Gevo, Inc. — FY2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015; the filing also reports fourth-quarter results. Filed March 30, 2016. Dollar amounts below are in U.S. dollars.
Business context
Gevo develops renewable isobutanol and related fuels and chemicals using its GIFT fermentation and separation technology. Its Luverne, Minnesota facility continued producing mainly ethanol, with limited isobutanol co-production; ethanol and related products remained the main revenue source. The company’s strategy depends on improving commercial isobutanol production and expanding through licensing and retrofits of ethanol plants.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $30.1 million | $28.3 million |
| Cost of goods sold | $38.8 million | $35.6 million |
| Gross loss | $8.6 million | $7.3 million |
| Operating expenses | $23.3 million | $32.5 million |
| Operating loss | $31.9 million | $39.8 million |
| Net loss | $36.2 million | $41.1 million |
| Cash used in operating activities | $28.2 million | $39.0 million |
FY2015 gross margin was approximately negative 28.6%. Revenue comprised $27.1 million from ethanol, isobutanol and related products, $1.7 million from hydrocarbons, and $1.3 million from grants and other sources. Fourth-quarter revenue was $7.3 million, gross loss $1.7 million, operating loss $6.6 million, and net loss $8.0 million.
At year-end, cash and cash equivalents were $17.0 million, current assets $22.6 million, and current liabilities $18.3 million. Total assets were $103.1 million and total liabilities $54.8 million. The company reported $26.1 million principal outstanding on 10% convertible notes due 2017, $22.4 million on 7.5% convertible notes due 2022, and approximately $0.5 million of TriplePoint secured debt. The debt schedule shows $49.0 million in total principal obligations, including $26.3 million due in 2017. Substantially all assets, including intellectual property, secure the senior notes; the 2022 notes’ carrying amount was $14.6 million, net of discount.
Cash increased from $6.4 million to $17.0 million during 2015, primarily because financing activities provided $40.2 million, including equity and warrant proceeds. Investing activities used $1.3 million. The auditor and management warned that existing working capital was insufficient to fund planned operations through December 31, 2016 without additional cash, raising substantial doubt about the company’s ability to continue as a going concern.
Changes versus prior period
- Revenue rose 6.6% from 2014, principally because of increased production at Luverne; ethanol sales and related products increased $3.6 million. Hydrocarbon revenue fell $2.3 million, including because the $1.5 million bio-PX shipment recognized in 2014 did not recur and the Houston demonstration plant temporarily halted production.
- Gross loss widened by $1.3 million as production costs increased faster than revenue. Operating expenses fell $9.2 million, mainly from lower research and development spending and reduced selling, general and administrative costs.
- Net loss narrowed by $5.0 million, but results included non-cash fair-value movements in notes and warrants and a $2.5 million loss on issuance of equity. These items make the net-loss comparison less indicative of operating performance.
- Operating cash use improved by $10.8 million. The company raised $44.0 million in gross proceeds from 2015 equity offerings and received $10.2 million from warrant exercises; these financings increased cash but also contributed to potential dilution.
Outlook, commentary, and material risks
- For 2016, management targeted isobutanol production of 750,000 to 1 million gallons at Luverne and variable production costs of $3.00–$3.50 per gallon, assuming corn at $3.65 per bushel and credit for iDG co-product value. The stated expected selling-price range was $3.50–$4.50 per gallon, with a goal of positive contribution margin.
- Management also targeted quarterly company-wide EBITDA cash burn, excluding stock-based compensation, of $3.5–$4.5 million and planned to increase sales into jet fuel, marine, off-road, isooctane and solvent markets. Targets depend on successful installation and operation of approximately $5 million of facility improvements; the filing gives no assurance they will be achieved.
- Commercial-scale production remains unproven at nameplate capacity. Prior production challenges included contamination and lower-than-planned output. Feedstock, natural gas, oil and ethanol prices, product specifications, customer adoption, regulatory approvals, and access to financing could impair margins or delay commercialization.
- Gevo reported 2015 capital costs of approximately $65.5 million for the Luverne retrofit. Equipment intended to reduce production costs was expected to be completed in the first or second quarter of 2016.
- In August 2015, Gevo settled patent disputes with Butamax and entered into a cross-license. The agreement includes field-specific selling rights, royalty provisions and volume thresholds. Gevo also signed a development agreement with Praj; a Porta license and development agreement for an Argentina plant of up to 5 million gallons per year was signed in January 2016, with production anticipated in 2017. These arrangements are not assurance of completed projects or material revenue.
- As of filing, ASTM’s committee ballot for renewable isobutanol-derived jet fuel had passed, but final Society Review, tally and publication remained. The company said completion was expected in early April 2016. Alaska Airlines’ planned purchases and test flight depended on certification.
- Gevo received a Nasdaq minimum-bid-price deficiency notice in January 2016, with an initial compliance deadline of July 25, 2016. A March 2016 dryer fire briefly shut the Luverne facility; production resumed after about one week, and management did not expect a material adverse effect.
- Revenue was concentrated: C&N and Land O’Lakes Purina Feed accounted for approximately 70% and 19%, respectively, of 2015 consolidated revenue. The filing also identifies potential dilution from convertible notes and warrants; approximately 20.4 million warrant shares were outstanding at year-end.
Important facts for investors to verify
- Whether Gevo raised sufficient financing after year-end to fund operations and address the auditor’s going-concern warning.
- Actual 2016 Luverne isobutanol volumes, variable costs, selling prices, and contribution margins versus management targets.
- Completion, cost and operating performance of the Luverne equipment upgrades, and any further contamination or production issues.
- Final ASTM D7566 publication and resulting commercial jet-fuel deliveries, including the Alaska Airlines arrangements.
- Nasdaq bid-price compliance and the effect of debt maturities, secured liens, warrant exercises and potential share issuance on liquidity and dilution.
- Whether licensing projects with Porta and Praj reach construction and production milestones and generate the anticipated fees or royalties.