Gevo, Inc. (NASDAQ: GEVO), a leading carbon abatement company that commercializes drop-in fuels and chemicals for difficult to decarbonize sectors, today (Jan 24) 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".
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