Gevo, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This is an annual report; the filing does not provide a standalone fourth-quarter income statement. Gevo develops renewable fuels and chemicals and operates an ethanol/isobutanol facility in Luverne, Minnesota. Financial amounts below are in U.S. dollars; millions unless noted.
Financial and operating performance
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $32.9 | $27.5 |
| Cost of goods sold | $41.6 | $38.2 |
| Gross loss (gross margin) | $(8.7) (approximately -26.5%) | $(10.6) (approximately -38.6%) |
| Operating expenses | $13.5 | $12.7 |
| Operating loss | $(22.2) | $(23.3) |
| Net loss | $(28.0) | $(24.6) |
| Net cash used in operating activities | $(15.9) | $(20.6) |
| Capital expenditures | $2.2 | $1.9 |
| Cash and cash equivalents at year-end | $33.7 | $11.6 |
- Revenue comprised $31.6 million from ethanol and related products, $1.2 million from hydrocarbons, and $25,000 from grants and other revenue. Gevo reported sales of 19.4 million gallons of ethanol, isobutanol and related products.
- Operating cash outflow improved by $4.8 million year over year, but the company remained loss-making and dependent on external financing. Financing activities provided $40.3 million, principally from common-stock issuance.
- At December 31, 2018, current assets were $38.7 million and current liabilities were $5.3 million. The balance sheet showed $12.6 million of 2020 Notes, net; their principal outstanding was $13.8 million. These notes carry 12% interest, mature March 15, 2020, and are secured by substantially all company assets.
- Total assets were $107.0 million, total liabilities $18.2 million, and stockholders’ equity $88.8 million. Accumulated deficit was $429.3 million.
Changes versus comparable periods
- Revenue rose $5.3 million (19%) from 2017, primarily due to higher ethanol production and sales. Cost of goods sold also rose, but by less than revenue, narrowing the gross loss by $1.9 million.
- Operating loss improved by $1.1 million; however, net loss widened by $3.3 million. The change included a $3.0 million loss from remeasurement of derivative warrant liabilities, partly offset by a $2.6 million non-cash gain on the 2020 Notes embedded derivative. Debt exchange/conversion produced a $2.2 million loss.
- Cash increased $22.2 million during 2018, mainly because of equity financing. The company issued 6.94 million shares through its at-the-market program for $40.3 million gross proceeds; share count increased substantially. A one-for-twenty reverse stock split took effect in June 2018.
- In the first quarter of 2018, the remaining $515,000 of 2022 Notes was exchanged for stock, satisfying those obligations. The 2020 Notes remained outstanding.
Outlook, management commentary and risks
- For 2019, management expected to sell approximately 18 million gallons or more of ethanol and more than 50,000 metric tons of animal feed products. It planned to begin selling value-added feed, protein and corn-oil products.
- Gevo planned to decarbonize the Luverne facility and install corn fractionation technology, with the Shockwave Process expected to be operational in the first half of 2019. Management expected improved low-carbon ethanol margins beginning in 2020, subject to project timing and successful execution.
- Management sought binding, financeable offtake agreements and financing for a planned 1 million-gallon-per-year hydrocarbon plant at Luverne. Construction, expansion and profitability were contingent on financing, customer contracts and successful scale-up. A February 2019 take-or-pay renewable isooctane agreement with HCS was described as a step toward financing the build-out.
- The company expected future losses and negative cash flows and stated that continued operations depended on raising additional capital. It cited equity and debt financing, strategic partnerships and other alternatives, without assurance of success. Further equity financing could dilute shareholders.
- Key operating risks include the Luverne facility’s aging fermentation vessels, production reliability and contamination, feedstock and natural-gas costs, commodity margins, customer acceptance, and the ability to produce products at commercial scale and to specification. Repairs to two vessels were expected by Q2 2019 at an estimated cost of $0.6 million; a decision on a third vessel had not been made.
- Revenue was highly concentrated: Eco-Energy accounted for approximately 72% of 2018 revenue. Regulatory-credit values and eligibility under programs such as the RFS and California LCFS could affect product economics; the filing notes that Gevo had not yet sought LCFS approval.
- The financial statements received an unqualified audit opinion. Management reported effective disclosure controls and internal control over financial reporting as of year-end; the auditor did not express an opinion on internal control effectiveness.
Most important facts for investors to verify
- Cash runway and financing needs, including post-year-end equity issuance and the ability to repay or refinance the $13.8 million principal balance of 12% secured notes due March 2020.
- Whether the HCS offtake agreement and other planned customer contracts support financing and construction of the proposed hydrocarbon capacity.
- Actual progress, total cost and operating results from Luverne decarbonization, fractionation, fermentation-vessel repairs and production scale-up.
- Whether projected ethanol and feed volumes, customer demand, product pricing and carbon-credit eligibility produce positive facility margins.
- Share dilution and potential conversion of the 2020 Notes, alongside the company’s continuing reliance on equity financing.