Good day, and thank you for standing by. Welcome to the Gevo, Inc. Q3, 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to turn the conference over to your speaker for today, Dr. Eric Frey, Vice President of Finance and Strategy. You may go ahead.

Good afternoon, everyone. This is Eric Frey, Vice President of Finance and Strategy. I'm responsible for Investor Relations here at Gevo as well. Thanks for joining us to discuss Gevo's third quarter results for the period ended September 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 at our website at www.gevo.com. Please be advised that our remarks today, including answers to your questions, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated. Those statements include projections about the timing, development, engineering, financing, and construction of our sustainable aviation fuel projects, our recently executed agreements, our renewable natural gas project, and other activities described in our filings with the Securities and Exchange Commission which are incorporated by reference. We disclaim any obligation to update these forward-looking statements. In addition, we may provide certain non-GAAP financial information on this call. The relevant definitions and GAAP reconciliations may be found in our earnings release, which can be found on our website at www.gevo.com in the Investor Relations section. Following the prepared remarks, we'll open the call for questions. I would like to remind everyone that this conference call is open to the media, and we are providing a simultaneous webcast to the public. A replay will be available via the company's investor relations page. 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 10-Q today and we ask that you refer to it for more detailed information after this call. On our last earnings call I explained what we have been investing in, what it means, how we think about further investments, our use of capital, and progress against milestones. We remain focused on that execution plan. Today, I would like to focus on recent events in the third quarter and provide an update on how things are progressing. First, our Net-Zero 1 alcohol to jet SAF plant is three months into the formal due diligence and term sheet negotiation phase for a U.S. Department of Energy loan guarantee. We said in August that it would take up to 12 months to complete the process, and based upon the positive progress we have made this quarter, we believe we are on track. Second, our dairy manure RNG business completed its expansion to 400,000 million BTUs per year of capacity. RNG is generating positive standalone adjusted EBITDA, this is in spite of the fact that California LCFS prices are low in the $70 to $80 per metric ton range versus around $200 per metric ton a couple years ago. It is also in spite of the fact that we are operating under our temporary LCFS pathway of negative 150 carbon intensity. So we expect our RNG cash flows to improve next year when we get our anticipated permanent pathway of a minus 350 carbon intensity. We also expect RNG cash flows to improve as we ramp up volumes and de-bottleneck the plant. Third, let's talk about Verity Carbon Solutions. Last quarter we entered into an agreement with our third ethanol producer customer, bringing our total customer capacity…

Thanks, Pat. Gevo's Q3 combined revenue and interest income was $9.8 million with the interest income benefiting from higher interest rates. Our corporate spend, that is SG&A, was $6.4 million for the quarter, excluding non-cash stock-based compensation of $4.1 million, which is a $0.3 million decrease from Q2 as a result of our cost control efforts. That related to the Northwest Iowa RNG project with $67.8 million, consisting of $68.2 million face value, less unamortized $0.4 million premium and issuance cost. We ended the third quarter of 2023 with a strong liquidity position of $401.3 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 totals $77.8 million. During the third quarter of 2023, we invested and capitalized $12 million cash in capital projects comprised of $8.7 million into Net-Zero 1, $1.7 million into the expansion of our Northwest Iowa RNG project, 1.4 million into other Net-Zero projects, and $0.2 million into our hydrocarbon skid. We also invested $19.9 million of capital with a Zero6 related [BIE] (ph) to allow the purchase of wind and hydrogen equipment to support Net-Zero 1. On Net-Zero 1, we are working to de-risk the project to non-recourse standards to obtain the DOE loan guarantee and attract the third-party equity capital necessary to finance the construction budget and all the project finance elements such as interest during construction, various reserves, and transaction costs. The infrastructure and energy transition private equity market, as well as certain strategic investors are reacting well to the process of delivering an investment package that is financeable. The equity process will ramp up next year from the current information sharing and preliminary due diligence to full due diligence and…

Thanks, Lynn. Let me wrap up our prepared remarks by saying even though it feels slow while we're waiting for the IRA rules to be clarified, we are not sitting idle. We're making progress, we're moving ahead, we're laser focused on being good stewards of our capital. We believe Gevo was undervalued given our balance sheet and growth potential. It's frustrating. However, we know we are living through a once in a generation transition of our entire economy towards a focus on carbon abatement and Gevo is one of the companies on the forefront of that energy transition. For this reason we have been seizing the moment to deploy well-placed capital into the Net-Zero plant designs for ATJ and ethanol, which Gevo owns. And of course, we've been developing site locations because we plan on growing further plants. We are also executing complementary strategies that will create value for us long-term, such as Verity and RNG, and ethanol to olefins, or ETO, which not only support our Net-Zero ATJ strategy, but have potential to generate maximum value for shareholders, separate then SAF opportunities. As Lynn alluded to, we recognize the importance of being good stewards of our cash and getting to positive cash flow as a company. We can do more than one thing at a time. So even as we are pushing ahead on Net-Zero 1, which we all believe will unlock substantial long-term value for us, we are also pushing the development opportunities, RNG and Verity, which we expect would get us to positive cash flow long before NZ1 comes into operation. And of course, that should unlock value as well. Let's open it up for questions. Operator?

Thank you. [Operator Instruction] The first question for the day will be coming from Derrick Whitfield of Stifel. Your line is open.

Thanks, and good afternoon, Pat and team, and congrats on your progress with the Northwest Iowa RNG project.

Thanks.

Starting on SAF more broadly, given the benefit of your completed FEED study and the reset we've experienced in [rent] (ph) pricing, could you share your thoughts on the economics of bringing an SAF project to market in the current environment? I know that Net-Zero 1 will be focused on SAF and that's better than RD, but again, I'd love your thoughts on that more broadly.

Yes, well, the big question around the economics of SAF is all around the ruling for the IRA bill under section 40B and 45Z. And those rules aren't out yet, because that's the part that actually will describe how it is that the IRS is supposed to take into account the carbon reductions from a CI score of 50 and less. And remember it's $0.03 per CI point per gallon. So we're waiting to see with that. Everything else is transient and it'll go up and down. The RINs will go up and down and stuff. But we got to see what that rule looks like. And it's been overdue almost a year already. And so we're waiting to see what happens. And then we'll be able to adjust from there. The thing that's interesting about SAF is that, it is a full drop-in, it's proven to work, airlines need it. And so we believe we have the lowest cost route to make SAF, and particularly when you take into account the CI score. So, we know there's a market here for our stuff. We just got to be able to finalize pricing. We won't be able to do that until we see that IRA bill rule. So it's not about RINs at all, it's about the IRA bill.

And Pat, maybe just stay on that point, because when you think about the IRA bill and the importance of decarbonization via CCUS, that should inherently make a greenfield project in some ways more economic than a brownfield? Is that a fair assessment?

It is. So, the way to think of it is that, carbon capturing, what we're talking about is carbon capturing of the Co2 directly off the fermentation of the alcohol. That's worth about 30 CI points. 30 CI points is quite a lot there. Now for us in our Net-Zero 1 design, we would hope we will take full advantage of that. And it's very helpful. Throw money. And it's a competitive marketplace in the states. So a lot of states are saying, we're for sure going to have CCS. And there's lots of discussion in other states as to what should happen and how should it happen. But CCS is going to be important in the long run game, and it matters economically. Now here's the thing about ethanol plants. If you have an existing ethanol plant, you don't have access to CCS. You have zero chance, I believe, of producing a jet fuel SAF with a low CI score. The reason for that is, most ethanol plants are probably in the 70 CI score range, so knocking off 30 points is helpful, but it doesn't get you over the hump of what it takes to make a competitive SAF. So you have to do something about decarbonized energy. Well, of course, that's what we did in this approach we took up with Net-Zero 1, where we arranged the wind. It's why you see us doing the green hydrogen too and doing biogas. So we have multiple levers, multiple shots on goal. And that's how we would approach a brownfield plant as well. And so, when we look at several of those opportunities that we see and we would look at them for their full ability to be decarbonized, of which, CCS is a part.

That's great. And maybe staying on -- again part of the question, but maybe shifting that over to Verity. When you think about the outlook for ethanol to jet, what's that near and long-term value proposition look like for Verity?

Well, it's interesting. There's actually several. And the one way to think of Verity is just the proof, and really super documented proof that in fact there really was a carbon abatement. And it tracks it all the way across the whole of the business system, all the way from capturing carbon in a field at a farm through the production facilities all the way [indiscernible] actually all the way out to the seat at an airplane. So someone who's buying that seat could, in theory, when the product is fully implemented, you could know what it is that the exact carbon abatement pathway throughout. That's the beauty of this technology, it uses blockchain or DLT technology. We've already got it working in the field and production facilities. So it's pretty darn interesting for the whole SAF chain. Think of it as a really super sustainability certificate that's bullet proofed. And that's valuable. That's going to be valuable and key, because that's the proof that in fact you got what you paid for. Now when it comes to ethanol, we also -- we have been working with these ethanol plants, one of the public ones we announced was [indiscernible] is that, we're working on verifying their data, taking their process instrumentation data, transforming it into the data that's used for calculating the CI scores, so that they can actually see what's going on in their plant. That's also valuable, because then we can use it to lower CI score of ethanol and measure it and monitor it. The team is working now to figure out how to monetize that and they're making good progress. There's another part of this which is around the field attributes. We have a $30 million grant from the USDA and that is all about documenting fields. Fields, not farms, not regions, fields. And we actually have a tool that's working with farmers out in the fields which has been in operation now -- development and operation for three years, and we just got it onto the handheld form. And farmers can tell field by field what's different. That's a huge deal because that allows them to have the information available to them to make better -- different and hopefully better decisions about how to improve the sustainability on their farm. It's in those avenues that we see the potential. And there'll be multiple ways of making money from it. Some of it would be providing a service. Some of it would be profit share. Some of it might be actual tokenization of carbon or something like that in the future.

That's helpful. Thanks.

And it's a big – it's a huge potential market. The potential market, we're told. We just had McKinsey in here doing a study, and it's in the billions. So we're going to -- we got to do a little more work on this. I got to see the exact business plan. So when Lynn was referring to the guidance of what should happen and when should it happen, the team -- they're doing a good job. This is a huge project and it's a software and the data collection field work, a bunch of things. It's definitely not heavy-duty capital but the market potential we're being told is really big. So we like that a lot.

Thank you. One moment for our next question. Our next question will be coming from Sameer Joshi of H.C. Wainwright. Your line is open.

Thanks for taking my questions. On the DOE loan process, I know it seems to be on track, but will you be providing any like, milestones or any deliverables that happen during the quarter? How should we look at it in terms of tracking it?

No, we won't. We don't plan on it. The thing that we're watching for is getting to the close or the -- I guess there's a final notice that they're going to give you the money. That'll take a while to get to that. But doing the little details, I don't want to -- no. There's just too many things. They have to go do due diligence, they hire their own consultants, they're on their timeline. They control the timelines. We control nothing. All we do is help and provide information and input. So I can't see any kind of a win that's constructive for shareholders here because they're continuing to make progress and will report on it. That's the very best thing.

So part of the reason for that question is how will the equity partners or strategic partners that you are working with now track that? Are you sharing information? Will you be sharing information with those kind of partners?

We are and have been, yes. There's quite a long queue of them and stay in touch with us. And so, the big variables that we have here are the same as we've talked about before. Everyone wants to know what the 45Z is going to say. We need a number. You know what, any number is better than no number because then we can get on with figuring out the margin and what's going on and what the gaps are and how to fill the gaps. So that's just, we got to have that. And then the DOE, the DOE program, our project is solid. We've done more engineering. We have never in my life, in any of the projects I've ever been involved with, my guys have ever been involved with, have we done this much engineering on a project? And this is partly because we're in inflationary environments where I was having to update stuff, but it's like never have we done this much engineering and it's so it's as de-risked as we can possibly make it on every front you can think of. And so, we'll plug through it and get it done.

Understood. Great. On the ETO, the ethanol-to-olefins, what is the development work that is going on? Like is there -- like what exactly is happening on that front?

Sure, so that's -- we've licensed the technology to LG and they're a partner with us in helping to develop it, and their particular interest is, they want to make propylene. For polypropylene, that's a plastic that goes all the way from diapers to car bumpers and consumer goods and the whole bit, right? The proposition would be a massively negative polypropylene, and people are interested in chemicals, and so that would be pretty cool. No one was ever seen a polypropylene with this kind of negative carbon values. So that's what's interesting about it. We'll have to go through the discovery of how much people will pay and all that kind of Stuff, but they're a great partner. They're doing a lot of work on doing development right now. I was in Korea here with [Paul Bloom] (ph) recently and you know what? These guys are making great progress. They're really good at the catalysts and things. And of course, those proprietary catalysts are really important, and this is stuff that we have our patents filed on. So it's all really good. And then also, that technology, we believe cuts out large quantities of capital from making jet fuel from ethanol. And it also cuts operating costs. Now it won't be ready in time for Net-Zero 1. So we're going to go ahead with Net-Zero 1 anyway. Maybe it's ready for Net-Zero 2, I don't know. We'll see. We have to go through the work and find out what it is we don't know yet. We're scaling it up. So to answer your question directly, the next stage is to get those catalysts scaled up. That's part of it. And then scale up the process itself. And we'll be doing that over the next six months, eight months, something like that. No doubt we're running into something we don't know yet, and then we'll have to overcome that. But it's looking pretty good, and we'll also bring in other partners to help develop it and get it implemented fast, because the potential is huge.

Got it, thanks for that. And one last one and this is a clarification. The 100,000 MMBtu per quarter, is that the capacity or the actual production that will be achieved by the year end? Just wanted to make sure.

Well, they've already demonstrated for running through several weeks at that run rate, so the system is capable of it. Now there's other things we were looking at to see whether bottlenecks and equipment and whatever needs to be adjusted. So we're doing some of that. So I think -- I would expect that like, I don't know, probably, winter is never easy to run one of these plants, but let's say next year I'd expect that to be more of the run rate of a 100,000 million BTUs. We should hit our targets, this year we'll hit our targets for what we had projected at whatever it was above 300,000 million BTUs, we'll accomplish that goal.

[indiscernible]

Yes, and it may be that there was a hiccup, there was like if a freeze gets us or something, that can happen and that might ding it, but we'll be in there. We'll be right in there.

Got it. Thanks and good luck.

Thanks.

Thank you. [Operator Instructions] One moment for the next question. Our next question will be coming from Shawn Severson of Water Tower Research. Your line is open.

Great, thank you. Pat, I wanted to go back to Verity for a moment and try to understand is there another -- is Verity sort of the de facto solution then that would be used for this? I mean, in other words, for an ethanol plant to use -- to count any of the feedstock in terms of their CI score and how it's coming in, was they going to have to use Verity in order to quantify that and be able to use it in their CI calculations?

As far as calculating a CI score, people can do that in multiple different ways. What we're trying to do is bring together incredibly high quality data along with the methodologies that are incredibly high quality. And then it's put onto DLT technology. Now DLT technology is the technology that's behind blockchain. It allows it so no one can mess with it at all. It's auditable, traceable, completely detailed, and you can't mess with it. It's put down on data. You can't change it. So, there's no game playing involved here. That's what makes it attractive. So, there's two parts in an ethanol plant. There's the part that when you're running a plant itself, how one does CI reduction or carbon reductions or call it -- they might have choices about whatever they're doing in their plant. That's part of what needs to be documented. And then of course, it's documented the feats that comes in. The way that we view this is that, these make for very high quality carbon credits insets that people are willing to pay for they tell us. Well we got to go prove that out and see if they really are willing to pay for these high quality inset credits. Inset credits versus an offset credit. Inset credit means, it's something directly related to a supply chain that you're involved in. An offset would be, you fly in an airplane and you go plant a tree. That's an offset. This is actually insets that are done in the supply chain. That means that you're tracking it all the way to gasoline and things like that. So there's lots of interesting things that can be done on carbon and different plants have different CI scores. And this goes into great detail about those things and…

How much can sustainable farming practices reduce that CI score if you look at the value chain? Obviously you're most familiar with yours and ethanol and SAF, but is it a material impact that the farming practices can have on the CI score and hence the value?

About that is it's kind of mind boggling of what's possible. So one of the assumptions that you -- whenever you're seeing these people broadly espoused about row crops and crops are bad and blah, blah, blah, they're using really outdated data and they're out of touch with what really is done in real life in modern farming. There's equipment nowadays where, like John Deere [Technical Difficulty]

Thank you. One moment for the next question.

Oh, excuse me, I was answering Shawn's question. So -- yes, Shawn, so what happens is that imagine the potential is that, right now we're at about -- we've seen farms with positives -- I mean, they increase carbon incrementally. We've seen very negative carbon. There's all kinds of new techniques that are available to drive carbon score down. And we've seen things that have potential like minus 100. And so, we're at the very beginning, I think of an evolution/revolution in farming as we get better and better at looking at the data, collecting the data, measuring the data, paying people to drive the carbon abatement down. And you get other benefits too in the whole sustainability arena. So for example, I was mentioning that you get a -- when you're -- John Deere has a tractor that can go -- it has cameras on it for herbicide and it's an herbicide plier. You drive along at 15 miles an hour and the machine recognizes a particular kind of weed and sprays the particular kind of herbicide on that weed at 15 miles an hour. So guess what? Huge amount of reduction in the amount of herbicides that's applied to that field. That's huge. And same thing you can do that with fertilizer and all the rest. So the techniques people have misunderstood or thought that agriculture is mature. It's not mature. There's a data revolution, equipment revolution occurring and we're paying attention and that's what our Verity is leveraging.

Okay. Thank you. One moment for the next question. And our next question will be coming from Abhishek Sinha of Northland Capital Markets. Your line is open.

Yeah, thanks for taking my question. If you could remind us how much capital do you need actually right now to build the project? And how much do you actually expect from DOE?

Lynn, you want to take that one?

Sure, our hard costs for the project are tracking, as we do the detailed engineering and work through the remainder of the year and into Q1 to finalize the lump sum pricing, tracking at about $1.2 billion, $1.3 billion for the hard cost. As far as the DOE loan, that's a function of the debt service coverage ratios and other terms, the maturity of the off-takes, and we're modifying certain features of the project to allow for a higher debt capacity. We've applied for $950 million of debt, and we think we'll succeed at that level. But there are other costs associated with a project financing, like you have to pay, you have to prepay or -- sorry, provide for the interest during construction and other reserves associated with the debt. So that adds to the total finance and install cost.

Got it. And like how much have you really invested in the financing and securing the equipment and materials? And how much more you think is required and when do you expect that capital to be deployed?

Well, we've spent about a $100 million to date on the development of Net-Zero 1 out of that $100 million it's comprised of site control permitting, a lot of engineering, which is not a hard asset, but it's IP. And then a certain amount of that is equipment deposits. So by the time we get to financial close, we could be $150 million in, including more equipment deposits. And we would then choose, depending on the structure of the equity, whether -- how much of that we leave in the project as equity in kind. But we don't -- I think the total finance install cost that I just mentioned will be substantially more than $100 million or $150 million. So we have to go and get third party capital for that. That's why we're in process with the DOE and third party equity investors at the project level.

Sure, I got it. And in terms of your project financing, you have to get the EPC wrapped up and then I'm trying to understand like, to get EPC wrapped up you have to get the lump sum turnkey pricing right and when does that -- I mean, if I need to put my hat on like where exactly I need to put like in terms of where should we latch on, like where do we get lump sum turnkey pricing by when should we achieve that.

So now you're asking questions that sort of is another track of what was asked earlier in terms of milestones and I don't think we're prepared to talk a lot about those in detail yet. We'll assess a key milestone as it occurs and disclose that, but I don't want to put dates on those activities.

Yeah I'd say it's one of these things we can't win at this and from the standpoint of communicating those kind of milestones publicly because they're going to change. Everything changes because we find something different, there's a, I don't know, like, it's an inflationary environment, anyways we're constantly updating the things. You've got the DOE over here with their questions and we have to adjust to them and we have equity people that we're working with too. And so it's coming together. [indiscernible] has been a very good partner, I can tell you that much. And we've already negotiated the contract. We got to finalize the numbers. Finalizing the numbers depends upon timing. And we're working through it, keeping it updated. They're going through extra details. We're looking at the scope of the project and stuff. But it's all going along on a good schedule. And so we like what we see, we're trying to bring it all together, but the rate limiting step is DOE right now.

Sure. Thanks. Got it. Last one, if I could please, have you heard anything or anything has changed in terms of your portfolio after agreement? Are you getting any questions from those guys? Has anything changed in terms of the agreements there?

No, the airlines that we work with, they're all cooperative partners for us. They recognize that timelines will have to change. Some of them had conditions precedence at the end of the year and stuff, but they're all -- everyone is cooperative and working on extending, modifying them and whatever. They recognize that ETJ is a very low-cost route to make jet fuel. That matters in this space. It also is the most scalable one, more so than any other technology that's out there, we believe, and I think they will too. We'll be out talking more about this with people more publicly. We just wrapped up a study that we did with McKinsey here for the last few months and they verify what we thought they did independently. We like that. And so, we just got to -- there's so much noise in this space, there's only a few things that can work. You think about it. You got to have something that's cost-effective. Check. You got to have something scalable. Check. Something that's leverages existing infrastructure, right, drop-in, FEED stock-wise and on the product side. Check and check. So getting everyone to understand this, that this is the game afoot, and [HEFA] (ph) is a -- that's the stuff that's made from oilseeds or from waste fats and oils that's made from renewable diesel. That has potential too, but it's got its own issues because it takes away from renewable diesel or competes and it adds cost to renewable diesel in order to make SAF and it's limited on feedstock supply. So it's a -- ATJ is a really, really good product and we're more confident about it every single day about that.

Sure, [indiscernible].

Thank you. At this time, there are no more questions in the queue. I would like to turn the call back over to Pat Gruber for closing remarks. Please go ahead.

Well, thanks. Thanks for everybody's support. And I'll tell you, it has been frustrating. I mentioned that in the prepared remarks. But it has been frustrating waiting for 45Z. I never believed it would take this long. But we need to know the numbers so we can get on and figure out the rest of the details for the projects. And overall, the pieces are here, they're coming together. You heard me just talk about us doing a study of really looking ourselves in the mirror, is do we have it right? Do we have it thoughtful? We had bring in consultants and stuff? Yeah, we're convinced, we have it right. And it's the right thing. I really, this point that Lynn made in his prepared remarks about, we are not going to wait to be profitable until NZ1 is up. We're going to try to be profitable long before that. That's our duty and responsibility, and that's what we're going to try to make happen. So it's not a one trick pony, betting all the -- it's not a one trick pony. So anyway, we are keeping an eye on it, it's an exciting time, this Verity is particularly exciting. RNG, we like that a lot, and I think we have all the pieces here it's just getting it down and put them in the right places and get on with it. Thank you everybody for joining us.

Thank you all for joining today's conference call. This comes to the conclusion of the call. You may all disconnect.