Gevo, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited consolidated results. Unless noted otherwise, amounts below are in U.S. dollars, millions.
Business context
Gevo is developing renewable fuels, including sustainable aviation fuel (SAF) and renewable gasoline, as well as renewable natural gas (RNG). At this stage, it depends largely on external financing and has not established profitable operations. Its Luverne, Minnesota facility had suspended ethanol production in March 2020; the company said it restarted production in July 2021, after the quarter.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $0.422 | $0.988 | $0.515 | $4.813 |
| Gross loss | $(2.372) | $(1.656) | $(4.273) | $(5.970) |
| Operating loss | $(19.022) | $(5.257) | $(28.900) | $(13.271) |
| Net loss | $(18.253) | $(6.043) | $(28.310) | $(15.296) |
| Basic and diluted loss per share | $(0.09) | $(0.40) | $(0.15) | $(1.04) |
- Q2 revenue declined 57% year over year; six-month revenue declined 89%. There were no ethanol sales in the first half of 2021. Hydrocarbon revenue was $0.346 million in Q2 and $0.359 million for the six months, down from $0.859 million and $0.984 million, respectively.
- Q2 gross loss widened by $0.716 million, while the six-month gross loss narrowed by $1.697 million, primarily because ethanol production had ceased and cost of goods sold fell. The filing does not present gross margin as a percentage.
- Operating expenses rose to $16.650 million in Q2 from $3.601 million a year earlier, and to $24.627 million for the first half from $7.301 million. In Q2, preliminary-stage project costs were $5.472 million and a $4.954 million asset-disposal loss was recorded. R&D and SG&A also increased.
- Six-month operating cash use was $19.468 million, compared with $10.818 million in 2020. Investing cash use was $436.529 million, principally purchases of marketable securities ($422.362 million) and property and equipment. Financing provided $522.853 million, mainly from equity offerings and bonds.
- At June 30, cash and cash equivalents were $17.085 million, restricted cash $128.109 million, and marketable securities $422.055 million—$567.249 million combined, of which restricted cash was not freely available. Current assets were $329.176 million and current liabilities $21.455 million.
- Total liabilities were $109.551 million. The balance sheet reported $66.120 million of long-term 2021 bonds payable and $0.568 million of other loans; finance lease liabilities totaled $24.603 million. The Iowa Finance Authority issued $68.155 million principal of bonds at 1.5% to fund the RNG project. Gevo pledged restricted cash and provided a letter of credit; it expected to remarket the bonds on revised terms, but that had not yet occurred.
Material changes and unusual items
- Gevo raised approximately $321.9 million net in a January registered offering and $135.8 million net through its at-the-market program in the first half. Issued and outstanding common shares increased from 128.1 million at December 31, 2020 to 198.0 million at June 30, 2021.
- The $4.954 million Q2 write-off related to fractionation equipment associated with discontinued ethanol production. The SBA forgave $0.641 million of loans and accrued interest, recognized as a gain; $0.368 million of SBA loans remained outstanding.
- Restricted bond proceeds and collateral comprised much of restricted cash. Marketable securities were available-for-sale U.S. Treasury and government-sponsored enterprise securities; the filing reported $0.307 million of unrealized losses in other comprehensive loss.
Outlook, management commentary and risks
- Management expected future net losses and stated that profitability and positive operating cash flow were not assured. It believed available resources were adequate to fund operations for at least one year from issuance of the statements; it also said the company expected to incur losses through at least 2022.
- Gevo planned approximately $337 million of spending over the following 12 months for Net-Zero 1 engineering, development, equipment deposits, financing costs and project-construction equity commitments. It projected fully financed installed capital costs of approximately $980 million for Net-Zero 1. The RNG project was expected to require a further $57 million to complete and begin production in 2022.
- Net-Zero 1 was planned for Lake Preston, South Dakota, with expected capacity of approximately 46 million gallons per year of hydrocarbons. These are management plans and estimates, dependent on financing, engineering, construction and commercialization.
- After quarter-end, Gevo reported the Luverne restart on August 4, 2021, and said it did not expect significant revenue from that facility. In the third quarter, it entered into agreements with bp for sale of planned RNG production; these were subsequent developments, not Q2 results.
- Management cited COVID-19 and transportation-sector demand, commodity and feedstock costs, project execution, market acceptance, capital availability and dilution as key risks. Revenue and receivables were highly concentrated: three customers accounted for approximately 82% of Q2 revenue, and two customers for approximately 96% of period-end trade receivables.
- The filing disclosed a specific risk that available authorized common shares might be insufficient for future financing or strategic transactions without stockholder approval to increase the authorized share count. The company reported no material litigation, no recorded environmental liabilities, and no material off-balance-sheet arrangements. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether the Luverne restart delivers planned isobutanol and supports contracted SAF and renewable gasoline sales, and whether commercial production generates meaningful revenue.
- Net-Zero 1 and RNG project financing, construction schedules, remaining funding needs, cost estimates and expected production dates.
- Status and final terms of the 2021 bond remarketing, the related letter of credit and pledged restricted cash.
- Future cash burn, dependence on equity or debt financing, share dilution and any stockholder vote to increase authorized shares.
- Customer concentration, post-quarter bp RNG agreements and the assumptions underlying expected demand and project economics.