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spk08: Givo's second quarter results for the period ended June 30th, 2023. I would like to start by introducing today's participants from the company. With us today are Dr. Patrick Gruber, Givo's chief executive officer, and Lynn Small, Givo's chief financial officer. Earlier today, we issued a press release that outlined the topics we plan to discuss. A copy of this press release is available on our website at www.givo.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 projects, 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.jibo.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.jivo.com. I'd now like to turn the call over to the CEO of Jivo, Dr. Patrick Gruber. Pat?
spk06: 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'll explain what we have been investing in, what it means, how we think about further investments, our use of capital, and progress against milestones. At the core of GEVO is a whole lot of technology. We've got multiple technology platforms that we've developed. These include the net zero plans for IBA and ethanol and conversion of those alcohols into net zero hydrocarbon fuels and chemicals. We have Verity Tracking and even our version of Dairy R&G. We have to drive all of these things to commercialization, larger commercialization. That's our primary mission now. To get these technologies commercial, we think that it's most valuable to shareholders for us to take on roles other than just being an investor in projects. To make technologies commercial, someone has to take on the role of project developer. Well, that's us. Let me explain further. Now, we've been investing the technology engineering in the plant design to convert corn kernels into SAF, protein, vegetable oil, all with the potential of a net zero carbon footprint. We work with multiple technology suppliers in addition to using our own proprietary technology. We use multiple engineering firms because of their expertise and capabilities. Our plant designs are well thought through by our strong team of engineers and operators for operability, efficiency, and troubleshooting. We need these plants to work well. We've got a deep bench here of people who are good at this, having designed plants in the past. We are now investing in the engineering and design of modules. We want modules because we believe it will be a more cost-effective way of de-risking plants and allows more rapid build-out of additional plants. GEVO owned the plant designs and details. We are the owners of the designs or the kits as they're sometimes referred to. It's hard fought and expensive. It's taken us two years, more than a hundred million dollars to get where we are today on net zero one. There is no single technology supplier out there that has the expertise to design an NZ plant. It's GEVO who brings that capability. For example, it is our innovative integrated designs that reduce the consumption of natural gas for the integrated NZ1 plant by about 70%, which makes that a lot more practical and realistic to achieve a net zero footprint or even drive it to negative footprint. The NZ plant designs are ours. No one else's. It's our IP, and yes, we file patents on that. We won't have to do this heavy engineering and design lift more than once for an NZATJ plant that is based on 100 million gallons of ethanol input. We can copy and paste that for use with other sites. That's what we've been working on. Now, to monetize our investment in engineering, we need to get something built and operating. So how does that happen? Well, to do this, someone needs to play the role of a developer. Someone who gets the project lined up for investment gets it de-risked so investors can make that investment with confidence. The developer typically obtains land or arranges the utilities, in-licenses plant designs, pays for the construction and engineering, lines up additional investment needed to get that plant built, and otherwise takes care of all the details needed to get that plant built, de-risking the whole project along the way. As a reward for taking the risk of development of a project, it is common for a developer to recover development capital upon financial close. It is also common for a developer to obtain what is called a carried interest in the project. Carried interest is an ownership position in the project, usually in the 5 to 20% range with no cash required. It's just named a carried interest. Project developers also have the option to invest additional capital and with their investment, gain more return than a common project investor. Developers frequently take the reimbursement money they got back at the financial close and use it to develop more projects, recycling the money, if you will. Projects also need infrastructure investors in the project. These investors usually want to see a de-risked project matured by the developer. Debt is also part of the game of project financing. Project debt requires additional capital above what we call the hard cost. That is the cost of equipment and installation of a plan in order to fund the prepaid accounts that mitigate risks of various types. However, debt also enables lower levels of equity and incrementally higher levered IRRs. Debt also requires an EPC contractor who gives a guaranteed price to the project. The problem is that EPCs typically boost costs and fees and capex surcharges to mitigate risk. We have a very good engineering team with lots of project experience, so we're very good at uncovering a reasonable cost. So why should a shareholder care about what role we take? Well, the short version is that we can generate higher returns and generate more cash flow faster at less risk than if we handed off development or just did a serial investment. Now I'm going to step through it. Number one, we expect a higher return on capital. Well, why do we expect a higher return on capital? Well, to answer that, let me describe a little bit about what it means for us to be a developer of projects in sustainable aviation fuel or SAF and related low-carbon products. As a developer, we have been putting our capital into things like site selection, purchasing of land, front-end engineering, the detailed design engineering, permitting, contracting with SAF off-takers, finding out and discovering the value in the marketplace, working with carbon capture partners and setting up those contracts arranging utilities, the wind and the green hydrogen partners, setting that up so it's done on a deep boom basis over the fence in a contract. And we have arranged EPC agreements. We've also arranged to have the option to, we've created RNG from our own dairy RNG project that has the ability to take RNG up to that plant at net zero one. We have an option. done the work of identifying the best of ethanol and ethanol-to-jet technologies, improving them, and then integrating them into a design. We've led the engineering and specifications of the process. We've been signing up the farmers to work with our Verity carbon tracking platform so that we can measure, verify, and audit carbon reduction at the individual field level, in fact, all the way through the whole of the value chain, including our plants. And finally, we've been putting all these pieces together into a simple product, namely a modularized repeatable alcohol-to-jet kit. And by a kit, I mean a combination of existing technologies that are turned into a turnkey plant design. And this all achieves a low-carbon SAF and other products. We at GEVO own the kit, the design, and the specifications. It's an intellectual property. that the engineering and design time and money that we have spent will pay off. We are the owners of the NC plant designs. People will be licensing the plant designs to the projects. We'll get paid for that. And so we are actually more than just typical developers. We also do technology and innovation. Given that this market is so big, we may even license our plant designs to other developers for fees or royalties. Number two, Less of our capital is required. So what do I mean by this? Again, it's commensurate with our role of a developer. The amount of capital that is required is lower compared to the amount of later stage project level capital that would come in to complete our projects. I already mentioned that it is common that developers get a carried interest. That means we get an ownership position before we contribute any additional capital from GEVO. It is common for projects to have multiple classes of stocks with different returns. Developer shares in a project commonly get more return in the dividend as a reward for the work in creating the project and de-risking it. Said differently, we expect higher returns on our capital that goes into the project. By doing good development work, we enable something much bigger, namely infrastructure capital to come into the project because we've de-risked it. And we are working, and it shows up in things like our success in getting the term sheets phase with the DOE. Consider our recent announcement that we've entered into due diligence and the team shirt negotiation phase for up to $950 million of debt on our NZ1 project in the USDA Loan Guarantee Program. You know, one of the things that I liked in that letter that we got, it said that GEVO's Net Zero One project is highly qualified and suitable. That's actually a quote. Number three. We are also a licensor of technology know-how and IP. This can enable more rapid EBITDA growth, capturing value from our IP. So when I was talking about our progress with DOE and NC1 a moment ago, I said we enable something much bigger. Well, what does bigger mean? It means that the end markets for these projects are so enormous and they're ripe for disruption from a drop-in, low-carbon, carbon-negative alternatives. No single individual company can meet the market needs and the demand. Regarding SAF, consider that jet fuel demand in the U.S. alone is about 20 billion gallons per year and growing. And there are nearly 200 ethanol plants in the U.S. with a collective capacity of roughly 17 billion gallons per year. This presents GEVO with many opportunities, namely enabling ethanol to jet plants using our modularized standardized NV1 kit. We want lots of the ethanol from these plants converted to SAF with our kit. We plan on developing plants, but we may just license plants to others too. It's all about the growth and bringing in the money. In addition to the ATJ kit, we've also developed a different set of kits to lower the CI of existing ethanol plants. We need ethanol from existing plants decarbonized. Our NZ innovations that we've just spent this time and engineering money on and bringing in our innovations will apply there too. Those learnings can be transferred. More decarbonized ethanol means more ethanol that may be suitable as a feedstock for our NZ ATJ kit and innovations. We also have the development opportunities like what we see with P66 and ADM where we enable them for ethanol We used our knowledge to catalyze something that we couldn't do ourselves. And the good news is that they agreed to pay us up to $125 million over the course of the next several years as they execute their projects. We'll gladly help them be successful. We want to see that $125 million come to GEVO and hopefully starting sooner rather than later. We are also addressing another enormous end market, plastics and chemicals. There's tons of interest from the marketplace about this type of thing. The market potential here is more than 400 million tons and hundreds of billions of dollars. We have proprietary technology to make olefins, the building blocks for most chemicals and plastics. The plastics and chemicals made from our olefins would be massively carbon negative if they were made in NZ style of plants. We think that we have an outstanding position on CI and cost to deliver ethylene, propylene, and butenes and other intermediates that the world just hasn't seen before. Lots of companies have technology to convert ethanol into ethylene. Ethylene goes into chemicals, plastics, and fibers. Everyone has heard of polyethylene. Normally, it's made from petroleum, but people have long ago figured out how to make ethanol into ethylene. We have chosen access technology as part of our ATJ process. In that process, one of the steps takes ethanol and makes it into polymer-grade ethylene, so we can supply that market too. It's built into the NZ1 process. If we chose to supply ethylene to chemicals and plastics, we'd expect our ethylene to be massively carbon negative, the lowest in the industry, and we think probably the lowest cost, given the scale of what we're doing and the infrastructure that's built in. Now, in addition to that, for the last decade, we've been developing proprietary ethanol to olefin technology, or ETO, as we call it. It's with a focus on butenes and propylene. ETO is a proprietary technology owned by GEVO that reduces the capital and operating cost to convert ethanol to olefins using proprietary catalysts. We filed patents on this. It's our intellectual property. We believe that ETO will save money on OPEX and CAPEX for fuel plants, sure. But this proprietary ETO technology also enables conversion of ethanol to carbon negative polymer grade propylene and butene. In ATJ, a net zero plant that has ETO installed, we could simply convert the olefins to SAF or diesel. But we would also have the ability to selectively produce propylene and serve it to the chemicals, plastics, and materials markets. Propylene is a key ingredient for a range of polymers and plastics and fibers used today in everything from car components to consumer goods, carpet, diapers, and packaging. Propylene made in an NZ plant with an ETO kit would be massively carbon negative. We think it's going to be valuable. It's very interesting for the chemical industry at large. We're solving a problem that other people have tried to do, but we have that technology. Now we have to commercialize it. Well, we're not alone. LG Chem thinks we're onto something, too. That's why they've done a license and development deal with us. Our agreement with LG Chem is specifically designed to develop biopropylene for the production of drop-in low carbon alternative to the typical polypropylene products. We want to drive to carbon negative products. Our agreement with LG Chem includes a license and a development agreement. We've already received the first payment from them under this agreement. We've already outlined the terms for investing in the projects. LG Chem is a great partner, hugely committed to decarbonization, and our ETO helps that. We can create something much bigger and faster by playing the role of licensor and developer. ETO is real and gives us an entry into another giant market, that of carbon-negative plastics, chemicals, and fibers leveraged off NZ plants and their designs. I think it's going to be a really big deal. We look forward to announcing more examples of being a developer and technology licensor related to our Verity carbon tracking platform, our NZ projects, of course, and that includes isobutanol and other projects. Those things are still alive and kicking. We just don't talk much about them. The fourth advantage of our approach is creating the optionality in how we use our capital. This is super important. We have the option to invest in the development of projects, and we can also invest directly in those projects like other investors. Obviously, we want to take as much of the cash flow streams we possibly can. We want that EBITDA, but we also have to improve in our use of capital. We aren't going to overcommit our balance sheet. We also don't want to be forced to raise nasty dilutive capital at the Jibo level. We're going to be careful about this. As we make choices in how we put our capital to work, the choice will depend upon us weighing the availability and attractiveness of third-party project-level capital and the availability and attractiveness of new projects that we can develop at those higher developer returns for less of our capital. Remember, we get a disproportionate reward if we've been the developer. As we look forward from today, it may make the most sense for Chiva to recycle some of its capital to develop new projects, but We also like our projects, and we want to invest in them. It's not one or the other. It's both developer and investor. We want as much of that EBITDA as fast as we can get it. This means a balancing act of being a licensor, developer, and co-investor in the project. As we go forward, I wouldn't be surprised if we take a significant stake in NZ1 above what we would get just by taking the development and carrying it. That choice will be driven by options available to us at the time as the decisions and financings get made. Another more subtle point is that getting NC plants built is not the only way GEVO becomes profitable. You don't have to have those plants built to become profitable. We like them and want them because we'll get much bigger, faster growth. Between R&G, Verity, Specialty Chemicals, and Fuels, as well as other initiatives, we have multiple pathways to becoming EBITDA positive in the near future. Like I said, though, we want those NC projects built out, not just by us, but by others as well. Now let's talk about key milestones we've achieved year to date. I'm working off of the milestone slide in our investor deck. We have four business areas that we've bucketed things into. One is the hydrocarbon projects and their development. So first part, progress on MZ1 financing. While we still need to secure the equity investors, we can make progress on that more now that we have an indication from the DOE that should help us. We still need to know what the rules are for SAF and ethanol from the IRS in the rulemaking under 45Z so we can update the carbon value and therefore the returns in the project. We have been in close contact with our airline partners who understand that timelines are changing. We don't anticipate any issues regarding timelines and contracts with them. This is very much of a partnership approach, and they've been very, very good about it. We will have to start out any economic issues that might arise from the rulemaking on an IRS on a 45Z. None of us knows exactly what it's going to include. We've been told it should be favorable, but you just never know until it's done. We've been discussing all this with them and with potential equity partners as to how to solve the issue should they arise. So we should, we just need a little more information and we'll get this thing done and figured out. Second one under this section is Finalize the price and schedule for the EPC contracts. Well, we had a contest. We worked with several companies who had the potential to become EPC contractors, looking at how they worked and what they do. And we selected our lead horse. That's McDermott. The EPC terms look good. They're still working through pricing. They've promised to be transparent with no game playing. My team is going to make sure that that happens. The next milestone was enter the diligence process for the DOE loan. Done. As I mentioned, you're invited to the term sheet phase. We announced this on August 7th. And this term sheet negotiation is for up to $950 million of loan guarantee to finance the NZ1 projects. This is a really big deal for us and our shareholders. As a reminder, in January this year, the DOE invited GO to submit a Part 2 application to DOE's Title 17 Loan Guarantee Program. We completed that application and all the qualifying work that went with it. It's a lot of work. And getting through this successfully is a huge milestone towards DOE's conditional commitment for the project debt of net zero one and the financial close. We still, by the way, to get this close done with the DOE, this is going to take till probably the second quarter of next year. Complete the design of ATJ critical modules. This is all about de-risking the build-out of the ATJ plan, and we're taking a modularization approach. We're doing much more heavily modularized than you would have done, say, five years ago. This is all about de-risking the build. It's underway. The design is being worked on. This is a strength of both McDermott and Praj with whom we work. The next milestone we had listed was sign the agreement with existing ethanol plants for ATJ. This looks on track, although it is slower than we would like because of the lack of clarity around the IRA bill and the 45z rules. I expect this will still happen with the focus of decarbonizing ethanol first as a prerequisite to building out ATJ. Complete the FVL2 design for NZ2. That's the 300 million gallon ethanol input to 195 million gallons of ATJ. Done. This was done by Burns McDonald, one of our other engineering firms with whom we work. No more money is being spent on this right now. It's shelved. It's going to sit idle for a while as we finish financing on NZ1. One other item on the NZATJ front. We verbally agreed with Axis to extend our relationship for two years. We like each other as partners. It's a great relationship. They're really good. We still have to paper up this agreement, but, you know, they're really, we work together well all over the world. The next business area is Verity. Here the milestone, first milestone is to sign up additional customers and partners for Verity. We already have Sire. with 135 million gallons per year ethanol plant. Now we have an additional ethanol partner that has signed up who has more than 100 million gallons per year. The goal of Verity here is to capture carbon value that's been left on the table and monetize it. So we want our partner companies to make a lot of money, and we will make money as they make money. Progress looks good. We expect to add more companies this year. The next milestone, expand Verity Acres track to 100,000 acres or more. This was slowed a bit because the USDA grant process has taken longer. We just got the final award notice and the final contract last week. So this should get going soon and we should have the money in the bank and be able to spend it. That $30 million is going to be useful. And with the USDA money in hand, we'd expect to have 100,000 acres by next season. One that we added as a milestone is that get the Verity tracking carbon tracker applications working in launch. That's been done. It works to track carbon and CI field by field and should help farmers make better decisions on how to lower CI. This is very good progress by the Verity team. The results look good. We can see field level differences in CI. This is going to be very, very important in the future as we make the case as to why improved agricultural practices can be measured and reported. We actually, believe it or not, we run into people in the government who go, They actually, they're told, oh, no, it's not possible to measure. Well, we've got the data that says, yes, you can. And we have it here. And it's straightforward. Took a lot of work to create it. And it's proprietary. But you know what? It works. The next milestone is provide guidance for 2024 and beyond for Verity revenue and do this by year end. I'm looking forward to seeing this, too. I'm sure Paul Bloom, who's in charge of Verity, will wait until the end of the year to give this to us. But that's okay. His team is making progress. Givo RNG, first milestone, complete the expansion of RNG and achieve greater than 90% of 400,000 million BTUs by the end of the year. This project's on track. Equipment's already being delivered. The expansion is going. We also have a milestone to produce more than 300,000 million BTUs in 2023. Our team has achieved 90% of capacity already. And the RNG plant is running incrementally positive cash flow basis, even with a temporary CI score of minus 150, which is low, and of course, low LCFS carbon values. We expect profitability to improve once the score of minus 350 is approved and capacity increases. The next business segment that we have is chemicals and specialty fuels. The goal has been to restart IBA and octane sales. While those plans are being put into place, the interaction with customers is occurring already. We're out there working on it. We're seeing a lot of interest for IBA and iso-octane. It'll start off as a specialty business, specialty products, specialty fuels. And then I think it'll grow from there. It's time to get the contracts in place for the IBA and iso-octane. And in the long run, we'd expect to be a really big business too. Next milestone is the scale of E2 to E2 to the pilot plant stage. Well, this is on track. So we've developed a lot of proprietary technology here at GEVO. It's showing up in our NZ plant designs for ATJ, for methanol, and IBA. We have proprietary technologies like ETEL and IBA. I like the opportunities that are opening up for chemicals and plastics because of our technology and intellectual property. We are excited about Verity, both about what it can do and the intellectual property that's being created as we do it. The more we get into it, the more potential we see. For Verity, this isn't just about tracking carbon. It's all about monetizing that carbon. That's where we want to get to. Now, at the core of Jibo are several technology platforms. I've just listed some. By taking on the roles of a developer, licensor, in addition to project investment, we think we can optimize the use of our capital and grow EBITDA faster, leveraging those technology platforms. So overall, we'll stay focused, driving towards a positive EBITDA sooner rather than later, and managing our balance sheet, optimizing the use of capital. We are keenly interested, like you, in seeing our share price be maximized. Now I'll pass it off to Lynn to talk through the operations and numbers, including our dairy RNG asset.
spk09: Thanks, Pat. GEVO's Q2 combined revenue and interest income was $9.3 million. with the interest income benefiting from higher interest rates. Our corporate spend, that is SG&A, was $6.7 million for the quarter, excluding non-cash stock-based compensation of $3.9 million, which is a $0.2 million decrease from Q1 as a result of our cost control efforts. Debt related to the Northwest Iowa RNG project was $67.6 million, consisting of $68.2 million base value less on unamortized premiums and issuance costs. We ended the second quarter of 2023 with a strong liquidity position of $426 million in cash, restricted cash, and other liquid investments. The restricted cash portion is associated with our Northwest Iowa RNG bonds, and certain collateral related to the development of Net-01, in total $77.8 million. During the second quarter of 2023, we invested and capitalized $17.7 million cash in capital projects comprised of $9.8 million into Net-01, $3 million into Northwest Iowa RNG, and $4.9 million into other NZ projects. As has been discussed, we intend to finance the majority of NZ1 capital necessary to fully construct and start up the facility at the Net-01 project level with debt and third-party equity. It's also worth noting that while the DOE loan is the primary track to secure construction debt, we are exploring a syndicated bank loan process in parallel so as to keep our options open. Our dairy RNG asset in northwest Iowa has been injecting into the pipeline since June of 2022. This last quarter, the project achieved impressive year one performance against its design capacity with on stream injection of 97% and uptime of 91%. RNG revenue realized for the quarter was 2.9 million using the CARB low carbon fuel standard temporary pathway approval of negative 150 CI. Despite being constrained to the temporary CI score, we achieved positive standalone RNG EBITDA in Q2, and we expect to improve results with the CARB's final approval of the project's negative 350 CI application submittal anticipated to occur in 2024. We can't say when exactly in 2024 as timing is dependent on the CARB process. But achieving the permanent pathway will substantially improve LCFS credit revenues under the California program itself, as well as per the terms of our marketing agreement. In addition to the project having approached its full design capacity with an annualized production rate of 355,000 MMBTUs last quarter, we are expanding the project's capacity to 400,000 MMBTUs per annum, expected to be complete in Q4. Regarding our ETO technology, we received payment of $1.3 million for the second quarter and expect to get another $1.2 million over the next two years associated with joint development efforts. We expect other payments upon commencement of commercialization, including royalties on net sales from future production volumes. I'm really pleased that we have a pathway to positive cash flow. We've trimmed back our corporate burn from what was originally planned, and our project spend is expected to decrease. Cash flow from R&G and fees and licenses have helped put our net burn on a downward trend. With that, I'll turn it back to Pat.
spk06: Thanks, Lynn. We're making really a lot of progress. It's good to see some of these things come through. I'm looking forward to our success. Great. Let's go forth. Let's open up for questions.
spk00: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. We will be taking questions from research analysts at this time. Please stand by while we compile the Q&A roster. The first question comes from Sameer Joshi with HC Wainwright. Your line is open.
spk11: Yes, thanks. Good afternoon, everyone. Thanks for taking my question.
spk13: Just a clarification on the RNG revenues, the $2.9 million amount on 77,000-odd MMBTU Does that also include the LCFS and LCFS with a score of negative 150, or are there some other exclusions?
spk05: No, it has the LCFS at minus 150 value in there. Okay, okay.
spk13: And I know Lynn confirmed, but the 400,000 MMBTU capacity, what are the additional steps needed or additional money needed to reach that capacity over the next two quarters?
spk06: It's small. So small enough that I don't recall. So it's stuff that we had already done as part of the project. So it's a few million dollar expansion. And some of it probably would be subsidized by the – I forget what part of the 40 – of the IRA bill, what section of 45 it is, the investor tax credit. It probably covers some of it too. We'll see. But it's a small amount of money. The equipment's on site. It's about optimization work. We have extra room to inject more into the pipeline. And so we might take advantage of that. So it's going along pretty well. To get that project up to 400,000 million BTU rate that will happen in the fourth quarter is what the team goal is. I expect it to happen that way. And we should be in pretty good shape as we head into 2024. The RNG business is actually a pretty exciting business. We have figured out stuff that no one else seems to know about how to really optimize the heck out of this. We did throw quite a few engineers at this and a lot of data scientists to sort things out, and it's paying off for us. We like it.
spk13: Yeah, no, it's good to see actual revenues on that front over the last couple quarters. On the LZ1 front, is there sort of an EPC process that needs to happen before the DOE loan can be finalized? Are there any interconnections and interdependencies between the two?
spk06: There is, because you have to have an APC. You have to have a price done to finalize the loan. The trick is that we like McDermott, and we like the potential and how they operate, and compared to the other guys who we've been talking about for APC, lump sum turnkey, in that their terms are reasonable. They're pragmatist. They want to see this done. They want to work closely with us. That's good. Good. One of the problems that we have in an inflationary environment, if you ask for the lump sum turnkey price now, or suppose you ask for it six months from now, I guarantee you it would have been padded to beat heck, like crazy amount of padding. And so it doesn't make sense. Inflation is moderated in some places. Equipment supplies have loosened up. And so perspectives are changing. So if you don't ask for it at the right time or you don't work through that and you get it premature, you get a crazy number. And so we have had, we've been keeping track of all the capital all the way along. My team is actually capable of doing that itself. And so it has been very useful for us as we work with different potential EPCs. We know when to call somebody, we know how to call somebody out. And so, It's a balancing act that we do. We have to have the final updated numbers, but you don't want to ask for them too soon because it'll be wrong. And so we'll be working through that, pinning down the lump sum turnkey price with the lead horse is McDermott. We have a backup already. And we'll get there in the right time frame for the DOE loan close. But we also, I mentioned this point, the other thing we're watching carefully is what happens and when on the 45Z. The 45Z is that section of the IRA bill that talks about the credits that would be applied to staff and what method. The thing is, is that they're going to give initial guidance on a part of that 45 section anyway. And the IRS is going to come out with some rules about how this is supposed to work. We've been told it should come out favorable for people like us. And, but you never know what it is. We've got, but we do need to know what the, what the value is and how to calculate it so we can plug it into the economics. And we, we're not alone in this. This is, everyone's got the same issue. So we're all kind of watching and waiting and see how this all works out. And they have heard input from all kinds of us. We've been on, we've been up with the administration and the Capitol Hill, all the departments and lots of people. And there's, really getting it clarified to use argon-crete, and there might be slight variations of it, but it should come out in pretty good shape is what I would expect at this point from what I'm told. Nothing counts until it's done, and you know what? We still need it done, or at least indicated in what direction it's going, so we can plug the economics into the overall equation.
spk13: Thanks for that, Kyler. Interesting development on the ETO front. meaning the amounts that have been talked about from these teams seem small, but I'm sure this is a much, much bigger opportunity in the mid to long term. Do you have, like in a business plan maybe, like what are the next steps on this once you finish your work with LG?
spk06: Well, the ETO technology is something that we have worked on for, you know, we've been doing, People often said, gosh, why are you guys switching your technology from alcohol, from isobutanone? I thought, you know, for us, they're all alcohols and the chemistry on them is very related. So we've been doing this for years and we have a bunch of patents on this, hundreds. What's interesting about ETO is it looks like it cuts out a huge amount of capital out of the alcohol to jet process that is typical from whether it's Axons or UOP or anyone else who's out there. It saves steps and it saves operating cost and capital. That's what it appears and looks like. And so we have been looking at it from that standpoint, but we also recognize that we can adjust the catalyst or operate it so we can make propylene or butylene. Propylene is one of the hardest molecules to make from a biobase in high yield. It's also one of the most valuable products in the marketplace in terms of its overall volume and what it's useful for because it is a typical thing in consumer goods, typical ingredient for consumer goods or plastics or fibers and clothing. There's a whole bunch of stuff. What's interesting about this is our propylene would be Somewhere in the, you know, approaching maybe a minus 100 CI score. That's interesting. The world hasn't seen that before. That's what attracted LG. And they see that there's an opportunity there. So we have to go work through it, scale it up, figure out what we don't know yet. But that's all going along pretty well. We've been operating it in many plants for a long time. Um, and we just got to go through the work of figuring out what is it, if there's anything we don't know and work through any of the operability issues. If there are any, we don't see any. That's what has to be done next. And then they, it would get rolled out, uh, I think pretty quickly in plants to get built. And it would be along in that zero one style plant. It'd be right along the same exact same concepts that we just engineered would reapply here. And, um, You'll be, I think we're going to have a pretty, you'll see on the fuel side, we're going to turn up with a pretty interesting partner there too who wants this and sees the value of it. And two, it's going to be, it's a good technique, saves money, saves production costs, saves capital. It's just, I wish it was ready for prime time today. It just isn't. We've got to do a little more work first.
spk13: Yeah, and I'm sure there too you will have other carbon reduction projects a technology from energy usage point of view that would further reduce that?
spk06: You hit on an interesting point. One of the things that we look at is people are all interested in these materials. We're the first to do PET, fully renewable PET. I've seen others claim it to be first. We did it first. We did it like a decade ago. Big deal. We can do that. We have technology for it. It's about putting the business system together. We're not looking for, and we want big business systems that leverage each other. The fundamental thing that we're doing is we can make these basic building blocks for the petrochemical industry, right? Basic building blocks, same building blocks that they use. And we de-risk the hell out of them to make them from renewables and make them carbon negative. And they will be, I believe, the lowest cost that can be made because of how efficient they are with economies of scale and and the whole business system approach that we're taking. So even though we focus on fuels, I think sometimes people put us as a one-trick pony. No, no, no, no, no, no. That's the wrong thing. Nobody does that. That's stupid. What you do is you use the fuels to drive economies of scale, but you open up all the chemical opportunities along the way. That's important. That's what we're doing. That's how we think about it. And as this all becomes more real, I think people in chemicals go, oh, that is going to happen. That's interesting.
spk13: Yeah, yeah. It is very interesting what you're doing there. Just a bookkeeping question, last one for me. This line item, the factory idling costs, should we expect it to be around a million for the next few quarters, or do we see any change in that? depending on, I guess, ethanol prices and stuff.
spk03: What cost was that? I'm sorry.
spk13: Oh, sorry. The line item in the income statement called facility idling cost.
spk06: Oh, that'll stay the same. That's for our Laverne plants. It's sitting there, and we're going through the process of when to start it up, how to start it up, how do we use it. It's a very good development site. And so I would just – it's going to be – I think that total cost for the year is like a couple million dollars. So that's something we should confirm with you on a follow-up call. But it's not a huge amount of money. It's not a huge amount of money, and it's just basically idling it. We're actually using that plant right now to educate customers. So we've had more than 65 airline customers. So these are customers of airlines, the people downstream of them, up to our plant site, showing them what we're doing, how we're doing it, taking them out to farms, showing them how modern planting equipment works. And usually the result is their minds are blown about the state of art of what's actually happening versus what, you know, if you just listen to the press and the doom and gloom, it's wrong. It's just plain wrong. And so it's quite impressive to see. And so we've been using it for stuff like that. But I think what will happen, its future probably is that we've got to finish cooking the plans, but at some point we'll probably start it back up and use it for making specialty products. That's what I would expect.
spk13: Yeah, yeah, understood. Okay, thanks, Glenn. That's all I have.
spk00: Please stand by for the next question. The next question comes from Derek Whitfield with FIFO. Your line is open.
spk10: Thanks. Good afternoon, Pat and team, and congrats on your updates.
spk23: Thanks.
spk10: Regarding your Northwest Iowa RNG project, the expected negative 350 CI pathway is considerably better than the temporary and the previously noted negative 240. Could you comment on what's driving the variance between the current and previous expectations and if that delta Is the result of the optimization work of your engineering team?
spk06: Yeah, the answer is yes, it is. It's the optimization work. We did some modifications to the digesters and how they operate and also the lagoons. And then it's more of having real data available to us. And that all went into the calculation for it. So that's what should happen. It should be a minus 350. You never know what CARB will do, though. But that's actually what the pencil's out to be with real data. Now, we are data hogs. you know, this is, you know this already because you spent enough time with us, but we're like, we count stuff and we got sensors all over the place. So our stuff is more instrumented than what you would find at other operations from what we've been told or what we have seen as we've met with other people. And we take it, we believe that RNG should be treated like a manufacturing plant. It's a manufacturing operation and There's a lot of value here to be operated right, managing it like you would a plant with, you know, with operating discipline is a concept that, you know, for people who are operators and run plants, they understand what I'm talking about. But you do it with engineering approaches and plant operations approaches and discipline and measuring and improving along the way. And that's what you're seeing here. And we also have a bunch of stuff. of equipment that we put in of how to think about things. How do you make things work properly and do it so it's robust? Because you don't want plants that are going up and down. That screws things up royally. You want them to be steady. And that's what we've been able to achieve. We have a question in front of us, and we're sorting it through, and I don't know what the answer is yet. But how do you best expand this, capitalize on it further? How do you do that in a way that balances against our other capital needs at Jibo? That's stuff we're looking at right now. And I think there'll be some dust settling here in the near future where people who haven't taken, they didn't have maybe the engineering capability or have, I don't know, whatever their problems are, there might be some deals out here. So we're paying attention to that. I don't know what I, I don't have a firm opinion yet, but it's prudent to take a peek and see what's out there and what we can apply our knowledge to and fix and make it work and get paid for it, of course.
spk10: With that said, Pat, and that's exactly where I was going to go with my follow-up question, does it behoove you to lean more into R&G given the expertise you've picked up through that operation? And would that be in an operating development perspective where you invest, or would that just be in a similar developed licensing type approach?
spk06: I think it's that in R&G we'd want to – David Lodowski, M.D.: : idea yeah we want to expand there and want to operate assets is what we'd want to do not just not just help people because it takes discipline to do to operate this stuff you really got to be a plant operator mentality. David Lodowski, M.D.: : And we want to find those opportunities now we could the problem that we're seeing is that. There was so much euphoria over RNG and all the stuff that might occur. You know, people bid up the cost of manure and they bid up the cost of access to farms and they bid up, you know, everything. And so people, it's irrational. Now, the price in California being low is going to help to adjust those people out. And so I think there's going to be some development projects that will fail. People who had projects planned, there were developers trying to push them, I think they'll fail. And so I think there's going to be opportunities. So part of this is trying to find out what those are. I think we're just beginning to see some of those guys go by the wayside. And there's only a few of these technologies that work well. It isn't like there's a, you know, I'm talking about the actual digesters. people are finding out that there's lots of problems with European-style digesters. So it's one of these things where there really is know-how here, and we're going to take a peek and see where we can fit and how do we expand, but we have to do it in a way that balances against your other capital needs. I really do want to see, I want my money into an NZ1 project too, you know, the actual investment into the project too. And so we're looking for the right opportunities. And so if you know him, Derek, You've got to tell us because I'm interested in those. And we'll look at them and see how we play and how we can add value and make it accretive for us.
spk10: That's great. And then maybe shifting over to your licensing and development business model that you articulated during this call and similar to what you had with LG Chem. How should we think about the returns and capital requirements for this approach and And more specifically, on the revenue side, will it be recurring and linked to the carbon credit markets?
spk06: Well, I think it will almost always be related to carbon value. So, you know, the bold truth of it is there is no technology on Earth that compete with low cost petrochemicals. You know, if we're making renewables into, you know, that are decarbonized and low carbon. No, petrochemicals are cheaper. So it is the carbon value that has to come into play. Now, the thing is, we can get the cost pretty darn close. You've seen our economics, so you know this, that our economics, they can come pretty darn close, and they're good. But to justify on a cash cost basis anyway, but on the capital cost basis, where you've got to include those economic returns, we have to deploy new capital. So that has to be supported by somebody's perception of carbon value. That can be done in the market directly by placing the products with the right channels, Those tend to be specialty products at this point. Or it has government support. Well, this is why people are chasing fuels, because that has government support both at the state and federal level. And in the chemicals market, it's interesting because the chemicals market, you know, you've done the math, you probably, you know this, is that, you know, a plant like ours, a, you know, like a plant like ours, a $65 million gallon hydrocarbon plant that's like when you put that in tons it's big it's in the hundreds of thousands of tons it's giant chemical plant and so even though for us we sound like well it's just a 65 million gallon plant that's pretty small in the grand scheme of fuels that's true it's small in the grand scheme of fuels but in the world of chemicals it's a world scale plant and that's the disconnect that occurs so this is why we like our approach of being able to leverage off of stuff we're already doing We're already making olefins in a NET-01 design. We're already making the olefins. We can add incremental units to make even different kinds of olefins, and we should divert those, at least some of that stream, into the chemical market because that is a significant size, or at least potential size. And you know what? It's flexible, too, because we don't have to send it there. We can just send it onward to fuels anyway. That's how we think about it. In terms of the value of it, I think that there really are specialty markets that make a lot of sense. We'll just have to figure them out.
spk10: Pat, maybe lastly for me, just with kind of what's going on inside the Beltway, what's the latest unexpected timing on 45Z rulemaking from U.S. Treasury?
spk06: Yeah, I think what they'll do is – I think it's going to be in the fall here sometime and probably late fall. I've heard the estimates go from September to December. And I haven't heard anyone say it's going to get punted to next year, at least not very many people say that. Most people think it'll be sometime in the late third, early fourth quarter, something like that. What I can expect is you're not going to Remember, the 45Z for the Blender's tax credit or the producer's credit, that comes into effect in 2025. What you're going to see is like the precedent set as to how to do some of the other rules that are related to 45, Section 45, and how to count carbon and stuff like that. You'll see that start to get described here in this rulemaking, but it won't be a final rule set. But it'll be good and it'll be a good... in indication of what to expect. It also might draw some battle lines where we're going to go fight for stuff too, because we're trying to count all the carbon and make improvements. And enviros, sometimes I think enviros don't want anything. They don't want any fuels made. They don't want from any source. So it's this very weird dynamic that's going to occur. I think that because the people are anticipating a split Congress next year, that's actually helpful. So by taking an approach, we actually measure carbon accurately and reward it. And you do it that transparent, transparent, measurable way that plays, that plays to everybody. It's commonsensical approach. Let's measure the, get the damn data and measure it and reward people for making improvements and do it that plays. And it's hard to argue with. Um, but we see some of these, uh, far out enviros, they're terrified of that even. That's helpful, thanks.
spk00: As a reminder, to ask a question, please press star 11 on your telephone. Please stand by for the next question. The next question comes from Manav Gupta with UBS. Your line is open.
spk22: Good afternoon, guys. I'm going to, if you don't mind, just stick to more macro questions. I want to pick your brain. You have indicated that you expect your eventually RNG to have a negative carbon intensity of minus 350. Yeah. We keep hearing chatter, and I strongly oppose this, to be honest with you, where people say that A, RNG should not even be part of the carb, and B, try and cap it at minus 100 or minus 150. So I'm just trying to understand, when you hear those things, what is your response, and is this something you would be lobbying for where you say, you know, minus 350 is what we really deserve because that's what value we are adding?
spk06: Well, I think when you follow the rules to measure this stuff, like California has outlined, it's minus 350 is what pencil's in. I don't think of it like that at all. Mine is a completely different paradigm. I think it's this. I think methane, fossil-based methane, natural gas, is one of the greatest polluters and greatest generators of fossil-based CO2 and greenhouse gas emissions there is. I know that we, in evaluating our NetZ plant designs, the biggest enemy was the use of natural gas, which is why we've made such improvements. We could transfer... we view that there's an rng business here where you can transfer it at attractive prices to a plant like our nz plant or any other plant for that matter where you can make good money on an rng project and you don't need california at all in our long-term plans we don't need california or that ci score so it's a very different point of view that we have it's about the transfer price and whatever the rulemaking is under more like a greet model, standard greet model. So we are not counting. I wouldn't, you're not going to see, I guess real bluntly, you're not going to see me bet big investment on counting on California at minus three 50. You're not going to see that from us. You're going to see us do it at, uh, market prices per MMBTU that work to make good money at a dairy RNG project like we have, and they're efficient ones, and then transferring it to some production facility of some type where that carbon value can be transferred. That's how I think it's going to unfold in the long run. So we wouldn't bet on counting on minus 350 in California, our California LCFS saves the day. You know, we just don't think like that. We're looking at a different business, actually. We think of it as creating the option to get rid of fossil-based natural gas out of our business systems. That's how we view it in the long run.
spk22: Perfect. I agree with you. My quick follow-up here is one of your peers at the Peridot yesterday said, look, science is a very strange market. The demand is infinite and the supply is is pretty much zero. And then they made some comments around pricing. And I'm just trying to understand from you from a long-term perspective, when you talk to airlines and stuff, how do you see them actually pricing SAF? Like how much higher versus the jet fuel or any benchmark? How should we think about the pricing on the SAF side?
spk06: Yeah, that's a really good question. It's the thing that we're paying pretty close attention to. Because, you know, the real practical matter that you're alluding to is that airlines themselves can't afford to pay premiums for SAF, at least not very much, unless they find a way to pass it on to their customers and get them to embrace it. The customers have to embrace it. Or everybody in the industry has to do it all at once and say there's going to be a surcharge for these new fuels. Ah, but then there's a chicken and egg problem. So this is part of the problematic issue we have in and around SAF. The way to break it down and think about it is like this. a product like ours made in a net zero system, it's pretty darn low cash cost. It's reasonable. It's our capital that has to be paid for. That's what builds up the cost, right? So you think about what's that going to take, and then you look at how much carbon value is going to be in the marketplace. So the way you think of revenue is this. Our jet fuel for sure has at least as much if not more value technically, just as jet fuel than a petrojet molecule, right? Without counting carbon. The carbon value itself then comes from, you know, the RFS, the 45Z, if they ever pin it down, right? The state programs, and there's several of them. There's LCFS, there's a buck 50 available in Illinois, another buck 50 in Minnesota. Oregon beats everybody because they have a higher premium for all those things. And so you've got to take all those things and stack them up and then ask what's left on the table. And is it something that the airlines can accept? Well, our contracts say, yes, they can accept that. It's reasonable. It's in the small category. It's incremental. And so you have to have investors at the same time who have a long-term view that carbon is going to be valued. Now, in our point of view, and as we started thinking about this years ago, we believe that there is value. Fickleness in government policy, and you know what ultimately want to be consumer trait a consumer trait something we can show to consumers and they can say yes, I think this worthwhile and I pay for it, and I can see it, this was the genesis of our verity tracking. That is the purpose, is to get it bulletproofed, audited, measured, transparent. So you want to fight about data? Bring it. We've got the data. We'll lay it out in the open for you. And let's have the discussion about facts. Because what we see in this space is all kinds of BS hand-waving of stuff. And you see that being attacked right now, even out of Europe, with some of the issues around these carbon offsets and stuff. We're doing insets, the actual real carbon attached to real products and measuring it. And that's what ultimately has to happen. That's the system we created. And the airlines love that. And because that's all part of creating the value across and making the carbon bulletproof. So, yes, it requires some extra premium from airlines. Yes, it requires carbon value from state and federal policies. And yes, it's going to require carbon value, I think, in the long run. And this will be something that grows over time as consumers find out that, no, really, it's real. That's how I think it's going to unfold. But we're already in the hunt of when you take all the carbon value, add it up, and you just say you use that as a carbon credit against, or use that credit against the total cost, you know what, the economics work, and it is in the range of affordable for airlines. Already, at least with our stuff. Other people's stuff is different. They're at a higher price.
spk22: The last question for me, and a little bit of a follow-up on Derek's question, like as you grow your RNG offering, you know, the environment is pretty supportive. Which are the key ed markets? Would you like only to supply to the transportation market, or is it going to be more to the utility market? How would you describe your ed market for the RNG that you are producing? Thank you.
spk06: Well, today the paradigm is that we're selling the transportation fuels in California because that's where you make the most money. There'll be a question in the future, barring any changes that occur or any new influences from government policies, That shoot we should take that gas up to our net zero one plant drive the CI score down further. That could be something we would do and there's potential there and it will depend upon which is more valuable sending it to transportation or sending it over there to as as gas to do the thermal load for a manufacturing plant. There are things that are wild cards here, though. I was talking with some folks yesterday. They were talking about the hydrogen and the potential to generate hydrogen, and how do you get more green hydrogen, and how do you blend a carbon negative RNG type with brown hydrogen to make more hydrogen. So will there be an opportunity there? Show me the money. Let's see what it is, and we'll look at it and see. um so i can see there's definitely could be influences from government policy as they weigh into this stuff i've seen you know hypothetical things i don't know that i believe them yet about the 45z of being kind of a windfall towards rng projects i don't know if i believe it but if it's true well that's going to cause people to pay attention for a while but it's not going to be sustainable in the long run it's an unreasonable amount of money from what is being talked about could that influence yeah sure Fine. You want electricity made out of, I get paid an extra 20 bucks, a million BTUs. Fine. You want electricity? I can make that happen for you. No big deal. So we have a point of view. We're out to make money is what we're doing here. And we have the, not a luxury, but we have a, we have an unusual capability as a small company. And then I got really strong technical people, engineers, operators, practical people. And so we can adjust the stuff as it unfolds. And that's kind of how we view it. We'll go where the money is, man. That's what we'll do. I just don't want to speculate on it.
spk21: Thank you so much.
spk00: I show no further questions in the queue. I would now like to turn the call back to Dr. Patrick Gruber for closing remarks.
spk06: Well, thank you all. This was a longer one today. We felt it was important to try to really get on the record how we're thinking to make it more clear. I don't want to have people think that we're not planning on being an investor in our projects. We are planning to be an investor, but someone has to play the role of developer. We are playing the role of developer. We're the best suited to do it, but we're more than that too with our technology developments. And so that makes us in the role of people who really do pay attention to technology and how to improve things. So we're trying to clear up a whole bunch of these questions. Thanks for sticking with us through this. Thanks for your support. And I wish you all a good evening.
spk00: This concludes today's conference call. Thank you for participating. You may now disconnect. you Thank you. I'll see you soon. Thank you.
spk19: Thank you.
spk00: Good day and thank you for standing by. Welcome to the GEVO second quarter 2023 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you would need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Eric Frey, Vice President of Finance. Please go ahead.
spk08: Good afternoon, everyone. This is Eric Frey, Vice President of Finance. I'm also responsible for investor relations here at Jivo. Thanks for joining us to discuss Jivo's second quarter results for the period ended June 30th, 2023. I would like to start by introducing today's participants from the company. With us today are Dr. Patrick Gruber, Jivo's Chief Executive Officer, and Lynn Small, Jivo's Chief Financial Officer. Earlier today, we issued a press release that outlined the topics we plan to discuss. A copy of this press release is available on our website at www.jivo.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 projects, 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 gap reconciliations may be found in our earnings release, which can be found on our website at www.givo.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.givo.com. I'd now like to turn the call over to the CEO of Jivo, Dr. Patrick Gruber. Pat?
spk06: 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'll explain what we have been investing in, what it means, how we think about further investments, our use of capital, and progress against milestones. At the core of Jivo is a whole lot of technology. We've got multiple technology platforms that we developed. These include the net zero plants for IBA and ethanol and conversion of those alcohols into net zero hydrocarbon fuels and chemicals. We have Verity Tracking and even our version of dairy RNG. We have to drive all of these things to commercialization, larger commercialization. That's our primary mission now. To get these technologies commercial, we think that it's most valuable to shareholders for us to take on roles other than just being an investor in projects. To make technologies commercial, someone has to take on the role of project developer. Well, that's us. Let me explain further. Now, we've been investing in the technology engineering and the plant design to convert corn kernels into SAF, protein, vegetable oil, all with the potential of a net zero carbon footprint. We work with multiple technology suppliers in addition to using our own proprietary technology. We use multiple engineering firms because of their expertise and capabilities. Our plant designs are well thought through by our strong team of engineers and operators for operability, efficiency, and troubleshooting. We need these plants to work well. We've got a deep bench here of people who are good at this, having designed plants in the past. We are now investing in the engineering and design of modules. We want modules because we believe it will be more cost effective way of de-risking plants and allows more rapid build out of additional plants. Now, we, GEVO, own the plant designs and details. We are the owners of the designs or the kits, as they're sometimes referred to. It's hard fought and expensive. It's taken us two years, more than a hundred million dollars to get where we are today on net zero one. There is no single technology supplier out there that has the expertise to design an NZ plant. It's GEVA who brings that capability. For example, it is our innovative integrated design that reduced the consumption of natural gas for the integrated NZ1 plant by about 70 percent, which makes that a lot more practical and realistic to achieve a net zero footprint or even drive it to negative footprint. The NZ plant designs are ours, no one else's. It's our IP, and yes, we filed patents on that. We won't have to do this heavy engineering and design lift more than once for an NZ ATJ plant that is based on 100 million gallons of ethanol input. We can copy and paste that for use with other sites. That's what we've been working on. Now, to monetize our investment, and engineering, we need to get something built and operating. So how does that happen? Well, to do this, someone needs to play the role of a developer, someone who gets the project lined up for investment and gets it de-risked so investors can make that investment with confidence. The developer typically obtains land or arranges the utilities, in-licenses plant designs, pays for the construction and engineering, lines up additional investment needed to get that plant built, and otherwise takes care of all the details needed to get that plant built, de-risking the whole project along the way. As a reward for taking the risk of development of a project, it is common for a developer to recover development capital upon financial close. It is also common for a developer to obtain what is called a carried interest in the project. Carried interest is an ownership position in the project, usually in the 5% to 20% range with no cash required. It's just named a carried interest. Project developers also have the option to invest additional capital and with their investment gain more return than a common project investor. Developers frequently take the reimbursement money they got back at the financial close and use it to develop more projects, recycling the money, if you will. Projects also need infrastructure investors in the project. These investors usually want to see a de-risked project matured by the developer. Debt is also part of the game of project financing. Project debt requires additional capital above what we call the hard cost. That is the cost of equipment and installation of a plan in order to fund the prepaid accounts that mitigate risks of various types. However, debt also enables lower levels of equity and incrementally higher levered IRRs. Debt also requires an EPC contractor who gives a guaranteed price to the project. The problem is that EPCs typically boost costs and fees and capex surcharges to mitigate risks. We have a very good engineering team with lots of project experience, so we're very good at uncovering a reasonable cost. So why should a shareholder care about what role we take? Well, the short version is that we can generate higher returns and generate more cash flow faster at less risk than if we handed off development or just did a serial investment. Now I'm going to step through it. Number one, we expect a higher return on capital. Well, why do we expect a higher return on capital? Well, to answer that, let me describe a little bit about what it means for us to be a developer of projects in sustainable aviation fuel or SAF and related low-carbon products. As a developer, we have been putting our capital into things like site selection, purchasing of land, front-end engineering, the detailed design engineering permitting, contracting with SAP off-takers, finding out and discovering the value in the marketplace, working with carbon capture partners, setting up those contracts, arranging utilities, the wind and the green hydrogen partners, setting that up so it's done on a deep-boom basis over the fence in a contract. And we have arranged EPC agreements. We've also arranged to have the option We've created RNG from our own dairy RNG project that has the ability to take RNG up to that plant at net zero one. We have an option. We've done the work of identifying the best of ethanol and ethanol to jet technologies, improving them and then integrating them into a design. We've led the engineering and specifications of the process. We've been signing up the farmers to work with our Verity carbon tracking platform so that we can measure, verify, and audit carbon reduction at the individual field level, in fact, all the way through the whole value chain, including our plant. And finally, we've been putting all these pieces together into a simple product, namely a modularized, repeatable alcohol-to-jet kit. And by a kit, I mean a combination of existing technologies that are turned into a turnkey plant design. And this all achieves a low carbon SAF and other products. We at GEVO own the kit. the design, and the specifications. It's an intellectual property. I expect that the engineering and design time and money that we have spent will pay off. We are the owners of the NC plant designs. Teva will be licensing the plant designs to the projects. We'll get paid for that. And so we are actually more than just typical developers. We also do technology and innovations. Given that this market is so big, we may even license our plant designs to other developers for fees or royalties. Number two, less of our capital is required. So what do I mean by this? Again, it's commensurate with our role of a developer. The amount of capital that is required is lower compared to the amount of later stage project level capital that would come in to complete our projects. I already mentioned that it is common that developers get a carried interest. That means we get an ownership position before we contribute any additional capital from GEVO. It is common for projects to have multiple classes of stocks with different returns. Developer shares in a project commonly get more return in the dividend as a reward for the work in creating the project and de-risking it. Said differently, we expect higher returns on our capital that goes into the project. By doing good development work, we enable something much bigger, namely infrastructure capital to come into the project because we've de-risked it. And we are working, and it shows up in things like our success in getting the term sheets phased with the DOE. Consider our recent announcement that we've entered into due diligence and the team shirt negotiation phase for up to $950 million of debt on our NZ1 project in the USDA loan guarantee program. You know, one of the things that I liked in that letter that we got, it said that GEVO's Net Zero One project is highly qualified and suitable. That's actually a quote. Number three, we are also a licensor of technology know-how and IP. This can enable more rapid growth, capturing value from our IP. So when I was talking about our progress with DOE and NC1 a moment ago, I said we enable something much bigger. Well, what does bigger mean? It means that the end markets for these prospects are so enormous and they're ripe for disruption from a drop in low carbon, carbon negative alternatives. No single individual company can meet the market needs and the demand. Regarding SAF, consider that jet fuel demand in the U.S. alone is about $20 billion gallons per year and growing. And there are nearly 200 ethanol plants in the U.S. with a collective capacity of roughly 17 billion gallons per year. This presents GEVO with many opportunities, namely enabling ethanol to jet plants using our modularized standardized NV1 kit. We want lots of the ethanol from these plants converted to SAF with our kit. We plan on developing plants, but we may just license plants to others too. It's all about the growth and bringing in the money. In addition to the ATJ kit, we've also developed a different set of kits to lower the CI of existing ethanol plants. We need ethanol from existing plants decarbonized. Our NZ innovations that we've just spent this time and engineering money on and bringing in our innovations will apply there too. Those learnings can be transferred. More decarbonized ethanol means more ethanol. that may be suitable as a feedstock for our NZ ATJ kit and innovations. We also have the development opportunities like what we see with P66 and ADM where we enabled them for ethanol to jet. We used our knowledge to catalyze something we couldn't do ourselves. And the good news is that they agreed to pay us up to $125 million over the course of the next several years as they execute their projects. will gladly help them be successful. We want to see that $125 million come to GEVO and hopefully starting sooner rather than later. We are also addressing another enormous end market, plastics and chemicals. There's tons of interest from the marketplace about this type of thing. The market potential here is more than 400 million tons and hundreds of billions of dollars. We have proprietary technology to make olefins. the building blocks for most chemicals and plastics. The plastics and chemicals made from our olefins would be massively carbon negative if they were made in NZ style of plant. We think that we have an outstanding position on CI and cost to deliver ethylene, propylene, and butenes and other intermediates that the world just hasn't seen before. Lots of companies have technology to convert ethanol into ethylene. Ethylene goes into chemicals, plastics, and fibers. Everyone has heard of polyethylene. Normally, it's made from petroleum, but people have long ago figured out how to make ethanol into ethylene. We have chosen access technology as part of our ATJ process. In that process, one of the steps takes ethanol and makes it into polymer-grade ethylene, so we can supply that market, too. It's built into the NZ1 process. If we chose to supply ethylene to chemicals and plastics, we'd expect our ethylene to be massively carbon negative, the lowest in the industry, and we think probably the lowest cost, given the scale of what we're doing and the infrastructure that's built in. Now, in addition to that, for the last decade, we've been developing proprietary ethanol to olefin technology, or ETO, as we call it. It's with a focus on butenes and propylene. ETO is a proprietary technology owned by GEVO that reduces the capital and operating cost to convert ethanol to olefins using proprietary catalysts. We filed patents on this. It's our intellectual property. We believe that ETO will save money on OPEX and CAPEX for fuel plants, sure. But this proprietary ETO technology also enables conversion of ethanol to carbon negative polymer grade propylene and butene. In ATJ, a net zero plant that has ETO installed, we could simply convert the olefins to SAF or diesel. But we would also have the ability to selectively produce propylene and serve it to the chemicals, plastics, and materials markets. Propylene is a key ingredient for a range of polymers and plastics and fibers used today in everything from car components to consumer goods, carpet, diapers, and packaging. Propylene made in NZ plant with an ETO kit would be massively carbon negative. We think it's going to be valuable. It's very interesting for the chemical industry at large. We're solving a problem that other people have tried to do, but we have that technology. Now we have to commercialize it. Well, we're not alone. LG Chem thinks we're onto something, too. That's why they've done a license and development deal with us. Our agreement with LG Chem is specifically designed to develop biopropylene for the production of drop-in low-carbon alternative to the typical polypropylene products. We want to drive to carbon-negative products. Our agreement with LG Chem includes a license and a development agreement. We've already received the first payment from them under this agreement. We've already outlined the terms for investing in the projects. LG Chem is a great partner, hugely committed to decarbonization, and our ETL helps that. We can create something much bigger and faster by playing the role of licensor and developer. ETO is real and gives us an entry into another giant market, that of carbon negative plastics, chemicals, and fibers leveraged off NZ plants and their designs. I think it's going to be a really big deal. We look forward to announcing more examples of being a developer and technology licensor related to our Verity carbon tracking platform, our NZ projects, of course, and that includes isobutanol and other projects. Those things are still alive and kicking. We just don't talk much about them. The fourth advantage of our approach is creating the optionality of how we use our capital. This is super important. We have the option to invest in the development of projects, and we can also invest directly in those projects like other investors. Obviously, we want to take as much of the cash flow streams we possibly can. We want that EBITDA, but we also have to be prudent in our use of capital. We aren't going to overcommit our balance sheet. We also don't want to be forced to raise nasty dilutive capital at the GEVO level. We're going to be careful about this. As we make choices in how we put our capital to work, the choice will depend upon us weighing the availability and attractiveness of third-party project-level capital and the availability and attractiveness of new projects that we can develop at those higher developer returns for less of our capital. Remember, we get a disproportionate reward if we've been the developer. As we look forward from today, it may make the most sense for Jiva to recycle some of its capital to develop new projects, but we also like our projects and we want to invest in them. It's not one or the other. It's both developer and investor. We want as much of that EBITDA as fast as we can get it. This means a balancing act of being a licensor, developer, and co-investor in the project. As we go forward, I wouldn't be surprised if we take a significant stake in NZ1 above what we would get just by taking the development and carry. That choice will be driven by options available to us at the time as the decisions and financings get made. Another more subtle point. is that getting NC plants built is not the only way GE will become profitable. We don't have to have those plants built to become profitable. We like them and want them because we'll get much bigger, faster growth. Between R&G, Verity, Specialty Chemicals, and Fuels, as well as other initiatives, we have multiple pathways to becoming EBITDA positive in the near future. Like I said, though, we want those NV projects built out, not just by us, but by others as well. Now let's talk about key milestones we've achieved year to date. I'm working off of the milestone slide in our investor deck. We have four business areas that we've bucketed things into. One is the hydrocarbon projects and their development. So first part, progress on MZ1 financing. Well, we still need to secure the equity investors. That should be, we can make progress on that more now that we have an indication from the DOE that should help us. We still need to know what the rules are for SAF and ethanol from the IRS in the rulemaking under 45Z so we can update the carbon value and therefore the returns in the project. We have been in close contact with our airline partners who understand that timelines are changing We don't anticipate any issues regarding timelines and contracts with them. This is very much of a partnership approach, and they've been very, very good about it. We will have to start out any economic issues that might arise from the rulemaking on an IRS on a 45Z. None of us knows exactly what it's going to include. We've been told it should be favorable, but you just never know until it's done. We've been discussing all this with them and with potential equity partners. to how to solve the issue should they arise. So we just need a little more information, and we'll get this thing done and figured out. Second one under this section is finalize the price and schedule for the EPC contracts. Well, we had a contest. We worked with several companies who had the potential to become EPC contractors, looking at how they worked and what they do. And we selected our lead horse. That's McDermott. The EPC terms look good. They're still working through pricing. to be transparent with no game playing. My team is gonna make sure that that happens. The next milestone was enter the diligence process for the DOE loan, done. As I mentioned, you're invited to the term sheet phase. We announced this on August 7th. And this term sheet negotiation is for up to $950 million of loan guarantee to finance the NZ1 projects. This is a really big deal for us and our shareholders. As a reminder, in January this year, the DOE invited GO to submit a Part 2 application to DOE's Title 17 Loan Guarantee Program. We completed that application and all the qualifying work that went with it. It's a lot of work. And getting through this successfully is a huge milestone towards DOE's conditional commitment for the project debt of net zero one and the financial close. We still, by the way, get this closed done with the doe this is going to take till probably in the second quarter of next year complete the design of atj critical modules this is all about de-risking the build out of the atj plant and we're taking a modularization approach we're doing much more heavily modularized than you would have done say five years ago this is all about de-risking the build it's underway the design is being worked on uh This is a strength of both McDermott and Praj with whom we work. The next milestone we had listed was sign the agreement with existing ethanol plants for ATJ. This looks on track, although it is slower than we would like because of the lack of clarity around the IRA bill and the 45z rules. I expect this will still happen with the focus of decarbonizing ethanol first as a prerequisite to building out ATJ. Complete the FVL2 design for NZ2. That's the 300 million gallon ethanol input to 195 million gallons of ATJ. Done. This was done by Burns McDonald, one of our other engineering firms with whom we work. No more money is being spent on this right now. It's shelved. It's going to sit idle for a while as we finish financing on NZ1. One other item on the NZATJ front. We verbally agreed with Axins to extend our relationship for two years. We like each other as partners. It's a great relationship. They're really good. We still have to paper up this agreement, but, you know, they're really, we work together well all over the world. The next business area is Verity. Here the milestone, first milestone is to sign up additional customers and partners for Verity. We already have Sire. with 135 million gallons per year ethanol plant. Now we have an additional ethanol partner that has signed up who has more than 100 million gallons per year. The goal of Verity here is to capture carbon value that's been left on the table and monetize it. So we want our partner companies to make a lot of money, and we will make money as they make money. Progress looks good. We expect to add more companies this year. The next milestone, expand Verity Acres track to 100,000 acres or more. This was slowed a bit because the USDA grant process has taken longer. We just got the final award notice and the final contract last week. So this should get going soon and we should have the money in the bank and be able to spend it. That $30 million is going to be useful. And with the USDA money in hand, we'd expect to have 100,000 acres by next season. One that we added as a milestone is that get the Verity tracking carbon tracker applications working in launch. That's been done. It works to track carbon and CI field by field and should help farmers make better decisions on how to lower CI. This is very good progress by the Verity team. The results look good. We can see field level differences in CI. This is going to be very, very important in the future as we make the case as to why improved agricultural practices can be measured and reported. We actually, believe it or not, we run into people in the government who go, They actually, they're told, oh, no, it's not possible to measure. Well, we've got the data that says, yes, you can. And we have it here. And it's straightforward. It took a lot of work to create it. And it's proprietary. But you know what? It works. The next milestone is provide guidance for 2024 and beyond for Verity revenue and do this by year end. I'm looking forward to seeing this, too. I'm sure Paul Bloom, who's in charge of Verity, will wait until the end of the year to give this to us. But that's okay. His team is making progress. Givo RNG, first milestone, complete the expansion of RNG and achieve greater than 90% of 400,000 million BTUs by the end of the year. This project's on track. Equipment's already being delivered. The expansion is going. We also have a milestone to produce more than 300,000 million BTUs in 2023. Our team has achieved 90% of capacity already. And the RNG plant is running incrementally positive cash flow basis, even with a temporary CI score of minus 150, which is low, and, of course, low LCFS carbon values. We expect profitability to improve once the score of minus 350 is approved and capacity increases. The next business segment that we have is chemicals and specialty fuels. The goal has been restart IBA and octane sales. Well, those plans are being put into place. The interaction with customers is occurring already. We're out there working on it. We're seeing a lot of interest for IBA and iso-octane. It'll start off as a specialty business, specialty products, specialty fuels, and then I think it'll grow from there. It's time to get the contracts in place for the IBA and iso-octane. And in the long run, we'd expect to be a really big business too. Next milestone is the scale of E2 to E2 to the pilot plant stage. Well, this is on track. So we've developed a lot of proprietary technology here at GEVO. It's showing up in our NZ plant designs for ATJ for methanol and IBA. We have proprietary technologies like ETEL and IBA. I like the opportunities that are opening up for chemicals and plastics because of our technology and intellectual property. We are excited about Verity, both about what it can do and the intellectual property that's being created as we do it. The more we get into it, the more potential we see. For Verity, this isn't just about tracking carbon. It's all about monetizing that carbon. That's where we want to get to. Now, at the core of Jibo are several technology platforms. I've just listed some. By taking on the roles of a developer, licensor, in addition to project investment, we think we can optimize the use of our capital and grow EBITDA faster, leveraging those technology platforms. So overall, we'll stay focused, driving towards a positive EBITDA sooner rather than later, and managing our balance sheet, optimizing the use of capital. We are keenly interested, like you, in seeing our share price be maximized. Now I'll pass it off to Lynn to talk through the operations and numbers, including our dairy R&D asset.
spk09: Thanks, Pat. GEBO's Q2 combined revenue and interest income was $9.3 million. with the interest income benefiting from higher interest rates. Our corporate spend, that is SG&A, was $6.7 million for the quarter, excluding non-cash stock-based compensation of $3.9 million, which is a $0.2 million decrease from Q1 as a result of our cost control efforts. Debt related to the Northwest Iowa RNG project was $67.6 million, consisting of $68.2 million base value less on unamortized premiums and issuance costs. We ended the second quarter of 2023 with a strong liquidity position of $426 million in cash, restricted cash, and other liquid investments. The restricted cash portion is associated with our Northwest Iowa RNG bonds, and certain collateral related to the development of Net-01, in total $77.8 million. During the second quarter of 2023, we invested and capitalized $17.7 million cash in capital projects comprised of $9.8 million into Net-01, $3 million into Northwest Iowa RNG, and $4.9 million into other MZ projects. As has been discussed, we intend to finance the majority of NZ1 capital necessary to fully construct and start up the facility at the net zero one project level with debt and third party equity. It's also worth noting that while the DOE loan is the primary track to secure construction debt, we are exploring a syndicated bank loan process in parallel so as to keep our options open. Our dairy RNG asset in northwest Iowa has been injecting into the pipeline since June of 2022. This last quarter, the project achieved impressive year one performance against its design capacity with on stream injection of 97% and uptime of 91%. RNG revenue realized for the quarter was 2.9 million using the CARB low carbon fuel standard temporary pathway approval of negative 150 CI. Despite being constrained to the temporary CI score, we achieved positive standalone RNG EBITDA in Q2, and we expect to improve results with the CARB's final approval of the project's negative 350 CI application submittal anticipated to occur in 2024. We can't say when exactly in 2024 as timing is dependent on the CARB process. But achieving the permanent pathway will substantially improve LCFS credit revenues under the California program itself, as well as per the terms of our marketing agreement. In addition to the project having approached its full design capacity with an annualized production rate of 355,000 MMBTUs last quarter, we are expanding the project's capacity to 400,000 MMBTUs per annum, expected to be complete in Q4. Regarding our ETO technology, we received payment of $1.3 million for the second quarter and expect to get another $1.2 million over the next two years associated with joint development efforts. We expect other payments upon commencement of commercialization, including royalties on net sales from future production volumes. I'm really pleased that we have a pathway to positive cash flow. We've trimmed back our corporate burn from what was originally planned, and our project spend is expected to decrease. Cash flow from R&G and fees and licenses have helped put our net burn on a downward trend. With that, I'll turn it back to Pat.
spk06: Thanks, Lynn. We're making really a lot of progress. It's good to see some of these things come through. I'm looking forward to our success. Great. Let's go forth. Let's open up for questions.
spk00: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. We will be taking questions from research analysts at this time. Please stand by while we compile the Q&A roster. The first question comes from Sameer Joshi with HC Wainwright. Your line is open.
spk11: Yes, thanks. Good afternoon, everyone. Thanks for taking my question.
spk13: Just a clarification on the RNG revenues, the $2.9 million amount on 77,000-odd MMBTU Does that also include the LCFS and LCFS with a score of negative 150, or are there some other exclusions?
spk05: No, it has the LCFS at minus 150 value in there.
spk13: Okay, okay. And I know Lynn confirmed, but the 400,000 MMBTU capacity, what are the additional steps needed or additional money needed to reach that capacity over the next two quarters?
spk06: It's small. So small enough that I don't recall. So it's stuff that we had already done as part of the project. So it's a few million dollar expansion. And some of it probably would be subsidized by the – I forget what part of the 40 – the IRA bill what section of 45 it is the investor tax credit it's probably cover some of it too we'll see but it's a small amount of money the equipment's on site it's about optimization work we have extra capacity we have extra room to inject more into the pipeline and so we might take advantage of that so it's going along pretty well that's that to get that project up to 400,000 million BTU rate. That will happen in the fourth quarter is what the team goal is. I expect it to happen that way. And we should be in pretty good shape as we head into 2024. The RNG business is actually a pretty exciting business. We have figured out stuff that no one else seems to know about how to really optimize the heck out of this. We did throw quite a few engineers at this and a lot of data scientists to sort things out, and it's paying off for us. We like it.
spk13: Yeah, no, it's good to see actual revenues on that front over the last couple of quarters. On the LV1 front, is there sort of an EPC process that needs to happen before the DOE loan can be finalized? Are there any interconnections and interdependencies between the two?
spk06: There is, because you have to have an APC, you have to have a price done to finalize the loan. The trick is that we like McDermott, and we like the potential and how they operate, and compared to the other guys who we've been talking about for APC lump sum turnkey, in that their terms are reasonable. They're pragmatists. They want to see this done. They want to work closely with us. That's good. Good. One of the problems that we have in an inflationary environment, if you ask for the lump sum turnkey price now, or suppose you ask for it six months from now, I guarantee you it would have been padded to beat heck, like crazy amount of padding. And so it doesn't make sense. Inflation is moderated in some places. Equipment supplies have loosened up. And so perspectives are changing. So if you don't ask for it at the right time or you don't work through that and you get it premature, you get a crazy number. And so we have had, we've been keeping track of all the capital all the way along. My team is actually capable of doing that itself. And so it has been very useful for us as we work with different potential EPCs. We know when to call somebody, we know how to call somebody out. And so, It's a balancing act that we do. We have to have the final updated numbers, but you don't want to ask for them too soon because it'll be wrong. And so we'll be working through that, pinning down the lump sum turnkey price with the lead horse is McDermott. We have a backup already. And we'll get there in the right time frame for the DOE loan close. But we also, I mentioned this point, the other thing we're watching carefully is what happens and when on the 45Z. The 45Z is that section of the IRA bill that talks about the credits that would be applied to staff and what method. The thing is, is that they're going to give initial guidance on a part of that 45 section anyway. And the IRS is going to come out with some rules about how this is supposed to work. We've been told it should come out favorable for people like us. and but you never know what it is we've got but we do need to know what the what the value is and how to calculate it so we can plug it into the economics um and we we're not alone in this this is everyone's got the same issue so we're all kind of watching and waiting and see how this all works out and they have heard input from all kinds of us we've been on we've been up with the administration in the capitol hill all the departments and uh lots of people and there's really getting it clarified to use argoncrete, and there might be slight variations of it. But it should come out in pretty good shape, is what I would expect at this point from what I'm told. Nothing counts until it's done. And you know what? We still need it done, or at least indicated in what direction it's going, so we can plug the economics into the overall equation.
spk13: Thanks for that, Kyler. Interesting development on the ETO front. meaning the amounts that have been talked about from these teams seem small, but I'm sure this is a much, much bigger opportunity in the mid to long term. Do you have, like in a business plan maybe, like what are the next steps on this once you finish your work with LG?
spk06: Well, the ETO technology is something that we have worked on for, you know, we've been doing People often said, gosh, why are you guys switching your technology from alcohol, from isobutanone? I thought, you know, for us, they're all alcohols and the chemistry on them is very related. So we've been doing this for years and we have a bunch of patents on this, hundreds. What's interesting about ETO is it looks like it cuts out a huge amount of capital out of the alcohol to jet process that is typical from whether it's Axons or UOP or anyone else who's out there. It saves steps and it saves operating cost and capital. That's what it appears and looks like. And so we have been looking at it from that standpoint, but we also recognize that we can adjust the catalyst or operate it so we can make propylene or butylene. propylene is one of the ones that's one of the hardest molecules to make from a bio base in high yield and It's also one of the most valuable products in the marketplace in terms of its overall volume and What it's useful for because it is a typical thing in Consumer goods typical ingredient for consumer goods or plastics or fibers and clothing and there's a whole bunch of stuff How do you what's interesting about this is our propylene is would be somewhere in the, you know, approaching maybe a minus 100 CI score. That's interesting. The world hasn't seen that before. That's what attracted LG. And they see that there's an opportunity there. So we have to go work through it, scale it up, figure out what we don't know yet. But that's all going along pretty well. We've been operating it in many plants for a long time. Um, and we just got to go through the work of figuring out what is it, if there's anything we don't know and work through any of the operability issues. If there are any, we don't see any, that's what has to be done next. And then they, it would get rolled out, uh, I think pretty quickly in plants to get built. And it would be along in that zero one style plant. It'd be right along the same exact same concepts that we just engineered would reapply here. And, um, You'll be, I think we're going to have a pretty, you'll see on the fuel side, we're going to turn up with a pretty interesting partner there too, who wants this and sees the value of it. And two, it's going to be, it's a good technique, saves money, saves production costs, saves capital. It's just, I wish it was ready for prime time today. It just isn't. We got to do a little more work first.
spk13: Yeah. And I'm sure there too, you will have other carbon reduction, technology from energy usage point of view, that would further reduce that.
spk06: You hit on an interesting point. One of the things that we look at is people are all interested in these materials. I look at, we're the first to do PET, fully renewable PET. I've seen others claim it to be first. We did it first. We did it like a decade ago. Big deal. We can do that. We have technology for it. It's about putting the business system together. We're not looking for, and we want big business systems that leverage each other. The fundamental thing that we're doing is we can make these basic building blocks for the petrochemical industry, right? Basic building blocks, same building blocks that they use. And we de-risk the hell out of them, can make them from renewables and make them carbon negative. And they will be, I believe, the lowest cost that can be made because of how efficient they are with economies of scale and and the whole business system approach that we're taking. So even though we focus on fuels, I think sometimes people put us as a one-trick pony. No, no, no, no, no, no. That's the wrong thing. Nobody does that. That's stupid. What you do is you use the fuels to drive economies of scale, but you open up all the chemical opportunities along the way. That's important. That's what we're doing. That's how we think about it. And as this all becomes more real, I think people in chemicals go, oh, that is going to happen.
spk13: That's interesting. Yeah, yeah. It is very interesting what you're doing there. Just a bookkeeping question, last one for me. This line item, the factory idling costs, should we expect it to be around a million for the next few quarters, or do we see any change in that? depending on, I guess, ethanol prices and stuff.
spk03: What cost was that? I'm sorry.
spk13: Oh, sorry. The line item in the income statement called facility idling cost.
spk06: Oh, that'll stay the same. That's for our Laverne plant. It's sitting there, and we're going through the process of when to start it up, how to start it up, how do we use it. It's a It's a very good development site. And so I would just it's going to be it's a I think that total cost for the year is like a couple million dollars. So that's something we should confirm with you on a follow up call. But it's not a huge amount of money. It's not a huge amount of money. And it's just basically idling it. We're actually using that plant right now to educate customers. So we've had more than 65 airline customers. So these are customers of airlines, the people downstream of them, up to our plant site, showing them what we're doing, how we're doing it, taking them out to farms, showing them how modern planting equipment works. And usually the result is their minds are blown about the state of art of what's actually happening versus what, you know, if you just listen to the press and the doom and gloom, it's wrong. It's just plain wrong. And so it's quite impressive to see. And so we've been using it for stuff like that. But I think what will happen, its future probably is that, you know, we have some, we've got to finish cooking the plans, but at some point we'll probably start it back up and use it for making specialty products. That's what I would expect.
spk13: Yeah. Yeah. Okay. Thanks, Matt. Thank you. That's all I have.
spk00: Please stand by for the next question. The next question comes from Derek Whitfield with CIFL. Your line is open.
spk10: Thanks. Good afternoon, Pat and team, and congrats on your updates.
spk23: Thanks.
spk10: Regarding your Northwest Iowa RNG project, the expected negative 350 CI pathway is considerably better than the temporary and the previously noted negative 240. Could you comment on what's driving the variance between the current and previous expectations and if that delta Is the result of the optimization work of your engineering team?
spk06: Yeah, the answer is yes, it is. It's the optimization work. We did some modifications to the digesters and how they operate and also the lagoons. And then it's more of having real data available to us. And that all went into the calculation for it. So that's what should happen. It should be a minus 350. You never know what CARB will do, though. But that's actually what depends on what the result will be with real data. Now, we are data hogs. You know, this is, you know this already because you spent enough time with us, but we're like, we count stuff and we got sensors all over the place. So our stuff is more instrumented than what you would find at other operations from what we've been told or what we have seen as we've met with other people. And we take it, we believe that RNG should be treated like a manufacturing plant. It's a manufacturing operation. There's a lot of value here to be operated right, managing it like you would a plant with operating discipline. This is a concept that for people who are operators and run plants, they understand what I'm talking about. But you do it with engineering approaches and plant operations approaches and discipline and measuring and improving along the way. And that's what you're seeing here. And we also have a bunch of stuff of equipment that we put in of how to think about things. How do you make things work properly and do it so it's robust? Because you don't want plants that are going up and down. That screws things up royally. You want them to be steady. And that's what we've been able to achieve. We have a question in front of us, and we're sorting it through, and I don't know what the answer is yet. But how do you best expand this, capitalize on it further? How do you do that in a way that balances against our other capital needs at Jibo? That's stuff we're looking at right now. And I think there'll be some dust settling here in the near future where people who haven't taken, they didn't have maybe the engineering capability or have, I don't know, whatever their problems are, there might be some deals out here. So we're paying attention to that. I don't know what I, I don't have a firm opinion yet, but it's prudent to take a peek and see what's out there and what we can apply our knowledge to and fix and make it work and get paid for it, of course.
spk10: With that said, Pat, and that's exactly where I was going to go with my follow-up question, does it behoove you to lean more into R&D given the expertise you've picked up through that operation? And would that be in an operating development perspective where you invest, or would that just be in a similar developed licensing type approach?
spk06: I think it's that in R&D we'd want to – Ideally, yeah, we want to expand there and we want to operate assets is what we'd want to do. Not just help people because it takes discipline to operate this stuff. You really got to be a plant operator mentality. And we want to find those opportunities. Now, we could, the problem that we're seeing is that There was so much euphoria over RNG and all the stuff that might occur. You know, people bid up the cost of manure and they bid up the cost of access to farms and they bid up, you know, everything. And so people, it's irrational. Now, the price in California being low is going to help to adjust those people out. And so I think there's going to be some development projects that will fail. People who had projects planned, there were developers trying to push them, I think they'll fail. And so I think there's going to be opportunities. So part of this is trying to find out what those are. I think we're just beginning to see some of those guys go by the wayside. And there's only a few of these technologies that work well. It isn't like there's a, you know, I'm talking about the actual digesters. People are finding out that there's lots of problems with European-style digesters. So it's one of these things where there really is know-how here, and we're going to take a peek and see where we can fit and how do we expand, but we have to do it in a way that balances against our other capital needs. I really do want to see – I want my money into an NZ1 project too, the actual investment into the project too. And so we're looking for the right opportunities. And so if you know him, Derek – You've got to tell us because I'm interested in those. And we'll look at them and see how we play and how we can add value and make it accretive for us.
spk10: That's great. And then maybe shifting over to your licensing and development business model that you articulated during this call and similar to what you had with LG Chem. How should we think about the returns and capital requirements for this approach and And more specifically, on the revenue side, will it be recurring and linked to the carbon credit markets?
spk06: Well, I think it will almost always be related to carbon value. So, you know, the bold truth of it is there is no technology on Earth that compete with low cost petrochemicals. You know, if we're making renewables into, you know, that are decarbonized and low carbon. No, the petrochemicals are cheaper. So it is the carbon value that has to come into play. Now, the thing is, we can get the cost pretty darn close. You've seen our economics, so you know this, that our economics, they can come pretty darn close, and they're good. But to justify on a cash cost basis anyway, but on the capital cost basis, where you've got to include those economic returns, we have to deploy new capital. So that has to be supported by somebody's perception of carbon value. That can be done in the market directly by placing the products with the right channels. Those tend to be specialty products at this point. Or it has government support. Well, this is why people are chasing fuels, because that has government support both at the state and federal level. And in the chemicals market, it's interesting because the chemicals market, you know, you've done the math. You probably, you know this, is that, you know, a plant like ours, a, you know, like a plant like ours, a $65 million plant, gallon hydrocarbon plant, that's like, when you put that in tons, it's big. It's in the hundreds of thousands of tons. It's a giant chemical plant. And so even though for us, we sound like, well, it's just a 65 million gallon plant. Well, that's pretty small in the grand scheme of fuels. That's true. It's small in the grand scheme of fuels. But in the world of chemicals, it's a world scale plant. And that's the disconnect that occurs. So this is why we like our approach of being able to leverage off of stuff we're already doing. we're already making olefins in a net zero one design. We're not making the olefins. We can add incremental units to make even different kinds of olefins and we should divert those, at least some of that stream into the chemical market because that is a significant size or at least potential size. And you know what? It's flexible too because we don't have to send it there. We can just send it onward to fuels anyway. That's how we think about it. In terms of the value of it, I think that there really are specialty markets that are
spk10: make a lot of sense we'll just have to figure them out pat maybe lastly for me um just with uh kind of what's going on inside the beltway what's the latest unexpected timing on 45z rulemaking from u.s treasury yeah i think what they'll do is uh i think it's going to be in the in the fall here sometime and probably
spk06: late fall. I've heard the estimates go from September to December. And I haven't heard anyone say it's going to get punted to next year, at least not very many people say that. Most people think it'll be sometime in the late third, early fourth quarter, something like that. What I can expect is you're not going to remember the 45Z for the blenders tax credit or the producer's credit that comes into effect in 2025. What you're going to see is like the precedent set as to how to do some of the other rules that are related to 45, section 45, and how to count carbon and stuff like that. You'll see that start to get described here in this rulemaking, but it won't be a final rule set, but it'll be good. And it'll be a good indication of what to expect. It'll also might draw some battle lines where we're going to go fight for stuff too, because, you know, we're trying to count all the carbon and make improvements. And, and enviros, I, sometimes I think enviros don't want anything. They don't want any any fuels made. They don't want from any source. So it's this very weird dynamic that's going to occur. I think that because the people are anticipating a split Congress next year, that's actually helpful. So by taking an approach, we actually measure carbon accurately and reward it. And you do it in a transparent, measurable way. That plays. That plays to everybody. It's a commonsensical approach. Let's get the damn data and measure it and reward people for making improvements and do it. That plays, and it's hard to argue with, but we see some of these far-out enviros. They're terrified of that even. That's helpful. Thanks.
spk00: As a reminder, to ask a question, please press star 1-1 on your telephone. Please stand by for the next question. The next question comes from Manav Gupta with UBS. Your line is open.
spk22: Good afternoon, guys. I'm going to, if you don't mind, just stick to more macro questions. I want to pick your brain. You have indicated that you expect your eventually RNG to have a negative carbon intensity of minus 350. Yeah. We keep hearing chatter, and I strongly oppose this, to be honest with you, where people say that A, RNG should not even be part of the carb, and B, try and cap it at minus 100 or minus 150. So I'm just trying to understand, when you hear those things, what is your response, and is this something you would be lobbying for where you say, you know, minus 350 is what we really deserve because that's what value we are adding?
spk06: Well, I think when you follow the rules to measure the stuff, like California has outlined, it's minus 350 is what pencil's in. I don't think of it like that at all. Mine is a completely different paradigm. I think it's this. I think methane, fossil-based methane, natural gas, is one of the greatest polluters and greatest generators of fossil-based CO2 and greenhouse gas emissions there is. I know that we, in evaluating our NetZ plant designs, the biggest enemy was the use of natural gas, which is why we've made such improvements. We could transfer, we view that there's an R&G business here where you can transfer it at attractive prices to a plant like our NZ plant, or any other plant for that matter, where you can make good money on an R&G project and you don't need California at all. In our long-term plans, we don't need California or that CI score. So it's a very different point of view that we have. It's about the transfer price and whatever the rulemaking is under more like a standard greet model. So we are not counting. I guess real bluntly, you're not going to see me bet big investment on counting on California at minus 350. You're not going to see that from us. You're going to see us do it at... market prices per MMBTU that work to make good money at a dairy RNG project like we have, and they're efficient ones, and then transferring it to some production facility of some type where that carbon value can be transferred. That's how I think it's going to unfold in the long run. So we wouldn't bet on counting on minus 350 in California, our California LCFS saves the day. You know, we just don't think like that. We're looking at a different business, actually. We think of it as creating the option to get rid of fossil-based natural gas out of our business systems. That's how we view it in the long run.
spk22: Perfect. I agree with you. My quick follow-up here is one of your peers, a competitor yesterday said, look, SAF is a very strange market. The demand is infinite and the supply is pretty much zero. And then they made some comments around pricing. And I'm just trying to understand from you from a long-term perspective, when you talk to airlines and stuff, how do you see them actually pricing SAF? Like how much higher versus the jet fuel or any benchmark? How should we think about the pricing on the SAF side?
spk06: Yeah, that's a really good question. It's the thing that we're paying pretty close attention to. because the real practical matter that you're alluding to is that airlines themselves can't afford to pay premiums for SAF, at least not very much, unless they find a way to pass it on to their customers and get them to embrace it. The customers have to embrace it. Or everybody in the industry has to do it all at once and say there's going to be a surcharge for these new fuels. Ah, but then there's a chicken and egg problem. So this is part of the problematic issue we have in and around SAF. The way to break it down and think about it is like this. A product like ours made in a net zero system, it's pretty darn low cash cost. It's reasonable. It's our capital that has to be paid for. That's what builds up the cost, right? So you think about what's that going to take, and then you look at how much carbon value is going to be in the marketplace. So the way you think of revenue is this. Our jet fuel for sure has at least as much if not more value technically, just as jet fuel than a petrojet molecule, right? Without counting carbon. The carbon value itself then comes from, you know, the RFS, the 45Z, if they ever pin it down, right? The state programs, and there's several of them. There's LCFS, there's a buck 50 available in Illinois, another buck 50 in Minnesota. Oregon beats everybody because they have a higher premium for all those things. And so you've got to take all those things and stack them up and then ask what's left on the table. And is it something that the airlines can accept? Well, our contracts say, yes, they can accept that. It's reasonable. It's in the small category. It's incremental. And so you have to have investors at the same time who have a long-term view that carbon is going to be valued. Now, in our point of view, and as we started thinking about this years ago, we believe that there is value. fickleness in government policy. And you know what? Ultimately, we want it to be a consumer trait, something that we can show to consumers and they can say, yes, I think this is worthwhile and I pay for it and I can see it. This was the genesis of our verity tracking. That is the purpose, is to get it bulletproofed, audited, measured, transparent. So, you know, you want to fight about data? Bring it. We've got the data. We'll lay it out in the open for you. And let's have the discussion about facts. Because what we see in this space is all kinds of BS hand-waving of stuff. And you see that being attacked right now, even out of Europe, with some of the issues around these, you know, carbon offsets and stuff. We're doing insets, the actual real carbon attached to real products and measuring it. And that's what ultimately has to happen. That's the system we created. And the airlines love that. And because that's all part of creating the value across and making the carbon bulletproof. So, yes, it requires some extra premium from airlines. Yes, it requires carbon value from state and federal policies. And yes, it's going to require carbon value, I think, in the long run. And this will be something that grows over time as consumers find out that, no, really, it's real. That's how I think it's going to unfold. But we're already in the hunt of when you take all the carbon value, add it up, and you just say you use that as a carbon credit against, or use that credit against the total cost, you know what, the economics work, and it is in the range of affordable for airlines. Already, at least with our stuff. Other people's stuff is different. They're at a higher price.
spk22: The last question for me, and a little bit of a follow-up on Derek's question, like as you grow your RNG offering, you know, the environment is pretty supportive. Which are the key end markets? Would you like only to supply to the transportation market, or is it going to be more to the utility market? How would you describe your end market for the RNG that you are producing? Thank you.
spk06: Well, today the paradigm is that we're selling the transportation fuels in California because that's where you make the most money. There'll be a question in the future, barring any changes that occur or any new influences from government policies, that shoot, we should take that gas up to our net zero one plant, drive the CI score down further. That could be something we would do, and there's potential there. And it will depend upon which is more valuable, sending it to transportation or sending it over there as gas to do the thermal load for a manufacturing plant. There are things that are wild cards here, though. I was talking with some folks yesterday, they were talking about, you know, the hydrogen and the potential to generate hydrogen and how do you get more green hydrogen and how do you blend, you know, a carbon negative RNG type with brown hydrogen to make more hydrogen. So will there be an opportunity there? Show me the money. Let's see what it is. And we'll look at it and see. So I can see there's definitely could be influences from government policy as they weigh into this stuff. I've seen, you know, hypothetical things. I don't know that I believe them yet about the 45 Z of being kind of a windfall towards RNG projects. I don't know if I believe it, but if it's true, well, that's going to cause people to pay attention for a while, but it's not going to be sustainable in the long run. It's an unreasonable amount of money from what is being talked about. Could that influence? Yeah, sure, fine. You want electricity made out of it? I get paid an extra 20 bucks, a million BTUs, fine. You want electricity? I can make that happen for you, no big deal. So we have a point of view of we're out to make money is what we're doing here. And we have the, not a luxury, but we have an unusual capability as a small company in that I got really strong technical people, engineers, operators, practical people. And so we can adjust to stuff as it unfolds. And that's kind of how we view it. We'll go where the money is, man. That's what we'll do. I just don't want to speculate on it.
spk21: Thank you so much.
spk00: I show no further questions in the queue. I would now like to turn the call back to Dr. Patrick Gruber for closing remarks.
spk06: Well, thank you all. This was a longer one today. We felt it was important to try to really get on the record how we're thinking to make it more clear. I don't want to have people think that we're not planning on being an investor in our projects. We are planning to be an investor, but someone has to play the role of developer. We are playing the role of developer. We're the best suited to do it, but we're more than that too with our technology developments. And so that makes us in the role of people who really do pay attention to technology and how to improve things. So we're trying to clear up a whole bunch of these questions. Thanks for sticking with us through this. Thanks for your support. And I wish you all a good evening.
spk00: This concludes today's conference call. Thank you for participating you may now disconnect.
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