Gevo boosts revs in Q2, but losses widen; aims for break-even at Luverne by year end

In Colorado, Gevo announced a net loss for Q2 2014 of $17.2 million compared to $15.2M during Q2 2013, on Q2 revenues of $7.7M compared to $1.9M for Q2 2013.

The increase in revenue during 2014 is primarily a result of the production and sale of ethanol and distiller’s grains of $5.5 million following the transition of the Luverne plant to the side-by-side ethanol-butanol production system.

During Q2, the company reported that hydrocarbon revenues increased by $1.4M, primarily due to the shipment of bio-PX to Toray.

The company highlighted, in its earnings release:

• Producing isobutanol in a commercial-scale one million liter fermenter;
• Producing ethanol at a run rate of approximately 1.5 million gallons per month (exceeding our goal of 1.25 million gallons per month);
• Generating revenue of more than $3 million per month at Luverne; and
• No yeast cross-contamination between the isobutanol and ethanol systems.

Next steps as outlined by the company:

• Achieve EBITDA breakeven at the Luverne plant which we project to occur by the end of 2014.
• Complete the final phase of capital for the SBS by installing distillation equipment which we believe will enable increased production of isobutanol, with a target of 50-100,000 gallons of isobutanol per month by year end, with a goal of 3M gallons of isobutanol and 18 million gallons of ethanol using the side-by-side system.
• Begin to sell isobutanol into the solvents and specialty gasoline blendstock markets;
• Continue to convert isobutanol into hydrocarbons at the demo plant located at the South Hampton Resources, Inc. facility (Hydrocarbons Plant) and sell bio-jet and iso-octane products

Other recent highlights

• On August 5, 2014, Gevo closed an underwritten public offering of 30M common shares and warrants to purchase an additional 15M shares. The gross proceeds to Gevo from this offering were approximately $18 million.
• In May, Gevo sold para-xylene derived from its renewable isobutanol to Toray — a primary raw material for the manufacture of bio-polyester (PET). PET has the largest global market share of all synthetic fibers and is also used in plastic bottles, films, and as a polymer for many other applications.
• In July, 2014, the United States District Court decided to stay the patent litigation involving U.S. Patent Nos. 7,851,188 and 7,993,889 that was scheduled to begin on July 21, 2014.

Analyst reaction

Mike Ritzenthaler, Piper Jaffray: “We maintain our Overweight rating on shares of GEVO following a 2Q14 loss per share of ($0.25) on $7.7 million in sales. We are lowering our price target to $2 (from $4). Improving operational parameters, combined with the balance sheet upgrades, should provide the company with enough of a cash runway to get to commercial sales of isobutanol before another liquidity event is needed.

• Steady progress at Luverne. Over the past two months, it has become clear that the side-by-side ethanol production has helped overcome certain issues such as inconsistent mash, water, and dried grains quality. Management is confident they have made rectified the water issue, which has translated into more consistent isobutanol production and driven up the number of batches per week. Other operational improvements (such as propagation) have lifted productivities and improved overall operating performance. We are modeling zero commercial isobutanol volumes in 2014 but see technology improvements as a key enabling step to a significant ramp in 2015.

• Ethanol production and the recent capital raises provide management with additional runway. We continue to see the incremental ethanol cash flows as a key offset to OpEx which (along with lower legal expenses) will slow the cash burn. In 2015, we are looking forward to commercial isobutanol volumes, starting modestly in 1H15 and ramping through the year, eventually switching the plant to 100% isobutanol production. As a result of this view, we are making healthy cuts to our FY15 estimates, including revenues lowered from $125 million to $78 million.