Gevo Inc (GEVO) 2015 Q2 法說會逐字稿

Welcome to the Q2 2015 Gevo, Incorporated, earnings conference call. My name is Adrienne and I'll be your operator for today's call. (Operator Instructions) Please note this conference is being recorded.

I'll now turn the call over to Brett Lund, Gevo's Chief Legal Officer. Mr. Lund, you may begin.

Good afternoon and thank you for joining Gevo's second-quarter 2015 conference call. I'm Brett Lund, Gevo's Chief Legal Officer. With me today are Pat Gruber, our 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 the call to the public. A replay of our discussion will be available on the website later today.

On the call today and on this webcast you'll hear discussions of non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in accordance with GAAP. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is contained in the press release distributed today, which is posted on our website.

We will also provide certain forward-looking statements about events and circumstances that have not yet occurred, including projections of Gevo's operating activities for the remainder of 2015 and beyond. These statements are based on management's current beliefs, expectations, and assumptions and are subject to significant risks and uncertainty, including those disclosed in Gevo's most annual report on Form 10-K as amended, which was filed with the SEC on March 30, 2015, and in subsequent reports and other filings made with the SEC by Gevo.

Investors are cautioned not to place undue reliance on any such forward-looking statements. Such forward-looking statements speak only as of today's date, and Gevo disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events, or otherwise. Please refer to Gevo's SEC filings for detailed discussions of the relevant risks and uncertainties.

On today's call, Pat will begin with a review of our recent business developments. Mike will then review our financial results for the second quarter of 2015. Following the presentation we will open the call up for questions. I will now turn the call over to Pat.

Thank you for joining our call today. The short version of our quarter is this: We remain on track to accomplish the goals we laid out earlier this year. Additionally, our balance sheet had $22.5 million on it at the end of the second quarter. That's the most since 2013, so we're happy with our current liquidity position.

As we guided earlier this year, we still expect to sign at least one binding license agreement. We continue to work through definitive licensing agreements with Praj and Porta Hermanos.

Recall that Praj is interested in the conversion of sugar and molasses to isobutanol outside the US, where they can leverage their large process technology footprint. They believe that they can roll out 250 million gallons of isobutanol capacity over 10 years. The negotiations are taking longer because, in parallel, we are now looking at ways to potentially partner here in the US as well as directly at our plant in Luverne.

I met directly with Praj's Chairman, Pramod Chaudhari, as recently as two weeks ago at the Bio-Industrial conference. In fact, some of you might have even seen the picture of Pramod and me taken by Jim Lane of Biofuels Digest and posted on his website. So we remain very bullish that we will ultimately get to a definitive agreement with Praj.

And as you may recall, Porta -- that's the ethanol producer in Argentina; they're a process engineering company as well -- we're making good progress with them in negotiating agreement to roll out corn-based isobutanol in Argentina and possibly elsewhere in South America. So our licensing efforts continue to remain on track.

Turning to jet fuel, the process for ASTM certification for jet fuel also remains on track. The certification is expected sometime in the next two to three months.

The technical work has been completed, and there were no issues. The results have been reviewed by the OEMs.

The approval is being put forward for ballot. Things are on track, albeit vacation season doesn't help speed things along.

There is a lot of interest in jet fuel. The airlines and jet fuel suppliers expect that regulators will impose penalties related to emissions sometime in the near future, for example a carbon tax. How big this penalty or tax is, no one knows yet.

The forward-thinking airlines recognize that cleaner and greener fuels are in their future. Regulation is expected to come down on jet engine emissions; consequently, some of the airlines are getting their ducks in a row and encouraging the development of renewable options. It will take multiple years to establish supply chains for renewable fuels, so airlines are starting to act now.

Our jet fuel, we believe, is attractive. It is made by a process similar to some of the methods that petro-based jet fuels use. We are substituting the source of carbon, making it renewable. Our product is kerosene, just like petro-jet, but instead has renewable carbon and, we believe, a smaller environmental footprint.

Our jet fuel product differs from many of the other products and technologies out there. Ours is not derived from a biodiesel type of process, nor is it an intermediate that yet needs to be finished: it's a kerosene typical of jet fuels.

This is the reason it's being so widely tested. It falls squarely in the normal category.

Our fuel has been successfully tested by Lufthansa, the U.S. Army, Navy, Air Force. It has worked well in many types of jet engines. It's been used to fly F-18s, Black Hawks, Chinooks, A-10 Warthogs, and others.

In fact, we expect MIL-SPEC certification in early 2016, after the ASTM certification is completed in 2015. Now, MIL-SPEC certification is that certification that allows us to compete for government supply contracts.

Now additionally, Alaska Airlines is planning to fly with our product. We've announced a flight with them using our jet fuel made from isobutanol that is derived from corn starch.

Alaska Airlines also announced a test flight on renewable jet fuel made from isobutanol produced from cellulosic sugars. Now, the technology to make that jet fuel from cellulosic sugars in fact is Gevo's, and we look forward to seeing Alaska Airlines do their flight with Gevo-produced jet fuel.

I would like to call your attention to the National Marine Manufacturers endorsement of isobutanol for gasoline blendstocks for boats. This was a significant announcement in that it isn't common for an industry group comprised of a large cross-section of OEMs to endorse a biofuel.

The properties of isobutanol are ideal for marine fuel application. At Gevo, we like this use of isobutanol because the properties and value of isobutanol are showcased. We also like this market segment because we believe that it represents an opportunity of about $1 billion per year in sales in the US alone.

We have recently begun selling isobutanol for off-road use. We announced that Express Lube of Fredericksburg, Texas, has become the first US service station to sell gasoline blended with Gevo's renewable isobutanol at a pump.

This is anticipated to be the first of many retail locations to offer Gevo's product as the Company rolls out its isobutanol to the marina and off-road gasoline markets. This is clear progress in developing supply chains and the target markets.

We continue to make progress with our technology to convert ethanol to chemicals, diesel fuel, and hydrogen. We have lots of interest, and we expect to establish formal projects and businesses to move this technology forward.

The benefit is that it is possible to use fuel-grade ethanol to economically produce products like propylene and renewable hydrogen. Renewable propylene can serve as a raw material to make n-butanol, diesel fuel products, plastics for packaging, and others. The technology has potential to make economic sense because of its high yields; and of course, along the way we generate significant quantities of fully renewable hydrogen, and that's important for people who are using fuel cells.

Turning our attention to litigation, as I'm sure many of you are aware, we have a trial set for August 24 in one of our ongoing patent litigations with Butamax. In this litigation, Butamax has asserted three patents against Gevo. We refer to these patents as the Butamx 144, 558, and 878 patents.

In litigation, as is typical, the parties file various motions in an attempt to simplify the trial. Butamax filed motions seeking a summary judgment of infringement with respect to at least one claim in each of the asserted patents; and Gevo filed motions seeking summary judgments that asserted claims of the 144, 558, and 878 patents are not valid; that claim 3 of the 878 was not infringed; and that Gevo had not willingly infringed any of the patents.

Yesterday the court issued rulings on these motions. This morning we filed an 8-K on that decision.

The court denied all of Butamax's motions for summary judgment of infringement of the asserted patents. It granted one of Gevo's invalidity motions, finding that the asserted claims of the 878 patent is not valid, because those claims are not definite and infringement cannot be determined. And it found that Gevo had not willfully infringed any of the asserted patents because Gevo's defenses are credible. As such, factual disputes regarding infringement and invalidity of the 144 and 558 patents remain alive and will be included in the trial set for August 24.

Summarizing everything, then, we continue to make progress both in the IBA technology and in market development. We are progressing on licensees; we're progressing in the marketplace; we're progressing on certifications for jet fuel.

We have a good level of cash on the balance sheet. I believe we're in a good position, making progress.

Mike will now take you through the numbers.

Thank you, Pat. First I'd like to note that all share and per-share numbers in my prepared remarks are being expressed on a post-reverse-split basis. Gevo reported revenue in the second quarter of 2015 of $8.9 million as compared to $7.7 million in the same period in 2014.

The increase in revenue during 2015 is primarily a result of the production and sale of approximately $8 million of ethanol, isobutanol, and distillers grains at the Luverne plant as compared to only $5.5 million in the second quarter of 2014. The $8 million of revenue generated in the second quarter of 2015 from Luverne also compares favorably to the $5.1 million generated in the first quarter of 2015, when we took advantage of a weaker ethanol margin environment to take the plant down for various maintenance initiatives.

During the second quarter of 2015, hydrocarbon revenues were $0.8 million, primarily related to the shipment of bio-jet fuel and iso-octane during the quarter. In the second quarter of 2014, Gevo benefited from the recognition of $1.5 million of revenue following a shipment of para-xylene to Toray Industries, $1 million of which was paid to Gevo in 2013 and was used for the design and construction of the para-xylene demo plant in Silsbee. Gevo also continue to generate revenue of $0.2 million during the second quarter of 2015 associated with ongoing research agreements.

Cost of goods sold increased to $9.9 million in the second quarter of 2015 versus $8.3 million in the same period of 2014, due to the increased production activity at the Luverne plant. Gross loss was $1 million for the second quarter of 2015. After deducting depreciation expense of $1.4 million, the non-GAAP cash gross margin was a positive $0.4 million for the second quarter of 2015.

R&D expense was $1.8 million in the second quarter of 2015 compared to $3.6 million reported in the second quarter of 2014. Recall that our R&D activities include technology development-related activities at our labs in Englewood, Colorado, as well as production-related activities at our hydrocarbons demo plant in Silsbee, Texas, where we produce our biojet, iso-octane, and para-xylene products. R&D expense decreased in the second quarter of 2015 compared with the same period in 2014, due primarily to a $1.3 million decrease in employee-related consultant and contract staff expenses and $0.4 million decrease in lab consumables.

SG&A expense in the second quarter of 2015 decreased at $3.8 million compared to $4.9 million for the comparable quarter in 2014. SG&A expense decreased in the second quarter of 2015 compared with the same period in 2014 due primarily to decreases of $0.4 million in professional, legal, and consulting expenses and $0.7 million in employee-related compensation expenses.

Within total operating expenses for the second quarter of 2015 we reported approximately $0.3 million for noncash stock-based compensation. For the second quarter of 2015 we reported a loss from operations of $6.5 million, down from a loss of operations of $9 million in the second quarter of 2014.

Interest expense for the second quarter of 2015 was $2 million compared to $5.8 million for the comparable quarter in 2014. The decrease was due primarily to the recognition of debt issuance costs in 2014 associated with the convertible notes purchased by Whitebox in June of 2014.

During the second quarter of 2015, a $1.7 million noncash loss was recognized as a result of inducement payments made in connection with exercises of warrants to purchase shares of the Company's common stock issued in December 2013 and warrants to purchase shares of the Company's common stock issued in August 2014. We also recognized a noncash loss of $7.2 million during the second quarter of 2015 on the estimated fair value for the derivative warrant liabilities.

During the second quarter of 2015 we incurred noncash loss of $0.3 million due to the quarterly mark-to-market valuation of the 2017 notes. During the second quarter of 2015 there was no change in the value of the embedded derivatives in the convertible notes issued in 2012, and there were no conversion of those notes.

For the second quarter of 2015 we reported a net loss of $17.8 million or a loss of $1.36 per share, based on weighted average shares outstanding of 13,009,434. This compares to a loss of $17.2 million in the second quarter of 2014 or a loss of $3.79 per share.

During the second quarter, warrants were exercised into approximately 2.4 million shares of common stock, which resulted in net proceeds to Gevo of approximately $8 million. At quarter end, we had approximately 16,499,378 shares outstanding. Our cash on hand at June 30, 2015, was $22.5 million.

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

Thanks, Mike. Now looking forward, we plan on getting license deals done. We'll continue to work the market development for isobutanol and jet. We'll continue to work with strategics in our ethanol conversion business.

We continue to expect to make really good progress. With that, we can open it up for questions. Thanks.

We have no questions at this time. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, and you may now disconnect.