Gevo, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020; unaudited. Gevo develops renewable fuels and related technologies. Unless noted, amounts below are in U.S. dollars.
Financial performance and position
- Q3 revenue: $0.192 million, down 97% from $6.110 million in Q3 2019. Revenue included $0.021 million from ethanol and related products and $0.101 million from hydrocarbons.
- Q3 results: Gross loss was $2.068 million; operating loss was $6.103 million; net loss was $6.836 million, or $0.09 per share. In Q3 2019, net loss was $8.619 million, or $0.66 per share.
- Nine-month results: Revenue was $5.005 million versus $17.599 million in 2019. Gross loss was $8.038 million; operating loss was $19.336 million; net loss was $22.132 million, compared with $21.845 million a year earlier.
- Cash flow: Nine-month operating cash use was $14.581 million, versus $14.798 million in 2019; investing cash use was $1.756 million versus $7.260 million. Financing provided $80.656 million, principally from equity offerings and warrant exercises.
- Liquidity and debt: Cash and cash equivalents were $80.621 million at September 30, 2020, up from $16.302 million at year-end 2019. Current liabilities were $18.143 million and total liabilities were $18.898 million. The balance sheet reported $12.506 million net of discount for the 2020/21 Notes, classified as current, plus a $0.029 million embedded derivative liability. Notes carried a 12% interest rate and were due December 31, 2020, with an automatic extension to April 1, 2021 if specified principal conditions were met.
- Equity: Shares outstanding increased from 14.1 million at December 31, 2019 to 119.6 million at September 30, 2020, largely reflecting public offerings and warrant exercises. Stockholders’ equity was $134.589 million.
Material changes versus the prior period
- Luverne ethanol production was suspended in March 2020 amid COVID-19 disruption and unfavorable commodity conditions. Gevo sold no ethanol in Q3, versus 3.4 million gallons in Q3 2019; nine-month sales were 2.4 million gallons versus 10.2 million.
- Lower production drove the sharp revenue decline, while cost of goods sold also fell. Q3 gross loss narrowed to $2.068 million from $3.783 million, but nine-month net loss increased by $0.287 million.
- Gevo raised approximately $16.1 million net in the July offering and $45.8 million net in the August offering, and received $16.6 million from warrant exercises in the quarter. These financings strengthened cash but materially diluted shareholders.
- Gevo exchanged its 2020 Notes for 2020/21 Notes early in 2020 and recorded a $0.726 million modification loss for the nine-month period. A July conversion of $2.0 million principal, including a make-whole amount, generated a $0.543 million loss.
Outlook, commentary and risks
- Management expected continued net losses through at least 2021 and said further financing may be needed. It stated that profitability depends on commercialization, adequate revenue, market acceptance and financing for production expansion; there is no assurance of additional funding or positive cash flow.
- Gevo expected to spend approximately $7–$10 million over the following 15 months on engineering and development for the Luverne expansion and RNG projects. It also described a planned RNG project requiring approximately $65 million of combined project debt and third-party equity; completion and timing depend on financing.
- After quarter-end, in late October, Gevo began producing approximately 50,000 gallons of isobutanol at Luverne for planned renewable hydrocarbon production at South Hampton in Q1 2021; it planned another 50,000 gallons for Q2 2021. These were plans, not reported Q3 production.
- The 10-year Trafigura supply agreement is conditional on, among other things, identifying a production facility, securing financing and entering construction agreements. Either party could terminate if facility design information was not provided by December 31, 2020; missing the applicable commercial operations deadline could trigger liquidated damages.
- The Praj framework agreement provides a route to pursue projects in India and neighboring countries, but fees and exclusivity depend on stated conditions, including commissioning qualifying plants. It does not itself establish commercial production or sales.
- Management warned that COVID-19 could further reduce customer demand and cash flow, disrupt counterparties and financing, and affect operations and controls. The filing also identifies regulatory approval and certification delays as risks to U.S. commercialization of renewable premium gasoline.
- Gevo reported no material litigation, no recorded environmental liabilities, and effective disclosure controls as of September 30, 2020. The filing provides no specific revenue or earnings guidance.
Important facts for investors to verify
- Whether the 2020/21 Notes were repaid, converted or extended at maturity, and the resulting interest and dilution impact.
- How quickly the $80.6 million cash balance is being used, and whether additional operating or project financing is required.
- Whether Luverne production, the planned South Hampton shipments and the expansion schedule met subsequent targets.
- Whether Trafigura’s facility, financing and construction conditions were satisfied, and whether any deadlines or damages provisions were triggered.
- Actual customer demand, revenue concentration and regulatory progress, particularly given the production suspension and COVID-19 exposure.