Gevo, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, not a standalone fourth-quarter report. The audited financial statements received an unqualified opinion, with a separate going-concern emphasis.
Business context and reporting period
Gevo is commercializing renewable fuels and chemicals made from renewable carbohydrates. Its Luverne, Minnesota facility produces ethanol and isobutanol; its South Hampton, Texas facility makes limited quantities of renewable hydrocarbon products, including alcohol-to-jet fuel (ATJ) and isooctane. The strategy depends on scaling production, securing financing, and realizing value from low-carbon fuel markets and related credits.
Financial results and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $24.5 million | $32.9 million |
| Gross loss | $12.2 million | $8.7 million |
| Operating loss | $26.4 million | $22.2 million |
| Net loss | $28.7 million | $28.0 million |
| Net cash used in operating activities | $20.8 million | $15.9 million |
| Net cash used in investing activities | $7.5 million | $2.2 million |
| Net cash provided by financing activities | $10.9 million | $40.3 million |
- Revenue declined 25% year over year. Ethanol and related-product sales fell to $22.1 million from $31.6 million; hydrocarbon revenue increased to $2.3 million from $1.2 million. The filing attributes lower production and sales to unfavorable commodity conditions.
- Gross margin was approximately negative 50% in 2019, versus negative 26% in 2018. Cost of goods sold was $36.7 million, including $6.3 million of depreciation.
- Cash and cash equivalents were $16.3 million at year-end, down from $33.7 million. Current assets were $24.2 million and current liabilities $20.1 million. Despite positive reported working capital, management and the auditor said available working capital was insufficient to fund planned operations through one year after issuance without additional financing.
- Year-end debt included approximately $14.1 million principal on 12% secured convertible notes, plus $0.7 million of other notes payable. The primary notes were secured by substantially all company assets. Interest expense was $2.7 million.
- Accumulated deficit was $458.0 million. Gevo reported losses in each of the three years 2017–2019 and expected further losses and negative operating cash flows.
Material changes versus 2018
- Total revenue decreased $8.4 million, principally due to lower ethanol and related-product sales; hydrocarbon revenue rose $1.1 million as South Hampton shipments increased.
- Gross loss widened by $3.5 million. Operating loss increased by $4.2 million, while net loss increased by $0.7 million.
- Operating cash use increased by $5.0 million, and investing cash use rose by $5.2 million, including capital spending and a $1.5 million investment in Juhl related to the planned wind project.
- Financing cash inflow fell from $40.3 million to $10.9 million. Gevo issued about 4.0 million shares through its at-the-market program for approximately $11.5 million net proceeds in 2019, contributing to dilution.
Outlook, financing, risks and unusual items
- Commercial expansion and contracts: Gevo reported supply agreements totaling approximately 17 million gallons per year of ATJ, renewable isooctane and other hydrocarbons. Some are take-or-pay, but specified volumes and timing depend on completing facility expansions and meeting other conditions. Delta’s 10-million-gallon-per-year ATJ agreement is expected to be supplied after the Expanded Facility is completed, which Gevo projected by 2023. The filing provides no clear financial revenue or margin guidance.
- Funding and going concern: The auditor cited substantial doubt about Gevo’s ability to continue as a going concern absent additional debt or equity funding. The company said it would need to raise capital, restructure or extend debt, or pursue other financing and strategic alternatives; availability and terms were uncertain.
- Subsequent debt exchange: On January 10, 2020, after year-end, Gevo exchanged approximately $14.1 million of existing notes for approximately $14.4 million of new 12% secured convertible notes. These generally mature December 31, 2020, with a conditional extension to April 1, 2021. The lender also received an option to purchase up to approximately $7.1 million additional principal. The notes have a $2.442 initial conversion price and may result in dilution.
- Investment plans: Gevo expected the 5-megawatt wind project to begin commercial operation in the first half of 2020. It was developing RNG projects, with an estimated $55 million of project financing and third-party equity contemplated; expected RNG supply was projected to begin in 2021. The filing also described planned Luverne equipment and capacity projects, subject to financing and execution.
- Key operating and market risks: Production scale-up, facility reliability, customer specifications, corn and natural-gas costs, oil and ethanol prices, and carbon-credit values could affect margins and contract performance. Two customers accounted for approximately 88% of 2019 revenue: Eco-Energy (71%) and Purina (17%). COVID-19 was identified as a potential disruption, including through reduced airline demand.
- Other items: The company found no impairment of the Luverne facility at year-end, based on forecast cash flows and significant assumptions. It reported no material pending litigation and no recorded environmental liabilities. Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2019.
Important facts for investors to verify
- Whether Gevo obtained financing sufficient to fund operations and the planned Luverne expansion, and whether its going-concern position changed after the filing.
- The current status, outstanding balance, maturity and conversion or refinancing terms of the 2020/21 secured notes, including any additional option notes or dilution.
- Whether facility expansions were completed on schedule and whether Gevo can produce contracted volumes and specifications under the offtake agreements.
- Actual operating cash use, production economics and margins amid corn, energy and product-price volatility.
- Progress and funding for the wind and RNG projects, and whether the anticipated low-carbon fuel credits and benefits were realized.
- Customer concentration and the extent to which reported supply commitments are conditional, take-or-pay, or dependent on future production capacity.