Gevo Provides Business Update
Gevo, Inc. provided a business update, with a focus on its RNG, Net-Zero 1, and Verity projects. The company expects a Non-GAAP cash EBITDA of $7-16 million in 2024, depending on the approval of the permanent CARB Carbon Intensity pathway. The Net-Zero 1 project is in the diligence phase of the US Department of Energy Loan Guarantee Program, and the Verity project expects to announce its first revenue in 2024. The company also detailed its expected uses of cash in 2024, including discretionary growth spending and non-discretionary, run-rate spending. The press release also included non-GAAP financial information, presenting a reconciliation of GAAP to the non-GAAP measure.
Positive
Expected Non-GAAP cash EBITDA of $7-16 million in 2024
Net-Zero 1 project in diligence phase of US DOE Loan Guarantee Program
Verity project expects first revenue in 2024
Detailed expected uses of cash in 2024
Non-GAAP financial information provided
Negative
There is no guarantee that LCFS prices will increase or that the US Treasury rules will result in the expected amounts
Luverne Facility expected to have idling use of cash of $2-4 million
The update from Gevo, Inc. indicates a strategic focus on carbon abatement technologies with anticipated positive financial outcomes. The expected non-GAAP cash EBITDA of $7-16 million in 2024, hinging on regulatory approvals, suggests a potential uplift in profitability contingent on external factors such as the CARB Carbon Intensity pathway approval and the Biogas Production Tax Credit. The company's financial health appears robust with a substantial cash reserve of $376 million as of December 31, 2023. However, the projected uses of cash for Net-Zero 1 Project Development and other growth initiatives, totaling $155-247 million, will significantly draw down these reserves. The anticipated full recovery of development costs at financial close is a critical factor for the company's capital structure and future investment capacity.
Investors should note the sensitivity of Gevo's financial performance to regulatory and market changes, particularly the LCFS prices and Biogas PTC. The company's strategic investment in the Verity SaaS platform and its estimated initial target market of $1.5-3 billion demonstrate diversification and innovation in revenue streams. However, it is important to monitor the execution and market adoption of this new offering. Gevo's R&D investment in Ethanol-to-Olefins technology and the successful operation of its pilot plant could enhance its competitive edge in sustainable fuel production.
Gevo's focus on Net-Zero 1, a plant designed to achieve zero or negative Carbon Intensity, positions the company at the forefront of climate-smart practices. The project's alignment with the US Department of Energy's Loan Guarantee Program underscores the strategic alignment with federal clean energy initiatives. The company's investment in long-lead equipment and the advanced stage of engineering signify a commitment to the project's timely execution. However, the statement that the DOE loan guarantee process could be a rate-limiting step indicates potential delays in financial closure and project commencement.
The company's emphasis on modularized, reusable plant design for alcohol-to-jet fuel production, with multiple patents filed, could offer long-term advantages in scalability and cost efficiency. This design approach could become a standard in the industry, providing Gevo with a competitive advantage. The company's proactive engagement in cost allocation and the use of Treas. Reg. §1.482 transfer pricing guidelines for project development cost recovery demonstrates a strategic approach to financial management and compliance.
Gevo's business update reflects a strategic alignment with environmental policies such as the California Low Carbon Fuel Standard and the Biogas Production Tax Credit outlined in the US Inflation Reduction Act. The company's anticipation of increased RNG non-GAAP cash EBITDA with the implementation of these policies indicates a strong interdependence between regulatory developments and Gevo's financial performance. The company's pursuit of the DOE Loan Guarantee Program for Net-Zero 1 development is indicative of the growing importance of government support in advancing sustainable energy projects.
The company's evaluation of the GREET model adaptation for the Inflation Reduction Act and its economic impact on the Net-Zero 1 project highlights the complexities and uncertainties involved in regulatory compliance and its financial implications. Gevo's proactive approach in identifying additional sites for Net-Zero plants suggests a long-term commitment to expanding its carbon abatement technology footprint, which may be favored by future policy developments aimed at reducing carbon emissions.
01/24/2024 - 09:05 AM
ENGLEWOOD, Colo., Jan. 24, 2024 (GLOBE NEWSWIRE) -- Gevo, Inc. (NASDAQ: GEVO), a leading carbon abatement company that commercializes drop-in fuels and chemicals for difficult to decarbonize sectors, today provided a business update. Gevo also expects to publish an updated corporate investor presentation to its website.
RNG : Non-GAAP cash EBITDA of $7 -16 million is expected in 2024, depending upon the timing of the approval of the permanent CARB Carbon Intensity pathway. This is expected to further increase if California Low Carbon Fuel Standard (LCFS) prices increase and the Biogas Production Tax Credit (PTC) is implemented. The Biogas PTC is a 2025-2027 credit defined in the US Inflation Reduction Act (IRA), subject to final rules issued by US Treasury. There can be no guarantee that LCFS prices will increase or US Treasury rules, if issued, will result in the amounts expected.
See “Non-GAAP Financial Information” below.
Net-Zero 1 Development : Net-Zero 1 is in the diligence phase of the US Department of Energy (DOE) Loan Guarantee Program to secure construction funding. The engineering for the project is substantially complete and is in the value engineering phase in preparation for finalizing the fully installed contracted price. We are also ordering long-lead equipment. The engineering, procurement and construction (“EPC”) contract with McDermott has been substantially negotiated except for the contracted construction price. Net-Zero 1 is a purpose-built plant targeting zero or negative Carbon Intensity by taking advantage of a number of climate-smart practices, behind the meter wind and hydrogen, and a sophisticated plant design. While we welcome the recent guidance on indicating GREET for the SAF section of the IRA, we are evaluating how the GREET model will be adapted for use in the IRA and the economic impact to the project. We expect the DOE loan guarantee program process to be the rate limiting step to financial close. We have also identified attractive sites for additional Net-Zero plants.
Verity : Verity, an end-to-end carbon accounting solution SaaS (Software as a Service) business built on proprietary distributed ledger technology, expects to announce its first revenue in 2024 and to pursue scalable customer growth in 2025. Verity is a capital light, fixed fee and profit sharing business. Based on a market and business analysis by a well known global consulting firm, the initial target market for Verity is estimated to be $1.5 -3 billion in the United States.
ETO : Our Ethanol-to-Olefins (“ETO”) technology pilot plant has started production and is operating as expected.
2024 Expected Uses of Cash
Discretionary Project Development and Growth Uses of Cash: We believe we have significant flexibility over the timing and amount of our discretionary growth spending related to our projects. The majority of Gevo’s expected uses of cash in 2024 from discretionary growth spending is related to the development of growth projects, primarily driven by Net-Zero 1.
Net-Zero 1 Project Development: Uses of cash are projected to be $125 -175 million in 2024.
This spend includes long-lead equipment, related wind and onsite hydrogen projects and value engineering to advance a financeable EPC contract. We expect this spend, plus the previous spend of approximately $111 million as of end of 2023 and other associated costs, to be fully recoverable at financial close from project-level debt and equity sources of capital, as is customary in project financings. We anticipate reinvesting all or a portion of the development recoveries into the project alongside third-party, project level equity at financial close at rates of return commensurate with our developer role. After financial close of the project, we expect that project construction through startup and commissioning would be fully funded with no additional cash commitments from Gevo. The engineering would result in a modularized, reusable and purpose built alcohol-to-jet plant design. We believe such design will be highly beneficial to the buildout of future alcohol-to-jet projects and the use of ethanol to make SAF. Multiple patents have been filed on this plant design. NZ and Other Projects Development : Expected uses of cash of $20 -60 million in 2024. This includes some non-recurring project development costs related to Net-Zero 1 and other Net-Zero alcohol-to-jet, the Luverne facility and other projects.
In 2023, Gevo engaged an independent third party audit firm to perform a cost allocation analysis. The purpose of this analysis was twofold: (1) to document to third parties our project development costs for recovery purposes (e.g., recovery at Net Zero 1 financial close); (2) to more accurately reflect the discretionary, non-recurring and growth project development related nature of such costs. The independent auditor based its analysis on the Treas. Reg. §1.482 transfer pricing guidelines, which set forth the arm’s length principle, whereby related parties shall operate in such manner as would true commercial parties. As a result of this analysis, the audit firm identified a substantial amount of costs historically classified as GAAP G&A that may be classified as project development.
Research & Development: Expected uses of cash of $10 -12 million in 2024, which includes feasibility and scaleup of our ETO technology as well as improvements on our isobutanol fermentation and other R&D.
Non-Discretionary, Non-Growth Project Related Uses of Cash
General & Administrative (“G&A”): Expected G&A uses of cash of $5 -9 million. This 2024 expected use of cash excludes a portion of spend historically categorized as G&A, which is instead included above under the heading “Additional NZ and Other Growth Projects Development”. This categorization reflects Gevo’s view of the run-rate required G&A to operate the business, exclusive of projects that are expected to be growth-related, non-recurring and (for Net-Zero 1) reimbursable upon project-level financing.
Luverne Facility: Expected facility idling use of cash of $2 -4 million, driven by the Luverne, Minnesota demonstration facility that is currently in care and maintenance status. We are developing plans to restart Luverne to serve certain specialty markets. We believe we have included appropriate capital in case of such restart under the heading “NZ and Other Projects Development”.
2024 Guidance Summary ($ in millions) RNG non-GAAP cash EBITDA 3Q 2023, reported $1.7 Annualized 3Q 2023 $6.8 Annualized expected sensitivities: With Permanent CARB CI Pathway $12 - 16With LCFS Prices at $200 /MT $30 - 38With Biogas PTC (2025-2027) $50 - 60 Verity First revenue year 2024 Scalable growth year 2025 2024 Expected Uses of Cash Dec. 31, 2023 cash, equivalents and restricted cash $376 Discretionary Growth / Project Development Net-Zero 1 Project Development $125 - 175until Financial Close Additional NZ Project Developments $20 - 60Research & Development $10 - 12 Non-Discretionary, Run-Rate Spend General & Administrative run-rate, non-discretionary $5 - 9Luverne Facility $2 - 4 Remaining cash, equivalents and restricted cash before RNG, Verity, investment income, interest and other $116 - 214
See “Non-GAAP Financial Information” below.
Non-GAAP Financial Information
Non-GAAP cash EBITDA is calculated by adding back depreciation and amortization and non-cash stock-based compensation to GAAP loss from operations.
This measure supplements the company’s financial results prepared in accordance with GAAP. Gevo management uses this measure to better analyze its financial results and to help make managerial decisions. In management’s opinion, this non-GAAP measure is useful to investors and other users of the company’s financial statements by providing greater transparency into the ongoing operating performance of Gevo and its future outlook. This measure should not be deemed to be an alternative to GAAP requirements. The non-GAAP measure presented here is also unlikely to be comparable with non-GAAP disclosures released by other companies. See the table below for a reconciliation of GAAP to our non-GAAP measure.
Reconciliation of GAAP to Non-GAAP Financial Information (Unaudited, in thousands)
Three Months Ended Nine Months Ended September 30, 2023 June 30, 2023 September 30, 2023 December 31, 2022 Non-GAAP Cash EBITDA (Gevo NW Iowa RNG): Loss from operations $ (230 ) $ (3,481 ) $ (3,711 ) $ (4,088 ) Depreciation and amortization 1,914 3,185 5,099 313 Stock-based compensation 18 42 59 7 Non-GAAP cash EBITDA (loss) (Gevo NW Iowa RNG) $ 1,702 $ (254 ) $ 1,447 $ (3,768 )
Learn more at Gevo’s website: www.gevo.com
Forward-Looking Statements
IR Contact Eric Frey, Vice President of Finance & Strategy IR@gevo.com
What is Gevo, Inc.'s expected Non-GAAP cash EBITDA in 2024?
Gevo, Inc. expects a Non-GAAP cash EBITDA of $7-16 million in 2024, based on the approval of the permanent CARB Carbon Intensity pathway.
What is the status of the Net-Zero 1 project?
The Net-Zero 1 project is in the diligence phase of the US Department of Energy Loan Guarantee Program.
When does Verity expect to announce its first revenue?
Verity expects to announce its first revenue in 2024.
What are the expected uses of cash for Gevo, Inc. in 2024?
Gevo, Inc. expects to use cash for discretionary growth spending and non-discretionary, run-rate spending in 2024, including project development, research & development, and general & administrative expenses.
What non-GAAP financial information was provided in the press release?
The press release included a reconciliation of GAAP to non-GAAP financial information, specifically the Non-GAAP cash EBITDA for Gevo NW Iowa RNG.
