Gevo, Inc. — Q2 2012 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2012; unaudited consolidated results. Gevo is a development-stage renewable chemicals and biofuels company developing isobutanol production from renewable feedstocks. Reported product sales were principally ethanol and related products, not commercial isobutanol.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $7.0m | $14.5m | $21.9m | $29.8m |
| Gross profit (loss) | ($1.5m) | $0.9m | ($1.6m) | $1.0m |
| Operating loss | ($15.7m) | ($11.6m) | ($34.0m) | ($20.0m) |
| Net loss | ($16.2m) | ($12.5m) | ($35.5m) | ($21.7m) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | ($24.4m) | ($19.9m) |
| Capital expenditures | Not provided for quarter | Not provided for quarter | $34.5m | $2.3m |
At June 30, cash and cash equivalents were $38.6m, down from $94.2m at December 31, 2011. Current assets were $44.3m and current liabilities $32.8m. Total assets were $117.5m; total liabilities were $54.6m. Secured debt was $32.4m net of discounts ($34.8m before discounts), including $12.2m classified as current. Accumulated deficit was $170.1m. Gross margin was approximately negative 21% in Q2 2012 versus positive 6% a year earlier, and negative 7% for the first half versus positive 3%.
Changes versus prior comparable periods
- Q2 revenue fell 52% and first-half revenue fell 27%, mainly as ethanol production was suspended in May ahead of the isobutanol conversion and ethanol market prices declined. Grant and research-program revenue increased but did not offset lower ethanol sales.
- Gross margin turned negative as production was curtailed, corn costs were higher, and Q2 included $1.5m of initial isobutanol start-up costs.
- First-half operating loss widened 69%. SG&A increased 82%, including higher legal costs, compensation and stock-based compensation; R&D increased 12% for the half.
- First-half operating cash use increased to $24.4m, while investing cash use rose to $35.1m, primarily reflecting the Agri-Energy facility retrofit. Cash declined by $55.6m in the half.
Outlook, financing, risks and unusual items
- Start-up operations for isobutanol began at the 22-million-gallon-per-year Agri-Energy facility on May 24, 2012. Technical completion and initial shipments were expected in Q3 2012. Management projected a production run rate of about 1m gallons per month by year-end 2012 and full-capacity run rates by year-end 2013; these are targets, not reported results.
- Gevo stated it would need additional funding to pursue its goal of producing and selling approximately 350m gallons of isobutanol in 2015. Management expected cash at June 30, together with July offering proceeds, to fund operations and planned expenditures for at least 12 months. The company expected future losses and had not generated significant isobutanol sales.
- In July, Gevo issued 12.5m common shares at $4.95 and $45m of 7.5% convertible senior notes due 2022. The notes have an initial conversion price of approximately $5.69 per share. Gevo used $5.4m of note proceeds to repay TriplePoint debt. The filing reports offering proceeds net of fees as $98.8m in the notes but $93.3m in MD&A; the difference appears consistent with the debt repayment, but investors should verify the precise proceeds presentation.
- Major execution risks include retrofit completion and cost overruns, commercial-scale production yields and costs, feedstock and energy prices, customer adoption, regulatory approvals, and the need for further capital. The filing cautions that ethanol-era results are not indicative of future commercial isobutanol results.
- Patent litigation with Butamax was ongoing; the possible loss or range of loss could not be reasonably estimated. A July 6, 2012 court order, after the reporting date, restricted deliveries of Agri-Energy-produced bio-isobutanol for automotive fuel-blending uses while an appeal proceeds. Gevo said it could continue serving chemicals, jet fuel, marine fuel and small-engine-fuel markets, and appealed the order.
- Other notable items included $48.1m of cumulative Agri-Energy retrofit costs by June 30, and $4.4m of first-half legal-related expense, primarily associated with Butamax matters. Gevo reported compliance with TriplePoint financial covenants at quarter-end and effective disclosure controls.
Investor facts to verify
- Whether the Agri-Energy retrofit reached technical completion and whether initial commercial shipments and targeted production rates were achieved.
- Actual yield, capacity utilization, unit costs and customer sales for isobutanol, including the effect of the automotive-fuel court restriction.
- Cash runway and subsequent cash use, additional financing needs, and the exact net proceeds and share dilution from the July offerings.
- Debt amortization, interest obligations, covenant terms and any restrictions affecting note repurchases or payments.
- Developments, potential financial exposure and operational consequences of the Butamax patent litigation.