Gevo, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Unaudited consolidated results. Gevo develops renewable chemicals and biofuels, with a focus on isobutanol; revenue was primarily from ethanol and related products produced at its Luverne, Minnesota facility.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $8.1 million | $8.9 million | $14.4 million | $14.8 million |
| Gross loss | $1.9 million | $1.0 million | $4.8 million | $4.3 million |
| Operating loss | $5.5 million | $6.5 million | $11.4 million | $16.1 million |
| Net loss | $21.5 million | $14.4 million | $25.1 million | $21.7 million |
| Net loss per share, diluted | $0.44 | $1.10 | $0.70 | $2.03 |
- Gross margin was negative: gross loss equaled approximately 23% of Q2 revenue and 33% of six-month revenue.
- Six-month operating cash use was $11.4 million, versus $14.9 million a year earlier. Investing cash use was $4.8 million, mainly facility capital spending; financing provided $21.8 million. Cash increased by $5.6 million to $22.6 million.
- At June 30, cash was $22.6 million, current assets $28.1 million and current liabilities $34.5 million, implying negative working capital of about $6.5 million. Total liabilities were $51.1 million.
- Debt included $26.1 million principal on 10% convertible notes due March 2017, carried at $23.3 million fair value; $22.4 million principal on 7.5% convertible notes due 2022, carried net at $16.5 million; and $0.3 million principal of secured debt due May 2017. The 2022 notes give holders a cash repurchase right in July 2017.
Changes versus the prior comparable period
- Q2 revenue fell $0.8 million, mainly due to lower ethanol production and lower ethanol and distillers-grain prices. Six-month revenue decreased $0.4 million.
- Q2 gross loss widened by $0.9 million as cost of goods sold remained near $10.0 million despite lower sales. Six-month gross loss widened by $0.5 million.
- Operating losses narrowed, especially for the six-month period, as R&D and SG&A costs declined. Management attributed SG&A reductions largely to lower litigation and other legal expenses.
- Net loss increased by $7.1 million in Q2 and $3.4 million for the first half. Results included volatile non-cash fair-value changes in warrants and the 2017 notes, plus a $1.5 million loss associated with the April equity issuance.
- Financing included an April warrant-and-unit offering and a June common-stock offering. The company reported 89.2 million shares outstanding at June 30, compared with 21.6 million at December 31, 2015; subsequent to quarter-end, 89.5 million shares were outstanding as of July 29.
Outlook, commentary and risks
- Gevo restarted isobutanol production at Luverne in March. It reported approximately 168,000 gallons produced in 2016 to date and one batch above 20,000 gallons. Delays installing distillation equipment led it to reduce 2016 production guidance to 500,000–650,000 gallons.
- Management reaffirmed goals to reduce variable production cost to $3.00–$3.50 per gallon, assuming corn at $3.65 per bushel and credit for distillers grains; expected selling price was $3.50–$4.50 per gallon. It also targeted average quarterly corporate EBITDA burn of $3.5–$4.5 million, excluding stock compensation. These are projections, not reported results.
- Management expected to reach a 1.5-million-gallon annualized production capability by year-end 2016, but anticipated operating below that rate in 2017 while testing improvements and scaling production.
- The filing states that cash at June 30 was expected to fund planned operations through December 31, 2016, but was insufficient to meet all 2017 debt obligations. Management identified substantial doubt about the company’s ability to continue as a going concern and said additional capital or debt restructuring was necessary. Bankruptcy was identified as a possible outcome if financing or restructuring failed.
- The board had begun a strategic-alternatives review and discussions with the 2017-note agent and certain 2022-note holders regarding a potential recapitalization. No transaction was assured.
- NASDAQ granted an extension to January 23, 2017 to regain the $1.00 minimum bid-price requirement; the company said a reverse stock split could be used. Delisting could trigger note repurchase rights and make-whole obligations.
- Commercial developments included an isobutanol supply agreement with Musket, ASTM approval for isobutanol-derived jet fuel blends of up to 30%, and two Alaska Airlines demonstration flights using a 20% blend. The filing does not establish material revenue from these developments.
Most important facts for investors to verify
- Whether the company obtained financing or completed a recapitalization sufficient to address the 2017 debt maturities and going-concern risk.
- Actual Luverne production volumes, production consistency, unit costs and sales versus the revised 2016 targets.
- Cash burn, working-capital needs and whether operating cash use can be sustained without repeated equity or warrant financing.
- Debt terms and any noteholder repurchase, conversion, restructuring or make-whole obligations, including the July 2017 2022-note put right.
- Share-count changes, warrant exercises and potential dilution; also confirm progress toward NASDAQ bid-price compliance.
- The effect of non-cash fair-value marks and equity-issuance accounting on reported net loss; these items can materially distort period-to-period comparisons.