Gevo, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Gevo develops renewable chemicals and biofuels, while its Luverne, Minnesota facility primarily produced ethanol during the period. Financial statement amounts below are in U.S. dollars; financial figures are in millions unless noted.
Financial performance and liquidity
- Revenue: $8.24 million, up 47% from $5.62 million in Q1 2017. Ethanol and related-product revenue was $8.22 million; hydrocarbon revenue was zero. Ethanol sales were 4.9 million gallons versus 3.3 million.
- Gross loss and margin: Gross loss narrowed to $2.34 million from $3.79 million. Gross margin was approximately negative 28% versus negative 68%.
- Operating expenses and loss: Operating expenses declined to $2.66 million from $3.39 million. Operating loss improved to $5.00 million from $7.18 million.
- Net loss: $2.50 million, compared with $5.93 million. The 2018 result included $3.34 million of noncash gains from fair-value changes in the 2020 Notes embedded derivative and warrant liability; these gains materially supported the reported improvement. Basic and diluted loss per share was $0.11 versus $0.51.
- Cash flow: Operating cash use was $4.35 million versus $8.05 million; investing cash use was $0.07 million versus $0.67 million. Financing used $0.11 million, including offering costs that exceeded first-quarter ATM proceeds. Cash declined $4.52 million to $7.03 million.
- Balance sheet: Current assets were $13.31 million and current liabilities $7.31 million. Total assets were $82.87 million; stockholders’ equity was $61.56 million. Accumulated deficit was $403.85 million.
- Debt and obligations: The 12% convertible senior secured 2020 Notes mature March 15, 2020. Their principal was $16.74 million and carrying amount, net of discount and issuance costs, was $13.89 million at quarter-end. The remaining 2022 Notes were exchanged for 780,303 common shares in January 2018. The filing lists $23.96 million of fixed contractual obligations, including debt principal, interest, and operating leases.
Changes versus Q1 2017
- Higher ethanol and related-product sales drove revenue growth, while cost of goods sold also increased, by $1.18 million.
- Lower research and development and selling, general and administrative expenses helped reduce the operating loss.
- Net loss improved substantially, but the comparison reflects different debt fair-value movements: Q1 2018 included a $2.86 million gain on the 2020 Notes embedded derivative, while Q1 2017 included a $3.26 million warrant-liability gain and other debt-related items.
- Operating cash use improved year over year, but cash on hand was substantially lower than the $23.00 million reported at March 31, 2017.
Outlook, risks, and notable items
- Going concern: Management stated that available working capital was insufficient to fund planned operations for the year following issuance of the 2017 audited financial statements, raising substantial doubt about Gevo’s ability to continue as a going concern. The company expects further losses and needs additional financing; there is no assurance it can raise capital or achieve profitability or positive operating cash flow.
- Operating plans: Gevo expected to sell approximately 19 million gallons or more of ethanol and approximately 56,000 tons of animal feed in 2018, and aimed to improve Luverne cash flow through process optimization, higher-value products, and lower feedstock costs. These are expectations, not guaranteed results.
- Isobutanol and expansion: Management said low-rate isobutanol production increases cash burn and planned to use existing inventory for market development. Expansion depends on binding offtake agreements, financing, and successful commercialization. At least one aging carbon-steel fermentation vessel would require repair before extended isobutanol production; estimated repair cost was about $250,000 per vessel.
- Financing and dilution: A $5 million ATM program began in February; Gevo sold 104,138 shares for approximately $0.1 million gross proceeds in Q1 and reported about $4.9 million of remaining capacity. From April 1 through May 10, it issued an additional 1,498,241 shares under the ATM program; proceeds are not clearly stated in the provided filing text.
- Nasdaq listing: Gevo had until June 18, 2018 to regain the $1.00 minimum bid-price compliance requirement. A proposed 1-for-2 to 1-for-20 reverse split was submitted for shareholder approval. Delisting could trigger holders’ right to require repurchase of the 2020 Notes and, according to the company, could likely render it insolvent.
- Revenue concentration: One customer accounted for 74% of Q1 2018 revenue, compared with 80% in Q1 2017.
- Other developments: Gevo amended an isobutanol supply agreement granting Musket exclusive sales rights within a 300-mile radius of Houston. Management reported no material litigation, no material change in market-risk exposure, and effective disclosure controls at quarter-end.
Investor verification priorities
- Assess the company’s near-term liquidity, financing alternatives, cash burn, and the going-concern uncertainty.
- Verify the exact 2020 Notes principal, interest and maturity obligations, and the potential consequences of a Nasdaq delisting or reverse split.
- Track ATM share issuance, remaining capacity, subsequent proceeds, and resulting dilution.
- Monitor whether ethanol and animal-feed targets and facility cash-flow improvements are achieved, and whether fermentation-vessel repairs constrain isobutanol production.
- Evaluate customer concentration, binding offtake agreements, and financing required for the Luverne expansion before relying on commercialization plans.