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spk08: Welcome to GVO's fourth quarter 2021 earnings conference call. My name is Kevin, and I'll be your operator for today's call. At this time, all participants are on a listen-only mode. Later, we'll be conducting a question-and-answer session. Please note that today's conference is being recorded. I will now turn the call over to Heather Manuel, GVO's Vice President of Investor Relations and Communications. Please go ahead, Ms. Manuel.
spk01: Good afternoon, everyone, and thank you for joining GEVO's fourth quarter 2021 earnings conference call. I would like to start by introducing today's participants from the company. With us today are Patrick Gruber, GEVO's chief executive officer, Lynn Small, GEVO's chief financial officer, and John Richardson, GEVO's investor relations manager. Earlier today, we issued a press release that outlines the topics we plan to discuss today. A copy of this press release is available on our website at www.jivo.com. I would like to remind our listeners that this conference call is open to the media and that we are providing a simultaneous webcast of this call to the public. A replay of today's call will be available on Jivo's website. On the call today and on this webcast, you will hear discussions of certain 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. Reconciliations 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 make certain forward-looking statements about events and circumstances that have not yet occurred but not limited to projections about GEVO's Net Zero One project and our operating activities in 2022 and beyond. These forward-looking statements are based on management's current beliefs, expectations, and assumptions that are subject to significant risks and uncertainties, including those disclosed in GEVO's Form 10-K from the year ended December 31, 2021, that will be filed with the U.S. Securities and Exchange Commission and its subsequent reports and other filings made with the SEC by GVO, including GVO's quarterly report on Form 10-Q. 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 GVO disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events, or otherwise. On today's call, Pat will begin with a discussion of GEVO's business development. Lynn will then review GEVO's financial results for the fourth quarter of 2021. Following the presentation, we will open up the call for questions. I'll now turn it over to Pat.
spk05: Thanks, Heather, and thank you all for joining us. We have had a great and very busy quarter. You know what? I like everything but our stock price. Today, I'll be using a slide deck. Please refer to it, and I'll let you know when to turn the pages as I go through it. And we'll start on slide number three. Recently, we've had some very important announcements. Today, I'll be talking about how these announcements fit together towards our goal of profitably producing 1 billion gallons of sustainable fuels by 2030. A lot of what we will discuss today will focus on achieving that goal while de-risking the strategy as much as possible. The Actions Ethanol to Sustainable Aviation Fuel Technology, or SAF, that alliance is all about accents exclusively licensing their ethanol to SAF technology to GEVO United States. The ADM MOU is about converting large scale capacity for ethanol into SAF. The Colmar supply agreement is about firm demand for SAF and other hydrocarbons. GEVO's RNG project in Northwest Iowa is about execution of an energy transition project that is expected to bring in meaningful revenue starting later this year. Now, before we get into the details of those announcements, I want to take a minute and refresh everyone on GEVO's overall business and how investors should view it. Please turn to slide four. GEVO is focused on profitably converting renewable carbohydrates into SAF and other renewable hydrocarbons. GEVO has been one of the leaders in these technologies over the years. In the U.S., it's a vertically integrated system that includes primary processing of corn, a fermentation to alcohol, process and a chemical process to make renewable hydrocarbons like SAF. Vertical integration should allow a net zero plant to achieve a very low or even potentially negative carbon intensity or CI score for SAF using the scientific Argonne-Greate model for measuring carbon emissions. Being vertically integrated from primary processing of corn to fermentation to hydrocarbon production provides an advantage for driving carbon scores down due to integration of systems. For example, integrating wastewater and generating biogas on site is expected to enable the displacement of fossil-based natural gas that we would use to power the facility. Setting a plant where we can have de-fossilized electricity is critical because of the large footprint that grid electricity would mean to a CI score. By working with farmers, we believe we can enhance Soil carbon capture, which should translate to improve CI scores. So by reducing and eliminating fossil-based energy in GEVO's business system in particular, and by choosing feedstocks wisely, GEVO believes it can achieve a net zero SAP, meaning net zero from capturing CO2 at the farm to the exhaust of a jet engine. To provide the transportation industry with real decarbonizing options, it is critical that we offset the exhaust emissions fully with the carbon absorbed. in the fuel production process. We have established and are developing a business called Verity Tracking that uses blockchain technology to track carbon and other sustainability attributes from renewable carbon sources through the end use. We expect that we will separate Verity Tracking out as a standalone company at some point, perhaps as early as in 2022. We think that the way to deal with all controversy around sustainability is to just document facts, use science and be transparent. And that's what Verity Tracking is all about. Moving on how we are developing a profitable business. Remember that we have set a goal of a billion gallons of capacity and sales for GEVO's business system by 2030. Let's go to slide five. We struck what we believe a good financial offtake agreement with Colmar. This agreement brings us to nearly 100 million gallons per year of offtake agreements. We expect to get more offtake contracts done relatively soon. Our contract pipeline, where we are negotiating terms, is greater than 1.5 billion gallons per year. As SAF contract momentum picks up, we need more production capacity and likely sooner. govern the airline industry, and airlines themselves have made bold statements about needing SAF. I believe them. The chart on the upper left shows that SAF dwarfs the California renewable diesel market. By 2030, assuming a 10% SAF blend level, the market would be roughly 13 billion gallons per year. We believe that the economics work for investment, and the pricing GEVO can offer works for customers. Now, it's all about building out production capacity to scale to match the offtake agreements we have in place and the offtake agreements that we expect to ink in the future. Please turn to slide six. In the fourth quarter of last year, we did a deal with AXINS that grants GEVO the exclusive license in the U.S. to develop and commercialize their technology to convert ethanol to SAF and other hydrocarbons. Now, we had been working with AXINS on GEVO's isobutanyl hydrocarbon production process. As we got to know each other, it became clear that there was a lot of synergy. We know how to decarbonize feedstocks and production plants and alcohols using our net zero concepts, and Action had proven technology to convert ethanol and other alcohols into hydrocarbons, including SAF. Action is well known in the chemical refining industries as an outstanding technology and engineering company. The hydrocarbon process technology to make jet fuels from olefins has been commercialized in the petrochemical industry many times. It's really a strategic relationship. We complement each other. In addition to greenfield plants we're developing, we see the opportunity to convert certain existing ethanol plants to net zero SAF. We'll work together with actions to try to make that happen. We all want to grow and faster. We have made the decision to use ethanol as the building block for SAF rather than IBA at our net zero one plan. We believe we can make more money, produce more SAF, and have a complete engineering package that would work with existing ethanol plants. Currently, the capital cost for a net zero plant is projected to be about $900 million fully installed in a non-recourse project financed. The net zero one project EBITDA estimates are approximately $150 to $200 million per year based on the current assumptions of commodities and all the rest. Ethanol plants are well known in terms of cost and operating reliability. on the hydrocarbon process. ACCENS is doing the engineering and will provide certain process guarantees for converting the ethanol into hydrocarbons. This is a de-risk production system, as much as we can make it, and in the current more cautious environment for financing, the right way to move forward. The engineering designs, modules, integrations are planned to be cookie cutter for deployment at other sites and ethanol plants. A great deal of the engineering work and designs that we already have completed for NZ1 will be utilized for NZ1 using ethanol accents technology. The fermentation section of the plant will be smaller and we will have to add additional equipment as part of the chemical processes. We expect NZ1 to be mechanically complete in 2024 and operating in 2025. We expect to order long lead equipment in 2022 and begin site preparation work later this year. Please turn to slide seven. Many of you may recognize this chart. It's basically the same as before, although the amounts of product mix have changed. There's more SAF being produced. The total capital expenditure has remained about the same. The IRR is projected to be better using ethanol rather than isobutanol. Deploying renewable energy and infrastructure to drive down CI is still critical to success. Please turn to slide eight. The actions relationship in our plans to grow help to put the ADM MOU announcement into perspective. ADM has some of the biggest and most efficient ethanol plants in the world. We think there's an opportunity to convert those plants into SAF plants and other hydrocarbons. ADM and Decatur has one of the few operating CO2 sequestration sites in the U.S. We're in the midst of figuring out the how-to with them. We expect that we'll be able to leverage the engineering work we are doing with actions for MZ1 into any transaction that we would do with ADM. We are also exploring other opportunities with existing ethanol plants, and we are currently in discussions with several plant owners. The idea here is that we can bring our decarbonization partners like Joule Energy, the SAF plant designs, and our offtake contracts to the table. The value proposition for the ethanol plant owner is simple. they would make more money more reliably by feeding ethanol to a SAF plant. They also would need to be decarbonized along the lines of a net zero plant. We have a very open business model and look forward to working with many ethanol operations over time, but we would stress that net zero one is our priority. Ultimately to reach our 1 billion gallon goal, we expect to build multiple greenfield sites. We have several sites in development already. They're at least as good, if not better than the Lake Preston site. The advantage of greenfield sites is that we can optimize the key parameters for long run success. In addition to raw material costs, we also take into consideration access to the fossilized energy and potential for carbon capture sequestration. In a strategic sense, it is always good to have options. For example, the plant layout that we have developed for Lake Preston could be used at another piece of land of similar size. We believe that the site we select would require minimal changes to the engineering work. Please turn to slide nine. We announced that we have begun the startup of GEVO's RNG project in Northwest Iowa. When our RNG project comes fully online, it's projected to be the fifth largest dairy RNG project ever done in the US. This project has over 20,000 cows and is expected to produce 355,000 million BTUs annually or thereabouts. There are three dairies involved at this point. You can see the pictures of the digesters at each of the dairies. The upper right picture is the gas upgrading and injection site. The picture in the middle shows the relative locations of the digestion systems that we've built and our GEVO pipeline that connects them to the upgrading system. We expect that the RNG project EBITDA would be approximately 16 to 22 million per year Across the year of 2023, I give a range because the RNG project EBITDA will depend upon a variety of assumptions, including how CARB scores the CI for each of the dairies. Now, to get a CI score, we have to achieve a steady state, send in an application, wait for the approval to get the full value from CARB in California. We'd expect to get those scores in late 2022 or early 2023. CARB is backed up these days with lots of applications. RNG provides an exciting opportunity for GEVO. We see it as strategic for GEVO because we have to decarbonize our SAF plants, and we do like the idea of being able to take RNG up to our net zero one plant and drive our CI scores lower if we so choose. We like having RNG and biogas in our portfolio as an option. In the meantime, we can make good money meeting demand in California through our partner, BP. Please turn to slide 10. This is a rendering, an engineering rendering of our hydrocarbon plant currently built by Praj in India. We expect that this plant will be delivered to our production facility in La Verne, Minnesota in the latter part of 2022. We are currently making isobutanol La Verne. This hydrocarbon plant could convert isobutanol, into a variety of hydrocarbon products. We also expect it to be able to produce or to take ethanol in and make various hydrocarbon products. We expect to use Laverne as a development site for new products and to improve and refine the IBA production processes. We may deploy isobutanol in a side-by-side configuration in the future, for example, as an add-on to a net zero plant. Now I'll turn it over to Lynn.
spk02: Thank you, Pat. We finished 2021 with a strong cash and cash equivalent position of $40.8 million, as well as $95.2 million of short and long-term restricted cash. Our highly liquid and readily convertible short and long-term marketable securities totaled $339.7 million and are available for capital and operational needs. Our long-term debt outstanding related to Northwest Iowa R&G was $67 million. Our corporate spend was approximately $18 million for 2021 net of non-cash stock-based compensation. During 2021, we invested significant capital into our preliminary and advanced stage projects, including approximately $23 million into our flagship Net Zero One project. $52 million into Northwest Iowa RNG and other capital projects, as well as approximately $12 million into strategic patents and licenses. As Heather noted, our full financial statements are available in our earnings release and our Form 10-K, both available on our website. I'd like to stress that we substantially advanced the company with our expenditures last year. We have continued to staff experienced talent to bolster our corporate management platform and to prepare for successful execution across a range of critical functions, including stronger design engineering capabilities, continued R&D around our technologies, deeper commercial contract solicitation and execution capabilities, the development of Verity and the GEVO Growers Program, substantially improved capabilities around investor relations, significant advancement in the integration of our ERP system into current and future operations to enable intelligent automation and reliable internal and external reporting, successful implementation of SOX 404B compliance requirements without any deficiencies, and improved financing and financial management capabilities. We strengthened our balance sheet to provide financial resources to support the development of our 1 billion gallon initiative, the equity investment in NET01, RNG execution, and our operational and R&D activities at La Verne. We advanced the development, engineering, and expected non-recourse debt terms and attainability for NET01, and we substantially constructed the Northwest Iowa RNG project. As a result of this progress and our work with institutional investors, there was an impressive shift in Jibo institutional stock ownership from 10% at the end of 2020 to 46% at the end of 2021. We may still be considered a pre-revenue company as our revenues have been intermittent and mostly were related to testing and R&D activities, but that will begin to change in 2022. Given that we have begun the Northwest Iowa RNG project startup, we expect to start generating revenue and cash flow later this year once the biogas production ramps up and stabilizes. Initial revenue recognition and cash flow realization for any RNG project in the marketplace lags actual RNG production due to California carbon scores and EPA RIN certification processes, but we will push hard to realize value in 2022. Upon full RNG operations and certifications, we would expect to see RNG project EBITDA flows in the range of 16 to 22 million a year, depending on the project's certified carbon index outcome and market prices for commodities and environmental benefits. As we flesh out our 1 billion gallon initiative and how much SAF we expect to produce and when, we expect to communicate these plans to our shareholders. Everything we are planning to do is supported by a comprehensive financial enterprise model. We are happy to be in the growth phase of our business, and we are delighted that our capital deployment opportunities should result in excellent returns. We would expect any future capital raises to support this growth to be accretive. Now I will turn this call back over to Pat to wrap things up. Thanks, Lynn. Let's open up the call for questions.
spk05: Operator?
spk08: Ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touch-tone telephone. If your question has been answered or you wish to move yourself from the queue, please press the pound key. Our first question comes from Sean Severson with Water Tower Research.
spk06: Thanks. Good afternoon, everyone. Hey, Pat, could you maybe start with a 50,000-foot view picture here and what's going on with demand for SAF and kind of an update on that? where the airlines are taking this and any other industry items we can point to in terms of increasing demand there.
spk05: Hello? Here we go. Sorry. What we're seeing is because of the government restrictions, Discussions about wanting to see SAF because of some of the policies that are being talked about and put in place because the airlines themselves are making pretty bold goals as to how much has to be replaced by 2030. We're seeing a definite uptick in SAF. In fact, we're seeing a shift, definitely a shift. Before, when people asked, it's like, eh, it was hard to tell. Now it's clear cut. It's a shift. All of our existing customers are on board with what we're doing. They get it and moving forward with us. And it's pretty darn interesting to see. So SAF is the one thing everyone can agree upon that no one's going to, you know, we've got to have hydrocarbons to fly jets over long hauls. Nobody disputes that one. And so that makes it much, much easier. And now the momentum has definitely shifted that way. So our goal is to make more of it and do it faster and grow bigger. Hence, you know, we like the idea a lot of being able to leverage existing assets.
spk06: And along those lines, how does that de-risk the business? And I'm talking about in terms of EPC guarantees, cost of capital, you know, obviously a very mature and well-developed ethanol market. So how is that going to affect the economics for you?
spk05: Well, using an ethanol route, obviously there's no risk involved in the fermentation systems around that. Unlike if you're using isoputinol, we would be the people who have to guarantee it. And, yeah, You look at that, and you look at how many gallons you get, how much profitability. The costs are similar using isobutanol route on a cost per gallon. And isobutanol isn't fully optimized. Cash cost-wise, it's good enough to put out there. But, gosh, you add it all up, and you get more gallons for the same kind of capital numbers, and that means you make more profit. And so you look at all that, and it serves the market need, where the market is heading, and with our other customers. that are coming down the pike that we can see. And so then you look at it and say, well, how best can we grow? Well, it turns out this net zero concept that we've been working on, it translates directly over into using ethanol. It's not that a big deal from a technical standpoint to substitute. And the engineering overlaps hugely. And so that makes it a lot easier to go about this. And the thing is, we didn't, until we started working closely with actions, we didn't have all the mass and energy balances to be able to figure out what kind of CI scores we could get. And do they make sense and all that kind of stuff? Because you really do have to integrate these things. Well, we had already done that work on isobutanol, and that's where Axon saw what we had done. And that's why I came together and was like, shoot, we could do this not just at a greenfield plant, but we could also do this at existing ethanol plants. And that means a faster path for growth given all the demand.
spk06: My last question is on Praj. Could you explain a little bit more about what was going on there with the equipment transfer? Sure.
spk05: Yeah, so Proctor's building that plant for us. That thing is in partial construction, and they'll deliver it later this year. It's an alcohol to hydrocarbon plant. And it'll be a relatively small one, 3,000 tons. And, you know, it's a plant so we can make a variety of products. You know, we can make hydrocarbons, the gasoline products. We can make, you know, jet fuel products. We can make diesel products. We could make We can make feedstocks. We're doing alkylation units. We can do a whole variety of things. And so we have commissioned this last year. Sometimes people have heard us talk about this as the skid. Okay, when you put it in an artist's rendition like this or an engineering rendition, it looks a little bit bigger than a skid. It will be several skids stacked on top of one another. But that, in fact, has been under construction, and we'll see it delivered to LaBerne.
spk06: Thanks, Pat. I'll take the rest of my questions offline.
spk08: Cool. Our next question comes from Derek Whitfield with Stiefel.
spk04: Hey, Derek. Good afternoon, all, and thanks for taking my questions. Perhaps for Pat or Paul, referencing slide eight, you're indicating that you're still evaluating site selection for net zero one as there are several greenfield sites that are at least as attractive as Lake Preston. Could you perhaps elaborate on the degree of economic improvement that is possible at another location?
spk05: Well, there's a couple things that come into play. One, obviously, you have to have the land, and it's got to have good transportation, good corn price, raw materials. You've got to have access to renewable energy, at least with wind. And we also like the idea of access to sequestration. We think Lake Preston will have that, too. But we see other sites, if we're picking them carefully, that could definitely happen. And that will be interesting in the future and useful in the future. Along with that, it's paying upon, as we develop these sites, and we've been developing sites for actually quite a long time because you always have to have alternatives in case somebody gets cute as you try to go and deploy something up at Lake Preston. You always got to have alternatives. And so we've been keeping that in mind the whole way. We just don't talk about it very much. So we have a couple sites that are attractive, and sometimes they come with economic incentives. And so what you won't see us do is trade off a new site if it impacts the timeframes to commercialize. We won't. Unless the payments up front were so great that we'd have to say yes, but I don't have one of those in hand yet. But those are the kind of things that can come into play and how we would think about it. We know that we're going to need multiple sites available. Decarbonizing a net zero, a greenfield plant is, we think, probably easier than doing an existing greenfield. ethanol plant. So learning how to do that well and translating it, it teaches us how to just deploy the stuff cookie cutter style. But it also gives us the insight as to the tricks we can use with existing ethanol.
spk04: Great. And perhaps for Pat or Lynn, I know you guys have been working hard on the enterprise financing plan, which you referenced in your prepared remarks, to support the 1 billion gallon initiative. Could you just speak to the progress on that and then kind of your latest thoughts on that initiative?
spk02: Lynn, you want to comment? Sure, I'll jump in. That model is substantially complete and useful now. It's a very large model, and it incorporates a lot of flexibility to make different assumptions around growth in capital deployment, the pace, the cadence, And, of course, all of the costs involved in assumptions around revenue streams. And it does it in a way that then rolls up into a traditional three-statement format. So it's quite advanced. The underlying assumptions that have gone into it, I think, are pretty robust. And everything that goes in in terms of project-level assumptions, you know, is based on everything we're doing at Net Zero One. and looking at other potential ATJ opportunities. And all of those returns are very attractive. So when we roll up and look at the impact on the stock price, it's pretty appealing. So we'll be sharing some thoughts around that in the future.
spk04: Great.
spk05: Sorry, what's fascinating about this is we get to, one of the things that's attractive about this is when we bring the decarbonization people, everybody wants to deploy renewable electricity or gas or biogas or energy digestion. They want to do the, or sequestration or whatever. All those things are fair game, right? So we have a bunch of partners who want to work with us to do that, put up capital. That's great. Love that. And then we have, we're working with, on the ETJ side, and with actions and we are designing modules so that this is like literally, uh, you know, it'd be a hundred billion gallons of ethanol in to make the product, uh, have hydrocarbons coming out. So we're designing it so that it literally can go anywhere. And that's a pretty interesting model. We think we can grow faster with that. And that solves one of the problems. And I gotta say it does the risk the heck out of it, uh, because otherwise, you know, you're left going, people, does it all work together? Well, I got news. There's no question ethanol can be made, and there's no question that the ethanol into hydrocarbons work. And so that completely changes, then, how people view the risk associated with the deployment of this.
spk04: That's great. And then really last for me, with the understanding that you don't have a formal announcement today on Archer Daniels, Vinland, or Chevron, could you just share comments on how your dialogues with those companies is progressing in a reasonable timeline for the disclosure of commercialization plans?
spk05: The conversations are going well with both. And so it's a matter of getting all the pieces together. Obviously, what has to happen, you know, if we're talking about decarbonization of, you know, ADM's got 900 million gallons of ethanol, that takes a serious chunk of capital. So there's lots of discussions going on in the background. We've got to put them all together. And we can't do it all at once, obviously. And so this is why we commented. We stay focused on Net Zero One. We're going to learn all the stuff. We have to have the concrete focus for that. But we know that everything we're learning applies to these other things. And so we're working at all those pieces out and how to do it. But obviously it's way bigger than us by ourselves. So, you know, and, you know, the Chevrons, they've been interested at the project level. We have other people who are interested in Jivo Corporate. We have, you know, the ADM is – they've been very cooperative in trying to sort this out because it is a change of figuring out all the details of economics, mass and energy balances and all that kind of stuff, and how does it all work and fit together. So we're in the midst of all that. And remember, we've only had access to the detail from – we've only had access to the accent details only in the last few months as we sorted it out, you know, so – we're making pretty darn good progress, and I like where it's headed.
spk04: That's great. Very helpful. Thanks for your time, guys.
spk08: Our next question comes from Prashant Roh with Citigroup.
spk07: Hi, good afternoon. Thanks for taking the question. I wanted to start just on the R&G side. Lynn, something you said about the inflection there, and it'll become revenue, and I see the revenue inflection coming. I kind of wanted to hone in on that a little bit. The guidance that you gave, the $16 to $22 million of EBITDA, could you help us walk through, put some color on the posts on that range, what sort of CI score you'd need to get or what sort of credit assumptions, and then also a little bit on the offtake. I know you are working with BP, so I just wanted to understand how that arrangement works, if there's any credit sharing in that $16 to $22 million. Just kind of help us walk through that. how we should be thinking about that, so we could put that in our models with some charity.
spk02: David Chambers- Sure, I believe the BP agreements posted on an AK, but just to summarize it, there is a sharing arrangement, and BP places that gas directly into dispensaries in California through their distribution networks. We're ramping up now, As we commence the physical production, we're ramping up the coordination on accumulating the right level of data for the applications with CARB so that we can get that process rolling as quickly as possible and try to get their approvals for LCFS credits on the CI score as soon as we can. We do have alternatives, you know, the nearer term to use temporary pathways and to go ahead and bring revenues in sooner, but we want to assess, you know, the risk around doing that and maybe foregoing higher CI or I should say lower CI outcomes because that temporary is assumed to be a 150, a negative 150. So, you know, we'll be producing on a steady state about 355,000 MMBT a year, and you can kind of do the math on, on the price of RNG these days with LCFS and RINs to get to a revenue number. Our EBITDA is, at this point, we don't think about leverage because we financed that project with an LC-backed private activity bonds issuance. But we will refinance that probably this year to go ahead and do it on a non-recourse basis so that we can release that cash collateral back to Kajibo for our own use. I'm not sure, Prasant, anything else that I can help you with?
spk07: No, I think that's good. I appreciate that. My follow-up is sort of related to that. Pat, you talked about, you know, the numbers or the yields sort of being updated on that 0.1 to be more SAF, and you've got that $150 to $200 million target there. Just wondering, you know, a lot of moving parts, but what does or what does that not need from, you know, the credit markets for SAF or the incentives or other subsidies in order to achieve that $150 million to $200 million? What are you sort of risking there? We've had a lot of talk, you know, over the last few months, and there's a lot of positive momentum, but everything from, you know, upsizing the BTC credit to, you know, you know, looking at RINs multiples, things like that. So can you just help us sort of think about what you think is sort of the odds-on risk profile for that number on net zero? That would be helpful, at least on the revenue side.
spk05: Yeah, sure. So I'll start, and then, Lynn, you can pile on, eh? what uh yeah so we know we do we budget a buck a gallon btc because we think that that's an appropriate number it's good i would just like stability in it and so we can predict it over a longer period of time it doesn't need to be more none of us need it to be more it's nice if it is we could all make more money if it is but it's not going to cause anyone to shift anything or do different behaviors or anything like that so that just says that stability is good on the rfs side you know there's this is the year where the epa gets to do its set process so there'll be some finagling around how RFS works. And I think what we're going to wind up with something that's a lot like what we got, except for the probably enhancements that take into account, you know, SPFs for lower carbon scores and things like that. But it's going to be, I think, the same basic system. So that's kind of what we assume going forth. With that, we actually predict going forth the same as what it is today. And then in LCFS, we just model out the long-term predicted efficiency carbon scores. We have consultants who advise us. We actually have a bunch of people who do this and advise us what that would look like. And then we incorporate that into our model. But one thing I really like a lot about the way the system works is that we got three different bites at apples and the chance of all three of them going down is pretty low. And so you get, okay, so right now LCFS in California is what, 150 bucks a ton of carbon. Okay, that's a fractional thing to us because that's one part of the green, just one-third of the green value. RFS and the lender's tax credit make up the other two-thirds. So I like that approach. We do see that the LCFS type markets are going to increase, we think, because you've got different states putting their policies in place. And also in Canada we've had a lot of interest because they have an LCFS. But, you know, Oregon, Washington – are going now. New York's in the rulemaking stage of their LCFS. And then you've got the Midwestern states that are working on it, too. So we'll see which one of those goes first. So all of that creates bigger markets where there's extra profit. And, of course, then there's still business we can do in Europe. So, Len, do you want to add anything here?
spk02: Yeah, I would just note that these – Those numbers are based on long-run projections by independent experts under the debt case. So, you know, we're not as focused on today's corn or today's carbon price or RINs price. Some are higher than what we have. Some are lower. But over the long run, we feel like these numbers will be – we feel – that these numbers are definitely achievable from the 150 to $200 million level. Definitely. Okay.
spk05: And so the way to think of it, when he, when he talks about that debt case where everyone else was listening, I know you get it for shot, but the debt case is the cynical case. And when we're talking about what will really happen, that's more of an equity case and it's the higher side.
spk07: That's what we believe. Gotcha. And I just want last one, if I could sneak it in the, um, the preliminary results of the A&L testing. I was just curious, I know there's a lot of steps here, and for those of us who are sort of trying to thread the needle on going from there to what that means in terms of getting certified pathways or even provisional pathways, not just in California, but you mentioned, Patrick, a bunch of the other jurisdictions that have their own LCFS or LCFS-like programs ramping. Can you just give us a sense of what that gets you right now, having that preliminary test, analysis and this peer-reviewed process, does that move you materially closer, or how does it move you materially closer with any of the jurisdictions you're eventually thinking of as end markets? And I'll leave it there. Thanks.
spk05: Yeah, so what happens is that a lot of these people who are developing their LCFS-type policies, they start with the Argonne Greek model, which is the gold standard of models, and then they start modifying it, usually for political reasons or convenience. In California, California does take the Greek model and they modify it a bit. They just say all corners the same, end of discussion. And so while it's not all the same, it depends. Our gone Greek model takes that into account. Now, in our economics, we just model for the carbon scores that we get in California with whatever their assumptions are. And this is one of the complications of a business like ours is that every jurisdiction has some variant of the Greek model that you've got to take into account and plan into your economics. That's just the way it is. We think that at the national level we should have our concrete model be the standard because everyone takes it and uses it, and then they start tweaking it. But it is the one that is the science-based one. So what you see us doing is try to educate people about what the facts actually are. There's huge opportunity to capture soil carbon, you know, the actual CO2. Those root systems, when you're doing low-till and no-till, they build up. carbon each year. You know what we'll do is we're going to measure field by field and prove it to people. And so we know that the people who do LCFS tell us that, hey, if you can prove it in your business system, we would consider that. Now, the only way to find out if that's true or not is to actually go do it. That's what we work on. That's part of what our Verity tracking is all about. And then, of course, carbon sequestration offers another opportunity. That's like 30 to 35 CI points. And, you know, we're friends with the pipeline companies, and so it's just a question of who we work with and when we announce it kind of things. So those are all possibilities, too. So it's a pretty interesting game, and the Argonne Greek model is the one that everyone turns to for the fact-based, science-based systems.
spk07: Thank you very much. Appreciate the time. I'll turn it over.
spk05: Yep.
spk07: Thank you.
spk08: Our next question comes from Ahmed Dalla with HC Wainwright.
spk03: Thank you. Thank you for taking my questions. Pat, with respect to sort of the financing environment, you know, given recent market developments, interest rate discussions, et cetera, that are taking place, how has any of that changed for you? Any color on that? And, you know, again, you had highlighted mid-2022 as sort of, you know, the targeted date to complete the project financing side of the story. Just any update on those would be helpful. Thank you.
spk05: Sure. So I'll comment first and then jump in. But I had Lynn go out with Citi and do the market testing to see what kind of money is available and what kind of quantities and what kind of price so we could make sure we update our numbers because the world is a little weird right now. And so we went and did that and it came back with nice results. We like it. There's lots of money who are interested in investing in these projects, having a, be able to say, no, look, everything exists is an advantage. You know, there is no newness here. It's about putting it together in a way that hasn't been done, but the actual, there's not a risk around fermentation, not a risk around the hydrocarbon technology. That's pretty cool. So I feel pretty good about that. We'll probably close. I'll let you comment on that, Lynn. It's a, uh, I'll let you comment on that and add any more color to this question.
spk02: Go ahead. Sure. Probably given the desire to maintain our schedule, we'll be deploying capital this year, more equity, but the debt closing will probably occur in Q1 of next year. The debt format will – because we – have changed from the isobutanol configuration to ethanol, we are back at the table examining eligibility for private activity bonds. But the work that we did in December with Citi that Pat mentioned was not private activity bonds. It was oriented towards long-term institutional debt under more of a mini-perm structure. And the terms were absolutely attractive, definitely interest rates are sliding up a little bit, but nothing that would make a good debt financing not achievable.
spk03: Okay, so none of this, you know, the shift out almost like, you know, two or three quarters does not impact the work you are doing to move everything forward. Is that how we should read?
spk05: No, that's what you should read, yeah. What's driving us is everybody wants a CSA. When are you going to commercialize it? When is it going to be operating in 2025, mechanically complete in late 2024? It's a tight timeline. So in these projects, we always build slack anyway. We're eating up some of our slack time. And I wish I had had that close relationship with Axon sooner. We could have sorted this out sooner, but we didn't. And we didn't have the emphasis on SAF wasn't what it is. You know, a year ago, it was interesting, it was nice, and it had potential, but it's not like it is now. The majority of the new demand we're seeing is shifting to SAF. So, you know, we're adjusting to it. We see that isobutene has tremendous long-run potential. Our folks are modifying the bug, so it drops into an ethanol plant. That would be kind of cool. But we have time to do that now because we have such a strong intellectual property position. um before we're pushing it out into the marketplace you know what we've de-risked this now by doing the ethanol route and the jet route and what the part that is hard for everyone to grasp i think is it is because we're doing this net zero concept where we're decarbonizing these plants it's not easy to do you have to know all the details and the engineering details well that's what we know that's why we're able to do it and how to incorporate renewable energy and with all the levers you have to go fight for that and figure that out. And that's what we've done. And you know what? It works and it applies to other plants.
spk03: So the front-end engineering design work that was being done in the last quarter, say Q4-21, is that still applicable or do you have to restart some of that work?
spk05: Most of it is applicable, like all the stuff around you know, the grind and site work. Tankage needs to be updated, but that's minor. The back end of the hydrocarbon process itself overlaps like 50% or more. More than that, probably. It's the same. And so that's what actually got us going in the conversation. There's a couple unit operations that have to be done. And then it is about, you know, substituting out, you know, the isobutanol fermentation for an ethanol fermentation. That's the work being done right now. And, of course, this time we really are designing to make it module. That's the work being done right now. And so we have more work to figure that out. We want to see modularized because I worry about supply chain stuff, and I worry, you know, the world is weird. And so I think that we're better off manufacturing one of these than it works if we can do it. And that's what we're working on with Axons right now.
spk03: Okay, understood. And with respect to the equipment or the plant that Praj is building for you guys, how should we think about revenues, et cetera, from that plant?
spk05: I think, you know, I hate it when people think about taking – it's really a really nice – Small, a really nice small plant, and we're going to be doing it to develop new products. So I hate it when people start talking about revenue because then the expectations get whacked out because we'll run it as we want to run it or not. And depending upon what we're trying to do and what catalysts we're testing or what unit operations and stuff like that. And so I hate to say that I need kind of an expectation of revenue around that because it's misleading, I think. Now, that could change. There's a bunch of specialty products that people want us to make, and we'll see what's true and what isn't once they sign a contract. And if that's the case, then we would turn it around and report it like you're asking for in revenue and tell people what it is and what to expect. But I hate doing it in advance of that, even though I know we'll be selling the product that we make from it. I just hate setting an expectation around that.
spk03: Understood. How much – what's the sort of cathex or the investment that is going into this, Rajj? related plant? About 15 million or so.
spk05: Okay, understood. And we spent, you know, we started this project quite a while ago. Okay, understood. Yeah, so it's already incorporated into our financials. The money has been spent on it, so it's not like a new, you know, I don't remember what percent it is already spent, but it's well along.
spk02: Yeah, very little left to go, so our cash balances won't be dragged by that to complete. Okay, got it.
spk03: And just one last one. With the shift to, you know, you're going to ethanol versus isobutanol for the SAF product, is this sort of a permanent shift to ethanol? You know, let's say net zero two, would you still consider isobutanol, or would you... potentially stick to ethanol as you get to the second, third, fourth plants?
spk05: I think what we – my assumption right now is the first few plants are going to be ethanol-oriented because we can deploy them quicker and we don't have to prove anything to anybody. It's clear. And I also think that working with existing ethanol plants, that's in the cards for us. So we've got to go do that and strike those deals and get them done. That's what we've got to go do this year. That is one of the things we've got to go do because that's part of the business model about how we can grow, right, taking ethanol down and converting it into SAF through an existing plant so we don't have to invest the capital in the fermentation side of things. I can tell you, though, that there are some very nice greenfield sites where, you know what, we might want to build greenfields and build new fermentation because, boy, they're really good sites. And so that's different. The way that we think about isobutanol is you could add it on and side by side. We could do that any time. And right now, you know, we just – we will see isobutanol, I believe. It will be back. And we have the possibilities of building isobutanol plants, too. But I would rather – this point I made earlier about – We had a technology on a cash cost basis that could perform and get us about the same kind of cash cost as an ethanol project. Now, ethanol is 100% optimized. You know, it's done. Isobutanol process is not fully optimized. There's lots of cost improvements that can be done. And I'd rather go do those and design it so it drops in easily to an existing ethanol plant, particularly one of my Greenfield Net Zero plants, and we could switch it. Because remember what I said about the hydrocarbon process? They're substantially the same from alcohol into a hydrocarbon. The product mix is different. The olefin mix is different. And so when you're thinking about us, and we've talked about this in the past on it, you have to think about us as an olefin company. You know, we're decarbonizing olefin. Those are the primary building blocks that make plastics, chemicals, and all the rest. And so people want those things. Well, that's in part what we're going to do with this Praj skid at Laverne. All right. I'll take my other questions off.
spk03: Thank you so much.
spk08: You bet. I'm not showing any further questions this time. I'd like to turn the call back to Patrick Gruber for any closing remarks.
spk05: Well, it's been very exciting. I think this year is going to be quite the year as we just drive and are focused on getting this thing deployed, this sorting through the fermentation system and how to make it more reliable in this process. uncertain world that we have. I like it. De-risking is great. And I also like the ability that we have from working with actions where we get to use proven technologies on that. I wish I had known it sooner. Remember, we've been using, we've been developing ethanol technology to make hydrocarbons for the last decade at least. We call it ETO. And so there's lots of synergies here as we start to combine things and think about what can be. Meantime, we drive the net zero one. That's the focus. Get that done. I want that capital equipment, the long lead stuff purchased this year. I want to move some, get the ground prepared so that we can build in earnest next year. And if you want to get that renewable natural gas project, I mean, it's astounding. It's the fifth largest plant ever done in the states. That's something. And it looks like a great project. So that will be interesting, too. We've got to get that thing operating and making money. So we've got lots to do this year, but it's primarily focused on, you know, it's going to be all about NED01. It's going to be about bringing on board into this business system other ethanol plants to work with us so we can grow faster and drive the RNG, get her done. So with that, I appreciate it. Thanks for joining us. Thanks for your interest and your support in GEVO.
spk08: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
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