Welcome to Gevo Second Quarter 2020 Earnings Conference Call. My name is Andrew, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will be conducting a question-and-answer session. Please note that this conference is being recorded. I'll now turn the call over to Geoffrey Williams, Gevo's General Counsel and Secretary. Please go ahead, Mr. Williams.

Good afternoon everyone, and thank you for joining Gevo's second 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; Lynn Smull, Gevo's Chief Financial Officer; and Carolyn Romero, our 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 Web site 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 Web site. On the call today and on this webcast, you will hear discussions of certain non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in accordance with GAAP. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is contained in the press release distributed today, which is posted on our Web site. We will also make certain forward-looking statements about events and circumstances that have not yet occurred, including, but not limited to, projections about Gevo's operating activities for the remainder of 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 Securities and Exchange Commission, and in 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 2020, and following the presentation, we will open up the call for questions. I will now turn the call over to Pat.

Thanks, Geoff. We continue to produce and sell hydrocarbon products from the hydrocarbon plant in Texas. The interest in our products remains strong, and in fact, on the business development front, we continue to make progress on additional contracts, and we'll get them done pretty soon, I expect. These contracts actually should be our biggest ever. Yes, they're taking a lot longer to get done than I wanted to, but we're focused on getting them completed in the near term, and so are the counterparties. We believe that the size of these contracts collectively should enable us to change our business model to that of a developer, a project developer, a technology licensor, and plant operator. To fulfill the demand from these contracts, we expect that we will need three plant sites, two more plant sites in addition to that at Luverne. In fact, we have two additional sites under Letter of Intent and are developing more options. As it turns out, it's a good time for acquiring ethanol plants, given the duress there under COVID. We plan on setting up special purpose entities whereby each plant build-out is a project, and other people invest the capital, both debt and equity in the project, while Gevo would retain a minority ownership interest. This would be something we'll talk about as off-balance sheet financing or its project financing approach. On this project-based approach, we're working with Citigroup to raise the debt and equity needed to build these plants. So far, we're getting initial interest from several potential investors having done management meetings whereby we explain the details of our projects, including what appear to be attractive project returns. Pro forma unlevered returns at the project level accounting for all the construction, hard and soft costs, including the various fees paid to Gevo over the project construction and operating periods, are in excess of 15%. That's good. It could be higher depending upon financing and structure. It's the returns that make us interesting for people, especially combined with the potential for whole gallons of hydrocarbon fuels with net zero greenhouse gas emissions. We're getting good time and attention from prospective investors. The questions are good. We have lots of work to make it all come together. We need to bring it home and get it done. We're encouraged by the discussions. Citigroup tells me that they're encouraged. We have the numbers in a mix of financial groups and strategic investors that Citigroup expected to have when we began the process. So, it looks to be on track. At the Gevo, Inc. level, we are working on refinancing the White box secured note. We have approximately $12.5 million of debt due on December 31. By having some cash in the balance sheet, it helps us create more options, to get partially pay white box down and gave an extension until April 1, 2021, which gives us a longer runway to secure debt from other potential lenders. We will develop the options over the next few months and choose a path. I expect that we will have some significant announcements soon both on the optic side and for licensing. I would have liked to talk about them today, but agreements need to be finalized completely, we're almost there. Looking forward, we expect to get the contracts done, finalize our plant sites beyond Luverne, figure out who is partnering with us to build those assets, and finish up on the refinancing of all the white box note. Now, I will turn the call over to Carolyn, who will take us through the financials. Carolyn?

Thank you, Pat. Gevo reported revenue in the second quarter of 2020 of $1 million as compared to $5.1 million in the same period in 2019. During the second quarter of 2020, hydrocarbon revenue was $0.9 million compared to $0.1 million in the same period in 2019. Hydrocarbon sales increased because of higher shipments of finished products from our demonstration plant at the Southampton Resources, Inc. Facility in Silsbee, Texas. During the second quarter of 2020, revenue derived at the Luverne facility from ethanol sales and related products was $0.1 million compared to $5.0 million during the same period in 2019. As a result of COVID-19 and unfavorable commodity environment, we terminated our production of ethanol and distillers grains in March 2020, which resulted in lower sales for the second quarter. Cost of goods sold was $2.6 million in the second quarter of 2020 versus $8.5 million in the same period in 2019. Cost of goods sold included approximately $1.0 million associated with the production of IBA and related products and maintenance of the Luverne facility and approximately $1.6 million in depreciation expense. Gross loss was $1.7 million for the second quarter of 2020 versus $3.3 million for the second quarter of 2019. Research and development expense decreased $5.3 million during the second quarter of 2020 compared to the same period in 2019 due primarily to a decrease in personnel and consulting expenses. Selling, general and administrative expense increased $5.7 million during the second quarter of 2020 compared with the same period in 2019, due primarily to an increase in personnel, consulting and insurance expenses, and professional fees. For the second quarter of 2020, we reported a loss from operations of $5.3 million, compared to $6.5 million for the same period in 2019. In the second quarter of 2020, cash EBITDA loss, a non-GAAP measure that is calculated by adding back depreciation and non-cash stock-based compensation to GAAP loss from operations was $3.1 million, compared to $4.8 million in the same quarter of 2019. Interest expense for the second quarter of 2020 was $0.5 million, a slight decrease compared to the same period in 2019 as a result of lower amortization of original issue discounts and debt issuance costs. For the second quarter of 2020, we reported a net loss of $6.0 million or a loss of $0.40 per share based on weighted average shares outstanding of 1,571,105 shares. This compares to a loss of $7.1 million in the second quarter of 2019, or a loss of $0.60 per share. In the second quarter of 2020, Gevo recognized net non-cash loss totaling $0.2 million due to changes in fair value of certain of our financial instruments such as awards and embedded derivatives. Adding back these non-cash losses resulted in a non-GAAP adjusted net loss of $5.8 million in the second quarter 2020, or a non-GAAP adjusted net loss per share of $0.39. This compares to a non-GAAP adjusted net loss of $7.2 million in the second quarter of 2019, or a non-GAAP adjusted net loss per share of $0.61. Now, I'll turn it back over to Pat to wrap things up. Pat?

Thanks, Carolyn. And with that, I think we can open it up for questions, Operator?

Thank you. And our first question comes from the line of Amit Dayal with H.C. Wainwright.

Hi, good afternoon, everyone. Thank you for taking my questions.

Hi, Amit.

Hi, Pat. Any color on the two commercial agreements you highlighted in the press release? Does this relate to the off-take in the licensing agreements you touched on, or is it something else?

It does relate to both of those points. As you look ahead in the hydrocarbons sector, it’s essential to take a step back. While there’s a lot of focus on jet fuel, which remains important, it will experience fluctuations, but the push for greener jet fuel will continue. This is a reality influenced by various global factors. Regarding gasoline, we produce renewable, high-octane gasoline, and as the world shifts towards higher compression engines, the demand for premium gasoline is set to rise. This shift is driving demand for our products, and I believe the agreements should reflect this trend. Additionally, we will make advancements and share updates on our licensing efforts as well.

Understood. Are these 3Q or 4Q type guidance?

You know, these are ones we've been working on for months already, and I would love to say, I really did expect that we would have done already. So, we could say something about them today, but they just aren't ready yet. So, I think that should be done soon, rather than not far away, at least the beginning of these, we have a series of them, and so, sooner rather than later, but I hate it; these days it's a pain sometimes just to get a signature on a piece of paper properly.

Understood, guys. And then, on the ethanol side, I mean your comment sort of alluded to it, a lot of distressed assets potentially in the market for you guys to look at as a part of your efforts to move into more of a project developer type role, but then, sort of a separate question on that front, some ethanol companies have shifted to producing high-quality alcohols, hand sanitizers, etc. Are you looking into anything along those lines to support gasoline, etc.?

If it requires investment at a facility like ours and it's not part of our core strategy, along with not overlapping with isobutanol production, it would simply result in a capital expense for us. Any ethanol company worldwide can pursue this opportunity, but larger ethanol companies are in a much better position because they can easily add a small distillation column to achieve the necessary purity for products like hand sanitizer. We can't compete with them on an economic level, and if the ethanol market remains stable, it could lead to a decrease in prices as well. While it seems like a compelling opportunity to invest capital, by the time we set it up and complete construction, the profit margins would likely vanish, and we wouldn't see any returns. It's not aligned with our objectives; we plan to focus all of our capital on commercializing hydrocarbons, jet fuel, and renewable gasoline.

Understood. And then, going back to sort of the Citigroup efforts, are you lowering costs to potentially additional client sites?

That's right.

Is Citigroup working on like these three opportunities, or is it just focused on maybe one or two of them, any color on how they're thinking about sort of executing with what they have in front of it?

Yes, based on the contracts we are currently aware of, it appears we will need three plants, which translates to approximately 70 million gallons of off-take demand on a take-or-pay basis. We are confident in the contracts since we are engaged in confidential discussions. Other parties involved in negotiations are aware of these situations as well, and Citigroup is collaborating with us on all three projects. To meet this demand, we believe we will require three plants. We plan to expand the Luverne facility to around 30 million gallons and establish two additional hydrocarbon plants, each also around 30 million gallons. You can think of these as functioning like 15 million gallon ethanol plants, but when we complete them and transform them into hydrocarbon plants, they will likely operate closer to 30 million gallons.

Okay.

Okay?

Yes. That's all I have, Pat. I will take my other questions offline. Thank you so much.

You bet.

Thank you. And our next question comes from the line of Shawn Severson with Water Tower Research.

Thanks, Pat.

Hey, Shawn.

And Pat, going back to your answer on Amit's question, can you expand a little bit on how the isooctane renewable gasoline is going to be used? I mean, are you talking about blending or complete dropping fuel replacement, obviously the reach is just carbon reduction targets, and so I'm curious how that gets into the market and would be used?

Sure. When we discuss isooctane, it's essentially the foundation of gasoline. Unlike traditional gasoline that is derived from fossil fuels, our product is sourced from isooctane. There's a component in the petrochemical fuels sector known as alkalis, which were used to produce premium gasoline; our product shares similar characteristics. It contains no particulates, sulfur, or nitrogen, which means it doesn’t contribute to pollution in the same way, and it has the potential to achieve net zero emissions. Isooctane is a key element of gasoline, comprising around 80%-90% of it, with the remainder being additives like ethanol to assist with cold starts. This makes our product highly valuable. As demand increases for higher mileage engines that require high octane levels, we are well positioned in that market. Looking ahead, current fossil fuel consumption stands at about 955 billion gallons annually, and projections for 2050 show similar consumption levels, even with the rise of electric vehicles. This surprises many since they believe EVs alone will resolve fuel consumption issues. Transitioning to EVs necessitates widespread fleet upgrades, infrastructure changes, and new electricity sources. Our product, however, requires no shift in consumer habits; it's simply purchased and integrated into existing systems. It can be blended to any desired level or used as a complete gasoline replacement, both of which lead to reductions in carbon emissions due to its low carbon footprint. Even by 2050, gasoline will remain a significant source of greenhouse gases, far surpassing the contributions of jet fuel or diesel. This is quite remarkable. We have been enhancing our product's performance through collaborations with the European F1 Racing Circuit, which further demonstrates its quality and effectiveness.

Yes, but how does the cost curve work in this scenario? Assuming a certain volume as your plants become operational, it becomes a blending opportunity. How would it compare on a cost-competitive basis, for instance, with oil priced at $50 or $60 a gallon?

Yes, I believe what we can achieve is to deliver a premium gasoline product that is priced at the higher end, even compared to fossil alternatives. There is a foundational price tied to premium gasoline and a carbon value, as well as green value. We now have reliable mechanisms, such as the low carbon fuel standard in California and European RED policies, that help to establish a valued carbon market, leading to increased confidence among customers and investors compared to a few years ago. Our process involves assessing the cost of manufacturing along with the returns we require. We then factor in the carbon value and share that with our customers, which helps to bring their costs down to levels comparable to petroleum-based products, while still providing us with attractive returns. This is the operation of our business model. Customers can blend at any level they prefer, as they often need to address their carbon obligations.

Okay. Thanks for that. And just another question on Praj, any update there, where things are at, they have worked as a long time partner of yours, where do things stand?

We're plugging along, we're going to get it done. I can see it and taste it. It's a matter of getting it done, and it's going to be interesting. It will surprise people what we're doing, and it's good, because India is a place with a tremendous amount of cultural resource. You don't think of it that way, but it does. People don't think of it, but it does. They also have no oil. So, as a strategic thing for India as the country having the ability to make renewable resource-based hydrocarbons is a good thing, and I'll be able to talk more about that soon.

Understood. And just my last question is back to the airlines. Obviously, under quite a bit of duress, and I haven't seen anything out in the marketplace, and I think specific, but have they backed off of those objectives that they set out, I believe, for 2025 or next sort of change they're posturing as you see it out there in regards to emissions targets and carbon goals?

They are definitely having discussions about this and it's unavoidable. As companies receive financial support, there will be prerequisites, especially in Europe. Fundamentally, there's an important shift happening; shareholders recognize that greenhouse gas emissions cannot be ignored. Businesses need to change their practices and cannot continue to pollute the environment, and people are awakening to this reality. Companies are being held accountable for their emissions, not just by activists but also by their customers. This is a significant movement that influences airline behavior. While airlines may seek extensions for their efforts post-2020, they are facing overwhelming challenges. As we move forward, practical solutions like ours can provide the right priced fuels to help them adapt, which wasn't feasible before. It's crucial for them to have alternatives. However, the pressure to change will keep mounting. We're still planning to rely heavily on fossil fuels for the next 50 years, and even with the introduction of electric vehicles, the overall impact remains vast. I can confidently say that we will see considerable increases in greenhouse gases, leading to further pressure. This is a major trend that is not going away.

I think that will take the rest of my questions addressed with you. Thank you.

Thanks, Shawn.

Thank you. And our next question comes from the line of Poe Fratt with NOBLE Capital Markets.

Good afternoon, Pat.

Hi, Poe.

Could you talk about the project financing, whether you've changed the total amount that you're looking for? I think previously we talked about potentially project financing in the $700 million range…

Yes, that's right.

And is that…

Yes, so the way to think of that is it's about, yes, in that range, and that's a fully baked, fully loaded, fully packed on a fully everything delivered project basis. So that's as compared to if I had the balance sheet, which is spending the money myself, I'd save a lot of money, right, but because you have to do all the reserves and all the other stuff with it, and so, it's a typical project finance type of situation, and the way it works is that you do 20% or 30% equity, 70% debt, and it looks like we have good opportunities there, and then we wind up with a retained interest, we also get paid the development fees, the licensing fees, etc. So there's pretty good cash flow coming out of those projects towards Gevo, and it should make us a profitable company. So, it looks like it could work because it gives you these attractive returns for people who like big infrastructure.

Looking at your upcoming commercial agreements related to renewable gasoline or the licensing agreement, do any of these potential agreements generate cash upon signing, or are they all still in the future?

No, no, but it's always with the delivery, so the company that we have some contracts, of course, already that as we make products that are out of our shells we've planned. They do continue, but we have to get to larger quantities. And so, these take-or-pay contracts are set up such that the companies are promising something on their balance sheet; if we make it, they are buying it. It's that kind of an approach that we're taking, and there's nuances and flavors, but that's in essence the basic concept underneath, and so, in the question of are they putting anything up? Yes, they're putting up the most important thing of all is that is the risking for an investor that there'll be someone on the other end if the plant gets built.

Okay, great. And then, did you do a cash walk on that matter? You ended the quarter with about $6.3 million of cash. You gave and entered the July number $21.4 million. You know that implies, at least from what I can tell, that you might not have burned much cash in July. Is that fair, or can you just sort of give us an idea of where you stand right now from a cash burn standpoint, I guess?

Yes, currently, we're operating at around a million a month. There is potential for an increase of up to 3 million, but we don't have specifics when it comes to ethanol production. Producing ethanol can incur an additional cost of around $500,000 to $1.5 million, and the margins are not favorable if we hire more staff. Therefore, we have managed to save costs by not producing ethanol. We do have project-related expenses that we will need to incur eventually, but we will time those as we gain more clarity on the projects and when we receive reimbursements. It's a balancing act right now as we focus on executing the business, implementing our plans, securing more contracts, and finalizing our financial projects.

Great. And then, I should have asked before, but on the project financing, I think previously you talked about financial closing in the first quarter of 2021. Is that still the target, or do you think that might be well, is that still a target?

I think it’s possible for a target to emerge by mid next year, possibly around the third quarter. However, I don't have a clear view on it until we finalize discussions with all parties involved regarding what they are willing to do and how they plan to proceed. We're currently in the midst of those discussions.

Okay. And then can we just talk about your current shares outstanding and just whether looking at this the right way at the end of the quarter you have $15.5 million, you issued $30 million in the equity offering to raise $18 million gross, and then you have the debt conversion of into $2 million goes into 4.2 million common shares. Anything else I'm missing as far as your current shares outstanding should be close to what $50 million right now?

Yes, it's in that range. Carolyn, are you there?

The $53.8 million.

There you go.

Carolyn, $53.8 million as of today?

Correct.

Have any of the warrants been exercised, or can you give me an idea if any have been exercised yet?

None of the A warrants have been exercised.

None, okay. So it looks like, is there something I'm missing regarding the total of $15.5 million plus $30 million plus $4.2 million, which adds up to $53.8 million, and is there another component that…

We had some restricted stock issuances inside the business.

Okay, great. And then, I noticed that you got SBA loans of about $1 million. Can you just describe what those loans are, and if any of them are potentially forgivable or outright grants?

They are part of that PPP loan process. They are forgivable, and we're going through the calculations currently to determine how much of it can be forgiven, and then we will apply for those forgivenesses along the way. We've got until November to get it done.

Okay, great. Thank you so much.

You bet.

Thank you. And our next question comes from the line of Shawn Severson with Water Tower Research.

Hi, thanks. Pat, I just had a quick follow up on Citi. I know you said things are progressing there, but can you help me to understand what that means? I mean, how do you quantify, I guess, and qualify the interest in this as you've been in the process now for a while, and is there any particular push backs or anything or things that are really liked about? I am trying to understand how the pipeline looks, and how you judge the progress of it?

That's a great question. We often ask ourselves the same thing: how can we tell if we're making progress? When we began this journey, we created a detailed management presentation, akin to a confidential memorandum in PowerPoint form. Our approach is unique because we are developing renewable gasoline and jet fuels from carbohydrates, and our technologies have been successfully scaled. We're different from what people typically expect, like ethanol, biodiesel, or renewable diesel; instead, we offer a higher-performing product that is both economical and sustainable, achieving very low or even negative greenhouse gas emissions, which is quite remarkable. This concept is new to many. Citi has been actively engaging with potential investors—they sent out a teaser to gauging interest and followed up with discussions, identifying those who want more information. We’re now bringing interested parties into management meetings, which have been plentiful. About two-thirds of the attendees are financially oriented, investors in large projects, while the remainder are strategists already involved in the fuel sector or looking to invest. The time and attention we receive during these management presentations, which last a couple of hours, are significant. Currently, there's some uncertainty in the market regarding the potential resurgence of COVID, which seems to have influenced investor sentiment since before the 4th of July. Nonetheless, interest remains strong. We are on track with our goals and are achieving the milestones we've established. The key question now is how interested parties would like to engage—specifically how they might invest, and we hope to attract multiple partners to maintain our options.

All right. Thanks, Pat.

Thank you. I would now like to turn the conference back over to Director and CEO, Pat Gruber, for closing remarks.

Thank you all for joining us, and I appreciate your support. I look forward to the progress we're going to make. Keep an eye on the afternoon announcements. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.