Welcome to Gevo’s Second Quarter 2021 Earnings Conference Call. My name is Liz, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will be conducting a question-and-answer session. Please note that this conference is being recorded. I would now turn the call over to Geoffrey Williams, Gevo’s Vice President, General Counsel and Secretary. Please go ahead, Mr. Williams.

Good afternoon, everyone, and thank you for joining Gevo’s second quarter 2021 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 Chief Accounting Officer. Earlier today, we issued a press release that outlines the topics we plan to discuss today. A copy of this press release is available on our website 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 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 earlier 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 Net-Zero 1 project and our operating activities for the remainder of 2021 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, 2020, that was filed with the U.S. Securities and Exchange Commission, and in our 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, Carolyn will then review Gevo’s financial results for the second quarter of 2021. And following the presentation, we’ll open up the call for questions. I’ll now turn the call over to Patrick Gruber. Pat?

Thanks, Geoff. Today, I’m pleased to be able to report an update on our engineering work and financial projections for Net Zero 1. The results are good. We’re on track to complete the next phase of engineering work, the next iteration, if you will, by the end of December this year. This next iteration we’ll tighten up the capital estimates further. Of course, this is all in preparation for the debt deal getting done in the first half of 2022. Now hydrocarbon capacity is sold out. In fact, it’s oversubscribed based upon our take or pay contracts already in place. This is very, very good. We did decide to change the scope of Net Zero 1 a little bit, because we figured out how to potentially make more money sooner. We have added capacity for increased amounts of isobutanol about 44 million pounds per year, which we plan on selling as a specialty chemical. In addition, we are planning to increase our production of nutritional products like protein and animal feed by 40 million pounds that brings us to a total of 340 million pounds of those products and then we plan on making 46 million gallons per year of hydrocarbons rather than 45 and we still expect to produce about 30 million pounds of corn oil. Now, as a result of that change scope and with updated pricing assumptions based upon the pricing and our existing contracts, the Net Zero 1 project revenue is currently projected to be approximately $340 million to $350 million per year. This includes the hydrocarbon products, the carbon values and nutritional product value, the corn oil value and the revenue from IBA that we expect to produce in excess of what is needed for the feedstock for the hydrocarbon capacity. Now, the really good…

Thank you, Pat. Gevo reported revenue in the second quarter of 2021 of $0.4 million as compared to $1 million in the same period in 2020. During the second quarter of 2021, hydrocarbon revenue was $0.3 million compared with $0.9 million in the same period in 2020. Hydrocarbon sales decrease, because of lower production volumes at the South Hampton Resources facility in Silsbee, Texas. During the second quarter of 2020, no revenue was derived at the Luverne facility from ethanol sales and related products compared to $0.1 million during the same period in 2020. As a result of an unfavorable commodity market during the three months ended March 31, 2020, we terminated our production of ethanol and distillers grains, which resulted in no sales for the period. Cost of goods sold was $2.8 million in the second quarter of 2021 versus $2.6 million in the same period in 2020. We increased maintenance and preparation for isobutanol production that began in July, 2021. Cost of goods sold included approximately $1.6 million associated with the maintenance of the Luverne facility, and approximately $1.2 million in depreciation expense. Gross loss was $2.4 million for the second quarter of 2021 versus $1.7 million for the second quarter of 2020. Research and development expense increased by $0.7 million during the second quarter of 2021, compared with the same period in 2020, due primarily to an increase in personnel and consulting expenses. As we work to improve our process for growing and fermenting yeast strains. Selling, general and administrative expense increased by $2.1 million during the second quarter 2021 compared with the same period in 2020 due primarily to increases in personnel, professional fees and insurance to support the growth in our operations and an increase in consulting related to creating our first Environmental, Social and…

Thanks, Carolyn. So we’re looking forward to this, we have a lot of exciting things coming and we are fired up. Our engineering work is – whenever you do these things, it’s an enormous quantity of work that we’re cramming into a small period of time, given that we just got the money to do these things at the beginning of 2021. And we’re making great progress in the engineering results really are good. I like having our EBITDA grow up. That’s exciting. And I certainly liked where pipeline is growing. And I know everybody wants us to get more contracts signed faster, but these are really big. That’s what they look like. So we’re excited looking forward to it. We’ll that, we’ll take questions.

[Operator Instructions] Our first question comes from the line of Sameer Joshi with H.C. Wainwright.

Good afternoon, Pat, Carolyn. Thanks for taking my questions. So with this increased scope to 46 million gallons per year, how does that impact or affect the subsequent Net Zero projects that you will do? Will those be also largest size as well and what is the plan going forward?

Well, so let me kind of at first to just say that one thing, we just put up and publish on our investor presentation on our website, all the stuff that I just said out loud, so you can see it written down. And so it makes it much easier. And then to answer your question, specifically, is we think about it as that we’ve done the work and the engineering for this, we’re in the process of it for this Net Zero 1. We could translate that directly and to make it a similar size plan. So think of it as a copy of Net Zero 1. That’s the common paradigm. However, we’ve got people working with or challenging us to think much bigger. And so we’re asking ourselves that question as to how to go about doing that. So we’re running – it’s a very simple path to just simply copy Net Zero 1, right? So that’s kind of the incumbent hypothesis. And it makes sense, because the demand is so much greater than the product supply. So we’re asking things like, well, why not a 100 million gallon plan? How can we go bigger? How can we achieve 500 million, 700 million gallons in five years? That’s the kind of stuff we’re trying to address, and of course, there’s a whole bunch of chicken and eggs here, because all right, people who actually going to buy this exactly and when and what are you going to do? And yes, we can do it, this is technically possible. It’s just a matter of capital. So it’s getting to be quite interesting for us right now. There’s definitely, definitely, definitely a shift that has occurred in the last several months.

Yes, yes. That was the reason for the call that instead of 46 million gallons, what if you will be able to do bigger, if the industry demands it.

Yes, we can, there’s no limit. So the reason – what we’re doing right now is we took what we had and we’re trying to stay with it’s something we already had well-defined and we’re trying to optimize the returns and capital. So I noted that in our models, that project, that the EBITDA has increased from about $100 million a year you have previously talked about, that’s pretty good. That’s like a drift in 50% increase from optimizing. I think we should spend some money on optimizing.

It’s exciting. Certainly.

I mean, that was a better result that I ever expected from our people, well done. There’s still so many variables and stuff, everybody always asked me, well, what happens if corn stays high forever and all this. You know what, we’ve got enough economics to work with, and we have additional things that we can do with the technology where we feel pretty comfortable that we’re in a good spot in terms of what projecting. The details are going to move around a little bit in terms of specific IRRs, but overall, we feel pretty – we got a handle on it much incredible speed. I think so.

Yes. Yes. And just one more clarification on Net Zero, the green hydrogen that is going to be produced its part of the $720 million to $980 million CapEx. But then for the excess that you are planning to – are all me produce, is there any additional CapEx incremental to this $980 million?

Yes. So on the $980 million right now, we’re at – if you’re going to turn to other projects, it’d be $720 million, it’s a number to use to compare us to other people once it’s financed and installed, and you do the prepaid accounts and all the other crap that goes with project financing, that I really don’t like, by the way. You add all that up, now you get the $980 million. So in addition to the $720 million, would it take additional capital if we want to make a whole lot more [indiscernible] yes. So the game plan for us is to figure out who actually wants to buy hydrogen, where, what, does it make sense? And just do your – do the calculation. And if it makes economic sense that you can get equivalent returns are better than, so if it has attractive returns, 18%, 20% or better or something, then we’d say now maybe a word use of our capital. That’s how we think about it.

Yes. Thanks for that clarification. Moving to the RNG, the 355,000 MMBtu plus capacity, is that all going to be taken by BP for the recent press release? Just wanted to clarify that.

It is, we’re going to send it down the pipeline to California, because that’s how you maximize value and that’s attractive. And we know we could, later on take gas up to Luverne, which we do, we are running it again. But where we can take it up there as we expand liver and make it into a hydrocarbon plant, what’s Net Zero 1. But right now, the way you make the most money is to send it to California is through BP.

Right. Right. And this next question probably has been asked before, but just wanted to understand the preliminary stage project costs are being expensed as against capitalized that is because they’re not associated with a particular project, but it is just to pre to the project. Is that correct?

I know that – I was going to say there’s some that we capitalize the some that we don’t, so Carolyn can explain it.

Right. So the RNG related costs are being capitalized effective with the second quarter. That’s because we got the financing and we’re able to move forward with the project. The costs related to Net Zero are being expensed until we get past all of the FL3.

Okay. Okay. So there could be…

We will be when we get to the near the closings and stuff is what she’s talking about. Well, shorthand lingo for some of the focus to call it, [inaudible] is not well understood by a broad group. What it is you can be down to that plus or minus – when we get down to that plus or minus 10% level and say, we’re going to do the financing. Now, here it is. That’s the time when did the stop will be capitalized and will there be a look back as well? Because we are keeping track of our expenses and putting them into buckets in a very onerous process of tracking all of our time. Carolyn makes us do it and then make you do it.

That is good. Okay. Thanks. That’s all I have right now. Congratulations on the progress and good luck.

Thanks.

[Operator Instructions] Our next question comes from Poe Fratt with Noble Capital Markets.

Good afternoon, Pat.

Hey, Poe. How you doing?

I’m doing well. Thank you. I was hoping to – with the project costs moving around a little bit. I was hoping to get your current estimate of what you think the equity investment from Gevo into the first SPB would be.

We’re assuming 65% debt. So if it’s $980 million, that’s like 340 or something like that. Lynn, you there. I got that, right.

345.

That’s up from $270 million is what we thought earlier, but it’s good. It’s all in the space of food and nascent doable. And you know what, getting those one of the questions that has come up over and over again, you’ve even asked me, how can you get more return sooner back? How more distributed cash sooner? Well, here you go. We deploy more capital sooner with a good returns center.

And then have you firmed up or if there are any potential or could you give us maybe potential timing of Net Zero 2 – if you, and I know it’s tough. Pat, but can you take a stab at when we’re going to see additional capacity at Net Zero 2 sold out?

We’ve already sold since earlier this year, we’ve announced like 10 million more gallons. So I think we’re up, there’s like 10 million more, that’s a 10,000 more gallons. So to get, to do another 35 million gallons, I think what’s going to happen is we’re going to be well over that. So we’re probably, you know, we’re up in the another 50 million or 60 million gallons immediately, and there’s in discussions for several hundred million gallon, actual real stuff, negotiate that’s way, way, way bigger, like order of magnitude bigger. But we’re sitting here trying to figure out how to do it. So the opportunity is here in front of us, it’s an outstanding problem to have, but how do we go bigger, sooner, much bigger. And that is part of the question. Yes. We can keep deploying net zero copies. I kind of like that, because I can understand it. It’s straightforward. It’s relatively right sized for this market space. We want to be bigger and we have one of the very few technologies that actually works. So we’ve got to figure it out. And that’s one of the active things we’re working on. So for as far as back to your question, when can I announce the Net Zero 2, I’d expect soon. I always say that though, Poe and I expected and I expect these contracts be done. They’re not done. And I know why there – it is this final negotiations, these are big contracts, remember a 45 million gallon contract – off-take that’s worth about $1.5 billion across the life of it. So these aren’t chump change for people, they all play serious and doing it and they’re inching along, inching along, getting done. But then I think we’ll see ones that are bigger or intent for ones that are bigger.

Understood. So on the engineering work that you’re doing, you’ve gotten the estimate down to plus or minus 30%. I think I heard you say that you need to get to plus or minus 10% to get the bond closed. When do you expect, it sounded like you might expect that by the end of the year? Is that what I heard?

I think that what we’ll see is it mostly in that range by the end of the year, but what we’re going to really need is to get it closed is take those numbers and have the EPC company who will announce the not too distant future. Where they say, here’s the wrap that goes with it. That’s actually what’s needed to get to the bond financing. And so what’ll happen is we’ll get those engineering numbers refined around the end of the year kind of a thing. And we’ll continue to work on it and keep refining. We’ll never – we won’t stop the engineering. We’ll just keep plugging along, but we’ll get to a point where now the EPC company goes, here’s the number, but that they’re willing to guarantee.

Okay. And then do you have a working estimate for the wastewater and then the wind component of Net Zero 1?

Lynn, what’s the wastewater treatment plant is what a $100 million-ish?

No, it’s less than that, but it’s less – it’s a little less than $100 million, but these numbers are incorporated in our models as cost of service estimating the capital cost, return on capital to a build own operate, as well as they’re operating from that. That’s the same thing we’ve been doing all along with the wind. We’re doing the same thing now with water – with wastewater and AD.

So what you should expect, I think and what all of us expect, what I expect is that we’ll wind up being a co-investor with other people to get everybody seated and refills more comfort when we do that, just like we did with our wind project down at Luverne, and then we go build it out and we have lots of several parties who want to play with us here. So that’s good.

Yes. I just wanted to make clarify and make sure that the $720 million does not include the wastewater nor the wind at this point in time.

That’s right. You’ll see that in our slide deck that we just put up when you get a chance to go through it. So yes, and we try to be for all of you listening, Google, look at her, we put out an enormous quantity of data into that slide deck that we just put up. It goes on and really tries to be crystal clear about the assumptions we’re making, what we’re thinking about things we’re trying to be really transparent, but everyone understand where we are. We’re in the midst of sorting out, making sausage, figuring things out, we’re trying to manage it. I even laid out principles of how we’re thinking about things as we design, because it’d be easy to go super, super fast. And I had a lot of people go tell me, Pat, go faster. How can you take goes? Yeah, I can go faster. You’re not going to waste like a $100 million or $200 million that’s what I can do, or we can do it. We just did optimize it, figure it out, incrementally increased capital and boost the EBITDAs and distributions. And so that’s the work to be done here is to be smart about how we figure this out to make the most money at least risk.

Yes. Yes. I looked at Slide 28 and so just trying to figure out what else – what other capital costs might be associated with the entire project? Let’s to…

Yes, well, let’s go – Poe, let me just go back. Let me Poe, let me see. So what you look on Slide 28, you’ll see that table and there’s enough information there now. People get double a pretty darn good model and then do sensitivities around it with various assumptions and look at Slide 29 as well. And on Slide 29, you’ll see some more information we decided to just put that out there. One of the things about people always asking about is corn. What happens if corn seeds at this high price? Well guess what? That has a relatively minor impact on the overall project. Now guess what? 50% of the cost of corn is offset by the co-products, nutritional products and corn oil value. That’s an internal hedge we have that, that helps us. That is what helps make these projects attractive. Is – it isn’t quite as volatile as people would think, just looking at simple commodities.

Yes. That slide – those two slides are really helpful. What if we could talk about the timing of CapEx now that the RNG bond financing proceeds are on your balance sheet or on your financial statements, would – can you talk about the timing of CapEx on the RNG plant?

Lynn?

Yes. We’ll be complete the project is on schedule and the anticipation is that we’ll start up operations and begin producing very early next year. The way it works is we pair our contractors and then we submit to the trustee for reimbursements out of those bond proceeds. So there’s always a lag of a month or so from when we put the cash out till we get it back.

And so that, that full – Lynn that full with $70 million will be laid out and reimbursed over or laid out over the next three quarters. Is that sort of how we should cash walk that down?

No, I think it will – we expect to be complete by year end so that we will have done all the work and paid all the bills, but it may drip into the first quarter of recovery of those last bill with last contractor payments.

Okay, great. And then on Net Zero 1, if you could just highlight what you are going to spend in the third and fourth quarter on that project.

I’ll take that. The – I think the largest uncertainty is around the long lead equipment deposits. We have budgeted $20 million for long lead deposits. The timing of that is uncertain, but we need to get that out before year end to secure equipment to maintain schedule. We probably – I don’t really have the numbers in front of me in terms of a cash burn for the other elements around engineering and site development. But it’s going to be fairly substantial number. I think we’ve always said that the total development cost, including engineering and long lead and financing up to close would be somewhere around $45 million. And then we recovered that at financial close as contributed equity.

Perfect. Great. Thanks for your time.

Yes. You bet.

That concludes today’s question-and-answer session. I’d like to turn the call back to Patrick Gruber for closing remarks.

Well, thank you all for joining us. I encourage you to take a good look at that our recent investor presentation, you will see that we did go into more detail about where we are on our Net Zero project, how we’re thinking about capital, the results are turning out as I said, better than I expected. In fact, the EBITDA hasn’t gone up and stuff. Yes. We still got a lot of work to do to sort it out. We’re working it. This customer pipeline thing is a big deal and there’s no one more impatient for getting contracts done than me. I can make my people crazy from bugging them, but we are moving it forward. And the decisive discussions, these are like getting to be big, it’s in the billions of dollars of capital, many, many billions of dollars of capital in the future. And people wanting to participate with us, so all those things have to be sorted out. Net Zero 2 much more straightforward that one’s far along. And I can see that one being Net Zero a copy of the Net Zero 1, but we got to grow bigger and faster. And that’s where our attention is turning. How will we do that? So there’ll be more to come as this all unfolds, but it’s an interesting time in place. Thanks for joining us.

This concludes today’s conference call. Thank you for participating. You may now disconnect.