Gevo, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020; unaudited. Dollar amounts below are in millions unless stated otherwise. Gevo is developing renewable fuels and chemicals, including isobutanol, renewable jet fuel and isooctane. Its Luverne, Minnesota facility suspended ethanol production in March 2020.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $0.99 | $5.09 | $4.81 | $11.49 |
| Gross loss | $1.66 | $3.37 | $5.97 | $5.92 |
| Operating loss | $5.26 | $6.49 | $13.23 | $12.12 |
| Net loss | $6.04 | $7.09 | $15.30 | $13.23 |
| Net loss per share | $0.40 | $0.60 | $1.04 | $1.20 |
- Q2 gross margin was approximately negative 168%; six-month gross margin was approximately negative 124%.
- For the first six months, operating cash used was $10.81 million, investing cash used was $1.62 million, and financing cash provided was $2.46 million. Cash declined by $9.97 million to $6.34 million at June 30.
- At June 30, current assets were $13.36 million and current liabilities $19.17 million. Total liabilities were $20.21 million; total stockholders’ equity was $59.89 million.
- Debt included $14.29 million of 2020/21 Notes, net, classified as current, and $1.38 million of other loans, of which $0.60 million was current. The notes bear 12% interest and mature December 31, 2020, with an automatic extension to April 1, 2021 if specified principal conditions are met.
Changes and operating developments
- Q2 revenue fell 81% year over year, primarily because Luverne ethanol and distillers’ grains production was suspended; the company reported no ethanol gallons sold in Q2 versus 3.1 million a year earlier. Six-month ethanol sales were 2.4 million gallons versus 6.8 million.
- Hydrocarbon revenue increased to $0.86 million in Q2 from $0.09 million, reflecting increased shipments from the South Hampton demonstration plant. Six-month hydrocarbon revenue was $0.98 million versus $0.83 million.
- Lower production reduced cost of goods sold, but gross loss remained substantial. Six-month SG&A rose $1.43 million, restructuring expense was $0.30 million, and net loss increased $2.07 million year over year.
- In January, Gevo exchanged approximately $14.1 million of 2020 Notes for approximately $14.4 million of 2020/21 Notes and recorded a $0.73 million modification-related loss for the six-month period.
Outlook, risks and contingencies
- Management expected COVID-19 to negatively affect revenue and operating results for at least the remainder of 2020. It expected the Luverne shutdown and workforce reduction to lower cash burn, but stated it did not expect revenue from Luverne while operations remained suspended.
- The filing states that existing working capital was insufficient for planned operations through one year after issuance of the financial statements, raising substantial doubt about Gevo’s ability to continue as a going concern. Management expected continued losses and said additional capital would be needed; there was no assurance financing or profitability could be achieved.
- After quarter-end, a July 6 public offering generated approximately $16.2 million net proceeds. It included common shares and warrants, creating potential dilution. Gevo reported cash of $21.4 million as of July 31. On July 10, holders converted $2.0 million principal plus a $0.3 million make-whole amount of notes into 4,169,428 shares; $12.5 million principal remained outstanding.
- The Delta fuel sales agreement was amended: Delta may terminate if commercial operation of the planned facility is not established by June 30, 2024. Credit support terms remain subject to agreement, and Delta may remove take-or-pay obligations depending on Brent crude prices at the specified future pricing date.
- Gevo plans Luverne expansion and an RNG project, but these depend on obtaining project funding. The RNG project was estimated to require approximately $57 million in combined project debt and third-party equity. Commercialization also depends on market demand, production execution, and regulatory approvals; the filing highlights potential delays in approvals for renewable premium gasoline.
- Customer concentration was significant: HCS and Coryton accounted for approximately 76% and 11% of Q2 revenue, respectively. No material litigation was reported. Management concluded disclosure controls were effective at June 30, 2020.
Investor facts to verify
- Whether the post-quarter offering proceeds and July cash balance provide adequate runway, given the filing’s going-concern warning and operating cash burn.
- The terms, remaining balance, maturity and servicing capacity for the secured 2020/21 Notes, including the effect of subsequent conversions and potential dilution.
- Whether and when Luverne production resumes, and whether expansion and RNG financing can be secured on workable terms.
- Whether the amended Delta agreement retains meaningful take-or-pay demand and acceptable credit support and pricing terms.
- How COVID-19, concentrated customers, fuel-market conditions and required product approvals affect future revenue and commercialization.