Gevo, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Financial statements are unaudited. Gevo develops renewable fuels and chemicals and operates its Luverne, Minnesota facility; its activities include ethanol production and development of isobutanol and related hydrocarbons.
Financial performance and liquidity
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $5.1 | $9.4 | $11.5 | $17.7 |
| Gross loss | $(3.4) | $(1.3) | $(5.9) | $(3.6) |
| Operating loss | $(6.5) | $(4.4) | $(12.1) | $(9.4) |
| Net loss | $(7.1) | $(11.5) | $(13.2) | $(14.0) |
| Net loss per share | $(0.60) | $(7.19) | $(1.20) | $(10.26) |
- Q2 gross margin was approximately negative 66%, versus negative 14% a year earlier; six-month gross margin was approximately negative 52%, versus negative 20%. These percentages are calculated from reported revenue and gross loss.
- Q2 ethanol and related-product revenue fell $3.8 million, primarily from lower sales volumes and lower ethanol prices. Ethanol sales volume was 3.1 million gallons, versus 4.9 million. Hydrocarbon revenue decreased $0.5 million in Q2 because finished-product shipments were delayed; six-month hydrocarbon revenue increased $0.2 million.
- For the six months, operating cash use was $9.7 million, investing cash use was $4.6 million, and financing provided $9.6 million. Cash declined $4.6 million to $29.2 million from year-end 2018.
- At June 30, cash was $29.2 million; current assets were $34.1 million and current liabilities $17.7 million. Working capital was approximately $16.4 million. Accumulated deficit was $442.6 million; stockholders’ equity was $85.6 million.
- The 2020 Notes had $13.9 million principal outstanding, bear 12% annual interest, are secured by a first lien on substantially all company assets, and mature March 15, 2020. Their net carrying amount, $13.4 million, was classified as current. Gevo said it was actively seeking to refinance or negotiate the notes.
Changes versus prior comparable periods
- Q2 revenue declined 46% year over year, while the gross loss widened to $3.4 million from $1.3 million and operating loss widened to $6.5 million from $4.4 million.
- Six-month revenue fell 35%; gross and operating losses widened. The six-month net loss improved modestly, mainly alongside more favorable non-cash changes in the fair values of warrant and embedded derivative liabilities and the absence of the prior-year debt-exchange loss. Net loss therefore does not reflect an improvement in operating performance.
- SG&A increased $0.5 million in Q2 and $0.8 million for the six months, mainly from personnel, travel, legal, and investor-relations costs. R&D expense decreased in both comparisons.
- Gevo issued 3.24 million shares through its at-the-market program in Q1 2019, receiving $9.6 million net proceeds; it made no ATM sales in Q2. Shares outstanding increased to 11.9 million at June 30 from 8.6 million at December 31, 2018.
Outlook, commentary, and risks
- Management expects continued losses and says operations depend on additional capital. The filing says Gevo may never achieve profitability or positive operating cash flow and that additional financing may not be available on acceptable terms, or at all. It identifies dilution from equity issuance as a concern.
- Management reported that the Shockwave corn-fractionation process was operational and being optimized, with expected economic benefits in the second half of 2019. It expected Luverne decarbonization projects to be completed around the end of 2020, subject to execution and financing; expected benefits include lower production costs and potentially higher value from renewable-fuel credits.
- Gevo repaired two Luverne fermentation vessels during Q2 for approximately $0.6 million and estimated a 20-year useful life after repair. It said it had adequate fermenters for ethanol production.
- Subsequent events: On July 17, 2019, Gevo agreed to purchase a dairy-farm anaerobic digester for up to $4.4 million, expected to enter production in Q2 2020. On August 7, it entered a three-year renewable ATJ offtake agreement with Air Total, potentially extendable by four years; initial purchases are described as minimal quantities from the South Hampton facility.
- Key execution risks include raising capital, refinancing the notes, completing facility upgrades and commercializing products, achieving market demand and acceptable economics, and exposure to commodity prices and competition. The company reported no material litigation and no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Whether Gevo can refinance or repay the $13.9 million principal due March 15, 2020, and meet related interest obligations.
- Cash runway and financing needs against operating cash use, planned capital expenditures, and continuing losses.
- Whether Luverne’s production volumes, ethanol economics, Shockwave benefits, and decarbonization projects meet management’s expectations.
- Whether the Air Total agreement produces meaningful sales and whether hydrocarbon shipments from South Hampton increase.
- Potential shareholder dilution from future equity financing, outstanding warrants, and convertible notes.