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Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

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Equity Bottom-Up

<h2>KEY POINTS</h2>
<ul>
<li>On February 24, 2021, Gevo announced&nbsp;4Q21 earnings results. The company is still in a pre-revenue stage; however, Gevo expects to start generating biogas revenues from its RNG plant in 2Q22 along with sale of credits in the second half of 2022.</li>
<li>Revenues were $0.1 million for the quarter compared to $0.5 million in 4Q20. Cash was $475.8 million (includes restricted cash and marketable securities), down from $522.4 million in 3Q21, attributable to the construction of the RNG and Net-Zero 1 plants.</li>
<li>During the quarter, Gevo entered into several agreements to strengthen its supply chain as well as cement visibility of revenues through offtake deals. This includes agreements with&nbsp;Kolmer,&nbsp;Axens,&nbsp;Sweetwater Energy, and&nbsp;ADM.</li>
<li>During 2021, Gevo invested significant capital in its preliminary and advanced stage projects, including ~$23 million into the flagship Net-Zero 1 project, ~$52 million into Northwest Iowa RNG and other capital projects, and $12 million into strategic IPs.</li>
<li>Gevo is targeting Net-Zero 1 to be complete in late-2024 and operational in 2025. The total cost of the project is estimated to be around $900 million with $150-200 million annual EBITDA expected.</li>
<li>The company recently made the decision to use ethanol fermentation technology instead of isobutanol fermentation technology to produce SAF at Net-Zero 1 owing to increased productivity, lower capital costs, and process guarantees from&nbsp;Axens.</li>
<li>In December 2021, Argonne National Laboratory (ANL) reported that its preliminary findings were consistent with Gevo’s net-zero life-cycle emissions claim for the Net-Zero 1 project when measured using ANL’s GREET Model.</li>
<li>Gevo expects the RNG project to generate ~ $16-22 million EBITDA per year by 2023.</li>
<li>Our prior content on GEVO can be accessed&nbsp;HERE.</li>
</ul>
<h2>EARNINGS SNAPSHOT</h2>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/260/564/original/image_52069787721646168054280.png?1646168057" class="editor-image img-responsive" data-smartkarma-image-id="260564"></figure>
<h2>COMPANY OVERVIEW</h2>
<p>Gevo's mission is to transform renewable energy and carbon into de-fossilized, energy-dense liquid hydrocarbons. These liquid hydrocarbons can be used for&nbsp;drop-in transportation fuels&nbsp;such as gasoline, jet fuel, and diesel fuel that, when burned, have the potential to yield net-zero greenhouse gas emissions when measured across the entire lifecycle of the products. Gevo uses low-carbon renewable resource-based carbohydrates as raw materials and intends to use renewable electricity and renewable natural gas in production processes, resulting in low-carbon fuels with substantially reduced carbon intensity (the level of greenhouse gas emissions compared to standard petroleum fossil-based fuels across their lifecycle). Gevo's products perform as well as or better than traditional fossil-based fuels in infrastructure and engines, but with substantially reduced greenhouse gas emissions. The company also produces renewable chemicals that have a net negative greenhouse gas profile. Gevo's technology enables certain plastics, such as polyester, to be made with more sustainable ingredients.</p>
<h2>Net-Zero Projects</h2>
<p>Gevo has developed a proprietary technology for producing hydrocarbons from renewable feedstocks (residual carbohydrates and starches). This is accomplished using two pieces of proprietary technology: a yeast that has been designed to make isobutanol, and a product-recovery technology that continuously removes isobutanol as it is formed. The isobutanol is a building block for conversion into high-value liquid hydrocarbons such as renewable jet fuel and gasoline. Gevo’s strategy is centered around the concept of constructing net-zero projects that are capable of producing high-value liquid hydrocarbons which are carbon-neutral or carbon-negative (when entrained in a polymer). The plants’ resulting carbon scores take into account the entire supply chain and production process to determine the carbon impact. Each plant is expected to produce approximately 60 MGPY in hydrocarbons. Based on current modeling assumptions, the company believes that the EBITDA for a net-zero plant should be more than $150 million per year once operating. The company currently estimates it has nearly $14 billion in its offtake pipeline, creating significant scale-up opportunities.</p>
<h2>Products</h2>
<p>Sustainable Aviation Fuel (SAF):&nbsp;In order to reduce the environmental impact of aviation, sustainable fuels are critical and have an immediate impact on the carbon footprint. Gevo’s renewable jet fuels can be used in today’s aircraft and are one of the few non-fossil-based alternative jet fuels available for commercial use. Gevo is currently supplying aviation fuel in small amounts on a commercial basis, primarily for business aviation.</p>
<p>Isooctane &amp; Renewable Gasoline:&nbsp;Isooctane is a pure form of gasoline and is in fact octane. Sometimes referred to as renewable alkylate, the Gevo product can be blended directly with fossil-based gasoline up to levels of 60% while staying within the specification for gasoline. The benefit is higher octane gasoline,with enhanced energy content and efficiency, and no negative engine maintenance or longevity impacts, while achieving instant GHG reduction on a net-zero carbon basis at the tailpipe. By blending isooctane with renewable naphtha and alcohols (such as isobutanol or ethanol) it is possible to make 100% renewable, low-GHG-footprint, gasoline. Gevo is currently supplying isooctane to the EU automobile racing circuit, where the product is used as the primary ingredient for high-end racing fuels.</p>
<p>High-Protein Animal Feed:&nbsp;When Gevo uses sustainable corn as a feedstock, nearly eight pounds of high-protein animal feed is produced for every gallon of fuel. This valuable co-product is then sold into the market, offsetting the production cost of the hydrocarbons and driving down the carbon score.</p>
<p>Renewable Natural Gas (RNG):&nbsp;In April 2021,&nbsp;Gevo broke ground&nbsp;on an RNG project in Northwest Iowa which will generate RNG captured from dairy cow manure. Upon completing the project in 2022, the digesters should generate approximately 355,000 MMBtu of RNG per year and generate $9-16 million of distributable cash on an annualized basis, beginning in late 2022.</p>
<p>Other Products:&nbsp;Through the same isobutanol production processes employed with its Net-Zero program, Gevo can also produce&nbsp;renewable diesel, salable finished&nbsp;isobutanol&nbsp;(a value-added oxygenated blendstock, and ingredient for chemical products and materials),&nbsp;isobutylene&nbsp;(the key ingredient for synthetic rubber),&nbsp;isooctane&nbsp;(the key ingredient for making high quality gasoline), isooctene (the key enabling building block for fully renewable low carbon polyester), and renewable propylene.</p>
<h2>DISCLOSURES</h2>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Shawn Severson, who is the writer of this report, covers the BioEconomy, Emerging Growth &amp; Special Situations and ClimateTech &amp; Sustainable Investing sectors for WTR. Mr. Severson and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.<br><br>WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY POINTS

On February 24, 2021, Gevo announced&nbsp;4Q21 earnings results. The company is still in a pre-revenue stage; however, Gevo expects to start generating biogas revenues from its RNG plant in 2Q22 along with sale of credits in the second half of 2022.
Revenues were $0.1 million for the quarter compared to $0.5 million in 4Q20. Cash was $475.8 million (includes restricted cash and marketable securities), down from $522.4 million in 3Q21, attributable to the construction of the RNG and Net-Zero 1 plants.
During the quarter, Gevo entered into several agreements to strengthen its supply chain as well as cement visibility of revenues through offtake deals. This includes agreements with&nbsp;Kolmer,&nbsp;Axens,&nbsp;Sweetwater Energy, and&nbsp;ADM.
During 2021, Gevo invested significant capital in its preliminary and advanced stage projects, including ~$23 million into the flagship Net-Zero 1 project, ~$52 million into Northwest Iowa RNG and other capital projects, and $12 million into strategic IPs.
Gevo is targeting Net-Zero 1 to be complete in late-2024 and operational in 2025. The total cost of the project is estimated to be around $900 million with $150-200 million annual EBITDA expected.
The company recently made the decision to use ethanol fermentation technology instead of isobutanol fermentation technology to produce SAF at Net-Zero 1 owing to increased productivity, lower capital costs, and process guarantees from&nbsp;Axens.
In December 2021, Argonne National Laboratory (ANL) reported that its preliminary findings were consistent with Gevo’s net-zero life-cycle emissions claim for the Net-Zero 1 project when measured using ANL’s GREET Model.
Gevo expects the RNG project to generate ~ $16-22 million EBITDA per year by 2023.
Our prior content on GEVO can be accessed&nbsp;HERE.

EARNINGS SNAPSHOT

COMPANY OVERVIEW
Gevo's mission is to transform renewable energy and carbon into de-fossilized, energy-dense liquid hydrocarbons. These liquid hydrocarbons can be used for&nbsp;drop-in transportation fuels&nbsp;such as gasoline, jet fuel, and diesel fuel that, when burned, have the potential to yield net-zero greenhouse gas emissions when measured across the entire lifecycle of the products. Gevo uses low-carbon renewable resource-based carbohydrates as raw materials and intends to use renewable electricity and renewable natural gas in production processes, resulting in low-carbon fuels with substantially reduced carbon intensity (the level of greenhouse gas emissions compared to standard petroleum fossil-based fuels across their lifecycle). Gevo's products perform as well as or better than traditional fossil-based fuels in infrastructure and engines, but with substantially reduced greenhouse gas emissions. The company also produces renewable chemicals that have a net negative greenhouse gas profile. Gevo's technology enables certain plastics, such as polyester, to be made with more sustainable ingredients.
Net-Zero Projects
Gevo has developed a proprietary technology for producing hydrocarbons from renewable feedstocks (residual carbohydrates and starches). This is accomplished using two pieces of proprietary technology: a yeast that has been designed to make isobutanol, and a product-recovery technology that continuously removes isobutanol as it is formed. The isobutanol is a building block for conversion into high-value liquid hydrocarbons such as renewable jet fuel and gasoline. Gevo’s strategy is centered around the concept of constructing net-zero projects that are capable of producing high-value liquid hydrocarbons which are carbon-neutral or carbon-negative (when entrained in a polymer). The plants’ resulting carbon scores take into account the entire supply chain and production process to determine the carbon impact. Each plant is expected to produce approximately 60 MGPY in hydrocarbons. Based on current modeling assumptions, the company believes that the EBITDA for a net-zero plant should be more than $150 million per year once operating. The company currently estimates it has nearly $14 billion in its offtake pipeline, creating significant scale-up opportunities.
Products
Sustainable Aviation Fuel (SAF):&nbsp;In order to reduce the environmental impact of aviation, sustainable fuels are critical and have an immediate impact on the carbon footprint. Gevo’s renewable jet fuels can be used in today’s aircraft and are one of the few non-fossil-based alternative jet fuels available for commercial use. Gevo is currently supplying aviation fuel in small amounts on a commercial basis, primarily for business aviation.
Isooctane &amp; Renewable Gasoline:&nbsp;Isooctane is a pure form of gasoline and is in fact octane. Sometimes referred to as renewable alkylate, the Gevo product can be blended directly with fossil-based gasoline up to levels of 60% while staying within the specification for gasoline. The benefit is higher octane gasoline,with enhanced energy content and efficiency, and no negative engine maintenance or longevity impacts, while achieving instant GHG reduction on a net-zero carbon basis at the tailpipe. By blending isooctane with renewable naphtha and alcohols (such as isobutanol or ethanol) it is possible to make 100% renewable, low-GHG-footprint, gasoline. Gevo is currently supplying isooctane to the EU automobile racing circuit, where the product is used as the primary ingredient for high-end racing fuels.
High-Protein Animal Feed:&nbsp;When Gevo uses sustainable corn as a feedstock, nearly eight pounds of high-protein animal feed is produced for every gallon of fuel. This valuable co-product is then sold into the market, offsetting the production cost of the hydrocarbons and driving down the carbon score.
Renewable Natural Gas (RNG):&nbsp;In April 2021,&nbsp;Gevo broke ground&nbsp;on an RNG project in Northwest Iowa which will generate RNG captured from dairy cow manure. Upon completing the project in 2022, the digesters should generate approximately 355,000 MMBtu of RNG per year and generate $9-16 million of distributable cash on an annualized basis, beginning in late 2022.
Other Products:&nbsp;Through the same isobutanol production processes employed with its Net-Zero program, Gevo can also produce&nbsp;renewable diesel, salable finished&nbsp;isobutanol&nbsp;(a value-added oxygenated blendstock, and ingredient for chemical products and materials),&nbsp;isobutylene&nbsp;(the key ingredient for synthetic rubber),&nbsp;isooctane&nbsp;(the key ingredient for making high quality gasoline), isooctene (the key enabling building block for fully renewable low carbon polyester), and renewable propylene.
DISCLOSURES
Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Shawn Severson, who is the writer of this report, covers the BioEconomy, Emerging Growth &amp; Special Situations and ClimateTech &amp; Sustainable Investing sectors for WTR. Mr. Severson and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.  WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.  The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

4Q21 Results: RNG Plant to Kickstart Revenue Stream in 2022; Net-Zero 1 Update