UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20222023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 001-35073
GEVO, INC.
(Exact name of registrant as specified in its charter)
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Delaware | | | 87-0747704 |
(State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer Identification No.) |
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345 Inverness Drive South, Building C, Suite 310 Englewood, CO | | | 80112 |
(Address of principal executive offices) | | | (Zip Code) |
(303) 858-8358
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
Common Stock, par value $0.01 per share | GEVO | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer | ☒☐ | Accelerated filer | ☐ |
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Non-accelerated filer | ☐☒ | Smaller reporting company | ☐☒ |
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| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 6, 20229, 2023,201,752,722 shares 237,246,223 shares of the registrant’s common stock were outstanding.
GEVO, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 20222023
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.
GEVO, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share amounts)
| | | Note | | March 31, 2022 | | December 31, 2021 | | Note | | As of March 31, 2023 | | As of December 31, 2022 |
Assets | Assets | | | | | | Assets | | | | | |
Current assets | Current assets | | | | | Current assets | | | | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 44,626 | | | $ | 40,833 | | Cash and cash equivalents | | $ | 342,283 | | | $ | 237,125 | |
Marketable securities (current) | 5, 17 | | 265,813 | | | 275,340 | | |
Marketable securities | | Marketable securities | 4 | | 32,897 | | | 167,408 | |
Restricted cash (current) | Restricted cash (current) | 12 | | 16,216 | | | 25,032 | | Restricted cash (current) | 5 | | 1,032 | | | 1,032 | |
Accounts receivable, net | | 168 | | | 978 | | |
Trade accounts receivable, net | | Trade accounts receivable, net | | 855 | | | 476 | |
Inventories | Inventories | 7 | | 2,735 | | | 2,751 | | Inventories | 8 | | 4,355 | | | 6,347 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 4 | | 5,861 | | | 6,857 | | Prepaid expenses and other current assets | 6 | | 4,985 | | | 3,034 | |
Total current assets | Total current assets | | 335,419 | | | 351,791 | | Total current assets | | 386,407 | | | 415,422 | |
Property, plant and equipment, net | Property, plant and equipment, net | 8 | | 156,896 | | | 139,141 | | Property, plant and equipment, net | 9 | | 183,862 | | | 176,872 | |
Long-term marketable securities | 5, 17 | | 32,724 | | | 64,396 | | |
Long-term restricted cash | 12 | | 70,238 | | | 70,168 | | |
| Restricted cash (non-current) | | Restricted cash (non-current) | 5 | | 76,736 | | | 77,219 | |
Operating right-of-use assets | Operating right-of-use assets | 6 | | 2,209 | | | 2,414 | | Operating right-of-use assets | 7 | | 1,285 | | | 1,331 | |
Finance right-of-use assets | Finance right-of-use assets | 6 | | 26,887 | | | 27,297 | | Finance right-of-use assets | 7 | | 217 | | | 219 | |
Intangible assets, net | Intangible assets, net | 9 | | 8,656 | | | 8,938 | | Intangible assets, net | 10 | | 7,400 | | | 7,691 | |
Deposits and other assets | Deposits and other assets | | 5,631 | | | 2,331 | | Deposits and other assets | 11 | | 32,787 | | | 21,994 | |
Total assets | Total assets | | $ | 638,660 | | | $ | 666,476 | | Total assets | | $ | 688,694 | | | $ | 700,748 | |
| Liabilities | Liabilities | | | | | Liabilities | | | | |
Current liabilities | Current liabilities | | Current liabilities | |
Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | 11 | | $ | 13,410 | | | $ | 28,288 | | Accounts payable and accrued liabilities | 12 | | $ | 24,931 | | | $ | 24,760 | |
Operating lease liabilities (current) | Operating lease liabilities (current) | 6 | | 416 | | | 772 | | Operating lease liabilities (current) | 7 | | 421 | | | 438 | |
Finance lease liabilities (current) | Finance lease liabilities (current) | 6 | | 4,029 | | | 3,413 | | Finance lease liabilities (current) | 7 | | 59 | | | 79 | |
Loans payable - other (current) | 12 | | 89 | | | 158 | | |
Loans payable (current) | | Loans payable (current) | 13 | | 152 | | | 159 | |
Total current liabilities | Total current liabilities | | 17,944 | | | 32,631 | | Total current liabilities | | 25,563 | | | 25,436 | |
2021 Bonds payable (long-term) | 12, 17 | | 66,669 | | | 66,486 | | |
Loans payable - other (long-term) | 12 | | 276 | | | 318 | | |
Operating lease liabilities (long-term) | 6 | | 1,838 | | | 1,902 | | |
Finance lease liabilities (long-term) | 6 | | 17,403 | | | 17,797 | | |
Other long-term liabilities | | 95 | | | 87 | | |
2021 Bonds payable, net | | 2021 Bonds payable, net | 13 | | 67,408 | | | 67,223 | |
Loans payable (non-current) | | Loans payable (non-current) | 13 | | 126 | | | 159 | |
Operating lease liabilities (non-current) | | Operating lease liabilities (non-current) | 7 | | 1,392 | | | 1,450 | |
Finance lease liabilities (non-current) | | Finance lease liabilities (non-current) | 7 | | 184 | | | 183 | |
Other liabilities (non-current) | | Other liabilities (non-current) | | 560 | | | 820 | |
Total liabilities | Total liabilities | | 104,225 | | | 119,221 | | Total liabilities | | 95,233 | | | 95,271 | |
| Stockholders' Equity | Stockholders' Equity | | | | | Stockholders' Equity | | | | |
Common stock, $0.01 par value per share; 500,000,000 and 250,000,000 shares authorized at March 31, 2022 and December 31, 2021, respectively; 201,752,722 and 201,988,662 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively. | | 2,019 | | | 2,020 | | |
Common stock, $0.01 par value per share; 500,000,000 shares authorized; 237,261,164 and 237,166,625 shares issued and outstanding at March 31, 2023, and December 31, 2022, respectively. | | Common stock, $0.01 par value per share; 500,000,000 shares authorized; 237,261,164 and 237,166,625 shares issued and outstanding at March 31, 2023, and December 31, 2022, respectively. | | 2,373 | | | 2,372 | |
Additional paid-in capital | Additional paid-in capital | | 1,107,051 | | | 1,103,224 | | Additional paid-in capital | | 1,264,203 | | | 1,259,527 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (1,587) | | | (614) | | Accumulated other comprehensive loss | | (115) | | | (1,040) | |
Accumulated deficit | Accumulated deficit | | (573,048) | | | (557,375) | | Accumulated deficit | | (673,000) | | | (655,382) | |
Total stockholders' equity | Total stockholders' equity | | 534,435 | | | 547,255 | | Total stockholders' equity | | 593,461 | | | 605,477 | |
| Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | | $ | 638,660 | | | $ | 666,476 | | Total liabilities and stockholders' equity | | $ | 688,694 | | | $ | 700,748 | |
See the accompanying Notes to the Consolidated Financial Statements.
GEVO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share amounts)
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| Note | | Three Months Ended March 31, | | |
| | 2022 | | 2021 | | | | |
Revenue and cost of goods sold | | | | | | | | | |
Ethanol sales and related products, net | 2 | | $ | 169 | | | $ | — | | | | | |
Hydrocarbon revenue | 2 | | 63 | | | 13 | | | | | |
Other revenue | 2 | | — | | | 80 | | | | | |
Total revenues | 2, 18 | | 232 | | | 93 | | | | | |
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Cost of production (including non-cash compensation expense of $0.09 million and nil, respectively) | 14, 18 | | 3,090 | | | 901 | | | | | |
Depreciation and amortization | 8, 9, 18 | | 1,091 | | | 1,093 | | | | | |
Total cost of goods sold | | | 4,181 | | | 1,994 | | | | | |
Gross loss | | | (3,949) | | | (1,901) | | | | | |
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Operating expenses | | | | | | | | | |
Research and development expense (including non-cash compensation expense of $0.1 million and $0.5 million, respectively) | 14 | | 1,192 | | | 1,378 | | | | | |
Selling, general and administrative expense (including non-cash compensation expense of $1.4 million and $0.5 million, respectively) | 14 | | 9,367 | | | 3,814 | | | | | |
Preliminary stage project costs | | | 507 | | | 2,727 | | | | | |
Other operations (including non-cash compensation expense of $0.1 million and nil, respectively) | 14 | | 589 | | | — | | | | | |
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Depreciation and amortization | 8, 9, 18 | | 351 | | | 58 | | | | | |
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Total operating expenses | | | 12,006 | | | 7,977 | | | | | |
Loss from operations | 18 | | (15,955) | | | (9,878) | | | | | |
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Other income (expense) | | | | | | | | | |
(Loss) gain from change in fair value of derivative warrant liability | | | — | | | (53) | | | | | |
Interest expense | 12, 18 | | (2) | | | (5) | | | | | |
Interest and dividend income | 5 | | 252 | | | 31 | | | | | |
Other income (expense), net | | | 32 | | | (152) | | | | | |
Total other income (expense), net | | | 282 | | | (179) | | | | | |
Net loss | | | $ | (15,673) | | | $ | (10,057) | | | | | |
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Net loss per share - basic and diluted | 3 | | $ | (0.08) | | | $ | (0.05) | | | | | |
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Weighted-average number of common shares outstanding - basic and diluted | | | 201,925,747 | | | 183,566,524 | | | | | |
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| Note | | | | Three Months Ended March 31, |
| | | | | | 2023 | | 2022 |
Total operating revenues | 2, 19 | | | | | | $ | 4,060 | | | $ | 232 | |
Operating expenses: | | | | | | | | | |
Cost of production | 14 | | | | | | 4,425 | | | 3,090 | |
Depreciation and amortization | 9, 10 | | | | | | 4,575 | | | 1,442 | |
Research and development expense | 14 | | | | | | 1,198 | | | 1,192 | |
General and administrative expense | 14 | | | | | | 10,761 | | | 9,367 | |
Project development costs | 14 | | | | | | 2,959 | | | 1,096 | |
Facility idling costs | | | | | | | 999 | | | — | |
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Total operating expenses | 14 | | | | | | 24,917 | | | 16,187 | |
Loss from operations | | | | | | | (20,857) | | | (15,955) | |
Other income (expense) | | | | | | | | | |
Interest expense | | | | | | | (539) | | | (2) | |
Investment income | | | | | | | 3,067 | | | 252 | |
Other income, net | | | | | | | 711 | | | 32 | |
Total other income, net | | | | | | | 3,239 | | | 282 | |
Net loss | | | | | | | $ | (17,618) | | | $ | (15,673) | |
Net loss per share - basic and diluted | | | | | | | $ | (0.07) | | | $ | (0.08) | |
Weighted-average number of common shares outstanding - basic and diluted | 3 | | | | | | 237,260,681 | | | 201,925,747 | |
See the accompanying Notes to the Consolidated Financial Statements.
GEVO, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)LOSS
(Unaudited, in thousands)
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| Note | | Three Months Ended March 31, | | |
| | 2022 | | 2021 | | | | |
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Net loss | | | $ | (15,673) | | | $ | (10,057) | | | | | |
Other comprehensive income (loss) | | | | | | | | | |
Unrealized gain (loss) on available-for-sale securities, net of tax | 5 | | (974) | | | — | | | | | |
Adjustment for net gain (loss) realized and included in net income, net of tax | 5 | | 1 | | | — | | | | | |
Total change in other comprehensive income (loss) | | | (973) | | | — | | | | | |
Comprehensive loss | | | $ | (16,646) | | | $ | (10,057) | | | | | |
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| Note | | | | Three Months Ended March 31, |
| | | | | | 2023 | | 2022 |
Net loss | | | | | | | $ | (17,618) | | | $ | (15,673) | |
Other comprehensive loss | | | | | | | | | |
Unrealized gain (loss) on available-for-sale securities | 4 | | | | | | 925 | | | (973) | |
Comprehensive loss | | | | | | | $ | (16,693) | | | $ | (16,646) | |
See the accompanying Notes to the Consolidated Financial Statements.
GEVO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited, in thousands, except share amounts)
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| | | Common Stock | | Paid-In Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Stockholders’ Equity |
| Note | | Shares | | Amount | | | | |
Balance, December 31, 2022 | | | 237,166,625 | | | $ | 2,372 | | | $ | 1,259,527 | | | $ | (1,040) | | | $ | (655,382) | | | $ | 605,477 | |
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Non-cash stock-based compensation | 14 | | | — | | | — | | | 4,677 | | | — | | | — | | | 4,677 | |
Stock-based awards and related share issuances, net | 18 | | | 94,539 | | | 1 | | | (1) | | | — | | | — | | | — | |
Other comprehensive income | | | — | | | — | | | — | | | 925 | | | — | | | 925 | |
Net loss | | | — | | | — | | | — | | | — | | | (17,618) | | | (17,618) | |
Balance, March 31, 2023 | | | 237,261,164 | | | $ | 2,373 | | | $ | 1,264,203 | | | $ | (115) | | | $ | (673,000) | | | $ | 593,461 | |
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Balance, December 31, 2021 | | | 201,988,662 | | | $ | 2,020 | | | $ | 1,103,224 | | | $ | (614) | | | $ | (557,375) | | | $ | 547,255 | |
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Issuance of common stock upon exercise of warrants | 18 | | | 4,677 | | | — | | | 3 | | | — | | | — | | | 3 | |
Non-cash stock-based compensation | 14 | | | — | | | — | | | 4,044 | | | — | | | — | | | 4,044 | |
Stock-based awards and related share issuances, net | 18 | | | (240,617) | | | (1) | | | (220) | | | — | | | — | | | (221) | |
Other comprehensive loss | | | — | | | — | | | — | | | (973) | | | — | | | (973) | |
Net loss | | | — | | | — | | | — | | | — | | | (15,673) | | | (15,673) | |
Balance, March 31, 2022 | | | 201,752,722 | | | $ | 2,019 | | | $ | 1,107,051 | | | $ | (1,587) | | | $ | (573,048) | | | $ | 534,435 | |
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| Note | | Common Stock | | Paid-In Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Stockholders’ Equity |
| | Shares | | Amount | | | | |
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Balance, December 31, 2021 | | | 201,988,662 | | | $ | 2,020 | | | $ | 1,103,224 | | | $ | (614) | | | $ | (557,375) | | | $ | 547,255 | |
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Issuance of common stock upon exercise of warrants | 10 | | 4,677 | | | — | | | 3 | | | — | | | — | | | 3 | |
Non-cash stock-based compensation | 14 | | — | | | — | | | 4,044 | | | — | | | — | | | 4,044 | |
Issuance of common stock under stock plans, net of taxes | 14 | | (240,617) | | | (1) | | | (220) | | | — | | | — | | | (221) | |
Other comprehensive loss | | | — | | | — | | | — | | | (973) | | | — | | | (973) | |
Net loss | | | — | | | — | | | — | | | — | | | (15,673) | | | (15,673) | |
Balance, March 31, 2022 | | | 201,752,722 | | | $ | 2,019 | | | $ | 1,107,051 | | | $ | (1,587) | | | $ | (573,048) | | | $ | 534,435 | |
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Balance, December 31, 2020 | | | 128,138,311 | | | $ | 1,282 | | | $ | 643,269 | | | $ | — | | | $ | (498,172) | | | $ | 146,379 | |
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Issuance of common stock, net of issuance costs | | | 68,170,579 | | | 682 | | | 457,008 | | | — | | | — | | | 457,690 | |
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Issuance of common stock upon exercise of warrants | 10 | | 1,863,058 | | | 18 | | | 1,099 | | | — | | | — | | | 1,117 | |
Non-cash stock-based compensation | 14 | | — | | | — | | | 562 | | | — | | | — | | | 562 | |
Issuance of common stock under stock plans, net of taxes | 14 | | (121,499) | | | (1) | | | 1 | | | — | | | — | | | — | |
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Net loss | | | — | | | — | | | — | | | — | | | (10,057) | | | (10,057) | |
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Balance, March 31, 2021 | | | 198,050,449 | | | $ | 1,981 | | | $ | 1,101,939 | | | $ | — | | | $ | (508,229) | | | $ | 595,691 | |
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See the accompanying Notes to the Consolidated Financial Statements.
GEVO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
| | | Note | | Three Months Ended March 31, | | Note | | Three Months Ended March 31, |
| | | 2022 | | 2021 | | | 2023 | | 2022 |
Operating Activities | Operating Activities | | | | | | Operating Activities | | | | | |
Net loss | Net loss | | $ | (15,673) | | | $ | (10,057) | | Net loss | | $ | (17,618) | | | $ | (15,673) | |
Adjustments to reconcile net loss to net cash used in operating activities: | Adjustments to reconcile net loss to net cash used in operating activities: | | Adjustments to reconcile net loss to net cash used in operating activities: | |
| Stock-based compensation | Stock-based compensation | 14 | | 4,258 | | | 925 | | Stock-based compensation | 14 | | 4,677 | | | 4,258 | |
Depreciation and amortization | Depreciation and amortization | 8, 9, 18 | | 1,442 | | | 1,149 | | Depreciation and amortization | 9, 10 | | 4,575 | | | 1,442 | |
Non-cash lease expense | 6 | | 139 | | | 17 | | |
Non-cash interest expense | 5 | | 1,150 | | | — | | |
| Amortization of marketable securities (discount) premium | | Amortization of marketable securities (discount) premium | | (114) | | | 1,150 | |
Other noncash expense | | Other noncash expense | | 234 | | | 139 | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Accounts receivable | Accounts receivable | | 810 | | | 435 | | Accounts receivable | | (379) | | | 810 | |
Inventories | Inventories | 7 | | 16 | | | 39 | | Inventories | 8 | | 1,650 | | | 16 | |
Prepaid expenses and other current assets, deposits and other assets | Prepaid expenses and other current assets, deposits and other assets | 4 | | (2,317) | | | (4,273) | | Prepaid expenses and other current assets, deposits and other assets | 6, 11 | | (12,852) | | | (2,367) | |
Accounts payable, accrued expenses and long-term liabilities | 11, 12, 6 | | (2,285) | | | 4,600 | | |
Accounts payable, accrued expenses and non-current liabilities | | Accounts payable, accrued expenses and non-current liabilities | 12 | | 381 | | | (2,269) | |
Net cash used in operating activities | Net cash used in operating activities | | (12,460) | | | (7,165) | | Net cash used in operating activities | | (19,446) | | | (12,494) | |
| Investing Activities | Investing Activities | | Investing Activities | | | | |
Acquisitions of property, plant and equipment | Acquisitions of property, plant and equipment | 8 | | (31,218) | | | (4,630) | | Acquisitions of property, plant and equipment | 9 | | (11,434) | | | (31,218) | |
Acquisition of patent portfolio | Acquisition of patent portfolio | 9 | | (10) | | | — | | Acquisition of patent portfolio | 10 | | — | | | (10) | |
Proceeds from sale and maturity of marketable securities | Proceeds from sale and maturity of marketable securities | 5 | | 71,082 | | | — | | Proceeds from sale and maturity of marketable securities | 4 | | 135,550 | | | 71,082 | |
Proceeds from sale of property, plant and equipment | | Proceeds from sale of property, plant and equipment | 9 | | 67 | | | — | |
| Purchase of marketable securities | | Purchase of marketable securities | 4 | | — | | | (31,993) | |
Net cash provided by investing activities | | Net cash provided by investing activities | | 124,183 | | | 7,861 | |
Financing Activities | | Financing Activities | | | | |
| Purchase of marketable securities | 5 | | (31,993) | | | — | | |
| Net cash used in investing activities | | 7,861 | | | (4,630) | | |
| Financing Activities | | |
| Debt and equity offering costs | 12 | | — | | | (31,683) | | |
Proceeds from issuance of common stock and common stock warrants | | — | | | 489,373 | | |
Proceeds from exercise of warrants | Proceeds from exercise of warrants | 10 | | 3 | | | 1,117 | | Proceeds from exercise of warrants | 18 | | — | | | 3 | |
Net settlement of common stock under stock plans | Net settlement of common stock under stock plans | 14 | | (220) | | | — | | Net settlement of common stock under stock plans | 14 | | — | | | (220) | |
Payment of loans payable - other | 12 | | (103) | | | (27) | | |
| Payment of debt | | Payment of debt | 13 | | (39) | | | (103) | |
Payment of finance lease liabilities | Payment of finance lease liabilities | 6 | | (34) | | | — | | Payment of finance lease liabilities | 7 | | (23) | | | — | |
| Net cash provided by financing activities | | (354) | | | 458,780 | | |
| Net cash used in financing activities | | Net cash used in financing activities | | (62) | | | (320) | |
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | | (4,953) | | | 446,985 | | Net increase (decrease) in cash and cash equivalents | | 104,675 | | | (4,953) | |
Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | | 136,033 | | | 78,338 | | Cash, cash equivalents and restricted cash at beginning of period | | 315,376 | | | 136,033 | |
Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | | $ | 131,080 | | | $ | 525,323 | | Cash, cash equivalents and restricted cash at end of period | | $ | 420,051 | | | $ | 131,080 | |
| | | Three Months Ended March 31, | | Three Months Ended March 31, |
Schedule of cash, cash equivalents and restricted cash | Schedule of cash, cash equivalents and restricted cash | 2022 | | 2021 | Schedule of cash, cash equivalents and restricted cash | 2023 | | 2022 |
| Cash and cash equivalents | Cash and cash equivalents | $ | 44,626 | | | $ | 525,323 | | Cash and cash equivalents | $ | 342,283 | | | $ | 44,626 | |
Restricted cash (current) | Restricted cash (current) | 16,216 | | | — | Restricted cash (current) | 1,032 | | | 16,216 | |
Long-term restricted cash | 70,238 | | | — | |
Non-current restricted cash | | Non-current restricted cash | 76,736 | | | 70,238 | |
Total cash, cash equivalents and restricted cash | Total cash, cash equivalents and restricted cash | $ | 131,080 | | | $ | 525,323 | | Total cash, cash equivalents and restricted cash | $ | 420,051 | | | $ | 131,080 | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
Supplemental disclosures of cash and non-cash investing and financing transactions | 2022 | | 2021 |
| | | |
Cash paid for interest | $ | 2 | | | $ | 3 | |
Cash paid for interest capitalized to construction in progress | $ | 516 | | | $ | — | |
Non-cash interest capitalized to construction in progress | $ | 1 | | | $ | — | |
Non-cash purchase of property, plant and equipment | $ | 7,530 | | | $ | 999 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Right-of-use asset purchased with operating lease | $ | — | | | $ | 1,562 | |
| | | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
Supplemental disclosures of cash and non-cash investing and financing transactions | 2023 | | 2022 |
Cash paid for interest, net of amounts capitalized | $ | 515 | | | $ | (514) | |
Non-cash purchase of property, plant and equipment | $ | 13,277 | | | $ | 7,530 | |
See the accompanying Notes to the Consolidated Financial Statements.
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
1.Nature of Business, Financial Condition and Basis of Presentation
Nature of business. Gevo, Inc. (Nasdaq: GEVO) ("Gevo", "we", "us", "our", or the "Company," which, unless otherwise indicated, refers to Gevo, Inc. and its subsidiaries), a Delaware corporation founded in 2005, is a growth-oriented company with the mission of solving greenhouse gas ("GHG") emissions for those sectors of the transportation industry that are not amenable to electrification or hydrogen.
The Company is focused on transforming renewable energy into energy-dense liquid drop-in hydrocarbons that can be used as renewable fuels, such as sustainable aviation fuel ("SAF"), and other fuels and chemicals, with the potential to achieve a “net-zero” greenhouse gas ("GHG") footprint. The Company usesGHG, or even carbon negative footprint measured by the Argonne National Laboratory’s GREET (Greenhouse gases, Regulated Emissions, and Energy use in Transportation) model (the "GREET Model") to measure, predict and verify GHG emissions across the life-cycle of its products. Thelife-cycle. Our “net-zero” concept means Gevo expects thatproduction of drop-in hydrocarbon fuels by using sustainably grown feedstocks (e.g., low till, no-till and dry corn cultivation), renewable and substantially decarbonized energy sources, drop-in hydrocarbon fuels can be produced that haveresulting in a net-zero carbon footprint from the full life cycle footprintof the fuel measured from the capture of renewable carbon through the burning of the fuel.
Gevo's primary market focus, given current demand and growing customer interest, is SAF. The Company believes it also has commercial opportunities for other renewable hydrocarbon products, such as (i) renewable natural gas, also known as biogas (“RNG”), (ii) hydrocarbons for gasoline blendstocks and diesel fuel, (ii) ingredients for the chemical industry, such as ethylene and butenes, and (iii) plastics, materials and other chemicals. We are engaged in technology, process and intellectual property development targeted to large scale deployment of net-zero hydrocarbon fuels and chemicals. We are developing the marketplace and customers for SAF and other related products. We also are engaged as a developer and enabler/licensor for large scale commercial production, and we expect to be a co-investor on certain projects. Gevo's business model is that of a developer of projects, a licensor, process technology developer, and operator of certain assets in the future.
Net-Zero Projects
In early 2021, we announced the concept of “Net-Zero Projects” as a series of planned facilities to produce energy dense liquid hydrocarbons using renewable energy and our proprietary technology. The Company believes itconcept of a Net-Zero Project is to convert renewable energy (e.g., photosynthetic, wind, RNG) from a variety of sources into energy dense liquid hydrocarbons that, when burned in traditional engines, has the potential to achieve net-zero GHG emissions across the whole lifecycle of the liquid fuel: from the way carbon is captured from the atmosphere, processed to make liquid fuel products, and burnt as a fuel for planes, cars, trucks and ships. As announced in February 2022, and as a result of our agreement and relationship with Axens North America, Inc. (“Axens”), Gevo made the decision to utilize Axens’ ethanol fermentation technology instead of our proprietary isobutanol fermentation technology to produce sustainable aviation fuel and know-howother renewable hydrocarbon products in our Net-Zero Projects.
Our initial Net-Zero Project, Net-Zero 1 (“NZ1"), is expected to convert various carbohydrate feeds through abe located in Lake Preston, South Dakota, and is being currently designed to produce approximately 65 million gallons per year ("MGPY") of total hydrocarbon volumes, including 60 MGPY of SAF. Along with the hydrocarbons, NZ1 is being designed to produce approximately 1,390 million pounds per year of high-value protein products for use in the food chain and more than 34 million pounds per year of corn oil. Our products will be produced in three steps; the first step is milling the corn and the production of protein, oil, and carbohydrates, the second step produces alcohols using fermentation process into alcohols and then transformthe third step is the conversion of the alcohols into renewable fuelshydrocarbons.
We also are developing other commercial production projects for SAF at other locations in the United States where we expect to use the design of the ethanol-to-jet plant of Lake Preston. Gevo expects to play the role of developer and materials. Whilelicensor; and, depending upon circumstances, partial owner of these projects.
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
Renewable Natural Gas Facilities
Gevo's RNG facilities in Northwest Iowa ("NW Iowa RNG") are owned by Gevo NW Iowa RNG, LLC, and produce RNG captured from dairy cow manure. The manure is supplied by three local dairies that have over 20,000 milking cows in total. Animal manure can be digested anaerobically to produce biogas, which is then upgraded to pipeline quality gas referred to as RNG. Gevo NW Iowa RNG, LLC sells the Company expects its first major capital deploymentsproduced RNG to focus onthe California market through an agreement with BP Canada Energy Marketing Corp. and BP Products North America Inc. (collectively, "BP"). In addition, NW Iowa RNG generates and sells Low Carbon Fuel Standard ("LCFS") credits as well as D3 Renewable Identification Numbers ("RINs") through the production of SAF, Gevo recognizes that there are opportunities to operate in several different markets, and it will pursue those opportunities when appropriate based on customer interest, access to capital and expected investment returns.RNG (collectively, "environmental attributes").
Luverne Facility
Gevo currently operates a wholly-ownedGevo's development plant in Luverne, Minnesota (the "Luverne Facility"). The Luverne Facility was originally constructed in 1998 and is located on approximately 55 acres of land, which contains approximately 50,000 square feet of building space. Our Luverne Facility is a scale up and development site. Gevo intends tomay use the Luverne Facility in the future to prove our processes, process concepts, unit operations and for other purposes in order to optimize feedstocks and the processes used for producing hydrocarbons from alcohols.Currently, the activities at the Luverne Facility are minimized to care and maintenance, as the Company has shifted focus to the Net-Zero Projects.
Gevo's renewable natural gas ("RNG") project ("NW Iowa RNG") owned by Gevo NW Iowa RNG, LLC, will generate RNG captured from dairy cow manure supplied by 3 dairies located in Northwest Iowa totaling over 20,000 milking cows. Animal manure can be digested anaerobically to produce biogas, which is then upgraded to pipeline quality gas referred to as RNG. Gevo NW Iowa RNG, LLC intends to sell RNG to the California market through an agreement with BP Canada Energy Marketing Corp. and BP Products North America Inc. (collectively, "BP"). Our dairy farm partners realize a varietyBasis of benefits including improved operational and environmental compliance options. These services facilitate long-term relationships with project hosts that may serve as a source for future projects and relationships. Gevo believes that RNG has potential to displace fossil-based natural gas used in the future production of net-zero hydrocarbon manufacturing facilities, providing the benefit of lowering the carbon intensity of hydrocarbon fuels.
In 2021, we began construction on NW Iowa RNG under a self-perform project delivery format. We completed most of the construction efforts at the end of 2021, and in January 2022, we began the process of commissioning the project. NW Iowa RNG is expected to be completed within budget. All digesters are currently in the start-up phase and are expected to reach steady production levels in the second quarter of 2022. When fully operational, NW Iowa RNG is expected to generate approximately 355,000 MMBtu of RNG per year.
We also operate a demonstration facility in Silsbee, Texas in partnership with South Hampton Resources, Inc. (the "South Hampton Facility"), from which the Company produces limited volumes of SAF and liquid hydrocarbon fuel.
Ultimately, the Company believes that the attainment of profitable operations is dependent upon future events, including, but not limited to (i) the successful development of the Company's initial Net-Zero Project (the "Net-Zero 1 Project") and future projects for the production of energy dense liquid hydrocarbons using renewable energy and our proprietary technology; and (ii) the achievement of a level of revenues adequate to support its cost structure.presentation
Basis of presentation.The accompanying unaudited condensed consolidated financial statements of the Company (which include the accounts of its wholly-owned subsidiaries Gevo Asset, LLC, Gevo RNG HoldCo, LLC, Gevo NW Iowa RNG, LLC, Gevo Net-Zero
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
HoldCo, LLC, Gevo Net-Zero 1, LLC, and Agri-Energy, LLC (“Agri-Energy”)) have been prepared without audit, pursuantin accordance with U.S. generally accepted accounting principles (“GAAP”) along with the instructions to Form 10-Q and Article 10 of Regulation S-X assuming the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).Company will continue as a going concern. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States (“GAAP”)GAAP for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company as of, and for the three months ended, March 31, 2022,2023, and are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included under the heading “Financial Statements and Supplementary Data” in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 20212022. The financial statements at December 31, 2021,2022, have been derived from the audited financial statements as of that date. For further information, refer to our audited financial statements and notes thereto included for the year ended December 31, 20212022 (the "2021"2022 Annual Report").
Reclassifications. The Company reclassified certain prior period amounts to conform to the current period presentation, includingpresentation. The reclassifications included the categorization of depreciation and amortization on the Consolidated Statements of Operations. These reclassificationsOperations and had no impact on total revenues, total cost of goods sold, total operating expenses, net loss or stockholders' equity for any period.
2.Revenues from Contracts with Customers and Other Revenues
The Company’s revenues are primarily comprised of the sale of RNG and related environmental attributes produced at the NW Iowa RNG facility under long-term contracts with customers. Revenue is recognized at a point in time when the Company transfers the product to its customer. The customer obtains control of the product upon RNG delivery into gas pipeline system, whereas the title and control for the environmental attributes are transferred to the customer subsequent to the issuance of such attributes by the relevant regulatory agency. The Company generally has a single performance obligation in our arrangements with customers. The Company’s performance obligation related to the sales of RNG and related environmental attributes are satisfied at a point in time upon delivery to the customer.
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
The Company'sfollowing table displays the Company’s revenue by major source based on product type (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, | | |
Major Goods/Service Line | | | | | | 2023 | | 2022 | | |
Ethanol sales and related products, net | | | | | | $ | — | | | $ | 169 | | | |
Hydrocarbon revenue | | | | | | 397 | | | 63 | | | |
Renewable natural gas commodity | | | | | | 130 | | | — | | | |
Environmental attribute revenue | | | | | | 3,533 | | | — | | | |
Total operating revenue | | | | | | $ | 4,060 | | | $ | 232 | | | |
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring its products. There is no variable consideration present in the Company’s performance obligations. Consideration for each transaction is based upon quoted market prices at the time of delivery.
The Company recorded limited revenues are derived from 2its development-scale plants: (i) the South Hampton Facility and (ii)plant, the Luverne Facility.Facility, during the three months ended March 31, 2023, and 2022. These revenues arewere promotional in nature and from customer contracts for ethanol sales and related products and hydrocarbon revenues, which includeincluded SAF, isooctene, and isooctane. These areproducts were sold mostly on a free-on-board shipping point basis (recognized at a point in time), arewere independent transactions, do did not provide post-sale support or promises to deliver future goods, and arewere single performance obligations. Historically, grant revenues consisted of governmental and cooperative research grants, while other revenue includes consulting services and short-term leases for certain storage facilities at the Luverne Facility. For the quarters ended March 31, 2022 and 2021, there were no variable revenues and as of March 31, 2022 and December 31, 2021, there were no remaining unfulfilled or partially fulfilled performance obligations. The Company does not offer explicit or implicit price concessions, so it records the revenue and trade receivables at 100% of the transaction price. Since all amounts are provided and due in less than one year, the Company elects to not record a financing component.
3.Net lossLoss Per Share
Basic net loss per share is calculated based on the weighted average number of common shares outstanding for the period. Diluted net loss per share is calculated based on the assumption that stock options and other dilutive securities outstanding, which have an exercise price less than the average market price of the Company's common shares during the period, would have been exercised on the later of the beginning of the period or the date granted, and that the funds obtained from the exercise were used to purchase common shares at the average market price during the period. None of the Company's stock options or other dilutive securities are considered to be dilutive in periods with net losses.
The effect of the Company’s dilutive securities is calculated using the treasury stock method and only those instruments that result in a reduction in net income per common share are included in the calculation. Diluted net loss per share for the three months ended March 31, 2022 and 2021 excluded 1,751,170 and 220,099, respectively, of common stock equivalents because the effect of their inclusion would be anti-dilutive or would decrease the reported net loss per share. Therefore 58,651 and 72,434 of dilutive common stock equivalents have been excluded for the three months ended March 31, 2023 and 2022, respectively, as the Company is in a net loss position. See Notes 14 and 18 for all outstanding options and warrants that were not included in the computation of diluted weighted average common shares outstanding, as the exercise price of the options and warrants exceeded the average price of the Company’s common stock during the reporting period, and therefore are anti-dilutive.
Basic and diluted net loss per share is calculated as follows (net loss in thousands):
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Net loss | | | | | $ | (17,618) | | | $ | (15,673) | |
Basic weighted-average shares outstanding | | | | | 237,260,681 | | | 201,925,747 | |
Net loss per share - basic and diluted | | | | | $ | (0.07) | | | $ | (0.08) | |
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
Basic and diluted net loss per share is calculated as follows (net loss in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Net loss | $ | (15,673) | | | $ | (10,057) | |
| | | |
| | | |
| | | |
Basic and diluted weighted-average shares outstanding | 201,925,747 | | | 183,566,524 | |
| | | |
Basic and diluted net loss per share | $ | (0.08) | | | $ | (0.05) | |
4.Prepaid and Other Current Assets
The following table sets forth the components of the Company’s prepaid and other current assets (in thousands):
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Prepaid insurance | $ | 397 | | | $ | 805 | |
Interest receivable | 1,252 | | | 1,530 | |
Exclusivity fees | — | | | 3,250 | |
Prepaid engineering | 2,275 | | | 409 | |
Prepaid other | 1,937 | | | 863 | |
Total Prepaid and other current assets | $ | 5,861 | | | $ | 6,857 | |
The $3.3 million of prepaid fees above are exclusivity fees and are reported in Deposits and other assets in the Consolidated Balance Sheets (Note 13) as of March 31, 2022.
5.Marketable Securities
The Company's investments in marketable securities are stated at fair value and are available-for-sale.available for sale. The following table summarizes the Company's investments in marketable securities (in thousands): as of:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Available-for-Sale Securities at March 31, 2022 |
| Maturity | | Amortized Cost Basis | | Gross Unrealized Losses | | Fair Value |
| | | | | | | |
Short-term marketable securities | | | | | | | |
U.S. Treasury notes | Within one year | | $ | 188,665 | | | $ | (527) | | | $ | 188,138 | |
U.S. Government-sponsored enterprise securities | Within one year | | 78,375 | | | (700) | | | 77,675 | |
Total short-term marketable securities | | | $ | 267,040 | | | $ | (1,227) | | | $ | 265,813 | |
| | | | | | | |
Long-term marketable securities | | | | | | | |
U.S Treasury notes | Within two years | | $ | 11,040 | | | $ | (72) | | | $ | 10,968 | |
U.S. Government-sponsored enterprise securities | Within two years | | 22,044 | | | (288) | | | 21,756 | |
Total long-term marketable securities | | | $ | 33,084 | | | $ | (360) | | | $ | 32,724 | |
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 |
| | Amortized Cost Basis | | Gross Unrealized Losses | | Fair Value |
Marketable securities (current) | | | | | | |
U.S. Treasury notes | | $ | 11,005 | | | $ | (61) | | | $ | 10,944 | |
U.S. Government-sponsored enterprise securities | | 22,007 | | | (54) | | | 21,953 | |
Total marketable securities (current) | | $ | 33,012 | | | $ | (115) | | | $ | 32,897 | |
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Available-for-Sale Securities at December 31, 2021 |
| Maturity | | Amortized Cost Basis | | Gross Unrealized Losses | | Fair Value |
| | | | | | | |
Short-term marketable securities | | | | | | | |
U.S. Treasury notes | Within one year | | $ | 226,136 | | | $ | (344) | | | $ | 225,792 | |
U.S. Government-sponsored enterprise securities | Within one year | | 49,618 | | | (70) | | | 49,548 | |
Total short-term marketable securities | | | $ | 275,754 | | | $ | (414) | | | $ | 275,340 | |
| | | | | | | |
Long-term marketable securities | | | | | | | |
U.S Treasury notes | Within two years | | $ | — | | | $ | — | | | $ | — | |
U.S. Government-sponsored enterprise securities | Within two years | | 64,596 | | | (200) | | | 64,396 | |
Total long-term marketable securities | | | $ | 64,596 | | | $ | (200) | | | $ | 64,396 | |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Amortized Cost Basis | | Gross Unrealized Losses | | Fair Value |
Marketable securities (current) | | | | | | |
U.S. Treasury notes | | $ | 56,418 | | | $ | (344) | | | $ | 56,074 | |
U.S. Government-sponsored enterprise securities | | 112,030 | | | (696) | | | 111,334 | |
Total marketable securities (current) | | $ | 168,448 | | | $ | (1,040) | | | $ | 167,408 | |
The cost of securities sold is based upon the specific identification method. Interest receivable related to the marketable securities of $1.3$0.2 million was included within prepaid"Prepaid expenses and other current assetsassets" on the accompanying Consolidated Balance Sheets as of March 31, 2022.2023.
Interest income from marketable securities totaled $0.6 million and $1.6 million the three months ended March 31, 2022 (nil for the three months ended March 31, 2021)2023 and 2022, respectively, and is included in "Interest and dividend"Investment income" in the Consolidated Statements of Operations.
5.Restricted Cash
Future maturitiesCurrent and non-current restricted cash of $77.8 million consists of amounts held as collateral for letters of credit to provide financing support for development and construction of the Company's marketable securitiesNW Iowa RNG and NZ1 projects and interest earned on restricted cash.
The Company entered into an irrevocable direct pay letter of credit (the "Bond Letter of Credit") with Citibank N.A ("Citibank") in April 2021 to support the 2021 Bonds (as defined below) for the development and construction of NW Iowa RNG. See Note 13, Debt, for additional information on the 2021 Bonds. The Bond Letter of Credit has a 0.5% annual fee and expires April 4, 2024 (unless terminated earlier). The Company deposited $71.2 million with Citibank as restricted cash to secure any amounts drawn under the Bond Letter of Credit. The Company is entitled to receive interest income on the restricted cash. As of March 31, 2023, no amounts have been drawn under the Bond Letter of Credit.
The proceeds from issuance of the 2021 Bonds recorded as restricted cash are $207.0maintained by the Trustee (as defined below) under the Indenture (as defined below) and are released to the Company to pay costs of the construction of NW Iowa RNG. The Company has used all bond proceeds for the project as of March 31, 2023.
In September 2022, the Company entered into a Pledge and Assignment agreement with Citibank to provide credit support in the form of a letter of credit (the “Power Letter of Credit”) from Citibank to a local electric utility company in order to induce the utility company to design and construct the power transmission and distribution facilities that will serve NZ1. The Company deposited $6.6 million of restricted cash in 2022an account with Citibank to collateralize the Power Letter
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
of Credit, which has a 0.3% annual fee and $91.5 million in 2023.expires September 30, 2024 (unless terminated earlier). As of March 31, 2023, no amounts have been drawn under the Power Letter of Credit.
6.Prepaid Expenses and Other Current Assets
The following table sets forth the components of the Company’s prepaid expenses and other current assets (in thousands) as of:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Prepaid insurance | $ | 1,744 | | | $ | 911 | |
Interest receivable | 1,219 | | | 514 | |
Prepaid feedstock | 1,097 | | | 1,097 | |
Prepaid other | 925 | | | 512 | |
Total prepaid expenses and other current assets | $ | 4,985 | | | $ | 3,034 | |
7.Leases, Right-of-Use Assets and Related Liabilities
The Company is party to an operating lease contract for the Company’s office and research facility in Englewood, Colorado, thatwhich expires in January 2029. The lease contains an option to extend the lease which management does not reasonably expect to exercise, so it is not included in the length of the term. The Company also has one production line piece of equipment with an operating lease that expires in 2024. As of March 31, 2022, right-of-use assets under operating leases totaling $2.2 million are included in "Operating right-of use assets," and related lease liabilities totaling $2.3 million ($0.4 million in current and $1.8 million in long-term) are included in the Consolidated Balance Sheets.
The Company also has 4four finance leases for land under arrangements related to NW Iowa RNG. Under these contracts, the Company leases land from dairy farmers on which it has built 3three anaerobic digesters, and related equipment and pipelines to condition raw biogas from cow manure provided by the farmers. The partially conditioned biogas will beis transported from the 3three digester sites to a central gas upgrade system located at the fourth site that will upgradeupgrades the biogas to pipeline qualitypipeline-quality RNG for sale. These leases expire at various dates between 2031 and 2050. Since the Company adopted the practical expedient, all amounts paid to the lessor under these arrangements for cow manure and non-lease services are classified as lease payments and are included in the calculation of the right-of-use assets and lease liabilities. This results in significantly higher right-of-use assets and lease liabilities than if the Company did not elect this practical expedient. The Company also has one office equipment finance lease, which expires in 2025. As of March 31, 2022, right-of-use assets under finance leases totaling $26.9 million are included in "Finance right-of-use assets," and related lease liabilities totaling $21.4 million ($4.0 million in current and $17.4 million in long-term) are included in the Consolidated Balance Sheets.
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
The following table presentstables present the (a) costs by lease category and (b)(i) other quantitative information relatingand (ii) future minimum payments under non-cancelable financing and operating leases as they relate to the Company’s leases (in thousands)thousands, except for weighted averages):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Lease Cost | | | |
Finance lease cost: | | | |
Amortization of right-of-use assets (1) | $ | 464 | | | $ | — | |
Interest on lease liabilities (1) | 262 | | | 11 | |
Operating lease cost | 139 | | | 61 | |
Short-term lease cost | 379 | | | 132 | |
Variable lease cost (2) | 115 | | | 39 | |
| | | |
Total lease cost | $ | 1,359 | | | $ | 243 | |
(1)$0.6 million and $0.4 million of amortization and interest expense for the three months ended March 31, 2022 and 2021, respectively, were capitalized as part of construction in progress, for related finance lease liabilities of $23.0 million and $0.6 million, respectively. The accumulated capitalized amounts of $3.0 million are included in "Property, plant and equipment, net" in the Consolidated Balance Sheets as the related NW Iowa RNG facilities were still under construction on March 31, 2022. Since these leases include approximately 75% fuel supplies, when the RNG facilities reach 60% production (expected in the second or third quarter of 2022), these capitalized amounts will be moved to inventory, and as units are sold they will be expensed through cost of goods sold.
(2)Represents amounts incurred in excess of minimum payments, including payments for common area expenses under our office and research facility lease, and additional amounts due under our NW Iowa RNG leases based on the number of cows maintained by the owners above the minimum required by the contracts of the respective facilities.
| | | Three Months Ended March 31, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Other Information | Other Information |
| |
| Other Information |
| |
|
Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | | | Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from finance leases | Operating cash flows from finance leases | $ | 16 | | $ | 6 | Operating cash flows from finance leases | $ | 23 | | $ | 1 |
Operating cash flows from operating leases | Operating cash flows from operating leases | $ | 456 | | $ | 61 | Operating cash flows from operating leases | $ | 74 | | $ | 287 |
Finance cash flows from finance leases | Finance cash flows from finance leases | $ | 34 | | $ | 7 | Finance cash flows from finance leases | $ | 2 | | $ | 1 |
Right-of-use asset obtained in exchange for new finance lease liabilities | $ | — | | $ | — | |
Right-of-use asset obtained in exchange for new operating lease liabilities | $ | — | | $ | 1,562 | |
| Weighted-average remaining lease term, finance lease (months) | Weighted-average remaining lease term, finance lease (months) | 215 | | 221 | Weighted-average remaining lease term, finance lease (months) | 308 | | 314 |
Weighted-average remaining lease term, operating leases (months) | Weighted-average remaining lease term, operating leases (months) | 71 | | 94 | Weighted-average remaining lease term, operating leases (months) | 61 | | 68 |
Weighted-average discount rate - finance leases (1) | Weighted-average discount rate - finance leases (1) | 5% | | 13% | Weighted-average discount rate - finance leases (1) | 12% | | 11% |
Weighted-average discount rate - operating leases (1) | Weighted-average discount rate - operating leases (1) | 5% | | 5% | Weighted-average discount rate - operating leases (1) | 5% | | 5% |
(1)Our leases do not provide an implicit interest rate; we calculate the lease liability at lease commencement as the present value of unpaid lease payments using our estimated incremental borrowing rate. The discountincremental borrowing rate used for operatingrepresents the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term and finance leases is determined using a portfolio approach based on information available at the Company's implicit borrowing rate ("IBR"). The Company estimatedcommencement date of the IBR based on collateralized borrowings for similar terms and payments.lease.
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
The table below shows the future minimum payments under non-cancelable financing and operating leases at March 31, 2022 (in thousands):
| Year ending December 31, | Operating Leases | | Finance Leases | |
| 2022 (remaining) | $ | 447 | | | $ | 2,204 | | |
2023 | 528 | | | 1,713 | | |
Year Ending December 31, | | Year Ending December 31, | Operating Leases | | Finance Leases |
2023 (remaining) | | 2023 (remaining) | $ | 454 | | | $ | 30 | |
2024 | 2024 | 305 | | | 1,729 | | 2024 | 305 | | | 31 | |
2025 | 2025 | 315 | | | 1,743 | | 2025 | 315 | | | 25 | |
2026 | 2026 | 324 | | | 1,781 | | 2026 | 324 | | | 25 | |
2027 and thereafter | 706 | | | 22,130 | | |
2027 | | 2027 | 334 | | | 25 | |
2028 and thereafter | | 2028 and thereafter | 373 | | | 571 | |
Total | Total | 2,625 | | | 31,300 | | Total | 2,105 | | | 707 | |
Less: Amounts representing present value discounts | 371 | | | 9,868 | | |
| Less: amounts representing present value discounts | | Less: amounts representing present value discounts | (292) | | | (464) | |
Total lease liabilities | Total lease liabilities | 2,254 | | | 21,432 | | Total lease liabilities | 1,813 | | | 243 | |
Less: current portion | Less: current portion | 416 | | | 4,029 | | Less: current portion | (421) | | | (59) | |
Long-term portion | $ | 1,838 | | | $ | 17,403 | | |
Non-current portion | | Non-current portion | $ | 1,392 | | | $ | 184 | |
7.8.Inventories
The following table sets forth the components of the Company’s inventory balances (in thousands): as of:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Raw materials | | | |
Corn | $ | 223 | | | $ | 301 | |
Enzymes and other inputs | 108 | | | 183 | |
Nutrients | 2 | | | 3 | |
Palladium | 203 | | | 265 | |
Finished goods | | | |
SAF, Isooctane and Isooctene | 501 | | | 335 | |
Isobutanol | 181 | | | 223 | |
Ethanol | 82 | | | 96 | |
Work in process | | | |
Agri-Energy | 84 | | | 83 | |
Gevo | 51 | | | — | |
Spare parts | 1,300 | | | 1,262 | |
| | | |
Total inventories | $ | 2,735 | | | $ | 2,751 | |
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Raw materials | | | |
| | | |
Consumables | $ | 29 | | | $ | 29 | |
Catalyst | 77 | | | 139 | |
Finished goods | | | |
SAF, Isooctane, Isooctene and other | 1,061 | | | 1,457 | |
Isobutanol | 124 | | | 124 | |
| | | |
Work in process | | | |
| | | |
Environmental attributes, net of allowance of $2,122 and $2,378, respectively | 2,656 | | | 4,193 | |
Jet fuel | 51 | | | 51 | |
Spare parts | 357 | | | 354 | |
Total inventories | $ | 4,355 | | | $ | 6,347 | |
WorkEnvironmental attributes represent distinguishable and material output from our NW Iowa RNG operations. The Company started allocating the cost of production to the sales value of RNG, credits from California's LCFS program and U.S. Environmental Protection Agency ("EPA") RIN credits. The value of the environmental attributes is reviewed for potential write-downs based on the net realizable value methodology.
During the three months ended March 31, 2023, the Company did not adjust its finished goods and work in process inventory, includes unfinished SAF, isooctane and isooctene inventory.
excluding environmental attributes, to net realizable value. During the three months ended March 31, 2022, the Company adjusted its finished goods and work in process inventory to net realizable value and recorded a loss of $2.9 million loss in cost of goods sold. There were no net realizable losses recorded during the three months ended March 31, 2021, as the Luverne Facility was temporarily shut down due to the COVID-19 pandemic.production.
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
8.9.Property, Plant and Equipment
The following table sets forth the Company’s property, plant and equipment by classification (in thousands): as of:
| | | | | | | | | | | | | | | | | | | | | | | |
| Useful Life (in years) | | March 31, 2022 | | December 31, 2021 |
| | | | | | | |
Luverne Facility retrofit asset | 20 | | $ | 70,820 | | | $ | 70,820 | |
Plant machinery and equipment | 10 | | 17,949 | | | 17,949 | |
Site improvements | 10 | | 7,157 | | | 7,157 | |
Lab equipment, furniture and fixtures and vehicles | 5 | | 6,813 | | | 6,811 | |
Demonstration plant | 2 | | 3,597 | | | 3,597 | |
Buildings | 10 | | 2,543 | | | 2,543 | |
Leasehold improvements, pilot plant, land and support equipment | 2 | to | 7 | | 2,841 | | | 2,802 | |
Computer, office equipment and software | 3 | to | 6 | | 2,338 | | | 2,332 | |
Construction in progress | — | | 107,848 | | | 88,989 | |
| | | | | | | |
Total property, plant and equipment | | | | | 221,906 | | | 203,000 | |
Less accumulated depreciation and amortization | | | | | (65,010) | | | (63,859) | |
| | | | | | | |
Property, plant and equipment, net | | | | | $ | 156,896 | | | $ | 139,141 | |
| | | | | | | | | | | | | | | |
| | | March 31, 2023 | | December 31, 2022 |
Land | | | $ | 6,452 | | | $ | 6,452 | |
Plant facilities and infrastructure | | | | | 76,875 | | | 76,900 | |
Machinery and equipment | | | | | 88,002 | | | 87,248 | |
Furniture and office equipment | | | | | 2,990 | | | 2,977 | |
Software | | | | | 2,217 | | | 2,217 | |
Construction in progress | | | 82,780 | | | 72,717 | |
Total property, plant and equipment | | | | | 259,316 | | | 248,511 | |
Less: accumulated depreciation and amortization | | | | | (75,454) | | | (71,639) | |
Property, plant and equipment, net | | | | | $ | 183,862 | | | $ | 176,872 | |
The Company recorded depreciation expenses of $4.2 million and amortization expense related to property, plant$1.2 million for the three months ended March 31, 2023 and equipment and intangible assets as follows (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| | | |
Depreciation: | | | |
Cost of goods sold | $ | 1,086 | | | $ | 1,088 | |
Operating expenses | 65 | | | 56 | |
Patent amortization: | | | |
Cost of goods sold | 5 | | | 5 | |
Operating expenses | 286 | | | — | |
| | | |
Total depreciation and amortization | $ | 1,442 | | | $ | 1,149 | |
2022, respectively.
Construction in progress includes $0.6$28.9 million for Gevo, $13.1$11.4 million for the Agri-Energy $67.4segment ("Agri-Energy") related to a fractionation and hydrocarbon skid, $1.6 million for NW Iowa RNG and $26.8$40.9 million for the Net-Zero 1 ProjectNZ1 at March 31, 2022.2023. Construction in progress includes $0.4$25.9 million for Gevo, $9.1$11.4 million for Agri-Energy, $56.9$1.0 million for NW Iowa RNG and $22.5$34.4 million for Net-Zero 1 ProjectNZ1 at December 31, 2021.2022. Construction in progress is not subject to depreciation until the assets are placed into service. At March 31, 2023, construction in progress included accruals of $13.3 million.
Borrowing costs. Borrowing costs directly attributable to acquisition and construction of an asset are capitalized until it is completed and ready for its intended use, and thereafter are recognized in profit or loss for the current period. The Company did not capitalize interest expense during the three months ended March 31, 2023, and capitalized $0.5 million and nil of interest expense for the three months endedMarch 31, 2022, and March 31, 2021, respectively.2022.
9.10.Intangible Assets
IntangibleIdentifiable intangible assets consist of patents, which management evaluates to determine whether they (i) support current products;products, (ii) support planned research and development, or (iii) prevent others from competing with Gevo's products.
The following tables set forth the Company’s intangible assets by classification (in thousands) as of:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Gross Carrying Amount | | Accumulated Amortization | | Identifiable Intangible Assets, net | | Weighted-Average Useful Life (Years) |
Patents | $ | 4,580 | | | $ | (1,184) | | | $ | 3,396 | | | 7.4 |
Defensive assets | 4,900 | | | (896) | | | 4,004 | | | 8.4 |
Intangible assets | $ | 9,480 | | | $ | (2,080) | | | $ | 7,400 | | | 7.9 |
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
The following table sets forth the Company’s identifiable intangible assets by classification (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Gross Carrying Amount | | Accumulated Amortization | | Identifiable Intangible Assets, Net | | Weighted-Average Useful Life (Years) |
Finite-lived intangible assets: | | | | | | | |
Patents | $ | 4,580 | | | $ | (516) | | | $ | 4,064 | | | 7.3 |
Defensive assets | 4,900 | | | (308) | | | 4,592 | | | 8.4 |
| | | | | | | |
Identifiable intangible assets | $ | 9,480 | | | $ | (824) | | | $ | 8,656 | | | 7.9 |
| | | December 31, 2021 | | December 31, 2022 |
| | Gross Carrying Amount | | Accumulated Amortization | | Identifiable Intangible Assets, Net | | Weighted-Average Useful Life (Years) | | Gross Carrying Amount | | Accumulated Amortization | | Identifiable Intangible Assets, Net | | Weighted-Average Useful Life (Years) |
Finite-lived intangible assets: | | | | | | | | |
Patents | Patents | $ | 4,575 | | | $ | (368) | | | $ | 4,207 | | | 7.3 | Patents | $ | 4,580 | | | $ | (1,039) | | | $ | 3,541 | | | 7.4 |
Defensive assets | Defensive assets | 4,895 | | | (164) | | | 4,731 | | | 8.4 | Defensive assets | 4,900 | | | (750) | | | 4,150 | | | 8.4 |
Identifiable intangible assets | $ | 9,470 | | | $ | (532) | | | $ | 8,938 | | | 7.9 | |
Intangible assets | | Intangible assets | $ | 9,480 | | | $ | (1,789) | | | $ | 7,691 | | | 7.9 |
The Company recorded amortization expense of $0.3 million for each of the three months ended March 31, 2023 and 2022.
The following table details the estimated amortization of identifiable intangible assets as ofMarch 31, 2022 (in2023 (in thousands):
| | | | | | | | | | | | | | | | | |
Year ending December 31, | Patents | | Defensive Assets | | Total |
2022 (remaining) | $ | 452 | | | $ | 442 | | | $ | 894 | |
2023 | 599 | | | 586 | | | 1,185 | |
2024 | 601 | | | 588 | | | 1,189 | |
2025 | 599 | | | 586 | | | 1,185 | |
2026 | 585 | | | 586 | | | 1,171 | |
2027 and thereafter | 1,228 | | | 1,804 | | | 3,032 | |
Total | $ | 4,064 | | | $ | 4,592 | | | $ | 8,656 | |
See Note 8 for the amortization of intangible assets for the three months endedMarch 31, 2022and March 31, 2021. | | | | | | | | | | | | | | | | | |
Year Ending December 31, | Patents | | Defensive Assets | | Total |
2023 (remaining) | $ | 437 | | | $ | 439 | | | $ | 876 | |
2024 | 582 | | | 586 | | | 1,168 | |
2025 | 582 | | | 586 | | | 1,168 | |
2026 | 582 | | | 586 | | | 1,168 | |
2027 | 582 | | | 586 | | | 1,168 | |
2028 and thereafter | 631 | | | 1,221 | | | 1,852 | |
Total intangible assets | $ | 3,396 | | | $ | 4,004 | | | $ | 7,400 | |
10.11.WarrantsDeposits and Other Assets
On February 17, 2022, the Series K warrants expired with 7,126 unexercised warrants.
The following table sets forth information pertainingthe components of the Company's deposits and other assets (in thousands) as of:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Deposits (1) | $ | 276 | | | $ | 276 | |
Prepaid feedstock (2) | 1,175 | | | 934 | |
Equity interest (3) | 1,500 | | | 1,500 | |
Exclusivity fees (4) | 2,522 | | | 2,522 | |
Deposits receivable (5) | 18,961 | | | 8,302 | |
Other assets, net (6) | 8,353 | | | 8,460 | |
Total deposits and other assets | $ | 32,787 | | | $ | 21,994 | |
(1)Deposits for legal services and products for NZ1.
(2)Prepaid feedstock fees, non-current, for the production of RNG.
(3)The Company directly holds a 4.6% interest in the Series A Preferred Stock of Zero6 Clean Energy Assets, Inc. ("Zero6"), formerly Juhl Clean Energy Assets, Inc., which is not a publicly listed entity with a readily determinable fair value. The Company therefore measures the securities at cost, which is deemed to shares issued uponbe the exercisevalue indicated by the last observable transaction in Zero6's stock, subject to impairment. The equity interest in Zero6 is also pledged as collateral against two future obligations to Rock County Wind Fuel, LLC ("RCWF"), a Zero6 subsidiary, see Note 16, Commitments and Contingencies, for additional information.
(4)Axens will provide certain alcohol-to-SAF technologies and services exclusively provided to the Company which may be offset against future license fees subject to the delivery of warrants:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance Date | | Expiration Date | | Exercise Price as of March 31, 2022 | | Shares Underlying Warrants on Issuance Date | | Shares Issued upon Warrant Exercises as of March 31, 2022 | | Shares Underlying Warrants Outstanding as of March 31, 2022 |
| | | | | | | | | | | |
Series 2020-A Warrants (1) | 7/6/2020 | | 7/6/2025 | | $ | 0.60 | | | 30,000,000 | | | 29,914,069 | | | 85,931 | |
(1) The Series 2020-A Warrants are equity-classified warrants.
a process design package.
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
During(5)Deposits provided to a developer of certain wind-farm projects and power utility contractor to induce the three months ended March 31, 2022, common stock was issuedcontractor to design and construct the power generation, transmission and distribution facilities that will serve NZ1, $5.5 million of which will be either reimbursed or used as a resultan investment into wind generation facility and the remaining $13.5 million is expected to be fully reimbursed upon completion of the exerciseproject. Gevo has contractual priority liens against the equipment and constructed facilities under the contracts.
(6)Payments which were allocated to the non-lease fuel supply, primarily related to sand separation systems, to support NW Iowa RNG fuel supply agreements prior to commencement of warrants as shown below (dollars in thousands):operations, being amortized over the life of the project.
| | | | | | | | | | | |
| Common Stock Issued | | Proceeds |
Series 2020-A Warrants | 4,677 | | | $ | 3 | |
11.12.Accounts Payable and Accrued Liabilities
The following table sets forth the components of the Company's accounts payable and accrued liabilities in the Consolidated Balance Sheets (in thousands): as of:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| | | |
Accounts payable - trade | $ | 1,399 | | | $ | 4,868 | |
NW Iowa RNG accrued project costs | 2,902 | | | 11,000 | |
Accrued employee compensation | 3,294 | | | 4,678 | |
Net-Zero 1 accrued project costs | 2,778 | | | 5,010 | |
Other accrued liabilities | 3,037 | | | 2,732 | |
| | | |
Total accounts payable and accrued liabilities | $ | 13,410 | | | $ | 28,288 | |
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Accounts payable | $ | 3,858 | | | $ | 5,009 | |
Accrued liabilities | 16,193 | | | 12,594 | |
Accrued payroll and related benefits | 4,505 | | | 5,105 | |
Accrued sales and use tax | 375 | | | 2,052 | |
Total accounts payable and accrued liabilities | $ | 24,931 | | | $ | 24,760 | |
12.13.Debt
2021 Bond Issuance
On April 15, 2021, on behalf of Gevo NW Iowa RNG, LLC, the Iowa Finance Authority ("the(the "Authority") issued $68,155,000 of its non-recourse Solid Waste Facility Revenue Bonds (Gevo NW Iowa RNG, LLC Renewable Natural Gas Project), Series 2021 (Green Bonds) (the "2021 Bonds") for NW Iowa RNG. The bond proceeds are beingwere used as a source of construction financing alongside equity from the Company. The bonds2021 Bonds were issued under a Trust Indenture dated as of April 1, 2021 (the "Indenture") between the Authority and Citibank, N.A. as trustee (the "Trustee"). The 2021 Bonds mature April 1, 2042. They initiallyThe bonds bear interest at 1.50%1.5% per annum during the Initial Term Rate Period (as defined in the Indenture), payable semi-annually on January 1 and July 1 of each year. The bondseffective interest rate is 1.0%. The 2021 Bonds are supported by athe $71.2 million irrevocable direct pay letterBond Letter of credit (the "Letter of Credit"), which expires April 4, 2024 (unless terminated earlier), and was issued by Citibank, N.A.Credit; see Note 5, Restricted Cash. The Trustee willcan draw sufficient amounts on the Bond Letter of Credit to pay the principal and interest until the first mandatory tender date of April 1, 2024. The bonds are2021 Bonds became callable and re-marketable on or after October 1, 2022. If the bonds2021 Bonds have not been called and re-marketed by the first mandatory tender date, the Trustee may draw on the Bond Letter of Credit to repay the bonds2021 Bonds in their entirety at the purchase price. Gevo deposited $71.2 million with Citibank, N.A. as restricted cash to secure any amounts drawn under the Letter of Credit. As of March 31, 2022,2023, no amounts have been drawn under the Letter of Credit.
Gevo anticipates re-marketing the 2021 Bonds in the fall of 2022 under revised terms that will include a long-term maturity date and be non-recourse to Gevo. Upon a successful remarketing, Gevo anticipates that the Letter of Credit, the associated reimbursement agreement and the associated pledge of cash will be terminated, with a concurrent release of the restricted cash securing theBond Letter of Credit.
The 2021 Bonds were issued at a premium of $0.8 million and debt issuance costs were $3.0 million. The bond debt is classified as long-termnon-current debt and is presented net of the premium and issuance costs, which are being amortized over the life of the bonds2021 Bonds using the interest method. As of March 31, 2023 and December 31, 2022, the premium balance and the debt issuance cost net of amortization were $0.6$0.3 million, $0.4 million, $1.0 million, and $2.1$1.3 million, respectively.
Restricted cash and cash equivalents. The Company’s restricted cash and restricted cash equivalents consists of unused proceeds from the issuance of the 2021 Bonds, and are restricted for the purpose of constructing NW Iowa RNG projects as well as amounts pledged and assigned to Citibank, N.A. in its capacity as provider of the Letter of Credit as collateral for the reimbursement obligations of Gevo.
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
The proceeds from issuance of the 2021 Bonds are maintained by the Trustee under the Indenture and are released to the Company only to pay costs of the construction of NW Iowa RNG. The Company has used $53.0 million for the project. As of March 31, 2022, unused bond proceeds of $15.2 million are included in restricted cash classified as current since the proceeds will be distributed within 12 months. We expect all construction invoices will be received and paid, and the remaining unused bond proceeds will be released to reimburse Gevo by the end of the second quarter of 2022.
As ofMarch 31, 2022, $71.2 million is held in restricted cash as collateral for the Letter of Credit. The Company is entitled to receive interest income on the restricted cash.
The restricted cash held by the Trustee is made up of the following (in thousands). Numbers are stated since inception and as of March 31, 2022:
| | | | | | | |
| March 31, 2022 | | |
| | | |
Bond proceeds | $ | 68,995 | | | |
Disbursement of funds | (53,085) | | | |
Interest paid on bonds | (727) | | | |
Interest income | 11 | | | |
| | | |
Total restricted cash held by Trustee | 15,194 | | | |
Total restricted cash for collateral | 71,260 | | | |
| | | |
Total restricted cash and restricted cash equivalents | 86,454 | | | |
Current portion | (16,216) | | | |
| | | |
Total restricted cash held by Trustee | $ | 70,238 | | | |
Loans Payable - Other
The equipment loans are secured by the related equipment.
In April 2020, the Company and Agri-Energy each entered into a loan agreement with Live Oak Banking Company, pursuant to which the Company and Agri-Energy obtained loans from the Small Business Administration's Paycheck Protection Program (“SBA PPP”) totaling $1.0 million in the aggregate (the "SBA Loans").
OnIn April 15, 2021, the Small Business Administration forgave the entire balance of $0.5 million of the Company's and $0.1 million of Agri-Energy's loans and accrued interest obtained through the SBA PPP.PPP were forgiven. The remaining SBA Loan for Agri-Energy totals $0.3$0.2 million, bears interest at 1.0% per annum and matures in April 2025. Monthly payments of $8,230, including interest, began on June 5, 2021, and are payable through April 2025.
The summary of the 2021 Bonds and Loans payable - other are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest Rate | | Maturity Date | | March 31, 2022 | | December 31, 2021 |
| | | | | | | | | | | |
2021 Bonds | 1.5% | | January 2042 | | $ | 66,669 | | | $ | 66,486 | |
SBA Loans | 1.0% | | April 2025 | | 296 | | | 320 | |
Equipment | 4% | to | 5% | | February 2022 | to | December 2024 | | 70 | | | 156 | |
| | | | | | | | | | | |
Total loans payable - other | | | | | | | | | 67,035 | | | 66,962 | |
Less current portion | | | | | | | | | (89) | | | (158) | |
| | | | | | | | | | | |
Long-term portion | | | | | | | | | $ | 66,946 | | | $ | 66,804 | |
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
The summary of the Company's debt is as follows (in thousands) as of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest Rate | | Maturity Date | | March 31, 2023 | | December 31, 2022 |
2021 Bonds, net | 1.5% | | April 2042 | | $ | 67,408 | | | $ | 67,223 | |
SBA Loans | 1.0% | | April 2025 | | 200 | | | 224 | |
Equipment | 4% | to | 5% | | December 2023 | to | December 2024 | | 78 | | | 94 | |
Total debt | | | | | | 67,686 | | | 67,541 | |
Less: current portion | | | | | | | | | (152) | | | (159) | |
Non-current portion | | | | | | | | | $ | 67,534 | | | $ | 67,382 | |
Future principal payments for the Company's long-term debt are as follows (in thousands):
| | | | | |
Year Ending December 31, | |
| |
2022 (remaining) | $ | 48 | |
2023 | 159 | |
2024 | 66,799 | |
2025 | 29 | |
2026 | — | |
| |
| $ | 67,035 | |
13.Deposits and Other Assets
Deposits and other assets include the following:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| | | |
Deposits (1) | $ | 881 | | | $ | 831 | |
Investment in Juhl (2) | 1,500 | | | 1,500 | |
Exclusivity fees (3) | 3,250 | | | — | |
| | | |
Total Deposits and Other Assets | $ | 5,631 | | | $ | 2,331 | |
(1) Deposits for legal services and for product for Net-Zero 1.
(2) Investment in Juhl's future wind farms.
(3) Axens North America, Inc. ("Axens") will provide certain alcohol-to-SAF services exclusively to the Company which may be offset against future license fees. | | | | | |
Year Ending December 31, | Total Debt |
2023 (remaining) | $ | 120 | |
2024 | 67,537 | |
2025 | 29 | |
Total debt | $ | 67,686 | |
14.Stock-Based Compensation
Equity incentive plans. In February 2011, the Company’s stockholders approved the Gevo, Inc. 2010 Stock Incentive Plan (as amended and restated to date, the "2010 Plan"), and the Employee Stock Purchase Plan (the "ESPP").
The 2010 Plan providedprovides for the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units and other equity awards to employees and directors of the Company. OnIn June 9, 2021, withupon approval of the stockholders at the 2021 Annual Meeting of Stockholders, the 2010 Plan was amended and restated, which increased the number of shares of common stock reserved for issuance under the 2010 Plan to a total of 22,980,074.22,980,074 shares. At March 31, 2022, 7,717,0262023, 4,109,441 shares remainedwere available for awardsfuture issuance under the 2010 Plan.
Restricted common stock and non-qualified stock option activity during the three months ended March 31, 2022,consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Restricted Shares Issued | | Total Number of Non-qualified Stock Options Granted | | Vesting Periods Years |
| | | | | | | |
January 1, 2022 to March 31, 2022 | (340,502) | | (1) | — | | | N/A |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total | (340,502) | | | — | | | | | |
(1)Includes shares of common stock cancelled related to the unvested restricted stock awards.
ESPP. The offering periods for the ESPP are from January 1 to June 30 and from July 1 to December 31 of each calendar year. The Company has reserved 190 shares of common stock for issuance under the ESPP, of which 190 shares as of March 31, 2022, are available for future issuance. The purchase price of the common stock under the ESPP is 85% of
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
the lower of the fair market value of a share of common stock on the first or last day of the purchase period. There were no purchases of common stock under the ESPP during the three months ended March 31, 2022or 2021.
Stock-based compensation expense. The Company records stock-based compensation expense during the requisite service period for share-based payment awards granted to employees and non-employees.
Our stock-based compensation is classified as either an equity award or a liability award in accordance with generally accepted accounting principles. The fair value of an equity-classified award is determined at the grant date and is amortized on a straight-line basis over the vesting life of the award. The fair-value of a liability-classified award is determined on a quarterly basis through the final vesting date and is amortized based on the current fair value of the award and the percentage of vesting period incurred to date.
The following table sets forth the Company’s stock-based compensation expense for the periods indicated (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Equity Classified Awards | | | | | | | |
Stock options | | | | | | | |
Cost of goods sold | $ | 85 | | | $ | — | | | | | |
Research and development | 51 | | | — | | | | | |
Selling, general and administrative | 1,444 | | | — | | | | | |
Preliminary stage projects | 5 | | | 0 | | | | |
Other | 94 | | | 0 | | | | |
| | | | | | | |
Restricted stock | | | | | | | |
Cost of goods sold | 108 | | | — | | | | | |
Research and development | 58 | | | 125 | | | | | |
Selling, general and administrative | 2,050 | | | 437 | | | | | |
Preliminary stage projects | 11 | | | 0 | | | | |
Other | 138 | | | 0 | | | | |
| | | | | | | |
Total equity classified awards | 4,044 | | | 562 | | | | | |
| | | | | | | |
Liability Classified Awards | | | | | | | |
Restricted stock | | | | | | | |
Selling, general and administrative | 193 | | | — | | | | | |
| | | | | | | |
Stock appreciation rights | | | | | | | |
Research and development | — | | | 348 | | | | | |
Selling, general and administrative | 21 | | | 15 | | | | | |
| | | | | | | |
Total liability classified awards | 214 | | | 363 | | | | | |
| | | | | | | |
Total stock-based compensation | $ | 4,258 | | | $ | 925 | | | | | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Equity Classified Awards | | | | | | | |
Cost of production | | | | | $ | 18 | | | $ | 193 | |
General and administrative | | | | | 3,923 | | | 3,494 | |
Other | | | | | 736 | | | 357 | |
Total equity classified awards | | | | | 4,677 | | | 4,044 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Liability Classified Awards | | | | | | | |
General and administrative | | | | | — | | | 214 | |
| | | | | | | |
Total liability classified awards | | | | | — | | | 214 | |
Total stock-based compensation | | | | | $ | 4,677 | | | $ | 4,258 | |
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
Stock option award activity. Stock option activity under the Company’s stock incentive plans and changes during the three months ended March 31, 2022,2023, were as follows:
| | | Number of Options | | Weighted-Average Exercise Price (1) | | Weighted-Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value | | Number of Options | | Weighted-Average Exercise Price (1) | | Weighted-Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value |
| Options outstanding at December 31, 2021 | 4,739,940 | | | $ | 5.14 | | | 9.6 | | $ | — | | |
Options outstanding at December 31, 2022 | | Options outstanding at December 31, 2022 | 5,945,321 | | | $ | 4.65 | | | 9.6 | | $ | — | |
Granted | Granted | — | | | 0 | | Granted | 55,918 | | | $ | 2.12 | | | $ | — | |
Canceled or forfeited | Canceled or forfeited | (174,187) | | | $ | 5.63 | | | Canceled or forfeited | (26,173) | | | $ | 8.04 | | | $ | — | |
Exercised | Exercised | — | | | 0 | | Exercised | — | | | $ | — | | | $ | — | |
| Options outstanding at March 31, 2022 | 4,565,753 | | | $ | 5.12 | | | 9.4 | | $ | — | | |
| Options exercisable at March 31, 2022 | 1,520 | | | $ | 427.69 | | | 4.4 | | $ | — | | |
| Options outstanding at March 31, 2023 | | Options outstanding at March 31, 2023 | 5,975,066 | | | $ | 4.62 | | | 9.1 | | $ | — | |
Options vested and expected to vest at March 31, 2023 | | Options vested and expected to vest at March 31, 2023 | 1,492,796 | | | $ | 5.26 | | | 0.5 | | $ | — | |
(1)Exercise price of options outstanding range from $4$2.12 to $99,300$11,160 as of March 31, 20222023. The higher end of the range is relateddue to historicalthe impact of several reverse stock reverse splits.splits during the years 2015 to 2018, subsequent to certain option grants, and relates to awards that expire during 2023.
No stock options vested during the three months ended March 31, 2022. As of March 31, 20222023, the total unrecognized compensation expense, net of estimated forfeitures, relating to stock options was $16.6$11.6 million, which is expected to be recognized over the remaining weighted-average period of approximately 3.61.9 years.
Restricted stock. Non-vested restricted stock awards and the changes during the three months ended March 31, 2022, 2023, were as follows:
| | | | | | | | | | | |
| Number of Shares | | Weighted-Average Grant-Date Fair Value |
| | | |
Outstanding at December 31, 2021 | 7,094,785 | | | $ | 3.93 | |
Granted | — | | | $ | — | |
Exercised | (165,870) | | | $ | 1.09 | |
Canceled or forfeited | (174,268) | | | $ | 4.53 | |
Vested | (364) | | | $ | 2.30 | |
| | | |
Non-vested at March 31, 2022 | 6,754,283 | | | $ | 4.01 | |
| | | | | | | | | | | |
| Number of Shares | | Weighted-Average Grant-Date Fair Value |
Outstanding at December 31, 2022 | 5,254,457 | | | $ | 3.94 | |
Granted | 89,334 | | | $ | 1.89 | |
Vested and issued | — | | | $ | — | |
Canceled or forfeited | (7,295) | | | $ | 3.39 | |
| | | |
Non-vested at March 31, 2023 | 5,336,496 | | | $ | 3.91 | |
The total fair value of restricted stock that vested during the three months ended March 31, 2022,
was nil.
As of March 31, 2022, 2023, the total unrecognized compensation expense, net of estimated forfeitures, relating to restricted stock awards was $19.4$14.3 million, which is expected to be recognized over the remaining weighted-average period of approximately 2.91.8 years. As of March 31, 2022, we had recorded a liability of $1.0 million for earned and unvested2023, there are no liability-classified restricted stock awards based on the fair value of our common stock as of March 31, 2022.awards.
15.Income Taxes
The Company has incurred operating losses since inception,inception; therefore no provision for income taxes was recorded and all related deferred tax assets are fully reserved for.reserved. We continue to assess the impact of a deferred tax asset as it relates to income taxes.
16.Commitments and Contingencies
Legal mattersMatters. From time to time, the Company has been, and may again become, involved in legal proceedings arising in the ordinary course of its business. The Company is not presently a party to any litigation and is not aware of any
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
pending or threatened litigation against the Company that it believes could have a material adverse effect on its business, operating results, financial condition or cash flows.
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
Indemnifications. In the ordinary course of its business, the Company makes certain indemnities under which it may be required to make payments in relation to certain transactions. As of March 31, 20222023, the Company did not have any liabilities associated with indemnities.
In addition, the Company as permitted under Delaware law and in accordance with its amended and restated certificate of incorporation and second amended and restated bylaws, in each case, as amended to date, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity.limitations. The duration of these indemnifications, commitments, and guarantees varies and, in certain cases, is indefinite. The maximum amount of potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that may enable it to recover a portion of any future amounts paid. The Company accrues for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable. No such losses have been recorded to date.
Environmental liabilitiesLiabilities. The Company’s operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdictions in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its locations. Accordingly, the Company has adopted policies, practices and procedures in the areas of pollution control, occupational health and the production, handling, storage and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability which could result from such events. Environmental liabilities are recorded when the Company’s liability is probable, and the costs can be reasonably estimated. No environmental liabilities have been recorded as of March 31, 2022.2023.
In February 2022, an incident occurred at one ofFuel Supply Commitment. The Company has three long-term fuel supply contracts to source feedstock for the anaerobic digesters that is part ofat the NW Iowa RNG that resultedproject. These contracts provide an annual amount of feedstock to be used in the accidental dischargeproduction of a mixture of water and manure into the environment. We promptly notified the Iowa Department of Natural Resources (the "DNR") and began mitigation work to minimize the impact of the discharge. The DNR has issued a notice of violation in connection with the discharge.RNG.
Praj Commitment. In April 2022, two separate incidents occurred at twoJune 2021 the Company contracted with a manufacturer in India to build a fractionation and hydrocarbon skid for $10.2 million. The remaining commitment for the contract is $3.6 million as of the anaerobic digesters that are part of NW Iowa RNG that resulted in the accidental discharge of very small amounts of water and manure into the environment. The DNR has issued notices of violation in connection with the two discharges.March 31, 2023.
There isZero6 Commitments. In September 2022, the Company entered into a possibility thatdevelopment agreement with Zero6 to construct and operate a wind project for the DNR will initiate an enforcement action with respectprovision of electric energy for NZ1. Pursuant to the discharges described above that could result in a monetary sanction being levied against Gevoagreement, the Company has committed to pay Zero6 total development charges of $8.6 million, comprised of advanced development fee payments of $0.9 million, certain reimbursable costs of $1.2 million, and $6.5 million upon completion of the project. The Company is not contractually obligated for the accidental discharges. We do not believe that any such monetary sanctions would be material tospecified development charges until certain milestones are met in future periods, and upon completion of the Company.project.
Additionally, the Company's investment in Zero6, see Note 11 above, is pledged separately as collateral for two commitments for the purchase of wind electricity for the Luverne Facility, as well as the purchase of 100% of RCWF's renewable energy credits. Gevo has a commitment to purchase all of RCWF's electricity. The portion not used by the Luverne Facility is charged to the Company at a lower price.
The estimated commitments as of March 31, 2023, and thereafter are shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | | Total |
| 2023 (remaining) | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 and thereafter | |
Fuel Supply Payments | $ | 2,309 | | | $ | 2,408 | | | $ | 1,702 | | | $ | 1,718 | | | $ | 1,736 | | | $ | 28,263 | | | $ | 38,136 | |
Zero6 Commitment | 222 | | | 322 | | | 6,747 | | | — | | | — | | | — | | | 7,291 | |
Praj Commitment | 3,600 | | | — | | | — | | | — | | | — | | | — | | | 3,600 | |
Renewable Energy Credits | 114 | | | 152 | | | 152 | | | 152 | | | 152 | | | 1,877 | | | 2,599 | |
Electricity Above Use (Est.) | 234 | | | 321 | | | 332 | | | 345 | | | 357 | | | 5,498 | | | 7,087 | |
Total | $ | 6,479 | | | $ | 3,203 | | | $ | 8,933 | | | $ | 2,215 | | | $ | 2,245 | | | $ | 35,638 | | | $ | 58,713 | |
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
17.Fair Value Measurements
Accounting standards define fair value, outline a framework for measuring fair value, and detail the required disclosures about fair value measurements. Under these standards, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. Standards establish a hierarchy in determining the fair market value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. Standards require the utilization of the highest possible level of input to determine fair value.
Level 1 – inputs include quoted market prices in an active market for identical assets or liabilities.
Level 2 – inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data.
Level 3 – inputs are unobservable and corroborated by little or no market data.
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
The carrying value and fair value, by fair value hierarchy, of the Company's financial instruments at March 31, 2022,2023, and December 31, 2021, respectively,2022 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at March 31, 2022 |
| Fair Value at March 31, 2022 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Recurring | | | | | | | |
Marketable securities | | | | | | | |
U.S. Treasury notes | $ | 199,106 | | | $ | 199,106 | | | $ | — | | | $ | — | |
U.S. Government-sponsored enterprise securities | 99,431 | | | 99,431 | | | — | | | — | |
| | | | | | | |
Other | | | | | | | |
Liability-classified restricted stock awards | 894 | | | 894 | | | — | | | — | |
| | | | | | | |
Total recurring | $ | 299,431 | | | $ | 299,431 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at March 31, 2023 |
| Fair Value at March 31, 2023 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Cash and cash equivalents (1) | $ | 342,283 | | | $ | 342,283 | | | $ | — | | | $ | — | |
Marketable securities | $ | 32,897 | | | $ | 32,897 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at December 31, 2021 |
| Fair Value at December 31, 2021 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Recurring | | | | | | | |
Marketable securities | | | | | | | |
U.S. Treasury notes | $ | 225,792 | | | $ | 225,792 | | | $ | — | | | $ | — | |
U.S. Government-sponsored enterprise securities | 113,944 | | | 113,944 | | | — | | | — | |
| | | | | | | |
Other | | | | | | | |
Liability-classified restricted stock awards | 702 | | | 702 | | | — | | | — | |
| | | | | | | |
Total recurring | $ | 340,438 | | | $ | 340,438 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at December 31, 2022 |
| Fair Value at December 31, 2022 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Cash and cash equivalents (1) | $ | 237,125 | | | $ | 237,125 | | $ | — | | $ | — | | | $ | — | |
Marketable securities | $ | 167,408 | | | $ | 167,408 | | | $ | — | | | $ | — | |
There were
(1)no transfers to or from Level 3Cash and cash equivalents includes $317.3 million and $200.7 million invested in the three months endedJ.P Morgan U.S. government money market funds as of March 31, 2022.2023 and December 31, 2022, respectively.
The Company had no transfers of assets or liabilities between fair value hierarchy levels between December 31, 2022, and March 31, 2023.
For the 2021 Bonds, the fair values are estimated using the Black-Derman-Toy interest rate lattice framework. The effective maturity of the 2021 Bonds was assumed to be April 1, 2024 (three years from issuance) with repayment of 100% of principal on that date. The impact of the Company's optional redemption feature, effective October 1, 2022, is appropriately captured by the Black-Derman-Toy interest rate lattice. The carrying values and estimated fair values of the 2021 bondsBonds as of March 31, 2022,2023, are summarized as follows:follows (in thousands):
| | | | | | | | | | | |
| March 31, 2022 |
| Carrying Value | | Estimated Fair Value |
| | | |
2021 Bonds | $ | 68,155 | | | $ | 66,657 | |
The Company has not elected the fair value option for any of its instruments.
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
| | | | | | | | | | | |
| Carrying Value | | Estimated Fair Value |
| | | |
2021 Bonds | $ | 67,408 | | | $ | 65,334 | |
18.SegmentsStockholders' Equity
Share Issuances
In February 2018, the Company commenced an at-the-market offering program, which allows it to sell and issue shares of its common stock from time to time. In 2021, the at-the-market offering program was amended to provide a total capacity of $500.0 million. As of March 31, 2023, the Company has remaining capacity to issue up to approximately $360.6 million of common stock under the at-the-market offering program.
On June 8, 2022, the Company completed a registered direct offering ("the June 2022 Offering") of an aggregate of 33,333,336 shares of the Company’s common stock at a price of $4.50 per share, accompanied by Series 2022-A warrants to purchase an aggregate of 33,333,336 shares of the Company’s common stock (each, a “Series 2022-A Warrant”) pursuant to a securities purchase agreement with certain institutional and accredited investors. The Series 2022-A Warrants are exercisable for a term of five years from the date of issuance at an exercise price of $4.37 per share. As of March 31, 2023, none of the Series 2022-A Warrants had been exercised.
The net proceeds to the Company from the June 2022 Offering were $139.2 million, after deducting placement agent's fees, advisory fees and other offering expenses payable by the Company, and assuming none of the Series 2022-A Warrants issued in the June 2022 Offering are exercised for cash. The Company intends to use the net proceeds from the June 2022 Offering to fund capital projects, working capital and for general corporate purposes.
Warrants
In addition to the Series 2022-A Warrants, the Company has warrants outstanding that were issued in conjunction with a registered direct offering in August 2020 (the “Series 2020-A Warrants”). The Company evaluated the Series 2022-A Warrants and Series 2020-A Warrants for liability or equity classification and determined that equity treatment was appropriate because both the Series 2022-A Warrants and Series 2020-A Warrants do not meet the definition of liability instruments.
The Series 2022-A Warrants and Series 2020-A Warrants are classified as a 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 and will expire five years from the date of issuance, 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 Series 2022-A Warrants and Series 2020-A Warrants do not provide any guarantee of value or return. The Company valued the Series 2022-A Warrants and Series 2020-A Warrants at issuance using the Black-Scholes option pricing model. The fair value at the issuance date of the Series 2022-A Warrants was $92.9 million with the key inputs to the valuation model including a weighted average volatility of 151.1%, a risk-free rate of 2.86% and an expected term of five years. The fair value at the issuance date of the Series 2020-A Warrants was $8.3 million with the key inputs to the valuation model including a weighted average volatility of 130%, a risk-free rate of 0.30% and an expected term of five years.
While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
On February 17, 2022, the remaining Series K warrants expired with 7,126 unexercised warrants.
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
The following table sets forth information pertaining to shares issued upon the exercise of warrants:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance Date | | Expiration Date | | Exercise Price as of March 31, 2023 | | Shares Underlying Warrants on Issuance Date | | Shares Issued upon Warrant Exercises as of March 31, 2023 | | Shares Underlying Warrants Outstanding as of March 31, 2023 |
Series 2020-A Warrants (1) | 7/6/2020 | | 7/6/2025 | | $ | 0.60 | | | 30,000,000 | | | 29,914,069 | | | 85,931 | |
Series 2022-A Warrants (1) | 6/8/2022 | | 6/7/2027 | | $ | 4.37 | | | 33,333,336 | | | — | | | 33,333,336 | |
Total Warrants | | | | | | | 63,333,336 | | | 29,914,069 | | | 33,419,267 | |
(1)Equity-classified warrants.
During the three months ended March 31, 2023, no warrants were exercised.
19.Segments
Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company's chiefCompany’s Chief Executive Officer is the CODM. The CODM reviews financial information presented on a consolidated basis for purposes of making operating decision maker is provided withdecisions, allocating resources, and reviews a monthly executive package which separately identifies its business segments based on the nature of the products and services offered through each of its consolidated legal entities. In January 2021, the Company began to separately identify the Renewable Natural Gas Segment in the monthly executive package.evaluating financial performance. As such, management has determined that the Company has determined that it haorganized its operations and activities intos 3 operati three reportable ng segments: (i) Gevo segment; (ii) Agri-Energy segment; and (iii) Renewable Natural Gas segment. Transactions between segments are eliminated in consolidation.
Gevo segment. The Gevo segment is responsible for all research and development activities related to transforming renewable energy into energy-dense liquid hydrocarbons that can be used as renewable fuels, such as SAF, with the future production of SAF,potential to achieve a “net-zero” greenhouse gas ("GHG") footprint; commercial opportunities for other renewable hydrocarbon products, such as hydrocarbons for gasoline blendstocks and diesel fuel; ingredients for the chemical industry, such as ethylene and butenes; plastics and materials; and other chemicals. The Gevo segment also develops, maintains and protects its intellectual property portfolio, provides corporate oversight services, and is responsible for development and construction of our Net-Zero projects.Projects.
Agri-Energy segment. The Agri-Energy segment is currently responsible for the operation of the Company’s Luverne Facility and the development and optimization of the production of isobutanol, ethanol and related products.
Renewable natural gasNatural Gas segment. The Renewable Natural Gas segment produces low-carbonpipeline quality methane gas captured from manure for the production of RNG.dairy cow manure.
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Revenues: | | | | | | | |
Gevo | $ | 63 | | | $ | 13 | | | | | |
Agri-Energy | 169 | | | 80 | | | | | |
Renewable Natural Gas | — | | | — | | | | | |
| | | | | | | |
Consolidated | $ | 232 | | | $ | 93 | | | | | |
| | | | | | | |
Loss from operations: | | | | | | | |
Gevo | $ | (12,124) | | | $ | (7,763) | | | | | |
Agri-Energy | (3,808) | | | (2,047) | | | | | |
Renewable Natural Gas | (23) | | | (68) | | | | | |
| | | | | | | |
Consolidated | $ | (15,955) | | | $ | (9,878) | | | | | |
| | | | | | | |
Acquisitions of patents, plant, property and equipment: | | | | | | | |
Gevo | $ | 4,438 | | | $ | 253 | | | | | |
Agri-Energy | 3,947 | | | 10 | | | | | |
Renewable Natural Gas | 10,393 | | | 5,169 | | | | | |
| | | | | | | |
Consolidated | $ | 18,778 | | | $ | 5,432 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Three Months Ended March 31, 2023 |
| Gevo | | Agri-Energy | | Renewable Natural Gas | | Consolidated |
Revenues | $ | 397 | | | $ | — | | | $ | 3,663 | | | $ | 4,060 | |
Loss from Operations | $ | (15,499) | | | $ | (3,147) | | | $ | (2,211) | | | $ | (20,857) | |
Acquisitions of patents, plant, property and equipment | $ | 9,977 | | | $ | — | | | $ | 1,457 | | | $ | 11,434 | |
| | | | | | | |
| Three Months Ended March 31, 2022 |
| Gevo | | Agri-Energy | | Renewable Natural Gas | | Consolidated |
Revenues | $ | 63 | | | $ | 169 | | | $ | — | | | $ | 232 | |
Loss from Operations | $ | (12,124) | | | $ | (3,808) | | | $ | (23) | | | $ | (15,955) | |
Acquisitions of patents, plant, property and equipment | $ | 4,438 | | | $ | 3,947 | | | $ | 10,393 | | | $ | 18,778 | |
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| | | |
Total assets | | | |
Gevo | $ | 450,048 | | | $ | 484,528 | |
Agri-Energy | 65,834 | | | 64,008 | |
Renewable Natural Gas | 122,778 | | | 117,940 | |
| | | |
Consolidated (1) | $ | 638,660 | | | $ | 666,476 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Gevo | | Agri-Energy | | Renewable Natural Gas | | Consolidated |
Total assets | $ | 560,914 | | | $ | 32,109 | | | $ | 95,671 | | | $ | 688,694 | |
| | | | | | | |
| December 31, 2022 |
| Gevo | | Agri-Energy | | Renewable Natural Gas | | Consolidated |
Total assets | $ | 573,057 | | | $ | 34,440 | | | $ | 93,251 | | | $ | 700,748 | |
GEVO, INC.
Notes to Consolidated Financial Statements
(unaudited)
19.20.Subsequent Events
Recent Agreements. On May 5, 2023, Gevo entered into a Side Agreement (the "Side Agreement") with Axens, which modifies the exclusivity provisions contained in the Company's existing agreement with Axens, permitting Axens to provide certain services and grant certain licenses relating to the conversion of ethanol to hydrocarbons fuels via dehydration, oligomerization, and saturation in certain areas of the Midwest to Phillips 66 Company (“P66”), Archer-Daniels-Midland Company (“ADM” and together with P66, the "Potential Partners"), or a joint venture entity between ADM and P66 (the "JV"). In connection with the Side Agreement, and as consideration for Gevo to share Axens’ technology with P66 and ADM, Gevo, P66 and ADM entered into a Technology Access Agreement, dated as of May 5, 2023 (the “TAA”). As consideration for Gevo entering into the TAA and the Side Agreement, the Potential Partners shall cause the applicable JV to pay Gevo certain milestone payments in connection with the development and production of the hydrocarbon fuels, expected to equal to $50 million if all milestones are achieved. Additionally, the Potential Partners will cause the applicable JV to make royalty payments to Gevo on such renewable hydrocarbons produced during a certain period (subject to a cap) and described in the TAA. The royalty payments are expected to equal at least $75 million if certain conditions and production milestones are achieved.
LG Chem Agreement. In April 2022,2023, Gevo signed an amendment to its Fuel Supply Agreemententered into a joint development agreement with Rock River Jerseys, LLCLG Chem, Ltd. ("RRJ"LG Chem") to reimburse RRJdevelop bio-propylene for partrenewable chemicals using Gevo’s Ethanol-to-Olefins ("ETO") technology. Under the terms of the costagreement, Gevo will provide the core enabling technology it has developed for renewable olefins to installbe produced from low-carbon ethanol and operate covers fortogether the lagoons atparties will collaborate to accelerate the RRJ dairy. This will allow Gevo to optimize efficienciespilot research, technical scale-up, and could significantly improve the carbon intensity score at NW Iowa RNG. The Company's estimated sharecommercialization of the total capital cost for the improvements is approximately $1.9 million. The installationbio-propylene. LG Chem is expected to be completed earlybear all scale-up costs for chemicals, in addition to remitting certain payments to Gevo of $1.3 million in the thirdsecond quarter of 2022.2023, and $1.2 million over the next two years to help defray a portion of the costs associated with the joint development efforts.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used anywhere in this Report, the words “expect,” “believe,” “anticipate,” “estimate,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements. These statements relate to future events or our future financial or operational performance and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. These forward-looking statements include, among other things, statements about: the impact of the novel coronavirus ("COVID-19") pandemic on our business, our financial condition, our results of operation and liquidity, our ability to finance, develop, and construct our Net-Zero 1 ProjectProjects (as defined below), as well as other growth projects, our ability to produce our products, at our demonstration facility in Luverne, Minnesota (the “Luverne Facility”) or elsewhere, our ability to meet production, financial and operational guidance, our strategy to pursue low-carbon or "net-zero" carbon renewable fuels for sale into California and elsewhere, our ability to replace our fossil-based energy sources with renewable energy sources at our Net-Zero 1 Project, our Luverne FacilityProjects and elsewhere, our ability and plans to construct a greenfield commercial hydrocarbon facilityfacilities to produce sustainable aviation fuel ("SAF") and renewable premium gasoline/isooctane,other products, our ability to raise additional funds to finance our business, our ability to perform under our existing off-takeofftake agreements and other supplysales agreements we may enter into in the future, our ability to successfully construct and operate our renewable natural gas, also known as biogas ("RNG") projectfacilities in Iowa, our ability to produce renewable hydrocarbon products at a commercial level and at a profit, the availability of, and market prices for, government economic incentives to the renewable energy market, achievement of advances in our technology platform, the availability of suitable and cost-competitive feedstocks, our ability to gain market acceptance for our products, the expected cost-competitiveness and relative performance attributes of our products, our strategy to pursue alcohol-to-SAF development and production, additional competition and changes in economic conditions and the future price and volatility of petroleum and products derived from petroleum. Important factors could cause actual results to differ materially from those indicated or implied by forward-looking statements such as those contained in documents we have filed with the United States ("U.S.") Securities and Exchange Commission (the “SEC”), including this Report in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our Annual Report on Form 10-K for the year ended December 31, 20212022 (our “2021“2022 Annual Report”), including Item 1A. "Risk Factors" of our 20212022 Annual Report and subsequent reports on Form 10-Q. All forward-looking statements in this Report are qualified entirely by the cautionary statements included in this Report and such other filings. These risks and uncertainties or other important factors could cause actual results to differ materially from results expressed or implied by forward-looking statements contained in this Report. These forward-looking statements speak only as of the date of this Report. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, and readers should not rely on the forward-looking statements as representing the Company’s views as of any date subsequent to the date of the filing of this Report.
Unless the context requires otherwise, in this Report the terms "Gevo", “we,” “us,” “our” and the “Company” refer to Gevo, Inc. and its wholly owned, direct and indirect subsidiaries.
The following discussion should be read in conjunction with our unaudited consolidated financial statements and the related notes and other financial information appearing elsewhere in this Report. Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including, without limitation, the disclosures in our 20212022 Annual Report.
Company Overview
Gevo, Inc. (Nasdaq: GEVO), a Delaware corporation founded in 2005, is a growth-oriented company with the mission of solving the problem of greenhouse gas emissions for those sectors of the transportation industry that are not amenable to electrification or hydrogen. We believe that the market size for hydrocarbon fuels will continue to remain significant in the long-term even with the rapid adoption of electric vehicles and hydrogen technologies. We also believe that we can achieve at least one billion gallons of hydrocarbon production and sales by 2030.
We are focused on transforming renewable energy into energy-dense liquid hydrocarbons that can be used as renewable fuels, such as SAF, with the potential to achieve a “net-zero” greenhouse gas ("GHG") footprint. We believe
that this addresses the global need of reducing GHG emissions with "drop in" sustainable alternatives to petroleum fuels. We use the Argonne National Laboratory’s GREET (GreenhouseGreenhouse gases, Regulated Emissions, and Energy use in Transportation)Transportation model (the "GREET Model") to measure, predict and verify GHG emissions across the life cyclelife-cycle of our products. The "net-zero"Our “net-zero” concept means that we expect to producethe production of drop-in hydrocarbon fuels that could haveby using sustainably grown feedstocks (e.g., low till, no-till and dry corn cultivation), renewable and substantially decarbonized energy sources, resulting in a net-zero carbon neutral or net-zero GHG footprint acrossfrom the whole of thefull life cycle of the fuel measured from the capture of renewable carbon through production, and subsequentthe burning of the fuel in, for example, a jet engine.fuel.
Our primary market focus, given current demand and growing customer interest, is SAF. We believe that we also have additional commercial opportunities for other renewable hydrocarbon products, such as RNG; hydrocarbons for gasoline blendstocks and diesel fuel; ingredients for the chemical industry, such as ethylene and butenes; plastics and materials; and other chemicals. The global fuel consumption by commercial airlines was an all-time high of 95 billion gallons in 2019. However, duecontinues to the COVID-19 pandemic,remain strong, with global fuel consumption dropped toin the past few years ranging from 52 billion gallons in 2020 and reached 57to 60 billion gallons in 2021.gallons.
We believe that there is a growing and significant market demand for SAF production generally based on a number of factors, including:
| | | | | | |
| ● | The Biden administration launched a new Sustainable Aviation Fuel Grand Challenge (the "Challenge") to meet the demand for sustainable aviation fuels by working with stakeholders to reduce costs, enhance sustainability, and expand production and use of sustainable aviation fuels which achieve a minimum of a 50% reduction in life cycle GHGs compared to conventional fuel. In addition, the Challenge will adopt the goal of supplying at least 3 billion gallons of SAF per year by 2030 and, by 2050, sufficient SAF to meet 100% of aviation fuel demand, which is currently projected to be around 35 billion gallons per year. |
| ● | The International Air Transport Association ("IATA") 77th Annual General Meeting approved a resolution for the global air transport industry to achieve net-zero carbon emissions by the year 2050. IATA has 288302 airline members, including Alaska Airlines, American Airlines, Delta Air Lines, FedEx Express, United Airlines and UPS Airlines. |
| ● | Starting on March 1, 2020, Delta Air Lines committed to spending $1 billion over the next 10 years on itsthrough 2030 with an objective aroundof mitigating emissions from its global business going forward. Delta will invest in driving innovation, advancing clean air travel technologies, accelerating the reduction of carbon emissions and waste, and establishing new projects to mitigate the balance of emissions. |
| ● | The oneworld® alliance committed to a target of 10% SAF use across the alliance by 2030 and plans to reach net zeronet-zero emissions by 2050. |
| ● | The World Economic Forum's Clean Skies for Tomorrow Coalition, a group of airlines, airports, fuel suppliers and other industry stakeholders working to advance the transition to net-zero flying, has announced a joint goal to achieve a blend of 10% SAF in global jet fuel by 2050. |
We believe that we possess the technology and know-howability to convert various carbohydrate feedsfeedstocks through a fermentation process into alcohols and then transform the alcohols into renewable fuels and materials.materials, through a combination of licensing of technology and engineering from third parties, and our own technology, know-how, and engineering. While we expect our first major capital deployments to focus on the production of SAF, we recognize that there are opportunities to operate in several different renewable fuels and materials markets and we will pursue those opportunities when appropriate based on customer interest, access to capital, and expected investment returns.
Our SAF production processes useprocess uses carbohydrates as a feedstock. Carbohydrates are plant matter that result from photosynthesis. Photosynthesis is the natural process by which carbon dioxide is captured from the air by plants. The carbon in carbohydrates is therefore renewable because itits source is already incarbon dioxide from the atmosphere. The carbohydrates are fermented to produce alcoholalcohol-based intermediate products (e.g., ethanol or isobutanol). The alcohol-based intermediates are then chemically processed to make renewable hydrocarbons. To achieve net-zero carbon intensity ("CI") across the whole life cycle of the products, we believe:
| | | | | | |
| ● | carbohydrates with a low CI score must be used in production; |
| ● | the energy (electricity and heat source) used in production must be de-fossilized; and |
| ● | the products cannot contain fossil-based carbon. |
We believe sustainably grown industrial field corn (i.e.(e.g., corn that is grown with precision agricultural techniques and low-till or no till cultivation to conserve nutrients, prevent water runoff, and erosion) is a goodthe best feedstock to commercialize for SAF initially because:
| | | | | | |
| ● | it produces a significant amount of protein and vegetable oil for nutritional products on a per acre basis while also producing an abundance of low CI carbohydrates that can be captured and used as a feedstock for fuels and chemicals; |
| ● | the protein and oil that are produced arecan be easily separated and sold as co-products into the food chain markets. The protein and oil revenue serves to offset the cost of the corn feedstock; |
| ● | we believe that the carbon footprint of growing corn can be negative, according to calculations completed with the GREET Model, when a full suite of climate-smart agricultural practices areis employed on appropriate acres of cropland.cropland; |
| ● | we believe the corn can achieve lower CI scores when grown with climate-smart agricultural techniques than waste raw materials or wood; and |
| ● | we believe that residual carbohydrates from corn are the lowest cost carbohydrates available as a renewable raw material, and the production is proven and scalable. |
We believe that utilizing sustainable agriculture practices to help solve GHG problems is a breakthrough that addresses the problem of GHGs without compromising sustainability or food supply. We also believe that it will be possible to create an incentive structure that rewards farmers to lower the CI score of their agricultural products and create a cycle of continuous improvement to their overall sustainability footprint.
Net-Zero Projects
In early 2021, we announced the concept of “Net-Zero Projects”"Net-Zero Projects" as a series of planned facilities to produce energy dense liquid hydrocarbons using renewable energy and our proprietary technology. The concept of a Net-Zero Project is to convert renewable energy (e.g., photosynthetic, wind, renewable natural gas, biogas) from a variety of sources into energy dense liquid hydrocarbons that, when burnedAs announced in traditional engines, have the potential to achieve net-zero GHG emissions across the whole lifecycle of the liquid fuel: from the way carbon is captured from the atmosphere, processed to make liquid fuel products,February 2022, and including the end use (burning as a result of our agreement and relationship with Axens North America, Inc. (“Axens”), Gevo made the decision to utilize Axens’ ethanol fermentation technology instead of our proprietary isobutanol fermentation technology to produce sustainable aviation fuel for cars, planes, trucks and ships).other renewable hydrocarbon products in our Net-Zero Projects.
We announced that ourOur initial Net-Zero project (“Project, Net-Zero 1 Project"("NZ1"), is currently plannedexpected to be constructed atlocated in Lake Preston, South Dakota. We expect that the Net-Zero 1 Project will have the capabilityDakota, and is being currently designed to produce approximately 65 million gallons per year ("MGPY") of total hydrocarbon volumes, including 60 MGPY of SAF, which would fulfill part of our approximately 400 MGPY of SAF and hydrocarbon supply agreements. The liquid hydrocarbons, that when burned, are expected to have a “net-zero” GHG footprint. We currently expect the Net-Zero 1 Project to have a capacity of approximately 60 MGPY of hydrocarbonsAlong with the majority being SAF, along with naphtha and diesel blendstocks. All of the production for the Net-Zero 1 Projecthydrocarbons, NZ1 is backed by our current portfolio of take-or-pay contracts. Along with hydrocarbons, we expectexpected to produce approximately 4201,390 million pounds per year of high-value protein products for use in the food chain and more than 3034 million pounds per year of corn oil. Significant progress has been made to date on site development, engineering of the facility, and permitting. Our products will be produced in two stages. Thethree steps: the first stage involvesstep is milling the corn to produce the carbohydrates needed for the production of SAF while simultaneously enabling the production of protein and oil; the second step produces alcohols production by fermentationusing carbohydrate-based fermentation; and the second stagethird step is the conversion of suchthe alcohols into hydrocarbons. We have been working with Axens North America, Inc. ("Axens") to engineer the alcohols-to-hydrocarbon side of the production facility given their extensive commercial experience with their process and the performance guarantees that cover the entire alcohol-to-hydrocarbon process. The fermentation side of the production facility is being engineered with companies that have extensive experience in fermentation and ag-based facilities. We also expect to execute contracts to supply wind power and green hydrogen to the plant as well as to operate a wastewater treatment plant, which is expected to generate a significant amount of biogas. We expect to select an Engineering, Procurement, and Construction company by the end of the year to lead the construction phase of the Net-Zero 1 Project. We also expect to begin purchasing long lead time equipment later this year to enable completion of the facility in 2025. We are preparing for other major milestones such as site acquisition, preparation and construction work. Engineering work is on track, and we expect to break ground in late 2022, with the target completion date for the plant in 2025. In addition, substantial due diligence work is being performed on the next Net-Zero Projects, including review of potential sites against project criteria.
Alcohols-to-SAF Strategy
Alcohols can be converted to hydrocarbon products with catalytic chemical processing techniques analogous to those used in the petrochemical industry. In October 2021, we signed an agreement with Axens for their technology on this process since they have already scaled it up and they have licensed it to many commercial production facilities. The agreement establishes a strategic alliance aimed at accelerating the commercialization of sustainable alcohol-to-SAF projects in the United States. As part of the alliance, Axens brings technologies with over 60 related patents, engineering packages, proprietary catalysts and certain proprietary equipment required to convert alcohols into SAF and they will provide certain process guarantees to us.
Luverne Facility
The Luverne Facility was originally constructed in 1998 and is located on approximately 55 acres of land, which contains approximately 50,000 square feet of building space. The Luverne Facility continues to provide valuable knowledge and experience for the future strategic growth of the Company and its billion-gallon initiative. As a development site, operations will continue to be tailored to support a focus on advancing our technology, testing and optimizing alternative feedstocks, yeast strains, and unit operations as well as partnership development for integrated GHG reductions. It is well equipped and positioned for optimization of the decarbonization and business circuits from feedstock to energy solutions. The site provides a unique opportunity to showcase our decarbonization and business systems and raise awareness for future partnerships, investors, and local communities.
We have an exclusive license in the U.S. from Axens to the technology and plant designs to convert alcohols to hydrocarbon fuels. Axens will also provide certain process guarantees for our production process. Additionally, Axens has extensive commercial experience in the technology, design, and deployment of the unit operations needed to convert alcohols to hydrocarbon fuels, based on their experience in the petrochemical industry. The fermentation side of the facility is being engineered with Fluid Quip Technologies, who has extensive experience in fermentation and agriculture-based facilities. We believe that by using known commercial technologies, the plant design risk is substantially decreased.
The NZ1 project development is proceeding and engineering work for NZ1 continues. Based on current information, the installed cost for NZ1 is currently forecasted to be approximately $850 million, excluding certain contingencies and financing costs. Upon receiving an invitation from the U.S. Department of Energy ("DOE"), we submitted The Part Two Application for a DOE loan guarantee for a direct lending from Federal Financing Bank. This DOE guarantee lending facility is expected to offer the lowest cost of debt for the project.
We currently expect to finance the construction of NZ1 at the subsidiary level using a combination of our own capital and third-party capital. The Company expects to retain a carried equity interest in the project and may invest equity in the project using the proceeds from the reimbursement of the Company’s NZ1 development expenditures. Cash distributions from future NZ1 earnings would be proportionate to Gevo’s minority ownership in NZ1 under this expected financing structure which would allow us to conserve and redeploy our capital on other growth projects, including our Net-Zero 2 project ("NZ2"). We currently expect to apply similar development and financing approaches to NZ2 and future Net-Zero Projects to enable growth of SAF production to meet demand for SAF.
In order to achieve full construction financing for NZ1, we need to secure third-party equity and debt. Given the current interest rate environment and general macroeconomic conditions, a DOE-guaranteed loan is our most attractive debt option. We expect that obtaining a DOE-guaranteed loan will have the benefit of reducing the overall amount of equity required to finance NZ1 and should result in higher project equity returns for investors which should increase the likelihood of Gevo successfully financing NZ1. However, the DOE loan application process is expected to carry into 2024. We expect that our NZ1 plant start-up date will occur twenty-four to thirty months after the financing of NZ1 closes, the timing of which is uncertain. In parallel with the DOE-guaranteed loan process, we continue to explore financing NZ1 without the benefit of the DOE-guaranteed loan.
We are doing extra engineering work on the NZ1 plant design with a focus on increasing the modularization of its component parts. This means that we expect that the process equipment would be built into modules at a factory, then the modules would be assembled onsite at NZ1, with the goal of minimizing specialized field work typical in plant construction of this type. This approach is expected to help de-risk the cost of, and access to, skilled labor at the site and reduce the supply chain constrictions for some of our long-lead equipment. Increasing the modularization of the plant design is also expected to reduce our spend in advance of securing a third-party equity investor in NZ1.
We are evaluating and performing early site development work at several sites in the U.S. for our second Net-Zero Project, NZ2. These sites include several greenfield locations that are particularly advantageous in terms of potential economics, opportunities to decarbonize, and time to market. In addition, we are pursuing potential Net-Zero Projects with several existing ethanol plant sites. Existing ethanol plants need to be decarbonized with renewable energy or de-fossilized energy and/or carbon sequestration. Gevo has developed a preferred list of potential partners and sites with decarbonization in mind and is engaged in preliminary feasibility and development discussions with several of these potential partners. We plan to give priority to existing industrial plant sites that have attractive potential economics and high predictability of timeline for decarbonization.
Renewable Natural Gas Projects
Facilities
We are developing RNG and biogas projects to generate incremental profit and to create a long-term option to potentially supply RNG to our Net-Zero Projects as part of our long-term strategy to decarbonize SAF and other hydrocarbon fuels.
In 2019, we began developing our first RNG projects. Manure can befacilities in northwest Iowa, which were substantially completed in 2022. Animal manure is digested anaerobically to produce biogas, which is then upgraded to pipeline quality RNG. RNG has value in markets such as California when injected and shipped through a natural gas pipeline. There is also value to Gevo’sas well as in our hydrocarbon production process by givinghelping us another option to achieve carbon negative GHG emissions on our renewable hydrocarbon products. The hydrocarbonend products resulting from such a decarbonization process have lower CI scores and increased market
value, in addition to having a more positive impact on the environment.Our dairy farm partners realize a variety of benefits including improved operational and environmental compliance options. These services facilitate long-term relationships with project hosts that may serve as a source for future projects and relationships.
We developed Gevo's initial RNG project, in Northwest Iowa (“Gevo NW Iowa RNG”RNG, LLC ("Gevo RNG"), was developed to generate RNG captured from dairy cow manure which will beis supplied by three dairies located in Northwest Iowa totaling over 20,000 milking cows. We completed mostfinanced the construction of the Gevo RNG project in April 2021 with the $68,155,000 of Solid Waste Facility Revenue Bonds (Gevo NW Iowa RNG, LLC Renewable Natural Gas Project), Series 2021 (Green Bonds) (the "2021 Bonds") issued by the Iowa Finance Authority in a public offering for the benefit of Gevo RNG and we commenced construction efforts atin April 2021. See Note 13 to the end of 2021. Consolidated Financial Statements for further detail.
In January 2022, weGevo RNG began the process of bringing it online. All of the digesters are currently in the start-up phaseoperations and are expected to reach steady production levelslate in the second quarter of 2022.
When fully operational, NW Iowa2022, began producing biogas. We have been ramping up its production of biogas since the third quarter of 2022, upgrading raw biogas to RNG, is expectedand the injection of RNG into an interconnected natural gas pipeline. The Gevo RNG project was initially designed to generate approximatelyup to 355,000 MMBtu of RNG per year. We expect to sell thishave made incremental improvements and optimizations at Gevo RNG into the California market under the dispensing agreements BP Canada Energy Marketing Corp. and BP Products North America Inc. (collectively, “BP”) has in place with Clean Energy Fuels Corp. The majority of the revenues are expected to commence in late 2022 or early in 2023 and will be derived from two main components. The first component consists of the sales of RNG and the second component consists of the environmental attributes associated with the RNG sales, including the attributes available from California’s Low Carbon Fuel Standard ("LCFS") program and the U.S. Environmental Protection Agency’s Renewable Fuels Standard ("RFS"). LCFS and RFS are state and federal programs, respectively, that provide incentives for the supply of low carbon renewable fuels in California and in the United States.
We are also planning to make improvements to this RNG project by investing in capital projects that may significantlyare expected to improve its CI score and revenue, whichexpand its potential capacity to approximately 400,000 MMBtu of production capacity. It typically takes 12 months or longer for the project to ramp up to our expected production level, therefore, the production levels this year are expected to be lower at approximately 275,000-300,000 MMBtu.
Gevo was granted registration approval by the EPA in turn strengthen2022, allowing us to participate in its Renewable Fuel Standard Program (“RFS Program”) to receive renewable identification numbers ("RINs"). During the overall economicsfirst quarter of the project. Gevo’s current estimated share of the capital cost2023, we received approval for those improvements is approximately $1.9 million.a temporary pathway under California's Low Carbon Fuel Standard (“LCFS”) program. We expect to continue realizing substantial sales for our environmental attributes, for both LCFS's and RINs in 2023.
We have strong relationships throughout the industry supply chain from technology and equipment providers to feedstock owners, and RNG off-takers. We believe that the trust and strong reputation we have attained in the RNG industry, in combination with our understanding of the various and complex environmental attributes, gives us a competitive advantage. We intend to leverage our relationships to identify and execute new project opportunities. Typically, new development opportunities come from our existing relationships with dairy owners who value our strong reputation in the industry.
We exercise financial discipline in pursuing projects by targeting attractive risk-adjusted project returns, whether selling RNG into the markets or using it to lower CI scores at our Net-Zero Projects. We will monitor biogas supply availability across our portfolio and seek to maximize our production at existing projects by expanding operations when economically feasible.
Verity and Carbon TrackingSolutions
Capturing and accurately counting carbon data across the whole of the business systemIt is a critical part of Gevo’s business model, andthat we can prove the CI scores across the whole of the carbon lifecycle, from feedstock through the burningour products, ensuring that these values are accurate and auditable. The mission of fuels. Through the use of the GREET Model and a field level approach using Verity Tracking, our goal is to obtain carbon credits for the improved agricultural practices related to climate smart agriculture such as precision agriculture and tillage practices (i.e.Carbon Solutions ("VCS"), low till and no-till cultivation). We believe there is an opportunity to document, verify, and monetize that carbon value which is not otherwise counted and reward value chain partners, including farmers, for improving sustainability. Gevo’s current economic projections do not take into account this upside in value.
Verity Tracking, is a joint venture between Gevo and Blocksize Capital GmbH to develop and commercialize carbon valuedocument CI and other sustainable attributes. Verity has developedsustainability attributes, and will continue to develop a proprietary platform based onthen apply Distributed Ledger Technology, (“DLT” commonly referred to as the blockchain, to create a record of the products throughout the entire business system. VCS would start from calculating carbon intensity of feedstocks from data collected at the farm and field level. We plan to track these feedstocks through production at our plants where we intend to use a mix of renewable electricity, biogas, renewable hydrogen and other potentially decarbonized energy sources in production. The CI data would then be combined to deliver a comprehensive CI reduction in a finished renewable fuel. The resulting CI reduction value has potential to be quantified, sold and/or commonly called “blockchain”). Veritytraded in voluntary or compliance carbon markets while preventing double-counting. We believe that in the future, agricultural practices have the potential to sequester large quantities of CO2 as soil organic carbon. VCS intends to document and account for that capture in conjunction with scientifically supported measurement techniques. The potential for VCS is broad and could be applicable to tracking the CI of various items, including, but not limited to, renewable fuels, food, feed and industrial products through the entire business system and value chain. In March 2023, we entered into a joint development framework agreement with Southwest Iowa Renewable Energy which will focus on implementing VCS technology and developing the capability to track sustainability attributes such asmarket for carbon reductions through a value chain with the utmost data security, audit capabilities and immutability. In addition, Verity will have the ability to work with all aspects of value chain decarbonization and create a
path for monetization of that carbon reduction, through processes such as “tokenization.” Verity and Gevo have recently partnered with Farmers Edge Inc. ("Farmers Edge"), a company dedicated to helping farmers track data and improve agricultural decision making. As of December 31, 2021, Farmers Edge reported over 3,800 growers with over 18 million subscribed acres having implemented their solutions.
Gevo has begun to develop the agricultural Climate Smart Data for key farms that would supply its Net-Zero 1 plant. Gevo intends to work with Verity to accurately account for and determine value for the carbon reductions captured in feedstocks, both during fuel production and in final products,inset credits to help our customersfarmers and value chain partners achievebiofuel producers quantify the CI reductions for their sustainability goals.
Recent Developments
Delta Air Lines. On March 22, 2022, we signed a "take-or-pay" agreement with Delta Air Lines, Inc. ("Delta") to supply them with 75 MGPY of SAF for seven years. This agreement replaces the existing agreement signed with Delta in 2019 to purchase 10 MGPY and bolsters Delta's commitment to incorporating SAF into its operations.
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 resulted in 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 impacts of the COVID-19 pandemic on general economic activity could continue to negatively impact our revenue and operating results for 2022 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.
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.products.
Results of Operations
Comparison of the Three Months Ended March 31, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | Change |
Revenue and cost of goods sold |
| | | | |
Ethanol sales and related products, net | $ | 169 | | | $ | — | | | $ | 169 | |
Hydrocarbon revenue | 63 | | | 13 | | | 50 | |
Grant and other revenue | — | | | 80 | | | (80) | |
Total revenues | 232 | | | 93 | | | 139 | |
| | | | | |
Cost of production | 3,090 | | | 901 | | | 2,189 | |
Depreciation and amortization | 1,091 | | | 1,093 | | | (2) | |
Total cost of goods sold | 4,181 | | | 1,994 | | | 2,187 | |
Gross loss | (3,949) | | | (1,901) | | | (2,048) | |
| | | | | |
Operating expenses | | | | | |
Research and development expense | 1,192 | | | 1,378 | | | (186) | |
Selling, general and administrative expense | 9,367 | | | 3,814 | | | 5,553 | |
Preliminary stage project costs | 507 | | | 2,727 | | | (2,220) | |
Other operations | 589 | | | — | | | 589 | |
Depreciation and amortization | 351 | | | 58 | | | 293 | |
Total operating expenses | 12,006 | | | 7,977 | | | $ | 4,029 | |
| | | | | |
Loss from operations | (15,955) | | | (9,878) | | | (6,077) | |
| | | | | |
Other income (expense) | | | | | |
(Loss) gain from change in fair value of derivative warrant liability | — | | | (53) | | | 53 | |
Interest expense | (2) | | | (5) | | | 3 | |
Interest and dividend income | 252 | | | 31 | | | 221 | |
Other income (expense), net | 32 | | | (152) | | | 184 | |
| | | | | |
Total other income (expense), net | 282 | | | (179) | | | 461 | |
| | | | | |
Net loss | $ | (15,673) | | | $ | (10,057) | | | $ | (5,616) | |
Revenue. We sold 35 thousand gallons of SAF, isooctane and isooctene from our Luverne Minnesota development facility for the three months ended March 31, 2022. Revenue was $0.2 million for the three months ended March 31, 2022, compared to $0.1 million for the three months ended March 31, 2021, due to the temporary shutdown in 2021 related to the COVID-19 pandemic.Facility
Cost of goods sold. Cost of goods sold was $4.2 million duringIn 2022, the three months ended March 31, 2022, compared with $2.0 million during the three months ended March 31, 2021, an increase of $2.2 million. The majority of our costs are related to the production of SAF, isooctane and isooctene as we continue to develop and tailoractivities at our Luverne Facility demonstrationwere transitioned to care and maintenance, as we shifted focus to our Net Zero Projects. The workforce adjustment which resulted allowed us to retain key personnel and redeploy some resources to our NZ1 and RNG projects to provide valuable knowledge and experience for the future strategic growth of the Company. The Luverne Facility is well equipped and positioned as a development site as it provides a unique opportunity to showcase our decarbonization and business systems and raise awareness for future partnerships, investors, and local communities, even though operations at the site have been minimized. Future operations, if any, will be tailored to support oura focus on advancing our technology, testing, and optimizing alternative feedstocks and yeast strains, and unit operations as well as partnership development for integrated GHG reductions. Cost
Other Developments
Recent Agreements. On May 5, 2023, Gevo entered into a Side Agreement with Axens, which modifies the exclusivity provisions contained in the Company's existing agreement with Axens, permitting Axens to provide certain services and grant certain licenses relating to the conversion of goods sold also includesethanol to hydrocarbons fuels via dehydration, oligomerization, and saturation in certain areas of the Midwest to Phillips 66 Company (“P66”), Archer-Daniels-Midland Company (“ADM” and together with P66, the "Potential Partners"), or a $2.9joint venture entity between ADM and P66 (the "JV"). In connection with the Side Agreement, and as consideration for Gevo to share Axens’ technology with P66 and ADM, Gevo, P66 and ADM entered into a Technology Access Agreement, dated as of May 5, 2023 (the “TAA”). As consideration for Gevo entering into the TAA and the Side Agreement, the Potential Partners shall cause the applicable JV to pay Gevo certain milestone payments in connection with the development and production of the hydrocarbon fuels, expected to equal to $50 million lossif all milestones are achieved. Additionally, the Potential Partners will cause the applicable JV to make royalty payments to Gevo on such renewable hydrocarbons produced during a certain period (subject to a cap) and described in the TAA. The royalty payments are expected to equal at least $75 million if certain conditions and production milestones are achieved.
LG Chem Agreement. In April 2023, Gevo entered into a joint development agreement with LG Chem, Ltd. ("LG Chem") a leading global chemical company to develop bio-propylene for renewable chemicals using Gevo’s Ethanol-to-Olefins ("ETO") technology. Gevo’s proprietary ETO technology can target carbon neutral or carbon negative drop-in replacements for traditional petroleum-based building blocks called olefins, including bio-propylene, that can be used for renewable chemicals or fuels including sustainable aviation fuel. These plant-based, renewable olefins would be derived from atmospheric CO2 captured through photosynthesis and are expected to deliver the same performance in final products on the market today. Under the terms of the agreement, Gevo will provide the core enabling technology it has developed for renewable olefins to be produced from low-carbon ethanol and together the parties will collaborate to accelerate the pilot research, technical scale-up, and commercialization of bio-propylene. LG Chem is expected to bear all scale-up costs for chemicals, in addition to remitting certain payments to Gevo of $1.3 million in the second quarter of 2023, and $1.2 million over the next two years to help defray costs associated with the joint development efforts. In addition to this $2.5 million from the joint development agreement, LG Chem agreed to make certain payments to Gevo upon commencement of commercialization as follows:
•$5 million upon commencement of commercialization, to be paid ratably over a net realizable value adjustment madeperiod of five years
•1% royalty on Net Sales for the first production facility beginning six years from commercial operation
•1% royalty on Net Sales for all subsequent production facilities upon commencement of operations
U.S. Department of Agriculture. In September 2022, the U.S. Department of Agriculture tentatively selected Gevo’s Climate-Smart Farm to Flight proposal for funding with an award ceiling of up to $30 million, subject to negotiation of definitive award agreements in the coming months. The project aims to create critical structural climate-smart market incentives for low CI corn as well as to accelerate the production of SAF to reduce the sector’s dependency on fossil-based fuels. In addition, this program will help provide support and incentive payments for farmers to produce, measure, report and verify low CI corn using climate smart agricultural practices, as well as accelerate development of the low-CI corn supply chain for low-carbon ethanol and SAF. We continue to negotiate the definitive award agreement and expect it to be completed in second quarter of 2023 with project activity beginning for the 2023 crop year.
Key Operating Metrics
Total operating revenues reflect both sales of RNG and sales of related environmental attributes. As a result, our finished goodsrevenues are primarily affected by RNG production volume, generation of environmental attributes, and work in process inventory. There were no net realizable losses recordedthe average realized prices for such products. The following table summarizes the key operating metrics, specifically for the Renewable Natural Gas Segment, which we use to measure performance:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Three Months Ended December 31, | | | | |
(in thousands, unless otherwise indicated) | 2023 | | 2022 | | Change | | Change % |
Revenues | | | | | | | |
Natural gas commodity | $ | 130 | | | $ | 330 | | | $ | (200) | | | (61) | % |
Natural gas environmental attributes - RINs | 2,730 | | | 214 | | | 2,516 | | | 1,176 | % |
Natural gas environmental attributes - LCFS | 803 | | | — | | | 803 | | | 100 | % |
Total revenues | $ | 3,663 | | | $ | 544 | | | $ | 3,119 | | | |
Production expenses (1) | $ | 3,885 | | | $ | 4,044 | | | $ | (159) | | | (4) | % |
RNG metrics | | | | | | | |
RNG production volumes (MMBtu) | 64 | | | 62 | | | 2 | | | 3 | % |
Plus: prior period RNG volumes dispensed in current period | 116 | | | 63 | | | 53 | | | 84 | % |
Less: RNG production volumes not dispensed | (64) | | | (116) | | | 52 | | | (45) | % |
Total RNG volumes available for RIN and LCFS generation (2) | 116 | | | 9 | | | 107 | | | |
RIN Metrics | | | | | | | |
RIN generation (3) | 1,356 | | | 100 | | | 1,256 | | | 1,256 | % |
| | | | | | | |
Plus: Prior period RINs | — | | | 1 | | | (1) | | | (100) | % |
| | | | | | | |
Total RINs available for sale | 1,356 | | | 101 | | | 1,255 | | | 1,243 | % |
Less: RINs sold | (1,356) | | | (101) | | | (1,255) | | | 1,243 | % |
RIN inventory | — | | | — | | | — | | | |
RNG volumes not dispensed for RINs (MMBtu) (4) | 64 | | | 116 | | | (52) | | | (45) | % |
Average realized RIN price (5) | $ | 2.01 | | | $ | 2.13 | | | $ | (0.12) | | | (6) | % |
LCFS metrics | | | | | | | |
LCFS generation (6) | 14 | | | — | | | 14 | | | 100 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Less: LCFS sold | (14) | | | — | | | (14) | | | 100 | % |
LCFS inventory | — | | | — | | | — | | | |
RNG volumes not dispensed for LCFS (MMBtu) | 64 | | | 116 | | | (52) | | | (45) | % |
Average realized LCFS price (5) | $ | 55.36 | | | $ | — | | | $ | 55.36 | | | 100 | % |
(1)Higher per unit cost reflects lower production volumes during the commissioning and ramp-up period which can take up 12 months or longer.
(2)Represents gas production which has not been dispensed to generate RINs and LCFS.
(3)RINs are generally generated in the month following the gas being dispensed.
(4)One MMBtu of RNG has approximately the same energy content as 11.727 gallons of ethanol, and thus may generate 11.727 RINs under the RFS Program.
(5)Realized prices for environmental attributes are net of third-party commissions and thus do not correspond directly to index prices.
(6)LCFS credits are generally generated in the calendar quarter following the gas being dispensed.
Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | |
(in thousands) | 2023 | | 2022 | | Change | | Change % |
Total operating revenues | $ | 4,060 | | | $ | 232 | | | $ | 3,828 | | | 1,650 | % |
Operating expenses: | | | | | | | |
Cost of production | 4,425 | | | 3,090 | | | 1,335 | | | 43 | % |
Depreciation and amortization | 4,575 | | | 1,442 | | | 3,133 | | | 217 | % |
Research and development expense | 1,198 | | | 1,192 | | | 6 | | | 1 | % |
General and administrative expense | 10,761 | | | 9,367 | | | 1,394 | | | 15 | % |
Project development costs | 2,959 | | | 1,096 | | | 1,863 | | | 170 | % |
Facility idling costs | 999 | | | — | | | 999 | | | 100 | % |
| | | | | | | |
| | | | | | | |
Total operating expenses | 24,917 | | | 16,187 | | | 8,730 | | | |
Loss from operations | (20,857) | | | (15,955) | | | (4,902) | | | |
Other income (expense) | | | | | | | |
Interest expense | (539) | | | (2) | | | (537) | | | 26,850 | % |
Investment income | 3,067 | | | 252 | | | 2,815 | | | 1,117 | % |
Other income, net | 711 | | | 32 | | | 679 | | | 2,122 | % |
Total other income, net | 3,239 | | | 282 | | | 2,957 | | | |
Net loss | $ | (17,618) | | | $ | (15,673) | | | $ | (1,945) | | | |
Operating revenue. During the three months ended March 31, 2021,2023, operating revenue increased $3.8 million compared to the three months ended March 31, 2022, primarily due sales of natural gas from our RNG Project. During the three months ended March 31, 2023, we sold 63,846 MMBtu of RNG from our RNG Project, resulting in natural gas commodity sales of $0.1 million and environmental attribute sales of $3.5 million, as well as $0.4 million of isooctane.
Cost of production. Cost of production increased $1.3 million during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to the costs related to RNG production and sales, partially offset by lower costs from minimal production at the Luverne Facility compared to the three months ended March 31, 2022, before it was temporarily shut downput into care and maintenance.
Depreciation and amortization. Depreciation and amortization increased $3.1 million during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to additional depreciation for RNG assets placed into service in 2022 and accelerated depreciation on Agri-Energy segment assets due to shorter lives stemming from the COVID-19 pandemic.impairment assessment during the third quarter of 2022.
Research and development expense. Research and development expense remained relatively consistentflat during the three months ended March 31, 2022,2023, compared withto the three months ended March 31, 2021.2022, an increase in patent and personnel related costs, as well as lab work and supplies related to our ETO and other technologies was offset by a reduction of consulting expenses.
Selling, generalGeneral and administrative expense. Selling, generalGeneral and administrative expense increased by $5.6$1.4 million during the three months ended March 31, 2022,2023, compared withto the three months ended March 31, 2021,2022, primarily due primarily to increases in personnel costs related to hiring of highly qualified and skilled professionals for our strategic new hiring,projects, including NZ1 and NZ2 projects, as well as VCS and DOE programs. An additional contributor to the increase was non-cash stock-based compensation and professional fees related to new contracts and higher costs for insurance.consulting fees.
Preliminary stage project
Project development costs. Preliminary stage projectProject development costs are related to our NW Iowa RNGfuture Net-Zero Projects and Net-Zero projectsVCS which consist primarily of employee expenses, preliminary engineering and consist of research andtechnical consulting costs. Project development expense in addition to selling, general and administrative expenses of the projects. Preliminary stage project costs decreased by $2.2increased $1.9 million during the three months ended March 31, 2022,2023, compared to the three months ended March 31, 2021. The decrease is mainly2022, primarily due to the fact that we began capitalizing our Net-Zero 1 projectincreases in personnel costs, in Q3 2021, after completing certain front-end engineering studiesconsulting, and determining it was probable that we would build Net-Zero 1. Net-Zero 1 and RNG related costs were expensed in Q1 2021.professional fees.
Other operations. Facility idling costs.Other Facility idling costs of $1.0 million for the three months ended March 31, 2023, is related to the care and maintenance of our Luverne Facility. We plan to utilize the Luverne Facility as a development scale plant to advance our technology and operational knowledge to help us in achieving operational success as we scale up the production and delivery of hydrocarbons and chemical products for our customers and partners.
Loss from operations costs. Our loss from operations increased by $0.6$4.9 million during the three months ended March 31, 2022,2023, compared to the three months ended March 31, 2021. During2022, primarily due to the three months ended March 31, 2022, Other operations costs were primarily related to unallocated engineeringincreased activities for our Net-Zero Projects and consulting services.VCS. See explanations for each line item above.
Depreciation and amortizationInterest expense. Depreciation and amortizationInterest expense increased $0.5 million during the three months ended March 31, 2022,2023, compared to the three months ended March 31, 2021,2022, primarily due to amortizationthe interest on the 2021 Bonds, which was capitalized into construction in process during the construction phase of our intangible assets, including patents and exclusivity fees.RNG Project in the prior periods.
(Loss) from change in fair value derivative warrant liability.Investment income. We incurred no gain (loss) from the change in the fair value of the derivative warrant liability in the three months ended March 31, 2022; the last of the liability warrants expired on February 17, 2022.
Interest expense. There were no material changes in interest expenseInvestment income increased $2.8 million during the three months ended March 31, 2022,2023, compared to the three months ended March 31, 2021.2022, primarily due to higher interest earned on our cash equivalent investments as a result of higher interest rates.
Interest and dividend income. Other incomeInterest and dividend. Other income increased by $0.2$0.7 million for the three months ended March 31, 2022,2023, compared to the three months ended March 31, 2021,2022, primarily due to thehigher interest earned on our investments partially offset by the amortizationrestricted cash balances as a result of the bond premiums.
Other income (expense). Other income (expense) during the three months ended March 31, 2022, was $0.3 million, a decrease of $0.2 million compared to the three months ended March 31, 2021, primarily due to the miscellaneous sale of consumable inventory.higher interest rates.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting estimates and policies since December 31, 2021.2022. For a description of our other critical accounting policies and estimates that affect our significant judgments and estimates used in the preparation of our consolidated financial statements, refer to “Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” contained in our 20212022 Annual Report.
Our unaudited consolidated financial statements are prepared in conformity with GAAP and require our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates, and such estimates may change if the underlying conditions or assumptions change.
Liquidity and Capital Resources
As of March 31, 2022,2023, we had cash and cash equivalents totaling $44.6of $342.3 million, shortcurrent and long-termnon-current restricted cash totaling $86.5of $77.8 million, and short and long-termshort-term marketable securities of $32.9 million, net of unrealized losses of $0.1 million, totaling $298.5$452.9 million. The in cash, cash equivalents, and marketable securities. As of March 31, 2023, we have net working capital of $360.8 million, with $25.6 million of current liabilities. Our cash equivalents primarily consist of investments in J.P Morgan U.S. government money market funds. Our marketable securities are highly liquid and can be converted to cash when needed for operations.operations, development, and construction. We expect to use our cash, cash equivalents, restricted cash and marketable securities for the following purposes: (i) identification, development, engineering, licensing, acquisition and construction of new production facilities and to plan for expanded production to fulfill existing off-takeofftake agreements includingfor NZ1 and the Company's other Net-Zero Projects; (ii) potential investment in RNG projects; (iii) potential development of the Luverne Facility; (iv) development, acquisition and operation of sustainable alcohol-to-SAF plants to produce SAF alone or with partners; (v) operating activities at the Company's corporate headquarters in Colorado, including research and development work; (vi)(v) exploration of strategic alternatives and additional financing, including project financing; and (vii)(vi) future debt service obligations. We believe as a result of our cash and cash equivalents balances, and the performance of our current and expected operations, we will be able to meet our obligations and other potential cash requirements during the next 12 months from the date of this report.
Since our inception in 2005, we have devoted most of our cash resources to the development and commercialization of isobutanolroutes to efficiently produce fuels and related productschemicals from carbohydrates, such as renewable feedstocks.feedstock, using alcohols (isobutanol and ethanol) as intermediates. We have incurred losses since inception, have a significant accumulated deficit, and expect to incur losses for the foreseeable future. We have financed our operations primarily with proceeds from the issuance of equity, andwarrants, debt securities, and borrowings under debt facilities and product sales.
The Company's transition to profitability is dependent upon, among other things, the successful development and commercialization of its product candidates, the development, acquisition and construction of additional production facilities to support that Company's off-take agreements, the achievement of a level of revenues adequate to support the Company's cost structure, and the ability to raise capital to finance the development, acquisition, and construction of additional productions facilities.
On January 27, 2022, the Company’s stockholders voted to amend the Certificate of Incorporation to increase the total number of authorized shares of common stock from 250 million shares to 500 million shares. Management intends to We may fund future operations through additional private and/or public offerings of debtequity or equitydebt securities. In addition, the Company may seek additional capital, on acceptable terms, through arrangements with strategic partners or from other sources. Notwithstanding, there can be no assurance that the Company will be able to raise additional funds or achieve or sustain profitability or positive cash flows from operations.
The Company's transition to profitability is dependent upon, among other things, the successful development and commercialization of its product candidates, the development, licensing, acquisition and construction of commercial level production facilities to support the Company's offtake agreements, the achievement of a level of revenues adequate to support the Company's cost structure, and the ability to raise capital to finance the development, licensing, acquisition, and construction of additional productions facilities.
The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| | | |
Net cash used in operating activities | $ | (12,460) | | | $ | (7,165) | |
Net cash from investing activities | $ | 7,861 | | | $ | (4,630) | |
Net cash provided by financing activities | $ | (354) | | | $ | 458,780 | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Net cash used in operating activities | $ | (19,446) | | | $ | (12,494) | |
Net cash provided by investing activities | $ | 124,183 | | | $ | 7,861 | |
Net cash used in financing activities | $ | (62) | | | $ | (320) | |
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, and other expenses for preliminary project development production of isobutanol, ethanol and related products.
activities.
During the three months ended March 31, 2022,2023, net cash used for operating activities was $12.5$19.4 million compared to $7.2$12.5 million for the three months ended March 31, 2021. During the three months ended March 31, 2022,2022. Non-cash charges primarily consisted of stock-based compensation expense of $4.7 million, depreciation and amortization of $4.6 million and other non-cash expense of $0.2 million, partially offset by non-cash amortization of discounts on marketable securities of $0.1 million. The net cash used for operating activities was $12.5 million compared to $7.2 million for the three months ended March 31, 2021. The $5.3 million decreaseoutflow from changes in operating cash flows wasassets and liabilities increased $7.4 million, primarily due to increased cash outflows of $10.5 million in prepaid expenses and other current assets due to deposits to secure long-lead equipment power transmission and distribution facilities for NZ1, and $1.2 million related to increases in accounts receivable primarily due to higher sales of environmental attributes. These were partially offset by $1.6 million of decreased costs associated with our productionthe sale of isobutanolenvironmental attribute inventory and hydrocarbon products for market development, process technology and related process engineering work. In addition, we had increases in personnel expenses to support the growth in business activity, partnership development and Verity Tracking development expenses.$2.7 million of accounts payable.
Investing Activities
During the three months ended March 31, 2022,2023, we used $7.9$124.2 million in cash for investing activities, of which $71.1$135.6 million related to proceeds from sales and maturities of marketable securities, offset by the reinvestment of $31.2 million in marketable securities, and $31.5$11.4 million of investments in our capital projects, including $18.3$1.5 million in the NW Iowa RNG project, $9.6Project, $8.0 million in the Net-Zero 1 project,for NZ1, as well as $3.2$2.0 million in development projects at Agri-Energy and Gevo.
other projects.
We completed
The NZ1 project development is proceeding with water and wind energy development agreements executed in the constructionthird quarter of 2022, and other key milestones are on track for completion in accordance with our comprehensive project plan. Based on the NW Iowa RNG projectongoing engineering work, the installed cost for NZ1 is currently forecasted to be approximately $850 million, excluding certain contingencies and may invest upfinancing costs. Upon receiving an invitation from the DOE, we submitted The Part Two Application for a DOE loan guarantee for a direct lending from Federal Financing Bank. This DOE guarantee lending facility is expected to an additional $11.4 million for start-up, improvements, and expansions duringoffer the remainderlowest cost of 2022. We currentlyplan to spend approximately $100 million for engineering, development, long-lead equipment deposits, debt financing costs, and project construction equity investment commitments over the next 12 months for the Net-Zero 1 Project.
project. In light of this route to debt financing,
we are working with our contractors to reduce our projected spend prior to financial close from our originally projected $100 million to $200 million range.
In 2022 we allocated approximately $25 million to develop our next Net-Zero Project, of which we have spent approximately $11 million. Based on our progress and discretion we anticipate spending the remaining $14 million in the next four to six months. Gevo is in the process of identifying and performing early site development work for additional SAF production locations. These potential sites include several greenfield locations that are particularly advantageous in terms of potential economics, opportunities to decarbonize, and time to market.
Financing Activities
During the three months ended March 31, 2022,2023, we used $0.4 million in cash from financing activities, which primarily consisted of $0.2 million net settlement of common stock for taxes under our stock plans andhad $0.1 million of interest onnet cash used in financing activities, primarily due to payments for finance lease liabilities and certain equipment loans.
We currently expect to finance the construction of NZ1 at the subsidiary level using third-party capital. The Company expects to retain a carried equity interest in the project and may invest additional equity in the project using the proceeds from the reimbursement of the Company's NZ1 development expenditures. Cash distributions from future NZ1 earnings would be proportionate to Gevo’s minority ownership in NZ1 under this expected financing structure which would reduce revenue to us but allow us to conserve and redeploy capital on other growth projects, including NZ2. We expect to apply similar development and financing approaches to NZ2 and future Net-Zero Projects to enable rapid growth of SAF production to meet current contractual demand for SAF.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company, we are not required to provide the information required by this Item. However, we note that we are exposed to market risks in the ordinary course of our business. These risks primarily consist of environmental attribute pricing, commodity pricing, interest rate, credit risk with our contract counterparties, and equity price risks. There have been no material changes since our disclosure in “Quantitative and Qualitative Disclosures About Market Risk” included in Part II, Item 7A of our 20212022 Annual Report.Report.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosures.
During the fiscal period covered by this report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2022,2023, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the required time periods and are designed to ensure that information required to be disclosed in our reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes that occurred during the three months ended March 31, 2022,2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we have beenA discussion of legal matters is found in Note 16, Commitments and may again become involved in legal proceedings arisingContingencies, in the ordinary course of our business. We are not presently a party to any litigation, other disputes and regulatory proceedings that we believe to be material and we are not aware of any pending or threatened proceedings against us that we believe could have a material adverse effect on our business, operating results, financial condition or cash flows.
In February 2022, an incident occurred at one of the anaerobic digesters that is part of NW Iowa RNG that resulted in the accidental discharge of a mixture of water and manure into the environment. We promptly notified the Iowa Department of Natural Resources (the "DNR") and began mitigation work to minimize the impact of the discharge. The DNR has issued a notice of violation in connection with the discharge.
In April 2022, two separate incidents occurred at two of the anaerobic digesters that are part of NW Iowa RNG that resulted in the accidental discharge of very small amounts of water and manure into the environment. The DNR has issued notices of violation in connection with the two discharges.
There is a possibility that the DNR will initiate an enforcement action with respectaccompanying Notes to the discharges described above that could resultFinancial Statements included in a monetary sanction being levied against Gevo for the accidental discharges. We do not believe that any such monetary sanctions would be material.Part I - Item 1. Financial Statements of this Report.
Item 1A. Risk Factors.
You should carefully consider the risk factors discussed in Part I, Item 1A. “Risk Factors” in our 20212022 Annual Report, which could materially affect our business, financial condition, cash flows or future results. There have been no material changes in our risk factors included in our 2022 Annual Report. The risk factors in our 20212022 Annual Report are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Purchases of equity securities by the issuer:
| | | | | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs |
| | | | | | | |
January 1, 2022 - January 31, 2022 | — | | | $ | — | | | — | | — |
February 1, 2022 - February 28, 2022 | — | | | $ | — | | | — | | — |
March 1, 2022 - March 31, 2022 (1) | 66,348 | | | $ | 3.33 | | | — | | — |
| | | | | | | |
Total | 66,348 | | | $ | 3.33 | | | — | | — |
(1)Represents shares withheld from employees to cover tax withholding obligations upon the vesting of restricted stock awards. The average prices listed in the above table are averages of the fair market prices at which we valued shares withheld for purposes of calculating the number of shares to be withheld.None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The exhibits listed below are filed or furnished as part of this report.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | Description | | Previously Filed | | Filed Herewith |
| | | | | Form | | File No. | | Filing Date | | Exhibit | | |
| 3.1 | | | | | 10-K | | 001-35073 | | February 24, 2022 | | 3.1 | | |
| 3.2 | | | | | 8-K | | 001-35073 | | November 24, 2021 | | 3.1 | | |
| 4.1 | | | | | S-1 | | 333-168792 | | January 19, 2011 | | 4.1 | | |
| 4.3 | | | | | 8-K | | 001-35073 | | July 8, 2020 | | 4.1 | | |
| 10.1 + | | | | | 8-K | | 001-35073 | | March 21, 2022 | | 10.1 | | |
| 10.2 + | | | | | 8-K | | 001-35073 | | March 22, 2022 | | 10.1 | | |
| 31.1 | | | | | | | | | | | | | X |
| 31.2 | | | | | | | | | | | | | X |
| 32.1 | | | | | | | | | | | | | ** |
| 101.INS | | | Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | | | | | | | | | | X |
| 101.SCH | | | Inline XBRL Taxonomy Extension Schema | | | | | | | | | | X |
| 101.CAL | | | Inline XBRL Taxonomy Extension Calculation Linkbase | | | | | | | | | | X |
| 101.DEF | | | Inline XBRL Taxonomy Extension Definition Linkbase | | | | | | | | | | X |
| 101.LAB | | | Inline XBRL Taxonomy Extension Label Linkbase | | | | | | | | | | X |
| 101.PRE | | | Inline XBRL Taxonomy Extension Presentation Linkbase | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | |
Exhibit No. | | Description | | Form | | File No. | | Filing Date | | Exhibit | | Filed Herewith |
| | | | | | | | | | | | |
3.1 | | | | 10-K | | 001-35073 | | February 24, 2022 | | 3.1 | | |
| | | | | | | | | | | | |
3.2 | | | | 8-K | | 001-35073 | | November 24, 2021 | | 3.1 | | |
| | | | | | | | | | | | |
4.1 | | | | S-1 | | 333-168792 | | January 19, 2011 | | 4.1 | | |
| | | | | | | | | | | | |
10.1* | | | | 8-K | | 001-35073 | | March 15, 2023 | | 10.1 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Exhibit
Number
| | | DescriptionIncorporated by Reference | | Previously Filed | | Filed
Herewith
|
Exhibit No. | | | Description | | Form | | File No. | | Filing Date | | Exhibit | | Filed Herewith |
31.1 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
31.2 | | | | | | | | | | | | X |
| | | | | | | | | | | | |
32.1 | | | | | | | | | | | | ** |
| | | | | | | | | | | | |
101.INS | | Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | | | | | | | | | | X |
| | | | | | | | | | | | |
101.SCH | | Inline XBRL Taxonomy Extension Schema | | | | | | | | | | X |
| | | | | | | | | | | | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase | | | | | | | | | | X |
| | | | | | | | | | | | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase | | | | | | | | | | X |
| | | | | | | | | | | | |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase | | | | | | | | | | X |
| | | | | | | | | | | | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase | | | | | | | | | | X |
| | | | | | | | | | | | |
104 | | | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101) | | | | | | | | | | X |
| | | | | |
+* | Certain portions of the exhibit have been omitted pursuant to Rule 601(b)(10) of Regulation S-K. The omitted information is not material and is the type of information that the registrant treats as private or confidential. |
| |
** | Furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Gevo, Inc.
(REGISTRANT)
| | | | | |
By: | /s/ Alisher Nurmat |
| Alisher Nurmat, CPA Vice President and Controller (Duly Authorized Officer and Principal Accounting Officer) |
Date: May 9, 202210, 2023