Gevo, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. Financial statements are unaudited. Gevo remained a development-stage renewable chemicals and biofuels company; reported sales were primarily ethanol and related products from its Agri-Energy facility, not commercial isobutanol.
Financial results and liquidity
- Revenue: $14.9 million, down 3% from $15.3 million in Q1 2011. Ethanol and related-product sales were $14.3 million, down 6%; grant and research-program revenue was $0.6 million.
- Margins and losses: Gross loss was $0.1 million, versus gross profit of $0.1 million. Operating loss was $18.2 million, compared with $8.4 million; net loss was $19.3 million, compared with $9.3 million. Basic and diluted loss per share was $0.74, versus $0.76.
- Expenses: Research and development expense rose 52% to $5.0 million. Selling, general and administrative expense rose 151% to $13.1 million, including higher legal and compensation costs and a $2.6 million noncash charge from accelerated warrant vesting following two executive departures.
- Cash flow: Operating activities used $16.9 million, compared with $10.6 million in Q1 2011. Investing activities used $8.1 million, principally for plant and equipment; financing provided $4.4 million, including $5.0 million of new secured borrowing. Cash declined $20.6 million during the quarter.
- Liquidity and debt: Cash and cash equivalents were $73.6 million at March 31, down from $94.2 million at year-end. Current assets were $84.2 million and current liabilities $24.2 million. Secured debt had a $32.9 million net carrying value, including $6.4 million current; total liabilities were $50.8 million.
- Capital investment: Net property, plant and equipment increased to $42.1 million from $28.8 million, with construction in progress of $21.8 million, primarily related to the Agri-Energy retrofit.
Material changes versus Q1 2011
- Total revenue declined modestly, principally because ethanol market prices were lower. Higher grant and research revenue partly offset the decline.
- Operating and net losses widened substantially as operating expenses increased. Management attributed higher R&D costs to staffing and retrofit support, and higher SG&A to stock compensation, litigation, severance and increased headcount.
- Operating cash use increased, while capital spending rose sharply as retrofit work advanced. Q1 2011 financing had included substantial IPO proceeds; Q1 2012 financing included debt proceeds instead.
Outlook, risks and unusual items
- Management expected to begin commercial isobutanol production at the 22-million-gallon-per-year Agri-Energy facility by June 30, 2012. It estimated retrofit costs at approximately $22 million and an enhanced yeast seed train at approximately $10 million. These were estimates and targets, not assurances of completion or successful production.
- Gevo stated it expected cash on hand, together with anticipated future financing, to fund operations for at least 12 months. It expected continued losses and said additional funding would be required to pursue its goal of producing and selling approximately 350 million gallons of isobutanol in 2015. A Form S-3 registration statement was pending SEC approval; additional funding was not assured.
- The company had not produced commercial quantities of isobutanol. Key risks included retrofit delays or cost overruns, scale-up and product-quality challenges, regulatory approvals, customer adoption, feedstock and energy price volatility, financing needs, and dependence on ICM.
- Gevo and Butamax/DuPont were involved in multiple patent disputes. Gevo said it intended to defend its position and pursue its own claims; the possible loss or range of loss could not be reasonably estimated. Additional Gevo complaints filed in April 2012 were subsequent to quarter-end.
- In January 2012, Agri-Energy borrowed $5.0 million under its amended TriplePoint facility. The new borrowing carried an 11% interest rate and matured in 2016. Gevo reported compliance with applicable debt covenants at quarter-end.
- Management reported disclosure controls were effective as of March 31, 2012, with no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the Agri-Energy retrofit and yeast seed train were completed on schedule and within estimated costs, and whether commercial production achieved expected yields, volumes and product specifications.
- Actual cash burn, remaining retrofit commitments and financing availability, including the status and terms of any subsequent equity or debt financing.
- Debt service, covenant compliance and any restrictions on access to subsidiary cash or further borrowing.
- Developments and potential financial exposure in the Butamax/DuPont patent litigation, including the April 2012 complaints.
- Progress toward binding customer supply arrangements, regulatory clearances and the stated 2015 production goal.