Gevo, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial statements are unaudited; amounts below are in U.S. dollars and generally shown in millions.
Business context
Gevo develops renewable fuels and chemicals, with a primary focus on sustainable aviation fuel (SAF). Current revenue is mainly from renewable natural gas (RNG) and related environmental credits produced at its Northwest Iowa facilities. Its Luverne, Minnesota facility remains in care-and-maintenance status. The planned Net-Zero 1 (NZ1) project in South Dakota is designed for about 60 million gallons of SAF annually, plus other hydrocarbons and agricultural co-products.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $4.5 | $0.3 | $12.8 | $0.6 |
| Operating loss | $(20.7) | $(43.9) | $(60.5) | $(76.0) |
| Net loss | $(15.7) | $(43.8) | $(47.7) | $(72.6) |
| Basic and diluted loss per share | $(0.07) | $(0.19) | $(0.20) | $(0.34) |
- Revenue drivers: Nine-month revenue included $10.6 million from RNG environmental attributes, $0.5 million from RNG commodity sales, $1.3 million in LG Chem licensing and development revenue, and $0.4 million in other hydrocarbon sales. Gevo reported $4.3 million of environmental-attribute revenue in Q3.
- Costs and margins: Nine-month operating expenses were $73.3 million, including $14.3 million of depreciation and amortization, $31.9 million of general and administrative expense, and $10.6 million of project development costs. The filing does not present a conventional gross margin measure. RNG production costs were elevated during commissioning and ramp-up.
- Cash flow: For the first nine months, operating cash used was $21.1 million, investing cash provided was $107.2 million, and financing cash used was $0.2 million. Investing inflows primarily reflect $168.6 million of marketable-security maturities, offset in part by $61.4 million of property and equipment spending. Capital spending included $46.7 million for NZ1.
- Liquidity: At September 30, cash and cash equivalents were $323.5 million and restricted cash was $77.8 million. Management reported working capital of $314.9 million and stated it expects available resources and operations to meet obligations for the next 12 months. Restricted cash is pledged as collateral for project-related letters of credit and is not freely available.
- Debt: Total debt was $68.0 million, primarily the $67.8 million net carrying value of 2021 bonds. The bonds were classified as current, with a mandatory tender date of April 1, 2024; a $71.2 million cash collateralized letter of credit supports them. The filing reports no draws on that letter of credit as of September 30.
- Balance sheet: Total assets were $669.5 million, versus $700.7 million at year-end 2022; stockholders’ equity was $571.5 million. Construction in progress was $137.2 million, including $89.8 million for NZ1.
Changes versus prior comparable periods
- Revenue rose substantially from the prior year as RNG production and environmental-credit sales ramped up; the company also recognized LG Chem development revenue in 2023.
- Nine-month net loss narrowed by $24.9 million. The comparison benefited from the absence of the $24.7 million Luverne impairment recorded in 2022, higher revenue, and higher interest income; this was partly offset by increased depreciation, project development expense, and interest expense.
- Cash and cash equivalents increased from $237.1 million at December 31, 2022 to $323.5 million at September 30, 2023. The company’s marketable securities matured during the period, and the resulting proceeds contributed to investing cash flow.
- Gevo consolidated two NZ1-related project entities as variable interest entities (VIEs) after determining it had power over significant activities. The related prior-period balance-sheet and cash-flow adjustments were assessed as immaterial and did not affect reported operating results.
Outlook, risks, and unusual items
- NZ1 financing and schedule: Gevo estimates NZ1 installed cost at approximately $1 billion, excluding certain contingencies and financing costs. It is pursuing third-party equity and debt, including a DOE loan-guarantee process; the DOE invited Gevo into due diligence and term-sheet negotiations. The process may extend into 2024, financing timing is uncertain, and expected startup is 24–30 months after financing closes.
- Funding and execution risks: The company expects continued losses and depends on successful project development, commercial production, financing, customer demand, suitable feedstocks, policy incentives, and environmental-credit prices. Management cautions there is no assurance it can raise additional capital or achieve profitability or positive operating cash flow.
- Commitments: Disclosed commitments include approximately $38.2 million of future fuel-supply payments and $35.5 million related to Zero6 development and project support, among other items. Certain Zero6 development charges depend on future milestones; some project advances are expected to be reimbursed upon completion.
- Potential technology-access payments: Agreements with ADM and Phillips 66 could provide Gevo up to $50 million in milestone payments and at least $75 million in royalties if specified milestones and production conditions are achieved. These amounts are contingent and may not be paid if milestones are not met or the agreements terminate.
- Control weakness: Management concluded disclosure controls were not effective as of September 30, 2023, due to a material weakness in controls for identifying and accounting for VIEs. Remediation is underway, including enhanced risk assessment and internal controls and use of qualified consultants as needed.
- The company reported no material litigation, no recorded environmental liabilities, and no material changes to the risk factors in its 2022 Form 10-K. No shares were repurchased under the $25 million repurchase authorization during the period.
Important facts for investors to verify
- Progress, cost revisions, financing commitments, and timing for NZ1, including the outcome and terms of the DOE loan-guarantee process.
- Whether RNG production and sales of RINs and LCFS credits continue to scale, and how credit prices and production costs affect segment economics.
- Availability and use of cash, including the restrictions and release conditions on $77.8 million of restricted cash and the 2024 bond tender/refinancing outcome.
- Progress in remediating the VIE-related material weakness and whether subsequent filings report effective controls.
- Achievement of contingent ADM/Phillips 66 milestones and LG Chem commercialization terms; these potential payments are not assured.
- Future capital needs and potential dilution, given continuing losses, project spending, the remaining at-the-market issuance capacity, and outstanding warrants.