Good day, and thank you for standing by. Welcome to the Gevo Second Quarter 2023 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 being recorded. I would now like to turn the conference over to Eric Frey, Vice President of Finance. Please go ahead.

Good afternoon, everyone. This is Eric Frey, Vice President of Finance, I’m also responsible for Investor Relations here at Gevo. Thanks for joining us to discuss Gevo's second quarter results for the period ended June 30, 2023. I would like to start by introducing today's participants from the company. With us today are Dr. Patrick Gruber, Gevo's Chief Executive Officer; and Lynn Smull, Gevo's Chief Financial Officer. 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 to your questions. I would like to remind everyone that this conference call is open to media, and we're providing simultaneous webcast to the public. A replay 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 are filing our Form 10-Q today, and we ask that you refer to it for more detailed information after this call. Today, I'll explain what we have been investing in, what it means, how we think about further investments, our use of capital and progress against milestones. At the core of Gevo is a whole lot of technology. We got multiple technology platforms that we developed. These include the net zero plans for IBA and ethanol and conversion of those alcohols into net zero hydrocarbon fuels and chemicals. We are already tracking and even our version of dairy RNG. We have to drive all of these things to commercialization, larger commercialization. That's our primary mission now to get these technologies commercial, we think that it's most valuable to shareholders for us to take on roles other than just being an investor in projects to make technologies commercial, someone has to take on the role of project developer. Well, that's us. Let me explain further. Now we've been investing in the technology engineering and the plant design to convert corn kernels into SAF, protein, vegetable oil, all with the potential of a net zero carbon footprint. We work with multiple technology suppliers in addition to using our own proprietary technology, we use multiple engineering firms because of their expertise and capabilities. Our plant designs are well thought through by our strong team of engineers and operators for operability, efficiency and troubleshooting. We need these plans to work well. We've got a deep bench here of people who are good at this, having designed plans in the past. We are now investing in the engineering and design of modules. We want modules because we believe it will be…

Thanks, Pat. Gevo's Q2 combined revenue and interest income was $9.3 million, with the interest income benefiting from higher interest rates. Our corporate spend that is SG&A was $6.7 million for the quarter, excluding non-cash stock-based compensation of $3.9 million, which is a $0.2 million decrease from Q1 as a result of our cost control efforts. Debt related to the Northwest Iowa RNG project was $67.6 million, consisting of $68.2 million face value less unamortized premiums and issuance costs. We ended the second quarter of 2023 with a strong liquidity position of $426 million in cash, restricted cash and other liquid investments. The restricted cash portion is associated with our Northwest Iowa RNG bonds and certain collateral related to the development of Net Zero-1 and totaled $77.8 million. During the second quarter of 2023, we invested and capitalized $17.7 million cash and capital projects, comprised of $9.8 million into Net Zero-1, $3 million into Northwest Iowa RNG and $4.9 million into other NZ projects. As has been discussed, we intend to finance the majority of NZ-1 capital necessary to fully construct and start up the facility at the Net Zero-1 Project level with debt and third-party equity. It's also worth noting that while the DOE loan is the primary track to secure construction debt, we are exploring a syndicated bank loan process in parallel, so as to keep our options open. Our dairy RNG asset in Northwest Iowa has been injecting into the pipeline since June of 2022. This last quarter, the project achieved impressive year one performance against its design capacity with onstream injection of 97% and uptime of 91%. RNG revenue realized for the quarter was $2.9 million using the low carbon fuel standard temporary pathway approval of negative 150 CI. Despite being constrained to the temporary CI…

Thanks, Lynn. We're making really a lot of progress. It's good to see some of these things come through. I'm looking forward to our success. Great. Let's go forward. Let's open up for questions.

[Operator Instructions] The first question comes from Sameer Joshi with H.C. Wainwright. Your line is open.

Yes. Thanks. Good afternoon, everyone. Thanks for taking my question. Just a clarification on the RNG revenues. The $2.9 million amount on 77,000-odd MMBtu, does that also include the LCFS and the 3 Ms (ph) and LCFS with a score of negative 150 or are there some other exclusions?

No, it has the LCFS at minus 150 value in there.

Okay. And I know Lynn confirmed, but the 400,000 MMBtu capacity, what are the additional steps needed to or additional money needed to reach that capacity over the next two quarters?

It's small. So small enough that I don't recall. So it's stuff that we had already done as part of the project. So it's a few million dollar expansion. And some of it probably be subsidized by the, I forget what part of the 40 of the IRA bill, what section of 45, it is, the investor tax credit, is probably covers some of it, too. We'll see. But it's a small amount of money. The equipment is on site. It's about optimization work. We have rextra room to inject more into the pipeline. And so we want to take advantage of that. So it's going along pretty well. That to get that project up to 400,000 million Btu rate that will happen in the fourth quarter is what the team goal is. I expect it to happen that way. And we should be in pretty good shape as we head into 2024. The RNG business is actually a pretty exciting business. We have figured out stuff that no one else seems to know about how to really optimize the heck out of this, we did throw quite a few engineers at this and a lot of data scientists to sort things out and it's paying off for us. If you like it.

Yeah. No. It's good to see actual revenue on that front over the last couple quarters. On the NZ-1 front, is there sort of EPC process that needs to happen before the DOE loan can be finalized? Are there any like interconnections and interdependencies between the two?

No, there is because you have to have an EPC, you have to have price done to finalize the loan. The trick is that we like McDermott, and we like the potential and how they operate and compared to the other guys who we've been talking about for EPC lump-sum turnkey in that the terms are reasonable. They're pragmatist. They want to see this done. They want to work closely with us. That's good. One of the problems that we have in an inflationary environment, if you ask for the lump-sum turnkey price now or suppose you ask about six months from now, I guarantee you it have been padded to beat heck like crazy amount of padding and so it doesn't make sense. Inflation has moderated in some places, equipment supplies have loosened up and so perspectives are changing. So if you don't ask for it at the right time or you don't work through that and you get it premature, you get a crazy number. And so we have been keeping track of all the capital all the way along. My team is actually capable of doing that itself. And so it has been very useful for us as we work with different potential EPCs. We can know when to call somebody, we know how to call somebody out. And so it's a balancing act that we do. We have to have the final updated numbers, but you don't want to ask them too soon because it will be wrong. And so we'll be working through that pinning down the lump-sum turnkey price with the [indiscernible], we have a backup already. And we'll get there in the right time frame for the DOE loan close. I mentioned this point, the other thing we're watching carefully is what happens…

Understood. Thanks for that color. Interesting development on the ETO front, meaning the amounts that have been talked about from this seems small. But I'm sure this is a much, much bigger opportunity in the mid- to long term. Do you have like a sense like on a business plan, maybe like what are the next steps on this once you finish work our initial work with LG Chem?

Well, the ETO technology is something that we have worked on, we've been doing, people often said, gosh, why are you guys switching your technology from alcohol from isobutanol and ethanol? For us, they're all alcohols and the chemistry on them is very related. So we've been doing this for years, and we have a bunch of patents on this hundreds. What's interesting about ETO is it looks like it cuts out a huge amount of capital out of the alcohol-to-jet process that is typical from whether it's Actions or UOP or anyone else who's out there. It saves steps and it saves operating cost and capital. That's what it appears and looks like. And so we have been looking at it from that standpoint. But we also recognize that we can adjust the catalyst or operate it so we can make propylene or butylene. Propylene is one of the ones that's one of the hardest molecules to make from a biobase in high yield. And it's also one of the most valuable products in the marketplace in terms of its overall volume and what it's useful for because it is a typical thing in consumer goods, typical ingredient for consumer goods or plastics or fibers and clothing, and there's a whole bunch of stuff. What's interesting about this is our propylene would be somewhere approaching maybe a minus 100 CI score. That's interesting. We haven't seen that before. That's what attracted LG. And they see that there's an opportunity there. So we have to go work through it, scale it up, figure out what we don't know yet, but that's all going along pretty well. We've been operating it in many plants for a long time, and we just got to go through the work of figuring out what is it, if there's anything we don't know and work through any of the operability issues, if there are any. We don't see any. That's what has to be done next. And then it would get rolled out, I think, pretty quickly in plans to get built, and it would be a long in that Net Zero-1 style plant. It'll be right along the same exact same concepts that we just engineered we reapply here. And I think you'll see on the fuel side, we're going to turn up with a pretty interesting partner there, too, who wants this and sees the value of it. And two, it's a good technique, saves money, saves production costs, saves capital. I wish it was ready for prime time today. It just doesn't. We got a little more work first.

Yeah. And I'm sure there too, you will have other carbon reduction technologies, energy usage point of view that would further reduce that...

Yeah. You hit on an interesting point. One of the things that we look at is people are all interested in these materials. We were the first to do PET, fully renewable PET. I've seen others claim it to be first. We did it first. We did like a decade ago, a big deal. We can do that. We have technology for it. It's about putting the business system together. And we want big business systems that leverage each other. The fundamental thing that we're doing is we can make these basic building blocks for the petrochemical industry, right? Basic building blocks, same building blocks that they use, and we derisk the hell out of them to make them from renewables and make them carbon negative. And they will be, I believe, the lowest cost that can be made because of how efficient they are with economies of scale and the whole business system approach that we're taking. So even though we focus on fuels, I think sometimes people put us as it's a one-trick pony, no, no, no, no, that's the wrong thing. Nobody does that. That's stupid. What you do is you use the fuels to drive economies of scale. But you open up all the chemical opportunities along the way. That's important. That's what we're doing. That's how we think about it. And as this all becomes more real, I think people in chemicals go, that is going to happen. That's interesting.

Yeah. No, it is very interesting what you're doing there. Just a bookkeeping question, last one for me. This line item, the factory handling cost, should we expect it to be around $1 million for the next few quarters or do we see any change in that depending on, I guess, ethanol prices and so.

What cost was that? I'm sorry.

Sorry, the line item in the income statement called facility idling cost.

That will stay the same. That's for our Luverne plant. It's sitting there, and we're going through the process of when to start it up, how to start it up, how do we use it? It's a very good development site. I think that total cost for the year is like a couple of million dollars. So that's something we should confirm with you on a follow-up call. But it's not a huge amount of money. It's not a huge amount of money, and it's just basically idling it. We're actually using that plant right now to educate customers. So we've had more than 65 airline customers. So these are customers of airlines, the people downstream of them, up to our plant sites, showing them what we're doing, how we're doing in taking them out the farm, showing them how modern planting equipment works because it's an usually the result is their minds are blown about the state of art of what's actually happening versus if you just listen to the press and the doom and gloom, it's wrong. It's just playing wrong. And so it's quite impressive to see. And so we've been using it for stuff like that. But I think what will happen its future probably is that we've got to finish cooking the plans, but it will be at some point, we'll probably start it back up and use it for making specialty products. That's what I would expect.

Yeah. Understood. Okay. Thanks, Pat. Thanks, Lynn. That’s all I had.

Please standby for the next question. The next question comes from Derrick Whitfield with Stifel. Your line is open.

Thanks. Good afternoon, Pat and team, and congrats on your updates.

Thanks.

Regarding your Northwest Iowa RNG project, the expected negative 350 CI pathways considerably by the new temporary and the previously noted negative 240. Could you comment on what's driving the variance between the current and previous expectations? And if that delta is the result of the optimization work of your engineering team?

Yeah. The answer is yes, it is. It's the optimization work. We did some modifications to the gestures (ph), now they operate also [indiscernible]. And then it's more of having real data available to us, and that all went into the calculation for it. So that's what should happen, should be a minus 350. You never know what CARB will do, though. But that's actually what it pencils out to be with real data. Now we are data hogs. You know this already because you spent enough time with us, but we feel like we count stuff, and we got sensors all over the place. So our stuff is more instrumented than what you would find at other operations from what we've been told or what we have seen as we've met with other people. And we take it, we believe that RNG should be treated like a manufacturing plant. It's a manufacturing operation. There's a lot of value here to be operated right, managing it like you would a plant with operating discipline is a concept that for people who are operators and run plants, they understand what I'm talking about. But you do it with engineering approaches and plant operations approaches with discipline in measuring and improving along the way. And that's what you're seeing here. And we also have a bunch of stuff of equipment that we put in how to think about how do you make things work properly and do it as robust because you don't want plants that are going up and down, that screws things up royally. You want them to be steady. And that's what we've been able to achieve. We have a question in front of us, and we're starting it through, and I don't know what the answer is yet. But how do you best expand this, capitalize on it further? How do you do that in a way that balances against our other capital needs at Gevo. That's stuff we're looking at right now. And I think there will be some dust settling here in the near future where people who have haven't taken, they didn't have maybe the engineering capability or have, I don't know, whatever their problems are. There might be some deals out here. So we're paying attention to that. I don't know what, I don't have a firm opinion yet, but it's prudent to take a peek and see what's out there and what we can apply our knowledge to and fix and make it work and get paid for it, of course.

With that said, Pat, and that's exactly where I was going to go with my follow-up question, does it behoove you to lean more into RNG given the expertise you've picked up through that operation? And would that be in an operating development perspective where you invest or would that just be in a similar developed licensing type approach?

I think it's that in RNG, yes, we want to expand there and do want to operate assets is what we want to do, not just help people because it takes discipline to do to operate this stuff. You really got to be a plant operator mentality. And we want to find those opportunities. Now the problem that we're seeing is that there was so much euphoria over RNG and all the stuff that might occur, people bid up the cost of manure and they bid up the cost of access to farms, and they bid up everything. And so people, it's irrational. Now the price in California being low is going to help to adjust those people out. And so I think there's going to be some development projects that are failed. People who had projects planned. They were developers trying to push them, I think they'll fail. And so I think there's going to be opportunities. So part of this is trying to find out what those are. I think we're just beginning to see some of those guys go by the wayside. And there's only a few of these technologies that work well. There isn't like there's I'm talking about the actual digesters. People are finding out that there's lots of problems with the European style digesters. So it's one of these things where there really is no how here, and we're going to take a peek and see where we can fit and how do we expand. But we have to do it in a way that balances against our other capital lines. I really do want to see, I want my money into an NZ-1 project, too, the actual investment of the project, too. And so we're looking for the right opportunities. And so if you know them, Derrick, you got to tell us because I'm interested in those, and we'll look at them and see how we play and how we can add value and make it accretive for us.

That's great. And then maybe shifting over to your licensing and development business model that you articulated during this call and similar to what you have with LG Chem. How should we think about the returns and capital requirements for this approach? And more specifically on the revenue side, will it be recurring and linked to the carbon credit markets?

Well, I think it will almost always be related to carbon value. So the ball truth of it is, there is no technology on earth that compete with low-cost petrochemicals, if we're making renewables that are decarbonized and low carbon, no, the petrochemicals are cheaper. So it is the carbon value that has to come into play. Now the thing is we can get the cost pretty darn close. You've seen our economics, so you know this, that our economics, they can come pretty darn close, and they're good. But to justify on a cash cost basis anyway. But on the capital cost basis, where you got to include those economic returns, that we have to deploy new capital. So that has to be supported by somebody's perception of carbon value that can be done in the market directly by placing the products with the right channels. Those tend to be specialty products at this point or it has government support. Well, this is why people are chasing fuels because that has government support, both at the state and federal level. And in the chemicals market, it's interesting because the chemicals market, you've done the math, you probably, you know this, is that a plant like ours, a 65 million gallon hydrocarbon plant, that's like when you put that in tons, it's big. It's in the hundreds of thousands of tons. It's giant chemical plant. And so even though for us, we sound like, well, it's just a 65 million gallon plant. Well, that's pretty small in the grand scheme of fuel. So that's true, it's small in the grand scheme of fuels. But in the world of chemicals, it's a world-scale plant. And that's the disconnect that occurs. So this is why we like our approach of being able to leverage off of stuff we're already doing. We're already making olefins in a Net Zero-1 design. We're not making the olefins. We can add incremental units to make even different kinds of olefins, and we should divert those at least some of that stream into the chemical market because that is a significant size or at least potential size and you know what? It's flexible, too, because we don't have to send it here just on an onward of fuels anyway. That's how we think about it. In terms of the value of it, I think that there really are specialty markets that make a lot of sense. We'll just have to figure them out.

Pat, maybe lastly for me. Just with kind of what's going on inside the Beltway, what's the latest unexpected timing on 45Z rule making from U.S. Treasury?

Yeah. I think what they'll do is, I think it's going to be in the fall here sometime in probably late fall. I've heard the estimates go from September to December. And I haven't heard anyone say it's going to get punt into next year, at least not very many people say that. Most people think it will be sometime in the late third, early fourth quarter, something like that. What I can expect is you're not going to remember the 45Z for the blenders tax credit or the producer's credit that comes into effect in 2025. What you're going to see is like the precedent set as to how to do some of the other rules that are related to 45, Section 45 and how to count carbon and stuff like that, you'll see that start to get described here in this rule making, but it won't be a final rule set, but it will be a good indication of what to expect. It also might draw some battle lines where we're going to go fight for stuff too because we're trying to count all the carbon and make improvements. And enviros (ph), I sometimes like thinking enviros don't want anything. They don't want any fuels made. They don't want from any source. So it's this very weird dynamic that's going to occur. I think that because the people are anticipating a split Congress next year, that's actually helpful. So by taking an approach, we actually measure carbon accurately and reward it, and you do it a transparent, measurable way that plays, that plays to everybody. It's common sense it's going to approach. Let's get the dam data and measure it and reward people for making improvements and do it. That plays and it's hard to argue with. But we see some of these far out enviros like they're terrified of that even.

That’s helpful. Thanks.

[Operator Instructions] The next question comes from Manav Gupta with UBS. Your line is open.

Good afternoon, guys. I'm going to, if you don't mind, just stick to more macro questions. I wanted to pick your brain. You have indicated that you expect your eventually RNG to have a negative carbon intensity of minus 350, we keep hearing chatter and I strongly oppose this, to be honest with you, where people say that, a, RNG should not even be part of the CARB, and b, try and cap it at minus 100 or minus 150. So I'm just trying to understand, when you hear those things, what is your response? And is this something you would be lobbying for where you say minus 350 is what we really deserve because that's what the value we are adding.

Well, I think when you follow the rules to measure the stuff like California has outlined, it's minus 350 is what pencils in. I don't think of it like that at all. Mine is a completely different paradigm. I think it's this. I think methane, fossil-based methane natural gas is one of the greatest polluters, greatest generators of fossil-based CO2 and greenhouse gas emissions there is. I know that we in evaluating our NetZ plant designs, the biggest enemy was the use of natural gas, which is why we've made such improvements. We view that there's an RNG business here where you can transfer it at attractive prices to a plant like our NZ plant or any other plant for that matter, where you can make good money on an RNG project and you don't need a CARB California at all. In our long-term plans, we don't need California or that CI score. So it's a very different point of view that we have. It's about the transfer price and whatever the rule making is under more like a Greek model, a standard Greek model. So we are not counting, I guess, real bluntly, you're not going to see me bet big investment accounting on California at minus 350. You're not going to see that from us. You're going to see us do it at market prices per MMBtu that work to make good money at a dairy RNG project like we have, they're efficient ones, and then transferring it to some production facility of some type where that carbon value can be transferred. That's how I think it's going to unfold in the long run. So we wouldn't bet on counting on minus 350 in California, our California LCFS saves the day. We just don't think like that. We're looking at a different business actually. We think of it as creating the option to get rid of fossil-based natural gas out of our business systems. That's how we view it in the long run.

Perfect. I agree with you. My quick follow-up here is one of your peers [indiscernible] yesterday said, look, SAF is a very strange market. The demand is infinite and the supply is pretty much zero. And then they made some comments around pricing. And I'm just trying to understand from you from a long-term perspective, when you talk to airlines and stuff, how do you see them actually pricing SAF like how much higher versus the jet fuel or any benchmark, how should we think about the pricing on the SAF side?

Yeah. That's a really good question. It's the thing that we're paying pretty close attention to because the real practical matter that you're alluding to is that airlines themselves can't afford to pay premiums for SAF, at least not very much. And unless they find a way to pass it on to their customers and get them to embrace it. The customers have to embrace it or everybody in the industry has to do it all at once and say there's going to be a surcharge for these new fuels, but then there's a chicken and egg problem. So this is part of the problematic issue we have in and around SAF. The way to break it down and think about it is like this. A product like ours made in a net zero system, it's pretty darn low cash cost. It's reasonable. It's our capital that has to be paid for. That's what builds up the cost, right? So you think about what's that going to take and then you look at how much carbon value is going to be in the marketplace. So the way you think of revenue is this. Our jet fuel for sure has at least as much, if not more value technically just as jet fuel than a PetroJet molecule, right, without counting carbon. The carbon value itself then comes from the RFS, the 45Z, if they ever pin it down, right, the state programs, and there are several of them. There's LCFS. There's buck 50 available in Illinois, another buck 50 in Minnesota, Oregon beats everybody because they have a higher premium for all those things. And so you got to take all those things and stack them up and then ask what's left on the table? And is this something that the…

The last question for me and a little bit of a follow-up on Derrick's question. Like as you grow your RNG offering, this environment is pretty supportive, which are the key end markets? Would you like only to supply to the transportation market or is it going to be more to the utility market? Like how would you describe your end market for the RNG that you're producing? Thank you.

Well, today, the paradigm is that we're selling the transportation fuels in California because that's where you make the most money. There will be a question in the future, barring any changes that occur or any new influences from government policies that we should take that gas up to our Net Zero-1 plant, drive the CI score down further, that could be something we would do and there's potential there. And it will depend upon which is more valuable sending it to transportation or sending it over there to as gas to do the thermal load for a manufacturing plant. There are things that are wildcards here though. I was talking to some folks yesterday talking about the hydrogen and the potential to generate hydrogen. And how do you get more green hydrogen? And how do you blend a carbon-negative RNG type with brown hydrogen to make more hydrogen. So will there be an opportunity there show me the money. Let's see what it is, and we'll look at it and see. So I can see there definitely could be influences from government policy as they weigh into this stuff. I've seen hypothetical things. I don't know that I believe them yet about the 45Z being kind of a windfall towards RNG projects. I don't know if I believe it, but if it's true, well, that's going to cause me a little pay attention for a while. But it's not going to be sustainable in the long run. It's an unreasonable amount of money from what is being talked about. Could that influence? Yes, sure. Fine. You want electricity made out of I get paid an extra 20 bucks a million BTUs. Fine. You want electricity, I can make that happen for you. No big deal. So we have a point of view of where out to make money is what we're doing here. And we have not a luxury, but we have an unusual capability as a small company, and then I got really strong technical people, engineers, operators, practical people. And so we can adjust the stuff as it unfolds. And that's kind of how we view it. We'll go where the money is, man. That's what we'll do. I just don't want to speculate on it.

Thank you so much.

I show no further questions in the queue. I would now like to turn the call back to Dr. Patrick Gruber for closing remarks.

Well, thank you all. This was a longer one today. We felt it was important to try to really get on the record how we're thinking to make it more clear. I don't want to have people think that we're not planning on being an investor in our projects. We are planning to be an investor, but someone has to play the role developer. We are playing the role of developer, we're the best suited to do it, but we're more than that, too, with our technology developments. And so that makes us in the role of people who really do pay attention to technology and how to improve things. So we're trying to clear up a whole bunch of these questions. Thanks for sticking with us through this. Thanks for your support, and I wish you all a good evening.

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