Gevo, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2016. Amounts are in U.S. dollars; financial statement figures are in millions unless noted. Gevo develops renewable chemicals and biofuels, with current operations centered on ethanol and a developing isobutanol business at its Luverne, Minnesota facility.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $6.944 | $8.017 | $21.377 | $22.840 |
| Gross loss | $(2.706) | $(2.612) | $(7.485) | $(6.921) |
| Gross margin | (39.0%) | (32.6%) | (35.0%) | (30.3%) |
| Operating loss | $(6.135) | $(9.274) | $(17.492) | $(25.341) |
| Net loss | $(9.849) | $(6.519) | $(34.939) | $(28.232) |
| Net loss per share | $(0.10) | $(0.39) | $(0.62) | $(2.22) |
- For the nine months, ethanol and related product sales were $19.288 million; hydrocarbon revenue was $1.462 million and grant and other revenue was $0.627 million. Revenue fell 6.4% year over year, largely reflecting lower ethanol and distillers’ grain prices.
- Operating expenses declined to $10.007 million for the nine months from $18.420 million, primarily due to lower general, patent and litigation expenses and reduced R&D costs. Despite the improved operating loss, net loss widened, reflecting unfavorable changes in debt and warrant fair-value items, debt exchange and equity issuance costs.
- Cash and cash equivalents were $31.063 million at September 30, versus $17.031 million at December 31, 2015. Current assets were $36.189 million and current liabilities $40.321 million. Total assets were $116.110 million and total liabilities $49.118 million.
- Nine-month cash flows: $16.205 million used in operations, $5.520 million used in investing, and $35.757 million provided by financing. Financing included public equity and warrant offerings. Capital expenditures were substantially higher than in the prior-year period.
- Debt included $26.1 million principal of 10% convertible secured notes due March 15, 2017, and $11.0 million principal of 7.5% convertible notes due 2022. The company repaid its TriplePoint secured loan in full on September 30. Contractual obligations included $29.935 million due in less than one year, including debt principal and interest, leases, and software obligations.
Changes, outlook and material developments
- Quarterly revenue declined 13.4% year over year. Gross loss worsened in both the quarter and nine-month period, while lower operating expenses improved operating results. Nine-month net loss increased by $6.707 million.
- Management reported approximately 145,000 gallons of isobutanol production in Q3 and approximately 240,000 gallons year to date. Equipment problems on the ethanol side caused three weeks of lost isobutanol production time and lower ethanol output; management said the issues were resolved and production had restarted.
- 2016 guidance was approximately 500,000 gallons of isobutanol production, near the low end of the prior 500,000–650,000 range; variable production cost of $3.00–$3.50 per gallon, assuming corn at $3.65 per bushel and credit for distillers’ grains; expected average isobutanol selling price of $3.50–$4.50 per gallon; and quarterly corporate EBITDA burn of $3.5–$4.5 million, excluding stock compensation. Management expected production capability equivalent to 1.5 million gallons annually by year-end, but expected to operate below that rate during 2017 while optimizing processes.
- Management stated working capital was sufficient for planned operations only through December 31, 2016, and insufficient for all 2017 debt obligations. The filing says these conditions raise substantial doubt about Gevo’s ability to continue as a going concern. Management was pursuing additional financing, debt restructuring and strategic alternatives, but gave no assurance of success; failure could lead to bankruptcy.
- Gevo exchanged $11.4 million of 2022 note principal for 13,999,354 shares, reducing principal outstanding to $11.0 million, and completed public offerings in 2016. These transactions increased share count and created dilution. Common shares outstanding were 131.8 million at quarter-end and 136.4 million on October 31.
- A Lufthansa heads of agreement contemplated purchases of up to 8 million gallons of renewable jet fuel annually, but was non-binding and depended on definitive agreements, financing, and construction of additional capacity. The company also reported commercial customer and technology developments, including Musket distribution activity and an Alaska Airlines ATJ fuel relationship.
- Gevo had until January 23, 2017 to regain Nasdaq’s $1.00 minimum bid-price compliance. A stockholder vote was scheduled for December 14, 2016 on authorization for a possible one-for-two to one-for-twenty reverse split.
Investor items to verify
- Whether Gevo secured financing or completed a recapitalization sufficient to address the March 2017 notes and other near-term obligations, and how those actions affect going-concern status.
- Actual isobutanol production, unit costs, contribution margins and progress toward management’s 2016 targets; the filing provides guidance, not confirmation of full-year results.
- Whether the Lufthansa heads of agreement became binding and whether the proposed commercial facility and supply chain obtained funding and permits.
- Nasdaq bid-price compliance, the reverse-split vote and any resulting listing or note-repurchase consequences.
- The filing’s cash balance is $31.063 million in the balance sheet, while MD&A elsewhere states $31.3 million; verify the reported amount. Also assess dilution from outstanding warrants and convertible notes.