Gevo, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless otherwise noted.
Business context
Gevo develops renewable fuels and chemicals, with a primary focus on sustainable aviation fuel (SAF). Its operations include development-scale production at Luverne, Minnesota; the NW Iowa renewable natural gas (RNG) project; and development of the planned Net-Zero 1 facility. Q1 revenues remained very small and were generated mainly by the development-scale facilities.
Financial performance and liquidity
- Revenue: $0.23 million, up from $0.09 million in Q1 2021. The company reported sales of approximately 35,000 gallons of SAF, isooctane, and isooctene from Luverne.
- Gross loss and margin: Gross loss was $3.95 million versus $1.90 million. Cost of goods sold was $4.18 million; it included a $2.9 million inventory write-down. The gross loss exceeded revenue in both periods.
- Operating and net loss: Operating loss was $15.96 million, compared with $9.88 million. Net loss was $15.67 million, or $0.08 per share, versus $10.06 million, or $0.05 per share.
- Expenses: SG&A rose to $9.37 million from $3.81 million, primarily due to hiring, stock compensation, professional fees, and insurance. R&D was $1.19 million, down from $1.38 million.
- Cash flows: Operating cash use was $12.46 million, versus $7.17 million. Investing activities provided $7.86 million, reflecting security maturities and sales partly offset by purchases and capital investment. Financing activities used $0.35 million; Q1 2021 financing had provided $458.78 million, primarily from equity issuance.
- Capital investment: Cash purchases of property and equipment were $31.22 million. Construction in progress was $107.85 million at quarter-end, including $67.4 million for NW Iowa RNG and $26.8 million for Net-Zero 1.
- Liquidity: At March 31, cash and equivalents were $44.63 million, marketable securities were $298.54 million, and restricted cash was $86.45 million. Cash, equivalents, and restricted cash totaled $131.08 million. Management said available resources and expected operations should cover obligations and potential cash requirements for the next 12 months.
- Debt and leases: The 2021 bonds had a $66.67 million balance-sheet carrying value; total loans payable were $67.04 million. Finance lease liabilities were $21.43 million. The bonds mature in 2042 but are subject to a mandatory tender in April 2024 absent successful remarketing; $71.2 million of restricted cash secures the related letter of credit.
Changes versus Q1 2021
- Revenue increased by $0.14 million, partly because Luverne had been temporarily shut down in Q1 2021. Revenue nevertheless remained immaterial relative to expenses.
- Cost of goods sold increased by $2.19 million, including the Q1 2022 inventory valuation loss. Operating expenses rose by $4.03 million; lower preliminary-stage project costs partly offset higher SG&A and other operating costs.
- Net loss widened by $5.62 million. Operating cash use increased by $5.30 million as production, engineering, personnel, partnership-development, and Verity Tracking costs grew.
- Q1 2022 included no derivative warrant liability remeasurement loss; the remaining liability warrants expired in February 2022.
Outlook, commentary, and risks
- Projects: NW Iowa RNG digesters were in start-up, with steady production expected in Q2 2022. At full operation, the project is expected to produce approximately 355,000 MMBtu annually; management expected most related revenues to begin in late 2022 or early 2023.
- Spending plans: Gevo expected to spend approximately $100 million over the next 12 months on Net-Zero 1 engineering, development, long-lead equipment, financing costs, and construction equity commitments. It also identified up to $11.4 million of additional NW Iowa RNG start-up, improvement, and expansion investment for the remainder of 2022.
- Net-Zero 1: The planned South Dakota project was described as approximately 60 million gallons per year, with a target to break ground in late 2022 and complete the facility in 2025. These are forward-looking targets, not achieved results.
- Commercial agreements: In March, Gevo signed a seven-year take-or-pay agreement with Delta for 75 million gallons of SAF annually, replacing an earlier 10-million-gallon agreement. The filing also identifies a British Airways fuel sales agreement.
- Funding and execution risks: Gevo has incurred losses since inception and expects continued losses. Profitability depends on successful project development and commercialization, adequate revenue, and access to additional capital; the company cautioned there is no assurance financing will be available on acceptable terms.
- Environmental matters: A February discharge at an Iowa digester, and two small April discharges, resulted in notices of violation from Iowa regulators. Gevo said enforcement and monetary sanctions were possible but did not expect sanctions to be material.
- Other risks: Management cited potential effects of COVID-19 on transportation-fuel demand, customers, suppliers, and project development. It reported no material change to the risk factors in its 2021 Form 10-K. Disclosure controls were assessed as effective.
Important facts for investors to verify
- NW Iowa RNG commissioning progress, actual production, environmental compliance, and timing of customer revenues.
- Net-Zero 1 project financing, construction commitments, capital requirements, and progress against the stated schedule.
- Whether Gevo can meet its take-or-pay supply commitments, including the Delta agreement, with planned production capacity.
- Available unrestricted liquidity after accounting for restricted project funds, ongoing operating cash burn, and planned capital spending.
- Any Iowa DNR enforcement outcome and the final cost and expected benefits of planned RNG improvements.