Gevo, Inc. — FY 2011 Form 10-K and Fourth-Quarter Summary
Reporting period: Fiscal year ended December 31, 2011. The filing also provides unaudited fourth-quarter results. Gevo was a development-stage renewable chemicals and biofuels company; during 2011 it generated revenue primarily from ethanol at its acquired Agri-Energy facility, not from commercial isobutanol sales.
Financial performance
| Metric | FY 2011 | FY 2010 | Q4 2011 | Q4 2010 |
|---|---|---|---|---|
| Revenue | $64.5 million | $16.4 million | $17.2 million | $14.1 million |
| Gross margin | $4.0 million (6.1%) | $3.0 million | $1.7 million (9.9%) | $1.5 million |
| Operating loss | $44.7 million | $35.5 million | $13.1 million | $6.4 million |
| Net loss | $48.2 million | $40.1 million | $14.2 million | $6.3 million |
| Net loss attributable to common stockholders | $49.3 million | $42.9 million | $14.2 million | $7.3 million |
| Net loss per share | $2.15 | $37.44 | $0.54 | $6.35 |
Approximately 99% of 2011 revenue came from ethanol and related products. Annual revenue rose 294%, largely because Agri-Energy was consolidated for a full year in 2011 versus only from September 2010 in the prior-year results; the increase is not evidence of isobutanol commercialization. The annual gross margin improved by $1.0 million, while operating loss increased 26% as research and development and selling, general and administrative costs rose. Q4 operating and net losses were higher than Q4 2010.
- Cash flow: Cash used in operations was $33.6 million in 2011, versus $20.9 million in 2010. Investing activities used $8.0 million, including $6.3 million of Agri-Energy retrofit capital expenditures. Financing activities provided $120.6 million, primarily from the February 2011 IPO and TriplePoint borrowings.
- Liquidity: Cash and cash equivalents were $94.2 million at year-end, compared with $15.3 million a year earlier. Current assets were $102.7 million and current liabilities $16.1 million. Management expected year-end cash to fund operations, planned capital expenditures and working capital for at least 12 months.
- Debt: Secured debt had a $28.2 million carrying value at year-end; principal and final/end-of-term payments totaled $30.7 million before debt discounts. Debt included fixed-rate facilities with interest rates of 11% to 13%; the company reported compliance with covenants. An additional $5 million was borrowed in January 2012.
Material changes and business developments
- The Agri-Energy ethanol facility accounted for the significant revenue increase and was being retrofitted to produce isobutanol. Gevo expected commercial production to begin in the first half of 2012.
- The Agri-Energy retrofit was projected to cost $22 million, with a further approximately $10 million for an enhanced yeast seed train. The company had incurred $6.3 million of retrofit capital expenditures in 2011.
- Gevo entered a joint venture arrangement to retrofit Redfield Energy’s approximately 50-million-gallon-per-year ethanol facility; Gevo would bear retrofit costs, and economic rights were conditional on commercial production and performance milestones.
- Research and development expense increased 33% to $19.8 million. Selling, general and administrative expense increased 22% to $28.9 million. The company completed a $110.4 million-net-proceeds IPO in February 2011.
Outlook, commentary and risks
- Management targeted production and sales of more than 350 million gallons of isobutanol in 2015 and stated additional funding would be required to achieve that goal. The filing gives no firm revenue or earnings guidance.
- Commercial-scale isobutanol production had not begun. The first full-scale retrofits carried risks of delays, cost overruns, lower-than-expected yields, operational problems and inability to meet customer volumes or specifications.
- Commercial uptake depended on customer demand, finalizing non-binding supply arrangements, and regulatory approvals. Binding arrangements included agreements with Sasol and Mansfield, a distillers-grains marketing agreement with Land O’Lakes Purina Feed, and a U.S. Air Force biojet-fuel contract for up to 11,000 gallons. FDA approval to sell isobutanol distillers grains as animal feed remained necessary.
- Gevo disclosed substantial ongoing losses and negative operating cash flow, dependence on future financing, feedstock and natural-gas price exposure, and uncertainty over whether retrofit economics and market acceptance would meet expectations.
- Butamax sued Gevo over alleged patent infringement and sought injunctive relief and damages; Gevo denied the claims and filed counterclaims. The filing stated that potential loss or range of loss could not be reasonably estimated.
- The filing reported that the independent auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded controls were effective at December 31, 2011.
Most important facts for investors to verify
- Whether Agri-Energy began commercial isobutanol production on schedule, and whether it achieved expected output, yield, quality and cost.
- Actual retrofit and seed-train spending versus the $22 million and approximately $10 million estimates, and the effect on cash runway and financing needs.
- Whether cash burn, working capital and debt service remain consistent with management’s stated liquidity horizon; include the January 2012 borrowing in updated debt analysis.
- Whether proposed customer volumes and pricing became definitive binding contracts, and whether Gevo can meet Sasol’s minimum supply obligations without shortfall fees.
- Progress on FDA, EPA, ASTM and other required approvals, including animal-feed authorization and commercial jet-fuel certification.
- Developments in the Butamax litigation and any resulting effects on Gevo’s ability to operate, costs or intellectual-property rights.