Ladies and gentlemen, thank you for standing by and welcome to the Gevo Incorporated First Quarter 2020 Earnings Conference Call. At this time, all participants lines 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 call is being recorded. [Operator Instructions] I'd now like to hand the conference over to your host today, Mr. Geoffrey Williams. Sir, please begin.

Good afternoon, everyone and thank you for joining Gevo’s first 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; 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 and 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 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 significant risks and uncertainties, including those disclosed in Gevo’s Form 10-K for the year ended December 31, 2019, which was filed with the SEC and in subsequent 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, Carolyn will then review Gevo’s financial results for the first quarter of 2020. Following the presentation, we will open up the call for questions. I will now turn the call over to Pat.

Thanks, Geoff. In the first quarter, we engaged Citigroup Global Markets to assist us in exploring project financing for our plant build out. Citi will be working with us on both project equity and debt for these build outs. We envision that we're going to need 60 million to 70 million gallons per year of capacity in 2024. That's way more than the 17 million gallons per year we currently have under contract. The project economics look attractive. We all believe that oil pricing is expected to come back to reasonable prices by the time the build outs are online, and value for low fossil carbon products are expected to increase. It is with this background that our customers continue to negotiate additional off-take agreements. Even in spite of the recent crazy oil market and COVID, I hope to get these contracts renewable gasoline and jet fuel done soon. That would help us in the project financing. We see the opportunity for building out three projects. One, of course, is to expand the Luverne plant to make renewable premium gasoline and renewable jet fuel. We currently believe that we will need two additional plant production sites. The discussion to secure those sites are already underway. Now COVID-19 has provided for an interesting and challenging backdrop for everyone. As previously announced, we shut down ethanol production at Luverne in the first quarter. Initially, we suspended ethanol production operations, as we've done in the past, simply because the margins were too low. But this time, we ultimately shut down the ethanol production for the foreseeable future due to the impacts of COVID. In particular, we did this considering that a: ethanol prices are too; b, ethanol marks for our plant we've been very negative; c, and this is really important. We don't…

Thank you, Pat. Gevo reported revenue in the first quarter of 2020 of $3.8 million as compared to $6.4 million in the same period in 2019. During the first quarter of 2020, hydrocarbon revenue was $0.1 million compared with $0.7 million in the same period in 2019. Hydrocarbon sales decreased because of lower production volumes at the South Hampton Resources, Inc. facility in Silsbee, Texas. During the first quarter of 2020, revenue derived at the Luverne Facility from ethanol sales and related products was $3.7 million compared with $5.7 million during the same period in 2019. As a result of unfavorable commodity environment during the three months ended March 31, 2020 compared with the same period of 2019, we reduced our production of ethanol and distiller grains, which resulted in lower sales for the period. Cost of goods sold was $8.1 million in the first quarter of 2020 versus $9.0 million in the same period in 2019. Cost of goods sold included approximately $6.5 million associated with the production of ethanol, isobutanol and related products and approximately $1.6 million in depreciation expense. Gross loss was $4.3 million for the first quarter of 2020 versus $2.6 million for the first quarter of 2019. Research and development expense decreased by $0.4 million during the first 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 $0.7 million during the first quarter of 2020 compared with the same period in 2019, due primarily to an increase in personnel and consulting, partially offset by decreases in professional fees. We incurred $0.3 million of restructuring expenses related to the termination of the total of 30 employees and renegotiating contracts in March 2020. Within total operating expenses for the…

Thanks, Carolyn. Let's open up the call for questions. Operator?

[Operator Instructions] Our first question or comment comes from the line of the Amit Dayal from H.C. Wainwright. Your line is open.

Thank you. Good afternoon, everyone. Perhaps with respect to Luverne, I mean, what would it take in terms of changes in the market for you guys to consider sort of restarting production over there? Or should we expect this to be out of commission for the rest of the year?

I think for the rest of this year it'll be out of commission based on what we see for demand for gasoline and then how to balance ethanol was in the first place. So next year, there's possibility we'd run it. But we'd have to see a turnaround across the industry in total. It's a substantial amount of savings that we make by having a reduced staff up there. The plant -- we still have staff up there. It's just reduced. And so the margins have to overcome all that and be profitable. As the wind -- the wind power is up and running, that's useful. We have our biogas projects moving forward. And so we'd want to see those things online and operational in order to drive the carbon score down, so that makes more margin. So that would probably the latter half of next year if we did it. But by then, we should be well into the build outs as well. The -- it may be the starting construction of the big -- the plant expansion. So we'll just have to see how it unfolds.

So it's all the sort of, layoffs, I guess, with respect to that facility. What will operating costs sort of look like over the next few quarters for you guys?

Operating costs for the Luverne plant or -- tell me -- what you're thinking about in terms of model, you’re talking about, or in terms of …

[Indiscernible] at the corporate level, including the cost cutting measures you've taken, [multiple speakers]

Our operating costs?

Yes.

We should be zero in on a million a month or less.

Okay. Understood. And this $2.7 million in inventories that you’re showing in the balance sheet, what is the comparison?

Hey, Lynn, are you on the line?

Yes. Well, I didn't fully hear the question.

Yes, I was asking about the $2.7 million in inventory in the balance sheet. I was just wondering what it comprises of?

Those inventories are mostly corn based inventories with -- we work with [indiscernible] for our corn purchases.

And just to clarify for you, it'll be in our footnote number five, that $1.5 million of that is related to spare parts.

Understood. And then maybe lastly on any progress towards securing the project financing for the two additional plants you're looking at?

In terms of something I can point to an announcement say, here it is, it's done, but we're making progress in terms of the models are in really good shape. The reason that this is interesting for people is that the projected levered pre-tax IRRs are 20% to 25%. The amount of capital that we're talking about is quite large, upwards a $700 million across the expansion in Luverne, plus two additional plant sites. We have already under our belt $600 million of contracts undertake or pay. Those are closed and that's across the life of the contract. We have another $1.5 billion of take or pay contracts that we're negotiating. And what's been surprising for me is that folks have still been plugging along, negotiating even with the craziness in the oil, these people who are people who play in oil, they’re continue to negotiate with us and try to get these contracts done. So almost everybody that we talked to has a view that this oil devaluation is temporary, it will come back, especially as oil is cheap and gasoline becomes cheap, people will drive more. And so it's oddly enough, it's been slightly, people just kept after it, even in the face of all of this. So when you take those projects, you add them up, you have a 20%, 25% levered pre-tax IRR projection. That's pretty darn interesting for people. And so the models are good. We're beginning the outreach and now Citi feels pretty good about it. So that makes me feel good about it.

Understood. And with respect to regulations, you touched on it a little bit. I mean, has there been anything brought into play specifically with respect to jet fuels and as part of all this bailout, etcetera, that's in discussion with respect to airlines right now?

There's been talk, but I haven't seen anything concrete that's going to stick. There's been talk. So the people are talking about bringing the airline industry back and having it be green. There was a language put in to the bill so far that got taken back out by the Senate, but that would have got funded projects that build cleaner, greener jet fuel. It's possible that something of that get back in there. We see some interest from some of the Senate offices, some of the House players. They definitely are interested. In Europe, it's there. It's been more of a doubling down. People are saying it comes back, it's going to come back green. And that's we're hearing out of our European partner customers, is they're going to make it -- put more requirements in. So that's good. California is something to watch. You should -- everybody should take a look and see how carbon values are trading. They've actually gone up. That's fascinating. The underlying fuels demand has gone down. So that bodes well. And as we've talked in the past, many other states are working to adopt California like system and that work continues. So I think the airline industry, because some of them are down to just, what 5% or 10% capacity or something. It could take a little while for them to recover. One of the important things when you look at Gevo, everyone should understand this, is that we're doing premium renewable gasoline. That's our isooctane. It's premium renewable gasoline. It's a premium product that works exceptionally well, hydrocarbon. And that's actually in a greater demand than is the jet fuel. And so we're not a one trip pony, thank God.

Got it. That's all I have. I will get back in queue. Thank you.

Yes.

Thank you. Our next question or comment comes from the line of Poe Fratt from Noble Capital Markets. Your line is open.

Good afternoon, Pat. If you could just clarify, your $1 million a month of expenses is where is that -- can you -- are we looking at SG&A? And R&D is a total of $3 million per quarter roughly or sort of where are we going to see that hit on the income statement, if you don’t mind.

Yes. Yes, that's right. With the [indiscernible] R&D.

Okay. And then you're going to be running the hydro carbon plant down in Texas. There, that'll change your cost of goods sold structure. What will happen to your -- we continue to depreciate the Luverne plant, or will that essentially, since it become a held for investment or something like that?

Well, first on the -- yes, we never did shut down the hydrocarbon plant down in Silsbee. We continue to run that. We plan to continue to run. It's nothing changes on that front. So we have isobutanol will continue to run and make premium renewable gasoline shipped to Europe and we'll make jet fuel. And I think we might even turn up with some new customers for jet fuel. As far as how we're treating the plant at Luverne in terms of depreciation, Carolyn, you want to answer that question?

Yes, since it is still operational, we intend to use it going forward. It is continuing to be depreciated.

Great. And, Pat, does this change your, sort of shutting down the near-term, the operations or putting the following at Luverne? Does it change your biograph strategy at all or those are you going to continue to move forward on the biogas strategy?

We're continuing to move forward in the biogas strategy. We've actually signed a very exclusive deal so far with something we haven't announced yet. Who is looking at putting up the money to build the plant. And then we are taking a developer role. And so we get paid back out of that. It's possible, depending on how things unfold and how people view it, that we may want to roll those into one of the bigger projects. I don't know that the timing will work for that. But what I can say is that we have a serious counterparty that we're working with during the diligence phase. And the way that this deal would work, is I guess the gaps that I need for liver implant, but they take on all that capital burden.

Okay, great. And then when you talk about starting up, I think the wind power generation started up [indiscernible] days ago, will we see that as far as any value potentially there accrue in your equity investment in fuel power, is that correct? Or is -- will there be any cash?

Yes, that’s right. No, I don't expect cash. We have renewable energy credits to trade and work with Juhl on that. And -- but we'll do it for the benefit of the project because we invested about $1.5 million out of the nine point something million to get a built, and so that's where it would accrue is on that side.

Okay, great. And then when I look at it, the impact on your cash burn, it should -- it looks like you might be able to get the cash burn down to -- into the $4 million quarter -- per quarter range, Pat, is that roughly $4 million to $5 million, is that a reasonable estimate?

I think it should be to the lower side of that.

Okay. So probably won't have any CapEx too. So -- and then …

We don't, yes, we’ve done -- yes, we’ve done this most of the spending -- the spending that we had planned to do for this year, we already did. So, yes, we should be pretty low. So, yes, that's right.

And then when you look at I think since last call, you -- the framing is a little more aggressive on the total size, the capital commitment or the capital projects. And it sounds like you may have added a third plant or did you break the second plant that you expected into sort of two parts to get some geographic diversity or can you help us understand how that …

Yes.

… development plant has maybe changed a little bit since the last call.

Yes, sure. So we previously disclosed that we had about 70 million gallons. We expected that -- we expect to have about 70 million gallons in the contract in course. When we talk about those contract, those are take-or-pay contracts. They collectively add up over a couple of billion dollars of revenue across the life of the contract. So we feel pretty good about where those are. Now, we were looking at the size of plants we need and how to think about it, we're looking at doing the capital optimization work and this has come out of some of the work that we've done with Citi and optimizations of capital and trying to improve returns. So there's a size at Luverne that makes a lot of sense. Call it 10 million to 12 million gallons of hydrocarbons. We’ve already installed much of the capital on the isobutanol side for that. So if we stay within that kind of a boundary that is already some capital done. We've already been using it. It works. We'd have to add a hydrocarbon plant that's save some money, improve the returns. And then we looked and said, okay, well, look, now we've got to cover the next 55 million to 60 million gallons. Where do we do that and how do we do it? And where can we get probably the best deals? Because we're going to have to work with existing ethanol plants and so many of them are shut down now. So we started looking at that. And it is generally true that the bigger the plant in the ethanol business, the better and more economical it is generally. And so, what we should do is we should look at some of these medium sized plants, 50 million gallon ethanol plants. That would be about right for 30 million gallons of hydrocarbons. And so we found some very interesting opportunities there with. So we're in the diligence phase with several parties looking at their sites in detail. And of course, we care about is the production cost, the infrastructure, how it fits in sustainability footprint. We're keen on having the renewable energy source, headed for the net zero carbon emissions mentality. That's what we're out for. But we're finding some pretty good candidates. And that's why we're doing it that way.

Great. And when you look at it, Pat, how -- your next sort of trigger, if you will, or gating factor is it -- is it dependent -- is your planned contingent on signing in -- I guess, how many additional gallons do you need to before you fully -- before the $700 million CapEx plan is fully committed. Are we 75% there, or sort of a I guess I'm trying to figure out what’s sort of a gating factor is as we move forward through this project.

Yes. So I think it'll come -- as you think about stages. So I don't think we'll do this. We'll get to those three plants, maybe be slightly staggered. We wouldn't do it exactly at the same time. But close, and Luverne, we already have more gallons so we can produce. So you already have part of the capacity and a second plant filled up. I think that as we do the next set of contracts that will exceed the capacity of the second plant will be on the third. And then as we do that final deal with one of the customers that would fill out that last plant, it would be that kind of a sequence. All those things are events for the next few months in terms of getting the contracts in place. And then in parallel, we're working at. One of the interesting things in project financing is that the people who do financing for the projects, they get to see the things under confidentiality so they know who the counter parties are. You can have conversation with them already. So it's a little bit different game than if we're trying to do this public company stuff. It's a different game because they're private, separate companies that we're talking about, right? setting up as a project to off balance sheet.

Okay, great. And then, you ran through -- you need to refinance the white box. Then you need to do the project financing. And then you, thirdly, mentioned, the potential for opportunities at the corporate level. Can you expand on that for us? Is it part of your potential development role or could you just expand on your comment as far as the core productions?

Yes. So the role that we play as a developer and licenser is that we when you do development, you have to do the engineering and culinary work and show people what it is. PIN is down, get the FEL-3 engineering done, stuff like that. And we'll have to raise money to go do that at some point. Now, what's interesting is it kind of goes hand-in-hand with the projects, too. So it's all a question of timing of things and how they unfold. So we'll have to raise some money to do that, because everyone can look at our balance sheet and go, well, gosh, are you going to make it till the end of the year? Well, yeah, it looks like you can do that. So it's a bit -- but we’ve got -- we can do white box, okay? We got refinance white box. Can you bring any money in without doing dilution? Well, that’s a question. We are going to try. What happens if you -- can you raise money and tap into equity markets? We're working on it. We're certain that part out too. How do you do it in a way that makes the most sense. While we're working on that, too. How do you do it in a way that creates the most value overall? That's what we're working on. So all those things are part of the overall discussions. We continue to work with Wainwright. We continue to work with Citi. Everyone's working well together. And it's going to be interesting to see how we piece it together, because it's all about timing.

Great. Thank you so much.

You bet.

Thank you. I’m showing no additional questions in the queue at this time. I would like to turn the conference back over to Mr. Gruber for any closing remarks.

Well, thank you all, it's finishing time with the COVID. I hate that we've had to. You know, shut down the ethanol part, the ethanol margins are so bad that it's the right thing to do, it does save us money. Well, I like the fact that our projects are turning out very good in terms of what they have the potential to return based upon the pricing that we have in those. And that's even in light of all the world changes that we see regarding the oil industry. So we feel pretty good about that. And there aren't that many projects like ours, especially not that touch gasoline as well as jet fuel. So thank you all for joining us today on this call. Have a great evening.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.