Gevo Inc (GEVO) 2013 Q4 法說會逐字稿

Welcome to the Gevo Q4 2013 earnings conference call. My name is Jeanette and I will be your operator for today's call. (Operator Instructions).

Please note that this conference is being recorded. (Operator Instructions). I will now turn the call over to Mike Willis. Mr. Willis, you may begin.

Good afternoon and thank you for joining Gevo's fourth-quarter 2013 conference call. I am Mike Willis, Gevo's CFO. With me today are Pat Gruber, our CEO and Brett Lund, our Chief Licensing Officer and General Counsel.

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'd 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 our 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 2014 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 26, 2013, 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 Gruber, our CEO will begin with a review of recent business developments. I will then review our financial results for the fourth quarter of 2013.

Following the presentation we will open the call up for questions. I will now turn the call over to Pat Gruber, Gevo's CEO.

Thanks, Mike. We have made a lot of progress moving through the isobutanol commercial process learning curve. Fundamentally our technology works to scale with corn mash as a feedstock and we are in the midst of learning how to run the integrated full-scale isobutanol process.

As we have advanced on the curve we have discovered that the isobutanol technology not only works but can work concurrently with producing ethanol. Our original vision was to focus reference on one product; however, we are now confident that we can leverage the flexibility of our technology and more fully utilize all the operating units of the plant to produce ethanol simultaneously with isobutanol.

Needless to say the additional cash flow is a benefit as we work to maximize the earning per dollar as we scale up the technology. Therefore we plan on running three of our fermenters to produce ethanol. We are (technical difficulty) this configuration side-by-side meaning both ethanol and isobutanol be produced concurrently.

I have a presentation for you today that discusses more detail on what we are doing at Luverne, the progress we've made on the isobutanol process, what our plans are and it also discusses the side-by-side ethanol and isobutanol production. Let's turn to the presentation.

Let's go straight to slide 2. This is a picture of our plant in Luverne, Minnesota. You see we have rail and truck access.

Corn comes in by truck, feed goes out by truck. Product goes out by rail or truck. On the right you can see our corn storage bins.

Their capacity is about 800,000 bushels. The process building in the center of the picture holds the majority of our fermentation equipment. The GIFT building near the top of the picture holds our GIFT equipment, the distillation building has the majority of our distillation equipment, the utility building holds our boilers as well as our water processing equipment.

Next slide, slide 3. This is a close-up view of some of our equipment. The right side of this slide shows one of our fermenters.

It is a big 250,000 gallon or 1 million liter fermenter. This particular fermenter is where we have done much of our isobutanol work. The piping you see going into and out of the fermenter are our cleaning lines, steam lines and GIFT lines.

On the right side of this slide you see one level of our GIFT columns. The GIFT building has five levels. This equipment is large.

Next slide, slide 4. Luverne is actually a big plant. The process streams are about 1,000 to 2,000 pounds per minute.

In fact, it is a world scale plant in the amount it could potentially produce, that is 100 million pounds of isobutanol and 100 million pounds of animal feed. Big plants with new technology do not instantly start up and run well. They must go through a learning curve and optimization.

This typically takes 12 to 18 months. It is easy to forget how big Luverne actually is.

Slide 5. There are several systems in the plant, all of which need to work together. Changing parameters of one area of the plant can have a cascading effect throughout the plant. We have to understand the interactions between systems.

We have been and will continue to pin down the details of the standard operating procedures. And we also need to determine the best techniques to control the process, what works, what doesn't, how to respond if there is an unplanned event.

For example suppose if a pump fails and we have to hold a fermentation longer than we want? Well that means the flow stops in the plant, a delay ripples through the plant, what do we do, how should we respond, what changes happen in the plant given that the plant is biologically active with all the sugars and nutrients?

Now of course we focus on minimizing mistakes. A low yielding batch is expensive, breaking equipment can be expensive so we think through pretty carefully run plans, how we are executing our work.

We also have to deal with the ongoing mechanical and equipment issues that arise with new equipment. It all has to be working correctly for the plant to operate correctly. Now this winter I've got to tell you that it was so cold that we had a lot of frozen pipes and valves and those were a nuisance.

As we approach the issues in the plant we like to resolve them by using process window changes rather than capital. This is actually a big deal. It is much easier to use capital to solve a problem but of course that is more expensive.

Instead we'd rather use the process itself by pushing the process window or optimizing conditions in the plant. We are taking the approach of understanding what works well and what doesn't, then making decisions about capital improvements. By doing it this way we will get a better answer for ourselves and our licensees.

Next slide, page 6. This shows an ethanol plant. This diagram shows the basic equipment in the plant.

There is corn, it is ground to turn into a mash. It is liquefied with enzymes to make it into sugars. The sugars are pumped to our fermenters.

There is four of them, each one runs individually in a batch. Once a batch is complete the batch is dumped to a beer well. The liquid is distilled off to produce the ethanol and water.

The water is recycled back to the front of the plant. The animal feed -- the solids are used for animal feed.

This next slide, page 7, shows the equipment, the major equipment additions we have put in for doing isobutanol. The banner at the top of the slide shows how we think about the process areas, the systems of the plant. There is feedstock, biocatalyst production, fermentation/GIFT and those should be thought of as really one system.

Cleaning systems, distillation, water recovery and recycle and animal feed. There are three GIFT columns piped to the fermenters. There is extra cleaning equipment, nutrient equipment, biocatalyst production equipment compared to an ethanol plant.

Isobutanol fermentation differs from ethanol in that the biocatalyst has to be grown in advance of the fermentation then pitched into the fermenter, that means putting it into the big fermenters whereas primarily biocatalytically to convert sugars to isobutanol. So that is why we have the extra equipment to grow the yeast.

When isobutanol is fermenting it too operates in a batch mode; however, we continually remove the isobutanol from the fermentation broth using the GIFT system with vacuum distillation. We collect the vapor, recondense it back to liquid and then the liquid separates into an isobutanol phase and a water phase.

So think of this as water and oil where in this case rather than oil we have isobutanol. Isobutanol is then distilled and sent to product storage. When the sugars have been used up, just like in an ethanol process, we would dump it all to the beer well and the solids would be processed into animal feed.

So isobutanol like ethanol operates in a batch system. Ours is modified because it adds GIFT and as we optimize we focus on one fermentation system, knowing that it translates to similar equipment.

Next slide, page 8. This shows the sequence of commissioning and optimization so this next series of slides, a series, it's really a build slide and it goes through the steps of what we have been doing.

Number one, we have to get the feedstocks right. This means about grinding corn, adding the enzymes, the vitamins and nutrients and getting it all sterile in a liquid mixture.

Now this liquid mixture does look like wet polenta or a rough corn muffin batter. It is difficult to work with. Our proprietary system to sterilize the mash works well, and we now, especially now that we know how to run it.

Slide 9, prior to running the fermentation broth the pipes and tanks need to be cleaned. Cleaning fluids are used for some of the tanks, some of the pipes we use steam. Once tanks are clean there is a time window in which they must be used or the procedures need to be repeated.

Slide 10, step three, we grow the quantities of the biocatalyst we need in a separate set of fermenters. These are called propagation tanks. The purpose here is to generate the quantities of biocatalyst we need to run the fermentation.

The yeast, as we produce them we want them to be happy meaning they are ready, willing and able to produce isobutanol. That means we have to hit a certain processing window that is a sweet spot for these yeast.

Slide 11, this is step four. One of the key things about an ethanol plant is that they don't have a waste treatment plant, typically, so you recycle all of the water back to the front of the plant.

There is no waste treatment plant per se. In order to run a production fermenter water really does need to be recycled.

Now the water quality can be quite variable depending upon what is going on in the plant. Variability in the water quality means variability in yeast growth and fermentation performance.

So as you start up you have to actually generate enough water first then put it back to the front of the plant. Any impurities that are present impact the fermentation. So those are the kind of things we have to learn about and have been learning about.

We have been working over the last couple of months to improve our water quality (technical difficulty) cycle greater than 90% of the water with good fermentation performance. Our ultimate target is to get it upwards of 95%.

Next slide, page 12 shows step five. Once we have the water flowing back to the fermentation system we operate the fermenters. Now these are 250,000 gallon or 1 million liter fermenters.

Now all of our fermenters have been tested, all the GIFT systems work, they all work mechanically but for doing the optimization it is really optimal to focus on one system first. One fermenter, one GIFT system, and learn how to run the process. I can say this, running GIFT at full scale with a full scale production fermenter the GIFT system works very well.

Slide 13, step six. Once the isobutanol liquid is separated from the water using the GIFT system, it needs to be distilled to purify it. That is pretty straightforward.

Slide 14, step seven, once we distill then we recycle water, more water and it has a different quality, back to the fermentation systems in the plant. So that has to be taken into account as well.

Slide 15, step eight, once you run a fermentation, run the GIFT systems, run the biocatalyst production systems and you have run a batch then you have to clean everything again. Now cleaning systems also change the water recycle and its impurities.

Slide 16, step nine, once the fermentation is complete the solids go to animal feed. Producing animal feed is the key mechanism that gets solids out of the plant. We don't have another way to get solids out of the plant.

Slide 17, 10, and of course once you distilled the product you put it in a storage tank and then ship it out. Slide 18, step 11, and of course to run the rest of the plant you do the whole cleaning cycles again, biocatalyst production, run the fermentation GIFT system, and it all repeats.

And then slide 19. When all fermenters are running feed and product are produced continuously. Even though each fermenter operates in a batch water is continuously recycled back to fermentation and it reaches a steady state and of course that minimizes variability.

With isobutanol we are currently working through the optimization of steps three, five, seven and eight and their impact on each other. Said differently we are working on the recycle of water, the cleaning techniques, managing impurities, managing sterility and the yeast process window.

There is no choice but to go about this systematically and to make sure that we know what happens and why something happens as we make changes. It is worth noting that we need to do this work with just one fermentation GIFT system first.

So turning to slide 20 the keys to success and some of the results. At a fundamental level the pipes and systems need to be free from excessive infections. This was the issue we had in 2012.

We modified the plant, we eliminated those infections. It is a whole new ballgame for us in operating the plant now. We can actually work on the process.

Feedstocks and nutrients have to be at the right mix and sterile, the answer is yes we just need to optimize it. In biocatalyst production we have to have the right quantity and quality, yes we have been able to achieve that.

Fermentation we've been able to match lab results with up to 90% recycle water. We are still inconsistent and we need to optimize the overall system here given the recycles.

GIFT works well with corn mash in our fermentation. Cleaning procedures meet requirements, the answer is yes, we still need to optimize it and become proficient at reproducibility.

Water can be recycled and reused. So far we've done up to 90%. Our target is greater than 95%.

Product purity meets requirements, yes. And animal feed can be produced, yes. But it has been inconsistent with starting and stopping.

So in short, we see success in all the parts of the plant. We need to continue to bring it all together.

Slide 21 shows the progress on batch gallons and rate. Now we have been producing isobutanol. This chart shows some of the progress in full scale fermentation.

We have a goal for gallons produced per batch. Currently the best that we have done is a little better than 70% of our goal. Our focus is to push the gallons produced per batch upward.

Next slide, 22, IBA optimization approach and plans. So here is what we are planning on.

We will optimize the individual batches improving the gallons per batch. We will do this including the water recycles optimizing the biocatalyst dosage per batch. And then we have work to do around the process window.

This includes the pH, the nutrients, the sugar mix, the enzymes, etc. We will then work to increase the number of batches, minimizing the turnaround time between batches while keeping the process clean from infections.

Turning to slide 23 now I will start to talk about the isobutanol, ethanol side-by-side plans. So now turning to slide 24, side-by-side isobutanol and ethanol at Luverne, the question comes up why do this, why do it now?

Well, there are several reasons. One is that it leverages the flexible nature of our technology. The second thing is we confirmed that we can control the ethanol yeast from infecting the isobutanol fermentations. We did that as a matter of fact and in fact we have run ethanol and we have eliminated ethanol producing yeast from our isobutanol fermentations, that is actually a big deal.

By running the plant and using all the assets and all the fermenters we get more stable operations. That means more stable mash, water recycles, feed production. That helps us navigate through the systems interactions in the plant for the optimization of isobutanol.

Of course along the way it improves the asset utilization, the margins for ethanol are good. Using these assets which would otherwise be idle for the time being to generate some revenue and profit seems like a good idea.

And of course our potential licensees are interested in side-by-side. Our licensees have profitable ethanol plants and they see adding isobutanol side-by-side to an ethanol plant increases their top line and bottom line revenue.

Slide 25, this is a diagram of the side-by-side isobutanol an ethanol plant at Luverne. Now in running side-by-side we plan on doing just what we would do otherwise with isobutanol in that we optimize the biocatalyst production, the fermentation, GIFT systems, operations, work out the systems interactions with the recycles.

However we can use the other fermenters to produce ethanol rather than leaving them idle. So in this slide, the equipment marked with blue, it would be used for isobutanol production; the equipment marked in gray would be used for ethanol production; the green indicates potentially shared equipment and processes. Now an approach like this makes for better use of assets given where we are in the isobutanol learning curve and also simplifies our life by having a continuous flow of mash, water recycles, feed production, etc.

Slide 26 with isobutanol we would be focused on the optimization of one train to maximize learning and minimize cost. Now along the way we will produce enough isobutanol to maintain our contracts for the military for making hydrocarbons for Toray, Coca-Cola and others.

Once we have perfected the isobutanol production process we can switch any or all of our fermenters to produce isobutanol rather than ethanol. With ethanol we'd expect a run rate of greater than 15 million gallons per year run rate. Now producing ethanol improves Luverne's operating environment for the optimization of isobutanol production by creating continuous stable mash flow and consistent recycle of water back to the fermenters.

We won't have to spend so much time dealing with the equipment and issues associated with starting and stopping of the plant. That is a benefit.

Now also it is expected to increase available cash flow to the Company as we optimize our isobutanol production technology. And as I mentioned, it broadens the potential market to license as partners increasingly see the benefit of co-producing isobutanol and ethanol at a single site in the side-by-side model.

Now, in addition to progressing of the commercial production learning curve we've had some other interesting developments. We signed a letter of intent with Porta, the leading ethanol player in Argentina. They'd be a direct licensee for their plants and a sub licensee for plants that they build for others.

We also began selling iso-octane. Now this is an interesting one in that the customer sought us out where we seem to be the only ones who make renewable iso-octane.

Iso-octane made from our isobutanol at our plant in Texas seems to work well in high-performing engines. I expect we will be able to talk more about this as the applications become more visible.

Our hydrocarbon plant in Texas that converts isobutanol to jet fuel octane to paraxylene continues to perform well. Hydrocarbons will be important to our business as we grow. I now turn it over to Mike Willis, our CFO, who will take us through the financial discussion.

Thank you, Pat. Gevo reported revenue in the fourth quarter of 2013 of $1.7 million as compared to $1.9 million in the same period in 2012. Revenues in the fourth quarter included proceeds from sales from Gevo's hydrocarbons demo facility of $0.9 million including sales of bio-based jet fuel to the U.S. Air Force and the U.S. Army and initial sales of iso-octane for specialty fuel allocations.

We also recognize revenue under Gevo's agreement with the Coca-Cola Company and revenue from ongoing research agreements. As you may recall in 2012 fourth-quarter revenues benefited from the sale of excess corn inventory of approximately $1 million.

R&D expense was $3.9 million in the fourth quarter of 2013 compared to $4.4 million reported in the fourth quarter of 2012. Our R&D activities in the fourth quarter of 2013 continue to be directed to the startup operations at Luverne and the optimization of our technology to further enhance isobutanol production rates as well as production-related activities at our hydrocarbons demo plant in Texas where we produce our biojet, paraxylene and iso-octane products.

R&D expense decreased in the fourth quarter of 2013 compared with the same period in 2012 due to ongoing cost-cutting measures within the R&D group partially offset by increased cost at the hydrocarbons demo facility due to higher production levels at that plant. SG&A expense for the fourth quarter of 2013 decreased to $5.8 million compared to $7.8 million for the comparable quarter in 2012. Our fourth-quarter 2013 results continued to show the benefit from cost savings actions begun in the second half of 2012.

The reduction in SG&A expense primarily resulted from decreases of $1.5 million in legal-related expenses in support of our ongoing litigation with Butamax and $0.8 million in salary and compensation-related expenses. Within total operating expenses for the fourth quarter of 2013 we reported approximately $0.8 million for a non-cash stock-based compensation. Interest expense for the fourth quarter of 2013 was $2 million compared to $2.2 million in the fourth quarter of 2012.

The reduction was primarily a result of declines in the outstanding principal balances of both our convertible notes as well as our secured debt with TriplePoint Capital. We also reported a non-cash loss of $2.4 million related to changes in the fair value of embedded derivatives contained in the convertible notes and our recently issued warrants.

As we have commented previously, these changes will result in non-cash amounts being recorded in our statement of operations for changes in fair value in each reporting period. For the fourth quarter of 2013 we reported a net loss of $17.3 million or loss of $0.35 per share based on a weighted average shares outstanding of 49,758,100. This compared to a net loss of $13.2 million in the fourth quarter of 2012 or a loss of $0.34 per share.

In December 2013 we raised gross proceeds of $28.8 million or net proceeds of $27.1 million associated with the issuance of 21,303,750 common stock units. Each unit consisted of one common share and one warrant to purchase one share of common stock at a price of $1.85 per share.

In conjunction with that equity financing we also restructured our secured debt with TriplePoint Capital. We used $5.1 million of the proceeds from our equity offering to pay down TriplePoint's debt and as a result TriplePoint agreed to, among other things, waive Gevo's obligation to make principal payments on the secured debt through December 31, 2014.

In total we paid $7.8 million of the TriplePoint secured debt in the fourth quarter, $5.1 million associated with the restructuring and $2.8 million in scheduled principal payments made prior to the restructuring. At December 31, 2013 our outstanding balance with TriplePoint was $11.1 million.

During the fourth quarter there were no conversions of the convertible notes and at year-end we had 68,492,894 shares outstanding. Cash on hand at quarter end was $24.6 million. The higher than normal burn for the quarter was mainly related to the $7.8 million principal payments made to TriplePoint as well as $5.2 million associated with capital expenditures primarily for Luverne, the bulk of which assets were actually deployed in the third quarter of 2013.

We expect our cash burn to continue to decrease over the coming quarters as a result of one, transition to the side-by-side model whereby we improve the utilization of the assets of Luverne and increase cash flow at the plant; two, the TriplePoint restructuring which meaningfully decreases our debt service charges; and three, our continuing expense control measures. To support our future growth we will continue to look to enhance our balance sheet including working to refinance our secured debt on the plant.

We are also looking for ways to enhance our cash position through non-dilutive means such as licensing and lastly with our global shelf in place we are positioned to act opportunistically on other forms of underwritten financing. I will now turn the call back to Pat Gruber.

Thanks, Mike, for that and with that I think we should open it up for questions.

(Operator Instructions). Mike Ritzenthaler.

Yes, good afternoon. Two questions on slide 21.

So the first question is if Gevo achieved 100% isobutanol production per batch versus the target, what would the mix of isobutanol versus ethanol be with the current margin environment? Would you still want to run one fermenter on isobutanol?

I think right now I think ethanol is like what, what was -- Mike Willis, what was price today of ethanol?

I mean spot margins at Luverne are well over $1 right now.

Right. So it would be a tough call at that point. But I think in general we would want to move it to isobutanol.

Okay, and then what types of I don't know nuts and bolts on the organism or operational parameters need to be improved to get from that 70% to 100%?

Optimization around some heat exchangers, optimization around some of the fermentation conditions themselves. So this is a combination, the nutrient package is pH, how we feed the dextrose, practical things like that.

And is it just --

Sorry. In light of the recycle streams coming back and through the plant.

So it is more of a getting a further growth during the batch, the organism growth? That fair to say?

That's for example. And so one of the things that we have -- one of the things that we deal with is this plant has had some variability as we start and stop and are running partial batches, full batches and getting the plant, all the equipments operating.

These plants capture all the water and then recycle it. And so getting it to a steady state has been a pain.

So what happens is impurities build up in the plant and then they come back in the fermentation and bite you. So what we are doing is we spend a lot of time trying to manage that water balance. Running ethanol --

And so -- yes, I was just about to say running ethanol probably helps on that front.

Big time because it helps in two ways. One is it gets to stable flows on the mash. That makes it easier to do the sterilization systems for the isobutanol because it has more continuous flow, we don't have to stop and hold things when they are warm and full of sugar.

Second thing is it allows the water to be recycled more easily and it makes it more consistent which is a big deal because we are sitting here responding to variability in the water recycle and the question is always in the back of our minds is that real or an artifact of the way the process is going. And then the last one and this is really important is getting solids out of the plant. That happens through animal feed.

Okay. Just one last one from us I guess maybe at a little bit higher level in the licensing deals. Not to get specific about any one particular potential licensor but maybe could you just walk us through the regions internationally and what areas look particularly or structurally favorable for producing isobutanol or maybe a side-by-side isobutanol with ethanol?

Well I mean some of a couple of the logical ones obviously are Canada and Argentina based off of our the LOIs that we have announced. Both areas, so southern Ontario in Canada as well as in Argentina are both corn growing areas with very favorable commodity prices there.

Other areas or regions that have shown interest have been Europe, in particular as we mentioned earlier there has been some interest in around bio iso-octane and there is some demand from Europe for that product. And then in Southeast Asia there is significant demand just based off of again biomass prices in that region.

Okay, thanks very much.

Caleb Dorfman, Simmons & Co.

Good afternoon. Pat, you sort of talked about 15 million gallons of ethanol. Can you sort of walk us through what sort of a run rate you are expecting initially in isobutanol from and at what point you would think about switching all of the plants to isobutanol production?

Sure. So as far as the 15 million gallon per year run rate for ethanol that one is pretty straightforward because the original plant capacity was about 22 million gallons or so for ethanol. When we are using -- we will be doing the development process optimization work on one of the fermentation systems, we are in the tens of thousands of gallons range in the near term as we perfect how we operate a batch and reach our goals and then we shorten the cycle times between batches, then I think you'd be up in the, if you added all the gallons together, you'd be up in the total nameplate capacity range.

Okay.

Does that answer your question?

I guess what type of volumes should we be expecting on the isobutanol front during 2014 if all goes according to plan?

It will be tens of thousands of gallons over the next several months pushing it to what, 200,000 gallons per month later in the year. And we are going to go beyond that, and that is out of one train and as we go beyond that then it will we could step it up even further. But that is (multiple speakers) overall economics at the time.

So when do you think we should start expecting maybe the entire plant could switch to isobutanol if all goes according to plan?

I will answer it from a financial standpoint, Caleb. I mean part of what we are doing here is leveraging the flexibility of our technology to be able to switch between ethanol and isobutanol or produce both at the same time.

As I just mentioned, we are seeing outlandish ethanol margins right now. So I think part of the answer is what happens to the ethanol margin structure over the course of time.

It does and of course as that goes down and isobutanol would be expected to hold more steady we'd want to switch more of the capacity over to isobutanol. On the other hand suppose ethanol is at $1.50, that is pretty attractive too.

So to me it is an economic decision where there is an inflection point where it makes sense to make that transition from ethanol or the side-by-side approach to full isobutanol.

That make sense. I guess earlier you had indicated that you had hoped to reach EBITDA profitability at the plant level some time, you made it this year. I guess with ethanol margins where they are do you think that is still possible and how much do ethanol margins, if that is, how much do ethanol margins need to decline from where they are to where that would be breakeven again?

Well, we are still in the midst of the transition to this side-by-side approach. So we are not giving specific guidance but we do believe that we could be EBITDA positive at the plant under this (multiple speakers) yes under this construction or this structure.

That's helpful. Thank you.

James Medvedeff, Cowen and Company.

Good afternoon, fellas. Never a dull moment, huh?

No.

So let me just clear up a couple of things. There were no commercial shipments at all to Sasol or any of the other initial off takers in the quarter?

The sample quantities we have sent but not -- we sent it to ourselves down to Texas and make jet fuel out of it or octane.

And that is all going under grants and collaboration revenue?

Mike will explain it here. It is weird the way it is done.

Yes, it is in that -- correct, grants revenue, research and development program revenue, correct. So I mean it's basically a mostly what we'd call a hydrocarbon sales so about $900,000 of that was based off of jet sales and iso-octane sales.

Okay. So of the let's say of the Toray and Coca-Cola collaboration, how much has come in and how much remains on those deals?

So on the Toray deal as you know they provided $1 million to help fund the construction of the facility itself and then we are producing on an off take with them and the details of which we haven't made public to basically produce that paraxylene and ship that to them. And so we are in the midst of finalizing the production and the logistics in and around that shipment. So that should be a near-term thing that we will be talking about and then Coca-Cola you know we continue to generate some revenues from them in Q4 of 2013.

What I am getting at is there was -- I am guessing there was an initial size of the collaboration agreement which was never disclosed which is fine but I am wondering how much of that initial agreement has now run its course and how much remains?

Well we are in the midst of extending the agreement with Coca-Cola. Again we can't, obviously, get into the specifics given the nature of the discussions with them.

And how much of the 60,000 gallons, 66,000 gallons for the military, how much of that has been shipped?

Well, in the quarter we would have shipped approximate -- well, generated revenue of call it $800,000 just shy of that. So we would have shipped about call it 16,000 gallons plus or minus in Q4.

Okay, when did you actually begin the first runs of ethanol side-by-side with isobutanol? When did that actually start?

Well we just made the decision in the last, at our last quarter meeting, to switch to side-by-side so we are in the midst of converting the plant. But in fact we have run ethanol side-by-side with isobutanol at Luverne already.

And part of this was a practical matter as we are operating the plant and we had -- we loaded up a fermenter and we threw yeast in to answer the question to what would happen if we had ethanol producing yeast in our plant and can we manage it. We actually did that experiment.

So the experience of running side-by-side at full run rate and rapid recycle times is yet to be done, right?

Yes, yes, I would say that is a fair statement. Putting the ethanol plant will run like a normal ethanol plant and we will have our isobutanol production line operating like its isobutanol production line. (multiple speakers) operates all together.

I am curious how do you keep any commingling of -- I understand you have really buttoned down the isobutanol process so you can keep the ethanol bugs out and you have done some pretreatment to kill the ones that do get in. What about in the backend, you know the isobutanol has to run over to the GIFT system and does the ethanol not go anywhere near that part of the plant? Is that how it is done?

Correct. The ethanol does not go near the GIFT system.

Okay. If you were running -- once you get this going 3 of 1 and 1 of the other, what would be the actual mix of gallons? Would it be 3 to 1?

At full rates it would be a little less than 3 to 1 because there is a shrink when you produce isobutanol rather than ethanol.

So slightly greater than 3 to 1?

Slightly greater than 3 to 1, right.

Okay. Very interesting.

If we were running it -- (multiple speakers). It is interesting and I'll tell you what it excites our partners in the marketplace.

Yes, congratulations on the LOIs. What are the hurdle rates or what are the milestones for turning those into contracts?

Mike?

Just continued negotiation and discussion with those partners. So we are hopeful that in 2014 we will be able to effectively monetize one of those into something more concrete including our expectation for some upfront payments.

Interestingly is our course of these partners have had a look under the hood so to speak at Luverne and so they can see what we are doing, and why we are doing it, how it makes sense. And they, of course, are familiar with the operating plants and get the practical matters of what we are doing commercially at the plant.

You have been generous. I will get out of your way and let other people ask some questions.

I'll talk to you later. Thanks. Bye.

Thanks, Jim.

We have no further questions at this time.

Okay, great. Thank you very much everybody. Bye-bye.

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