Business context and reporting period
Gevo, Inc. is a renewable chemicals and biofuels company developing renewable isobutanol and derived hydrocarbons. Its Luverne, Minnesota facility generated most revenue from ethanol and related products; management said ethanol-only production can improve near-term facility cash flow while the company develops isobutanol markets and expansion plans. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2017. Financial amounts below are in U.S. dollars; statement amounts are in millions unless noted.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $7.699 | $6.944 | $20.856 | $21.377 |
| Gross loss | $(2.010) | $(2.706) | $(7.966) | $(7.485) |
| Operating loss | $(5.113) | $(6.135) | $(18.474) | $(17.492) |
| Net loss | $(4.153) | $(9.849) | $(20.244) | $(34.939) |
| Net loss per share | $(0.25) | $(2.04) | $(1.40) | $(12.41) |
- Gross margin remained negative: approximately -26% in Q3 and -38% for the nine months, calculated from reported revenue and gross loss.
- For the nine months, operating cash used was $16.441 million, investing cash used was $1.682 million, and financing provided $4.999 million. Cash declined $13.124 million to $14.764 million.
- At September 30, cash was $14.764 million; current assets were $21.166 million and current liabilities $13.721 million. Total liabilities were $27.486 million.
- Debt principal outstanding was approximately $17.089 million: $16.574 million on 12% convertible 2020 Notes and $0.515 million on 7.5% 2022 Notes. Balance-sheet carrying values were $13.108 million and $0.515 million, respectively. The 2020 Notes mature March 2020 and are convertible at an initial $0.7359 per share.
- Accumulated deficit was $396.964 million. The filing identifies no material off-balance-sheet arrangements.
Material changes versus prior comparable periods
- Q3 revenue increased $0.755 million, mainly from higher ethanol sales and prices; ethanol volume sold rose to 4.2 million gallons from 3.7 million. Hydrocarbon revenue declined to $0.235 million from $0.451 million.
- Nine-month revenue decreased $0.521 million. Higher ethanol revenue was more than offset by lower hydrocarbon sales and grant revenue, including the end of the NARA grant. Gross loss worsened by $0.481 million.
- Q3 net loss narrowed by $5.696 million, while nine-month net loss narrowed by $14.695 million. The improvement largely reflected lower interest expense and non-cash fair-value effects, not a return to profitable operations. Nine-month operating loss increased by $0.982 million.
- In June, Gevo exchanged the remaining 2017 Notes for 2020 Notes, following a $9.6 million principal paydown; the exchange generated a reported $4.0 million loss. Nine-month loss on debt exchanges totaled $4.933 million.
- Common shares issued and outstanding increased from 7.074 million at December 31, 2016 to 19.868 million at September 30, 2017. The filing reports 21,810,552 shares outstanding as of October 31.
Outlook, management commentary, and risks
- Management forecast 2017 corporate-wide EBITDA burn, excluding stock-based compensation, of $18–$20 million and said it was on track. It did not expect to achieve its 2017 target for binding supply contracts covering at least half of planned expanded Luverne capacity, though it believed this could occur in 2018.
- Gevo produced about 100,000 gallons of isobutanol in Q3 and about 200,000 gallons year to date; it said it did not expect further isobutanol production in 2017. It produced and sold about 4.2 million gallons of ethanol in Q3. Management cited approximately 350,000 gallons of isobutanol and 54,000 gallons of renewable hydrocarbons in inventory at quarter-end.
- The Luverne expansion is intended to support isobutanol and hydrocarbon production, but management gave no commitment to proceed. Two older fermentation vessels may constrain production; one was estimated to have about three months of useful life and the other about two years and three months absent repair or replacement. A prolonged shutdown is possible.
- Management and the board were reviewing strategic and financial alternatives and discussing potential transactions or investments with interested parties; completion was not assured. October workforce reductions at Luverne were intended to lower controllable costs.
- The filing states that existing working capital was insufficient to fund planned operations through the year after issuance of the 2016 audited financial statements, creating substantial doubt about Gevo’s ability to continue as a going concern. Additional financing is needed, with no assurance it will be available on acceptable terms or at all.
- Other significant risks include continuing losses and negative operating cash flow, dependence on customer adoption and binding supply agreements, potential dilution from notes and warrants, and Nasdaq’s $1 minimum-bid-price deficiency. Gevo had until December 18, 2017 to regain compliance or potentially seek an extension; the filing reports a September 30 closing share price of $0.69.
- Gevo reported no material litigation or environmental liabilities. It reported disclosure controls effective at quarter-end and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Current cash runway, financing progress, and any subsequent developments affecting the going-concern risk.
- Whether the Luverne fermentation vessels are repaired or replaced, and the resulting effects on ethanol and isobutanol production.
- Progress on definitive customer supply contracts, market demand, and the economics and funding of any Luverne expansion.
- Debt service and conversion terms, potential share issuance from the 2020 Notes and outstanding warrants, and the resulting dilution.
- Nasdaq bid-price compliance and any related listing or reverse-split actions.