by Debra Fiakas CFA
Management teams at the helm of public companies often shade the realities of their competitive or strategic situation, alternately painting better circumstances or downplaying declining fortunes. There are myriad ways of giving management’s guidance a reality check. Renewable bio-chemicals developer Gevo, Inc. (GEVO: Nasdaq) is on my “watch list” as one of the more interesting companies in the Beach Boys Index.
Gevo’s financial results missed the consensus estimate in both the March and June 2012 quarters, but management made claims of important victories. Gevo has won important decisions in the disagreement between Gevo and Butamax Advanced Biofuels over process technologies related to the production of isobutanol. Butamax had alleged infringement of its patents by Gevo and had attempted to halt Gevo’s continued progress through an injunction. Gevo recently took the offensive, asking a federal court for a declaratory judgment on the validity of a Butamax patent.
Gevo’s confidence extends beyond the court room. The Company has continued to line up technology and distribution partners as well as customers for its renewable chemicals products. Recent Gevo presentations include slides with a collection of impressive corporate logos – Sasol (SSL), Total, Toray, United Airlines and CocaCola among others.
Management appears to be ready to put its money behind its public pronouncements. The corporate web site lists several open positions for technicians, including molecular biologist, biochemist, analytical chemist and fermentation specialists. All are ostensibly for Gevo’s homebase in Englewood, Colorado and all appear to be focused on development activities rather than commercial production. It would be more comforting to see open positions for the type of activities that would lead directly to revenue. Then perhaps we could dial in higher sales estimates than what is reflected in the current consensus estimate. The bevy of research analysts currently covering Gevo think revenue is likely wind up at half the level last year.
Gevo is not immune to the unfolding economic reality for corn-based biofuels and chemicals. That could be a problem. Without a significant increase in sales volume or prices, Gevo may not be able to make a dent in its current cash burn rate near $12.0 million per quarter. Given the $38.6 million on the balance sheet, Gevo appears to have only enough resources to last through the first quarter 2013.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. GEVO is included in Crystal Equity Research’s Beach Boys Index.
Interesting article…but your last paragraph omits a very important fact. In early July, the company raised $100 million in capital through a common stock and convertible bond offering. The company’s near term cash needs are more than satisfied with this capital raise.