Verenium Corporation F1Q09 Earnings Call Transcript

May.11.09 | About: Verenium Corporation (VRNM)

Verenium Corporation (NASDAQ:VRNM)

F1Q09 Earnings Call

May 11, 2009, 5:00 pm ET


Kelly Lindenboom - Vice President of Corporate Communications

Carlos A. Riva - President, Chief Executive Officer

Jeff Black - Chief Accounting Officer

Jamie Levine - Chief Financial Officer


Laurence Alexander - Jefferies

Sanjay Shrestha - Lazard Capital Markets

David Woodburn - ThinkEquity

Pamela Bassett - Cantor Fitzgerald

Ian Harowitz - S. Securities


Good day, ladies and gentlemen, and welcome to the first quarter one 2009 Verenium Corporation earnings conference call. My name is Shaneka and I will be your coordinator for today. (Operator instructions)

I would now like to turn the presentation over to your host for today’s call, Ms. Kelly Lindenboom, Vice President of Corporate Communications. Please proceed.

Kelly Lindenboom

Good afternoon and thank you for joining Verenium first quarter 2009 conference call. I’m Kelly Lindenboom, Vice President of Corporate Communications, and with me today are Carlos Riva, Verenium’s President and Chief Executive Officer, Jeff Black, our Chief Accounting Officer, and Jamie Levine, our recently appointed Executive Vice President and Chief Financial Officer.

The agenda for today’s call are as follows. First we will review the company’s key accomplishments and business highlights in first quarter of 2009. We will then provide a summary of our financial results for the first quarter; and finally Jamie will take a few moments to introduce himself before we open the call up for your questions.

Before we begin, I would like to advise you that this discussion will include forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 as amended and Section 21A of the Securities Exchange Act of 1934 as amended.

These statements involve a high degree of risk and uncertainty and relate to matters such as the company’s strategy, future operating plans, markets for the company’s products, partnering and collaboration activities, public policy and financing activities, technical and business outlooks. Such statements are only predictions and actual events and results may differ materially from those projected in such forward-looking statements.

Factors that can cause or contribute to differences include but are not limited to risks related to the company’s IP, partners, competitors, and regulatory and market forces. Certain of these factors and others are more fully described in the company’s filings with the SEC, including but not limited to the company’s report on Form 10K for the year ended September 31, 2009 and the company’s form 8K filed this afternoon.

I would now like to turn the call over to Carlos.

Carlos Riva

Thank you, Kelly, and good afternoon, everyone. I want to thank you for joining us on today’s call.

Verenium has had quite a productive start to the year. We have already begun to make considerable progress toward achieving our goals for 2009. Despite the challenging economic climate that continues to linger here in the US and abroad, we have continued to take important steps forward that I believe solidly position Verenium to achieve commercial success.

Let me begin by discussing some recent corporate highlights. In March, with the completion of our demonstration plan, we restructured our organization to bring our San Diego research and Jennings pilot demo plant facilities under a single leadership. Greg Powers, Verenium’s Executive Vice President of R&D is leading this effort. This organization structure is strategic for the organization, as it provides us with a unique set of integrated R&D assets starting from the laboratory bench scale through the pilot scale and demonstration scale facilities.

These assets allow for the efficient development implementation and testing of new biofuels technologies, including our proprietary enzymes, organisms, speed stocks and other elements of our cellulosic process.

The finely integrated combination of laboratory and industrial scale research facilities is unique in the industry and designed to rapidly scale up promising technology from concept to commercial scale.

Further on the organizational front, I’m also pleased to announce that Jamie Levine joined our team two weeks ago as Executive Vice President and Chief Financial Officer. Jamie comes to us after ten years with Goldman Sachs where he spent most of his time serving the oil and gas industries. We believe his project finance and investment banking experience within the energy industry will be invaluable asset as the company moves towards its next phase of development.

Jamie’s initial focus will be on identifying and securing financing for individual commercial projects, as well as building a healthy capital structure for the company. He’s take a few moments to introduce himself at the end of the call.

I’d now like to turn to our biofuel’s business. In February, Verenium and BP entered the second phase of our partnership with the formation of a 50/50 joint venture to develop commercial scaled projects utilizing the technology being developed through the first phase of joint collaboration we announced in August of 2008.

The joint venture, which is currently staffed by a team of employees drawn from both BP and Verenium has assembled here in Cambridge and has already hit the ground running. The joint venture team is actively progressing efforts for the development of a first 36 million gallon per year commercial plant in Highlands, Florida, which we announced plans for earlier this year.

Among other things, they are currently working on obtaining necessary regulatory approvals and preparing the engineering and design package that will allow us to break ground in early 2010 on what will be one of the nation’s very first commercial scale cellulosic ethanol facilities. We in BP remain very excited about the potential of this first project and expect to see significant progress over the coming months.

Shortly after announcing our partnership in February, the joint venture backed by Verenium and BP, submitted a loan guarantee application under the Department of Energy’s current solicitation. Preparing the extensive application, which included an independent credit rating and independent engineer’s report on the project and technology, was a considerable undertaking that required a well coordinated effort between various functional groups from both Verenium and BP. If awarded, the loan guarantee could provide up to 80% of the debt funding necessary for the construction of our first commercial scale cellulosic ethanol facility, a critical hurdle in allowing us to be an early mover and contributor to the renewable fuel spend or requirement for cellulosic ethanol, which begins in 2010.

As you likely are aware, government support for biofuels was given a significant boost last week with the creation of the biofuel’s inter-agency working group. This is a significant step forward by the Obama administration toward enabling policy that will involve biofuels, including cellulosic ethanol as an essential part of the solution to America’s need for energy independence and a cleaner, more sustainable energy future.

For the first time, this new working group brings together representation from the Department of Energy, the US Department of Agriculture, and the Environmental Protection Agency. It is tasked with developing a comprehensive biofuel’s market development program, by supporting infrastructure development and identifying policy options to improve the sustainability of biofuel’s production.

At the same time, the deal we announced plans to provide nearly $80 million from the American Recovery and Reinvestment Act that is the stimulus package, to accelerate advanced biofuel’s research and development and to provide additional funding for commercial scale bio-refinery demonstration projects.

We believe that the extensive cellulosic biofuel R&D we’ve done to date are advanced technology platform and the strong partner we have in BP make us a top contender for the loan guarantee program as well as other government funding opportunities, including those just announced last week.

We remain optimistic that increased support from government will give companies like Verenium, who are on the verge of making advanced biofuels a commercial reality, the added momentum necessary for success in the near future.

We have also made important progress at our production facilities in Jennings, Louisiana. In early March, we began the optimization phase or a $1.4 million gallon per year demonstration scale plant, where we’re working to refine our process and technology at scale. We recently started testing energy cane and as part of optimization phase, have already learned a great deal about processing this feedstock, as well as issues of feedstock harvesting and handling from the field to the facility.

We’re now working to develop optimal processing techniques for the various feedstocks and building the body of knowledge required to take the next step to commercial scale design. We anticipate that the optimization phase will go on through the remainder of the year and into 2010.

I’d now like to turn to our specialty enzyme business. Our goal for the specialty enzyme business. Our goal for the specialty enzyme business is to build a profitable business through development and manufacturing sale of tailored enzyme products to strategic industrial markets. As part of our strategy for the continuing growth of this business, we are pursuing corporate partnership opportunities that will allow us to expand our customer base as well as adjacent market strategies that enable us to enter new industries with our current enzyme products.

During the first quarter, we announced progress on both of these initiatives. First we announced the collaboration of Alfa Laval, the leading provider of heat transfer separation fluid handling technologies to jointly market enzymatic degumming of vegetable oils using Verenium’s purifying enzyme and Alfa Laval’s engineering services and equipment. Through this agreement, Alfa Laval was able to market purifying package with their process engineering equipment and services to customers processing vegetable oils for edible and bio use. Verenium maintains the right to conduct independent marketing and sales activities; however, this collaboration gives us the opportunity to reach out to a new customer base through a credible service provider with whom they may already have an existing relationship.

Collaboration such as this provide Verenium with an important avenue for expanding our existing customer market share.

Secondly, we recently launched Veritas, a high-performance enzyme for food and beverage applications. Veritas alpha-amylase is specifically designed to improve the economics and efficiency in the sweetener and beverage alcohol production market.

We began marketing and selling Veritas during the first quarter of 2009 and we’re beginning to see good traction. We estimate the aggressive global market for sweeteners and beverage alcohol production to be in excess of $80 million dollars.

Finally, I’d like to briefly address this quarter’s enzyme’s sales revenue and Jeff will provide more detail in a moment.

Softening economic conditions and uncertainty in the market for some of our products, including fuels used in corn ethanol plants coupled with the shift in manufacturing plant for Phyzyme have resulted in an overall decline in product revenue for the quarter; however, our product gross margin remains strong and we expect that the market for our products will stabilize and improve in the coming year.

Overall, I’m very pleased with Verenium’s accomplishments for the first quarter. While I believe we still have challenges ahead, I continue to be incredibly encouraged with both increasing support from the Obama administration for alternative fuels, as well as Verenium’s ability to progress towards achieving critical goals and milestones as we move every closer to bringing cellulosic ethanol to commercial markets.

I’d now like to turn the call over to Jeff Black, our Chief Accounting Officer, to review our first quarter financial results.

Jeff Black

Thank you, Carlos.

As Carlos noted, during the first quarter we experienced a slowdown in our product revenue, primarily due to the global economic challenges impacting our business; however, despite this, we have increased our total gross margin dollars. I’ll address that in just a minute.

Our net product revenue declined roughly 6% compared to the first quarter of 2008 and decline roughly 15% sequentially. It’s important to note that some of this decrease is attributed to a change in revenue recognition for some of our Phyzyme sales. As we have discussed in the past, Danisco, our distribution partner for Phyzyme, has assumed some of the manufacturing of this product and for sales of Phyzyme manufactured by Danisco, we recognized revenue equal to the net profit share received from Danisco as compared to the full value of the manufacturing cost plus a profit share, we currently recognize for Phyzyme we manufacture at our toll manufacturing facility in Mexico.

In fact, on a gross basis, including profit share, Phyzyme sales have increased by about 40% over the prior year and have decreased by slightly more than 10% sequentially.

Another contributing factor to the year-over-year decline relates to two product lines. Baovac and Quantum, which we discontinued in early 2008.

Because of this shift in product revenue recognition treatment, we think it’s much more meaningful to focus on gross margin dollars as opposed to net revenues or gross margin percentage. This is a much better indication of the net cash contribution from our product sales.

During our most recently completed first quarter, our gross margin dollars have increased on a year-over-year basis as well as sequentially and this is reflective of improved profit share from Danisco and proved capacity utilization and improved manufacturing yields.

In terms of our expenses, excluding cost of sales, our operating expenses during the first quarter of 2009 increased on a year-over-year basis from $24.5 million to $27 million. This is reflective of our increased efforts to support biofuel’s development; however, keep in mind that our total $27 million in operating expenses includes gross expenses related to Galaxy and Highlands, of which BP has funded $7.9 million dollars of. This cost reimbursement is included below the operating expense line in the caption entitled “loss attributed to non-controlling interest in unconsolidated entities.”

More importantly, our gross operating expenses of $27 million in the first quarter have decreased sequentially from $30.7 million in the fourth quarter of last year. This is reflective of the expense in cash management practices we’ve implemented company-wide, including the 15% reduction in force we previously announced.

While we anticipate that our expenses may increase in subsequent quarters as we ramp up optimization efforts and related operation at our demo plant facility in Jennings, we believe we have implemented appropriate measures to ensure that our spending is focused on mission-critical activities only.

These efforts towards expense management have resulted in a significant reduction in quarterly cash earned as compared to our fourth quarter of 2008.

Finally, in an effort to clarify any confusion related to the impact of the significant non-cash income generated from the rather complex accounting related to our 2008 notes, we think it’s important to understand our net loss on a non-GAAP basis, excluding the impact of the convertible debt accounting.

We reported GAAP base net loss for the first quarter of 2009 of $286,000 compared to a net loss of $23.1 million for the first quarter of 2008. Adjusted for the non-cash impact of our 8% notes, our non-GAAP pro forma net loss was $13.6 million for Q109 compared to a pro forma net loss of $18.9 million for the comparable period in 2008.

This decrease is consistent with our ongoing expense management efforts and BP’s reimbursement of a portion of our cost through our Galaxy and Highlands joint ventures.

As we announced earlier today, we’re still completing the final assessment of our debt accounting related to the new accounting rules for the 2008 notes. We expect to file the final results on our form 10Q later this week. Any revisions resulting from this final assessment are not expected to impact operating expenses or pro forma operating loss.

I would now like to turn it over Jamie, our new CFO, for some final comments.

Jamie Levine

Thank you, Jeff. I’m pleased to have the opportunity to introduce myself to you this afternoon and to talk for a moment about why I’m so enthusiastic about jointing the Verenium team as CFO.

I see this as a particularly exciting time for Verenium. We’re continuing to make important strides in scaling our cellulosic technology. The company is in the unique position of having significant experience with our technology in the industrial setting. We have a fully functioning pilot plant and are in the process of optimizing our demonstration scale plant. What’s more, we’re now on the cusp of taking it to the commercial phase and importantly our partner BP is helping to accelerate these advances.

All of this important development work supports Verenium’s broader evolution from being a research-based company to being a profit-driven manufacturing business with strong proprietary R&D capabilities driving future growth.

In the specialty enzyme business, our product portfolio continues to make great progress in a difficult environment. Beyond our current product offering, there are a host of future applications our technology can address to provide further growth in that business.

Now that I’m on board, my primary focus is to create a capital structure, which supports the growth of both our specialty enzymes and our biofuel’s businesses, and to ensure we have the resources going forward to achieve our overall business strategy and goals.

The challenges ahead are formidable, particularly for a company of our size, but the backing we have both from government and from our corporate partners is significant and we’re confident in our ability to deliver.

As you may have read in the press release announcing my appointment, my background is focused on the petroleum refining industry and I think Verenium is particularly well positioned to create a manufacturing focused business model that will create significant value for shareholders.

I’m very pleased to be joining such a great company and strong team. Thank you and I’m looking forward to working together.

Carlos Riva

Thank you, Jamie, we’re ready to take your questions.

Question-and-Answer Session


(Operator instructions) You have a question from the line of Laurence Alexander of Jeffries.

Amanda for Laurence Alexander – Jeffries

First question on the specialty enzymes business, could you talk a little bit about what the pipeline for new products looks like over the next three to five years?

Carlos Riva

This is Carlos. There’s a bit of a broad spectrum. I would put it into a couple of categories. One are improvements on our existing commercial projects that we’re working on. The next generation purifying, for instance.

There’s also a variety of enzymes that address different markets that are in some cases what I call adjacencies like with Veritas, which was similar to a product already serving one market but which had a applicability to another one. In this case, it was serving the corn ethanol market, but found an application with some relatively minor modifications to the beverage and sweetener. Then there are products developed over the past that need additionally more work in terms of regulatory approvals and the like, but could be brought to different markets that we currently don’t serve.

Amanda for Laurence Alexander – Jeffries

Question for Jamie. As the new CFO, wanted to get your perspective on the timeline for financing the Florida project?

Jamie Levine

Well I think, Amanda, as we announced already, there has been a submission to the DOE, which is the critical element in terms of thinking about the leverage component within the equity coming from the partners. So at this stage, I think that we expect to hear back from the DOE this year, but I don’t think we can commit to any specific timing around that, but that’s what would I say is kind of the critical under-pinning of the financing for that first commercial product.


Your next question comes from the line of Sanjay Shrestha with Lazard Capital Markets. Please proceed.

Sarah for Sanjay Shrestha - Lazard Capital Markets

Hi, this is Sarah in for Sanjay. I know that you’ve just begun the optimization phase, but can you comment at all on where you are in terms of getting to the sub $2.00 cost per gallon or how long it will take to get to that point?

Carlos Riva

Well it’s a early to comment on that. Again, we are testing as I’d mentioned in my comments the energy cane we’ll be looking to test. We’ve done a lot of work with Begast. We’ll be looking to test Sorghum as well, but our timeframe is later on this year to be able to have enough confidence in the cost of the product to be able to move to the next stage of getting ready to design the commercial unit to begin construction early next year.

Sarah for Sanjay Shrestha - Lazard Capital Markets

Any more specifics on additional strategic partnerships for the enzyme business or is that kind of it for now?

Carlos Riva

Again, we’ve been talking to different folks. We have nothing to announce just now, but there’s quite a big universe of possibilities.


Your next question comes from the line of David Woodburn with ThinkEquity. Please proceed.

David Woodburn - ThinkEquity

Carlos, a lot of big announcements out of Washington last week and I know it’s probably too early to make changes and plans, but are you feeling more confident in the financing for the Highlands County facility or are you and BP doing anything differently?

Carlos Riva

I wouldn’t say we’re doing things differently, but I am very encouraged by things that we heard. First of all, there’s been a lot of policy pronouncements leading up to some of the announcements last week that have been very encouraging.

What I found especially encouraging about last week was some direct action being taken and one of it being this formation of this inter-agency taskforce and how that might help to unblock some of the impediments to rapidly funding some of these programs.

Also, there’s really two elements. One has been the support for things like the demonstration and another research based funding and the other is the loan guarantee program. The announcements last week specifically support some of the former activities by raising limits on the amount of funding available to any individual plants. So that’s very encouraging.

On the loan guarantee front, as Jamie said, we can’t really make any predictions as to when awards are going to be made, but I think I’m encouraged by what I see as the agency, the DOE in this case, organizing itself and to be able to sort through what I assume is a fairly significant pile of applications and certainly the political will being there to move this as rapidly as they can.

David Woodburn - ThinkEquity

Another policy question. I was a bit surprised to see EPA come out and say that they thought there would be at least a hundred million gallons of cellulosic biofuels produced in 2010 the first year of the mandate. I’m not quite sure where they’re getting those figures, but what’s your view on their view and do you think that they indeed changed that and implement the credit program or do you think they’re just going to skip that?

Carlos Riva

I didn’t see that announcement, so I can’t really comment on where it came from. We continue to feel that the mandate achievable and aggressive, but I think that the industry is always going to be pushing itself to reach those levels.

Next year, the mandated volumes are a hundred million gallons and so it’s hard to see really where that’s going to be coming from.


You have a question from the line of Pamela Bassett with Cantor Fitzgerald. Please proceed.

Pamela Bassett - Cantor Fitzgerald

Did I hear you say this emphasis on the farm bills, the inter-agency taskforce, may provide additional funding for research that could benefit what’s going on at Jennings?

Carlos Riva

As part of a series of pronouncements, so this wasn’t inter-agency taskforce, this was an announcement by the Secretary of Energy that allocated approximately $800 million, $780 something, but roughly $800 million dollars from the stimulus funds to fund a number of different activities and these include support for pilot plants and demo plants and one of the things it does is it raises the amount of money ceiling that can be granted to a given demonstration facility. So at least there’s the recognition that more funding is needed and, again, it’s an opportunity for Verenium and others like us to go and apply for more direct support for running the demo plant. Again, we have a very important asset there that we can do a lot with to advance the state of the art by testing different strategies and improvements, feedstock and the like. So we think that it’s important that those funds be available and there be a mechanism to access them, which is one of the reasons why we’re also very encouraged by them.

Pamela Bassett - Cantor Fitzgerald

Do you have to file new applications for that or there’s already an existing relationship that you’ll be able to use?

Carlos Riva

Well, it’s both. I mean we’ll request under an existing relationship, but there’s also new applications that we’ll be making, particularly for advancing, for the next generation. You know, the step change improvements to the technology that we’ve always known would be the way to really start to drive cost down significantly.

Pamela Bassett - Cantor Fitzgerald

Right now in Jennings, there’s a focus on energy cane. Historically, you’ve used the gas and sorghum. Will you be working through all these feedstocks and is that the ability to do so in some way tied to future funding or part of the plan with BP?

Carlos Riva

Let me say that you recall our plant, commercial plant, for the unit in Florida uses primarily energy cane and sorghum as the feedstock. So under our current plans, we are funded to do the work on energy cane and sorghum, but we need to get to the start of construction of the first commercial unit. But I think to the extent that more funding is available, we’ll look to do a number of different things and really utilize Jennings going into the future to look for these step change opportunities for progressing the state of the art things such as combined fermentation of the five and six carb and sugars, for instance. Looking at different pre-treatment strategies and things of that ilk.

So it really is about the funding of the activities of Jennings beyond the time that we begin constructing the first commercial unit.

Pamela Bassett - Cantor Fitzgerald

There’s such an emerging demand, SUS, for cellulosic ethanol, and of course, you have the Miravenie relationship. Do you derive any development benefits from that relationship since they’re working with another feedstock that’s woodchips.

And have you started to think about with BP an international strategy or too early?

Carlos Riva

I think about these things all the time, but in reality the joint venture with BP is really focused on getting the first commercial unit done in Florida and expanding around an energy cane base strategy for the Gulf Coast. But I think beyond that, there are an enormous amount of opportunities.

You’re right to highlight Miravenie, who has done work on waste wood as a feedstock and as a result has provided us and does provide us with a lot of know-how about how to handle that feedstock and what the issues are there.

I think in the longer term, we’ll be able to take advantage of that kind of insight, especially as in our joint venture with BP, we have very much the concept that we’ll actively pursue licensing opportunities for that technology as we perfect it. And so, again, it’s not today’s issue, but I think it’s really something for the future.


You have a question from the line of Ian Harowitz – S. Securities

Ian Harowitz – S. Securities

Carlos, I think David talked a little bit about the cellulosic levels. You seem a little optimistic on this hundred million gallon mark. To me this seems like this could be a pretty big issue for the industry, not for Verenium specifically, where the industry falls short of production levels. They’re required and lenders are going to be stuck trying to kind of make up in terms of the gasoline less $0.30 formula that’s been out there. Wouldn’t you rather see something similar to what they’ve done with the methylester side of things where they’re taking next year’s volumes and rolling it into the following year and making 2011 a bigger year for bio-diesel?

Carlos Riva

That would be one approach. I think that my view is that at least over the near term horizon, I’m thinking the next five years or so, that the industry is going to be able to…that s, the fuel markets are going to be able to absorb all of the cellulosic ethanol, but we as an industry can produce. So frankly, I’m not really worried so much about next year. I think that there’s been so much progress being made that the industry will start to catch up and even as the mandate continues to grow. I think the important thing though is that we as an industry are able to demonstrate to the government and the public that we’re getting real here. We’re starting to produce this and the mandate is a good thing in order to encourage more production and more commercial facilities to be built. That coupled with the technological progress that’s going along side of it, I think is all consistent with the desires and intention with the policies of the current administration. So I think we’re all lining up and even if there is a bit of slippage here and there, I don’t think that’s significant in the greater scheme of things.

Ian Harowitz – S. Securities

I don’t think there’s any lack of demand for the product whatsoever. So you’re implying that sometime 2011 and maybe even 2010, you think that actual physical production is going to become more in line with the RFS levels?

Carlos Riva

As we, and I say we broadly, meaning the industry, begin construction of commercial units, and will be starting the end of this year. We’ll start seeing production coming on line in the 2011 timeframe and I’m not privy to other people’s business plans, but I know our plans are quite aggressive to build multiple units once we’ve started the first one and I think we’re going to see of that. Even though the mandate will continue to increase year-on-year, I think that there’s going to be a lot of supply chasing that mandate over the next several years.


You have a question from the line of Laurence Alexander of Jeffries. Please proceed.

Laurence Alexander – Jeffries

Now that you’ve been working with BP for quite some time, do you have any more color on how much you might be able to improve the capital intensity of the facilities on the second or third plant?

Carlos Riva

It’s a very good question. Clearly it’s always going to be capital intensive, but we are as a team, as a joint venture, quite focused on those issues. What BP has brought to the joint venture is both some extremely experienced and qualified engineering and process development and construction management expertise, who are really digging into this right now, but also pushing us to think about what’s the right pace of scaling, because clearly scale is going to be one of the things that will affect the per gallon capital cost and also different strategies. So I think that we’re going to start getting some rapid improvement in subsequent units through scale. We’ll get some benefit through construction and project management practices, but then there’ll be opportunities for sort of what I’d consider significant step changes as we make breakthroughs in generations of technologies.

So, for instance, to the extent that we can combine fermentation of our C5 and C6 sugars, that implies a very significant saving in capital, because you start to eliminate steps. If you want to think about what’s our mindset in all this, we have a multi-step process that has a certain degree of complexity and ultimately what we’re looking to do is to over time simplify it, remove unit operations, and therefore drive the cost down. I think our partner is uniquely skilled, given their experience and background in refining and the like and their engineering strength to help us. Marrying that kind of practical side with our biology and research skills, I think is a very powerful combination.

Jamie Levine

Laurence, it’s Jamie here. I might just also add that as we think about capital efficiency, it’s very much along the lines of what Carlos was just saying with thinking about the following plants, but also there’s opportunities for using the capital in the first plant more efficiently as we get it up and running. So it’s not like we’re designing it to handle one process, one technology, that’s part of what the R&D platform brings. Ability for continued improvement, which will then be more efficient with the capital we’ll already have on the ground. So we don’t just put that behind us and then look to make more efficient future plants, but we can continue to improve our first commercial plant over time as well.

Laurence Alexander – Jeffries

Then just quickly, if you could just expand a little bit on the comment about scale, because if I recall, I think the original argument for the size of the plants had partially to do with the cost of harvesting the feedstock and wondering what’s changing on that side or is anything changing on that side or what’s driving the impression that you can go for larger plants?

Carlos Riva

You’re absolutely right that our choice of 35 million gallons a year was in the first instance driven by what we felt was a prudent radius for feedstock sort of catchment area. To a certain extent, that was driven by some of our early work in Louisiana, which is a much more fragmented agricultural zone. When we’ve taken the unit to Florida, for instance, and places in Texas where we’re also looking, we know that there are much larger farms and that means that within that same type of radius, which dictates to a great degree the cost of harvest and transport, we can find a lot more biomass in that given radius, which means that conceptually there are places where we know that we can source the biomass to supply a larger unit. The larger unit itself doesn’t necessarily imply larger tanks. It might just mean twice as many tanks, if you know what I mean, in order to achieve the same output. So it has been limited by the feedstock, assumptions about feedstock, but we think as we learn more about the properties of energy cane and the like that we can find opportunities to source enough feedstock for larger scale units.


There are no further questions in the queue at this time. I would like to turn the call back over to Ms. Kelly Lindenboom. Please proceed.

Kelly Lindenboom

On behalf of the team here, I’d like to thank you all for joining us this afternoon. We’re looking forward to updating you on continued progress in the coming weeks and months. Have a nice evening.


Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.

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