Gevo, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Gevo develops renewable fuels, including sustainable aviation fuel (SAF), renewable gasoline and renewable natural gas (RNG). The unaudited financial statements are presented in U.S. dollars; financial amounts below are in millions unless stated otherwise.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $0.093 | $3.825 |
| Gross loss | $(1.901) | $(4.314) |
| Operating expenses | $7.977 | $3.662 |
| Operating loss | $(9.878) | $(7.976) |
| Net loss | $(10.057) | $(9.253) |
| Net loss per share, basic and diluted | $(0.05) | $(0.64) |
| Cash used in operating activities | $(7.165) | $(6.975) |
| Cash used in investing activities | $(4.630) | $(0.790) |
| Cash provided by financing activities | $458.780 | $0.752 |
- Cash and cash equivalents were $525.3 million at quarter-end, compared with $78.3 million at December 31, 2020. Current assets were $533.5 million and current liabilities were $10.7 million.
- Total liabilities were $13.0 million, including $1.2 million of loans payable and $2.1 million of other long-term liabilities. The filing reports no material off-balance-sheet arrangements.
- Revenue was too low to yield a meaningful positive gross margin; the company reported a $1.9 million gross loss. Cost of goods sold included about $0.9 million to maintain Luverne and $1.1 million of depreciation.
Material changes versus Q1 2020
- Revenue fell 98%, principally because ethanol and distillers’ grains production at the Luverne facility was suspended in March 2020. Q1 2021 included no ethanol sales, versus $3.7 million in ethanol and related-product sales in Q1 2020. Hydrocarbon revenue declined to $13,000 from $125,000; grant and other revenue was $80,000.
- Gross loss narrowed by $2.4 million as cost of goods sold declined, but operating loss increased by $1.9 million and net loss increased by $0.8 million. Higher R&D, SG&A and preliminary-stage project costs more than offset the lower gross loss. Preliminary-stage costs rose to $2.7 million, primarily for RNG and Net-Zero development.
- Financing activities generated $458.8 million, primarily from a January registered direct offering and at-the-market (ATM) stock sales. Gevo received approximately $321.9 million net from the January sale of 43.75 million shares and $135.8 million net from issuing 24.42 million ATM shares. Shares issued and outstanding rose to 198.1 million from 128.1 million at year-end.
- Interest expense declined to $5,000 from $545,000 following conversion of the company’s 2020/21 notes to common stock in 2020.
Outlook, developments and risks
- Management expected future net losses, stated that losses were expected through at least 2022, and said profitability and positive operating cash flow were not assured. Management believed cash on hand would fund operations for at least one year from issuance of the financial statements; the company may still need additional capital.
- Luverne was not producing ethanol and was undergoing maintenance for anticipated isobutanol production beginning in June 2021. Gevo also expected intermittent isobutanol campaigns in 2021 to supply its South Hampton demonstration facility. These are forward-looking expectations, not reported production results.
- Gevo planned approximately $45 million of Net-Zero 1 engineering, development, long-lead equipment deposits and financing costs over the following 12 months. The proposed Lake Preston, South Dakota project was expected to produce about 45 million gallons annually; its projected unleveraged capital cost was approximately $650 million. The filing describes these as plans and estimates, not completed financing or construction.
- The Iowa RNG project was expected to produce about 355,000 MMBtu annually, with production anticipated in 2022. On April 15, 2021, after quarter-end, the Iowa Finance Authority issued $68.155 million of project revenue bonds. Gevo also obtained a $71.2 million letter of credit and pledged cash equal to bond principal plus three years of interest to secure its reimbursement obligations. The filing says bond proceeds and Gevo equity will fund project construction.
- On April 15, 2021, the SBA forgave $0.5 million of Gevo’s PPP loan and $0.1 million of Agri-Energy’s loan and accrued interest; $0.4 million of Agri-Energy PPP borrowing remained.
- COVID-19 and unfavorable corn economics were cited as risks to transportation-fuel demand, production, project development and cash flow. Gevo warned that future capital raises may dilute shareholders and that it may never achieve profitability. Q1 revenue was highly concentrated: New Vision accounted for approximately 79% and AvFuel 15%.
- The filing reported no litigation believed likely to have a material adverse effect, no recorded environmental liabilities, and no material changes to the risk factors in the 2020 Form 10-K. Management concluded disclosure controls were effective as of March 31, 2021.
Important facts for investors to verify
- Whether the planned Luverne isobutanol restart and South Hampton production campaigns occurred, and at what scale and cost.
- Progress, construction costs, operating dates and offtake arrangements for the RNG project; the status and terms of the bond-backed letter of credit and pledged cash.
- Net-Zero 1 financing, permitting, construction plans and whether the estimated $650 million cost and 45-million-gallon annual capacity remain current.
- Cash burn, spending against project plans, available liquidity and any further financing needs or share dilution.
- Customer concentration and demand under offtake agreements, particularly given the minimal reported Q1 revenue and continuing COVID-19-related market risks.