Gevo, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Financial statements are unaudited; amounts below are in U.S. dollars, generally millions unless stated otherwise.
Business context
Gevo develops and commercializes renewable fuels and chemicals, including ethanol, isobutanol, alcohol-to-jet (ATJ) fuel and related hydrocarbons. Its Luverne, Minnesota facility produces ethanol and related products; its South Hampton, Texas facility produces hydrocarbon products derived from isobutanol. The company is investing in Luverne improvements and pursuing low-carbon fuel expansion.
Key financial metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $6.1 | $8.6 | $17.6 | $26.2 |
| Gross loss | $3.8 | $2.1 | $9.7 | $5.7 |
| Operating loss | $8.0 | $6.1 | $20.1 | $15.5 |
| Net loss | $8.6 | $6.9 | $21.8 | $20.9 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(14.8) | $(10.2) |
- Revenue and margins: Ethanol and related-product revenue fell 31% in Q3 and 36% year to date. Gross loss widened; gross margin was approximately negative 62% in Q3 and negative 55% year to date, versus negative 24% and negative 22%, respectively, in 2018.
- Production: Ethanol sales volume was 3.4 million gallons in Q3 versus 5.1 million a year earlier; year-to-date volume was 10.2 million versus 14.9 million. Management attributed lower production and sales to unfavorable commodity economics, including elevated regional corn costs. Hydrocarbon revenue increased to $0.6 million in Q3 and $1.4 million year to date, reflecting higher production or shipments.
- Expenses: Year-to-date operating expenses rose $0.6 million to $10.4 million. SG&A increased $1.0 million, partly offset by a $0.4 million reduction in R&D. Q3 net loss widened by $1.7 million; year-to-date net loss increased by $1.0 million.
- Cash and liquidity: Cash and cash equivalents were $20.9 million at September 30, down $12.8 million from year-end 2018. Nine-month investing cash use was $7.3 million, including $5.8 million of capital spending and a $1.5 million investment in Juhl. Financing provided $9.3 million, mainly from equity issuance. The filing does not provide a clear cash runway estimate.
- Debt: The 12% senior secured 2020 Notes had $13.9 million of principal outstanding ($13.6 million net carrying amount) and mature March 15, 2020. They are secured by a first lien on substantially all company assets. Gevo said it was actively working to refinance them.
- Balance sheet: Total assets were $95.5 million, total liabilities $18.5 million, and stockholders’ equity $76.9 million. Current assets were $25.8 million and current liabilities $18.1 million.
Material changes, outlook and risks
- The company issued 3.24 million shares through its at-the-market program during the first nine months, raising $9.9 million gross; no shares were sold under the program in Q3. It reported 13.37 million shares outstanding at September 30. Additional sales after quarter-end raised $0.9 million gross through November 11.
- Management expects continued losses through at least 2020 and says operations depend on additional financing. It cautioned that financing may not be available on acceptable terms or at all, and that profitability or positive operating cash flow may never be achieved.
- Gevo is installing corn fractionation and distillers-grain drying equipment at Luverne, with approximately $3.0 million of related work noted at quarter-end; the fractionation machine was expected to be operational in Q1 2020. The company also described plans to decarbonize Luverne and expand low-carbon fuel capacity, but provided no quantified financial guidance in the supplied filing text.
- Sales are concentrated: Eco-Energy represented approximately 73% of Q3 revenue and 72% of nine-month revenue; Purina represented 16% and 17%, respectively. At quarter-end, Coryton and Eco-Energy accounted for 56% and 15% of accounts receivable.
- Other notable items include a $1.5 million preferred-stock investment in Juhl connected with a proposed wind-energy project near Luverne, and an ATJ purchase-and-sale agreement with Air Total effective July 26, 2019; the supplied filing text does not provide clear agreement volumes or financial terms.
- Management reported no material litigation, no material changes to the risk factors in its prior annual report, effective disclosure controls, and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether Gevo refinanced, repaid, or otherwise addressed the $13.9 million of 12% notes due March 15, 2020, and the terms and dilution implications of any financing.
- Actual cash burn, available liquidity, and financing needs relative to the $20.9 million quarter-end cash balance.
- Whether corn economics, production volumes, and Luverne operating performance improved after the reported production reductions.
- Progress, cost, funding and timing for the Luverne upgrades and the planned wind-energy arrangement.
- Commercial volumes, pricing, delivery obligations and revenue contribution under the Air Total ATJ agreement, as well as customer concentration and potential dilution from further equity issuance.