Gevo reports $12M loss for Q1, starts up ethanol ops to slow cash burn

In Colorado, Gevo reported a net loss for Q1 2014 of $12.0M, compared to $18.4M for Q1 2013, on revenues of $900,000. The company completed Q1 with $8.4M on hand, though it closed a $25.9M private debt financing with Whitebox Advisors consisting of a senior secured term loan, exchangeable into senior secured convertible debentures, and Whitebox may, under certain circumstances, invest up to an additional $37.2 million in the senior term loan and/or senior secured convertible debentures.

The company said that On May 5, it successfully started up the Side-by-Side operation at its plant in Luverne, MN, and currently has three of four fermenters actively producing ethanol. The intent of the Side-by-Side configuration to produce isobutanol and ethanol simultaneously is to:

1) facilitate the process optimization of commercial-scale isobutanol production.

2) maximize the utilization of the plant to generate cash by utilizing all the fermentation assets.

3) demonstrate the simultaneous production of isobutanol and ethanol, for the benefit of potential licensee partners who are interested in augmenting the fermentation capacities of their ethanol plants to co-produce isobutanol.

In March, the company signed an agreement with Lufthansa to evaluate Gevo’s renewable jet fuel with the goal of approving Gevo’s alcohol-to-jet fuel for commercial aviation use. Lufthansa’s testing is being supported through work with the European Commission. By using isobutanol as a renewable raw material for producing jet fuel, the resulting jet fuel has the same mixture of molecules typical of petro-based jet fuel making it directly compatible with existing engines and infrastructure. Renewable jet embodies the potential of cleaner, greener, and as we scale up, cost competitive drop-in fuels. Through initiatives like this, the commercial airlines are seeking to prove out ATJ and move it towards commercialization.

Reaction from Wall Street

Mike Ritzenthaler, Piper Jaffray

We maintain our Overweight rating on shares of GEVO following a 1Q14 loss per share of ($0.18) on $0.9 million in sales, essentially in-line with our estimates. Management is making progress on its side-by-side commercialization strategy and improvements in water quality and fermentation propagation should enhance yields and drive up batch rates from the current 1-2 average runs per week. Expected cash flows from ethanol production of ~40,000 gallons/day and the recent $26 million capital infusion should offset significant G&A costs and reduce the cash burn into the single million dollar range in 2H14, according to management. We are lowering our price target to $4 (from $5) due to the increased shares outstanding.

• Steady progress being made at Luverne. Running ethanol should help overcome certain issues plaguing production such as inconsistent mash, water, and dried grains quality. Management is confident they have made significant headway in rectifying the water issue and this should directly translate into more consistent isobutanol production and drive up the number of batches, still averaging about 1-2 per week. We believe improvements with propagation (within fermentation) will lift productivities and improve overall operating performance. We are modeling only minor isobutanol volumes in 2014 but think technology improvements being made should drive a significant ramp in 2015.

• Ethanol production and the recent capital raise provide management with additional runway. Management expects to be producing ethanol at a 40,000 gallon/day rate in the coming weeks and these incremental cash flows should offset a significant amount of OpEx and slow the cash burn.