Gevo, Inc. — 2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013; filed April 14, 2014. Gevo is a development-stage renewable chemicals and biofuels company seeking to commercialize renewable isobutanol using its GIFT fermentation and separation technology, primarily by retrofitting existing ethanol plants.
Financial performance and condition
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $8.2 million | $24.4 million |
| Gross loss | $9.7 million | $8.0 million |
| Operating loss | $55.5 million | $71.4 million |
| Net loss | $66.8 million | $60.7 million |
| Net loss per share | $1.48 | $1.86 |
| Cash used in operating activities | $47.0 million | $68.1 million |
| Cash used in investing activities | $7.7 million | $53.0 million |
| Cash provided by financing activities | $12.6 million | $93.6 million |
- Revenue fell 66%, principally because Gevo reported no ethanol sales in 2013 after suspending ethanol production for isobutanol startup and optimization. 2013 revenue consisted mainly of corn inventory sales ($3.3 million), grants and other revenue ($2.7 million), and hydrocarbon sales ($2.2 million), including biojet fuel.
- Gross loss widened despite lower revenue, reflecting $11.9 million of Agri-Energy startup and fixed production costs, among other costs. Research and development expense was $20.2 million; selling, general and administrative expense was $25.6 million.
- Fourth-quarter 2013 revenue was $1.7 million and net loss was $17.3 million. The quarter included a $3.2 million noncash loss from revaluing warrants.
- Cash and cash equivalents were $24.6 million at year-end, down from $66.7 million. Current assets were $30.7 million and current liabilities $21.1 million. The filing states that working capital was insufficient to fund planned operations through December 31, 2014 without additional cash and that this raised substantial doubt about Gevo’s ability to continue as a going concern.
- December 2013’s public offering of 21.3 million common-stock units, each including a warrant, generated $26.4 million net proceeds. Gevo used $5.1 million to repay outstanding principal under one TriplePoint loan.
- At year-end, secured debt principal and final payments totaled approximately $11.1 million; convertible-note principal outstanding was $26.9 million, bearing 7.5% interest and due in 2022. The balance sheet reported secured debt net of discounts and convertible notes net of discounts and embedded derivatives. TriplePoint debt was secured, and the company’s intellectual property was pledged as collateral in 2013 amendments.
Material changes and operating developments
- Revenue declined from $24.4 million to $8.2 million as ethanol sales ceased; 2012 revenue had included $19.9 million of ethanol and related products. In 2013, revenue shifted toward grants, corn sales and hydrocarbon products.
- Operating loss improved by $15.9 million, largely as operating expenses fell $17.6 million, including lower legal, compensation and other administrative costs. Net loss nevertheless increased, partly because the prior-year $17.0 million noncash gain on embedded derivatives was much larger than the $3.1 million 2013 gain, and 2013 included a $3.2 million warrant revaluation loss and a $2.0 million debt-conversion loss.
- Gevo reported limited commercial-scale isobutanol runs using dextrose and began commissioning the Agri-Energy facility on corn mash in October 2013. It had incurred approximately $65.7 million in retrofit capital costs through year-end. No full-scale commercial production had been established.
- In 2013, holders converted $18.1 million principal of convertible notes, receiving 3.18 million shares for principal and 2.96 million additional shares for coupon make-whole payments. Year-end common shares outstanding were 68.5 million.
Outlook, risks and unusual items
- In March 2014, Gevo decided to modify Agri-Energy for simultaneous ethanol and isobutanol production, aiming to continue commercial-scale optimization while benefiting from then-strong ethanol margins. This was a post-year-end plan, not evidence of achieved performance; the filing gives no numerical revenue, production or profitability guidance.
- Management anticipated a limited commercial-scale isobutanol campaign in 2014. Commercialization depends on overcoming production-rate and contamination challenges, proving corn-mash performance, meeting customer specifications, gaining market acceptance and securing more financing. Management warned that profitability and positive operating cash flow may never be achieved.
- Gevo’s retrofit strategy and low-cost production claims are forward-looking. The Agri-Energy plant had not demonstrated nameplate output, and further costs, delays or failure to produce commercially viable quantities could impair the business and its assets.
- Patent litigation with Butamax was a significant contingency. In February 2014, an appeals court vacated and remanded key favorable rulings for Gevo concerning alleged infringement; the company said potential loss could not be reasonably estimated and expected significant legal costs. Additional trials were scheduled for 2014 and 2015.
- Other material risks include the need for additional capital, possible dilution, high-cost secured debt and restrictive covenants, feedstock and natural-gas price volatility, competition, regulatory approvals, and uncertainty in customer commitments. A $1.0 million Toray payment was refundable if minimum bio-PX delivery was not achieved by April 30, 2014.
- The independent auditor issued an unqualified opinion on the financial statements but highlighted the going-concern uncertainty. Management reported effective disclosure controls and internal control over financial reporting as of year-end.
Important facts for investors to verify
- Whether Gevo secured enough financing to fund operations beyond 2014, and how subsequent cash use compared with the year-end plan.
- Whether Agri-Energy achieved sustained isobutanol production from corn mash, simultaneous ethanol production, commercial yields and acceptable unit costs.
- Current liquidity, cash burn, debt service and compliance with TriplePoint covenants; confirm debt balances and terms after year-end.
- Outcomes and financial exposure from Butamax litigation, including any settlement, adverse ruling, licensing need or operational restriction.
- Whether Toray’s minimum bio-PX delivery condition was met, and the status of binding customer offtake volumes, prices and shortfall obligations.
- Actual dilution from outstanding warrants, convertible notes, make-whole payments and equity awards, compared with the filing’s year-end share counts.