8-K: Gevo Provides Business Update and Preliminary 2023 Financial Information, Expects $7-16 Million Non-GAAP EBITDA from RNG in 2024

Gevo anticipates $7-16 million in non-GAAP cash EBITDA from its renewable natural gas (RNG) business in 2024, with potential for further increases based on regulatory approvals and market conditions.

Summary

• Gevo has released a business update and preliminary unaudited financial information for the year ended December 31, 2023.
• The company expects non-GAAP cash EBITDA from its RNG business to be between $7 and $16 million in 2024, contingent on the approval of a permanent CARB Carbon Intensity pathway.
• This RNG EBITDA could increase to $30-38 million if California Low Carbon Fuel Standard (LCFS) prices reach $200/MT and to $50-60 million with the implementation of the Biogas Production Tax Credit (PTC) from 2025-2027.
• The Net-Zero 1 project is in the diligence phase for a US Department of Energy (DOE) Loan Guarantee, with engineering substantially complete and long-lead equipment being ordered.
• Gevo's Verity carbon accounting SaaS business expects to generate its first revenue in 2024 and pursue scalable growth in 2025, targeting a $1.5-3 billion market in the US.
• The Ethanol-to-Olefins (ETO) technology pilot plant has commenced production and is operating as expected.
• Discretionary project development and growth uses of cash are projected to be $125-175 million for Net-Zero 1 in 2024, with an additional $20-60 million for other projects.
• Research and development is expected to consume $10-12 million in 2024, while general and administrative expenses are projected at $5-9 million.
• The Luverne facility is expected to have idling costs of $2-4 million, with plans to potentially restart it for specialty markets.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with clear growth plans and potential for increased revenue, but also acknowledges risks and uncertainties related to regulatory approvals and market conditions. The company is making progress on key projects and has a clear strategy for growth.

Positives

• The RNG business is expected to generate positive non-GAAP cash EBITDA in 2024, with potential for significant growth.
• The Net-Zero 1 project is progressing with engineering substantially complete and long-lead equipment being ordered.
• Verity is expected to generate its first revenue in 2024, indicating a new revenue stream.
• The ETO pilot plant is operating as expected, demonstrating the viability of the technology.
• Gevo believes that the majority of its discretionary growth spending is related to the development of growth projects, primarily driven by Net-Zero 1.
• The company has identified attractive sites for additional Net-Zero plants, indicating future growth potential.
• The independent audit firm identified a substantial amount of costs historically classified as GAAP G&A that may be classified as project development.

Negatives

• The expected RNG EBITDA is contingent on the approval of a permanent CARB Carbon Intensity pathway and other external factors.
• The DOE loan guarantee process is expected to be the rate-limiting step to financial close for Net-Zero 1.
• The Luverne facility is currently in care and maintenance status, incurring idling costs.
• There is no guarantee that LCFS prices will increase or US Treasury rules will result in the amounts expected.
• The company is evaluating how the GREET model will be adapted for use in the IRA and the economic impact to the project.

Risks

• The timing of the approval of the permanent CARB Carbon Intensity pathway is uncertain, impacting the expected RNG EBITDA.
• The DOE loan guarantee process could be delayed, affecting the financial close of the Net-Zero 1 project.
• The company's ability to achieve its financial projections is subject to market conditions, regulatory approvals, and the successful implementation of its projects.
• There is a risk that LCFS prices may not increase as expected, impacting potential revenue.
• The Biogas PTC is subject to final rules issued by the US Treasury, which may not result in the expected amounts.
• The company is evaluating how the GREET model will be adapted for use in the IRA and the economic impact to the project.

Future Outlook

Gevo anticipates growth in its RNG business, the launch of its Verity SaaS platform, and the advancement of its Net-Zero 1 project, with significant potential for revenue and profitability increases based on regulatory approvals and market conditions. The company expects to reinvest development recoveries into the project alongside third-party, project level equity at financial close.

Management Comments

• Gevo management believes they have significant flexibility over the timing and amount of discretionary growth spending related to projects.
• Management believes that the Argonne National Laboratory GREET model is the best available standard of scientific-based measurement for life cycle inventory or LCI.
• Gevo management uses non-GAAP cash EBITDA to better analyze its financial results and to help make managerial decisions.

Industry Context

This announcement highlights Gevo's focus on the growing market for low-carbon fuels and chemicals, aligning with the global push for decarbonization. The company's efforts in renewable natural gas, sustainable aviation fuel, and carbon accounting position it to capitalize on increasing demand for environmentally friendly alternatives. The company is also leveraging government incentives and programs to support its growth.

Comparison to Industry Standards

• Gevo's focus on renewable natural gas (RNG) aligns with industry trends towards decarbonizing the transportation sector, similar to companies like Clean Energy Fuels Corp. and Archaea Energy.
• The Net-Zero 1 project, aiming for zero or negative carbon intensity, is comparable to other advanced biofuel projects seeking to minimize environmental impact, such as those by Neste and Renewable Energy Group.
• Gevo's Verity carbon accounting SaaS business is entering a market with established players like CarbonChain and Persefoni, but its focus on distributed ledger technology could provide a competitive edge.
• The company's ETO technology is similar to other efforts to produce sustainable aviation fuel (SAF) from alternative feedstocks, such as those by LanzaTech and Velocys.
• The expected RNG EBITDA of $7-16 million is relatively small compared to larger players in the renewable energy space, but the potential for growth with regulatory approvals and market conditions is significant.

Stakeholder Impact

• Shareholders may see potential for increased value due to the company's growth plans and revenue projections.
• Employees may benefit from the company's expansion and new projects.
• Customers may have access to more sustainable fuel and chemical products.
• Suppliers may see increased demand for their products and services.
• Creditors may see the company as a more attractive investment due to its growth potential.

Next Steps

• Gevo expects to publish an updated corporate investor presentation to its website.
• The company will continue to pursue the DOE Loan Guarantee for the Net-Zero 1 project.
• Gevo will focus on securing a permanent CARB Carbon Intensity pathway for its RNG business.
• The company will work to scale up its Verity carbon accounting SaaS business.
• Gevo will continue to develop plans to restart the Luverne facility for specialty markets.

Key Dates

Keywords

Renewable Natural Gas, RNG, Net-Zero 1, Carbon Abatement, Sustainable Aviation Fuel, SAF, Verity, Ethanol-to-Olefins, ETO, Biogas Production Tax Credit, LCFS, GREET, DOE Loan Guarantee