Gevo Inc (GEVO) 2014 Q4 法說會逐字稿

Welcome to the Q4 2014 Gevo, Inc. earnings conference call. My name is Adrianne and I will be your operator for today's call. At this time, all participants 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 Brett Lund. Brett Lund, you may begin.

Good afternoon, and thank you for joining Gevo's fourth-quarter 2014 conference call. I'm Brett Lund, Gevo's Chief Legal Officer and General Counsel. With me today are Pat Gruber, our CEO, 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 this call to the public. A replay of our discussion will be available on our website later today.

On the call today and in 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 2015 and beyond. These 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 most recent Annual Report on Form 10-K, which was filed with the SEC on April 14, 2014, 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. I will provide a brief review on the status of our intellectual property and litigation. Mike will then review our financial results for the fourth quarter of 2014. Following the presentation, we will open up the call for questions.

I will now turn the call over to Pat.

Thank you, Brett. The fourth quarter of 2014 was a very good quarter for Gevo. We achieved a lot on the isobutanol front, met meaningful production milestones at the plant, and have now established a great position from which to really accelerate our licensing program.

So, first, I'll talk about Luverne. We demonstrated that our side-to-side operational process, to produce isobutanol, worked. We were able to produce isobutanol and ethanol in the same plant at the same time. That's a big deal, a lot of people thought that we couldn't do that and manage the infections, but we can.

We are able to address and resolve the confounding isobutanol startup issues that had previously been fighting us. We had a goal of greater than 50,000 gallons produced in a month, and we achieved that. We were able to deploy second-generation yeast to produce isobutanol, improving the yields and rates further. We were able to show that we could manage the process, manage the infections, operate the isobutanol process on a normal basis, and continue to improve the process.

Ultimately, what we are trying to demonstrate and prove out is that we can produce isobutanol at production costs that support profitable isobutanol operations at commercial scale. Currently, operating under side-by-side, whereby only one per matter is dedicated to isobutanol, this is not the case. Simply put, we cannot produce sufficient gallons of isobutanol to absorb the fixed cost base associated with running isobutanol at Luverne.

Now with that said, we are in a position to extrapolate the data that we have generated both at the Luverne plant under side-by-side, as well as at our labs in Denver, to support ultimate optimized isobutanol production costs that would indicate EBITDA margins for isobutanol of about $0.50 to $1.00 per gallon.

We believe that, at this time, it's merely an engineering and equipment exercise to make isobutanol profitable. You know what? This isn't just our opinion.

We've had a lot of visitors to our plant in 2014 diligencing us. In particular, a company called Praj spent a lot of time crawling all over us in Luverne at the plant, going through the process details for isobutanol fermentation and our GIF systems. This included auditing individual batches from start to finish.

As you would've read in our press release of a couple days ago, Praj is a global leader in process engineering and equipment manufacturing for the ethanol burning pharma industries across 60 countries. Following its extensive due diligence at the Luverne plant, they confirmed our isobutanol cost projections. And they believe in our technology enough that they are becoming a strategic partner with us.

We just signed an MOU with Praj. Praj and Gevo see it as possible to develop 250 million gallons per year of isobutanol outside of the US using sugar from cane and molasses as a feedstock, and leveraging Praj plants that have been built worldwide. We also anticipate potentially working with Praj here in the US too, but the details of what this would entail are still being ironed out and will be detailed at a later date.

Praj has a lot of capabilities. They are really good at process technology, quick manufacture, and the deployment of the equipment and the processes. My team is really looking forward to working with them.

While we are excited by the opportunity to build out isobutanol capacity with Praj, we are also moving forward with our licensing programs on many other fronts. In addition to IGPC, Highland EnviroFuels, Porta Hnos, that you've already heard about, there are others as well. As a result, this year, our goal is to complete at least one definitive licensing agreement.

Now turning back to Luverne. Over the course of 2015, we will manage the plant to maximize cash flow, minimize burn. We are keenly aware that we have to manage our cash and minimize burn across the entire organization. As previously discussed, the Luverne plan is not capable of running isobutanol profitably; our volumes are too low. In order to expand our isobutanol volumes, we will need to add some capital equipment to debottleneck the plant.

We have plans to do that debottlenecking, but it will take money. I think our money is better used in the near-term to defend our freedom to operate, continue to see the applications and market development, and to develop the licensing business. When I look to the future, I do see that Gevo would expand isobutanol capacity at Luverne. And we are in discussions with certain strategic partners who may be willing to fund such an expansion.

However, in the meantime, we believe that this is not required in order to get on with the isobutanol licensing business. Licensing and bringing in strategic investment to Luverne is our focus in 2015. We will run isobutanol to seed markets, help customers improve out process improvements, but we will do it in such a way as to minimize cash outlay.

Now on the markets front. We believe, and our licensing partners believe, that isobutanol has a bright future. In fact, we've made a lot of progress validating the market applications, segments and price points for isobutanol. It would be a mistake for anyone to simply look up reported oil-based isobutanol sales as reported by the typical market sources, and therefore conclude that the market size for isobutanol is small.

In actuality, what we are doing is developing new uses for isobutanol, new applications. And these applications cut broadly across fuels and chemicals. How is this possible? Well, isobutanol is renewable, and to be cost competitive, what was a fuel product in the chemical product -- chemical intermediate. And that actually is very attractive.

Now we do get lots of questions since the price of oil fell -- how can bio-based products be competitive? The answer is that production costs of bio-based products are not tied to oil. Instead, they are tied to the cost of carbohydrate. It is the spread between the price of oil and the cost of carbon from renewable resources that matters.

When the cost of carbon from oil and carbohydrates reaches a ratio of 3-to-1, then the cost of carbon would be roughly at parity on a carbon-to-carbon basis. At $50 to $60 per barrel oil, and corn price where it's at today, the ratio of oil to carbohydrates is about 2.7. It's not very far away from 3.3-to-1 ratio, where we achieved parity on a carbon-to-carbon basis, oil versus renewable.

And you know what? This is actually a better ratio than when we did the IPO several years ago. So even though oil is at a low price, there are large attractive markets out there. And it really is the spread that matters. You have to consider both the cost of the carbohydrate against the oil.

Now in terms of the specific market progress, we are really pleased with the interest in -- with isobutanol as marine fuel. You probably have seen a Gevo press release describing how a consortium of green manufacturers, who did a multiyear study, concluded that isobutanol is a superior gasoline oxygenated blend stock compared to what's been available for use with small boat engines.

Now our guys did a lot of work with the -- in that marketplace, and are finding that this niche market is something on the order of 2 billion gallons per year. It's an attractive market where isobutanol shines in its performance. Gulf Racing has been placing isobutanol gasoline blend stock for blended gasoline in off-road applications for the same reason. The performance of our isobutanol solves customer problems. I like that Gulf has placed isobutanol blended gasoline at NAPA Auto for use in small engines.

We will also be working with Gulf to target the marine market. And it's very good to see that others are validating the performance of isobutanol in gasoline and that the performance value is real.

We are seeing new applications in the chemical space too. Brenntag, one of the world's largest chemical distributors, has been placing isobutanol in the chemicals market for use in traditional solvent markets, but the renewability of isobutanol has enabled other markets and new applications, such as for oil drilling.

We've been doing quite a lot of work on jet fuel in anticipation of getting ASTM approval for jets, which we expect to get by midyear 2015. And we anticipate completing the military spec qualifications in 2015 as well. Recall that in order to make jet fuel, we start with isobutanol from Luverne; then process that isobutanol with a chemical process, transforming it into jet fuel. And we've been doing this since 2011.

Our numbers in analysis indicate that on a gallon-to-gallon finished basis, jet fuel from isobutanol could be cost-competitive with petroleum-based jet fuel somewhere in the $75 per barrel oil range. Now we don't think oil will stay at the $50 barrel level forever.

Based on potential customer feedback, we think we are the lowest cost renewable option available for jet fuel going into the future. We like the potential opportunity to supply the military and commercial jets. We need to land the definitive agreements that enable us to fully commercialize jet. Isobutanol also continues to have potential as a raw material for making rubber, plastics for packaging, water bottles, and many other applications.

Now taking a step back, I think it's important we talk about what Gevo is fundamentally about, and what we ultimately are trying to achieve as a company. We believe that it's possible to replace oil-based fuels and chemicals with renewables, delivering cost competitive products that have reduced environmental footprint, while delivering the same -- or, in some cases, better performance -- than the products they replace.

I'm talking about fuel blend stocks, fuels from cells, chemicals that can make up the plastic for water bottles, for textiles, for packaging, for car parts, for diapers, for plastic cups, for plates, for specialty chemicals, for solvents, for oil field drilling fluids -- and the list goes on and on. The long-run market potential is enormous.

All of these applications that I have just listed have a potential to be addressed are made from a couple low-cost bio-based alcohols -- isobutanol and ethanol. The game is all about delivering the same or better performance, but cleaner, greener and cheaper. That matters in the long run.

This is what we are about at Gevo. We are bringing new technology to the market that has tremendous potential.

With that said, we have recently begun introducing a technology to strategic partners that seems to be bearing a significant amount of interest. Through our work on the chemical conversion of isobutanol to butalyne, jet fuel, octane and paraxylene, we also learned how to convert fuel ethanol into propylene and hydrogen.

Our technical economic analysis indicates that both propylene and hydrogen could be produced cost competitively, and on par with what it would cost from petroleum-based raw materials. This we believe is a game-changer.

Now propylene is a raw material for packaging materials, for films, for things like containers, durable goods like car parts, fibers, to chemical intermediate for making super absorbants, glycols, a host of other things; things like the diaper nonwovens. And I know of no other technology where propylene can be made from renewable resources that looks this good.

Now as we make propylene, we also generate renewable hydrogen. This hydrogen opportunity is interesting to those strategics interested in fuel cells in cars. The ability to produce cost-competitive renewable propylene and renewable hydrogen have been the Holy Grail's of the bio-based economy. And so, between ethanol and isobutanol, it looks like we can make a heck of a dent in the marketplace as we commercialize these technologies.

Now as a result, we are talking to several potential strategic partners that have a range of interest in this technology. They're ethanol producers as well as both users and producers of propylene and hydrogen. So it's our goal to develop and land a strategic investment in some form in 2015 to develop this ethanol to hydrocarbons business.

Given the level of interest we are seeing, it's quite exciting. And it's important to point out this opportunity involves no biology; no fermentation. This idea of no biology, that actually resonates with the chemical companies -- it's in their wheelhouse and their sweet spot. They get it. We also have made really good progress on the IP front, both in terms of defending our position in the courts and bolstering the value of our IP portfolio at the Patent Office.

Brett Lund, our Chief Legal Officer, is -- he can brief you on what's been going on. Brett?

Thanks, Pat. In January, we had a very significant result. The US Supreme Court ruled in Gevo's favor and overturned an earlier Federal Circuit Court of Appeals ruling on the interpretation of key patent claims. The result is that Gevo's victory in the Delaware District Court is effectively reinstated, and that the case has been remanded back to the Federal Circuit Court for consideration, in light of the new standard of appellate review that was decided in the Teva case.

In Teva, the Supreme Court ruled that the Appeals Court must apply a more stringent clear error standard of review rather than a de novo standard of review. In Gevo's case, the Appeals Court must now apply a clear error standard of review, and cannot satisfy the Delaware District Court's findings of fact in Gevo's favor unless they were clearly erroneous. Based on this Supreme Court decision, we believe that this means we will prevail at the Federal Circuit Court, and that this will end this phase of the litigation.

In addition to the US Supreme Court win, we have recently had a lot of success in patent re-examinations at the US PTO regarding yeast biocatalysts. We successfully defended claims in three of our patents, and we defeated all of the challenged claims in one of Butamax's patents.

Our IP strategy is to file patents very broadly, and then narrow them down in prosecution and re-examination. These recent decisions from the US PTO are very important, because the vast majority of the time -- over 80% of the time -- the US PTO invalidates or significantly modifies claims and re-examinations. We had two of our very important patents go through re-examination where all of the claims in our patents were confirmed by the US PTO without any modification. This is pretty rare, and further strengthens our IP portfolio.

Specifically, all the claims in our US patent number 8133715, which is our 715 patent, were confirmed without any modification. The 715 patent covers the deletion of a major pathway that hijacks carbohydrates from the isobutanol pathway. This is a very important win, because we believe that this pathway must be deleted in order to produce commercial levels of isobutanol, and to be able to support isobutanol production costs that will provide economically-interesting profit margins.

In addition to the 715 re-exam, all of our claims were confirmed without any modification in the re-examination of US patent number 8153415, which is our 415 patent. The 415 patent covers the deletion of another major pathway that hijacks carbohydrates from the isobutanol pathway.

In addition to the 715 and 415 patent victories, Gevo also secured a key claim in our US patent number 8273565, which is our 565 patent, covering technology to enhance a key enzyme in our biocatalyst. Specifically, claim 10 of the 565 patent covers the combined deletion of Bricks 3 and GPD for dramatically improved DHAD activity within the isobutanol pathway, and is key for good pathway performance.

Finally, Gevo also successfully challenged Butamax's US patent number 8178328, which is their 328 patent, in re-examination. And all of the challenged claims were deemed unpatentable, including 22 new claims that were added by Butamax during re-examination. The 328 patent is a child patent stemming from Butamax's US patent number 7851188, which is their 188 patent, which is their so-called foundational patent, and shares much of the same subject matter with the 188 patent and other patents in this family.

So this decision is highly impactful to all of the other patents in this patent family. US PTO did deem one of our very broad isobutanol hydrocarbon patents to be unpatentable. This is consistent with the way the US PTO PTAB has been handling patent challenges, and this decision is appealable. However, we also have many other patents in our portfolio, which more specifically cover our isobutanol to hydrocarbon technologies.

I will now turn the call over to Mike Willis, our CFO.

Thanks, Brett. Gevo reported revenue in the fourth-quarter of 2014 of $9.5 million as compared to $1.7 million in the same period 2013. The increase in revenue during 2014 is primarily a result of the production and sale of ethanol and distillers grains of $8.8 million, following the transition of the Luverne plant to side-by-side.

During the fourth quarter of 2014, hydrocarbon revenues were $0.5 million, primarily related to the shipment of biojet fuel to the US military during the quarter. Gevo also continued to generate revenue during the fourth quarter of 2014 associated with ongoing research agreements.

Cost of goods sold increased to $10.9 million in the fourth quarter of 2014 versus $5 million in the same period in 2013, due to the increased production activity at the Luverne plant under side-by-side. Gross loss was $1.4 million for the three months ended December 31, 2014 versus a gross loss of $3.4 million the same period in 2013. After deducting depreciation expense of $1.4 million, Gevo generated a small positive cash gross margin of $0.1 million for the fourth quarter of 2014.

R&D expense was $2.7 million in the fourth quarter of 2014 compared to the $3.9 million reported in the fourth quarter of 2013. Our R&D activities in the fourth quarter of 2014 continue to be focused on the optimization of our technology to further enhance isobutanol production rates at Luverne under side-by-side, as well as production-related activities at our hydrocarbons demo plant in Texas, where we produce our biojet, paraxylene, and isooctane products. R&D expense decreased in the fourth quarter of 2014 compared with the same period in 2013, due primarily to a $0.5 million reduction in salary and consultant-related expenses, and a $0.5 million decrease in expenses at the hydrocarbons demo facility.

SG&A expense for the fourth quarter of 2014 decreased to $4.8 million compared to $5.8 million for the comparable quarter in 2013. SG&A expense decreased in the fourth quarter of 2014, due primarily to a decrease of $1 million in legal expenses, largely related to litigation matters.

Within total operating expenses for the fourth quarter of 2014, we recorded approximately $0.5 million for non-cash stock-based compensation. For the fourth quarter of 2014, we reported a loss from operations of $8.9 million, down from a loss from operations of $13 million in the fourth quarter of 2013. Interest expense for the fourth quarter of 2014 was $2 million, which was approximately $50,000 higher than the interest expense in the same period of 2013.

We reported a non-cash loss of $0.2 million during the fourth quarter of 2014, related to changes in the fair value of our derivative warrant liabilities and embedded derivatives contained in the convertible notes issued in 2012. The Company also reported a non-cash gain of $0.1 million during the fourth quarter of 2014, related to a change in the fair value of the white box convertible notes.

For the fourth quarter of 2014, we reported a net loss of $11.1 million, or a loss of $0.11 per share, based on weighted average shares outstanding of 98,667,424. This compares to a loss of $17.3 million in the fourth quarter of 2013 or a loss of $0.35 per share. During the fourth quarter, there were no conversions of convertible notes. And at quarter-end, we had 99,628,054 shares outstanding. Our cash on-hand at December 31 was $6.4 million.

As previously disclosed, we had closed an underwritten public offering in February 2015 of 33.25 million common stock units. The common stock units were priced at $0.20 per unit. And each common stock unit consisted of one share of common stock, a Series A warrant to purchase one share of common stock, as well as a Series B warrant to purchase one share of common stock.

The Series A warrants have an exercise price of $0.27 per share, are exercisable from the date of original issuance, and will expire on February 3, 2020. The Series B warrants have an exercise price of $0.20 per share, are exercisable from the date of original issuance, and will expire on August 3, 2015.

The shares of common stock of warrants were separable and were issued separately. The gross proceeds were approximately $6.65 million, not including any future proceeds from the exercise of the warrants. And consequent to the February offering, we have received an additional $2 million of gross proceeds to the exercise of some of those Series B warrants.

With that, I'll now turn the call back to Pat.

Thanks, Mike. All right. So bringing it all together. We had a very good quarter, making progress proving out technology in markets and the value propositions for isobutanol. We believe that the potential of isobutanol has been significantly derisked. We are focused on licensing isobutanol technology, both in the US and ex-US, and plan on signing up at least one definitive agreement this year.

As we attract money, we plan on building out isobutanol capacity at Luverne. However, we have learned that it isn't a requirement or prerequisite for licensing. We will continue to run our Luverne plant to maximize cash flow. Until we deploy the capital to debottleneck the plant, we will intermittently run the isobutanol side of the plant to seed markets, support customers, and prove out step-change improvements to the process.

We will continue to defend our freedom to operate and our IP. We want to establish the alcohol for hydrocarbons business with strategic investors. The idea is, we contribute to technology, they contribute money in the off-take.

We believe that we've crossed the value of debt from a technology and scale-up perspective. We have very large attractive markets in front of us. We have multiple partners who want to develop the business with us. We need to close the deals with them. We need to generate income from licensing and plant operations to become profitable as a company.

So, we like where we are from the standpoint of the technology, the potential, the markets. We see that it really is possible to make these chemical products that are cost-competitive, cleaner and greener. That's attractive to people. It's a big long-run game and we are in a great position.

And with that, we can turn it to questions.

(Operator Instructions). Mike Ritzenthaler, Jaffray.

Hey, Pat. One question on the EBITDA breakeven at the plant level. That was something that had been discussed in the past. And I was looking through some of the non-GAAP financial information at the end of the press release. Where does Luverne sit in terms of cash breakeven metrics, just on the plant standalone basis?

Yes. So -- hey, Mike.

Hey, Mike.

So we basically hit EBITDA breakeven, potentially positive in November. As you can imagine, closing procedures in any given month is obviously a lot different than any quarter-end or year-end. So it's kind of harder to kind of put the kind of flag in the ground, and stake in the ground, and say we are definitively EBITDA-positive.

But by all metrics and at normal closing procedures, we were EBITDA-positive in November. And generally across Q4 was much stronger from a tax loss perspective than any previous quarter where we were running isobutanol. So it was a very strong quarter for them.

Okay. And then excluding the debottlenecking needs, which, Pat, you had talked about a couple times in your prepared remarks, is there a level of CapEx in 2015 that's just necessary to sustain what you've already built?

It will be the normal plant maintenance stuff. It's nothing special to do what we're doing.

Right. Have you kind of sketched out what that might be in terms of dollars?

It will be somewhere in the kind of $1 million to $2 million range max. Just for general maintenance.

Okay. And this is kind of the first time that we are talking I guess about -- or at least the first time I've seen the ethanol to the hydrocarbon technology piece. And I'm curious about what -- whether, I guess, just from a high level, whether this is the right time to be introducing a new technology like that? And maybe just discuss some of the synergies with -- between that and some of the work that you've already been doing on isobutanol.

Sure. Well, what it is, we have been working for years on the dehydration of alcohols to make the butylene jet fuel octane paraxylene and all the rest; along the way, we learned how to do this ethanol conversion. And what's interesting is, as we were talking to people about how to commercialize the butylenes from isobutanol, they asked, well, gee, what about propylene? And can you do that?

And so it's the same kind of people who are interested. So they are highly related from a market standpoint. And we happen to know how to do it, we filed a bunch of patents. And it's interesting enough that we can gain investment from it, I believe.

And so, that matters to us at Gevo, right? Because we do like strategic investors. And we do have the ability to supply ethanol and the butanol. So, from that standpoint, it fits quite well.

So the question behind your question is what about the focus? We do it -- we have always intended to be a company who does the alcohol production for sure, but always with a view to moving downstream and create new applications from these alcohols. And that's as long as I've been here at Gevo.

I'll just add, Mike, that, from a resource standpoint, I can tell you right now that it's only a couple f bodies that we're talking about. It's the same bodies that have been behind the work we were doing with Coke or with Torre. So it will be anything related to isobutanol to hydrocarbons, basically the same team that we just let loose using ethanol as a feedstock.

And when we talk about potential strategic investment, it's exactly with that in mind is, our current cash is devoted to ensuring that isobutanol is going to be successful and our licensing models are going to be successful. So what we would like to do is have different infusions of capital to be able to potentially put additional resources behind this ethanol to hydrocarbons, but it's only with that kind of capital coming into play that we would boost the resources dedicated to that business.

Yes, in other words, we are not spending our isobutanol dollars on hydrocarbons. We're spending the idea for ethanol, I mean, we are going to be producing -- working with other people to do it. And that's part of the test. Because it is one of these -- our guys did a great job, we have a little pilot plant in the lab here. The data is unbelievable, in that it makes polymer-grade propylene, high-purity isobutylene.

We can also make -- it makes renewable hydrogen. And it pencils out that all these products can be made at a price that's cost-competitive with oil-based product. Even though it's made from market-priced ethanol -- that's a big deal. And the reason it happens is our guys came up with some catalysts, learned how to do it, learned how to do the process, and it's based that apparently, it seems no one has done quite this thing before.

Sure. So like $1.50 a gallon of ethanol or something like that?

Actually, no. We've been using higher estimates (inaudible) [dollar ID].

Okay.

But at $1.40 it's even better.

Yes. Sure, sure.

Well, the advertising, not surprisingly, Mike, is I think ethanol plant owners, given where we are even producing ethanol, may be great to have different outlets for ethanol, higher value, higher margin outlets. So we think this is potentially pretty game-changing for the ethanol industry, especially given questions about RFS and et cetera, et cetera. So, it's pretty (inaudible)

And the right way to think about it is we treat it as a venture in a way; that we're contributing the technology, but other people bring money. I need the right mix of strategic partners to play. And so far, there's quite a lot of interest. So we'll see what we can get done.

That makes sense. Thanks for the color, guys.

Jeff Osborne, Cowen & Co.

Just following up on the renewable hydrogen conversation you mentioned, the data looks impressive. Can you just give us a sense of what the cost per kilogram would be of the hydrogen produced? Is that something that you are willing to share at this point?

$2.50.

That certainly would be impressive. Excellent. Given there's five days left in the quarter, can you give us a sense of expectations here for the March quarter? And more importantly, just given EBITDA per gallon in the ethanol industry as a whole in calendar Q1 has compressed quite sharply, I'm trying to rectify what -- or reconcile what you're doing with the four fermenters over the past couple months?

And more importantly, the outlook for the second quarter as well. Are you actually producing isobutanol in January and February? Or did you make a modest profit on the ethanol side and scale back on the isobutanol to alleviate some of the cash burn?

We did run some isobutanol in Q1. However, we did, as we described, operate the plant according to maximize margin at the plant. And given Pat's comments earlier, is, unfortunately, at the low levels of isobutanol that we are producing, we definitely -- you know, margins are much better on the ethanol side of the plant.

So we did run a little bit longer with the four fermenters on ethanol. Unfortunately, obviously, ethanol margins were challenged in Q1. They are coming back, at least for us; they are up probably a good 20% to 25% just in the last few weeks or so. So that should help in terms of the cash flow of the Corporation in Q2 versus Q1.

Got you. I may have missed it, too, Mike, in the prepared remarks, but what was the cash burn in the fourth quarter? And do you have an expectation from an operations perspective in Q1, just with some of the initiatives you have?

I didn't give the exact kind of cash burn metric whatever, but I can tell you that from a corporate wide cash to EBITDA burn rate, it was somewhere between $6.5 million to $7 million for the quarter in Q4. It would probably be slightly higher in Q1, given where ethanol margins were, and considering, as you recall, we had the reduction in force in January. So, unfortunately, obviously there's a long-term positive related to that. But there is the typical some severance payments that you have to make and the like that impacts that type of initiative.

Got you. I should know this, but you've had the LOI's for quite some time now. And just how do you differentiate internally between the two LOI's and the MOU, and reconciling the difference between NOI and MOU in your mind relative to the conversation about having one partner converted over to an actual contract this year?

Yes. So the way to think of the LOI's that we've done for the licensing, these are about -- starch-free cornels in Canada. That one is what we're pushing hard to get that one done. The Highland EnviroFuels is about sweet sorghum. It's a different thing. So there's a discussion will occur there.

The Argentinian ones are cork. So, there's all still in play. But they're for one-off -- each plant, one-off type things. The deal with Praj is different. This is a strategic alliance. It's ex-US. Ex-US is interesting. You know, there aren't any lawsuits ex-US, you know? And 250 million gallons over a period of 10 years represents -- Mike, what? What would you think?

Well, I mean, based off of the way that we've -- the discussions we've had to date with licensing partners that we believe are economics that they would be willing to bear, we could see, across the 250 million gallons that are contemplated, across product-based plants outside of the US, we could see upfront payments totaling anywhere between, call it, $25 million to $50 million. And then recurring revenue is between technology licensing and sales and marketing fees.

Ultimately, when you get to the full 250 million gallons, that could represent a recurring revenue base of something similar like $25 million to $50 million. We do understand, based off of discussions with Praj, that in certain geographies that they play, there's a bit more of a reticence against the recurring royalty.

They're comfortable with the sales and marketing fee, but the ongoing royalty is something that just is less appealing to certain geographies or folks playing in certain geographies. So that might lend itself to higher upfront payments, kind of an upfront -- a prepaid royalty effectively. But that kind of gives you a sense for the opportunity base here with Praj --

Ex-US.

-- versus doing something with kind of a one-off license fee.

Yes, it's a multiple plant deal, multiple years partnership. They're going to do the development work to do the sugar mill integration with the isobutanol process. We will -- system and offer advice and all the rest, give them the yeast to do it. Because, of course, that's crucial and, of course, the hydrocarbon separation of isobutanol is important.

So that's what we're going to do with them. And then we will have -- it's a broad relationship that will impact us here in the US too. We just haven't -- when we are ready, we will disclose what that looks like.

Understand that. The last question I had is just as inventories of ethanol have been drawn down across the industry and exports have picked up, you've certainly seen an increase in profitability, which you alluded to. And I'm just trying to reconcile your statement that, Pat, you don't need the isobutyl production to convert some of these deals or sign additional licenses.

So what would be the process or internal decision-making to convert the fourth fermenter that's isobutanol today, over to ethanol, to maximize the EBITDA potential here in the second and third quarters, when seasonal profitability is a little bit better?

Yes. So to play back your question, you're asking me how we do the decision to run isobutanol or not, given the margins. Is that what you're asking?

Yes, or just what's involved to do four fermenters of ethanol and just skip isobutanol for six months, and make a bit more money if you feel so confident about getting some of these deals converted over.

We have to see the market. So we made commitments to customers and such that we are really doing a balancing act of managing our expectations, making sure that we don't short them. We really do need these market seeded. It does help to prove out -- it's a value proposition to build confidence.

We do plan on ramping up isobutanol again. We do plan on landing some -- there are people who are interested in investing in Luverne. We would like to land on those guys and have their investment, and get on with it and ramp up production. And it's better if we have a good seeded market to do so.

But I think to answer your question, I think I heard a different question, which is, we can operate all four fermenters on ethanol right now. There is no conversion process. We can switch back and forth on that fourth fermenter between isobutanol and ethanol. And we have already done that, Jeff. Yes.

Got you. Okay, that's what I was asking, Mike. So I appreciate that. Thank you.

Sure.

And that concludes the Q&A session. I will now turn the call over to Pat Gruber for final remarks.

Well, thanks for joining us. We look -- this isobutanol technology is far enough along, it's good to be -- it's good that Praj can see what we've done. They're a real -- they are a substantial company. They have been leaders in the field of doing the process technology, bio-based processing for ethanol and other businesses. It's good to have their validation.

And that will help us in the business. We look forward to working with them. We like where the product has been placed. We like the way the value propositions are playing up the way we expected; in other words, it's a valuable product.

And then this hydrocarbons business is exciting. It's exciting on two fronts. One is on the isobutanol to hydrocarbon side, where I do believe we can make the lowest cost jet fuel of any bio-based product. It's a real live jet fuel. It's a matter of putting those deals together.

And then on the ethanol side, we'll see what happens. This is going to depend upon how these strategics bite. As you heard and as we discussed this, being able to generate a low-cost hydrogen is a big deal. And along the way, I think we are the only ones that I'm aware of that are able to generate a low-cost propylene made from renewable resources.

That's going to be interesting, because we'll see who bites. And that will be good for Gevo, in any case.

So, with that, we can wrap it up. Thank you very much for joining us.

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