Gevo Inc (GEVO) 2024 Q1 法說會逐字稿

Good day, and thank you for standing by, and welcome to the GOL First Quarter 2024 earnings conference call. (Operator Instructions)

Please be advised that today's conference is being recorded on. I'd like to hand the conference over to your first speaker today, Eric Fry, Vice President of Finance and Strategy.

Please go ahead.

Good afternoon, everyone. This is Eric Frey, Vice President of Finance and Strategy. I'm also responsible for Investor Relations here at Gevo. Thanks for joining us to discuss Teva's first quarter results for the period ended March 31, 2024.

I would like to start by introducing today's participants from the company. With us today are Dr. Patrick Gruber, Chief Executive Officer; and Lynn Smull, Chief Financial Officer. We also have Dr. Chris Ryan, President and Chief Operating Officer; and Dr. Paul Bloom, Chief Carbon Officer and Chief Innovation Officer.

Earlier today, we issued a press release that outlines the topics we plan to discuss a copy of this press release is available on our website at www.gevo.com. Please be advised that our remarks today, including answers to your questions, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act.

These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated. Those statements include projections about the timing, development, engineering, financing and construction of our sustainable aviation fuel projects.

Our recently executed agreements, our renewable natural gas project and other activities described in our filings with the Securities and Exchange Commission, which are incorporated by reference.

We disclaim any obligation to update these forward-looking statements. In addition, we may provide certain non-GAAP financial information on this call. The relevant definitions and GAAP reconciliations may be found in our earnings release, which can be found on our website at www.jacada.com in the Investor Relations section. Following the prepared remarks, we'll open the call for questions.

I would like to remind everyone that this conference call is open to the media, and we are providing a simultaneous webcast to the public. A replay will be available via the company's Investor Relations page at www.uBid.com. I'd like to now turn the call over to CEO of Gevo, Dr. Patrick Gruber. Pat?

Thanks, Eric. Good afternoon, everyone, and thanks for joining us on our call. We are filing our Form 10-Q today, and we ask that you refer to it for more detailed information after this call today, I would like to highlight a couple of key items from our filing and also talk about the recent IRS Section 40 b. SIFT tax credit guidance that came out, which I have to say is very encouraging.

Number one, we began utilizing our previously announced stock repurchase program when Smull our Chief Financial Officer will say more about this when he sat on deck here to give comments now my comment on this is that if you look at our cash equivalents, restricted cash, divide that by our number of common shares outstanding, you will see that alone is worth approximately $1.40 a share. That is about double where the share price was at various times in the first quarter.

Obviously, we think the market is undervalued. Our shares since in addition to our cash, we have our renewable natural gas business with positive stand-alone adjusted EBITDA, a wholly owned carbon accounting tech startup that we call Verity, our robust Inlog look intellectual property portfolio and significant progress for a well position. Greenfield alcohol to jet project called NZ. one, along with a portfolio of other sites that can be developed.

We also have our next generation ethanol, the fuels chemical technology called e-tail that has made it through the next scale up milestone with LG Cam, which triggers yet another royalty payment.

Number two, we have revised our expected spend on net zero one, our greenfield alcohol to jet project. We now expect that we'll have to spend about $90 million to $125 million from January 1, 2024. That's this year until we reach the fully financed construction phase of the project or financial close. That is a reduction from our previous range of $125 million to $175 million. Chris Ryan, our President and Chief Operating Officer, will say more about the Net-Zero one project a little bit later in this call.

Number three, I'm glad the guidance finally came out on Section 40 b. sustainable aviation fuel tax credit under the inflation Reduction Act. Now the 40 b. rule itself is mostly natural into our plans since it expires at the end of 2024, but it does set guidance and precedent for this section. We do care about 45 Z, which comes into play later in 2025 and beyond.

I can say this, the 40 b. looks to have a clear step in the right direction since it recognizes that many carbon intensity reductions we've been talking about it uses the argon greet model. The trends that we've been advocating for years include CCS, and it is moving properly towards taking into account agricultural practices in the in the comments from members of administration there, it's clear that there's going to be more work to include more of Climate Smart Edge in 45 states.

Now it's interesting to note that the 40 b. rule. It looks like that are proprietary in Z. one plant design, which really is different than anyone else in the world that even without CCS or ag practices, we'd be well into the money, essentially achieving a $50 to $75 a gallon. That means when you have 60 million gallons of jet fuel coming out of a plant. That's $90 million to $100 million, $105 million of revenue.

I like the precedent. I want to see it stick. I want to improve it further. It's going to be very interesting and it's pretty exciting. It's good progress. I like what we're seeing. We expect that this guidance will be the launch pad for the sustainably sustainable aviation fuel 45 C. tax credit. Usda Secretary Vilsack has noted that he expects 45 C. will expand recognition of climate.

Smart Ag practices are very Carbon Solutions, of course, is well positioned to aid that 40 b. guidance is a good foreshadowing of 45. The guidance the administration agencies have indicated there's more work to be done to refine the rules of 45 Z, but it looks like a good starting point in 45 Z, it would also represent up to a $75 of value per gallon.

Our SaaS production or that's again potential of $105 million a year if the carbon intensity is counted as zero using all the tools at our disposal. And we have lots of now this guidance as even as it stands, I should give confidence to project investors that the governments on the right track.

Yes, there's more work to be done, but you know, what they've been bringing additional clarity to the direction of the 45 C. rules you've indicated it's going to include the climate. Smart Ag includes CCS and green, all very constructive should help incentivize investment that could help bring our projected cost of carbon abatement for this first plant down when we include those credits to potentially be as low as $0 per ton, depending upon a number of factors. That's a big deal.

That is, we believe one of the lowest cost, if not the lowest cost route of abating carbon, if you have not already done. So please take a look at the deep dive presentation on net zero one and the competitive economics of alcohol, the jet that we posted on our Investor Relations website, which goes into more detail. By carefully reviewing those economics, you can see why we have a deep conviction about our proprietary net zero integrated plant designs and their economic impact.

Finally, we will have Paul Bloom, our Chief Corporate Officer, Chief Innovation Officer, who give us an update on Verity, our wholly-owned carbon accounting tech startups. Now I'll pass it off to Lynn to talk through item number one that I mentioned, the share repurchases and the operations and the rest of the numbers. Lynn?

Thank you, Pat. During Q1 2024 our Northwest Iowa RNG project sold 88,967 MMBTU of RNG. Revenue of $4 million for the quarter included RNG sales of $0.2 million and $3.8 million net proceeds from the sale of the environmental attributes. Gevo's Q1 interest income was $4.6 million.

Our corporate spend that is G&A was $7.9 million for the quarter, excluding noncash stock-based compensation of $4.2 million, which is a $1.8 million increase from the first quarter of 2023 mainly due to increased personnel costs.

Debt related to our RNG project remained unchanged at quarter end at $68.2 million after we successfully remarketed the RMG green bonds on April 1 of this year. The remarketed bonds bear interest of 3.875% and are backed by a new letter of credit of $69.9 million, $0.3 million reduction from the previous bonds letter of credit.

We ended Q1 with a liquidity position of $340.6 million in cash, restricted cash and other liquid investments. The restricted cash portion is $69.9 million and collateralize as our RMG bond letter of credit. During Q1, we invested in capitalized $17.5 million. Cash in capital projects comprised of approximately $16.5 million into net zero, $0.5 million into R&G business and $0.5 million for our fractionation and hydrocarbon skid.

In addition to the $16.5 million invested into net zero one, we advanced $0.6 million into our wind and hydrogen partner for development costs in support of the project, which we expect is reimbursable upon financial close, we see enormous value in advancing our business thesis, which requires prudent capital deployment to maximize long-term value for our shareholders.

For example, we continue to invest in advancing Net-Zero one towards financial close when the project would be fully funded for construction and commissioning, but through our work and learnings in the project development process, we saw the opportunity to save on development capital required to reach close.

And we, as Pat mentioned, and Chris will further discuss revised the project spend guidance from January 1, 2024 through close downwards to $90 million to $125 million from the previous guidance of $125 million to $175 million, of which I noted that $17.1 million was spent in Q1 this year, inclusive of wind and hydrogen advances.

We will continue to identify activities and costs that can be deferred until after financial close whenever we can. We believe this is prudent capital deployment, minimizing Net-Zero one development spend, while advancing a groundbreaking ATJ plan to put Javo on the path to meeting market demands for staff, another use of capital involved repurchases of our common stock under the previously disclosed stock repurchase program. Since the beginning of the year, we repurchased approximately 5.5 million shares of common stock for approximately $3.7 million.

Now Chris Ryan, our President and Chief Operating Officer will talk more about net zero one. Chris?

Thanks, Lynn. For those who of you who don't know me, I'm the Senior Executive at GFO directly overseeing and responsible for our net-zero projects and their deployment. As Pat mentioned earlier, we reduced our expected spend requirement on net zero one to reach financial close as the time horizon to financial close of Net-Zero one gets closer.

We expect to continually reassess our spend and refine our expectations along the way as appropriate. We're pleased to be able to bring that number down. We don't see ourselves needing to spend more than that of the Net Zero one spent so far about half is for engineering and about a third is for wind and hydrogen equipment. We expect that spend will be recoverable to us at financial close.

This investment in engineering puts us in the position of having detailed designs and intellectual property around the production of low carbon hydrocarbons and sustainable aviation fuels. Specifically that can be leveraged to save time money and reduce risk for future projects for juveniles And anyone who works with us to produce low-carbon SaaS we want to see the CO2 pipeline, South Dakota move forward to keep like Preston as our most attractive site for producing sustainable aviation fuel.

But we've developed a slate of potential sites that we've pre-qualified for future net-zero projects. But we still hope and expect to see like Preston as the home of Net-Zero one, our work on the Department of Energy loan guarantee is going well. But as anyone who has worked on, one of these knows, there's a lot of engineering and upfront risk mitigation required much more than a typical balance sheet finance project.

Our EPC partners are busy working with us to mitigate execution risk and ensure our contracts fit the DOE's loan guarantee requirements. Likewise, our offtake partners are working with us to ensure that the contracted demand fits with the requirements of the DOE loan guarantee to finance the construction phase like Preston.

The site we own is more than twice the size of the plant's footprint, which leaves plenty of room for future bolt-on projects in a location where many of the surrounding farms in the region already use climate smart agricultural practices, which reduces carbon footprint of the corn feedstock.

We plan to use there that in turn, increases our carbon abatement. Our location is also not far from our wholly owned renewable natural gas business in northwest Iowa, which gives us the optionality to trim our carbon intensity in our South by utilizing that in the newer based RNG at our South plant location has rail access for product distribution.

That's not far from the Minneapolis and Chicago airports. And both of those airports are in states with a sustainable aviation fuel tax credit of $1.50 a gallon. We can also get to the West Coast where there are low carbon fuel markets like in California, and we can get into Canada, which also has incentives for low-carbon fuels.

One of the things we know that's required from our past experience is to have an audit trail of sustainability to prove to customers and policymakers the value of what they're getting from start from the field to finish through the manufacturing chain.

That's why we launched Verity a few years ago. So I'll hand it over to Paul Bloom, our Chief Carbon officer and Chief Innovation Officer to share the latest on therapy. Maybe he can start by telling people what achieve carbon after does. Paul?

Thanks, Chris. So briefly, because I get asked this question, sometimes Let me address it. What is the chief carbon officer did a fireside chat last year to answer that. For those of you who haven't seen it, I can sum it up, but my job is all about maximizing the value of carbon abatement for Xevo and our shareholders throughout the entire supply chain.

To that end, one of my primary responsibilities is leading our wholly owned carbon accounting tech startup called Verity in every aspect of our business from the field to the seat on the aircraft. It is critical that we can accurately measure report, verify and value carbon abatement with a high level of trust and transparency.

Verity intends to provide GFO and our customers with the digital tools to make sure that we can count all of the carbon abatement across the entire supply chain while fully capturing value from voluntary and compliance, carbon markets and tax credits, while avoiding double counting as policies like the Section 40 BCF tax credit and in the future Section 45 G. credits are developed.

We plan to use Verity to help simplify tracking accounting and auditing in an ever-changing policy landscape. We expect the requirements for the data in support of climate claims will gain importance to give confidence to consumers and other stakeholders. By definition, Verisity means true in the first quarter of 2024, we continued increasing our Verity customer base.

At the pharmacy level, we initiated the first privately sponsored Guard program in the Midwest for a biofuels client. In addition, we signed a letter of intent with a provider of heavy-duty engine technology to develop carbon accounting solutions to demonstrate and drive decarbonization of freight transportation in the United States. So now in addition to field to seat tracking for staff, start thinking about field to fleet tracking for heavy duty vehicles in hard-to-abate market sectors.

Finally, we continue to make great progress working with farmers of all sizes and from underserved groups through our GMO farm to flight USDA climate, smart commodities grant to implement track and incentivize wide variety of agricultural practices at the field level that are intended to reduce emissions and sequester carbon in the soil using the best science, we are meeting farmers where they are with workable solutions that are additive account for emissions reduction and don't exclude certain practices or require bundling.

We've also started making incentive payments to farmers who are adopting and implementing climate smart practices under the program by using the best tracking in accounting. We want farmers to be rewarded for reducing their carbon footprint and helping foster Rural Economic Development with agriculture done right after all while we are focused on biofuels today, everything has a carbon footprint.

We anticipate the great work we are doing with farmers today will benefit all agricultural supply chains with carbon accounting solutions from field to final use for food feed fuels, industrial products in the future. We want consumers, taxpayers and policymakers to know that they got something for their money parity is all about delivering that transparency and trust. I'd like to reiterate our previously announced expectation of achieving first revenue at Verity this year.

More details will be forthcoming as that happens and as we go forward. I'm going to leave it there for now. We can discuss this further if there are any questions in the Q&A. Now I'll hand it back over to Pat.

Thanks, Paul. So you heard Paul, just now talk about Verity. It's a pretty exciting opportunity we're way out ahead of the curve here. Having thought about this stuff for years Chris talked about our Net-Zero one project and Lynn discussed our numbers.

I'll close with this. Fundamentally, we see that there's an enormous supply of cost-effective carbohydrates and alcohols in the U.S. and globally, we also see enormous demand for drop in low carbon fuels and chemicals that can be derived from alcohols.

We therefore see compelling value in connecting the dots between that supply and demand using existing technologies, plus our team's innovative cost effective low carbon from its implementation, which we come available to us when we use photosynthesis and fermentation make alcohols and we combined with great catalytic techniques.

And then we wrap the whole thing with renewable energy. It's powerful. There are about 190 operating ethanol plants in the U.S. alone. We see that fleet being modified or converted over time to provide carbon abatement, lowering the CI. scores and changing what they do or repowering themselves.

We're going to help them be at the forefront of that in the long term, the vehicle to provide that carbon abatement may be low-carbon ethanol alcohol to jet. It could be diesel because we can make that as well or it might be gasoline or it might be chemicals.

All of those things are fair game. Once we establish the commercial business system, we would expect to see that net zero chemicals or enable it shouldn't be lost on anyone that any of these products are fair game for us was to focus on SaaS first, but all of them are fair game.

We have proprietary designs, technologies and business systems that can take us in whatever direction the world of carbon abatement has in the future. We believe the business system of Net-Zero one sets us up to be at the forefront. It's our integrated plant designs that drive the carbon abatement in the CI. numbers so low.

Ours is a business system that biggest carbon dioxide being pulled out of the atmosphere, let's nature due to a lot of the work through the photosynthesis fermentation is capturing the carbon and the hydrogen and the electrons to hold those atoms together, their needs all needed for making the fuels and chemicals BNZ.

One system produces food chain ingredients and catalyze this change climate smart a while mitigating land use issues that converts the CO2 to carbohydrates before synthesis and the carbohydrates, the alcohols we have fermentation then crossing over from the AG in bio world into chemical processing, where we convert the alcohol into olefins where the olefins are converted into fuels and chemicals in a chemical plant. It's not refining is a chemical plant.

It's cost effective CFO, knows the ag and fermentation side as well as the chemical processing side. That puts us in a pretty unique position. Alcohols provide a scalable link between two historically separate industries were crossover people the ag industry in the fossil fuel industry in chemicals.

We don't normally talk to each other where we bridge that gap and that's what's needed in the world of energy transition to establish new links between previously separate industries. If we're going to solve these problems, it's kind of a business system approach throughout.

And then we have to layer in the ability to track and trace across the whole business system. So no games are played. We like, and we focus on these business systems solutions that work for. They have potential to be low cost competitive in the long run against fossil-based products, deliver value for customers, financeable and deliver the growth what we're making progress.

Right, let's open up for questions.

(Operator Instructions) Peter Gastreich, Water Tower Research.

Yes, hello. Thanks very much for the call and congratulations on your results. It's also great to hear regarding the 40 p. tax credits. I know your company has been advocating for that for a number of years. So my question here is regarding the Net-Zero one and your new cost expectations you mentioned in the call that you were able to reduce engineering costs and the cost for wind and hydrogen. So I'd just like to ask if you could please provide a bit more color around those cost cuts. Thank you very much.

But Chris, I think you're in the best position to address that. You want to take that one.

Yes, sure. So what we did is we negotiated with our EPC and our wind and hydrogen equipment providers and basically pushed back payments until after financial close. At the same time, we're looking for ways to cut costs, not only in the project development, but the execution phase as well. But the majority of his portion COSTS out till after close.

Great. Thank you very much.

[David Baum, Thomas Capital].

Hey, guys. Thanks for taking the question. Now that you've had a couple of days to have the 40 b. model in your hand and wondering if you could provide any sort of indicators CI. range for what net Tier one is looking like kind of the first the first model that we've had from the government to really put some numbers around this. So any CRAs you can provide on that? Joe, will be really helpful.

Yes, sure. So one of the things that in our in our design, where we've integrated a plant like this, we focus a lot on lowering CI score our plant design itself takes down any ATJ. by about 55 to 59 points, just from a how we do it with our energy, how we integrate and all the rest.

That's real different than if I had a plant that was on integrated. So we're at we start with a very significant advantage. Some of the numbers that we see in the IRA bill, are the what are the guidance that came out there talking about a TJ. in the [$70] to [$80] range.

Okay. Subtract off, you know, 55 to 60 points straighter, it was at CCS or before Climate Smart Ag or anything else. So that means that under the 40 b., we would already hit above [$75] and the question will be, how are they going to treat 45 Z that's going to work slightly differently.

There is no cliff. We often get above 25. It's going to be 0.5 point reduction and get rewarded. It is way better than I thought we'd be at this point in time. I'm pretty excited by it and the precedents there setting are profound, look the adopted the greed model and they did it without messing with it, making it crazy or anything else. All right. They included CCS.

Great. That's awesome. That's what we need to see and our confidence in and you know what the Climate Smart Ag stuff from a from our take on it, it's in the right direction. They're going to make it specific. It plays to our variety business because we believe in field-by-field tracking to.

And so we think we're going to win on that front. So I'll be very surprised if we don't wind up, you know, around zero by the time this all said and done in terms of a CI. score that would get us at that $75. So it's pretty darn interesting is pretty darn encouraging and fired up.

You can start up.

I'm psyched now I have to I mean --

It's I guess, Lindsay, again, Lizzie Fitzgerald here actually sitting with me and she her take Lindsay is the one who she is Vice President of Government Relations and she lives. You want to comment on this.

I mean it's a huge. So all of my point that this is a great place to be is the first time that we're seeing great built-in with very minimal modifications. It's Scott climate, Smart Ag, again, something that we are trying to recognize and help farmers do it. It being understood. And this is a phenomenal jumping off point for what we want to see in the 45 days. So I'm ecstatic.

That's good.

That's integrated as events starting please, on our 45, the guidance is not fully out yet, but didn't have zeroed makes ton of sense. And the DOE, the DOE, correct me if I'm wrong as part of this working group that did put together the 40 b. guidance correct. And they're also the ones who are going to be judging you guys for the DOE loan, is that correct? Same bid, every single organization is making the rules as the one who is possibly giving you guys as well.

Same big organization, different departments, but a working group. We are I know for sure that we're on the mind of all the people making the rules because we're an example of what can be done when it's done, right? And we've got the data to prove it.

And so that is on their mind. They told us that directly. And we also provide data for them and the working groups. We have EPA, the deal, we the administration itself, DOT and others. And so we help we provide a lot of information for these guys because we're not trying to do. We see a lot of companies out here in our space. It's just freebies. They just saw, hey, it's a gallon. Well, I'll just tell you a gallon of jet fuel don't ask me the CI. score that's kind of the approach.

No, this is all about. So on a jet fuel along with a whole lot of carbon abatement and getting monetizing that carbon abatement and you'd be astounded in this marketplace. How many people that were that concept just doesn't resonate a lot.

Our competitors don't want to talk about that. And so we're not this game is all about how do you drive real carbon value by mitigating it throughout the business system measuring and tracking it proving it and you know what that's like, the track that they're on this. And I can tell you this, too, from having talked with people from both sides of the aisle and politics. When we talk about measuring it, proving that you're getting something for your money that plays to both sides of the aisle. That's a big deal, too.

So I'm pretty fired up about. I think these guys are serious and wanting a lasting policy that's rational has potential to drive improvements in a systematic way without being a freebie giveaway, right. So I like what I'm seeing a lot of I am Mike seriously fired up the more I think, Martin, I'm getting really fired up right so I've I'm sorry.

Sure, I thought it was great. As far as our mezz fund actually at the right direction, it's better than I was expecting.

And just one more quick one for me. If I can appreciate the reduced CapEx spend. I appreciate guys doing the buyback. So I am looking to $340 million cash, call it $100 million to get to FID after what you spent in Q1 and a market cap of $160 million. So I guess my question is why stop at the $25 million authorization on the buyback. It looks like you did buy back the entire market cap of the Company and still have $80 million left. So what's the limit there in terms of what you guys are willing to do on the buyback?

When does the valuation makes so much sense that that well, we have a view a couple of quarters couple parts of that at Rosebel and all those kind of things. And so there we have that to pay attention to. We've been working on doing buybacks on top of my mind I really want the Ira, what we're buying stock back. I really want the stock back.

So we're not spending the money because I think it's to stupidly cheap and we should be buying it back. And so that and that's why we said that $25 million for now. And if we use it all, then we'll look at it again and expand it if we need to we have other needs for our money to there's we have multiple plants that we can do or things like that or other opportunities that might be accretive so all that stuff comes into play and so attention to our cash, manage it carefully.

We're going to make the decisions to trying to get us to profitability a whole lot sooner than waiting around for NZ one to get built. And so those are all kinds of things around our mind. Lynn, you want to comment on this too?

Yes, I think the accretive opportunities is the key there. I mean, we do have competing interest for the cash that we have on our balance sheet. If we were to buy back all the shares, we'd be left with not enough capital to develop a business that is, I think everyone can see.

It's a massive opportunity and where, as GFO without all the jet technology at the forefront of leadership and into delivering carbon abatement in SaaS and without resources, we won't be able to do that so that there's a trade-off there. And that's why we wouldn't go most likely for the whole surveying of the equity stack at this point.

If we did it, we'd be more along the lines of the intent of doing it all or something we'd have to be thinking about that. We're not that I think that's premature. And when I look at this, I see a pretty large opportunity here that we're going to measure quarter by quarter, pay attention to it and make decisions appropriately.

And I'm keen on getting us down Kena two things get us profitably sooner, getting cash flow streams, get EBITDA up RNG business is doing well. We were going to eventually get the approval down and of course contribute.

So we're actually I want to get to profitability here sooner rather than later. And I do not want to raise money at the GE corporate level, if I can ever again, I'm one of the top shareholders this Company and I do not want to do that. It's real simple. And so I don't want to put us in a position where we're cash short prematurely. So we'll measure it conservative, pay attention to it Ingo.

Got it. Thanks.

Derrick Whitfield, Stifel.

Good afternoon, Pat and team. And congrats on your legislative accomplishments.

Thank you.

Perhaps building on Chris's prepared comments, I wanted to open the question on 40 b. policy because I think about the way Climate Smart Ag was defined in the A. credit guidance. How much of your expected corn feedstock surrounding the lake presses site would qualify today? And then more broadly, what's your take on the amount of corn feedstock in the Midwest that would qualify today or could qualify by 2027?

Well, if we read it right, I think that the what they did with it they described the I don't think they're going to 45. So you don't think you're going to be bundling. It's going to be specific and discrete and you're going to have to do like hotel motel or with a company to get really low scores, you're going to need a combined with some fertilizer that has abatement built into it. And then also cover crop, which is all pretty that's pretty normal stuff, I think 55% of the acres in the country do that already. So that to answer your question of how much?

Yes, there's a lot that actually does it. It's a question of how well the trickier thing is you're going to have to measure it with the bundling that they did in 40 b. It's good to show the direction. They said they wanted to be discrete, measurable, auditable.

Awesome. That's what we want to see. We want to see it field by field. So this is something that's really important point. I don't like bundling, I like field by field. I like real measurements and real data because that's how we win the game over the long run.

And of course, it also plays what Verity is doing. So that's how we view it. And so it's a good jumping off point, and I expect it to be field-by-field, discrete data, measurable, auditable certifiable by third parties. That's what has to happen. Well, that's going to take a little work. But by God, we're ahead of the curve.

Terrific. And then kind of looking forward in time, how do you think card will treat CI. scoring for your project? Or is this a moot point based on Illinois being the target market?

Well, there's the target markets are the people, the states that already have programs in place. You have Illinois, you have Oregon, you have California above machine 10 you have who else Minnesota's developing one is not quite finalized yet. Minute New Mexico has one. And so yes, it's going where it's optimal. So the idea that everything has to get shipped the California wrong paradigm.

That's not how it's going to get done. It will be whatever the market needs were each up game to play now that we can put it in different places and it makes sense to do the optimization. You also have Canada. So it's a different game to play, and we expect more states to be doing their own policies over the next few years. And there we focus in that same kind of thing that we're seeing in New Mexico or Illinois or Minnesota, it will be stuff like that. So it's not everything has to go to California your toast.

Now back to how do you think how do I think car will adjust to this? I'll tell you, it's interesting the world is shifting about the perception of crops in the U.S. and the process around indirect land use and all those things in this guidance, you know, you'll notice the indirect land use numbers are way down.

And of course, I'm a believer they shouldn't exist in the first place, but you know what they're going the right direction. They're way down from where they were. That's fundamentally important because that's not a real metric of anything that we can tell. It's somewhat artificial, but okay, that's headed the right direction.

Good I was just at the I was just in Turin, Italy and has to sign this joint statement of turn on biofuels as an international thing for the UN. for the G7 and it's talking about using crops. Europe is talking about using crops for feedstocks for biofuels.

Hello. The world is changing and that's good. It's a fundamental shift work who does it impact all these people who work out who are weak, need about taking on real data and using it. And it also is, as we're doing this, I think you've Western I recognize that this idea of its food versus fuel, that's not true that it's just a false paradigm. It's not that fact is you can generate the protein for the food chain and generate raw materials for energy, and there's several ways to go about it.

And so that's something that's coming into play that people are starting to recognize and understand that it isn't as it's been portrayed. So this is good. It's going to be a shift that takes time is eight years, but California will adjust as well as more data comes forth in their data organizations.

So as we get go on and develop data, they said they want to see the data as we develop the data for the from the farms under our Climate Smart Ag programs, great. We'll show it to them. And then we'll have the conversation that at the end is persuasive as heck has goes flies in the face of what commodity environment.

And Pat, if I could just one last question about 40 b. and how does how should how should we think about the fundamental value of your various service, which an inherently increasing demand, as evidenced by the policy we're actually talking about like how do you guys think about the fundamental value of that service and your role in I guess, creating value throughout the industry by CIS. going?

Yes. Yes, it's bigger than that. And some of let Paul address this to give a bit. Paul, I like you to give a picture of how we see value here around Verity and the different options and parts that come to it?

Yes, sure thing, Pat, and thanks for the question. Because I think this isn't really the main reason why we created Verity in the first place was to help people simplify a lot of the carbon accounting that needs to be done. So first and foremost, we can do that by making sure that we how we total up the value of the carbon intensity from the bushel it back and then transfer into the carbon intensity that we can calculate at the gallon level, right?

And in everything that Chris talked about, whether it's wind energy, renewable, natural gas, carbon capture, sequestration, all those things in addition to the climate, smart benefits from agriculture have to be connected together. But it's a we're seamlessly connecting that together and making that simplified audit trail happen. So we simplify things for the farmers.

We simplify things for SAP producer like Xevo, and we're doing that same simplification for companies like ethanol producers who are not signed up with Verity. So we're really bringing that simplification, something that's otherwise really complicated, right? We always say we can do this with a bunch of spreadsheets, but we're doing this with distributed ledger technology, tying it together, making the tracking going forward, seamless.

So we can substantiate claims and then doing the audit in reverse quickly, and we'll do that with third-party auditors. But that's really the big benefit that we bring. And we really the goal is to not leave any carbon on the table where you're if you're going after compliance markets, voluntary markets or tax credits you want to leave any of that behind. So you got to get got to capture that value, and that's what we can help people do.

That's helpful. Thanks for your time.

Sameer Joshi, H.C. Wainwright.

Yes, thanks. Good afternoon and thanks for taking my questions. Maybe I will take pause a bit and ask about the first revenues expected from reality later this year, which areas like what kind of customer base and what should we expect?

Paul?

Yes, sure. In you know, again, I think we've mentioned this a few times. We're obviously GFO is first and foremost as we start to track what we need for sustainable aviation fuel. But we realize that the solution that we've created with Verity is the solution that many others need.

So today, we've got three ethanol clients signed up and we did sign this letter of intent that we've mentioned with an engine technology manufacturer, and then we'll be connecting that supply chain for connecting fuel in the fleet service to make sure that even the end users of the services of fleet can capture their carbon intensity and quantify that.

So again, with 190 ethanol producers out there, you know that that's a good fit. We're also looking at renewable diesel biodiesel, that biofuels vertical is a big one, but then you think about the carbon tracking needs. So we're what we're focused on the bulk fuels vertical now.

And we're rapidly expanding into adjacencies where we need this help. And this carbon tracking and transparency through the value chain, things think food feed and other industrial products, like what we're talking about with LGM.

Understood. Actually, Xerium was going to say that I was going to say. So in terms of the kind of kind of numbers we think about is I asked this question of Paul, like on a weekly basis actually, and I probably get on as nerves and it always it's coming and it is coming and it's going to be in the it will be a few million dollars in that kind of a number. Once it gets it gone good and we'll grow from there. And so it's not this year in 2024. I don't expect it to be a giant number. It won't.

But one, it's kind of initial sales with real customers or additional partnerships could be paid for services and fee fees for service and that type of thing. And it has huge potential. And it what's interesting about it is it cuts across supply chains to. So we'll still stay focused on the basics of how do you measure the stuff around the ag and the farms and then transform the products through ethanol plants.

But you know what you're also then and on the we have a potential in tracking animal feed for people who want to low-carbon beef. And so and that just comes hand-in-hand with it. So it's getting to be quite an interesting game to play.

And I like the direction from 40 b. and what they've said out loud about where they're headed with 45 biopsy is that you're going to be specific and they are talking about field level auditable, traceable straight through they that placed what we designed Verity for. I like news online?

Yes. No, I completely agree on that. The potential for Verity enhanced by the 40 b. and fortify the further opening of gas to U.S. markets on the ATO what should we expect the next steps to be with LG? I know you will be getting some revenues, a $0.8 million, I think. But then what are the next steps? And how should we see that growing?

Yes. So the I'm going to Palm and answer that, okay. I'd say in if I miss something you jump in, but it's that next step is to build a bigger, a bigger pilot plan or bigger, a small demo plant. And right now they're at spot, go ahead getting the bids it that's on LG's dime, not ours and we get to use the data. We own the electrical property land.

There's a good deal for us and we're aligned strategically and what we want remember, our process, carbohydrates, alcohols, alcohols to olefins. We have an improved technology for those olefins. We can selectively make propylene. We can also make it into fuels. So we get to leverage all that knowledge into our fuels business. So it's a win-win straight away.

And what's fascinating about this is the segment. The savings here are big. There's not some incremental improvement, a lot of companies are focused on little improvements. There's a big improvement. And I think in our deep dive deck, it talks about this show.

So it shows what it could mean So it's pretty exciting. I wish it was ready for prime time now. It's not going to take a take a couple of years to get it to be fully vetted scaled up and commercialized, but what is critical and that's ours. So that's a lot of fun here.

Yes. No, no, that's too much on the DOE. loan Can you just give us a little bit more insight on the level of engagement and maybe the time line for next milestones and so that we can keep track of it.

Yes. So I can tell you this the engagement level is high. They're working hard to get this done. It's the deal with the government, the government's bureaucratic, all kinds of rules to comply with and they're working their butts off from Iraq until I think it helped out.

Bob, the question earlier was about do they all talk to each other at the DOE. And I think the answer is yes, I think it helps because they all know that we have the low-cost route to make alcohol to jet and lowest carbon score. Most or most carbon abatement.

And so I think they all know that and can see it and see why the updated and transparent, whether again, you could just confirm for you guys to look at it, it's on our website as to why and how it compares to other people's technologies. So they're working it.

How long does it take well is Chris hit Chris talked about that rigor. We're getting the engineering details figured out map to what can be done on the DOE. side map to what we've done on the customer side adjusting it and so that that should become more clear growth.

We assume, Chris, I'm going to call upon you in just a minute and you can comment on that more specifically on that time line. So give it a thought. And then, um, you know, when we hope I hate to project when we're going to say we're going to get to FID, the loan closed because stuff happens and everyone, well, you said it was going to happen at this time and it didn't. It's not in my control, exactly all we can do is go through the work to go get it done.

Chris, you want to comment on the DOE project here?

Sure. It does have to be aware of the fact that the DoD has explicitly told us that we can't say too much publicly about it, but I will tell you that we've really felt the support from the DOE loan office in terms of them wanting to work with us to get this to work. There's a real sense that this is of strategic importance and that really helps the team between GOL and all of our counterparties and DOE. As we work through all the details, I think we will be able to say something more definitively over the next few months.

On milestone and a key milestone. But we are we're, as Pat said, high level of engagement. Frequent discussions are very detailed due diligence they're doing on us and ever everything's moving forward. So it's about that's about all I can say.

And I missed the last one and maybe fall, and I know the reduction in costs related to the CapEx that you would do at a later stage. Does it mean that any of the project development costs budgeted for this year are lower than the $5.3 million that was incurred in 1Q, should we expect a reduction in that or were you capitalizing those CapEx in a different accounting manner?

Are you referring to the project development costs in the in the statement of operations? The income statement?

Yes, yes, we feel we have the reductions announced.

Yes, the reductions and I think the reductions will probably not hit that line item as much and those are ongoing costs for a range of things in combination with the G&A. Those two items really cover the operations of the Company, inclusive of some of that goes to Verity's some of it.

It goes to other project sites to have a slate of opportunities to exploit once we close net zero one. So I don't see that number coming down substantially but about what's going on. So also did not realize that the capitalized portion will come down to the $90 million to $125 million .

And when I got in Sameer, I want to add something is so some of you might wonder about what the heck you're working on multiple sites for. I'll tell you why customers want multiple sites. They don't just want one off plant. And so part of the deal with them is you got to have a path forward that you can show them that something real that you can go ahead and develop multiple sites.

And so we do have to spend some effort on that and show people were managing the cash to keep it low. And we did definitely have multiple sites available to us that we could point to and say, no, here's where we go here there and over there, we could point to those things and you got to have that credible story because no one's interested in the one off, nobody. So that's all part of what we have to do to build market.

Thanks for that color, Patrick. And I would like to. Thank you.

[Samuel Jane], UBS.

I think you guys. I guess I was wondering, could you provide some clarity on the net Tier one and Tier two time line as well? I guess, have you guys considered any looked into maybe like securing a partner to help financing or any other cost reductions on that regard that you're looking into?

Yes. So that's a one time frame is you heard is about the time line runs through getting the DOE loan done, raising the equity, getting the financial close. That will happen on its timeframe late this year, probably late this year, early next year in that timeframe and then it will get built. There's a high need.

Well, I think he's got lots of traction. So it's quite interesting. Net Zero two is we have several sites that we've targeted that could be brought on pretty quickly and all of it is done with partners. So that's how it's going to be done. One of the things that partners want to see is, hey, I got it, whereas at how what's the interest rate, how much capital is needed.

So that's all part of the plan that we're executing all of this financing would be done at a project finance level, not at a GP level. This is a fundamentally important point for everybody, not at the GP level. This is done in a special purpose entity where it's project financing. And so it has to meet project finance requirements, and that's how we approach it.

With regards to when you say for net zero one in say the DOE loan, the financial close. Now it'll be probably later this year, early next year. And then how long do you think once the construction is fully done.

I hate to predict that the normal timeframes, you know, you can't win it. This is actually sourcing 24 months, 24 months if things go right. And if they don't it takes a little longer. If I was, you know, if we if it was us building up our balance sheet and I have my own engineers building it without having to have help, I can do it faster or better, but what that's not how this gets done in this modern world disappointing. So okay, 24 months ish.

Got it. Thank you.

Thank you. This concludes the question and answer session. I would now like to turn it back to Pat Gruber for closing remarks.

Yes. So this discrete, there's 45 b. precedent is a big deal, the amount of work it took. I got to congratulate Lindsay and the team, the rest of my folks for the amount of effort put into trying to educate people a year ago, people gave slim. I so we can get great model stuff in there and supported with data and get people tuned into the fact that you really can't count carbon.

The idea that they're willing to do this in part that's from the work that we've done with Verity and all the rest showing No, in fact, you really can count these things at a field level. People didn't believe that can be done. We've had to shorten it can be done, it should be counted.

And so that's all part of it. So I feel pretty good about where we're at. And I feel like we're getting a lot of traction. We have traction with our customers. We get traction with the DOE, you know, we've got money. I don't like our stock price at all, but by God, we're making good progress. So thanks for the support. You'll have a good afternoon and evening.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.