Gevo’s Q2 results highlight key, corporate activity like ATJ use

By Katie Fletcher | August 11, 2016

Gevo Inc. recently released its financial results for the three months ended June 30, providing an update on its Luverne, Minnesota, isobutanol plant’s operational status and progress, efforts in the jet fuel market and specialty fuels market, as well as its new partnership with the specialty chemicals company Clariant Corp.

Patrick Gruber, Gevo CEO, shared a few key corporate highlights for the quarter during the earnings call, including Gevo’s achievements in the jet fuel market; adjusted guidance for 2016 isobutanol production at its Luverne, Minnesota, based plant; a supply agreement with Musket Corp. to supply isobutanol as a non-ethanol oxygenate for blending with gasoline; and its partnership with Clariant to develop catalysts for Gevo’s ethanol-to-olefins (ETO) technology.

At the beginning of June, Gevo announced that the first commercial flights using Gevo’s alcohol-to-jet (ATJ) fuel took off with Alaska Airlines. Two flights took place both originating in Seattle and flying to San Francisco International Airport and Ronald Reagan Washington National Airport, respectively. Gruber joined passengers on the flight to San Francisco, and said it was pleasing to see the response from other passengers on the flight. The two Alaska Airlines flights utilized a 20 percent ATJ-fuel blend. “These first commercial flights were certainly a high-profile milestone in Gevo’s history and we are thrilled that we have reached this important strategic point in our company’s history,” Gruber said.

He added that Gevo believes the airline industry is rapidly moving to self-regulate their emissions, and that renewable jet fuel is expected to be a major part of that initiative. Gruber emphasized that since airlines cross many geographies it would be a regulatory disaster for each to set their own GHG requirements for airlines to comply to, so he believes the airline industry is taking a wise approach to regulate themselves to avoid a “patchwork quilt of regulation.” Even though airlines have begun making this effort, Gruber believes they’re likely to experience increasing regulatory pressure. For example, the U.S. DOE’s National Academies of Sciences, Engineering and Medicine released a report at the end of July dedicated to reducing carbon dioxide emissions from commercial aviation.

Gevo is in discussions with more partners in the aviation industry, and much of these discussions are focused on how to increase the 1.5 million-scale plant in Luverne for isobutanol to a large-scale plant that uses isobutanol for conversion into jet fuel. “We are working on gaining offtake customers to support a larger plant and we have begun planning for that plant at Luverne,” Gruber said.

This market interest in jet fuel and hydrocarbons and isooctane has brought Gevo to consider expansion at Luverne or building a second plant.  “We are planning on optimizing isobutanol production specification and grade, specifically for isooctane and jet fuel,” he stated. “If and when we work on a grade of isobutanol for hydrocarbon production, we may occasionally have to skip batches of isobutanol, and that of course would make us produce fewer gallons in a given month.”

Gevo also plans on skipping some batch cycles while testing equipment aimed at reducing capital and operating costs for an expanded Luverne operation.

In regards to Gevo’s current isobutanol production, Gruber announced that the distillation system is now complete at the Luverne plant and the entire production process is operating. As mentioned during last quarter’s earnings call, Gevo was in the midst of starting up the distillation system and optimizing it in March, and has had to overcome a few bottlenecks, including reprocessing the system to produce in-spec due to some impurities that ended up in the isobutanol. During this time, Gevo was unable to start a new batch of isobutanol, but Gruber was happy to announce to investors on the quarter-two earnings call that Gevo is making product in-spec in a single pass with no reprocessing—the way the system was designed to work. For now, the company is focused on reducing cycle times between batches, with the ultimate goal of producing a full batch of isobutanol every five to six days. “Each month, we expect to improve, leading us to higher run rates,” Gruber said. “In the last 70 days or so, we’ve produced about 70,000 gallons of isobutanol, whereas in the 30 days prior to that we produced about 30,000 gallons, so we’re learning.”

Gruber added that they can tell from testing the unit operations at the plant they should be able to achieve the designed capacity run rate of 1.5 million gallons per year by the end of 2016. However, due to the six-week delay the distillation system caused and possible future skipped batches to test equipment for expansion, Gevo adjusted its guidance for overall gallons produced in 2016 to a range of 500,000 to 650,000 gallons, down from the previous estimate of 750,000 to 1 million gallons of isobutanol.

Gevo’s gasoline blend stock market discussion was led with the fairly recent supply agreement with Musket Corp., a national fuel distributor under the umbrella of the Love’s family of companies. “The supply agreement is for isobutanol-blended gasoline for marine and off-road markets,” Gruber explained. “We’re excited to have Musket to further expand use of isobutanol and get our blended gasoline directly available at the pumps.”

According to Gruber, Musket’s initial targets are retail pumps around the Lake Havasu area in Arizona and other large marine markets like Lake Powell and Lake Mead. “We’ve shipped the first railcar to them and they’re moving it through their distribution channels,” Gruber said. “We’re also hopeful Musket will take more product as production at Luverne ramps up.”

Another partnership Gruber discussed during 2016’s quarter-two earnings was the company’s May announcement of an agreement with Clariant Corp. to scale up a catalyst for Gevo’s ETO technology.

Since last quarter, Gevo has also commenced a review of strategic alternatives and engaged Cowen & Co. LLC as a financial advisor to assist in the review.

Gevo reported revenues for the second quarter of 2016 of $8.1 million compared with $8.9 million in the same period in 2015. Revenues derived at the Luverne plant were $7.2 million, a decrease of around $800,000 from quarter two of 2015. This was primarily a result of lower ethanol production, ethanol prices and distiller grain prices in quarter two of 2016 versus the same period in 2015. Hydrocarbon revenues—consisting of jet fuel, isooctane and isooctene—were $700,000, flat when compared to quarter two of 2015.

Gevo generated grant revenue of $200,000 during the second quarter of 2016, also flat as compared to the same period in 2015. According to Gevo, grant revenue is primarily generated through its work with the Northwest Advanced Renewables Alliance to produce isobutanol from cellulosic feedstocks, such as wood waste, which can then be converted into Gevo’s ATJ.

The company reported a gross loss of $1.9 million for quarter two of 2016. Loss from operations totaled $5.5 million, compared with $6.5 million in the prior year period. The net loss for the second quarter of 2016 was $21.5 million, compared with $14.4 million during the same period in 2015. Net loss per share of 44 cents was reported for the second quarter of 2016. The non-GAAP adjusted net loss per share was 15 cents for the second quarter. Non-GAAP cash earnings before interest, taxes, depreciation and amortization loss of $3.6 million for the quarter was reported, compared with $4.6 million in quarter two of 2015. Gevo ended the second quarter with cash and cash equivalents of $22.6 million.