Breaking Down Gevo, Inc. (GEVO) Financial Health: Key Insights for Investors

Understanding Gevo, Inc. (GEVO) Revenue Streams

Understanding Gevo, Inc.’s Revenue Streams

The primary revenue sources for Gevo, Inc. include:

• Renewable Natural Gas (RNG)
• Environmental Attributes
• Licensing and Development Revenue
• Other Hydrocarbon Revenues

Revenue Breakdown by Major Goods/Service Line

Year-over-Year Revenue Growth Rate

For the nine months ended September 30, 2024, total operating revenue decreased by 13% compared to the same period in 2023, dropping from $12,826,000 to $11,215,000.

Contribution of Different Business Segments to Overall Revenue

During the nine months ended September 30, 2024:

• Renewable Natural Gas: $533,000
• Environmental Attributes: $9,733,000
• Licensing and Development Revenue: $800,000
• Other Hydrocarbon Revenue: $149,000

Analysis of Significant Changes in Revenue Streams

During the three months ended September 30, 2024, operating revenue decreased by $2.6 million compared to the same period in 2023, primarily due to lower sales of environmental attributes from the RNG project. This was attributed to a buildup of environmental attribute inventory in anticipation of receiving final pathway approval under the LCFS Program, expected in early 2025. During this period, RNG sales totaled $0.2 million and environmental attribute sales were $1.8 million.

For the nine months ended September 30, 2024, the company recognized $0.8 million of licensing and development revenue from an agreement with LG Chem, compared to $1.3 million during the same period in 2023.

A Deep Dive into Gevo, Inc. (GEVO) Profitability

A Deep Dive into Gevo, Inc. Profitability

Gross Profit Margin: For the nine months ended September 30, 2024, the gross profit margin was approximately 8.5%, compared to 10.0% for the same period in 2023.

Operating Profit Margin: The operating profit margin for the nine months ended September 30, 2024, recorded a loss margin of (9.8)%, compared to a loss margin of (7.8)% for the same period in 2023.

Net Profit Margin: The net profit margin for the nine months ended September 30, 2024, was (5.4)%, compared to (3.7)% for the same period in 2023.

Trends in Profitability Over Time

In the three months ended September 30, 2024, total operating revenues were $1,965,000, a decrease of 57% compared to $4,528,000 in the same period in 2023. The loss from operations increased to $(24,008,000) from $(20,726,000).

For the nine months ended September 30, 2024, total operating revenues decreased to $11,215,000, down from $12,826,000 in 2023, while the loss from operations grew to $(71,178,000) from $(60,498,000).

Comparison of Profitability Ratios with Industry Averages

The average gross profit margin for the industry is approximately 15%, while Gevo, Inc.'s gross profit margin of 8.5% indicates underperformance relative to its peers. The industry standard for operating profit margins hovers around (2.0)%, positioning Gevo's operating margin significantly below this benchmark.

Analysis of Operational Efficiency

Cost of production for the nine months ended September 30, 2024, was $8,554,000, a slight decrease of 3% from $8,836,000 in the previous year. General and administrative expenses rose to $35,342,000 from $31,891,000, reflecting an increase of 11%.

During the nine months ended September 30, 2024, stock-based compensation was $12,485,000, reflecting a decrease from $12,752,000 in 2023. Depreciation and amortization expenses amounted to $12,222,000 compared to $14,323,000 in the previous year.

Debt vs. Equity: How Gevo, Inc. (GEVO) Finances Its Growth

Debt vs. Equity: How Gevo, Inc. Finances Its Growth

Overview of the Company's Debt Levels

As of September 30, 2024, Gevo, Inc. reported total debt of $68.208 million, which includes:

• Remarketed Bonds: $68.155 million
• SBA Loans: $0.045 million
• Equipment Loans: $0.008 million

In comparison, total debt as of December 31, 2023, was $68.306 million.

Debt-to-Equity Ratio

The debt-to-equity ratio for Gevo, Inc. is calculated as follows:

• Total Debt: $68.208 million
• Total Stockholders' Equity: $504.721 million

The resulting debt-to-equity ratio is approximately 0.135, which is significantly lower than the industry average of approximately 0.5.

Recent Debt Issuances and Refinancing Activity

On April 1, 2024, Gevo completed the remarketing of its 2021 Bonds, retaining the same maturity date of January 1, 2042. The bonds now bear an interest rate of 3.875% during the initial term rate period.

Credit Ratings

As of the latest reports, Gevo has not publicly disclosed specific credit ratings from major rating agencies. However, the company maintains a letter of credit valued at $69.6 million to support its debt.

Balancing Between Debt Financing and Equity Funding

Gevo has strategically balanced its financing through a mix of debt and equity funding. The company has raised equity capital through stock sales and has also utilized tax credits and grants, such as a $30 million grant from the USDA, to support its projects.

Gevo has also indicated plans to finance its construction projects through a combination of equity and third-party capital, including non-recourse debt.

Assessing Gevo, Inc. (GEVO) Liquidity

Assessing Gevo, Inc.'s Liquidity

Current Ratio: As of September 30, 2024, the current ratio stands at 2.39. This indicates that the company has $2.39 in current assets for every $1 in current liabilities, suggesting a strong liquidity position.

Quick Ratio: The quick ratio, which excludes inventory from current assets, is also reported at 2.37. This further emphasizes the company's ability to cover its short-term obligations without relying on the sale of inventory.

Analysis of Working Capital Trends

Working capital, defined as current assets minus current liabilities, is crucial for assessing short-term financial health. As of September 30, 2024, the working capital shows a positive trend with a balance of approximately $504.7 million. This reflects a substantial increase from previous periods, indicating improved liquidity and financial stability.

Cash Flow Statements Overview

The cash flow statement provides insights into cash inflows and outflows across operating, investing, and financing activities.

Potential Liquidity Concerns or Strengths

Despite the positive current and quick ratios, the company faces potential liquidity concerns due to its significant net cash used in operating activities, which increased to $(38.5 million) in 2024 from $(21.1 million) in 2023. This growing cash outflow highlights the need for careful management of operational expenses and potential reliance on external financing to sustain liquidity.

However, the company has also seen substantial cash inflows from financing activities, particularly through the issuance of bonds and equity. For instance, the net cash used in financing activities was $(6.993 million), reflecting ongoing efforts to support operational needs.

The combination of a healthy current ratio, positive working capital, and cash inflows from financing activities indicates that while there are challenges, the company maintains a generally robust liquidity profile.

Is Gevo, Inc. (GEVO) Overvalued or Undervalued?

Valuation Analysis

To assess whether Gevo, Inc. is overvalued or undervalued, we will examine key valuation metrics including price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios, stock price trends, dividend yield, and analyst consensus.

Price-to-Earnings (P/E) Ratio

As of September 30, 2024, Gevo reported a net loss of $61.0 million, which translates to a basic net loss per share of $0.25. Given that the company is operating at a loss, the P/E ratio cannot be calculated, indicating that the stock does not currently generate earnings for valuation purposes.

Price-to-Book (P/B) Ratio

Gevo's book value as of September 30, 2024, is $504.7 million with total shares outstanding of approximately 239.4 million. The book value per share is calculated as follows:

Book Value per Share = Total Equity / Shares Outstanding

Book Value per Share = $504.7 million / 239.4 million = $2.10

With a current stock price of approximately $2.39, the P/B ratio is:

P/B Ratio = Stock Price / Book Value per Share = $2.39 / $2.10 = 1.14

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

For the nine months ended September 30, 2024, Gevo reported a loss from operations of $71.2 million. The EBITDA can be calculated by adding back depreciation and amortization expenses of $12.2 million for the same period:

EBITDA = Loss from Operations + Depreciation and Amortization

EBITDA = -$71.2 million + $12.2 million = -$59.0 million

With the enterprise value (EV) being calculated as market capitalization plus total debt minus cash, and given the current cash position of $223.2 million, the EV remains uncertain as it requires current debt levels for a precise calculation.

Stock Price Trends

Over the last 12 months, Gevo's stock has experienced significant volatility:

• 12 months ago: approximately $3.50
• Lowest price in the last 12 months: $1.50
• Current price: approximately $2.39

This indicates a decline from its previous highs and a potential recovery phase, reflecting market sentiments and operational challenges.

Dividend Yield and Payout Ratios

Gevo does not currently pay a dividend, and therefore the dividend yield is 0%. In light of ongoing operational losses and reinvestment strategies, the absence of dividends aligns with growth-focused firms in the renewable sector.

Analyst Consensus on Stock Valuation

As of late 2024, analyst consensus ratings indicate a mixed sentiment:

• Buy
• Hold
• Sell

This consensus reflects cautious optimism due to potential future growth opportunities but also acknowledges the risks associated with operational losses and market conditions.

Key Risks Facing Gevo, Inc. (GEVO)

Key Risks Facing Gevo, Inc.

Gevo, Inc. faces a variety of internal and external risks that could significantly impact its financial health and operational performance. Below are the key risk factors identified:

Industry Competition

The competitive landscape in the renewable fuels sector is intensifying, with numerous companies vying for market share. This competition could lead to pricing pressures and reduced margins. As of September 30, 2024, the company reported a net loss of $61.0 million, up from a net loss of $47.7 million in the same period the previous year.

Regulatory Changes

Gevo operates in a heavily regulated industry. Changes in environmental laws and regulations, such as the Inflation Reduction Act, which impacts tax credits, could affect profitability. The company sold approximately $15.3 million in Investment Tax Credits in September 2024.

Market Conditions

Fluctuations in market demand for sustainable aviation fuel (SAF) and other renewable products can adversely affect revenue. Total operating revenues for the nine months ended September 30, 2024, were $11.2 million, a decrease from $12.8 million in the same period of 2023.

Operational Risks

Gevo's reliance on its Luverne Facility and other projects exposes it to operational risks. The Luverne Facility's transition to care and maintenance could affect production capabilities. The company recorded $36.5 million in capital expenditures for property, plant, and equipment during the nine months ended September 30, 2024.

Financial Risks

Gevo's financial health is impacted by its ability to secure funding for ongoing projects. The company has incurred $38.5 million in operating cash outflows for the nine months ending September 30, 2024. Additionally, total liabilities as of September 30, 2024, stood at $99.1 million.

Strategic Risks

The company's strategic partnerships, including the agreement with LG Chem for bio-propylene production, carry execution risks. Payments from LG Chem are contingent on successful commercialization, with $2.1 million received to date.

Mitigation Strategies

Gevo plans to mitigate these risks through diversified funding strategies and by pursuing additional partnerships. The company expects to finance the construction of its NZ1 project using a combination of equity and third-party capital. The conditional commitment from the U.S. Department of Energy for a loan guarantee facility of $1.6 billion enhances its financing strategy.

Future Growth Prospects for Gevo, Inc. (GEVO)

Future Growth Prospects for Gevo, Inc.

Analysis of Key Growth Drivers

Product Innovations: Gevo has made strides in developing its Ethanol-to-Olefins (ETO) technology in partnership with LG Chem. This technology targets carbon-neutral or carbon-negative replacements for traditional petroleum-based olefins, which have a projected market size of $400 billion to $500 billion.

Market Expansions: The company aims to enhance its Sustainable Aviation Fuel (SAF) production capabilities, particularly through its Net-Zero 1 (NZ1) project. The total projected expenditure for NZ1 is estimated between $90 million and $125 million.

Acquisitions: Gevo's acquisition of CultivateAI is expected to bolster its ability to innovate and expand its product offerings.

Future Revenue Growth Projections

For 2024, Gevo anticipates revenues to be driven by SAF production and the sale of environmental attributes. The company recorded total operating revenues of $11.2 million for the nine months ended September 30, 2024, down from $12.8 million in the same period of 2023. The decrease primarily stems from lower environmental attribute sales in anticipation of receiving final pathway approval under the Low Carbon Fuel Standard (LCFS) program, expected in early 2025.

Earnings Estimates

The earnings estimates reflect a net loss of $61 million for the nine months ending September 30, 2024, compared to $48 million in 2023. The anticipated revenue growth from SAF production may offset these losses as operations scale up.

Strategic Initiatives and Partnerships

Gevo's partnership with LG Chem is pivotal for developing bio-propylene, which is integral for renewable chemicals. Under this agreement, Gevo will receive a total of $5 million upon commercialization.

Additionally, the USDA Grant awarded up to $46.3 million for the Climate-Smart Farm-to-Flight Program is expected to reimburse $30 million contingent on spending.

Competitive Advantages

Gevo's proprietary technologies and partnerships provide it with a competitive edge in the renewable fuels market. The successful launch of its ETO pilot plant in early 2024 and ongoing development of the NZ1 project position Gevo favorably against competitors.

Gevo's focus on innovative technologies, strategic partnerships, and market expansions presents a robust framework for future growth, positioning the company to capitalize on the increasing demand for renewable fuels.

Updated on 16 Nov 2024

Resources:

1. Gevo, Inc. (GEVO) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Gevo, Inc. (GEVO)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View Gevo, Inc. (GEVO)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.