Gevo, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial statements are unaudited. Gevo develops renewable fuels and chemicals; its Luverne, Minnesota facility produced ethanol and related products, while its strategy includes expanding production of isobutanol and renewable hydrocarbons.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $3.825 million | $6.403 million |
| Gross loss | $4.314 million | $2.558 million |
| Operating loss | $7.976 million | $5.628 million |
| Net loss | $9.253 million | $6.136 million |
| Net loss per share | $0.64 | $0.60 |
| Cash used in operating activities | $6.988 million | $5.708 million |
| Capital expenditures and other investing cash use | $0.777 million | $2.204 million |
Revenue fell 40% year over year. Ethanol and related-product revenue declined to $3.7 million from $5.664 million; ethanol sales volume was 2.4 million gallons versus 3.7 million. Hydrocarbon revenue fell to $0.125 million from $0.739 million, reflecting lower shipments. Cost of goods sold decreased, but not enough to offset lower revenue, so gross loss widened. Operating expenses rose to $3.662 million from $3.070 million, including $0.299 million of restructuring costs. Interest expense was $0.545 million; the quarter also included a $0.669 million loss related to modifying the notes.
Liquidity, debt and balance sheet
- At March 31, cash and cash equivalents were $9.289 million, down from $16.302 million at year-end. Current assets were $15.959 million and current liabilities $19.002 million; total liabilities were $19.669 million and stockholders’ equity $64.493 million.
- Operating and investing cash outflows totaled $7.765 million; financing provided $0.752 million, primarily from $0.9 million in net at-the-market share-sale proceeds. Gevo ended the quarter with $9.289 million in cash.
- Gevo exchanged approximately $14.1 million of principal and accrued interest on its 12% notes for approximately $14.4 million of secured 12% convertible notes. The replacement notes mature December 31, 2020, potentially extending to April 1, 2021 if specified stockholder-approval and principal-balance conditions are met. They are secured by substantially all company assets and carry a $2.442 initial conversion price.
- The filing states that existing working capital was insufficient to fund planned operations through one year after issuance of the financial statements and that substantial doubt exists about Gevo’s ability to continue as a going concern. Gevo expects further losses and says it will need additional capital; it cautions that financing may not be available on acceptable terms or at all.
Changes, outlook and material developments
- In March, following a temporary halt, Gevo suspended ethanol production at Luverne for the foreseeable future amid COVID-19 disruption and unfavorable industry conditions. It said the action was expected to save several million dollars of cash burn in 2020. The company reduced its workforce by 30 people and recorded $0.299 million of restructuring costs.
- Management said COVID-19 had not materially affected Q1 results but could negatively affect revenue, operating results, customer demand, collections and liquidity for the remainder of 2020 and beyond. The filing gives no specific revenue, earnings or cash-flow guidance.
- Gevo intends to continue engineering and development for Luverne expansion, including low-carbon isobutanol, sustainable aviation fuel and renewable isooctane, but requires project funding. It also described a planned RNG project requiring approximately $57 million of project debt and third-party equity; timing and implementation depend on financing.
- On April 22, 2020, after quarter-end, Gevo amended its Delta Air Lines fuel agreement. Delta may terminate if the planned ATJ facility has not achieved commercial operation by June 30, 2024. Credit-support terms must be agreed to, and if Brent crude is below specified thresholds, pricing may adjust and Delta may eliminate the 10-million-gallon-per-year take-or-pay commitment.
- In April, Gevo and Agri-Energy obtained $1.0 million in aggregate SBA Paycheck Protection Program loans at 1% interest, potentially forgivable subject to program conditions. This financing occurred after quarter-end.
- Revenue concentration is significant: Eco-Energy represented approximately 73% of Q1 2020 revenue and Purina 22%. One customer represented about 52% of trade receivables at March 31.
Key investor verification points
- Confirm current cash runway, subsequent financing, debt repayment or restructuring, and the status of the going-concern uncertainty.
- Check the 2020/21 notes’ maturity, stockholder approval and conversion terms, secured claims, and potential dilution.
- Verify whether the Luverne production suspension, cost savings and proposed expansion funding have changed since the filing.
- Review the current status and economics of the amended Delta agreement, including take-or-pay, price adjustments and facility milestones.
- Track customer concentration, collections and demand, as well as COVID-19 effects on fuel markets and the RNG project’s financing and schedule.