Gevo, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2021. Gevo develops renewable fuels and chemicals, including sustainable aviation fuel (SAF), renewable gasoline and isobutanol. Its operations and development are organized across Gevo, Agri-Energy, Renewable Natural Gas (RNG) and Net-Zero segments. The Luverne, Minnesota facility restarted in July 2021 to produce isobutanol, principally as feedstock for downstream renewable fuel production.
Financial results and liquidity
| Metric | Three months ended Sept. 30 | Nine months ended Sept. 30 |
|---|---|---|
| Revenue | 2021: $0.142 million; 2020: $0.192 million | 2021: $0.657 million; 2020: $5.005 million |
| Gross loss | 2021: $3.340 million; 2020: $2.068 million | 2021: $7.613 million; 2020: $8.038 million |
| Operating expenses | 2021: $11.372 million; 2020: $4.035 million | 2021: $35.999 million; 2020: $11.298 million |
| Operating loss | 2021: $14.712 million; 2020: $6.103 million | 2021: $43.612 million; 2020: $19.336 million |
| Net loss | 2021: $14.380 million; 2020: $6.836 million | 2021: $42.690 million; 2020: $22.132 million |
| Operating cash used | Nine months 2021: $28.693 million; 2020: $14.581 million |
Revenue fell approximately 87% year over year for the nine-month period, mainly reflecting the suspension of ethanol production in 2020 and limited production and sales. Gross loss remained substantial. The filing does not provide a meaningful positive gross margin; gross loss exceeded revenue in both reported periods.
At September 30, 2021, Gevo reported $16.2 million of cash and cash equivalents, $120.0 million of restricted cash, and $386.2 million of marketable securities. Restricted cash is pledged or restricted for the RNG project and bond-related obligations, so it is not freely available. Current assets were $361.3 million and current liabilities $27.5 million. Management said it believed available resources would fund operations for at least one year from issuance of the financial statements, while also warning that additional capital would be required to execute its plans.
Total liabilities were $115.6 million. The balance sheet included $66.3 million of long-term 2021 bonds payable and $22.3 million of finance lease liabilities. The bonds were issued with $68.155 million principal, bear an initial 1.5% rate and mature in 2042; Gevo pledged $71.2 million of restricted cash as collateral under the related letter-of-credit arrangement. Stockholders’ equity was $559.8 million. Common shares outstanding rose to 201.9 million from 128.1 million at year-end 2020.
Material changes and notable items
- The January 2021 registered offering generated approximately $321.9 million net proceeds. The at-the-market program generated $135.8 million net proceeds in the first nine months; its capacity was amended to approximately $500 million. These equity financings materially increased share count and diluted existing holders.
- Gevo issued $68.155 million of bonds to finance construction of its Iowa RNG project. The bonds’ proceeds are restricted to project and related uses; successful remarketing under revised terms was expected to potentially end the letter of credit, reimbursement agreement and cash pledge.
- Investing cash use was $428.0 million in the first nine months, chiefly reflecting $422.4 million of marketable-security purchases, as well as capital spending and a $9 million patent acquisition. Financing cash inflow was $514.5 million, primarily from equity offerings and bonds.
- Operating expenses increased sharply year over year, including $8.5 million of preliminary-stage project costs and a $5.1 million loss on asset disposal in the nine-month period. The loss on disposal related to fractionation equipment associated with the suspended ethanol operation.
- Gevo purchased certain Butamax biobutanol patents for $9.0 million in September 2021. In October 2021, after quarter-end, it announced an alliance with Axens to advance U.S. ethanol-to-SAF projects.
Outlook, commentary and risks
- Management expected the RNG project to begin production in 2022, with planned annual output of approximately 355,000 MMBtu. Gevo had agreements with bp for RNG sales, expected to target California markets.
- Net-Zero 1 was planned for Lake Preston, South Dakota, with expected capacity of approximately 46 million gallons per year of renewable hydrocarbons. Management planned to spend approximately $337 million over the following 12 months on engineering, development, equipment deposits, financing costs and construction equity commitments. It also expected to invest a further $32 million to complete RNG construction into 2022.
- The Luverne facility was restarted to make isobutanol for SAF and renewable gasoline production at a third-party Texas facility and for development work. Gevo did not expect significant revenue from Luverne operations. A hydrocarbon pilot unit was planned for installation beginning in Q3 2022, with demonstration production expected in Q4 2022.
- Gevo expects continued losses and relies on future financing, project execution, commercial-scale production, adequate product demand and market acceptance to reach profitability. Management gave no assurance that additional financing or sustained positive cash flow would be achieved.
- Key risks include COVID-19 effects on transportation-fuel demand and project development; construction, permitting, cost and technology risks; commodity and feedstock conditions; and potential need for further equity or debt capital. The filing also highlights dilution and the limited number of authorized but unissued shares, and says stockholder approval to increase authorized shares would be needed for additional capital raising or strategic transactions.
- Customer concentration was high: three customers represented approximately 93% of nine-month 2021 revenue, and two customers represented approximately 98% of trade receivables at quarter-end. The company reported no material litigation, recorded no environmental liabilities, and disclosed no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the RNG project and Net-Zero 1 meet construction, financing, permitting and production milestones, and whether the stated spending plans remain current.
- How much of reported liquidity is unrestricted and available for operations, given the restricted bond cash and planned capital requirements.
- The terms and outcome of bond remarketing, including whether the letter of credit and cash collateral pledge are released.
- Progress toward commercial SAF and renewable-fuel sales, including production volumes, margins and performance under offtake and supply agreements.
- Future financing needs, ATM usage, authorized-share approval and the resulting dilution to existing shareholders.