Gevo Inc (GEVO) 2013 Q2 法說會逐字稿

Welcome to the Gevo Q2 Earnings Report. My name is John, and I'll be your operator for today's call. At this time, all parties are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Mark Smith. Mr. Smith, you may begin.

Good afternoon and thank you for joining Gevo second quarter 2013 conference call. I'm Mark Smith, Gevo's CFO. With me today are Pat Gruber, our chief executive officer and Brett Lund, our EVP and general counsel.

Earlier this afternoon, we issued a press release which is one of the topics that we planned to discuss today. The 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 this call to the public. A replay of the discussion will be available on our 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 2013 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, most recent quarter report on Form 10-Q, and in subsequent reports and other filings made with the SEC.

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 a result of new information, future events, or otherwise. Please refer to Gevo's SEC filings for detailed discussions and of the relevant risks and uncertainties.

In today's call, Pat Gruber will begin with a review of our recent developments. I will then review our financial results of the second quarter of 2013. Following the presentation, we'll open the call up for questions. Brett will also be available for question-and-answer section of today's call.

I will now turn the call over to Pat Gruber, Gevo's CEO.

Thank you, Mark, and thanks, everyone, for taking the time to listen to our quarterly call. Our operation's focus is totally a startup production of isobutanol at Luverne. It is the most important thing we are doing. It is the pathway to generating value for our shareholders. Our initial production runs have gone very well.

In June, we announced the resumption of commercial scale production of isobutanol at Luverne in single-train mode successfully utilizing the GIFT system. We had not previously wrapped the GIFT system at full scale, so this is major step forward in learning how to run our plants.

As we described in June, last year, when we first started up the plant, we encountered some microbial contamination above and beyond what we had expected. Through a combination of changes to the fermentation conditions and related operating parameters, the equipment modifications to improve sanitization and procedures in the plant to enhance the operating discipline, we have since learned to control and manage these infections in the production environment.

Building on this initial success, last Thursday, we announced that we have started up a second 1 million liter fermenter and GIFT system. This step further validates our know-how. Our focus now turns to bring the last fermenters and the GIFT system online. We expect to do that in the third and fourth quarters.

We've learned that we can reduce infections by over a thousand fold. We've confirmed that our full scale production operates as predicted in pilot plant experiments. We've learned and will continue to learn the procedures used at the plants. We are achieving our goals.

We'll bring the whole integrated plant up on [mash] in the third and fourth quarters. We plan on doing a rate test to find what if any bottlenecks we might have. We plan on settling into production mode and becoming good at delivering quality product.

We will have to build a small inventory to support our customers particularly while we work through with the full plant startup. The main focus for us is getting product produced and sold. We plan to keep improving production in sales through 2013 and in 2014, we expect that our plant be at plant level EBITDA positive economics in terms of production in sales.

We will be increasing the focus on sales and market development now that we have product to move. Our intent is to seed markets, get the channels to market prime to accept increasing amounts of isobutanol. Our focus in the market will continue to be on specialty chemicals and specialty fuels. We need to get the plant going and show our customers that we can supply consistently.

It has not escaped our attention that RINs are trading high values and had to recall isobutanol generates 1.3 RINs per gallon used in gasoline blendstock. This is good for our business and the value of our product. The compatibility of isobutanol with [engines] and infrastructure and the properties of isobutanol in fuels, like it has higher energy and low water solubility, make isobutanol an attractive product for reaching the blend wall.

We also began supplying isobutanol to the coast guard for certification testing in their boats. The reason that they are interested is that isobutanol offers more protection from fuel problems that can arise when water gets into fuels; fewer stalls, fewer engine issues.

We also continue sending our isobutanol to South Hampton resources where our hydrocarbon demonstration plant is located. There, we will make more jet fuel for the Air Force, Army, and Navy. We're also deploying a paraxylene plant. Paraxylene is building block for making polyester; that's polymer or plastic that goes into bottles and fibers. I thank the Coca-Cola Company and Toray for supporting the work to transform isobutanol into polyester.

Summarizing then, our overall plan remained unchanged. We'll bring up all of our fermenters, all our GIFT systems in the third and fourth quarters. We'll test run rates, then ramp up production in sales in the rest of 2013 and throughout 2014, job 1 is the plant startup.

I do have comments on the patent dispute with Butamax. The week before last, the court handed down a summary judgment decision regarding two of our patents over which we had sued Butamax. The court determined that Butamax is using a variant of technology that is not covered by our claims.

Per context, the 375 and 376 patents covered in the ruling from July 26 only applied individual modifications to the isobutanol pathway. These two patents represent two of the 480 patents and patent applications in our portfolio.

In contrast, the lawsuit which we won earlier this year applied to the entire isobutanol pathway. Butamax has filed a claim for attorney's fees. This borders on frivolous and we believe should be rejected. The simple outcome is this, Butamax isn't using these parts of our patented technology today and we retained our freedom to practice our technology. I don't think there will be a need for trial on August 12.

We remained confident in our strong intellectual property portfolio, which includes patents to a suite of microorganisms containing distinct genetic modifications that enable the commercially viable production of isobutanol. Our technology combined with our team has positioned us as the first to achieve commercial production of renewable isobutanol.

I will now turn the call over to Mark Smith to review the numbers.

Thank you, Pat. With our current operations focused on starting production at Luverne, we reported revenue in the second quarter of 2013 of $1.9 million which was made up of revenue under our research agreement with Coca-Cola, sales of biobased jet fuels at the US Air Force, revenue from ongoing research agreement, and proceeds of $900,000 as we essentially completed our efforts to manage down working capital through reducing corn inventory.

Between the remaining corn on hand and locally available corn to purchase, we have accessed the sufficient corn feedstock for future planned isobutanol production. Further, as corn prices have come down, we will resume replenishing our corn inventory at lower prices as we move to ramp up isobutanol production from corn mash in the coming months.

Revenue in the second quarter of 2012 was $7 million mostly from the sales of ethanol and related products. Recall that we ceased ethanol production in early May 2012. Research and development expense was $5.8 million in the second quarter of 2013 compared to $4.7 million reported in the second quarter of 2012.

Our development activities in the second quarter of 2013 were directed to the startup operations at Luverne and optimization of specific parts of our technology to further enhance isobutanol production rates, as well as our work on bio-jet and bio-para-xylene at the hydrocarbon pilot plant in Silsbee, Texas.

The increase in research and development expense in the second quarter of 2013 compared to last year and to the prior quarter of this year which resulted from our investment in the bio-paraxylene processing equipment at the bio plant.

Recall that in anticipation of this project, Toray Industries contributed funding to us last year for this equipment. We also delivered bio-jet product that was produced at the Silsbee facility during the quarter. Our bio-jet pilot facility is indirectly funded through testing product revenue from the US Air Force and the US Army.

SG&A expense of the second quarter of 2013 decreased to $6.3 million compared to $9.5 million in the comparable quarter of 2012. Our second quarter 2013 results continued to reflect the benefit from cost saving actions taken in the second half of 2012 to reduce ongoing litigation and legal costs, compensation cost within SG&A, and outside services expenses. These specific expenses were approximately $1.9 million lower in the second quarter of 2013 compared to the second quarter of 2012.

Within total operating expenses for the second quarter of 2013, we reported $1 million for non-cash stock-based compensation. Interest expense for the second quarter of 2013 was $2.3 million compared to $500,000 in the second quarter of 2012. The increase resulted from interest incurred on our convertible notes due 2022 which were issued in July 2012.

Also, due to accounting rules, $1 million of interest incurred in the second quarter of 2012 was capitalized and recorded as capital expenditure for the retrofit of the Luverne facility as opposed to an interest expense.

We also reported a non-cash gain of $2 million related to changes in the fair value of embedded derivatives contained in the convertible notes. These derivatives result from the rights that holders of the convertible notes have upon conversion, and as we have disclosed over the past four quarters, will in non-cash amounts being recorded as statement of operation; the changes in fair value in each reporting period while the convertible notes remained outstanding.

Also during the second quarter of 2013, we reported a non-cash loss of $1.1 million for the early extinguishment of convertible debt. During the second quarter, holders of $8.9 million of our convertible debt opted to convert their note holdings into shares of our common stock.

Upon conversion, these holders received a total of 2,979,022 shares of common stock, made up of 1,561,324 shares of common stock issued upon conversion of the convertible notes and an aggregate of 1,417,324 shares of common stock issued in satisfaction of make-whole payments.

The effective issue price in full settlement of the convertible notes during the 3 months ended June 30, 2013 was $3.75 per share. The gross amount of convertible note debt outstanding at June 30, 2013, before adjusting for the impact of fair market value, was $26.9 million compared to $35.8 million outstanding at March 31, 2013 and $45 million outstanding at December 31, 2012.

Following the issuance of common stock and settlement of these debt conversions, we had 46,912,536 shares outstanding at June 30, 2013. For the second quarter of 2013, we reported a net loss of $15.2 million or $0.35 per share based on a weighted average shares outstanding of 43,371,992. This compared to a net loss of $16.2 million in the second quarter of 2012 or $0.62 per share. Cash on hand at quarter-end was $41 million.

Our operations and planning focus is on the resumption of isobutanol production at Luverne and ramping up to economic production levels. We will also continue to support our intellectual property positions.

In addition to our development goals and defending our freedom to operate were also focused on our cash needs. We have taken a number of organizational and operational steps in 2012 and 2013 to reduce our ongoing cash burn which have born results this year-to-date with a reduced cash burn rate.

With cash on hand at quarter-end of $41 million and the actions we have taken to manage our cash burn from operations, we are position to pursue our business strategies through this year and into the first quarter of 2014. We are a growth story.

To support future growth, we will work to enhance our balance sheet including working to restructure our secured debt on the Luverne plant. With the shelf-registration statement in place, we are position to act opportunistically on financing.

We believe that through making progress at the Luverne plant to advance toward commercialization of renewable isobutanol, we better position Gevo for future funding.

I will now turn the call back to Pat Gruber.

Thanks, Mark. And I think with that, we can open up for questions.

Thank you. And we'll now begin the question-and-answer session. (Operator Instructions). Our first question comes from Mike Ritzenthaler from Piper Jaffray.

Good afternoon, gentlemen. As we look into the back half which Pat, you said your team would be focused on switching over to mash, ramping up production in sales, delivering on these existing contract in fuels and some work with paraxylene, how will Gevo be communicating some of these milestones as they happen for in some other fashion?

Hello? Hello?

There we go. Michael? Mike, can you hear me?

Operator, can we open the line?

Your line is now open.

Mike Ritzenthaler, can you hear me?

(Operator Instructions).

I think he was asking --

Your line is now open again.

Okay. Mike --

Okay. Sorry about that. Can you guys hear me?

Now, yes. Okay, we're in communication. Good. What was the question, Mike?

Sorry about that. Now, after working to the back half, I was just wondering about how Gevo will be communicating some of the milestones in which you said Pat you'll be switching and focusing on --switching over to mash, ramping up production in sales, delivering on some of the existing fuels contract and things like that. Are you going to be communicating those to us on an as -- sort of as they happen basis?

Well, let me just recap what it is actually that we're going to do. We've got enough confidence now. We've learned a lot about how to run the plant. We're going to get the whole thing running up together on the integrated basis.

We're going to run at a level, learn how to run it integrated; that would take us very long, I don't expect, to find out what's going on there. We'll do rate test to find out about the -- how the plant perform from our pushing various aspects of it, and then we're going to settle down into an ongoing production mode.

That ongoing production is going to depend upon a couple of things. One is the product, its quality levels -- we expect it to be okay, but still, we want to be safer rather than sorry. It'll be our cost production, we're going to be paying attention because none of us want to burn more cash than we need to because when you startup these plants, it is more expensive. The plant is not optimizing and fully economical.

And the last one is the selling price and we have lots of good opportunities in the markets. We have to get them all primed. So we'll start to place product into the market place. We'll do it kind of at a good level and ramping it up through '13 and '14.

And the question I think is in everybody's mind is when you guys get EBITDA positive at the plant level and that would be the second half of 2014.

Have you guys provided what kind of volume run rate would associate with EBITDA breakeven?

We haven't. We will as it gets more clear because some of these markets are interesting from a pricing standpoint and the volumes, too. So there's latitude on that front and so there, we're just not prepared yet to say with perfect clarity the exact amounts.

It will depend. In other words, when we're -- I'm more interested in placing in the specialty markets at this early stage.

Yes, that makes sense. Just one quick clarification on Butamax. So the summary judgement, all the different noise that's been coming back and forth on that, this is all related to the GIFT infringement. I just want to be cleat that it's an artifact of basically temporarily dismissing the infringement suit. Is that, again an accurate characterization or --

No, no. It has nothing to do with the GIFT at all. You're talking about the latest round, Mike?

Yes.

Yes. These were about two patents, the details -- it's a piece of technology around a gene that produces ethanol, helps to produce ethanol in a bug, and the other one is about an expression of an enzyme in the pathway.

Those are what the two pieces were about. And so, the court determined that they have a different way of going about it and that our claims don't ensnare them.

Okay.

So nothing to do with GIFT, nothing to do with anything else in our portfolio.

Gotcha. All right. Thanks, guys.

Yes.

Our next question comes from Ben Kallo from Robert W. Baird.

Please go ahead.

Hey, thanks, guys. In the past, I thought that a little bit of the issues that you guys are dealing with was with your bug per se. Is that fixed because that's always where I thought there was some randomness in how you fixed with versus everything else?

Actually it's quite -- the place where we had -- there were several parts in what we had to fix, one of them was that we were seeing infections.

The infections come from -- in these plants, they come from the environment at large and when they hit the right growth parameters, the invader bugs, they're bacteria usually, step up and start producing like lactic acid or something else, and they were coming from quite a variety of places.

That's about sanitization. It's about equipment. It's about procedures. That's where primary variables were. It turns out that we're starting up with our same bug that we used last year because our bug last year actually worked quite well, and it's just that with these infections --

So what we've done now is -- figured out the operating procedures, modified some of our equipment and modified some of the fermentation parameters that favors our bug and less of the invader bugs.

That's what we've done. Now, we also have several other bugs that we'll deploy in the future and that are better than what we have and as we go forward, we'll do that. But the bug we have is a decent bug.

It's the way you deploy other bugs, just the rest of that process there.

Sure. Yes. Sure. So what we've been doing is making sure that our -- we have a pilot plants here, we have a 20-liter pilot plant in our laboratories here. We have 2-liter pilot plants and what we do is we characterized these bugs and how they behave at our small plant and then we take them into the big plant.

One of the things that we were working on the summer is making sure that our data tracks exactly from the small plant to the big plant and that simplifies deployment of the new bugs. So we have no problems jumping from our small plants here at the laboratory and over into Luverne.

And my last question, can you just give us a sense of liters or gallons or whatever unit of measurement you want to give us either through the first run and the second run, how much you delivered or sold?

We aren't giving specific guidance on amounts delivered or sold, but to give you the sense of these fermentations that these are million-liter fermenters. These are big, big, big tanks; 265,000, 275,000 gallons around that order. And you get a lot of isobutanol out of this, any one batch. So that would be in the --

Tens of thousands of gallons.

Tens of thousands of -- yes, 10,000 to 20,000 gallons kind of a thing and that's when we're just practicing. So, the parameters that we'll be working on next is running all the fermenters together, working on the term all the times. Initially, we'll be a little bit slow because we have to work on sequencing between fermenters because it's a batch-wide fermentation.

But the thing that gives us confidence is the fact that we're able to operate on the single train modes, dual train mode, and have this equipment tested out, so we've got these microbial contaminations and the infections under control.

I guess last one, the growth rate of bugs, how does that impact the actual economics of the plant?

It depends. So the way to think the variables that are important are obviously the number one contributor always is feedstock cost, always the most important. So last year, you remember, it was like $8 feedstock; corn was on its way to $8.

This year is much better looking on its way to -- it's the fours. That's a good thing for all of us. That's the most important contributor. The second way is the yields are important. So yield above 80% are good, above 90% are great.

And so the next one then is productivity or the rate of production. The rate of production is interesting because you can modify that two ways. You can modify it through the [hair] characteristics of bug or you could actually use more bugs in the fermentation and to modify your fermentation condition.

So we have several levers to do to modify rate, but there are certain threshold rates that we care about, and so these bugs seem to meet those.

Our next question comes from Pavel Molchanov from Raymond James. Please go ahead.

Hey guys, congrats first of all on some good operational metrics at the plant. When do you think you'll be at a point where you can give more specific guidance on production and sales volumes? Is there something that needs to happen to give you guys comfort to do that?

I'll feel better talking about it more specifically once I see what issues we're up against in running the plant all integrated. These are -- what it will be -- I already have a pretty clear view actually of what we'll do.

We're going to run it, start it up, we'll run it at certain level, which is a pretty hefty level. We'll push it to figure out further, and then we'll settle down into ongoing production, but it'll be ongoing run rate increasing as it goes into the marketplace.

So it's an ongoing commercial basis basically. So those kind of rates increasing. And then as I said, the goal is to have the plant level EBITDA positive by second half of next year. And so that's balancing act of cost production, selling price, run rates -- the whole bit.

Okay. You've said before that before you start the construction of [Red field] you want to make sure Laverne is fully optimized. So should we take that to mean that you're not going to start Red field until the second half of next year?

What's interesting is we have several actions that have popped up lately. Red field by the way is a great partner and that'll be a great opportunity. And you're right, until we have it up for the technology pinned down, where I'm really confident that this is what we want to do, we aren't going to deploy Red field. What's interesting is that we've been doing the engineering the whole way of how to do the technology a second time. In other words, not repeat the mistakes the first time.

We've got a pretty good grasp of that. So this is the case of us having the money available to do it. There are several possibilities; Red field, great opportunity. Another one is to expand Laverne to get the next increment of galloons because we've been paying attention to that as we've gone along and I think I've mentioned that in the past conference calls.

And then the third one is we've had quite a lot of interest in people doing, we call them brown field plants or side by side plants because here it's interesting because if somebody say has 100-million gallon plant, they don't need -- normally if you do pure retrofit, it would be 80 million gallons of isobutanol.

I think that there are opportunities for smaller increments side by side so we can do the 100-million gallon of ethanol plant but they have extra grind capacity, extra utilities. You might see something where it is a 30-million gallon isobutanol plant, for example.

So there are several ways to go about that. It will be interesting, but those are all well down the road of engineering.

All right. I appreciate it, guys.

Yes.

Our next question comes from John Quealy from Canaccord Genuity.

Please go ahead.

Hey, good afternoon folks. Just back to some nuts and bolts on the P&L for the next couple quarters. In terms of corn-based product, what's the sales like moving forward out of the inventories? Is that another couple of million bucks? Or how should we think about it, Mark?

You're talking about isobutanol or other product?

Yes, other product. Yes. Sorry.

Oh, excuse me. Yes. It's going to be fairly consistent over the next couple of quarters that sans the sale of corn. We will not be selling corn anymore. And as Pat mentioned, we haven't given any, and will not give specific guidance about what the selling price of isobutanol will look like.

In terms corn, we're looking to be a buyer of corn over the next couple of quarters as we build back up the inventory. And as Pat mentioned, we're going to benefit from the fact that corn prices are trending significantly down which makes the transition that we saw from the first half when we sold off some of their excess corn to the second half when we're building up corn beneficial for us.

Okay. And then lastly, to your comments at the beginning of the call about shrinking cash burn a little bit, how should we think about that from an operating expense perspective?

Obviously, you still keep the R&D going, legal hopefully backs off a little bit, but how should we think about the puts and takes on OpEx in an overall environment where it sounds like you're going to try to slow the cash burn of that?

Yes, I think -- we have slowed the cash burn. If you look year-over-year, it's more than 20% down as OpEx burn rate. And I think that's pretty consistent with the where you're going to see us running from an OpEx. This is going to continue to be some variables. Yes, we've taken actions and you'll see some backing down of legal expenses as it relates to litigation.

Don't forget that we pay interest on our convertible debt every 6 months. So we paid that in June. That's why you saw a little bump up verses Q1 then you'll see -- so Q2 versus Q1. You'll see a little bump up at that same pattern between Q3 and Q4. But overall, we've got our expenses under control.

We've got our operations lined up to properly support the start up the operation at Laverne. I would expect a little bit of movement upward on the working capital site as we start to build up our inventory, but as Pat said, the relief on that side comes when you do make some sales and you get to turn the receivable into cash. That's about the best guidance we can give you through this point.

And the other thing we do is being wise. So the reason we did this to single train mode to remind everybody is that when we start this plant, this is not a demonstration plant, it's not a little pilot plant. This is, like, really, really a big plant, right?

So what we learn last year quite a lot about how to run the plant and we had just too much infection for us to deal with, and so we stepped back and remember the environment. It was $7.50, $8 corn.

Here, it's looking good. We've mastered I think how to manage those infections, how to do the operations, that's what we've been practicing. It's time to put it all together with cheap corn and get on with life.

Got it. Thanks guys.

Our next question comes from Caleb Dorfman from Simmons & Company. Please go ahead.

Good afternoon, guys.

Hey.

I just know some of the early runs last year. There were some consistency issues with isobutanol which was actually being produced. Do you have any update on the quality of the product which is coming out of the plan this year?

Very good quality compared to last year.

And Pat, what's driving that?

The infection. So what happens is that when we have an infection, the invading bugs, bacteria, for instance make lactic acid or they might make some ethanol or might make whatever, and then if that's variable, then that causes your operation to be a little bit variable.

So we've widdled those kinds of infections down. We've also put some equipment in to help separate, for instance, ethanol should it ever arise.

That sounds great. So 100% of product, which is coming out now is basically saleable product?

Yes. The isobutanol is a saleable product, yes.

Great. That's great. And then looking at I guess Gevo and looking at a higher level, I guess there's been a lot of talk about RFS2 recently. The EPA came out with its 13 guidelines today. How do you view the potential changes in '14 in RFS2 impacting in Gevo? And with the spike in RIN prices, have you figured out a way to capitalize that, on that in the short term?

You know we have. It's very interesting. And the stuff that you're referring to is pretty fascinating. I think that the EPA came out with pretty high RIN requirements. And that will, I think, upset lots of folks, but I kind of like it.

Butanol gets 1.3 RINs compared to an ethanol that gets one. And that's interesting for people. It also has the benefit that butanol has some nice fuel properties. And so we've been in the last month or so, we've had quite a few people who do blending and who are refiners who have been knocking on the door.

They recognize that it's time to talk to us and get on with life because we're entering the production phase on an ongoing basis. So there's opportunity is what it creates. Lots of interest in marine fuels, lots of interest in automobile fuels, interestingly enough. So we have to go sort through it. I hope that EPA remains consistent.

That's interesting. So I know that for a long time you've always talk about the first focus being more on the specialty chemical with RINs above $1 some days. Does that actually mean that maybe it's more economic to actually sell into let's say the marine fuel market in the short term?

I would say yes. That is the case. And so --

Great. Thank you, Pat

Now remember what we're going to do strategically is make sure that we have a number of markets seeded. So we'll still continue to do the specialty chemicals because we know what that's like, it doesn't depend on RINs.

We know that there's opportunities for doing the conversion of isobutanol into butylene and into jet fuel, and products like that, people get that. And there is demand there as well and it's interesting.

And in the gasoline blend stocks, it looks like it has potential as well. But the idea is to make sure we aren't a one-trick pony, that we have multiple market applications. That's part of the game and how we will use it to develop this market because I recognize fully what today is something different than what it is 12 months, 24 months, 36 months.

Thank you.

Your next question comes from James Medvedeff from Cowen & Company.

Please go ahead.

Good afternoon.

Hey, Jim.

Let's see. I want to go back to the concept of the cash burn rate. According to my math here, you burned about $10 million or $11 million in the quarter. Is that about right?

That's $13.5 million.

$13.5 million?

Total burn. That comprehends OpEx and working capital, CapEx and debt payments.

Oh, and debt payments. Okay. That was the delta there. So then as you rebuild inventory, I guess you sold $900,000 worth of corn this quarter. How much did you sell in Q1?

About $2 million worth.

So you've got about $3 million -- well, it'll be a lower price -- you've got $2 million of corn to add into inventory, right?

Well, we're going to continue to acquire corn as we need it. I'm not sure what you're trying to get to, but overall our bins can hold 750,000 bush hold of corn.

But we're not going to fill them up right now.

But we're not looking to run them full either.

If it was $4 corn, we'd think about it. But it's not $4 corn yet.

It's getting there.

I like that a lot. It makes my heart happy, I got to tell you.

So another question that I had is on the original or recent guidance or recent expectations were to reach the ability to demonstrate a million gallons a month run rate. And that was somehow tied into cash flow breakeven at plant level as I recall. What is -- and now you're not giving what that level of production would be. So what has changed --

Yes, the economics around the fermentation and what our capability is and how we run the fermentation. So, some of the capital equipment that we put in changes things. So we have to develop our full view of what the exact breakeven run rate is.

I think for us right now a good boggy number still probably is to say it's a million gallon a month run rate to be at EBITDA positive. Although what it really is, I expect it to be something less, but I don't know that yet to give better guidance.

Okay. And when you say 80% purity or 80% yield is good or greater than 80% is good, greater than 90% is great, I thought originally the goal was to get to sort of %94, %95.

Yes, we've shown that we can, but the way you run this fermentation is you're doing -- it's never one parameter, you have the whole how do you run the plant and it's a balancing act against parameter, so for instance the productivities. For instance, if I increase my productivity, I might trade it off for a little bit of yield if that gives the best economic result.

Right. Understood.

Yes. So it's those kinds of balancing acts that we do. And I tell you what -- the amount of what we've learned for this summer -- and it's actually going back at the beginning of the year because we had to do the modifications of plan of testing to get rid of these infections -- it's been a tremendous amount of work.

Our team did an outstanding job. The folks at Laverne did an outstanding job and it's been basically operating in a start-up mode for a year because they never really went anywhere or quit from last year.

They were still here resolving the problems, modifying the plan, tweaking things, and working their butts off and assisting with our people here. So those learning, it's nice. It makes me feel good. We got a thousand-fold reduction in infections. So that gives me a lot of confidence, and it's done without going to any super doper precautions. We basically are learning how to do it. So, that's a big deal.

Yes, that's tremendous and I congratulate you on it. Thank you very much.

You bet.

We have no further questions at this time.

All right. Thank you everybody. I appreciate your attention. Have a good afternoon and evening.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.