Gevo, Inc. (GEVO) Q2 2015 Earnings Report, Transcript and Summary

Welcome to Q2 2015 Gevo Incorporated Earnings Conference Call. My name is Adrian and I will be operator for today's call. [Operator Instructions]. I will now turn the call over to Brett Lund, Gevo's Chief Legal Officer. Mr. Lund, you may begin.

Good afternoon, and thank you for joining Gevo’s second quarter 2015 conference call. I’m Brett Lund, Gevo’s Chief Legal Officer. With me today are Pat Gruber, our Chief Executive Officer and Mike Willis, our CFO. Earlier this afternoon we issued a press release which outlines the topics that we plan to discuss today. A copy of this release is available on our website at www.gevo.com. I would like to remind our listeners that this conference call is open to the media and we are providing a simultaneous webcast of the call to the public. A replay of our discussion will be available on the website later today. On the call today and on this webcast, you will hear discussions of 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 website. We will also provide certain forward-looking statements about events and circumstances that have not yet occurred, including projections of Gevo’s operating activities for the remainder of 2015 and beyond. These statements are based on management's current beliefs, expectations and assumptions, and are subject to significant risks and uncertainty, including those disclosed in Gevo's most recent annual report on Form 10-K, as amended which was filed with the SEC on March 30, 2015 and in subsequent reports and other filings made with the SEC by Gevo. 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. Please refer to Gevo's SEC filings for detailed discussions of the relevant risks and uncertainties. On today's call, Pat will begin with a review of our recent business developments. Mike will then review our financial results for the second quarter of 2015. Following the presentation, we will open up the call for questions. I will now turn the call over to Pat.

Thank you for joining our call today. The short version of our quarter is this, we remain on track to accomplish the goals we laid out earlier this year, additionally our balance sheet has 22.5 million on it at the end of the second quarter that’s the most of 2013. So we’re happy with our current liquidity position. As we guided earlier this year we still expect to sign at least binding license agreement, we continue to work through definitive licensing agreements with Praj and Porta Hnos. Recall that Praj is interested in the conversion of sugar molasses twice the [indiscernible] outside of the U.S. we’re thinking leverage their large process technology footprint. They believe that they can roll out 250 million gallons of isobutanol capacity over 10 years. The negotiations are taking longer because in parallel we’re now looking at ways to potentially partner here in the U.S. as well as directly in our plants in [indiscernible]. I met directly with Praj's Chairman Pramod Chaudhari as recently as two weeks ago at the Bioindustrial Conference and some might of you have even seen a picture upload and be taken by Jim Lane of Biofuels Digest and posted on his website. So we remain very bullish that we will ultimately get to a definitive agreement with Praj and as we recall Porta that’s the ethanol producer in Argentina, they are processing engineering company as well. We’re making good progress with them in negotiating agreement through our corn based isobutanol in Argentina and possibly elsewhere in South America. So our licensing efforts continue to remain on track. Now turning to jet fuel, the process for ASTM certification for jet fuel also remains on track. The certification is expected sometime in the next 2 to 3 months. The [indiscernible] work has been completed and there were no issues. The results have been reviewed by the OEMs and the approval has been put forth for ballot, things are on track albeit vacation [ph] season doesn’t help speed things along. There is a lot of interest in jet fuel, airlines and jet fuel suppliers expect the regulators when impose penalties related to emission sometime in the near future for example car [ph] attacks. How big this penalty or tax is no one knows yet, the former airline is recognized that cleaner and greener fuels are in their future. Regulation has expected to come down on jet engine emissions, consequently some of the airlines are getting their ducks in a row and encouraging development of renewable options. It will take multiple years to establish supply chain for renewable fuels so airlines are starting to act now. Our jet fuel we believe is attractive, it's made by a process similar to some of the methods that petro based jet fuels use. We are substituting the source of carbon make it renewable. Our product is kerosene just like petro jet, but instead as renewable carbon and we believe in smaller environmental footprint. Our jet fuel product differs from many of the other products and technology out there. Ours is not derived from a bio-deiseal type of process nor is an intermediate that yet needs to be finished. It's a kerosene typical of jet fuels. This is the reasons it's been so widely tested, it falls squarely in the normal category. Our fuels have been successfully tested by Lufthansa, U.S. Army, Navy, Airforce and it's worked well in many types of jet engines, it's been used to fly F18s, Black Hawks, A-10 Warthogs and others. In fact we expect no spec certification at early 2016 and after the ASTM certification is completed in 2015. Now no spec certification is that certification that allows us to compete for government supply contracts. Now additional Alaska Airlines is planning to fly with our product. We will now supply with them using our jet fuel made by isobutanol that has derived from corn starch. Alaska Airlines also announced the test flight on renewable jet fuel made from isobutanol produced from cellulosic sugars. Now the technology to make that jet fuel cellulosic sugars in fact in Gevo's and we look forward to seeing Alaska Airline do their flight with Gevo produced jet fuel. I would like to call your attention to the National Marine Manufacturers Association endorsement of isobutanol for gasoline, blends stocks for both [ph]. Now this was a significant announce in that, it is a common for industry group comprised of a large cross section of OEMs to endorse the biofuel. Properties of isobutanol are ideal for marine fuel application. At Gevo we like this use of isobutanol because the properties and value of isobutanol are showed. We also like this market segment because we believe that it represents an opportunity of about $1 billion per year in sales of U.S. alone. We have recently begun selling isobutanol for off-road use. We announced that Express Lube Fredericksburg, Texas has become the first U.S. service station to sell gasoline blended with Gevo's renewable isobutanol at pump. This is anticipated to the first of many retail locations to offer Gevo's product as the company rolls out it's isobutanol to the marine and off-road gasoline markets. This is clear progress in developing supply chains and the target markets. We continue to make progress with our technology to convert ethanol to chemicals, diesel fuel and hydrogen, we have lots of interest and we expect to establish pharma projects in businesses to move this technology forward. The benefit is that it's possible to use fuel grade ethanol to economically produce products like propylene and renewable hydrogen. Renewable propylene can serve as a raw material to make n-butanol, diesel fuel products, plastics for packaging and others. The technology has potential to make economic sense because of its high yields and of course along the way we generate significant quantities of fully renewable hydrogen, and that's important for people who are using fuel cells. Turning our attention to litigation. As I'm sure many of you are aware, we have trials set for August 24th in one of our ongoing patent litigations with Butamax. In the litigation, Butamax has three patents against Gevo. We refer to these patents as the Butamax 144, 558, and 878 patents. In litigation as is typical, the parties filed various motions in an attempt to simplify the trial. Butamax filed motions seeking a summary judgment of infringement with respect to at least one plain in each of the assorted patents. And Gevo filed motion seeking summary judgments their assorted claims of the 144, 558 and 878 patents are not valid. That claim three of 878 was not infringed, and that Gevo has not willing infringed any of the patents. Yesterday the court issued release on these motions. This morning we filed an 8-K on that decision. The court denied all of Butamax motions for summary judgment of infringement of the assorted patents, and granted one of Gevo's invalidated emotions finding that sort of claims of the 878 patent not valid because those claims are not definite and infringement cannot be determined, and if Gevo had not willfully infringed any of the assorted patents because Gevo are credible. As such factual disputes regarding infringement and a validity of the 144, 558 patents remain alive, and will be included in the trail set for August 24th. So summarizing everything then, we continue to make progress, both in the IBA technology and in market development, we are progressing at licenses, we're progressing in the marketplace, we're progressing our certifications for jet fuel, we have a good level of cash in the balance sheet, I believe we're in a good position, making progress. Mike will now talk you through the numbers.

Thank you, Pat. First I'd like to note that all share and per share numbers in my prepared remarks are being expressed on a post reverse-split basis. Gevo reported revenue in the second quarter of 2015 of $8.9 million, as compared to $7.7 million in the same period in 2014. The increase in revenue during 2015 primarily a result of the production and sale of approximately $8 million of ethanol, isobutanol and distiller's grains at the Luverne plant as compared to $5.5 million in the second quarter of 2014. The $8 million of revenue generated in the second quarter of 2015 from Luverne also compares favorably to the $5.1 million generated in the first quarter of 2015 when we took advantage of a weaker ethanol margin environment to take the plant down for various maintenance initiatives. During the second quarter of 2015, hydrocarbon revenues were $0.8 million, primarily related to the shipment of bio-jet fuel and iso-octane during the quarter. In the second quarter of 2014, Gevo benefited from the recognition of $1.5 million of revenue following a shipment of paraxylene to tar industries, $1 million of which was paid to Gevo in 2013, and was used for the design and construction of the paraxylene demo plant in Silsbee. Gevo also continue to generate revenue of $0.2 million during the second quarter of 2015 associated with ongoing research agreements. Cost of goods sold increased to $9.9 million in the second quarter of 2015 versus $8.3 million in the same period in 2014, due to the increased production activity at the Luverne plant. Gross loss was $1 million for the second quarter of 2015. After deducting depreciation expense of $1.4 million, the non-GAAP cash gross margin was a positive $0.4 million for the second quarter of 2015. R&D expense was $1.8 million in the second quarter of 2015 compared to $3.6 million reported in the second quarter of 2014. Recall that our R&D activities include technology development related activities at our labs in Colorado, as well production-related activities at our hydrocarbons demo plant in Silsbee, Texas, where we produce our bio-jet, isooctane and paraxylene products. R&D expense decreased in the second quarter of 2015 compared with the same period in 2014 due primarily to a $1.3 million decrease in employee-related consultant and contract staff expenses, and $0.4 million decrease in lab consumables. SG&A expense for the second quarter of 2015 decreased to $3.8 million, compared to $4.9 million for the comparable quarter in 2014. SG&A expense decreased in the second quarter of 2015 compared with the same period in 2014, due primarily to decreases of $0.4 million in professionally, legal and consulting expenses, and $0.7 million in employee related compensation expenses. Within total operating expenses for the second quarter of 2015, we reported approximately $0.3 million for non-cash stock-based compensation. For the second quarter of 2015, we reported a loss from operations of $6.5 million, down from a loss from operations of $9 million in second quarter of 2014. Interest expense for the second quarter of 2015 was $2 million, compared to $5.8 million for the comparable quarter in 2014. The increase was due primarily to recognition of debt issuance cost in 2014 associated with the convertible notes purchased by Whitebox in June 2014. During the second quarter of 2015, a $1.7 million non-cash loss was recognized as a result of inducement payments made in connection with exercises of warrants to purchase shares, the company's common stock issued in December 2013, and warrants to purchase shares of the company's common stock issued in August 2014. We also recognized a non-cash loss of $7.2 million during the second quarter of 2015 on the estimated fair value of the derivative warrant liabilities. During the second quarter of 2015 we incurred non-cash loss of $0.3 million due to quarterly mark-to-market valuation of the 2017 notes. And during the second quarter of 2015 there is no change in the value of the embedded derivatives and the convertible notes issued in 2012, and there were no conversion of those notes. For the second quarter of 2015, we reported net loss of $17.8 million or a loss of $1.36 per share based on weighted average shares outstanding of 13,009,434, this compares to a loss of $17.2 million in the first quarter of 2014, or a loss of $3.79 per share. During the second quarter, warrants were exercised into approximately 2.4 million shares of common stock which resulted in net proceeds to approximately $8 million. At quarter end, we had approximately 16,499,378 shares outstanding. Our cash on hand at June 30, 2015 was $22.5 million. With that I will turn the call back to Pat.

Thanks, Mike. Now looking forward we plan on getting lighter deals done. We'll continue to work for market development, price to [ph]. We'll continue to work with strategies on our ethanol conversion business. We continue to expect to make really good progress. With that we can open it up for questions. Thanks.