Gevo, Inc. (NASDAQ: GEVO)
Earlier this morning, I had the pleasure of speaking with Dr. Pat Gruber again as part of our ongoing discussions with the company. Today, things went a bit differently. For this interview, I didn't write a single question. Instead, I reached out to my friends on StockTwits to see what your questions were. At the end of the day, we ended up with tons of great questions. Many that I didn't think GEVO would even answer at this point. Nonetheless, all questions were answered and I learned quite a bit about restructuring, Luverne, Lufthansa, and more! Keep in mind that if you would like your questions answered during the next interview, follow me on StockTwits and look for the messages surrounding the topic! I always give investors an opportunity to ask questions that are important to them.
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Gevo's Pat Gruber Speaks On Recent Developments! Transcribed Below!
Keep in mind that I did not edit or change any questions in any way. I asked them as you sent them. Here's what you asked about GEVO and what Pat had to offer in his answers:
Question – As a shareholder, with a sizeable % of my portfolio in GEVO and an average of 62 cents, should I be concerned with January 23rd?
Answer – This question's come up before. We're not doing our jobs if we get ourselves delisted. That's being stupid on our part. And tell him happy birthday too!
Before we go on to the next question, I explained that the above question was asked by my buddy Brad on StockTwits and that it was his birthday. It's awesome that Gruber didn't mow over that fact and took some time to say happy birthday to Brad.
Question – Does Gevo currently have ASTM certification for their ATJ?
Answer – Yes, that's the certification that was announced some time ago, earlier this year.
Question – Does GEVO currently have MIL-SPEC certification for their ATJ?
Answer - No. That's in process. There was one airplane that needed to be tested, and I just don't remember which one it is - one of their advanced fighters - and they didn't have time to test it until some time in the fall. But I don't know the schedule from there.
Question – Previously, there was a flight planned for Alaska Airlines using biofuel derived from woody biomass sometime in 2016. Is the flight still on schedule?
Answer – I do believe it's going to happen... yes!
Question – If you had to rank the top 3 goals for GEVO over the next 12 months, what would they be?
Answer – Sign up customers on long-term off-take agreements so that we can build out the capacity of Luverne to supply isobutanol, iso-octane, and jet fuel. That would be the primary objective. We have to refinance our debt. That's a must-do - we have to do it. And then get the capital needed to build out our plant at Luverne. Of course that's why the off-take agreements and such would tie into that. The third one would be lining up the off-take for plants beyond Luverne. That's our goals. I'm still working on them. I think those make pretty good sense. So, I wouldn't write them in stone just yet, but they are kind of real pragmatic things we should be doing.
Question – American Airlines has hired Ocean Park to assist in evaluating alternative fuels. Has GEVO reached out?
Answer – Ocean Park knows us well.
I went on to ask if Pat thought that GEVO was part of that discussion at the moment.
Answer – There's the stuff from vegetable oil that [company name] (I couldn't hear it because I have the flu and happened to sniffle in this part of the recording) is doing and some of the others are doing. There's that, and then we're the only one with an economically viable solution that uses carbohydrates so far. One that has, basically, really super low technical risk. Isobutanol works and the jet fuel works. So, it would be inconceivable that we wouldn't be considered.
Question – Pat tweeted on June 11th, “Isobutanol could qualify as an advanced biofuel under the Federal renewable fuel standard.” Has this been decided? Where does this stand?
Answer – I think it's gonna be interesting to see. I can't... I don't have... The EPA has to come out with their ruling. So, one of the things that's interesting about isobutanol is that other alcohols, even though they were made from corn, could be approved. That was written into the law way back when. So, they've just got to come out with the final ruling.
Question – Recently, your twitter page has been lighting up more. Especially over the past 2 months. I want to know if this is a new focus on using social media and can we expect more new efforts toward strong investor outreach using platforms like Facebook and Twitter?
Answer – We're trying to learn, and that's probably what Shawn said (I asked Shawn the question before Pat joined the conversation). Facebook, I don't know that we'll use Facebook. I don't know... Shawn, do you have any thoughts on that?
Shawn – We won't be on Facebook, but LinkedIn and Twitter will be the two primary social outlets.
Question – Do you feel that there are any airlines that are discouraged from pursuing contractual commitments with GEVO due to company uncertainty regarding financial stability and or Gevo's inability to meet any current or near-term future demands for jet biofuel?
Answer – That's a multi-part question. So, number one, does our balance sheet give cause to anyone? The answer is, not so far. And I don't expect it to because our balance sheet keeps improving every month, pretty much. And I expect that as we refinance the company, that problem, that concern, will just be gone. I think Lufthansa is a great example, their idea to do a confirmed take or pay off take agreement, where if we make it, they buy it. The reason they do that is to give the investors that built our plant confidence that there's someone out there who will take the product. So, I think that's a good sign that people recognize that this is important.
In terms of meeting future demand... the industry... there aren't that many ways to make a renewable based low carbon jet fuel. There just aren't. They can do it from vegetable oil using HEFA, which a technology that [illegible company name] and ULP is commercializing. And there's been a couple companies out there. SK recently did a big announcement with Jet Blue. They talked about it as the biggest thing ever. Well hell, the deal we did with Lufthansa is actually more gallons than what they announced. We did it and reported it as the 8 million gallons per year over a 5-year period. These guys did it on a blended basis and talked about it. And so, you know, it sounds like a giant number, but you know, OK fine, people are going to try to spin this stuff for their advantage.
So, the real issue is that there isn't capacity today. And when they have these multi-carbons and you have to build them out, they are more expensive than conventional jet, especially when oil is at a really low barrel price. When you look a couple years out and say, “What will things be in the 24 to 36 month time frame?” where this stuff becomes relevant because that's the soonest anyone can build real plants that are big, now it's a different game. Even guys like us can have a cost-competitive jet fuel given the current biofuels policy. So, we are key on building out Luverne, and making sure that the upscale plant work comes along. I like isobutanol a lot. There's a lot of demand for isobutanol, and with it, we're going to do jet fuel. But, I don't want to go from 75,000 gallons per year, like at our demo plant, to 50 million gallons per year at a giant plant, where it would be cost competitive with oil. I think we should do - it's prudent to do - an intermediate step. And the intermediate step is we build it out at Luverne and call it in the 5 to 10 million gallons per year kind of range, something like that.
The reason we would do that is to get really good at running these plants. We don't have fundamental technology issues, but there's always a learning curve when you build new things. We just want to make sure we understand it, especially like doing the recycles and who knows what pops up. But it's also about how do you deliver the product in the supply chain? How do you do the blending? Where's it go? What are exactly the steps along the way? That's what we're working on now is putting those together.
Question – Has GEVO found any opportunities to increase jet fuel production efficiency and output with existing capital?
Answer – It does depend. So, there's potential options, but we're going to have to raise capital to do it. So, if I interpret the question as can we get more out of the Silsbee plant? That doesn't matter, its irrelevant. So, yes I could, but I'm more focused on iso-octane down there at the moment. Because jet fuel, it works, it's proven, it's ASTM approved, everyone looks at it and goes well yeah, OK, sure, you know, I get it. There's no reason to buy it today per se. It already is proven. They want large quantities, that's what people are focused on. Then, if I'm talking about where I get those larger quantities, now I have to build something to make that happen. In which case, whatever I build, that requires capital. And then it's a question of what are the sources of capital. So, we'll have to turn up the capital from somewhere, somehow, some way. That's for sure. There's multiple options.
Question – My thought is Pat can't really tell pending info or give people an early heads up. So, if it were asked are there any buyout talks etc he will say “cannot speak on that.” But maybe it can be asked “what is not off of the table?” Would this be something that Pat is open to? I know he can't say what exactly is on the table, but can he tell me what has not been taken off?
Answer – We're open-minded to anything that is valuable to the shareholder base, broadly speaking, and the debt holders, and ourselves. You know... so, we're open-minded to anything, and what's interesting about this is we are at the point now where it's unequivocal, our isobutanol technology works, it has potential, and all the rest. So, if it's built out big scale, it's going to work, technically and economically. That's what it looks like, and we can show that. And, there's customers, there's customer demand, and it's growing, and we can prove that too.
On the jet fuel side, the jet fuel is one of the largest opportunities that is out there. And it's a relatively simple product once you have approval. You know, of course that's brutal. It takes several years. We're one of the fortunate few that have approval. So, that's something that creates opportunity and is surprising for people. Especially when the company sees that the airline industry is serious.
And then we have iso-octane as a product. And iso-octane is one of the ways where you can put lots of renewable carbon content into a gallon of gasoline. Because you have your normal gasoline and it's got 10, 15 percent maybe something bigger, 30% ethanol. Well how about this. How about the other 70 to 90 percent being something like we make, and have it be economical. I like that. There's a huge potential there.
So, we are on a sweet spot of technologies and products that have enormous market potential. These are not specialty products in the long run. That's not lost on anybody. So we have a combination of technologies that work, large markets, and customers that are starting to sign up for off-take agreements. All that does is make us more attractive for all types of investors in all types of situations.
Now, we have to restructure our debt, though. That's one thing that people to really pay duty to know that. It's a current liability. Anyone that looks at our balance sheet knows it. We're going to restructure it. We have to restructure it. And until we restructure it, there's a lot of people watching going, “huh.”
I think we talked about this once before, but you know, there was a lot of times that we didn't have so much cash in the balance sheet. Then you have guys looking at us going, “Gosh, I wonder if they go bankrupt, and if they do, I'm going to buy it really cheap.” You know, that's how people think. So, screw them! How about this? How about... we'll be successful, we'll build the value of the company, and they can pay a real price if they're interested. How about that?
Question – Someone is offloading millions of shares daily. Is this something that GEVO has investigated or for some reason, is part of?
Answer - I think you have a couple things. One of them is that the last PO we did, we sold warrants along with the stock, and so, at some point, we'll have traded out the stock and they'll have done warrants too. And one of the other deals was like that too. So it's possible that that's where they're coming from. But in terms of specifics... so it doesn't surprise me that there's shares out there that are coming up. Whenever you have these warrant deals like we have, that happens and it's just a question of when they come out.
Question – Congrats on the Lufthansa HOA. Can investors expect for the deal to be finalized in October?
Answer – You know, it's going to take us a couple of months. So, we have... we're working on getting the supply chains lined up and the details of it, and we're making progress on it, but I don't see it in October, no. It will take us a couple months, few months, to get done. One of the things that I'm keen on is that I would like to see more than one airline involved. It's just a practical matter because I'm interested in selling beyond Luverne. I want large capacities of the jet fuel beyond Luverne. However, to get to large capacities, I'm telling everybody we've got to go through Luverne. And, Luverne's got to become profitable too. That's my criteria, that's the discussion. So, we're hanging tight to that.
Question – Any time positive news is released, it is followed by a public offering. Is this a trend that we can expect to continue and why?
Answer – We have to restructure our debt. So, I don't know if it will continue or not. It depends on the situation, specifically, and what's going on. And there's different circumstances that would dictate one thing or the other. One of the things that people need to understand is that, by us having raised the money we did, we now have some leverage on our side in how we negotiate with debt holders. That's a good thing versus our back being to the wall! So, this is all about restructuring our debt. Now remember, the last deal we took $11 million, a little over (it was $11.4 million), of debt off of the books in the last thing we did. So, we're keen on getting rid of debt, restructuring it. So, it's just we have to refinance the debt prior to the notes being due in March. We do. So that's our focus, so that's what drives us in doing these deals is figuring out how to get that done most effectively.
Question – There were reports last year that certain military tests hadn't been completed yet which was halting possible military contracts. Have these tests been completed? If so, are there discussions taking place for any military contracts?
Answer – There was one more airplane platform to test - we covered that earlier. I don't know that they've tested it. It was scheduled for the fall, and I don't know if they've done it yet. And then, once that's done, they would start to have the discussion to get on with military spec. There's no impediment that's fundamental, there's no technical reason, no fundamental impediment that I'm aware of. And then, once that's done, then to compete for a military contract, it is... you know, we'd have to bid on a project, and then the defense logistics agency has to inspect the plant at which it would be made.
Well, that is a chicken and egg problem. And we point out to them, well that's really nice, but that's stupid. Because, you know, what the hell, you want this, you say you want it, and you're willing to pay the price for it. Oh, but you have to have the plant built in advance, and you wont certify the plant until you actually see it. So, you can't guarantee anything. Are you crazy? Nobody does that! And so instead, we say yeah we can sell them some stuff, prove it, we have a plant at our Silsbee plant... sure. And that's a start... [connection issues] … and we have the plant built out at Luverne so they can touch it and see it according to their government regulations.
So, it's one of these things where it's a … you know, it's government man... it's crazy!
Question – Hi Josh, thanks for the opportunity to submit questions. Not sure how you want to phrase this question, but my concern is that GEVO has done all the hard work to develop their products, but may be choosing the slow route to maximize the return on their investment. In order to beat the competition in this space, should they not focus on licensing their technology, vs. production, i.e. building a new plant which may only serve a small percentage of the growing demand for biofuel.
Answer – Our quest is to become a profitable company. So that's number one and foremost. The route to do that is to make Luverne profitable. That is the route. That's the fastest way we could do it because we already have a lot of the capital deployed, relatively incremental capital, to build it out for isobutanol and jet fuel. And so, that is the fastest route to profitability.
We are in discussions for licensing. And the licensing is interesting because this is the point of having people saying yes, I want tens of millions of gallons of jet fuel. One, that creates licensing demand. Or if Musket continues on the path, same thing! That creates demand and now we have more capacity demand than we could ever do at Luverne, and that creates licensing opportunity.
One of the things that we'll be looking at is that when you license, suppose the margin is the $0.50 to $1 that we've always been talking about, and that is really what we're still looking at. If we're taking a licensing fee, [let's say] a licensing fee would be like 5% of something. So, we're going to get a fraction of the margin? That doesn't lead to... you need enormous volumes in production to be successful at licensing. Enormous volumes on a fast growth in order to have a very successful licensing business.
Do we have potential to do that? Heck yeah! Of course! But it comes... we've got steps to do... You know it's like licensing the jet fuel process, sure I can do it, take it in the shorts, cause it works. Sure, I could do it. But why would I give that margin away now when I can put it in my own pocket and make this profitable?
So, yes to licensing, that's all part of it! And deals and working with people, all part of it. I think everyone we touch says, “You know, let's build out Luverne first, that makes sense.” That makes it absolutely unequivocal that everything works at a large scale, and all the supply chains are in place. There is no risk once or ever at that point of any type. Then it is just cookie cutting. People get that.
You know, one of the things in contrast that someone may be wondering as an investor is that a lot of these companies talk about... they'll just say, well we're going to license. I've got news. Nobody licenses something that doesn't work, that isn't proven to work. Nobody does - that's BS! And so, a lot of companies in our space talk about how we're going to license this and we're going to license that. Uh huh. OK. Show me! Good luck - just show me one! Show me one, I don't know them. So it's one of those things where everyone wants it that way, but it's not the way the real world works.
We're unusual in that we're the furthest along in doing large scale biofuels that have these valuated properties that look to be economical. We're the furthest along from hydrocarbons. There's the oil seed guys. You know [illegible company name] has done a great job. He's done a great job on the biodiesel. You've got Nest doing a great job on the biodiesel, plus they're doing some of the high [illegible] stuff for making jet fuel or diesel fuel and stuff like that. So those guys, those are all good. They're ready. They're good commercial licensing opportunities that make sense. Carbohydrates space? No!
Question – Poet inc is the largest ethanol producer in the US with 27 plants, and plans to build a cellulosic ethanol plant next to each one. Has GEVO had any substantial discussions with them?
Answer – Everybody in the industry, in ethanol, who's big knows us and we have relationships. We have constructive relationships with... collaborative relationships. They know us. They can pick up the phone and talk to us and we can talk to them.
Question – The FAA Wants “1 billion gallons of drop in sustainable jet fuel by 2018” is this even possible? If so, how is GEVO able to participate in this growth?
Answer – That's not possible.
At this point, my time was running out. So, I gave the floor to Pat, as always, to let GEVO investors in on anything we haven't covered. Here's what he had to say:
“I can say this... One of the things that's really fun is, think of the discussion and how it's changed over the last few months. A few months ago, I was talking about, look, we're just going to work on surviving. This conversation is completely about how we grow and become profitable with real customers, real contracts, real business, real strategic partners, the whole bit! What a change huh? That's shocking. And so, when I'm out talking to people, they look at us and go Oh my God, you're a Phoenix!
What Do You Think?
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