Gevo, Inc. — Q1 2014 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2014, compared with the same period in 2013. Gevo is a development-stage renewable chemicals and biofuels company focused on commercializing renewable isobutanol using its GIFT technology. Its Agri-Energy facility had produced only limited isobutanol; in March 2014, Gevo decided to further modify the facility to enable simultaneous isobutanol and ethanol production. The company had not begun consistent commercial isobutanol production or revenue.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $0.9 million | $3.5 million |
| Gross loss | $3.8 million | $1.0 million |
| Operating expenses | $9.1 million | $11.9 million |
| Operating loss | $12.9 million | $12.9 million |
| Net loss | $12.0 million | $18.4 million |
| Net loss per share | $0.18 | $0.45 |
| Cash used in operating activities | $13.0 million | $9.0 million |
| Cash used in investing activities | $2.9 million | $2.0 million |
Revenue fell 75%, principally because Q1 2013 included $2.4 million of corn sales; Q1 2014 had no corn or ethanol sales. Hydrocarbon revenue was $0.6 million versus $0.7 million, and grant and other revenue was $0.3 million versus $0.4 million. Cost of goods sold rose to $4.7 million, including $4.1 million of facility startup and fixed costs and $0.5 million depreciation. Lower operating expenses were offset by the larger gross loss, leaving operating loss essentially unchanged. Net loss improved mainly with lower interest expense and favorable noncash fair-value changes in embedded derivatives and warrants.
Cash and cash equivalents declined from $24.6 million at December 31, 2013 to $8.4 million at March 31, 2014. Current assets were $14.9 million and current liabilities $17.1 million. Total assets were $100.3 million; total liabilities were $40.1 million. Secured debt principal was $10.8 million and convertible-note principal was $26.9 million; the notes’ balance-sheet carrying amount was $13.8 million after discounts and derivative accounting. Stockholders’ equity was $60.1 million. Gevo reported an accumulated deficit of $274.1 million.
Material changes, outlook, and risks
- Management stated that March 31 working capital was insufficient to fund planned operations through December 31, 2014 without additional cash, raising substantial doubt about Gevo’s ability to continue as a going concern. The company expected continued losses and anticipated needing additional financing; it provided no quantified operating or earnings guidance.
- Subsequent to quarter-end, on May 9, 2014, Gevo closed a Whitebox senior secured debt financing that provided approximately $25.9 million. Whitebox may exchange the term loan into senior secured convertible notes; the agreements also provide conditional options for additional financing. Gevo used part of the proceeds to repay $9.3 million of TriplePoint principal and agreed to repay the remaining $1.0 million over 36 months. These are post-quarter events, not Q1 cash or debt balances.
- Agri-Energy retrofit costs totaled approximately $65.7 million. Isobutanol production had previously been paused after below-plan production and contamination issues; the company continued commissioning and optimization work. Management cited strong ethanol margins as a reason for the planned dual-product configuration, but did not guarantee successful production or positive returns.
- Extensive patent litigation with Butamax remained a material contingency. In February 2014, the Federal Circuit remanded key infringement and validity issues; trials were scheduled for July and August 2014 and 2015. Gevo said the possible loss or range of loss could not be reasonably estimated and expected significant legal costs.
- Gevo faced commercialization, scale-up, feedstock and energy price, regulatory approval, customer adoption, competition, financing, and potential dilution risks. The company also reported a potential $1.0 million refund to Toray if it failed to deliver a minimum bio-PX quantity by May 31, 2014; it stated it had produced the requisite volumes, and expected to recognize the related amount as revenue in Q2 2014.
- Disclosure controls were deemed effective as of March 31, 2014, with no material changes in internal control over financial reporting reported during the quarter.
Key facts for investors to verify
- Whether the Whitebox financing closed on the stated terms, its covenants and repayment obligations, and the company’s resulting cash runway.
- Whether Agri-Energy achieves reliable, economic isobutanol production from corn mash and can operate the planned combined ethanol/isobutanol configuration.
- Developments and potential financial consequences of the Butamax litigation, including the remanded patent issues.
- Whether Gevo met Toray’s bio-PX delivery requirement and avoided the stated refund obligation.
- The scale of potential dilution from outstanding convertible notes, warrants, options, and any additional financing.