon costs to our finished isobutanol product. The third piece of equipment was an addition to our seed train, which allows us to produce yeast outside at Luverne at a lower cost. Previously we were contracting with third parties to produce production quantities of Gevo’s yeast.

This was relatively expensive, because we were forced to use larger amounts of purchased yeast in every batch by increasing our capability to grow yeast on site; we expect to be able to use much more volumes of purchased yeast, which should lower our costs.

As we discussed at our fourth quarter call, a month or half ago, we began commissioning some of the new equipment in March, in line with the timing we discussed last September.

Next I’d like to walk through -- for folks, what we’re doing, and what we need to do to accomplish our goals of optimizing the production systems that increase the isabutanol production volumes while decreasing the cost of producing isabutanol. The goals for production guidance we established last September remain unchanged.

To refresh everybody’s memories, here is what they are. We expect to produce between 750,000 to 1 million gallons of isobutanol in 2016. This will involve starting at lower rates and ramping up to production to achieve an expected production rate of approximately 1.5 million gallons per year by the end of the year.

And as we optimize the production process and achieve our targeted run rates, we project the variable costs of production will fall to between $3 to $3.50 per gallon by the end of the year.

Our goal with the new equipment on-site is to have a full isobutanol production line operational at Luverne, from yeast production to isobutanol fermentation through the finished product that meets commercial specifications for both the isobutanol and the animal feed products and completing that cycle within five days, while producing at least 18,000 gallons of isobutanol per batch.

And of course at the same time, we expect to keep the ethanol side of the plant operating at targeted rates of at least 50 million gallons per year. That’s our primary goal. I've explained previously that large-scale fermentation plants like Luverne are extremely complicated in terms of flows and recycle through the system.

It’s very easy to cause an upset in one part of the plant that echoes through the whole plant causing serious production issues. The good news is that we have been avoiding these. We are being very systematic in bringing the new equipment into operation.

Since we've added new equipment or plant in Luverne, is a point to remember that it will take us some time to optimize the operation of the reconfigured plant in order to be able operate their entire production system consistently and without any issues.

Once we achieve this first step, we will turn our focus to optimizing production to reduce costs to hit our previously announced cost targets. Of course just having the distillation and the seed train equipment on-site should save us money compared to 2014, 2015. We believe that the decline in variable costs is already underway.

We kicked off our first isobutanol batch in mid-March. The first piece of equipment we brought online was the new production fermenter. We are very pleased with that first batch and all subsequent batches we’ve run since. The fermentations are operating in line with those ran last year and contamination remains under control.

We believe our new fermenters working well. The second major piece of equipment we brought online was the distillation equipment.

This is where we purified accrued isobutanol stream coming out of the fermenter to meet commercial specs for our various end markets, mainly for specialty gasoline blend stock markets like the Marina and off-road markets, as well as for feedstock for hydrocarbon plant down at South Hampton resources and Silsbee Texas, where we convert the isobutanol to end products like jet fuel and isooctane.

The new distillation equipment is extremely important, because it should represent the biggest driver of cost savings for our isobutanol process sending it off-site cost us an extra $1.5 to $2 a gallon. So by bringing this purification process on-site, we forgot those costs.

Although there is a slight offset to high utilities cost associated with operating in additional distillation column system. We’ve now been operating this new distillation equipment for a little over a month. We have learned a lot. We believe that we will have more or less optimized equipment in the process within the next month.

We do have some further minor tweaks to make in the equipment. It’s really only by operating the newly reconfigured plant that we can truly figure out how to operate the equipment officially to meet customer specs for the final product, and yes, we made the product inspect. The last major piece of equipment is the addition to our seed train.

This is the equipment that enables us to grow up our yeast to a greater mass prior to pitching the yeast into the production fermenter, needling us to start a batch with a smaller base of purchased yeast.

Previously [indiscernible] was contracting with third parties to provide production quantities of our yeast and suffice to say this was very expensive. We will still buy initial quantities of yeast from a third-party supplier, but our new equipment enables us to get more batches out of the same quantity of yeast purchased.

We are just now commissioning our seed train. Once we optimize our seed train equipment we anticipate that this will decrease our production costs by over a dollar a gallon.

In particular, as we increase the number of batches we produced per month, we expect to see the greatest cost improvements, because we wont have to buy as much yeast on a per gallon basis since we will have been growing the majority of the yeast ourselves.

We will be extremely focused on getting the seed train process right as you can imagine if we have issues with the yeast in the growth phase and in the seed train, this will simply cause production problems downstream. We pitched that yeast into the production fermenter.

What does all this translates to thus far and what is the roadmap going forward? Since mid March, we’ve completed 3.5 batches. This is slightly behind where we expect it to be, but recall we had a fire in late March in the fee dryer.

This really have nothing to do with the new equipment, but it did forces to shut down the plant for approximately a week. And if you're wondering why was there half batch, well for technical reasons we decided to use only half the sugar loaded in the fermenter for the first isobutanol batch we ran following the fire. Thus it was the half batch.

Two, we produced approximately 50,000 gallons of isobutanol since we restarted the plant in those 3.5 batches. And importantly we shipped our first railcar product out last week. For some perspective a railcar holds approximately 27,000, 28,000 gallons of isobutanol.

I’ll circle back on where we are shipping this product when I turn to the subject of our market development efforts. We’ve been selling our IDG's or for the distiller grains produced as part of our isobutanol process, blended with distiller grains coming from the ethanol side of the plant.

This blended product is being sold on par with ethanol distiller grains. Given the importance to the plant economics of animal feed co-product this is a major accomplishment. We continue to operate the ethanol side of the plant at the targeted rate of at least 15 million gallons per year. And thankfully ethanol margins have been improving of late.

The contribution margins climbing to the $0.15 to $0.20 per gallon level. To put this in perspective for a large part of this year are ethanol contribution margins had been running breakeven to slightly negative. So it’s really good news that the ethanol margins are improving.

What do we want to accomplish for the next quarter? First and foremost, we expect to achieve the major goal I articulated a moment ago, namely to have the full production line operational, completing a full batch cycle within five days, producing at least 18,000 gallons of isobutanol per batch.

Achieving this goal will really set us up for success at Luverne and will put us in a very good position to meet our production targets for the year.

Out of our granular basis, we expect to be at a run rate of 3 to 5 batches per month and producing between 50,000 to 75,000 gallons per month by the time we report our second quarter results in a few months.

And then for the balance of the year, we anticipate ending the year at an isobutanol production rate of approximately 1.5 million gallons per year. At this rate we’d expect to be completing approximately 6 to 7 batches per month and we would expect to be achieving our targeted variable cost of production of under $3.50 per gallon.

So if we are able to achieve our goals next quarter, we expect to turn our attention to decreasing the turnaround time between the batches. This entails becoming more efficient and cleaning the isobutanol side of the plant between batches.

The BBB to develop the right processes to speed up the cleaning process without putting undue risk on the isobutanol operating equipment. Simply put if don’t clean the plant effectively with a great budget products for ourselves downstream in the fermentations.

In parallel with improving batch turnaround times, we will also be looking to drive additional cost out of the overall production system.

We should already be seen the key savings from the equipment we just installed on the front and the back end to the plant but we believe there are other ways to continue to decrease our variable cost of production such as increasing batch sizes, with our production process running efficiently we can begin to target these items too.

All of what I've described thus far is with a view to showing customers, partners, and importantly licensees that the entire system can work in one place at Luverne and it could be done at compelling economics. Recall earlier that I said we are currently seeing ethanol contribution margins of only $0.15 to $0.20 per gallon.

And this is the highest point we seen in many months for ethanol. We believe that our isobutanol can contribute two to three times that and still be additional potential or even more margin improvements through further debottlenecking of the system and through greater scale.

We believe that in the fully optimized basis we can achieve EBITDA margins not simply just contribution margins of $0.50 to a dollar a gallon. Through our isobutanol, that potential is what should make our isobutanol business system to be so interesting to others and potential licensees. So with that, I’ve covered the Luverne operations.

I want to turn to the markets and where we’re planning to sell the isobutanol production that is now starting to come out of the plant.

Wretched fun part of commercialization last year we had to carefully limit our isobutanol production and allocate gallons to partners, because the cost to produce the isobutanol so high, we ran an up campaigns to prove out the fermentation capability and to begin to develop our key markets. Now to new gain.

With the addition of the new equipment, our costs are coming down. We should start to generate a nice contribution margin and we should be in a position to better predict how much isobutanol we can deliver when it will be produced which will allow us to develop a reliable production schedule and the ability for our customers to rely on us.

As we achieve that, we can get on with the job of selling product and developing the markets. We just shipped the first railcar of isobutanol since the restart of the plant and we are excited that we have good visibility to shipping more in the near future.

Our team is doing a good job of organizing the supply chains, and customers in the specialty gasoline blend stock market. This specialty market is estimated approximately 270 million gallons per year in the U.S. The value proposition for our isobutanol in gasoline is ethanol free high-octane. That's what sells -- that’s what people are interested in.

It seems to play well, given our isobutanol provides bio-based content and the SPL has for several properties in comparison with ethanol such as low [indiscernible] and still being able to deliver a high-octane. We continue to be focused on the Lake of the Ozarks region and the Lake Travis to area.

We will announce in the not-too-distant future other outlets for products as they get established. That said, Harbor Marina at Lake Pomme de Terre is selling isobutene blends in their gasoline.

The oil and octane shop has blended and distributed a 12.5% isobutanol blended gasoline primarily targeted to gas stations who sell to people with tailored boats. One of these called the new station, it’s in [indiscernible] Missouri currently has the isobutanol blended a pump with a retail price of $2.89 per gallon.

Gulf racing customers such as Lee Oil, Express Care and Motorsports Ranch in Houston continue to see robust sales for premium octane blends for the off-road enthusiast and [indiscernible] boats at retail prices ranging from $3.89 to $4.99 per gallon.

Gulf racing is in discussions with many mortgage to customers for placements as IBA production ramps up. Now Gulf racing is also busy in the packaged package fuel markets and they’ve expand their network now to over 45 retailers around the U.S. CW petroleum has also begun distributing our product in Texas.

I expect that we will be able to announce who they’re selling to who their retailers are in the not-too-distant future. Going forward, we expect continue to develop the supply chains and ramp up sales, adding distributors and retailers to the business system.

It is important to remember this really hard work we’re building new markets for products for renewable isobutanol isooctane and jet fuel, Isooctane demand remains high. We continue to send isobutanol from Luverne down to Silsbee Texas to hydrocarbon plant to make more isooctane and jet fuel.

The interest in isooctane is driven by interest in low carbon fuels that we blended at extremely high levels. It seems our isooctane might be able to address this and there's excitement for it, at least based upon the high selling prices that we are seeing. We’ve identified potential markets in the hundreds of millions of gallons.

The next step will be to lineup significant commercial off-take agreements for large volumes. And as you know the jet fuel market is important for us. We believe we are the only low cost carbohydrate based jet fuel that meets the jet specification.

When you compare our fuel to other options for alternative jet fuel, including those made from vegetable oil, we believe that we would have the lowest cost renewable carbon based jet fuel if were built out at full scale.

In our fuel we believe, we have the potential to seriously decrease the impact of fossil carbon GHG emissions, Greenhouse Gas Emissions. As we work to make our processes more efficient, we can see that it would be possible for our jet fuel to become very low carbon. That’s interesting given what's happening with jet fuel market.

In the short run we will be working with various airlines to get them comfortable with our ATJ, and as we announced today, we expect that Alaska Airlines will fly their first flight sometime in the first half of June.

We are looking forward to that flight very much because we believe that this represents the next key step in building our jet fuel business. Going forward, we will be working with airlines and their suppliers to put together off take agreements for full scale plants.

We see that these renewable hydrocarbon fuels both the isooctane and jet have tremendous potential for us, and we believe we are the only ones who can deliver the large quantities that it takes to develop these opportunities. We are in a unique position. With that, I’ll turn it over to Mike, and he can walk through the numbers..

Thank you, Pat. Gevo reported revenue in the first quarter of 2016 of $6.3 million as compared to $5.9 million in the same period in 2015.

The increase in revenue during 2016 is primarily the result of the production and sale of approximately $5.8 million of ethanol, isobutanol and distillers grains at the Luverne plant as compared to $5.1 million in the first quarter of 2015.

This change was principally due to higher ethanol production partly offset by lower ethanol prices in the first quarter of 2016 versus the same period in 2015. During the first quarter of 2016, hydrocarbon revenues were $0.3 million as compared to $0.5 million in the same period in 2015.

This decrease was primarily the result of timing of shipments of finished products from Gevo’s hydrocarbon’s demo facility located in Silsbee, Texas. Gevo also generated grant revenue of $0.3 million during the first quarter of 2016, which was flat as compared to the same period in 2015.

Gevo’s grant revenue is primarily generated through the work we are doing with the Northwest Advanced Renewables Alliance or NARA, to produce isobutanol from cellulosic feedstock such as wood waste which would then be converted into Gevo’s ATJ.

Cost of goods sold was $9.2 million in the first quarter of 2016 which was flat in comparison to the same period in 2015. Ethanol production costs were higher as a result of the increased ethanol production in this quarter versus the first quarter of 2015.

However this was offset by limited isobutanol production costs in 2016 given we were still installing the new capital equipment at Luverne for most of this quarter. Gross loss was $2.9 million for the first quarter of 2016 versus $3.3 million for the first quarter of 2015.

R&D expense was $1 million in the first quarter of 2016 compared to $1.7 million reported in the first quarter of 2015.

Recall that our R&D activities include technology development related activities at our labs in Englewood, Colorado as well as production related activities at our hydrocarbon demo plant where we produce our ATJ, isooctane and paraxylene products.

R&D expense decreased in the first quarter of 2016 compared with the same period in 2015 due primarily to a $0.3 million decrease related to reduced employee related consultant and contract staff expenses, and $0.2 million decrease in costs related to the Southampton facility as the result of the timing of shipments of finished products from the facility.

SG&A expense for the first quarter of 2016 decreased to $1.9 million compared to $4.5 million for the comparable quarter in 2015. SG&A expense decreased in the first quarter of 2016 compared with the same period in 2015 due primarily to an aggregate decrease of $2.4 million in general, patent and litigation legal expenses.

Within total operating expenses for the first quarter of 2016, we reported approximately $0.4 million for non-cash stock-based compensation. For the first quarter of 2016, we reported a loss from operations of $5.9 million down $3.7 million from a loss from operations of $9.5 million in the first quarter of 2015.

In the first quarter of 2016, cash EBITDA loss, a non-GAAP measure which is calculated by adding back depreciation and non-cash stock-based compensation to GAAP loss from operations was $3.9 million compared with $7.5 million in the same quarter in 2015, representing a decrease of almost $3.6 million or 50% from the same period last year.

Recall that last September we reported that we are targeting an average quarterly cash EBITDA loss of $3.5 million to $4.5 million per quarter in 2016, and we are in the bottom half of this range in the first quarter of 2016.

Interest expense for the first quarter of 2016 was $2.2 million which was an increase of $0.1 million over the same quarter last year. During the first quarter of 2016, we incurred a non-cash loss of $0.8 million due to the quarterly mark-to-market valuation of the 2017 notes.

There were no changes in the value of the embedded derivatives in the 2022 notes as derivatives had no meaningful value since the third quarter of 2014. No holders of Gevo’s debt converted or exchanged any notes during the quarter.

During the three months ended March 31, 2016, the estimated fair value of the derivative warrant liability decreased by $5.2 million primarily associated with the decrease in the price of Gevo’s common stock in the quarter.

For the first quarter of 2016, we reported a net loss of $3.6 million or a loss of $0.16 per share based on a weighted average shares outstanding of 23,016,329. This compares to a loss of $7.3 million in the first quarter of 2015 or a loss of $0.88 per share. At quarter end, we had approximately 28,084,277 shares outstanding.

Our cash on hand at March 31, 2016 was $8.7 million. This balance included $1.2 million that was pre-funded to Gevo prior to the closing of the underwritten offering of common shares and warrants to close on April 1, 2016. With that, I’ll now turn the call back to, Pat..

Thank you, Mike. So then going forward we’ll be working to optimize our production process at Luverne and continuing to get that equipment online and operating well. And we’re going to be focused on selling this isobutanol developing the jet market and isooctane sales. So let’s move to questions..

Thank you. [Operator Instructions] And we have a question from Jeff Osborne. Please go ahead..

Hi, good afternoon guys. Pat, thanks for all the detail on the improvements of the plant. I look forward to tracking the progress as the cost comes down. Speaking of cost, I was wondering, can you just give us a rough sense of what the average cost was in 2015 or the previous capital projects that you had.

I’m just trying to add up the numbers of the reduction potential that you mentioned relative to the guidance..

Jeff, this is Mike. So in September last year we actually showed a comparative graph. So we are operating in the $7 to $8 range, I think is what we showed. And so the expectation is to be sub $3.50 by the end of year.

The key elements that Pat described are the distillation would be approximately $1.50 to 2 bucks per gallon, and the seed train should save us anywhere between $1 to $1.50, those would be the two major buckets and then there’s obviously other savings as well, but more minor in nature..

Got it. And then the, how should we think about moving from three batches a month to five, six bathes a month. Is there a big unabsorbed overhead cost that I guess, how do we base in the production cost improvements between now and the fourth quarter, that’s what I’m asking..

Yes. Well I think, the easiest way to do it is, when we’re operating at our six batches, five to six batches a month we should be down in the $3 to $3.50 per gallon variable cost range. And that will be the right way to think about it..

And if you’re at three or four batches, is it a dollar higher or something?.

No, no. It’s really -- its not that much different. It’s not that much different actually, but the [indiscernible] mitigation, we’re doing total cost and total cost will be different because you have pure gallons spread in the fixed cost..

Got it. I just had a couple of other ones.

Mike, how should we think about the OpEx trajectory through the year? Is the second level for each quarter for the following two or three quarter, and then I’ll switch with interest expense, stay at these levels or do you have any triggers on any of the debt facilities that you have out, or I need to keep in mind..

No. On the debt service side it should remain flat for the time being. And then on the OpEx side, yes this is pretty -- this should be pretty consistent with the balance of the year..

Got it. Last question, you gave a lot of update on the plant. Who you potentially will be selling to or you are selling to.

But I just wondered if you could touch on Pat, where are we with project [ph] and the Argentina folks and other potential licensees?.

Yes, both of them are learning how to run the fermentation taking our use to adapting it to their feedstocks in their location. Those are learning how to handle the stuff and keep, how to handle these bugs is just a little bit different game to play, different nutrient packages, sugars and stuff like that.

So that’s the phase they’ve added in their learning curve of how do you run a fermentation..

Perfect. I appreciate it. Thanks so much..

[Operator Instructions].

All right. Then I guess, with that then thanks for joining us on this call. I appreciate it..

Thanks everyone. Bye-bye..

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect..