Gevo, Inc. (GEVO)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K (this “Annual Report”). Some of the information contained in this discussion and analysis and set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the section titled “Risk Factors” in Part I, Item 1A of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Company Overview

We are a growth-oriented carbon abatement company that focuses on hard to decarbonize market sectors such as jet fuel, certain specialty fuels, on-road fuels, chemicals and materials, and certain products for the food chain such as protein and feeds made as co-products from our processes. Each of the market areas that Gevo focuses on have the common need for carbon-based products and are not conducive to full electrification or hydrogen. We produce and sell renewable, drop-in products for these sectors, and generate carbon abatement value through our plant design and business systems. Carbon abatement value can be valorized via Renewable Identification Numbers (“RINs”), state credits, Inflation Reduction Act (“IRA”) tax credits, and the value of Scope 3 greenhouse gas emissions for end customers. Gevo is primarily a project development, investment, and technology company, which also holds certain operating assets with the intent of generating cash flow.

Our primary market focus, given the large demand and growing customer interest, is net zero hydrocarbon fuels, including SAF. We believe that SAF produced from a carbohydrate-to-alcohol process is the most economically viable approach to generate value from carbon abatement. We also have commercial opportunities for other renewable hydrocarbon products, such as RNG; hydrocarbons for gasoline and racing fuel blendstocks and diesel fuel; ingredients for the chemical industry, such as ethylene and butenes for plastics and materials; and other chemicals.

Global fuel consumption by commercial airlines continues to grow, with jet fuel consumption expected to rise from approximately 92 to 99 billion gallons from 2023 to 2024, respectively.

To serve these markets, we are developing commercial projects for converting renewable energy into energy-dense, liquid hydrocarbons that can be used as renewable fuels, such as SAF, with the potential to achieve a cost competitive “net zero” greenhouse gas (“GHG”) footprint. We believe that this addresses the global need of economically reducing GHG emissions with “drop in” sustainable alternatives to petroleum fuels. We use the Argonne National Laboratory’s Greenhouse gases, Regulated Emissions, and Energy use in Transportation model (the “GREET Model”) to measure, predict and verify GHG emissions across the life cycle of our products. The “net zero” concept means Gevo expects that by using sustainably grown feedstock (e.g., low till, no-till cultivation) and renewable and substantially decarbonized energy sources, drop-in hydrocarbon fuels can be produced that have a net zero, full life cycle footprint measured from the capture of renewable carbon through the burning of the fuel. This is because such feedstocks come from crops, which take carbon dioxide out of the atmosphere and convert it into biomass through photosynthesis. This yields vital amino acid nutrients, or protein, that humans and animals can consume, as well as vegetable oil and carbohydrates, or sugar. The plant sugar may be fermented with microorganisms to produce a clean alcohol suitable for industrial scale chemical processing into hydrocarbons. Given the overabundance of plant-derived sugar, the growing unmet demand for drop-in, renewable hydrocarbons such as SAF, and the availability of demonstrated industrial-scale technologies that can convert plant sugars to alcohols and then to hydrocarbons, we view our project as first movers in an attractive, scalable new industry connecting this overabundance of plant sugar to unmet demand for products such as SAF.

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Project Updates

Alcohol-to-Jet Projects. Our concept of “Alcohol-to-Jet Projects” is a series of planned facilities to produce energy dense liquid hydrocarbons using renewable energy and our proprietary technology. Our initial Alcohol-to-Jet Project, which we refer to as “ATJ-60”, is expected to be located in Lake Preston, South Dakota, and is being designed to produce approximately 65 million gallons per year (“MGPY”) of total hydrocarbon volumes, including 60 MGPY of SAF. The liquid hydrocarbons, when burned, are expected to have a “net zero” GHG footprint. Along with the hydrocarbons, ATJ-60 is expected to produce approximately 1.3 billion pounds per year of high-value protein products for use in the food chain and approximately 30 million pounds per year of corn oil. Our products will be produced in three steps: the first step is milling the corn to produce the carbohydrates needed for the production of SAF while simultaneously enabling the production of protein and oil; the second step produces alcohols using carbohydrate-based fermentation; and the third step is the conversion of the alcohols into hydrocarbons.

We work with several technology, design and equipment partners, most notably Fluid Quip Technologies (“FQT”), Axens North America, Inc. (“Axens”), and PRAJ Industries Limited (“Praj”). FQT and Axens provide area operation designs which have been incorporated into Gevo’s proprietary overall design of low carbon intensity (“CI”) carbohydrate-to-hydrocarbon plants, such as our ATJ-60 plant. Praj is working with us on the proprietary design and construction of prefabricated process modules for our plants. Our partners are working with us on proprietary process designs that have the potential to lower capital and future operating costs. The advantage of utilizing FQT and Axens for our operation and related process designs, which are proven in other applications, is that we believe we have chosen technology which is substantially de-risked.

We have substantially completed the engineering design on our ATJ-60 project and are proceeding with detailed engineering and modularization design. We are refining the project cost estimates with engineering, procurement, and construction (“EPC”) partners to identify opportunities to reduce and negotiate the cost. After which, we expect to sign a lump-sum, fixed price agreement for the EPC to build and deliver the plant. The current detailed engineering work is focused on increasing the modularization of component parts on the ATJ-60 plant design, with the goal to build the process equipment into modules at a factory, then assemble onsite. This will enable us to minimize specialized field work typical in plant construction of this type, lower the risk and costs, as well as provide better access to skilled labor. Increasing the modularization of the plant design is expected to reduce our spend in advance of securing third-party equity and debt financing for ATJ-60 and increase the certainty of the construction schedule for those counterparties.

We currently expect to finance the construction of ATJ-60 at the subsidiary level using a combination of Company equity, third-party capital, and non-recourse debt. The Company previously projected a range of $90.0 – $125.0 million to be spent on ATJ-60 between January 2024 and the financial close of ATJ-60. Year to date 2024, the Company expects the remaining spend until the financial close of ATJ-60 to fall below the previously estimated range. Cash distributions from future ATJ-60 earnings would be proportionate to Gevo’s ownership in ATJ-60 under this expected financing structure. The use of project debt and third-party equity allows us to conserve capital for use on other growth projects. We expect to apply similar development and financing strategies to future Alcohol-to-Jet Projects to grow our SAF production to meet the demand for SAF.

In order to achieve full construction financing for ATJ-60, we need to secure third-party equity and debt. On October 16th, 2024, ATJ-60 reached a critical milestone of receiving conditional commitment from the DOE for a loan guarantee facility with a capacity of approximately $1.6 billion (including capitalized interest during construction). This milestone is significant as it helps to validate ATJ-60’s integrity, which is underpinned by the DOE’s diligence process. The focus is now on negotiating and closing this DOE loan and our project level equity financing as quickly as possible. We expect that our ATJ-60 plant start-up date will occur approximately thirty-six months after the ATJ-60 financing closes, the timing of which is uncertain. We are also working to secure access to carbon capture and sequestration at the site.

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We are evaluating and performing early site development work at several sites in the U.S. for other greenfield sites. These sites include several locations that are particularly advantageous in terms of potential economics, opportunities to decarbonize, and time to market. In addition, we are pursuing potential Alcohol-to-Jet Projects with several existing ethanol plant sites. Existing ethanol plants need to be decarbonized with renewable energy or de-fossilized energy and/or carbon sequestration. Gevo has developed a preferred list of potential partners and sites with decarbonization in mind and is engaged in preliminary feasibility and development discussions with several of these potential partners. We plan to give priority to existing industrial plant sites that have attractive potential economics and high predictability of timeline for decarbonization.

Red Trail Energy Asset Purchase Agreement. On September 10, 2024, the Company and certain of its wholly owned subsidiaries (the “Buyers”) entered into an Asset Purchase Agreement (the “Red Trail Purchase Agreement”) with Red Trail Energy, LLC, a North Dakota limited liability company (“Seller”). Pursuant to the Red Trail Purchase Agreement, Buyers acquired substantially all of the assets, and assumed certain liabilities, of Seller on January 31, 2025 (the “Transaction”). The purchase price was $210,000,000, subject to customary adjustments, including a working capital adjustment (the “Purchase Price”). The Purchase Price was funded by a mixture of Company cash on hand and debt financing.

In connection with the Red Trail Purchase Agreement, the Company and Seller entered into an escrow agreement pursuant to which the Company (i) deposited $10,000,000 in earnest money, see Note 11, Deposits and Other Assets, which was applied against the Purchase Price, (ii) deposited $1,260,000 of the Purchase Price for the purposes of securing the post-closing indemnification obligations of Seller, and (iii) deposited $5,000,000 of the Purchase Price at closing for purposes of securing any Purchase Price adjustments. In addition, Buyers obtained a representation and warranty insurance policy to provide coverage for certain breaches of representations and warranties of the Seller.

Renewable Natural Gas Project. The RNG project in Northwest Iowa (the “RNG Project”) started up and began producing and injecting initial volumes of biogas in 2022, during the project’s testing and ramp-up period. In 2023, the project achieved stable production levels and surpassed our annual production target of 310,000 million British thermal units (“MMBtu”). In addition, in 2024 we completed an expansion to the RNG Project to increase its annual expected output from 355,000 MMBtu to 400,000 MMBtu.

Gevo’s RNG revenue primarily stems from the RNG Project’s sales of the environmental attributes associated with RNG. These include attributes available from California’s Low Carbon Fuel Standard (“LCFS”) program and the U.S. Environmental Protection Agency (“EPA”) Renewable Fuels Standard (“RFS”) program (“RFS Program”) to receive renewable identification numbers (“RINs”). Gevo was granted registration approval by the EPA in 2022, allowing us to participate in the RFS Program to receive RINs.

We have operated under a temporary pathway from California’s LCFS program, which we received during the first quarter of 2023. We continued to realize sales for our environmental attributes under the temporary pathway for LCFS credits and RINs in 2024. In March of 2025, the California Air Resources Board (“CARB”) approved our application for a provisional Tier 2 pathway, representing the significantly lower carbon intensity of our RNG than was reflected under the temporary pathway, see Note 23, Subsequent Events. With the provisional pathway approval having been received prior to March 31, 2025, we will be able to apply the provisional pathway carbon intensity score to dispensing activities that occurred in Q4 2024, which also included RNG production for the months of July and August stored and dispensed in Q4 2024, and for dispensing activities throughout 2025.

Verity. Verity Holdings, LLC (“Verity”), a wholly owned subsidiary of Gevo, Inc., is at the forefront of creating the ability to track, verify, and empirically value carbon intensity across the full carbon lifecycle. Verity provides end-to-end carbon accounting via a proprietary digital Measure, Report and Verify (“MRV”) platform. This platform specializes in carbon accounting and services aimed at maximizing the value of environmental benefits throughout the entire business system. Verity's comprehensive approach includes regulatory analysis, strategy development, life cycle analysis, compliance management, audit readiness, carbon marketing, utilization and retirement services, and trading/marketing for Scope 1, 2, and 3 emissions. By integrating advanced technological capabilities, Verity supports Gevo's mission of converting renewable energy and biogenic carbon into sustainable fuels and chemicals with a net zero or better carbon footprint.

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Key Verity project highlights include:

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It is critical that we prove the CI of Gevo’s products, ensuring that these values are accurate and auditable. The mission of Verity is to document CI and other sustainability attributes and apply Distributed Ledger Technology, commonly referred to as blockchain, to create a record of the products throughout the entire business system. Verity starts by calculating carbon intensity of feedstocks from data collected at the farm and field level. We plan to track these feedstocks through production at our plants where we intend to use a mix of renewable electricity, biogas, renewable hydrogen and other potentially decarbonized energy sources in production. The aggregated CI data supports a finished renewable fuel with a net CI reduction which can be quantified as a digital asset and monetized in voluntary or compliance carbon markets, and used to meet compliance requirements for tax incentives while preventing double-counting. We believe that in the future, regenerative agricultural practices have the potential to sequester large quantities of soil organic carbon while improving soil health.

There is increasing regulatory and stakeholder pressure on global corporations to lower emissions. These trends are driving demand for carbon credits, giving rise to two sets of markets, the regulated compliance carbon market and the unregulated voluntary carbon market, both of which could grow meaningfully in the coming decades. Verity intends to document and account for carbon capture in conjunction with scientifically supported measurement techniques. The potential for Verity is broad and could be applicable to tracking the CI of various items beyond Gevo’s internal businesses, including, but not limited to, renewable fuels, food, feed and industrial products through their respective business systems and value chains. Our robust scientific measurement, reporting, and verification plan and approach is expected to provide a high-quality credit that should meet regulated compliance and unregulated carbon markets.

Contracts. In March 2023, we entered into a joint development framework agreement with Southwest Iowa Renewable Energy; in August 2023, we entered into a joint development framework agreement with a second ethanol producer in the midwestern U.S. that has over 100 million gallons of capacity; and in October 2023, we entered into an agreement with a third ethanol producer in the southwestern U.S. These agreements include commercial terms and profit-sharing frameworks. As we grow Verity as an externally facing business, we are working to sign up additional ethanol and biofuel customers. Each of these agreements will focus on implementing Verity technology and developing the market for carbon credits to help farmers and biofuel producers quantify the CI reductions for their products.

During the second quarter of 2023, we launched the Verity Tracking platform (the “Platform”) with farmers in the Lake Preston, South Dakota area who participated in our 2022 grower program. In its initial release, the Platform allows the users to measure, report, verify, and view the CI scores at both the farm average and field-by-field levels. The Platform provides insights into the contributors and removers behind the CI, helping users to understand the factors that drive differences in CI performance between fields. Users can also compare their scores with the U.S. national average calculated by the GREET model.

In the third and fourth quarters of 2024, Verity entered into agreements with two additional ethanol plants, extending our reach in the U.S. ethanol market. Verity also added two soybean processing facilities to assist in tracking environmental aspects of soybean oil and renewable diesel, enabling them to expand into new markets

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Acquisition of CultivateAI. In the third quarter of 2024, Gevo acquired Cultivate Agricultural Intelligence, LLC (“CultivateAI”), a leading provider of agricultural data through a cloud-based, mobile SaaS platform. CultivateAI is a proven business with a track record of repeatable revenue. The business provides agricultural data to clients through a SaaS platform, leveraging high-resolution drone and satellite technology. This process begins by capturing detailed imagery of an agricultural operation. CultivateAI uses that information to build missing GIS maps and create a digital agricultural inventory, including facilities, assets, and crops. This comprehensive digital inventory generates quantifiable insights that help customers improve management practices and overall performance. CultivateAI’s technology has enabled Verity to accelerate its technology and business development efforts, and overall growth.

U.S. Department of Agriculture. In September 2023, we received a grant from the U.S. Department of Agriculture (“USDA”) through its Partnerships for Climate-Smart Commodities grant for Gevo’s Climate-Smart Farm-to-Flight Program (the “USDA Grant”). The USDA Grant was awarded for up to $46.3 million, of which $30.0 million is anticipated being reimbursed to Gevo from the USDA Grant, contingent on Gevo’s spend of up to $43.3 million and other third-party spend of up to $3.0 million. The project expects to create critical structural climate-smart market incentives for corn with a low carbon intensity (“CI”) score as well as to accelerate the production of SAF to reduce dependency on fossil-based fuels. In addition, this program will help provide support and incentive payments for farmers to produce, measure, report and verify low CI corn using climate smart agricultural practices, as well as accelerate development of the low-CI corn supply chain for low-carbon ethanol and SAF.

During the year ended December 31, 2024, the Company incurred $6.5 million of costs under the USDA Grant, which are included in Project development costs in the Consolidated Statement of Operations. During the year ended December 31, 2024, the Company recognized $4.5 million of amounts received, included in Project development costs in the Consolidated Statement of Operations, which represent reimbursements for prior periods. The Company expects to be reimbursed for all expended eligible costs not yet reimbursed by the USDA Grant in future periods.

Ethanol to Olefins and the LG Chem Agreement. In April 2023, we entered into a joint development agreement with LG Chem, Ltd. (“LG Chem”) a leading global chemical company to develop bio-propylene for renewable chemicals using our Ethanol-to-Olefins (“ETO”) technology. Gevo’s proprietary ETO technology can target carbon neutral or carbon negative drop-in replacements for traditional petroleum-based building blocks called olefins, including bio-propylene, which can be used for renewable chemicals or fuels including sustainable aviation fuel. These plant-based, renewable olefins would be derived from atmospheric CO2 captured through photosynthesis and are expected to deliver the same performance in final products on the market today. The market opportunities for these building blocks include low-carbon polypropylene, polyethylene and similar chemical products whose market size for low-carbon solutions is $400.0 – $500.0 billion. We also believe ETO will reduce the capital and operating cost in future alcohol-to-jet SAF production facilities.

Under the terms of the agreement with LG Chem, we will provide the core enabling technology we have developed for renewable olefins to be produced from low-carbon ethanol and will collaborate with LG Chem to accelerate the pilot research, technical scale-up, and commercialization of bio-propylene. LG Chem is expected to bear all scale-up costs for chemicals and make certain payments to Gevo. In the second quarter of 2023, we received $1.1 million, which is net of foreign taxes withheld of $0.2 million, and in the second quarter of 2024 received $0.7 million, which is net of foreign taxes withheld of $0.1 million. We expect to receive an additional $0.4 million through 2025 to help defray costs associated with the joint development efforts. In addition, LG Chem agreed to make certain payments to us upon commencement of commercialization as follows:

We also achieved the following recent milestones on our ETO technology:

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Shell Purchase Contract. On August 16, 2024, we entered into a Purchase Contract (the “Shell Agreement”) with Shell Global Solutions Deutschland GmbH (“Shell”), pursuant to which Gevo agreed to supply to Shell (a) hydrocarbon-based performance racing blend stock (“2GFuel”); and (b) other products if and as may be mutually agreed from time to time. The 2GFuel must meet certain quality specifications set forth in the Shell Agreement.

Luverne Facility. In 2022, the activities at our Luverne Facility were transitioned to care and maintenance, market development, and customer education, as we shifted focus to our Net Zero Projects. The workforce adjustment which resulted allowed us to retain key personnel and redeploy some resources to our ATJ-60 and RNG projects to provide valuable knowledge and experience for the future strategic growth of the Company. The Luverne Facility is well equipped and positioned as a development site as it provides a unique opportunity to showcase our decarbonization and business systems and raise awareness with future partnerships, investors, and local communities, even though operations at the site have been minimized. Future operations, if any, will be tailored to support a focus on advancing our technology, testing, optimizing alternative feedstocks and yeast strains, and unit operations as well as partnership development for fuels and specialty chemicals with integrated solutions for GHG reductions. We continue to evaluate incentive opportunities recently introduced by the Inflation Reduction Act, which may positively impact the future economics of our operation at Luverne.

Investment Tax Credit Sales. On September 18, 2024, we sold approximately $15.3 million in Investment Tax Credits (“ITCs”) to an undisclosed corporate buyer. This transaction monetized IRA Investment Tax Credits generated from the commercialization of the RNG Project by Gevo NW Iowa RNG, LLC and provided net cash proceeds of approximately $14.0 million to us after transaction fees. Due to a recalculation of the RNG Project’s available ITCs, the amounts in this paragraph have been adjusted from the previously disclosed amounts of approximately $20 million in ITC sales and approximately $17.0 million net cash proceeds to us.

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Key Operating Metrics

Total operating revenues reflect both sales of RNG and sales of related environmental attributes. As a result, our revenues are primarily affected by unit production of RNG, production of environmental attributes, and the prices at which we monetize such production. The following table summarizes the key operating metrics described above, recorded on the RNG segment, which metrics we use to measure performance:

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Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the notes to those Consolidated Financial Statements appearing in this Annual Report. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” in Part I, Item 1A of this Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements.

This section of this Report discusses year-to-year comparisons between 2024 and 2023. The complete Management’s Discussion and Analysis of Financial Condition and Results of Operations for year-to-year comparisons between 2023 and 2022 and other discussions of 2022 items can be found within Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 7, 2024, which is available free of charge on the SEC’s website at www.sec.gov and our corporate website at www.gevo.com.

Comparison of the Years Ended December 31, 2024 and 2023

(in thousands)

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Operating revenue. During the year ended December 31, 2024, operating revenue decreased $0.3 million compared to the year ended December 31, 2023, primarily due to lower sales of environmental attributes from our RNG project. This is due to a buildup of environmental attribute inventory in anticipation of receiving the final pathway approval under the LCFS Program, which we expect to result in a lower CI score. The approval is anticipated in the first quarter of 2025. During the year ended December 31, 2024, we sold 366,557 MMBtu of RNG from our RNG project, resulting in biogas commodity sales of $0.7 million and environmental attribute sales of $15.1 million, see Key Operating Metrics above. Additionally, we recognized $0.8 million of licensing and development revenue from the agreement with LG Chem as well as $0.3 million from the sale of isooctane and software services during the year ended December 31, 2024.

Cost of production. Cost of production remained consistent during the year ended December 31, 2024, compared to the year ended December 31, 2023.

Depreciation and amortization. Depreciation and amortization, which includes depreciation and amortization which was allocated to inventory and is included in depreciation and amortization upon the sale of the associated inventory, decreased $0.7 million during the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to the timing of sales of environmental attribute inventory.

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Research and development expense. Research and development expense decreased $1.1 million during the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to a reduction of consulting expenses and personnel related costs during the year ended December 31, 2024.

General and administrative expense. General and administrative expense increased $3.2 million during the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to increases in personnel costs related to the hiring of highly qualified and skilled professionals, and professional consulting fees, partially offset by a decrease in stock-based compensation.

Project development costs. Project development costs are related to our future Alcohol-to-Jet Projects and Verity and consist primarily of employee expenses, preliminary engineering costs, and technical consulting costs. Project development costs increased $3.4 million during the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to patent related costs, increases in personnel costs, and consulting fees.

Acquisition related costs. Certain acquisition costs incurred related to the Red Trail Purchase Agreement during the year ended December 31, 2024.

Facility idling costs. Facility idling costs are related to care and maintenance of our Luverne Facility.  Facility idling costs decreased by $1.1 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Loss from operations. The Company’s loss from operations increased by $9.0 million during the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to the increase in costs related to acquisitions, general and administrative expenses, and project development costs.

Interest expense. Interest expense increased by $1.7 million during the year ended December 31, 2024, compared to the year ended December 31, 2023, and was primarily comprised of interest on the Remarketed Bonds.

Interest and investment income. Interest and investment income decreased $3.4 million during the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to the usage of cash for our capital projects and operating costs, resulting in a lower balance of cash equivalent investments during the year ended December 31, 2024.

Other income. Other income increased $1.6 million during the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due our termination of the expediting procurement agreement with a local utility which resulted in a one-time charge of $1.6 million in 2023.

Sources of Our Revenues

Our current and historic revenues are primarily derived from: (i) the sale of RNG commodities and the related environmental attributes; (ii) licensing and development sales; (iii) hydrocarbon sales consisting primarily of the sale of isooctane derived from our isobutanol and SAF; (iv) software services; and (v) the sale of isobutanol and related products.

Principal Components of Our Cost Structure

Cost of Production. Our cost of production consists primarily of costs directly associated with the production of RNG and other renewable hydrocarbon products, including isobutanol, SAF, and isooctane. Such costs include direct materials, direct labor, other operating costs and certain plant overhead costs. Direct materials include feedstock, denaturant and process chemicals. Direct labor includes compensation (including stock-based compensation) of personnel directly involved in production operations. Other operating costs include utilities and natural gas and wind power usage.

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Research and Development. Our research and development expense consists of costs incurred to identify, develop and test our technologies for the production of renewable hydrocarbon products and the development of downstream applications thereof. Research and development expense includes personnel costs (including stock-based compensation), consultants and related contract research, facility costs, supplies, license fees paid to third parties for use of their intellectual property and patent rights and other overhead expenses incurred to support our research and development programs.

General and Administrative. General and administrative expense consists of personnel costs (including stock-based compensation), consulting and service provider expenses (including patent counsel-related costs), legal fees, marketing costs, insurance costs, occupancy-related costs, travel and relocation expenses and hiring expenses. Our corporate personnel, consisting of subject matter experts, including chemists, engineers, and sustainability experts, dedicate the majority of their time and efforts for the development of our growth projects. Costs incurred have not yet been allocated to the specific growth projects on the face of our financial statements.

Project Development Costs. Project development costs consist of consulting, preliminary engineering costs, personnel expenses (including stock-based compensation) and research and development expenses to support the business activities of our Alcohol-to-Jet Projects.

Depreciation and Amortization. Depreciation and amortization relates to property, plant and equipment associated with the production of RNG and other renewable hydrocarbon products, including isobutanol, SAF, and isooctane, as well as that used in product development.

Liquidity and Capital Resources

As of December 31, 2024, we had cash and cash equivalents of $189.4 million and current restricted cash of $69.6 million, totaling $259.0 million in cash, cash equivalents, and restricted cash. Our cash equivalents consist of investments in U.S. government money market funds. We expect to use our cash, cash equivalents, and restricted cash for the following purposes: (i) identification, development, engineering, licensing, acquisition and construction of production facilities and the Company’s Alcohol-to-Jet Projects; (ii) in combination with project level debt, the acquisition of Red Trail Energy; (iii) potential investment in RNG projects; (iv) operating activities at the Company’s corporate headquarters in Colorado, including research and development work; (v) exploration of strategic alternatives and additional financing, including project financing; and (vi) debt service obligations associated with any future borrowings. We believe that as a result of our cash and cash equivalents balances and the performance of our current and expected operations, we will be able to meet our obligations and other potential cash requirements during the next 12 months from the date of this report.

Since our inception in 2005, we have devoted most of our cash resources to the development and commercialization of routes to efficiently produce fuels and chemicals from carbohydrates, such as renewable feedstock, using alcohols (isobutanol and ethanol) as intermediates. We have incurred losses since inception, have a significant accumulated deficit, and expect to incur losses for the foreseeable future. Historically we have financed our operations primarily with proceeds from the issuance of equity, warrants, borrowings under debt facilities, and interest income. Our current sources of cash include sales of RNG, environmental attributes, and licensing fees. We may also fund future operations through additional private and/or public offerings of equity or debt securities. In addition, we may seek additional capital, on acceptable terms, through arrangements with strategic partners or from other sources. Notwithstanding, there can be no assurance that we will be able to raise additional funds or achieve or sustain profitability or positive cash flows from operations.

Our transition to profitability is dependent upon, among other things, the successful development and commercialization of our projects, the development, licensing, acquisition and construction of commercial level production facilities to support our offtake agreements, the achievement of a level of revenues adequate to support the Company’s cost structure, and the ability to raise capital to finance the development, licensing, acquisition, and construction of additional production facilities.

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The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):

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Operating Activities

Our primary uses of cash from operating activities are personnel-related expenses, and research and development-related expenses, including costs incurred under development agreements, costs of licensing of technology, legal-related costs, and expenses for the development and commercialization of routes to efficiently produce fuels and chemicals from renewable feedstock carbohydrates using alcohols (isobutanol and ethanol) as an intermediate.

During the year ended December 31, 2024, net cash used in operating activities was $57.4 million compared to $53.7 million for the year ended December 31, 2023. Non-cash charges primarily consisted of stock-based compensation expense of $14.7 million and depreciation and amortization of $18.3 million. The net cash outflow from changes in operating assets and liabilities decreased $10.1 million, primarily due to a decrease in cash outflows of $6.6 million related to prepaid expenses and other current assets, deposits and other assets, $2.6 million related to increases in accounts receivable as well as $2.4 million related to accounts payable and accrued liabilities. These were partially offset by $1.4 million of increased costs associated with the sale of environmental attribute inventory.

Investing Activities

During the year ended December 31, 2024, we had $51.8 million in cash used in investing activities, comprised of $51.1 million of investments in our capital projects, including $45.4 million in GevoFuels, $3.9 million in the RNG Project, and $1.8 million in Verity platform development. In addition, there was a $10.0 million payment of earnest money in connection with the Red Trail Purchase Agreement and $6.0 million paid for the acquisition of CultivateAI. These were partially offset by $15.3 million proceeds from the sale of investment tax credits from the RNG Project.

We have substantially completed the engineering design on our ATJ-60 project and are proceeding with detailed engineering and modularization design. We are refining the project cost estimates with EPC partners to identify opportunities to reduce and negotiate the cost. We currently expect to finance the construction of ATJ-60 at the subsidiary level using a combination of Company equity and third-party capital, to include non-recourse debt. The Company previously projected a range of $90.0 – $125.0 million to be spent on ATJ-60 between January 2024 and the financial close of ATJ-60. Year to date 2024, the Company expects the remaining spend until the financial close of ATJ-60 to fall below the previously estimated range. Cash distributions from future ATJ-60 earnings would be proportionate to Gevo’s ownership in ATJ-60 under this expected financing structure. The use of project debt and third-party equity allows us to conserve capital for use on other growth projects. We expect to apply similar development and financing strategies to future Alcohol-to-Jet Projects to grow our SAF production to meet the demand for SAF.

Gevo is in the process of identifying and performing early site development work for additional Alcohol-to-Jet production locations. These potential sites include greenfield and brownfield (i.e., at an existing ethanol plant) locations that are advantageous in terms of potential economics, opportunities to decarbonize, and time to market. Early development work at the Red Trail Energy site is currently underway.

During the year ended December 31, 2023, we had $114.1 million in cash provided by investing activities, of which $168.6 million related to proceeds from sales and maturities of marketable securities, partially offset by $54.5 million of investments in our capital projects, including $28.2 million in ATJ-60, $6.4 million in the RNG Project, and $19.9 million in other projects.

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Financing Activities

During the year ended December 31, 2024, we had $7.4 million of net cash used in financing activities, due to payments for repurchases of the Company’s common stock, debt issuance costs, finance lease liabilities, and equipment loans, partially offset by proceeds from the exercise of warrants.

We currently expect to finance the construction of ATJ-60 at the subsidiary level using a combination of our own, third-party, and debt capital. The Company expects to retain an equity interest in the project and may invest equity in the project using the proceeds from the reimbursement of the Company’s ATJ-60 development expenditures. Cash distributions from future ATJ-60 earnings would be proportionate to Gevo’s ownership in ATJ-60 under this expected financing structure which would allow us to conserve and redeploy our capital on other growth projects, including our Alcohol-to-Jet 2 project. We expect to apply similar development and financing strategies to future Alcohol-to-Jet Projects to enable growth of SAF production to meet demand for SAF.

During the year ended December 31, 2023, we had $0.2 million of net cash used in financing activities, due to payments for equipment loans and finance lease liabilities.

Critical Accounting Estimates

Our Consolidated Financial Statements are based on the application of U.S. GAAP, which requires us to make estimates and assumptions about future events that affect the amounts reported in our Consolidated Financial Statements and the accompanying notes. Future events and their effects cannot be determined with certainty; therefore, the determination of estimates requires the exercise of judgment. We believe our judgments related to these accounting estimates are appropriate. However, if different assumptions or conditions were to prevail, the results could be materially different from the amounts recorded.

Impairment of long-lived assets - We evaluate property, plant and equipment, operating lease right-of-use assets and other finite-lived assets for impairment when facts and circumstances indicate that the carrying values of such assets may not be recoverable.

If it is determined that a triggering event has occurred, we prepare a quantitative evaluation based on undiscounted cash flow projections expected to be realized over the remaining useful life of the primary asset. The carrying amount is not recoverable if it exceeds the sum of undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is not recoverable, the impairment loss is measured as the excess of the asset’s carrying value over its fair value.

We estimate fair value measurements to record impairment to certain long-lived assets and to determine fair value disclosures in accordance with Accounting Standards Codification ("ASC") 360 and 820. These significant estimates, judgments, inputs, and assumptions include, when applicable, the selection of an appropriate valuation method depending on the nature of the respective asset, such as the income approach, the market or sales comparison approach. The fair value of our operating asset groups is estimated using a discounted cash flow model as quoted market prices are not available. For other long-lived assets, fair value is determined using an approach that is appropriate based on the relevant facts and circumstances, which may include discounted cash flows or comparable transactions analyses.

Determining whether impairment indicators exist, estimating the undiscounted cash flows and fair value of the Company’s long lived assets for impairment testing requires significant judgment. The assumptions used to assess impairment consider historical trends, macroeconomic and industry conditions, and projections consistent with the Company’s operating strategy. Our undiscounted cash flow forecasts contain uncertainties because they require management to make assumptions and to apply judgment in estimating future cash flows including forecasting projected revenues and margins based on the future sales volumes, future commodity prices, operating costs, forecasting useful lives of the assets, assessing the probability of different outcomes, and with respect to asset fair values selecting an appropriate discount rate to estimate the present value of those projected cash flows. The discount rate is selected based on the return we believe a market participant would require, that appropriately reflects the risks associated with the cash flows when determining a purchase price for the asset groups.

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Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, in Item 8. “Financial Statements and Supplemental Data,” of this Report, for a discussion of recent accounting pronouncements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K (this “Annual Report”). Some of the information contained in this discussion and analysis and set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the section titled “Risk Factors” in Part I, Item 1A of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Company Overview

We are a growth-oriented, carbon abatement company with the mission of solving greenhouse gas emissions for those sectors of the transportation industry that are not amenable to electrification or hydrogen. We believe that the market size for hydrocarbon fuels will continue to remain significant in the long-term even with the rapid adoption of electric vehicles and hydrogen technologies.

We are focused on transforming renewable energy into energy-dense liquid hydrocarbons that can be used as renewable fuels, such as sustainable aviation fuel (“SAF”), with the potential to achieve a “net-zero” greenhouse gas (“GHG”) footprint. We believe that this addresses the global need of reducing GHG emissions with “drop in” sustainable alternatives to petroleum fuels. We use the Argonne National Laboratory’s Greenhouse gases, Regulated Emissions, and Energy use in Transportation model (the “GREET Model”) to measure, predict and verify GHG emissions across the life cycle of our products. The “net-zero” concept means Gevo expects that by using sustainably grown feedstock (e.g., low till, no-till and dry corn cultivation), renewable and substantially decarbonized energy sources, drop-in hydrocarbon fuels can be produced that have a net-zero, full life cycle footprint measured from the capture of renewable carbon through the burning of the fuel.

Our primary market focus, given current demand and growing customer interest, is hydrocarbon fuels, and SAF in particular. We believe that SAF from carbohydrates to alcohol is the most economically viable approach for carbon abatement. We also have commercial opportunities for other renewable hydrocarbon products, such as RNG; hydrocarbons for gasoline blendstocks and diesel fuel; ingredients for the chemical industry, such as ethylene and butenes; plastics and materials; and other chemicals. Global fuel consumption by commercial airlines continues to remain strong, with global fuel consumption of more than 100 MGPY and growing.

Project Updates

Net-Zero Projects. Our concept of “Net-Zero Projects” is a series of planned facilities to produce energy dense liquid hydrocarbons using renewable energy and our proprietary technology. Our initial Net-Zero Project, Net-Zero 1 (“NZ1”), is expected to be located in Lake Preston, South Dakota, and is being currently designed to produce approximately 65 million gallons per year (“MGPY”) of total hydrocarbon volumes, including 60 MGPY of SAF, which would fulfill part of our approximately 350 MGPY of SAF and hydrocarbon supply agreements. The liquid hydrocarbons, when burned, are expected to have a “net-zero” GHG footprint. Along with the hydrocarbons, NZ1 is expected to produce approximately 695,000 tons per year of high-value protein products for use in the food chain and more than 34 million pounds per year of corn oil. Our products will be produced in three steps: the first step is milling the corn to produce the carbohydrates needed for the production of SAF while simultaneously enabling the production of protein and oil; the second step produces alcohols using carbohydrate-based fermentation; and the third step is the conversion of the alcohols into hydrocarbons.

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We work with several technology, design and equipment partners, most notably Fluid Quip Technologies (FQT), Axens, and Praj. FQT and Axens provide area operation designs which have been incorporated into Gevo’s proprietary overall design of low CI carbohydrate-to-hydrocarbon plants, such as NZ1 plant. Praj is working with us on the proprietary design and construction of prefabricated process modules for our plants. Our partners are working with us on proprietary process designs that have the potential to lower capital and operating cost in the future. The advantage of utilizing Fluid Quip and Axens area operation and related process designs which are well proven in other applications, we believe we have chosen technology which is substantially de-risked.

We completed the value engineering on our NZ1 project and are proceeding with detailed engineering, modularization design, and capital costs updates. We are currently refining project cost estimates with engineering, procurement, and construction (“EPC”) partners to identify cost saving opportunities, and currently expect to finance the construction of NZ1 at the subsidiary level using a combination of Company equity and third-party capital, to include non-recourse debt. The Company expects to have invested a cumulative total of $236 to $286 million of cash equity in the project at financial close. Cash distributions from future NZ1 earnings would be proportionate to Gevo’s ownership in NZ1 under this expected financing structure. The use of project debt and third party equity allows us to conserve capital for use on other growth projects. We expect to apply similar development and financing strategies to future Net-Zero Projects to enable growth of SAF production to meet demand for SAF.

We have substantially completed the engineering design of NZ1. We have substantially completed value engineering and we are now focusing on detail engineering with an EPC partner, to reduce and contractually finalize a negotiated lump-sum, fixed price agreement whereby the EPC will build and deliver the plant. This detail engineering work is focused specifically on increasing the modularization of component parts on the NZ1 plant design, which means that we expect that the process equipment would be built into modules at a factory, then the modules would be assembled onsite at NZ1, with the goal of minimizing specialized field work typical in plant construction of this type. This approach is expected to lower the risk and cost of, and access to, skilled labor at the site and reduce the supply chain constrictions for some of our long-lead equipment. Increasing the modularization of the plant design is also expected to reduce our spend in advance of securing third-party equity and debt financing for NZ1 and increase the certainty of construction schedule for those counterparties.

In order to achieve full construction financing for NZ1, we need to secure third-party equity and debt. Upon receiving an invitation from the U.S. Department of Energy (“DOE”), we submitted a Part II Application for a DOE loan guarantee for a direct lending from Federal Financing Bank. In August 2023, Gevo was invited to enter the due diligence and underwriting phases with DOE. Given the current interest rate environment and general macroeconomic conditions, a DOE-guaranteed loan is our most attractive debt option and is expected to offer the lowest cost of debt for the project. We expect that obtaining a DOE-guaranteed loan will have the benefit of reducing the overall amount of equity required to finance NZ1 and should result in higher project equity returns for investors which should increase the likelihood of Gevo successfully financing NZ1. The DOE loan application process is targeted to be complete in 2024. We expect that our NZ1 plant start-up date will occur twenty-four to thirty months after the NZ1 financing closes, the timing of which is uncertain. In parallel with the DOE-guaranteed loan process, we continue to explore debt financing for NZ1 without the benefit of the DOE-guaranteed loan. We are also working to secure access to carbon capture and sequestration at the site.

We are evaluating and performing early site development work at several sites in the U.S. for other greenfield sites. These sites include several greenfield locations that are particularly advantageous in terms of potential economics, opportunities to decarbonize, and time to market. In addition, we are pursuing potential Net-Zero Projects with several existing ethanol plant sites. Existing ethanol plants need to be decarbonized with renewable energy or de-fossilized energy and/or carbon sequestration. Gevo has developed a preferred list of potential partners and sites with decarbonization in mind and is engaged in preliminary feasibility and development discussions with several of these potential partners. We plan to give priority to existing industrial plant sites that have attractive potential economics and high predictability of timeline for decarbonization.

Renewable Natural Gas Project. The Gevo RNG project started up and began producing and injecting initial volumes of biogas in 2022, during the project’s testing and ramp-up period. The project achieved stable production levels and surpassed our annual production target of 310,000 MMBtu for 2023. In addition, we completed an expansion to the Gevo RNG project to increase its annual design capacity from 355,000 MMBtu to 400,000 MMBtu.

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Gevo’s revenue from the RNG project in Northwest Iowa (the “RNG Project”) stems from sales of RNG and from the environmental attributes associated with its RNG sales, including the attributes available from California’s Low Carbon Fuel Standard (“LCFS”) program and the U.S. Environmental Protection Agency (“EPA”) Renewable Fuels Standard (“RFS”) program to receive renewable identification numbers (“RINs”). Gevo was granted registration approval by the EPA in 2022, allowing us to participate in its Renewable Fuel Standard Program (“RFS Program”) to receive renewable identification numbers (“RINs”).

During the first quarter of 2023, we received approval for a temporary pathway under California’s Low Carbon Fuel Standard (“LCFS”) program. We continue to realize substantial sales for our environmental attributes of both LCFS credits and RINs in 2023.

Verity. It is critical that we can prove the CI of our products, ensuring that these values are accurate and auditable. The mission of Verity (“Verity”), including Verity Tracking and Verity Carbon Solutions, is to document CI and other sustainability attributes and apply Distributed Ledger Technology, commonly referred to as blockchain, to create a record of the products throughout the entire business system. Verity starts by calculating carbon intensity of feedstocks from data collected at the farm and field level. We plan to track these feedstocks through production at our plants where we intend to use a mix of renewable electricity, biogas, renewable hydrogen and other potentially decarbonized energy sources in production. The CI data would then be combined to deliver a comprehensive CI reduction in a finished renewable fuel. The resulting CI reduction value has potential to be quantified as a digital asset and monetized in voluntary or compliance carbon markets, and providing compliance needs for tax incentives while preventing double-counting. We believe that in the future, regenerative agricultural practices have the potential to sequester large quantities of soil organic carbon while improving soil health.

There is increasing regulatory and stakeholder pressure on global corporations to lower emissions. These trends are driving demand for carbon credits, giving rise to two sets of markets, the regulated compliance carbon market and the unregulated voluntary carbon market, both of which could grow meaningfully in the coming decades. The total value of major compliance carbon markets is expected to be greater than $800 billion in 2023, according to Bloomberg. Verity intends to document and account for carbon capture in conjunction with scientifically supported measurement techniques. The potential for Verity is broad and could be applicable to tracking the CI of various items beyond Gevo’s internal businesses, including, but not limited to, renewable fuels, food, feed and industrial products through their respective business systems and value chains. Our robust scientific measurement, reporting, and verification plan and approach is expected to provide a high-quality credit that should meet regulated compliance and unregulated carbon markets.

In March 2023, we entered into a joint development framework agreement with Southwest Iowa Renewable Energy; in August 2023, we entered into a joint development framework agreement with a second ethanol producer in the Midwest that has over 100 million gallons of capacity; and in October 2023, we entered into an agreement with a third ethanol producer in the Southwest. These agreements include commercial terms and profit-sharing frameworks. As we grow Verity as an externally facing business, we are working to sign up additional ethanol and biofuel customers. Each of these agreements will focus on implementing Verity technology and developing the market for carbon credits to help farmers and biofuel producers quantify the CI reductions for their products.

During the second quarter of 2023, we launched the Verity Tracking platform (the “Platform”) with farmers in the Lake Preston, South Dakota area who participated in our 2022 grower program. In its initial release, the Platform allows the users to measure, report, verify, and view the CI scores at both the farm average and field-by-field levels. The Platform provides insights into the contributors and removers behind the CI, helping users to understand the factors that drive differences in CI performance between fields. Users can also compare their scores with the U.S. national average calculated by the GREET model.

Key Verity project highlights include:

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Luverne Facility. In 2022, the activities at our Luverne Facility were transitioned to care and maintenance, market development, and customer education, as we shifted focus to our Net Zero Projects. The workforce adjustment which resulted allowed us to retain key personnel and redeploy some resources to our NZ1 and RNG projects to provide valuable knowledge and experience for the future strategic growth of the Company. The Luverne Facility is well equipped and positioned as a development site as it provides a unique opportunity to showcase our decarbonization and business systems and raise awareness for future partnerships, investors, and local communities, even though operations at the site have been minimized. Future operations, if any, will be tailored to support a focus on advancing our technology, testing, optimizing alternative feedstocks and yeast strains, and unit operations as well as partnership development for fuels and specialty chemicals with integrated solutions for GHG reductions. We continue to evaluate incentive opportunities recently introduced by the Inflation Reduction Act, which may positively impact the future economics of our operation at Luverne.

U.S. Department of Agriculture. In September 2023, we executed a Notice of Grant and Agreement Award with the U.S. Department of Agriculture (“USDA”) for a Partnerships for Climate-Smart Commodities grant of up to $30.0 million for Gevo’s Climate-Smart Farm-to-Flight Program, with project activity beginning for the 2023 crop year. The project expects to create critical structural climate-smart market incentives for low CI corn as well as to accelerate the production of SAF to reduce the sector’s dependency on fossil-based fuels. In addition, this program will help provide support and incentive payments for farmers to produce, measure, report and verify low CI corn using climate smart agricultural practices, as well as accelerate development of the low-CI corn supply chain for low-carbon ethanol and SAF.

LG Chem Agreement. In April 2023, we entered into a joint development agreement with LG Chem, Ltd. (“LG Chem”) a leading global chemical company to develop bio-propylene for renewable chemicals using our Ethanol-to-Olefins (“ETO”) technology. Gevo’s proprietary ETO technology can target carbon neutral or carbon negative drop-in replacements for traditional petroleum-based building blocks called olefins, including bio-propylene, which can be used for renewable chemicals or fuels including sustainable aviation fuel. These plant-based, renewable olefins would be derived from atmospheric CO2 captured through photosynthesis and are expected to deliver the same performance in final products on the market today. Under the terms of the agreement, we will provide the core enabling technology it has developed for renewable olefins to be produced from low-carbon ethanol and together the parties will collaborate to accelerate the pilot research, technical scale-up, and commercialization of bio-propylene. LG Chem is expected to bear all scale-up costs for chemicals and make certain payments to Gevo. We received $1.1 million, net of foreign taxes of $0.2 million, in the second quarter of 2023 under the agreement, and we expect to receive an additional $1.2 million over the next two years to help defray costs associated with the joint development efforts. In addition, LG Chem agreed to make certain payments to us upon commencement of commercialization as follows:

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Nasdaq Listing Rules Compliance

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On February 29, 2024, we received notice from Nasdaq that we were not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”), as the minimum bid price of our common stock had been below $1.00 per share for the previous 30 consecutive business days. We have 180 calendar days, or until August 27, 2024, to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the minimum bid price of our common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during the compliance grace period. In the event we do not regain compliance with the Minimum Bid Price Requirement by August 27, 2024, we may be eligible for an additional 180-calendar day compliance period. Our failure to regain compliance during the compliance period could result in delisting.

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Key Operating Metrics

Total operating revenues reflect both sales of RNG and sales of related environmental attributes. As a result, our revenues are primarily affected by unit production of RNG, production of environmental attributes, and the prices at which we monetize such production. The following table summarizes the key operating metrics described above, which metrics we use to measure performance:

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Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the notes to those Consolidated Financial Statements appearing in this Annual Report. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” in Part I, Item 1A of this Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements.

This section of this Report discusses year-to-year comparisons between 2023 and 2022. The complete Management’s Discussion and Analysis of Financial Condition and Results of Operations for year-to-year comparisons between 2022 and 2021 and other discussions of 2021 items can be found within Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 9, 2023, which is available free of charge on the SEC’s website at www.sec.gov and our corporate website at www.gevo.com.

Comparison of the Years Ended December 31, 2023 and 2022

(in thousands)

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Operating revenue. During the year ended December 31, 2023, revenue increased $16.0 million compared to the year ended December 31, 2022, primarily due to sales of RNG and environmental attributes from our RNG project. Sales under our RNG project commenced in the third quarter of 2022. During the year ended December 31, 2023, we sold 313,572 MMBtu of RNG from our RNG project, resulting in biogas commodity sales of $0.7 million and environmental attribute sales of $14.8 million, see Key Operating Metrics above. Additionally, we recognized $1.3 million of licensing and development revenue from the agreement with LG Chem as well as $0.4 million from the sale of isooctane during the year ended December 31, 2023.

Cost of production. Cost of production increased $3.3 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the production and sales from our RNG project, which significantly increased in 2023, after the ramp-up phase, as well as lower costs at the idling Luverne Facility in 2023.

Depreciation and amortization. Depreciation and amortization increased $11.1 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a full three quarters of additional depreciation expense in 2023 for RNG assets placed into service in Q3 2022 and accelerated depreciation on Agri-Energy segment assets due to shorter lives stemming from the impairment assessment during the third quarter of 2022. See Note 4 to the Consolidated Financial Statements for additional information.

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Research and development expense. Research and development expense decreased $0.8 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a reduction of consulting expenses, partially offset by an increase in personnel related costs due to additional headcount added during the year ended December 31, 2023.

General and administrative expense. General and administrative expense increased $2.7 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to increases in personnel costs related to the hiring of highly qualified and skilled professionals, professional consulting fees, and stock-based compensation. On a periodic basis, we assess our Corporate cost allocation estimates. During the year ended December 31, 2023, we performed an assessment which resulted in the implementation of Corporate cost allocations across all segments to reflect the use of centralized administrative functions as well as the allocation of personnel costs related to our project development efforts. If we had applied the most recent cost allocation estimate to the year ended December 31, 2023, it would have resulted in a decrease in General and administrative expense of approximately $28.4 million, with a corresponding increase primarily to Project development costs, representing the nature of the Company’s expenditures related to those growth projects: namely our view that substantial portions of these expenditures may be reimbursed to us upon financial close of NZ1, and their growth-oriented non-recurring and discretionary nature. The allocations did not impact the Company’s operating loss or net loss for the year ended December 31, 2023.

Project development costs. Project development costs are related to our future Net-Zero Projects and Verity which consist primarily of employee expenses, preliminary engineering costs, and technical consulting costs. Project development costs increased $4.7 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to increases in personnel costs and consulting fees.

Facility idling costs. Facility idling costs are related to care and maintenance of our Luverne Facility.  Facility idling costs decreased by $0.6 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to one-time charges recorded during 2022 related to removing flammable and other hazardous items from the site, writing off certain patents, and reduction in the workforce.

Impairment loss. No impairment loss was recorded during the year ended December 31, 2023. During the year ended December 31, 2022, the Company recorded a $24.7 million impairment loss on long-lived assets, which reduced the carrying value of certain property, plant, and equipment, and a leased right of use asset, at the Agri-Energy segment to its fair value. The impairments recorded relate to the determination to suspend production at the Luverne Facility and shift the plant into an idled, care and maintenance status during the third quarter of 2022. The impact of the one-time impairment charge of $24.7 million was $0.11 of basic and diluted impairment loss per share for the year ended December 31, 2022. See Note 4 to the Consolidated Financial Statements for additional information.

Loss on disposal of assets. The Company did not record a loss on disposal of assets for the year ended December 31, 2023. As a result of suspending the production of ethanol at the Luverne Facility, we wrote-off $0.5 million of costs during the year ended December 31, 2022, related to ancillary equipment and spare parts that are no longer expected to be utilized at the Luverne Facility. The equipment and spare parts had been planned to be used in ethanol production.

Loss from operations. The Company’s loss from operations decreased by $20.9 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to increased revenue from RNG operations and LG Chem licensing in 2023, as well as the prior year impairment loss, partially offset by the increase in costs for our Net-Zero, Verity, and USDA Climate-Smart Grant projects.

Interest expense. Interest expense increased by $1.0 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the interest on the 2021 Bonds, which was capitalized into construction in process during the construction phase of our RNG Project in the prior periods.

Interest and investment income. Interest and investment income increased $15.6 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to an increase in interest earned on our cash equivalent investments as a result of higher interest rates.

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Other income. Other income decreased $3.7 million during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the receipt of $0.4 million from the USDA's Biofuel Producer Program in 2023 compared to $2.9 million in 2022. In addition, our termination of the expediting procurement agreement with a local utility resulted in a one-time charge of $1.6 million in 2023.

Sources of Our Revenues

Our current and historic revenues are primarily derived from: (i) the sale of RNG commodities and the related environmental attributes; (ii) licensing and development sales; (iii) hydrocarbon sales consisting primarily of the sale of isooctane derived from our isobutanol and SAF; and (iv) the sale of isobutanol and related products.

Principal Components of Our Cost Structure

Cost of Production. Our cost of production consists primarily of costs directly associated with the production of RNG and other renewable hydrocarbon products, including isobutanol, SAF, and isooctane. Such costs include direct materials, direct labor, other operating costs and certain plant overhead costs. Direct materials include feedstock, denaturant and process chemicals. Direct labor includes compensation (including stock-based compensation) of personnel directly involved in production operations. Other operating costs include utilities and natural gas and wind power usage.

Research and Development. Our research and development expense consists of costs incurred to identify, develop and test our technologies for the production of renewable hydrocarbon products and the development of downstream applications thereof. Research and development expense includes personnel costs (including stock-based compensation), consultants and related contract research, facility costs, supplies, license fees paid to third parties for use of their intellectual property and patent rights and other overhead expenses incurred to support our research and development programs.

General and Administrative. General and administrative expense consists of personnel costs (including stock-based compensation), consulting and service provider expenses (including patent counsel-related costs), legal fees, marketing costs, insurance costs, occupancy-related costs, travel and relocation expenses and hiring expenses. Our corporate personnel, consisting of subject matter experts, including chemists, engineers, and sustainability experts, dedicate the majority of their time and efforts for the development of our growth projects. Costs incurred have not yet been allocated to the specific growth projects on the face of our financial statements.

Project Development Costs. Project development costs consist of consulting, preliminary engineering costs, personnel expenses (including stock-based compensation) and research and development expenses to support the business activities of our Net-Zero Projects.

Depreciation and Amortization. Depreciation and amortization relates to property, plant and equipment associated with the production of RNG and other renewable hydrocarbon products, including isobutanol, SAF, and isooctane, as well as that used in product development.

Liquidity and Capital Resources

As of December 31, 2023, we had cash and cash equivalents of $298.3 million and current restricted cash of $77.3 million, totaling $375.6 million in cash, cash equivalents, and restricted cash. As of December 31, 2023, we had net working capital of $295.0 million, with $91.4 million of current liabilities. Our cash equivalents primarily consist of investments in U.S. government money market funds. We expect to use our cash, cash equivalents, and restricted cash for the following purposes: (i) identification, development, engineering, licensing, acquisition and construction of production facilities and the Company’s other Net-Zero Projects; (ii) potential investment in RNG projects; (iii) potential development of the Luverne Facility; (iv) operating activities at the Company’s corporate headquarters in Colorado, including research and development work; (v) exploration of strategic alternatives and additional financing, including project financing; and (vi) future debt service obligations. We believe as a result of our cash and cash equivalents balances, and the performance of our current and expected operations, we will be able to meet our obligations and other potential cash requirements during the next 12 months from the date of this report.

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Since our inception in 2005, we have devoted most of our cash resources to the development and commercialization of routes to efficiently produce fuels and chemicals from carbohydrates, such as renewable feedstock, using alcohols (isobutanol and ethanol) as intermediates. We have incurred losses since inception, have a significant accumulated deficit, and expect to incur losses for the foreseeable future. Historically we have financed our operations primarily with proceeds from the issuance of equity, warrants, debt securities, and borrowings under debt facilities. Our current sources of cash include sales of RNG, environmental attributes, and licensing fees. We may also fund future operations through additional private and/or public offerings of equity or debt securities. In addition, we may seek additional capital, on acceptable terms, through arrangements with strategic partners or from other sources. Notwithstanding, there can be no assurance that we will be able to raise additional funds or achieve or sustain profitability or positive cash flows from operations.

Our transition to profitability is dependent upon, among other things, the successful development and commercialization of our product candidates, the development, licensing, acquisition and construction of commercial level production facilities to support our offtake agreements, the achievement of a level of revenues adequate to support the Company’s cost structure, and the ability to raise capital to finance the development, licensing, acquisition, and construction of additional productions facilities.

The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):

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Operating Activities

Our primary uses of cash from operating activities are personnel-related expenses, and research and development-related expenses, including costs incurred under development agreements, costs of licensing of technology, legal-related costs, expenses for the development and commercialization of routes to efficiently produce fuels and chemicals from renewable feedstock carbohydrates using alcohols (isobutanol and ethanol) as an intermediate.

During the year ended December 31, 2023, net cash used in operating activities was $53.7 million compared to $44.3 million for the year ended December 31, 2022. Non-cash charges primarily consisted of depreciation and amortization of $19.0 million, stock-based compensation expense of $17.1 million, which reflects higher amortization expense for the stock awards issued in the prior period with higher market value, see Note 16 to the Consolidated Financial Statements for additional information, and non-cash expense of $0.1 million related to the amortization of marketable securities premiums. The net cash outflow from changes in operating assets and liabilities increased $23.9 million, primarily due to an increase in cash outflows of $23.0 million related to prepaid expenses and other current assets, deposits and other assets, $2.6 million related to increases in accounts receivable as well as $0.9 million related to accounts payable and accrued liabilities. These were partially offset by $2.7 million of decreased costs associated with the sale of environmental attribute inventory.

Investing Activities

During the year ended December 31, 2023, we had $114.1 million in cash provided by investing activities, of which $168.6 million related to proceeds from sales and maturities of marketable securities, partially offset by $54.5 million of investments in our capital projects, including $28.2 million in NZ1, $6.4 million in the RNG Project, and $19.9 million in other projects.

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We completed the value engineering on our NZ1 project and are proceeding with detailed engineering, modularization design, and capital costs updates. We are currently refining project cost estimates with engineering, procurement, and construction (“EPC”) partners to identify cost saving opportunities, and currently expect to finance the construction of NZ1 at the subsidiary level using a combination of Company equity and third-party capital, to include non-recourse debt. The Company expects to have invested a cumulative total of $236 to $286 million of cash equity in the project at financial close. Cash distributions from future NZ1 earnings would be proportionate to Gevo’s ownership in NZ1 under this expected financing structure. The use of project debt and third party equity allows us to conserve capital for use on other growth projects. We expect to apply similar development and financing strategies to future Net-Zero Projects to enable growth of SAF production to meet demand for SAF.

In 2022, we allocated approximately $25.0 million to develop our next Net-Zero Project, of which we have spent approximately $15.0 million. Gevo is in the process of identifying and performing early site development work for additional Net-Zero production locations. These potential sites include greenfield and brownfield (i.e., at an existing ethanol plant) locations that are advantageous in terms of potential economics, opportunities to decarbonize, and time to market.

During the year ended December 31, 2022, we had $85.1 million in cash provided by investing activities, of which $299.6 million related to proceeds from sales and maturities of marketable securities, partially offset by the reinvestment of $130.4 million in marketable securities, and $84.1 million of investments in our capital projects, including $34.7 million in the RNG Project, $43.3 million in NZ1 and $2.0 million in other Net-Zero Projects, as well as $4.1 million in other isobutanol related projects.

Financing Activities

During the year ended December 31, 2023, we had $0.2 million of net cash used in financing activities, due to payments for equipment loans and finance lease liabilities.

We currently expect to finance the construction of NZ1 at the subsidiary level using a combination of our own, third-party, and debt capital. The Company expects to retain an equity interest in the project and may invest equity in the project using the proceeds from the reimbursement of the Company’s NZ1 development expenditures. Cash distributions from future NZ1 earnings would be proportionate to Gevo’s ownership in NZ1 under this expected financing structure which would allow us to conserve and redeploy our capital on other growth projects, including our Net-Zero 2 project (“NZ2”). We expect to apply similar development and financing strategies to NZ2 and future Net-Zero Projects to enable growth of SAF production to meet demand for SAF.

During the year ended December 31, 2022, we had $138.6 million of net cash provided by financing activities, primarily due to $139.0 million of net proceeds from the issuance of common stock and common stock warrants in a registered direct offering in June 2022, offset by $0.4 million of payments primarily for net settlement of common stock under stock plans and certain equipment loans.

Critical Accounting Estimates

Our Consolidated Financial Statements are based on the application of U.S. GAAP, which requires us to make estimates and assumptions about future events that affect the amounts reported in our Consolidated Financial Statements and the accompanying notes. Future events and their effects cannot be determined with certainty; therefore, the determination of estimates requires the exercise of judgment. We believe our judgments related to these accounting estimates are appropriate. However, if different assumptions or conditions were to prevail, the results could be materially different from the amounts recorded. We have determined that we have no critical accounting estimates material to our consolidated financial position, results of operations or cash flow related to our consolidated financial statements included in this Report.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, in Item 8. “Financial Statements and Supplemental Data,” of this Report, for a discussion of recent accounting pronouncements.

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Item 7.         Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K (this “Annual Report”). Some of the information contained in this discussion and analysis and set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the section titled “Risk Factors” in Part I, Item 1A of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Company Overview

We are a growth-oriented company with the mission of solving greenhouse gas emissions for those sectors of the transportation industry that are not amenable to electrification or hydrogen. We believe that the market size for hydrocarbon fuels will continue to remain significant in the long-term even with the rapid adoption of electric vehicles and hydrogen technologies. We also believe that we can achieve at least 1 billion gallons of hydrocarbon production and sales by 2030.

We are focused on transforming renewable energy into energy-dense liquid hydrocarbons that can be used as renewable fuels, such as sustainable aviation fuel ("SAF"), with the potential to achieve a “net-zero” greenhouse gas ("GHG") footprint. We believe that this addresses the global need of reducing GHG emissions with "drop in" sustainable alternatives to petroleum fuels. We use the Argonne National Laboratory’s Greenhouse gases, Regulated Emissions, and Energy use in Transportation model (the "GREET Model") to measure, predict and verify GHG emissions across the life-cycle of our products. The “net-zero” concept means Gevo expects that by using sustainably grown feedstock (i.e., low till, no-till and dry corn cultivation), renewable and substantially decarbonized energy sources, drop-in hydrocarbon fuels can be produced that have a net-zero, full life cycle footprint measured from the capture of renewable carbon through the burning of the fuel.

Our primary market focus, given current demand and growing customer interest, is SAF. We believe we also have commercial opportunities for other renewable hydrocarbon products, such as renewable natural gas ("RNG"); hydrocarbons for gasoline blendstocks and diesel fuel; ingredients for the chemical industry, such as ethylene and butenes; plastics and materials; and other chemicals. The global fuel consumption by commercial airlines was an all-time high of 95 billion gallons in 2019. However, due to the COVID-19 pandemic, fuel consumption dropped to 52 billion gallons in 2020 and then reached 57 billion gallons in 2021, and throughout 2022 continued to trend back to pre-COVID levels.

Project Updates

Net-Zero Projects. In early 2021, we announced the concept of "Net-Zero Projects" as a series of planned facilities to produce energy dense liquid hydrocarbons using renewable energy and our proprietary technology. Our initial Net-Zero Project, Net-Zero 1 ("NZ1"), is located in Lake Preston, South Dakota, and is being currently designed to produce approximately 62 million gallons per year ("MGPY") of total hydrocarbon volumes, including 55 MGPY of SAF, which would fulfill part of our more than 375 MGPY of SAF and hydrocarbon supply agreements. The liquid hydrocarbons when burned are expected to have a “net-zero” GHG footprint. Along with the hydrocarbons, NZ1 is expected to produce approximately 475 million pounds per year of high-value protein products for use in the food chain and more than 30 million pounds per year of corn oil. Our products will be produced in three steps: the first step is milling the corn and the production of protein, oil, and carbohydrates; the second step produces alcohols using fermentation; and the third step is the conversion of the alcohols into hydrocarbons. We have an exclusive license in the U.S. from Axens North America, Inc. ("Axens") to the technology and plant designs to convert alcohols to hydrocarbon fuels. Axens will also provide certain process guarantees for our production process. Additionally, Axens has extensive commercial experience in the technology, design, and deployment of the unit operations needed to convert alcohols to hydrocarbon fuels, based on their experience in the petrochemical industry. The fermentation side of the facility is being engineered with Fluid Quip Technologies who has extensive experience in fermentation and agriculture-based facilities. We believe that by using known commercial technologies, the plant design is substantially de-risked.

In July 2022, we completed the purchase of the land for NZ1 in Lake Preston, South Dakota, which was followed by a groundbreaking ceremony in September 2022. We believe production from NZ1 is on schedule with initial volumes of SAF expected to be delivered in 2025. Water and wind energy development agreements were executed in the third quarter of 2022, and other key milestones are on track for completion in accordance with our comprehensive project plan. Based

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on the ongoing engineering work, the installed cost for NZ1 is currently forecasted to be approximately $850 million, excluding certain contingencies and financing costs.

We currently expect to finance the construction of NZ1 at the subsidiary level using third party capital. The Company expects to retain a carried equity interest in the project, and may invest equity in the project using the proceeds from the reimbursement of the Company’s NZ1 development expenditures. Cash distributions from future NZ1 earnings would be proportionate to Gevo’s minority ownership in NZ1 under this expected financing structure which would allow us to conserve and redeploy our capital on other growth projects, including our Net-Zero 2 project ("NZ2"). We currently expect to apply similar development and financing approaches to NZ2 and future Net-Zero Projects to enable rapid growth of SAF production to meet current contractual demand for SAF.

Gevo is in the process of identifying and performing early site development work for NZ2 and additional SAF production locations. These sites include several greenfield locations that are particularly advantageous in terms of potential economics, opportunities to decarbonize, and time to market. In addition, we are pursuing prospects with several existing ethanol plant sites. Existing ethanol plants need to be decarbonized with renewable energy or de-fossilized energy and/or carbon sequestration. Gevo has developed a preferred list of partners and sites with decarbonization in mind and is engaged in preliminary feasibility and development discussions with several of them. We plan to give priority to existing industrial plant sites that have attractive potential economics and high predictability of timeline for decarbonization.

Renewable Natural Gas Project. Gevo's revenue from the RNG project in Northwest Iowa (the "RNG Project") is expected to come from sales of RNG and from the environmental attributes associated with its RNG sales, including the attributes available from California's Low Carbon Fuel Standard ("LCFS") program and the U.S. Environmental Protection Agency ("EPA") Renewable Fuels Standard ("RFS") program to receive renewable identification numbers ("RINs"). Gevo has been granted registration approval by the EPA in 2022, allowing us to participate in its RFS program and expects to receive approval for LCFS during 2023.

Luverne Facility. In the third quarter of 2022, we recorded an impairment of long-lived assets, to reduce the carrying value of certain property, plant, and equipment, and a leased right of use ("ROU") asset, at our development scale plant in Luverne, Minnesota (the "Luverne Facility") to its fair value. The impairments recorded to date relate to the determination to suspend production at the Luverne Facility and shift the plant into a development scale property, which was transitioned to care and maintenance status. See Note 4 to the Consolidated Financial Statements for additional information.

U.S. Department of Agriculture. In September 2022, the U.S. Department of Agriculture tentatively selected Gevo’s Climate-Smart Farm to Flight proposal for funding with an award ceiling of up to $30 million, subject to negotiation of definitive award agreements in the coming months. The project aims to create critical structural climate-smart market incentives for low carbon-intensity corn as well as to accelerate the production of sustainable aviation fuel to reduce the sector’s dependency on fossil-based fuels.

Key Operating Metrics

Total operating revenues reflect both sales of RNG and sales of related environmental attributes. As a result, our revenues are primarily affected by unit production of RNG, production of environmental attributes, and the prices at which we monetize such production. The following table summarizes the key operating metrics described above, which metrics we use to measure performance:

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(1)RINs are generated in the month the gas is dispensed, which generally occurs the month after the gas is produced.

(2)One MMBtu of RNG has approximately the same energy content as 11.727 gallons of ethanol, and thus may generate 11.727 RINs under the RFS program.

(3)Represents gas production which has not been dispensed to generate RINs and LCFS.

(4)No LCFS credits were generated during 2022 pending regulatory approval.

(5)LCFS credits are generated in the month the gas is dispensed, which generally occurs the quarter after the gas is produced.

COVID-19

The COVID-19 pandemic had an adverse impact on global commercial activity, including the global transportation industry and its supply chain, and has contributed to significant volatility in financial markets. It resulted in travel restrictions and extended shutdowns of businesses in various industries including, among others, the airline industry, and significantly reduced overall economic output. It is possible that that the impact of the ongoing COVID-19 pandemic on general economic activity could negatively impact the Company's revenue and operating results in the future, particularly as new variants of COVID-19 are discovered.

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Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the notes to those Consolidated Financial Statements appearing in this Annual Report. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” in Part I, Item 1A of this Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements.

This section of this Report discusses year-to-year comparisons between 2022 and 2021. The complete Management’s Discussion and Analysis of Financial Condition and Results of Operations for year-to-year comparisons between 2021 and 2020 and other discussions of 2020 items can be found within Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 24, 2022, which is available free of charge on the SEC's website at www.sec.gov and our corporate website at www.gevo.com.

Comparison of the Years Ended December 31, 2022 and 2021

(in thousands)

Operating revenue. In the second half of 2022, our RNG production began ramping up resulting in natural gas commodity sales of $0.6 million and environmental attribute sales of $0.2 million, while the activities at our Luverne Facility were minimized to care and maintenance status as we have shifted focus to our Net-Zero Projects. During the year ended December 31, 2022, compared to the year ended December 31, 2021, revenue increased $0.6 million primarily due to the RNG sales.

Cost of production. Cost of production increased $1.0 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the costs related to RNG production and sales.

Depreciation and amortization. Depreciation and amortization increased $2.8 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to additional depreciation for RNG assets placed into service and accelerated depreciation on Agri-Energy segment assets due to shorter lives stemming from the impairment assessment during the third quarter of 2022. See Note 4 to the Consolidated Financial Statements for additional information.

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Research and development expense. Research and development expense increased $0.7 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to an increase in patent and personnel related costs, as well as lab supplies, partially offset by a reduction of consulting expenses.

General and administrative expense. General and administrative expense increased $14.4 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to increases in personnel costs related to strategic hiring and professional fees started in late 2021 and having a full impact on 2022, as well as non-cash stock-based compensation which reflects higher amortization expense for the stock awards issued in the prior period with higher market value. See Note 16 to the Consolidated Financial Statements for additional information.

Project development costs. Project development costs in 2022 consisted of employee expense, preliminary engineering and technical consulting costs related to our future Net-Zero Projects and Verity Tracking project, as well as other costs related to engineering personnel and non-capitalizable items. We began to capitalize a majority of the RNG and NZ1 projects' costs in 2021 which resulted in a $0.5 million decrease during the year ended December 31, 2022, compared to the year ended December 31, 2021.

Facility idling costs. Facility idling costs were $4.6 million for the year ended December 31, 2022 and related to care and maintenance of our Luverne Facility. Included in facility idling costs are ongoing care and maintenance expenses, as well as one time charges related to removing flammable and other hazardous items from the site, writing off certain patents, and reduction in the workforce. We plan to utilize the Luverne Facility as a development scale plant to advance our technology and operational knowledge to help us in achieving operational success as we scale up the production and delivery of SAF for our customers through our Net-Zero Projects.

Impairment loss. The Company recorded a $24.7 million impairment loss on long-lived assets, which reduced the carrying value of certain property, plant, and equipment, and a leased ROU asset, at the Agri-Energy segment to its fair value. The impairments recorded to date relate to the determination to suspend production at the Luverne Facility and shift the plant into an idled, care and maintenance status during the third quarter of 2022. The impact of the one-time impairment charge of $24.7 million was $0.11 of basic and diluted impairment loss per share for the year ended December 31, 2022. See Note 4 to the Consolidated Financial Statements for additional information.

Loss on disposal of assets. As a result of suspending the production of ethanol at the Luverne Facility, we wrote-off $0.5 million of costs during the year ended December 31, 2022 related to ancillary equipment and spare parts that are no longer expected to be utilized at the Luverne Facility. The equipment and spare parts had been planned to be used in ethanol production.

Loss from operations. The Company's loss from operations increased by $42.4 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the increased activities for our Net-Zero Projects and Verity Tracking project, as well as non-capitalizable costs for NZ1.

Interest expense. Interest expense increased by $0.9 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the interest on the RNG Project bonds, which was capitalized into construction in process during the construction phase of our RNG Project in the prior periods.

Interest and dividend income. Interest and dividend income increased $2.5 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the higher interest rate earned on our investments and restricted cash.

Gain on forgiveness of SBA Loans. During the year ended December 31, 2021, the Small Business Administration ("SBA") forgave $0.6 million of the Company's SBA loans and accrued interest. See Note 15 to the Consolidated Financial Statements for additional information.

Other income. Other income increased $2.7 million during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to our receipt of $2.9 million from the U.S. Department of Agriculture's Biofuel Producer Program to support biofuel producers who faced unexpected losses due to the COVID-19 pandemic, partially offset by other expenses.

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Sources of Our Revenues

Our current and historic revenues are primarily derived from: (i) the sale of RNG commodities and the related environmental attributes; (ii) hydrocarbon sales consisting primarily of the sale of SAF and isooctane derived from our isobutanol; (iii) the sale of isobutanol and related products; and (iv) government grants and research and development programs.

Principal Components of Our Cost Structure

Cost of Production. Our cost of production consists primarily of costs directly associated with the production of RNG and other renewable hydrocarbon products, including isobutanol, SAF, and isooctane. Such costs include direct materials, direct labor, other operating costs and certain plant overhead costs. Direct materials include feedstock, denaturant and process chemicals. Direct labor includes compensation (including stock-based compensation) of personnel directly involved in production operations. Other operating costs include utilities and natural gas and wind power usage.

Research and Development. Our research and development expense consists of costs incurred to identify, develop and test our technologies for the production of renewable hydrocarbon products and the development of downstream applications thereof. Research and development expense includes personnel costs (including stock-based compensation), consultants and related contract research, facility costs, supplies, license fees paid to third parties for use of their intellectual property and patent rights and other overhead expenses incurred to support our research and development programs.

General and Administrative. General and administrative expense consists of personnel costs (including stock-based compensation), consulting and service provider expenses (including patent counsel-related costs), legal fees, marketing costs, insurance costs, occupancy-related costs, travel and relocation expenses and hiring expenses.

Project Development Costs. Project development costs consist of consulting, preliminary engineering costs, personnel expenses (including stock-based compensation) and research and development expenses to support the business activities of our Net-Zero Projects.

Depreciation and Amortization. Depreciation and amortization relates to property, plant and equipment associated with the production of RNG and other renewable hydrocarbon products, including isobutanol, SAF, and isooctane, as well as that used in product development.

Liquidity and Capital Resources

As of December 31, 2022, we had cash and cash equivalents of $237.1 million, short and long-term restricted cash of $78.3 million and short-term marketable securities of $167.4 million, net of unrealized losses of $1.0 million, totaling $482.8 million in cash, cash equivalents, and marketable securities. As of December 31, 2022, we had net working capital of $390.0 million, with $25.4 million of current liabilities. The marketable securities are highly liquid and can be converted to cash when needed for operations, development, and construction. We expect to use our cash, cash equivalents, restricted cash and marketable securities for the following purposes: (i) identification, development, acquisition and construction of new production facilities and to plan for expanded production to fulfill existing offtake agreements for NZ1 and the Company's other Net-Zero Projects; (ii) potential investment in RNG projects; (iii) potential development of the Luverne Facility; (iv) development, acquisition and operation of sustainable alcohol-to-SAF plants to produce SAF alone or with partners; (v) operating activities at the Company's corporate headquarters in Colorado, including research and development work; (vi) exploration of strategic alternatives and additional financing, including project financing; and (vii) future debt service obligations. We believe as a result of our cash and cash equivalents balances, and the performance of our current and expected operations, we will be able to meet our obligations and other potential cash requirements during the next 12 months from the date of this report.

Since our inception in 2005, we have devoted most of our cash resources to the development and commercialization of routes to efficiently produce fuels and chemicals from carbohydrates, such as renewable feedstock, using alcohols (isobutanol and ethanol) as intermediates. We have incurred losses since inception, have a significant accumulated deficit, and expect to incur losses for the foreseeable future. We have financed our operations primarily with proceeds from the issuance of equity, warrants, debt securities, and borrowings under debt facilities. We may fund future operations through additional private and/or public offerings of equity or debt securities. In addition, the Company may seek additional capital, on acceptable terms, through arrangements with strategic partners or from other sources. Notwithstanding, there can be no

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assurance that the Company will be able to raise additional funds or achieve or sustain profitability or positive cash flows from operations.

The Company's transition to profitability is dependent upon, among other things, the successful development and commercialization of its product candidates, the development, acquisition and construction of commercial level production facilities to support the Company's offtake agreements, the achievement of a level of revenues adequate to support the Company's cost structure, and the ability to raise capital to finance the development, acquisition, and construction of additional productions facilities.

The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):

Operating Activities

Our primary uses of cash from operating activities are personnel-related expenses, and research and development-related expenses, including costs incurred under development agreements, costs of licensing of technology, legal-related costs, expenses for the development and commercialization of routes to efficiently produce fuels and chemicals from renewable feedstock carbohydrates using alcohols (isobutanol and ethanol) as an intermediate.

During the year ended December 31, 2022, net cash used in operating activities was $52.6 million compared to $48.3 million for the year ended December 31, 2021. Non-cash charges primarily consisted of an impairment loss of $24.7 million, depreciation and amortization of $7.9 million, non-cash expense of $2.7 million related to the amortization of marketable securities premiums, and stock-based compensation expense of $17.4 million, which reflects higher amortization expense for the stock awards issued in the prior period with higher market value, see Note 16 to the Consolidated Financial Statements for additional information. The net cash outflow from changes in operating assets and liabilities decreased $4.9 million, primarily due to a decrease in cash outflows of $2.0 million in prepaid expenses and other current and long-term assets for licensing fees and deposits to secure long-lead equipment power transmission and distribution facilities for NZ1 as well as a decrease of $3.9 million in accounts payable and accrued liabilities, partially offset by increased outflows of $1.7 million for RNG inventories and amortization of prepaid insurance and other prepaid items.

Investing Activities

During the year ended December 31, 2022, we had $93.4 million in cash provided by investing activities, of which $299.6 million related to proceeds from sales and maturities of marketable securities, partially offset by the reinvestment of $130.4 million in marketable securities, and $75.8 million of investments in our capital projects, including $34.7 million in the RNG Project, $35.0 million in NZ1 and $2.0 million in other Net-Zero Projects, as well as $4.1 million in other isobutanol related projects.

In July 2022, the purchase of the land for NZ1 in Lake Preston, South Dakota was completed. This was followed by a groundbreaking ceremony in Lake Preston in September 2022, and we believe NZ1 is on schedule with plant startup expected to be in 2025. Water and wind energy development agreements were executed in the third quarter of 2022, and other key milestones are on track for completion in accordance with our comprehensive project plan. Based on the ongoing engineering work, the installed cost for NZ1 is currently forecasted to be approximately $850 million, excluding certain contingencies and financing costs, $100 million to $200 million of which we expect to spend within the next 12 months prior to financial close when we expect to recover those development expenditures from permanent third-party capital.

Additionally, we allocated approximately $25 million of capital for the next four to six months to develop our next Net-Zero Project. Gevo is in the process of identifying and performing early site development work for additional SAF production locations. These potential sites include several greenfield locations that are particularly advantageous in terms of potential economics, opportunities to decarbonize, and time to market.

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During the year ended December 31, 2021, we used $411.4 million in cash for investing activities, of which $425.0 million related to purchasing marketable securities and $56.8 million primarily related to construction in process attributable to the RNG Project, and to a lesser extent, the purchase of a Hydrocarbon-Process Pilot Unit for our Luverne Facility and NZ1 project and $9.2 million for the purchase of patents, which was partially offset by proceeds of $79.6 million from the sale of marketable securities.

Financing Activities

During the year ended December 31, 2022, we had $138.6 million of net cash provided by financing activities, primarily due to $139.0 million of net proceeds from the issuance of common stock and common stock warrants in a registered direct offering in June 2022, offset by $0.4 million of payments primarily for net settlement of common stock under stock plans and certain equipment loans.

We currently expect to finance the construction of NZ1 at the subsidiary level using third party capital. The Company expects to retain a carried equity interest in the project, and may invest additional equity in the project using the proceeds from the reimbursement of the Company's NZ1 development expenditures. Cash distributions from future NZ1 earnings would be proportionate to Gevo’s minority ownership in NZ1 under this expected financing structure which would reduce revenue to us but allow us to conserve and redeploy capital on other growth projects, including NZ2. We expect to apply similar development and financing approaches to NZ2 and future Net-Zero Projects to enable rapid growth of SAF production to meet current contractual demand for SAF.

During the year ended December 31, 2021, we generated $517.3 million in cash from financing activities, which primarily consisted of $490.5 million from the sale of common stock and exercise of warrants and $69.0 million from the proceeds of the bonds issued to finance the construction of the RNG Project in April 2021, offset by $35.0 million in debt and equity offering costs, $7.0 million net settlement of common stock for taxes under our stock plans and $0.2 million of payments on equipment loans and lease liabilities.

Critical Accounting Estimates

Our Consolidated Financial Statements are based on the application of U.S. GAAP, which requires us to make estimates and assumptions about future events that affect the amounts reported in our Consolidated Financial Statements and the accompanying notes. Future events and their effects cannot be determined with certainty; therefore, the determination of estimates requires the exercise of judgment. We believe our judgments related to these accounting estimates are appropriate. However, if different assumptions or conditions were to prevail, the results could be materially different from the amounts recorded. We have determined that we have no critical accounting estimates material to our consolidated financial position, results of operations or cash flow related to our consolidated financial statements included in this Report.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, in Item 8. "Financial Statements and Supplemental Data," of this Report, for a discussion of recent accounting pronouncements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K (this “Annual Report”). Some of the information contained in this discussion and analysis and set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the section titled “Risk Factors” in Part I, Item 1A of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Company Overview

We are a growth-oriented company with the mission of solving greenhouse gas emissions for those sectors of the transportation industry that are not amenable to electrification or hydrogen. We are focused on transforming renewable energy into energy-dense liquid hydrocarbons that can be used as renewable fuels, such as SAF, with the potential to achieve a "net-zero" GHG footprint. We believe that this addresses the global need of reducing GHG emissions with "drop in" sustainable alternatives to petroleum fuels. We use the Argonne National Laboratory’s GREET model to measure, predict and verify GHG emissions across the life-cycle of our products. The "net-zero" concept means that we expect to produce fuels that consume as much carbon dioxide in their manufacture as they produce when burned.

Our primary market focus, given current demand and growing customer interest, is SAF. We believe that we also have commercial opportunities for other renewable hydrocarbon products, such as hydrocarbons for gasoline blendstocks, and diesel fuel; ingredients for the chemical industry, such as ethylene and butenes; plastics and materials; and other chemicals. The global fuel consumption by commercial airlines was an all-time high of 95 billion gallons in 2019. However, due to the COVID-19, the fuel consumption dropped to only 52 billion gallons in 2020 and reached 57 billion gallons in 2021. The airline industry is looking for at least 10% of its fuel needs to be sustainable by 2030 (with the potential for up to 30% at the high end).

Our production processes use carbohydrates as a feedstock. Carbohydrates are plant matter that results from photosynthesis. Photosynthesis is the natural process by which carbon dioxide is captured from the air by plants. The carbon in carbohydrates is therefore renewable because it is already in the atmosphere. The carbohydrates are fermented to produce alcohol intermediate products (e.g., ethanol or isobutanol). The alcohol-based intermediates are then chemically processed to make renewable hydrocarbons.

We believe that we will be able to develop the marketplace, customers, and production capacity to achieve at least 1 billion gallons of sales by 2030. We believe that two approaches will be required. The first approach, the development of greenfield sites (i.e., the development of a project on an undeveloped site), allows us to optimize production and the integration of technology. We expect that utilizing greenfield sites will have the potential to achieve lower CI scores over the long run, compared to other approaches. The second approach, leveraging installed alcohol production capacity, has the advantage that the fermentation capacity already exists via existing ethanol plants. Those existing ethanol plants would need to be decarbonized and hydrocarbon production capacity would need to be installed.

In early 2021, we announced the concept of “Net-Zero Projects” as a series of planned facilities to produce energy dense liquid hydrocarbons using renewable energy and our proprietary technology. The concept of a Net-Zero Project is to convert renewable energy (photosynthetic, wind, renewable natural gas, biogas) from a variety of sources into energy dense liquid hydrocarbons that when burned in traditional engines, have the potential to achieve net-zero GHG emissions across the whole life-cycle of the liquid fuel as measured across the whole of the life-cycle based on the GREET Model, the pre-eminent science-based life-cycle analysis model. The GREET Model takes into account emissions and impacts "cradle to cradle" for renewable resource-based fuels including inputs and generation of raw materials, agriculture practices, chemicals used in production processes of both feedstocks and products, energy sources used in production and transportation and the end use of the products, which for fuel products is usually burning to release energy.

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Recent Developments

At-the-Market Offering Program. In September 2021, the at-the-market offering program was amended to provide available capacity under the at-the-market offering program of $500 million.

During the year ended December 31, 2021, we issued 24,420,579 shares of common stock under the at-the-market offering program for total proceeds of $135.8 million, net of commissions and other offering related expenses totaling $3.6 million.

COVID-19

COVID-19. The COVID-19 pandemic has had an adverse impact on global commercial activity, including the global transportation industry and its supply chain, and has contributed to significant volatility in financial markets. It resulted in travel restrictions and extended shutdowns of businesses in various industries including, among others, the airline industry, and significantly reduced overall economic output. It is possible that that the impact of the ongoing COVID-19 pandemic on general economic activity could continue to negatively impact the Company's revenue and operating results, particularly as new variants of COVID-19 are discovered. In light of the current and potential future disruption to its business operations and those of its customers, suppliers and other third parties with whom the Company does business, management considered the impact of the COVID-19 pandemic on the Company's business. The impact of the COVID-19 pandemic on the global transportation industry could continue to result in less demand for the Company's transportation fuel products, which could have a material adverse effect on the Company's business, financial condition and prospects for the foreseeable future.

During the first quarter of 2020, we suspended production at our Luverne Facility due to COVID-19 and an unfavorable commodity environment. The suspension of production and a corresponding reduction in the Company's workforce that occurred during the first quarter of 2020 had an adverse impact on the Company's financial results for the year ended December 31, 2021, reducing revenue by 87% compared to the year ended December 31, 2020. Revenue was reduced by 77% for the year December 31, 2020 compared to the year ended December 31, 2019 as a result of COVID-19. The Luverne Facility re-commenced operations during July 2021. There is a risk that COVID-19 could have a material adverse impact on the development of the Company's Net-Zero 1 Project, customer demand and cash flow, depending on the extent of our future production activities.

The Company has considered multiple scenarios, with both positive and negative inputs, as part of the significant estimates and assumptions that are inherent in its financial statements and are based on trends in customer behavior and the economic environment throughout the year ended December 31, 2021 and beyond as the COVID-19 pandemic has impacted the industries in which the Company operates. These estimates and assumptions include the collectability of billed receivables and the estimation of revenue and tangible assets. With regard to collectability, the Company believes it may face atypical delays in client payments going forward, but the Company has not experienced significant delays in collection as of December 31, 2021. In addition, management believes that the demand for certain discretionary lines of business may decrease, and that such decrease will impact its financial results in succeeding periods. Non-discretionary lines of business may also be adversely affected, for example because reduced economic activity or disruption in hydrocarbon markets could reduce demand for SAF, isooctane and isooctene.

Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the notes to those Consolidated Financial Statements appearing in this Report. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” in Part I, Item 1A of this Report, our actual results may differ materially from those anticipated in these forward-looking statements.

This section of this Report discusses year-to-year comparisons between 2021 and 2020, as well as other discussions of 2021 and 2020 items. The complete Management’s Discussion and Analysis of Financial Condition and Results of Operations for year-to-year comparisons between 2020 and 2019 and other discussions of 2019 items can be found within Part II, Item 7, to our Annual Report on Form 10-K filed with the SEC on March 17, 2020, which is available free of charge on the SEC's website at www.sec.gov and our corporate website at www.gevo.com.

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Comparison of the Years Ended December 31, 2021 and 2020

(in thousands)

Revenue. As a result of COVID-19 and in response to an unfavorable commodity environment, we suspended ethanol and distiller's grains production in March 2020. Revenue from the sale of ethanol, isobutanol and related products during the year ended December 31, 2021 was $0.7 million, a decrease of $4.8 million from the year ended December 31, 2020.

Hydrocarbon revenues are comprised of SAF, isooctane and isooctene sales. Hydrocarbon revenue decreased $1.0 million during the year ended December 31, 2021 primarily as a result of fewer shipments of finished products from the South Hampton Facility. The South Hampton Facility was unable to produce significant amounts of jet fuel during the second half of 2021 due to a lack of availability of isobutanol to convert into SAF renewable jet fuel after halting production due to impacts from COVID-19. The South Hampton Facility began producing renewable premium gasoline or jet fuel with supply from the Luverne Facility during the fourth quarter of 2021.

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Cost of goods sold. Our cost of goods sold decreased $1.6 million during the year ended December 31, 2021 compared to the prior year primarily the result of suspending ethanol production in March 2020 as a result of COVID-19 and in response to an unfavorable commodity environment. We began producing isobutanol during the third quarter 2021 resulting in higher production costs. The cost of goods sold was significantly higher for isobutanol without the coproduction of ethanol as operated in previous years as we worked to improve and refine our production processes. Cost of goods sold included inventory write down to net realizable value of approximately $5.2 million and $1.2 million during the years ended December 31, 2021 and 2020, respectively.

Prior to the Luverne Facility restarting production, cost of goods sold was primarily comprised of costs to process SAF, isooctane and isooctene at our South Hampton Facility, as well as costs to maintain the Luverne Facility.

Depreciation and amortization. Depreciation and amortization related to cost of goods sold decreased approximately $1.2 million during the year ended December 31, 2021 compared to the prior year as certain assets became fully depreciated during the year ended December 31, 2020. Depreciation and amortization related to cost of operating expenses increased approximately $0.4 million during the year ended December 31, 2021 compared to the prior year primarily due to $0.3 million of amortization for patents acquired in September 2021.

Research and development expense. Research and development expense increased by approximately $3.3 million during the year ended December 31, 2021 compared with to the prior year, due primarily to $2.2 million of personnel costs from increased headcount, recruiting and stock-based compensation and $0.9 million of consulting expenses as we work to improve our process for growing and fermenting yeast strains.

Selling, general and administrative expense. Selling, general and administrative expenses increased approximately $14.3 million during the year ended December 31, 2021 compared to the prior year, due primarily to $9.7 million increase in personnel costs related to increased headcount, recruiting costs and stock-based compensation, $1.7 million for increased consulting fees related to regulatory consulting and compliance with Section 404(b) of the Sarbanes-Oxley Act, $1.1 million attributable to professional fees related to new contracts and extensive shareholder outreach for the annual stockholder meeting and $1.0 million for higher costs for insurance.

Preliminary stage project costs. Preliminary stage project costs increased by approximately $8.9 million during the year ended December 31, 2021 compared with the prior year due primarily to increased consulting and research and development expenses related to our Gevo RNG and Net-Zero projects. During the year ended December 31, 2021, the preliminary stage project costs were primarily related to $5.7 million of front-end engineering costs and $2.7 million for personnel expenses to support the growth in business activity for our Gevo RNG and Net-Zero projects. During the year ended December 31, 2020, the preliminary stage project costs were primarily related to consulting for front-end engineering costs and for personnel expenses to support the growth in business activity at our Gevo RNG project. During the second quarter 2021, we began capitalizing the Gevo RNG project costs after completing certain front-end engineering studies and determining it was probable that we would build the Gevo RNG project. During the third quarter 2021, we began capitalizing our Net-Zero 1 project costs after completing certain front-end engineering studies and determining it was probable that we would build Net-Zero 1.

Loss on disposal of assets. As a result of suspending the production of ethanol at the Luverne Facility, we wrote-off $5.1 million of costs related to the installation of the fractionation equipment returned to the manufacturer during the year ended December 31, 2021. The returned equipment and related installation costs had been planned to be used in ethanol production.

Restructuring expenses. During the year ended December 31, 2020, we incurred $0.3 million of restructuring charges related to the restructuring of Agri-Energy in response to COVID-19, termination of employees at Agri-Energy and Gevo and renegotiating contracts.

Gain on forgiveness of SBA Loans. During the year ended December 31, 2021, the Small Business Administration forgave $0.6 million of the Company's SBA Loans and accrued interest.

Interest expense. Interest expense during the year ended December 31, 2021 decreased by $1.8 million compared to the prior year, due to the conversion of our 12% convertible senior secured notes due 2020/2021 (the “2020/21 Notes”) to common stock during 2020. During the year ended December 31, 2021, we capitalized $2.1 million of interest associated with the Gevo RNG project.

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Interest and dividend income. Interest and dividend income increased approximately $0.5 million during the year ended December 31, 2021 compared to the prior year due to interest earned from investments in marketable securities.

(Loss) from modification of 2020 Notes. During the year ended December 31, 2020, we incurred $0.7 million of legal and professional fees to modify the 2020 Notes into the 2020/21 Notes.

(Loss) on conversion of 2020/21 Notes. During the year ended December 31, 2020, we incurred a $1.9 million loss related to the conversion of $2.0 million of 2020/21 Notes into common stock during July 2020 and $12.7 million of 2020/21 Notes into common stock during December 2020, which reflects the cost of the make-whole payments.

(Loss) gain from change in fair value of the 2020/21 Notes and 2020 Notes embedded derivative liability. We incurred no gain (loss) from the change in fair value of the 2020/21 Notes during the year ended December 31, 2021 since the 2020/21 Notes and the 2020 Notes were converted to common stock in 2020.

Sources of Our Revenues

Our current and historic revenues are primarily derived from: (i) the sale of isobutanol and related products; (ii) hydrocarbon sales consisting primarily of the sale of SAF and isooctane derived from our isobutanol; and (iii) government grants and research and development programs.

Principal Components of Our Cost Structure.

Cost of Goods Sold. Our cost of goods sold consists primarily of costs directly associated with the production of isobutanol, SAF and isooctane. Such costs include direct materials, direct labor, other operating costs and certain plant overhead costs. Direct materials include corn feedstock, denaturant and process chemicals. Direct labor includes compensation (including stock-based compensation) of personnel directly involved in production operations. Other operating costs include utilities and natural gas and wind power usage.

Depreciation and Amortization. Depreciation and amortization associated with costs of goods sold relates to property, plant and equipment directly associated with the production of isobutanol, SAF and isooctane. Depreciation and amortization associated with operating expenses relates to property, plant and equipment used in product development and unrelated to cost of goods sold.

Research and Development. Our research and development expense consists of costs incurred to identify, develop and test our technologies for the production of isobutanol and the development of downstream applications thereof. Research and development expense include personnel costs (including stock-based compensation), consultants and related contract research, facility costs, supplies, license fees paid to third parties for use of their intellectual property and patent rights and other overhead expenses incurred to support our research and development programs.

Selling, General and Administrative. Selling, general and administrative expense consist of personnel costs (including stock-based compensation), consulting and service provider expenses (including patent counsel-related costs), legal fees, marketing costs, insurance costs, occupancy-related costs, travel and relocation expenses and hiring expenses.

Preliminary Stage Project Costs. Preliminary stage project costs consist of consulting, preliminary engineering costs, personnel expenses (including stock-based compensation) and research and development expenses to support the business activities of our Gevo RNG and Net-Zero projects.

Loss on Disposal of Assets. Loss on disposal of assets consists of costs related to the installation of the fractionation equipment returned to the manufacturer as a result of suspending the production of ethanol at the Luverne Facility. The returned equipment and related installation costs had been planned to be used in ethanol production.

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Liquidity and Capital Resources

As of December 31, 2021, we had cash and cash equivalents totaling $40.8 million, short and long-term restricted cash totaling $95.2 million and short and long-term marketable securities totaling $339.7 million. The marketable securities are highly liquid and can be converted to cash when it is needed for operations.

Since our inception in 2005, we have devoted most of our cash resources to research and development, manufacturing ethanol, isobutanol and related products and selling, general and administrative activities related to the commercialization of isobutanol and related products from renewable feedstocks. We have incurred losses since inception and expect to incur losses at least until our expected large-scale hydrocarbon production capacity is fully operational. We have financed our operations primarily with proceeds from multiple sales of equity and debt securities, borrowings under debt facilities and product sales. During 2021, we invested most of those proceeds for the upgrade, development and construction of our existing facilities and new projects associated with the Luverne Facility, Gevo RNG and Net-Zero 1.

The continued operation of our business is dependent upon raising additional capital through future public and private equity offerings, debt financings or through other alternative financing arrangements. Successful attainment of profitable operations is dependent upon future events, including our ability to raise sufficient capital to expand our commercial hydrocarbon production capabilities, completion of our development activities, continued advancement of our hydrocarbon sales agreements, continued advancement of our technologies and knowhow and attracting and retaining qualified personnel.

Our transition to profitability is dependent upon, among other things, the successful development and commercialization of our product candidates, the development, acquisition and construction of additional production facilities to support our offtake agreements, the achievement of a level of revenues adequate to support our cost structure and the ability to raise capital to finance the development, acquisition and construction of additional productions facilities.

We intend to fund future operations through additional private and/or public offerings of debt or equity securities. In addition, we may seek additional capital through arrangements with strategic partners or from other sources. There can be no assurance that we will be able to raise additional funds or achieve or sustain profitability or positive cash flows from operations on acceptable terms, or at all.

The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):

Operating Activities

Our primary uses of cash from operating activities are personnel related expenses and research and development-related expenses including costs incurred under development agreements, costs of licensing of technology, legal-related costs, expenses for production of isobutanol and related products and expenses for the operation of the Luverne Facility and South Hampton Facility.

During the year ended December 31, 2021, net cash used for operating activities was $43.5 million compared to $19.3 million for the year ended December 31, 2020. The $24.2 million decrease in operating cash flows was primarily due to increased costs associated with beginning production of isobutanol during the third quarter 2021 and maintenance of the Luverne Facility, increased engineering and development fees on our Gevo RNG and Net-Zero 1 projects, increases in personnel expenses to support the growth in business activity, professional fees related to new contracts and extensive shareholder outreach for the annual stockholder meeting and consulting to support compliance with Section 404(b) of the Sarbanes-Oxley Act.

During 2022, we expect to produce isobutanol to supply the South Hampton Facility so that renewable premium gasoline and jet fuel can be produced.

In January 2022, Gevo RNG began to start-up operations. The start-up process is expected to take a few months and reach a steady state operation in the second quarter of 2022 which will allow time for Gevo to apply for credits under the federal RFS and the LCFS in California, including verification of carbon intensity levels and other requirements. Depending on the timing of the qualification and approval processes for obtaining credits under RFS and LCFS,  Gevo expects to generate biogas revenue starting in the second quarter of 2022 and sales of credits under RFS and LCFS in late second quarter of 2022 and the fourth quarter of 2022, respectively.

During the first quarter 2022, Gevo RNG will move from preliminary stage project to production when it begins producing RNG. Net-Zero 1 will continue to be reported as a preliminary stage project cost until it is placed into production.

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During the year ended December 31, 2020, net cash used for operating activities was $19.3 million compared to $20.8 million for the year ended December 31, 2019. The $1.5 million decrease in operating cash flows was primarily due to reduced production at the Luverne Facility offset by increased engineering and development costs for our Gevo RNG project. During the first quarter of 2020, we terminated our ethanol production at the Luverne Facility due to COVID-19 and an unfavorable commodity environment.

Investing Activities

During the year ended December 31, 2021, we used $411.6 million in cash for investing activities, of which $422.4 million related to purchasing marketable securities and $59.7 million primarily related to construction in process attributable to the Gevo RNG project, and to a lesser extent, the purchase of a Hydrocarbon-Process Pilot Unit for our Luverne Facility and Net-Zero 1 project and $9.2 million for the purchase of patents, which was partially offset by proceeds of $79.6 million from the sale of marketable securities.

During the year ended December 31, 2020, we used $5.9 million in cash for investing activities, including $1.0 million related to capital expenditures at our Luverne Facility related to dry fractionation and hydrocarbon skid equipment and $4.5 million related to our RNG project.

We have substantially completed constructing the Gevo RNG project and expect to invest an additional $8 million in the aggregate to complete the Gevo RNG project in the first quarter of 2022. Gevo RNG start-up commenced during the first quarter 2022 and we expect to generate biogas revenue starting in the second quarter of 2022 and sales of credits under RFS and LCFS in late second quarter of 2022 and the fourth quarter of 2022, respectively. . We estimate investing approximately $100 million in Net-Zero 1 engineering, development, long-lead equipment deposits, and legal and other costs associated with obtaining a non-recourse debt financing over the next 12 months. We also estimate spending of approximately $21 million for design-engineering of our Net-Zero 2 Project and $5 million for the development of our Verity project, including the Gevo Grower Program, in 2022.

Financing Activities

During the year ended December 31, 2021, we generated $512.9 million in cash from financing activities, which primarily consisted of $490.5 million from the sale of common stock and exercise of warrants and $69.0 million from the 2021 Bonds proceeds offset by $35.0 in debt and equity offering costs, $7.0 million net settlement of common stock for taxes under our stock plans and $4.6 million of payments on equipment loans and lease liabilities.

During the year ended December 31, 2020, we generated $87.3 million in cash from financing activities, which primarily consisted of $8.4 million of net proceeds under our "at-the-market" offering program, receiving $16.1 million from the sale of common stock and warrants in a public offering in July 2020, $45.8 million from the sale of common stock and pre-funded warrants in the August 2020 Offering, $17.1 million from the exercise of Series 2020-A warrants to purchase shares of the Company’s common stock (each, a “Series 2020-A Warrant”), Series 2020-B warrants to purchase shares of the Company’s common stock (all of which were exercised as of December 31, 2020) and Series 2020-C warrants to purchase shares of the Company’s common stock (all of which were exercised as of December 31, 2021), and $1.0 million from the Small Business Administration's Paycheck Protection Program discussed below, offset by $0.5 million paid on loans payable - other.

2021 Bonds. In April 2021, the Authority issued an aggregate principal amount of $68,155,000 of its 2021 Bonds in a public offering for the benefit of Gevo RNG, a subsidiary of Gevo, to finance the construction of the Gevo RNG project.

The 2021 Bonds are reported at their amortized cost, and were issued at a premium of $0.8 million. Debt issuance costs totaled $3.0 million for the year ended December 31, 2021. The Company will amortize the debt issuance costs and the premium as a component of interest expense over the life of the related debt instrument using the interest method. The 2021 Bonds have been recorded as a long-term liability and will become current on the earlier of (i) one year prior to the Initial Mandatory Tender Date or (ii) upon the Company’s exercise of its call option to tender or redeem the Bonds. See Note 14, Debt, for further information.

January 2021 Offering. In January 2021, we completed a registered direct offering pursuant to a securities purchase agreement with certain institutional and accredited investors providing for the issuance and sale by us of an aggregate of 43,750,000 shares of our common stock at a price of $8.00 per share in a registered direct offering. The net proceeds to us from the January 2021 Offering totaled approximately $321.7 million, after deducting placement agent fees and other estimated offering expenses payable by us, and not including any future proceeds from the exercise of the Warrants. We intend to use the net proceeds from the January 2021 Offering to fund development and investment in our RNG and Net-Zero 1 projects, working capital and for other general corporate purposes. During the year ended December 31, 2021, we used approximately $72.1 of the proceeds for investment in our RNG and Net-Zero 1 projects as well as the purchase of patent portfolio from Butamax and an exclusivity license from Axens.

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During the year ended December 31, 2020, we received notices of exercise from holders of our Series 2020-A Warrants to issue an aggregate of 28,042,834 shares of common stock for total gross proceeds of approximately $16.8 million. During the year ended December 31, 2021, we received notices of exercise from holders of our Series 2020-A Warrants to issue an aggregate of 1,866,558 shares of common stock for total gross proceeds of approximately $1.1 million. Following these exercises, Series 2020-A Warrants to purchase 90,608 shares of our common stock remain outstanding at an exercise price of $0.60 per share as of January 31, 2022.

At-the-Market Offering Program. In February 2018, we commenced an at-the-market offering program, which allows us to sell and issue shares of our common stock from time-to-time. In September 2021, the at-the-market offering program was amended to provide available capacity under the at-the-market offering program of $500 million.

During the year ended December 31, 2021, we issued 24,420,579 shares of common stock under the at-the-market offering program for total proceeds of $135.8 million, net of commissions and other offering related expenses. During the year ended December 31, 2020,we issued 3,518,121 shares of common stock under the at-the-market offering program for total proceeds of $8.4 million, net of commissions and other offering related expenses.

2020/21 Notes. In January 2020, we entered into an Exchange and Purchase Agreement which exchanged all of the outstanding principal amount of the 2020 Notes, which totaled $14.1 million including unpaid accrued interest, for approximately $14.4 million in aggregate principal amount of our newly created 2020/21 Notes. During the year ended December 31, 2020, we recognized an approximately $0.7 million loss on the modification of the 2020 Notes within the Consolidated Statements of Operations.

In July 2020, certain holders of the 2020/21 Notes converted $2.0 million in the aggregate principal amount of 2020/21 Notes (including the conversion of an additional $0.3 million for make-whole payment) into 4,169,426 shares of common stock pursuant to the terms of the indenture. In December 2020, certain holders of the 2020/21 Notes converted the remaining $12.7 million in aggregate principal amount of 2020/21 Notes (including the conversion of an additional $1.2 million for make-whole payment) into an aggregate of 5,672,654 shares of common stock pursuant to the terms of the 2020/21 Notes related Indenture. As a result, as of December 31, 2020, all obligations under the 2020/2021 Notes had been fully paid and satisfied, and the 2020/2021 Notes related indenture had been terminated in accordance with its terms at maturity on December 31, 2020. During the year ended December 31, 2020, we recognized an approximately $1.9 million loss on the conversion as a result of the make-whole payments of the 2020/21 Notes into common stock within the Consolidated Statements of Operations.

See Note 14, Debt, to our Consolidated Financial Statements included herein for further discussion of the 2020/21 Notes.

Loans Payable - Other. During the first quarter of 2020, we purchased equipment under a financing lease. The equipment notes and financing lease pay interest between 4% and 21%, have total monthly payments of $0.1 million and mature at various date through February 2025. The equipment loans are secured by the related equipment.

In April 2020, we entered into two loan agreements with Live Oak Banking Company, pursuant to which we obtained two unsecured loans from the Small Business Administration's Paycheck Protection Program (“SBA PPP”) totaling $1.0 million in the aggregate (the "SBA Loans"). During the year ended December 31, 2021, the Small Business Administration forgave the entire balance of $0.6 million of the Company's SBA Loans and accrued interest.

See Note 14, Debt, to our Consolidated Financial Statements included herein for further discussion.

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Critical Accounting Estimates

Our Consolidated Financial Statements are based on the application of U.S. GAAP, which requires us to make estimates and assumptions about future events that affect the amounts reported in our Consolidated Financial Statements and the accompanying notes. Future events and their effects cannot be determined with certainty; therefore, the determination of estimates requires the exercise of judgment. We believe our judgments related to these accounting estimates are appropriate. However, if different assumptions or conditions were to prevail, the results could be materially different from the amounts recorded.

Leases, Right-of-Use Assets and Related Liabilities

Description: The Company enters into various arrangements which constitute a lease as defined by ASC 842, Leases, as part of its ongoing business activities and operations. Leases represent a contract or part of a contract that conveys the right to control the use of identified property, plant or equipment (an identified asset) for a period of time in exchange for consideration. Such contracts result in both (a) right-of-use assets ("ROU"), which represent the Company’s right to use an underlying asset for the term of the contract; and (b) a corresponding lease liability which represents the Company’s obligation to make the lease payments arising from the contract. The Company has elected not to recognize a ROU asset and lease liability for any lease with an original lease term of 12 months or less. Lease expense for such leases is recognized on a straight-line basis over the lease term.

Judgments and Uncertainties: Certain judgements and uncertainties related to lease liabilities and ROU assets exist as these are initially measured at the lease commencement date. The lease liability is based on the present value of lease payments over the lease term, discounted using an estimate of the Company’s incremental borrowing rate for a collateralized loan with the same term and payment as the lease. The discount rate is a significant judgement. The ROU assets are measured based on the amount of the lease liability adjusted for any lease payments made to the lessor at or before the lease commencement date less any lease incentives received. There is uncertainty related to the lease payments as re-negotiated lease payment occur and as amendments are made to the agreements. From the beginning, renewal options are included in the calculation of our ROU assets and lease liabilities when we determine that the option is reasonably certain of exercise based on an analysis of the relevant facts and circumstances.

Sensitivity of Estimate to Change: The liability relating to these operating and finance lease agreements are based on the Company’s incremental borrowing rate for a collateralized loan with the same term and payment as the lease. A 1.0% increase or a 1.0% decrease in the annual implicit rate could cause an estimated $0 to $1.0 million fluctuation in the present value calculation of the lease liability for any of the finance leases based on the size of the lease liability.

Recent Accounting Pronouncements

See Note 2 in Item 8. "Financial Statements and Supplemental Data," of this Report, for a discussion of recent accounting pronouncements.

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