Gevo, Inc. — Q2 2011 Form 10-Q
Reporting period: Three and six months ended June 30, 2011. Amounts are in U.S. dollars. Gevo remained a development-stage renewable chemicals and biofuels company focused on commercializing renewable isobutanol. Ethanol revenue came from its acquired Agri-Energy facility; Gevo reported no isobutanol sales.
Financial results and liquidity
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Total revenue | $14.533 million | $462,000 | $29.814 million | $792,000 |
| Ethanol and related-product revenue | $14.321 million | None | $29.430 million | None |
| Cost of goods sold | $13.637 million | None | $28.830 million | None |
| Gross margin | $896,000 (6.2%) | $462,000 | $984,000 (3.3%) | $792,000 |
| Operating expenses | $12.529 million | $8.081 million | $21.029 million | $15.391 million |
| Operating loss | $11.633 million | $7.619 million | $20.045 million | $14.599 million |
| Net loss | $12.466 million | $8.601 million | $21.749 million | $16.460 million |
| Net loss attributable to common stockholders | $12.466 million | $9.380 million | $22.843 million | $17.260 million |
| Basic and diluted loss per share | $0.48 | $8.15 | $1.15 | $15.18 |
- Cash and cash equivalents were $105.197 million at June 30, 2011, up from $15.274 million at year-end 2010. Current assets were $116.577 million and current liabilities $9.336 million.
- For the first six months, operating cash use was $19.923 million, investing cash use was $2.255 million, and financing provided $112.101 million. The financing inflow primarily reflected the February IPO.
- Secured debt had $21.118 million of principal and final/end-of-term payments outstanding; its carrying value was $19.775 million, including discounts. Debt included Lighthouse and TriplePoint facilities, with stated interest rates of 12% and 13%, respectively. Gevo reported compliance with their covenants.
- Stockholders’ equity was $113.772 million, compared with $19.959 million at December 31, 2010. The February IPO raised approximately $110.4 million net of underwriting discounts and other offering costs and converted preferred shares into common shares.
Material changes versus the prior comparable periods
- Revenue and cost of goods sold rose principally because Agri-Energy was acquired in September 2010; the comparison periods in 2010 had no ethanol sales. Revenue growth therefore does not represent growth in isobutanol commercialization.
- Q2 gross margin was $896,000, but operating loss increased to $11.633 million from $7.619 million. For the first half, net loss increased to $21.749 million from $16.460 million.
- Operating expenses increased with development-plant and laboratory activity, payroll and public-company costs. Six-month SG&A rose 65% to $12.414 million; R&D rose 9% to $8.604 million.
- Interest expense increased to $1.743 million for the first half from $669,000, reflecting debt, interest rates and debt-cost amortization. The IPO converted preferred-stock warrants to common-stock warrants, ending recurring fair-value liability accounting for those warrants.
Outlook, management commentary and risks
- Management said existing cash was expected to fund operations, planned capital expenditures and working capital for at least the next 12 months. It also expected continued losses and stated additional funding would be needed to pursue its goal of producing and selling more than 350 million gallons of isobutanol in 2015.
- Gevo expected commercial isobutanol production at the 22-million-gallon-per-year Luverne facility in the first half of 2012. It estimated Luverne retrofit capital costs at $22 million, plus additional capital for potential capacity increases. A July 2011 decision to build an enhanced yeast seed train was estimated to require up to $10 million.
- In June 2011, Gevo agreed with Redfield Energy to retrofit Redfield’s approximately 50-million-gallon-per-year ethanol facility. Gevo Development is responsible for retrofit costs; Gevo, Inc. guaranteed specified obligations. Gevo reported no Redfield retrofit costs incurred by June 30. Economic and voting interests are subject to vesting upon commercial production and other conditions.
- After quarter-end, on July 29, Gevo and Sasol entered an off-take and distribution agreement for renewable isobutanol, with a three-year initial term. Sasol was named a non-exclusive distributor in the Americas and exclusive distributor for specified solvent and chemical-intermediate applications elsewhere.
- Principal risks include scaling technology to commercial production, retrofit delays and cost overruns, securing additional capital and suitable plant capacity, commodity-price volatility, regulatory approvals and market acceptance. Gevo had not produced commercial quantities of isobutanol.
- Butamax alleged patent infringement in a Delaware lawsuit; Gevo denied infringement and said it would defend the case. The company could not reasonably estimate a possible loss or range of loss.
- Gevo reported effective disclosure controls as of June 30, 2011. It noted public-company compliance costs and the need to evaluate internal controls under Sarbanes-Oxley Section 404 for its 2011 annual report.
Important facts for investors to verify
- Progress, cost and financing for the Luverne retrofit and yeast seed train, and whether the first-half 2012 production target remains achievable.
- Commercial-scale performance, required permits and approvals, customer qualification, and whether preliminary customer arrangements become definitive supply contracts.
- Cash burn and liquidity against management’s stated 12-month funding expectation, planned capital spending and potential additional financing needs.
- Redfield retrofit obligations, guarantee exposure, performance conditions for Gevo’s economic interest, and any required escrow or facility payments.
- Status and potential financial impact of the Butamax litigation, which had no estimable loss range at the filing date.
- Actual terms, scope and commercial contribution of the post-quarter Sasol agreement, and the timing and effect of shares eligible for resale after IPO lock-ups.