GEVO, INC. Company Overview
We are a growth-oriented renewable fuels technology and development company that is commercializing the next generation of renewable low-carbon liquid transportation fuels, such as sustainable aviation fuel and renewable isooctane (which we refer to as "renewable premium gasoline"), with the potential to achieve a "net zero" greenhouse gas footprint and address global needs of reducing GHG emissions with sustainable alternatives to petroleum fuels. Our technology transforms carbon from the atmosphere using photosynthetic energy, wind energy and biogas energy into liquid hydrocarbons with a low or potentially "net-zero" GHG footprint.
As next generation renewable fuels, our hydrocarbon transportation fuels have the advantage of being "drop-in" substitutes for conventional fuels that are derived from crude oil, working seamlessly and without modification in existing fossil-fuel based engines, supply chains and storage infrastructure. In addition, with SAF, the carbon footprint of air travel can be reduced, or in the long run, eliminated on a net carbon basis, without change to planes or fuel systems. In addition to the potential of net-zero carbon emissions across the whole fuel life-cycle, our renewable fuels eliminate other pollutants associated with the burning of traditional fossil fuels such as particulates and sulfur, while delivering superior performance. We believe that the world is substantially under-supplied with low-carbon, drop-in renewable fuels that can be immediately used in existing transportation engines and infrastructure, and we are uniquely positioned to grow in serving that demand.
We use low-carbon, renewable resource-based raw materials as feedstocks. In the near-term, our feedstocks will primarily consist of non-food corn. As our technology is applied globally, feedstocks can consist of sugar cane, molasses or other cellulosic sugars derived from wood, agricultural residues and waste. Our patented fermentation yeast biocatalyst produces isobutanol, a four-carbon alcohol, via the fermentation of renewable plant biomass carbohydrates. The resulting renewable isobutanol has a variety of direct applications but, more importantly to our fundamental strategy, serves as a building block to make renewable isooctane (which we refer to as renewable premium gasoline) and SAF using simple and common chemical conversion processes. We also plan to reduce or eliminate fossil-based process energy inputs by replacing them with renewable energy such as wind-powered electricity and renewable natural gas.
Our technology represents a new generation of renewable fuel technology that overcomes the limitations of first-generation renewable fuels.
Net-Zero Projects
In early 2021, we announced the concept of "Net-Zero Projects" for the
production of energy dense liquid hydrocarbons using renewable energy and our
proprietary technology. The concept of a
Recent Developments
SAS Amendment. In
Lake Preston Site. On
Senior Secured Debt. On
On
At-the-Market Offering Program. On
During the year ended
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COVID-19
The COVID-19 pandemic has had an adverse impact on global commercial activity, including the global transportation industry and its supply chain, and has contributed to significant volatility in financial markets. It has also resulted in increased travel restrictions and extended shutdowns of businesses in various industries including, among others, the airline industry, and significantly reduced overall economic output. It is possible that that the impact of the COVID-19 pandemic on general economic activity could negatively impact our revenue and operating results for 2021 and beyond. In light of the current and potential future disruption to our business operations and those of its customers, suppliers and other third parties with whom we do business, we considered the impact of the COVID-19 pandemic on our business. The impact of the COVID-19 pandemic on the global transportation industry could continue to result in less demand for our transportation fuel products, which could have a material adverse effect on our business, financial condition and our prospects for the foreseeable future. The suspension of ethanol production at our Luverne Facility and reduction in our workforce during the first quarter of 2020 due to the impact of COVID-19 had an adverse impact on our financial results for the fiscal year ended 2020 reducing revenue by 77% compared to 2019. There is also a risk that COVID-19 could have a material adverse impact on the development of our Net-Zero 1 Project, customer demand and cash flow, depending on the extent of our future production activities.
Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the notes to those Consolidated Financial Statements appearing in this Report. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under "Risk Factors" in Part I, Item 1A of this Report, our actual results may differ materially from those anticipated in these forward-looking statements.
This section of this Report discusses year-to-year comparisons between 2020 and
2019, as well as other discussions of 2020 and 2019 items. We have omitted
discussion of the year ended
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Comparison of the years ended
(in thousands)
Years Ended December 31,
2020 2019 Change
Revenue and cost of goods sold
Ethanol sales and related
products, net $ 3,809 $ 22,115 $ (18,306 )
Hydrocarbon revenue 1,501 2,338 (837 )
Grant and other revenue 226 34 192
Total revenues 5,536 24,487 (18,951 )
Cost of goods sold 15,003 36,733 (21,730 )
Gross loss (9,467 ) (12,246 ) 2,779
Operating expenses
Research and development
expense 4,086 4,020 66
Selling, general and
administrative expense 12,528 10,085 2,443
Restructuring charges 254 - 254
Total operating expenses 16,868 14,105 2,763
Loss from operations (26,335 ) (26,351 ) 16
Other (expense) income
Interest expense (2,094 ) (2,732 ) 638
(Loss) from modification of
2020 Notes (732 ) - (732 )
(Loss) on conversion of
2020/21 Notes to common stock (1,916 ) - (1,916 )
(Loss) gain from change in
fair value of 2020/21 Notes
and 2020 Notes embedded
derivative liability (8,607 ) 394 (9,001 )
(Loss) gain from change in
fair value of derivative
warrant liability (23 ) 14 (37 )
Other income (expense) (479 ) 15 (494 )
Total other (expense) income (13,851 ) (2,309 ) (11,542 )
Net loss $ (40,186 ) $ (28,660 ) $ (11,526 )
Revenue. During the year ended
Hydrocarbon revenues are comprised of SAF, isooctane and isooctene sales.
Hydrocarbon revenue decreased
Cost of goods sold. Our cost of goods sold decreased
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Until the Luverne Facility restarts production, cost of goods sold will primarily be comprised of costs to process SAF, isooctane and isooctene at our South Hampton Facility as well as costs to maintain the Luverne Facility.
Research and development expense. We continue to develop technologies for the
production of isobutanol. Research and development expenses stayed relatively
flat during the year ended
Selling, general and administrative expense. Selling, general and administrative
expenses increased
Restructuring Costs. During the year ended
Interest expense. Interest expense during the year ended
(Loss) from modification of 2020 Notes. During the year ended
(Loss) on conversion of 2020/21 Notes. During the year ended
(Loss) gain from change in fair value of the 2020/21 Notes and 2020 Notes
embedded derivative liability. During the year ended
Sources of Our Revenues
Our revenues are primarily derived from: (i) the sale of isobutanol and related products; (ii) hydrocarbon sales consisting primarily of the sale of SAF and isooctane derived from our isobutanol for purposes of certification and testing; and (iii) government grants and research and development programs.
Principal Components of Our Cost Structure
Cost of Goods Sold. Our cost of goods sold consists primarily of costs directly associated with the production of isobutanol at the Luverne Facility and production of biojet fuel and isooctane at the South Hampton Facility. Such costs include direct materials, direct labor, depreciation, other operating costs and certain plant overhead costs. Direct materials include corn feedstock, denaturant and process chemicals. Direct labor includes compensation of personnel directly involved in production operations at the Luverne Facility. Other operating costs include utilities and natural gas usage.
Research and Development. Our research and development costs consist of expenses incurred to identify, develop and test our technologies for the production of isobutanol and the development of downstream applications thereof. Research and development expenses include personnel costs (including stock-based compensation), consultants and related contract research, facility costs, supplies, depreciation and amortization expense on property, plant and equipment used in product development, license fees paid to third parties for use of their intellectual property and patent rights and other overhead expenses incurred to support our research and development programs.
Selling, General and Administrative. Selling, general and administrative expenses consist of personnel costs (including stock-based compensation), consulting and service provider expenses (including patent counsel-related costs), legal fees, marketing costs, insurance costs, occupancy-related costs, depreciation and amortization expenses on property, plant and equipment not used in our product development programs or recorded in cost of goods sold, travel and relocation expenses and hiring expenses.
Interest Expense. Our senior secured notes had a fixed interest rate of 12%. As
of
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Liquidity and Capital Resources
Since our inception in 2005, we have devoted most of our cash resources to manufacturing ethanol, isobutanol and related products, research and development and selling, general and administrative activities related to the commercialization of isobutanol, as well as related products from renewable feedstocks. We have incurred losses since inception and expect to incur losses through at least 2022. We have financed our operations primarily with proceeds from multiple sales of equity and debt securities, borrowings under debt facilities and product sales.
We have incurred consolidated net losses since inception and had a significant
accumulated deficit as of
The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):
Year Ended December 31,
2020 2019
Net cash used in operating activities
(5,905 ) (7,457 )
Net cash provided by financing activities 87,279 10,864
Operating Activities
Our primary uses of cash from operating activities are personnel related expenses and research and development-related expenses including costs incurred under development agreements, costs of licensing of technology, legal-related costs, expenses for production of isobutanol, ethanol and related products, logistics and further processing of isobutanol and ethanol at the Luverne Facility and for the operation of our South Hampton Facility.
During the year ended
During the year ended
We currently plan to spend approximately
Investing Activities
During the year ended
We are developing an RNG project comprised of anaerobic digesters to be located
at three dairy farms in northwest
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We are also evaluating whether to install approximately
During the year ended
Financing Activities
During the year ended
On
During the year ended
On
The net proceeds to the Company from the
During the year ended
At-the-Market Offering Program. In
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During the year ended
2020/21 Notes. On
On
See Note 9, Debt, to our consolidated financial statements included herein for further discussion of the 2020/21 Notes.
Loans Payable - Other. During the first quarter of 2020, we purchased equipment
under a financing lease. During the fourth quarter of 2019, we financed part of
our insurance obligation. The equipment notes and financing lease pay interest
between 4% and 21%, have total monthly payments of
In
See Note 9, Debt, to our consolidated financial statements included herein for further discussion.
Contractual Obligations and Commitments
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide information under this item.
Off-Balance Sheet Arrangements
As of
Critical Accounting Estimates
Our Consolidated Financial Statements are based on the application of
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Table of Contents Critical Accounting Policies
While our significant accounting policies are more fully described in Note 2 to our Consolidated Financial Statements included in this Report, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and reflect the more significant judgments and estimates that we use in the preparation of our Consolidated Financial Statements.
Accounting for Senior Secured Debt, Convertible Notes and Embedded Derivative
In
The 2020 Notes contained the following embedded derivatives: (i) a Make-Whole Payment (as defined in the indenture governing the 2020 Notes (the "2020 Notes Indenture")) upon either conversion or redemption; (ii) right to redeem the outstanding principal upon a Fundamental Change (as defined in the 2020 Notes Indenture); (iii) issuer rights to convert into a limited number of shares in any given three-month period commencing nine months from the issuance date and dependent on the stock price exceeding 150% of the then in-effect conversion price over a ten-business day period; and (iv) holder rights to convert into either shares of the Company's common stock or pre-funded warrants upon the election of the holders of the 2020 Notes.
The 2020/21 Notes contain the following embedded derivatives: (i) a Make-Whole Payment (as defined in the 2020/21 Notes Indenture (as defined below) upon either conversion or redemption in certain circumstances; (ii) holder right to require the Company to repurchase the outstanding principal upon a Fundamental Change (as defined in the 2020/21 Notes Indenture); and (iii) holder rights to convert into either shares of the Company's common stock or pre-funded warrants upon the election of the holders of the 2020/21 Notes.
Embedded derivatives are separated from the host contract and the 2020 Notes and 202/21 Notes and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (b) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. The Company has concluded that certain embedded derivatives within the 2020 Notes and 2020/21 Notes meet these criteria and, as such, must be valued separate and apart from the 2020 Notes and 2020/21 Notes as one embedded derivative and recorded at fair value each reporting period.
The Company used a binomial lattice model in order to estimate the fair value of the embedded derivative in the 2020 Notes and 2020/21 Notes. A binomial lattice model generates two probable outcomes, whether up or down, arising at each point in time, starting from the date of valuation until the maturity date. A lattice was initially used to determine if the 2020 Notes and 20200/21 Notes would be converted by the holder, called by the issuer, or held at each decision point. Within the lattice model, the following assumptions are made: (i) the 2020 Notes and 2020/21 Notes will be converted by the holder if the conversion value plus the holder's Make-Whole Payment is greater than the holding value; or (ii) the 2020 Notes and 2020/21 Notes will be called by the issuer if (a) the stock price exceeds 150% of the then in-effect conversion price over a ten-business day period and (b) if the holding value is greater than the conversion value plus the Make-Whole Payment at the time.
Using this lattice model, the Company valued the embedded derivative using a "with-and-without method", where the value of the 2020 Notes and 2020/21 Notes including the embedded derivative is defined as the "with", and the value of the 2020 Notes and 2020/21 Notes excluding the embedded derivative is defined as the "without". This method estimates the value of the embedded derivative by comparing the difference in the values between the 2020 Notes and 2020/21 Notes with the embedded derivative and the value of the 2020 Notes and 2020/21 Notes without the embedded derivative. The lattice model requires the following inputs: (i) price of Gevo common stock; (ii) Conversion Rate (as defined in the 2020 Notes Indenture and the 2020/21 Notes Indenture); (iii) Conversion Price (as defined in the 2020 Notes Indenture the 2020/21 Notes Indenture); (iv) maturity date; (v) risk-free interest rate; (vi) estimated stock volatility; and (vii) estimated credit spread for the Company.
We had concluded that the embedded derivatives within the 2020 Notes and the 2020/21 Notes required separation from the host instrument and was re-valued each reporting period, with changes in the fair value of the embedded derivatives recognized as a component of our Consolidated Statements of Operations.
Warrants
The Company has warrants outstanding as of
The Series 2020-A Warrants, Series 2020-B Warrants and Series 2020-C Warrants issued during 2020 are classified as component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, and permit the holders to receive a fixed number of shares of common stock upon exercise. In addition, the Warrants do not provide any guarantee of value or return. The Company valued the Series 2020-A Warrants, the Series 2020-B Warrants and the Series 2020-C Warrants at issuance using the Black-Scholes option pricing model and determined the fair value. The key inputs to the valuation model included a weighted average volatility of 130% to 141%, risk-free rate of 0.30% to 0.31% and an expected term of five years.
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Table of Contents Revenue Recognition
Revenue Recognition. We record revenue from the sale of hydrocarbon products and related products. We recognize revenue when all of the following criteria are satisfied: (i) we have identified a contract with a customer; (ii) we have identified the performance obligations of the customer; (iii) we have determined the transaction price; (iv) we have allocated the transaction price to the identified performance obligations in the contract with the customer; and (v) we have satisfied each individual performance obligation with the contract with a customer.
Hydrocarbon related products are generally shipped free on board shipping point for domestic sales and free on board destination point for foreign sales. Collectability of revenue is reasonably assured based on historical evidence of collectability with our customers. In accordance with our agreements for the marketing and sale of hydrocarbon and related products, commissions due to marketers were deducted from the gross sales price at the time payment was remitted.
Revenue related to government research grants and cooperative agreements is recognized in the period during which the related costs are incurred, provided that the conditions under the awards have been met and only perfunctory obligations are outstanding.
Revenues related to operating lease agreements are recognized on a straight-line basis over the term of the contract.
For the years ended
Recent Accounting Pronouncements
See Note 2 in Item 8. "Financial Statements and Supplemental Data," of this Report, for a discussion of recent accounting pronouncements.
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