Gevo, Inc. (GEVO) Earnings Call Transcript & Summary

And a very important question here as well is what does this mean for farmers and rural America?

Yes, that's a great question, Peter. And if you saw the recent USDA report that just came out last week, this is going to be probably the best year ever for corn farmers, right, delivering year-on-year yield improvements, which is not new, right? This is something that's been going on since the 1920s. So we're -- we actually anticipate that this is going to be the case even going forward. But farmers' ability to supply the market is outpacing the demand. So just for this year, for example, farmers will probably deliver enough corn where we need new uses for about 1 billion bushels of corn. Well, that 1 billion bushels of corn could turn into about 1.7 billion gallons of aviation fuel, right? So it's a big number. And this is where you have to remember, you also get all the protein, all the corn oil, right? You get all these co-products. So we're not just providing fuel, but we're feeding the world. And when you think about that, this is why we really like this growth story between corn, U.S. corn specifically and SAF because if you continue to extrapolate out these year-on-year yield improvements on existing acres, by 2040, we anticipate that we could be producing -- we could make another 5 billion gallons of SAF on an annual basis just from the yield improvements on corn on existing acres, right? This is all about farmers doing more with less, right? They're doing this more sustainably. They're basically using regenerative agriculture techniques. And while at the same time, they're increasing their yields, they're enriching the carbon in the soil, which makes it healthier, which in turn gives them higher yields, right? It's a continuous improvement cycle that we really like. So I think it's not just about SAF, it's about how do we leverage this supply and demand for energy and for our agricultural products to continue to drive growth in rural America, create new jobs. and really provide the energy solutions that we need, as Eric articulated, right, as we see these gaps developing where we need more aviation fuel. Well, the SAF and basically the agriculture markets and corn, we can supply that, right? And we can actually start supplying it to the extent that, look, the U.S. should be in a great position to supply the rest of the world with SAF and protein, right? So this is a good growth story to put the U.S. in a leadership position a long time to come.

Okay. And Paul, I want to go back to something you mentioned earlier about co-products. So you mentioned that carbon dioxide is a co-product in the process. Can you expand a little bit on that idea?

Yes. Let me start a little bit with just co-products in general because these are really important for Gevo just overall, right? Co-products are -- we always put -- think about this as like it's not one thing. It's always food, feed, fuels and industrials. We're always making all of these products all at the same time. We can't help it. So the important thing is we always put feed and food first, right? So it's -- when you think about what Gevo is producing in any of our operations, we make about an equal amount of fuel, protein and carbon dioxide any time that we're operating. And that makes sure that all of the protein that we're making ends up in the animal feed market, which ultimately ends up as food on our plates at some point in the overall cycle. But because we make those equal amounts, right, we know where the fuel is headed. We just talked about that for SAF. We know where protein ends up on our -- in our food and on our plates. What about carbon dioxide, right? We don't think about that one a lot. And the carbon dioxide that we're making is actually produced in our fermentation process. And if you've ever done any home brewing, you may -- like when you're actually doing the brewing process after you add yeast, you see the little bubbles kind of coming out and then it really starts roaring when the alcohol is being produced. That's the same place where we get our carbon dioxide. We just have the capability to capture that at our plant today and concentrate that. And then we can basically store that. We can capture, store it and then inject it in deep wells with the right geological formation, and that's where we create our carbon dioxide removal credits from today. So that's really what we're focused on today. But carbon dioxide is a commodity product that people use. We use it in the food and beverage industry for things like carbonating our beverages. We use it in the food and beverage industry for refrigerants. It's dry ice. That's where it comes from. It comes from CO2. And then we also use it to make things and household items like fire extinguishers. It's actually the extinguishing agent in some fire extinguishers. But it's also used in the chemical and petroleum industry, either as a feedstock for things like enhanced oil recovery. So here's another example, right, that today, while we're storing that carbon dioxide and creating carbon dioxide removal credits in the future, as we expand our footprint in North Dakota, we have opportunities to not only store carbon dioxide, but we have opportunities to sell carbon dioxide as a co-product that has all these great uses today. So we're excited about that just as we build our markets.

Okay. Thanks, Paul. We're going to get over to the audience Q&A in just a moment. Maybe I'll just get one more question in here about Verity. So you have your Verity subsidiary. Can you talk a bit about how Verity fits into everything we've been talking about here?

Absolutely. So we've been working on Verity now for a few years. And Verity, just to refresh everybody's memory, is really the digital carbon accounting and traceability platform that we originally designed for Gevo's needs. When you think about SAF, we need to trace all of the carbon attributes from the field to the seat on the aircraft. That's really how we think about it. And we could do this with a bunch of spreadsheets, but that would be complicated and lead to a lot of mistakes. So we built a digital platform that basically runs on distributed ledger technology, which is a pair of the blockchain. And we wanted to make sure that we could track from all the benefits in the bushels. So think about what farmers are doing to reduce their inputs, use less fertilizer, store more carbon in the soil while they're enhancing the health of their soil. So we can total up all of those and put those in a bushel and then we can make bushels talk to gallons, right? And at the production plant level, we can -- we just talked about carbon capture. So we can total up the carbon capture, any renewable energy that we're using in the production process, all the efficiency gains that we have from that process. So Verity really wraps all of that together, and that's what gives our customers the confidence that we can provide verifiable results that are -- have an easy audit trail and make sure we never double count anything. That's the whole thing. When you think about it, for carbon abatement customers, they need to know what they're getting what they're paying for. At the end of the day, SAF, we always talk about SAF. It's aviation fuel. It looks just like a gallon of jet A from petroleum. The only difference is how did we get there? Where did they come from? So since that is really the same, we need to have this trail of proof that Verity can help provide. So after we got this set up for ourselves, we said, this is something that not only we need, but we've figured everything has a carbon footprint, everything needs this traceability, and that's where we opened it up for other customers, signed up a number of ethanol clients and now moving into helping soybean processors and farmers and co-ops like Landis. So we're really excited about the growth potential that we think that, that has.

Okay. With that, we've got time for a couple of questions here. So let's get into the audience Q&A. Just a reminder that analysts, investors, you can post your questions online, and you should find a Q&A button at the bottom of the screen. As I mentioned, we have time for just a couple here. But for any that we don't get to, we will compile those and make sure those get over to the team at Gevo. So the first question here is following on from the conversation earlier, given the backdrop you outlined for U.S. jet fuel and SAF, what makes Gevo a competitive supplier of jet fuel into this market? What are the plans for scaling up?

Yes. So I think the first thing there is we talked a lot about the efficiency in the system, right? The first thing that you have to think about to be a competitive supplier is can you be cost competitive? And we've got a lot of materials, and you can find it on our website. But from a cash cost perspective, so exclude the capital, capital is expensive today. When you think about the cash cost of production, we think -- and we can be very competitive with petroleum jet today, right? So this is a great story. If we didn't have that, this probably wouldn't be as much of a winner. And this is really where we like now think about the efficiency gains that we just talked about on corn, the higher yields, the extra protein that you get, the ability to sell the other co-products like carbon dioxide or store those and create carbon dioxide removal credits. It's the whole picture that we've got going forward that makes this a really compelling story for us. But first and foremost, we have to be cost competitive, right? And that's where that fundamental economics. And what's helping us to be cost effective here is really we've got a modularization design package for our ATJ30. So this is -- we're standardizing our alcohol-to-jet process that we'll be putting in North Dakota. This really helps us because now we can get to a bite-sized design package that we think we can deploy not only in the U.S. but globally and get that basically the economy of scale from doing it at this 30 million gallon level. We think that's pretty good, right? We think we can get all that and then the integration and design that Gevo brings to the table really can make some efficiency gains, again, to hit these cost competitive numbers.

And just to put a couple of numbers behind that, just high level, I'm just going to pick the ATJ 60 design. We put numbers like this out there before. But high level, if you need less than 40 million bushels of corn in your process to make ethanol and then to convert ethanol to 65 million gallons of hydrocarbons, most of which more than 90% of which would be jet fuel. If you look at that process, if corn is costing you, let's just use a round number, $4 a bushel, you do that math, that means that it costs -- the feedstock cost, which is your biggest cost in the operation was about $2.50 per gallon of jet fuel. That's pretty good. That's competitive with the price of fossil jet fuel. It's even better sometimes depending on the price of oil with fossil jet fuel. Now you got to add the operating cost and you got to add the capital cost and the return on that capital because this is a new industry. But if -- once the plant is operating, fundamentally, it is a cheap and efficient process. And if you can scale this industry up, you can bring the capital cost down dramatically. It's hard to change the cost of the fundamental feedstock, but you can bring down capital costs as you go up the learning curve and scale up the industry. Our view is that this is a cost-effective, scalable complement to the existing jet fuel complex.

And you have to remember, too, I mean, Eric makes a great point. This is where we're getting started, right? So first plant is being built, the next one gets better. The next one gets better than that. And on top of it, Gevo is continuing to innovate. So we're bringing new technology to the forefront here, things like ETO, so our ethanol-to-olefins technology, which we're now working on with LG Chem on the chemicals front, and we're working with Axens on the fuel side. So as you know, we're using Axens' technology, their Jetanol process today, but we're developing the second-generation process for tomorrow. I wish we were ready to go. It's not. We still have a little time to go, but it offers big improvements and lowers the capital cost, lowers the operating cost. So even though cash costs can be competitive today with the current technology, this is where we think it can be better in the future. Right now, we expect up to 30% reductions in capital and up to 30% reductions in our operating costs based on this new ETO technology. Obviously, we want to get this done as fast as possible, but this is where we think the future is pretty bright. And again, we've got a starting point today and even lower costs in the future.

So we focused mostly here on the strategy and opportunities in the U.S. So this question asked, what are Gevo's plans for SAF projects in overseas markets?

Great question. I think this comes back to this modularization design that I mentioned before. So since we're standardizing on this, I'll call it the Jet 30, the 30 million gallon, it's equivalent to about 90,000 tons of SAF. It turns out that this is a great size that we can basically build out through kind of a copy, edit, paste deployment style. So think about us building a franchise of alcohol to jet plants. U.S., Europe, Asia, South America, all fair game, right? So the nice thing about using a standard design is and modularization is they're shippable globally. You can basically set it up like a [indiscernible] and you're in business, right? Now there's a lot more to it than that, but that's the simple thought process behind the copy, edit, paste style that we're thinking about for growth. There are also other things that we have to do depending on where we're operating from feedstocks, but this is what we like about the alcohol to jet. There's ethanol available basically on a global basis. right? So then it's all about the business system. We have the tools like Verity. We have the capabilities and the expertise to put the business system together that we can really pull all of this in and make a complete system for us, for our customers to deliver these energy needs. Eric mentioned a lot of the growth behind what aviation fuel is needed here in the U.S. But obviously, this is a global business, right? We have global airlines, global customers who want to have fuel delivered globally. So we think that this build-out and the path we're on to deliver the packaged ATJ30 plants is really one that's going to deliver on a global basis.

Okay. We'll have to wrap it up there in terms of the Q&A. But Paul and Eric, I really enjoyed this discussion today. But before we close, is there anything we might have missed that you can think of or would you like to provide any concluding remarks for investors here?

Sure, Peter. Look, I mean, obviously, this is just -- we had a great quarter to start and more to come. But I mean, it's really about delivering continuous results going forward. We're going to continue to focus on our existing businesses and again, delivering more returns for our shareholders out of those existing businesses that we have, growing those, finding the right projects. And while we're focused on delivering our growth in the SAF projects, the ATJ 30 platform that we've got. So we've got a lot of other exciting things that we're doing to unlock and harvest value from other investments that Gevo has already made. We'll save those for next time, but more to come. So exciting future ahead.

Great. Excellent. So thanks very much, Paul and Eric, and also thanks to our audience for tuning in and asking some great questions today. I just want to remind everybody that you can access this online as well as our other fireside chats and research on Gevo ticker GEVO at www.watertowerresesearch. Also, the views expressed in this fireside chat may not necessarily reflect the views of Water Tower Research and are provided for informational purposes only. This fireside chat may not be distributed or reproduced without the written consent of Water Tower Research and should not be considered research recommendations. WTR is an IR firm, not a licensed broker, broker-dealer, market maker, investment banker, underwriter or investment adviser. Additional disclaimers can be found on our website. So thank you again to our guests, Dr. Paul Bloom and Dr. Eric Frey of Gevo, Inc. We look forward to following developments of your company very closely, and it's been an exciting year and look forward to more to come. So we'll have some future conversations with you and others on the team at Gevo. So thank you very much, and have a great day.

Thanks, Peter.