Gevo, Inc. quarterly report, Q2 FY2023

Gevo, Inc. — Q2 2023 Form 10-Q

Reporting period: Three and six months ended June 30, 2023. Unaudited results are presented against the comparable 2022 periods. Gevo develops renewable fuels and chemicals, with sustainable aviation fuel (SAF) as its primary planned market; its current operating revenue largely comes from renewable natural gas (RNG) and environmental attributes.

Financial performance and position

Metric	Q2 2023	Q2 2022	Six months 2023	Six months 2022
Revenue	$4.2 million	$0.1 million	$8.3 million	$0.3 million
Operating loss	$18.9 million	$16.1 million	$39.8 million	$32.1 million
Net loss	$14.4 million	$13.2 million	$32.0 million	$28.8 million
Net loss per share	$0.06	$0.06	$0.13	$0.14

Revenue growth primarily reflected RNG and environmental-attribute sales, which began in 2022, plus $1.3 million of LG Chem licensing and development revenue in Q2. Q2 revenue included $2.8 million of environmental attributes and $0.1 million of RNG commodity sales.
Operating expenses were $23.2 million in Q2, up 43% year over year. Depreciation and amortization increased $3.3 million, and general and administrative expense rose $1.9 million. Luverne facility idling costs were $1.0 million.
Q2 interest and investment income was $5.0 million, largely reflecting higher interest earned on cash investments; this partly offset operating losses. Q2 operating loss was about 4.5 times revenue, so the operating margin remained deeply negative.
Six-month operating cash use was $29.4 million, versus $17.2 million in 2022. Investing activities provided $139.5 million, mainly from maturities of marketable securities, while capital expenditures were $29.1 million. Financing activities used $0.1 million.
At June 30, cash and cash equivalents were $347.7 million, restricted cash was $77.8 million, and working capital was $339.1 million. No marketable securities remained after the remaining investments matured during the first half.
Total debt was $67.8 million, principally the $67.6 million 2021 Bonds. The bonds are reported as current liabilities because of a mandatory tender date of April 1, 2024; the filing says the bonds may be repaid through a letter of credit if not called and remarketed by then. The bond letter of credit is secured by $71.2 million of restricted cash. Lease liabilities totaled $1.8 million.

Material changes and business developments

Six-month revenue rose by $8.0 million, principally from RNG and environmental attributes. Six-month operating loss widened by $7.7 million and net loss by $3.2 million, despite higher interest income.
RNG production was 142,000 MMBtu in the first half. Gevo reported $6.6 million of RNG-segment revenue and $7.6 million of segment production expenses for the period. Management cited commissioning and ramp-up as contributing to high unit costs. The company expects about 300,000 MMBtu of RNG production in 2023 and is working to increase annualized capacity from 355,000 to 400,000 MMBtu by year-end.
NZ1, planned for Lake Preston, South Dakota, is designed for approximately 65 million gallons per year of hydrocarbons, including 60 million gallons of SAF. Its installed cost forecast is approximately $850 million, excluding certain contingencies and financing costs. Construction financing has not closed.
Gevo submitted a Part II application for a DOE loan guarantee and was invited into due diligence and term-sheet negotiations. The process is expected to continue into 2024. Management is also exploring financing without the guarantee and working to reduce pre-close spending. NZ1 startup is expected 24–30 months after financing closes; timing is uncertain.
A May 2023 technology access agreement involving Axens, Phillips 66 and ADM provides for potential milestone payments expected to total $50 million and royalties expected to total at least $75 million if specified conditions and production milestones are achieved. These amounts are contingent, not guaranteed; no payment is due if applicable milestones are not met.
Gevo recognized $1.3 million under its LG Chem development agreement and expects another $1.2 million over two years. Additional commercialization payments and royalties depend on future events.
The company authorized a stock repurchase program of up to $25 million in May; it repurchased no shares in Q2. It had approximately $360.6 million of capacity remaining under its at-the-market offering program.

Outlook, risks and contingencies

Management believes available cash and expected operations can meet obligations for the next 12 months, but Gevo has incurred losses since inception and expects losses to continue. It says profitability depends on commercializing products, building facilities, generating adequate revenue and obtaining financing; there is no assurance it can raise additional funds or achieve profitability or positive operating cash flow.
NZ1 requires third-party debt and equity financing. Its projected cost, financing structure and schedule remain subject to change; a DOE-guaranteed loan is not secured. The company expects to retain a minority, carried equity interest under its proposed financing approach.
Key stated uncertainties include construction and scale-up execution, access to capital, feedstock and renewable energy availability and cost, market prices for environmental attributes and commodities, government incentives, customer demand and performance of offtake agreements.
Gevo reported no pending or threatened litigation it believes would have a material adverse effect and no recorded environmental liabilities. It stated there were no material changes to the risk factors in its 2022 Form 10-K.
The company received a USDA Notice of Grant and Agreement Award for a program with an award ceiling of up to $30 million; it expected to complete the agreement in Q3 2023. The award should not be treated as confirmed cash received based on this filing.

Important facts for investors to verify

Whether the 2021 Bonds are called and remarketed before the April 1, 2024 mandatory tender date, and the implications for the $71.2 million collateralized cash balance.
Progress, terms and timing of DOE financing and third-party equity for NZ1, including updated cost estimates and construction schedule.
RNG production ramp-up, operating costs, environmental-attribute generation and realized prices, and progress toward the 2023 production target.
Whether contingent Axens/ADM/Phillips 66 and LG Chem milestones are achieved, and the timing and collectability of related payments and royalties.
Cash burn, capital commitments and the use of unrestricted cash for project development; the filing reports $57.4 million of estimated listed commitments, in addition to project capital needs.