Gevo Investment Thesis



A quote from Gevo’s January business update:

Gevo has developed potentially disruptive new technologies that use ethanol as a feedstock for the production of hydrocarbons, renewable hydrogen, and other chemical intermediates, to augment its use of isobutanol as a feedstock for the alcohol-to-hydrocarbons business. . . Gevo is seeing enhanced interest in its alcohol-to-hydrocarbons business from potential strategic partners and is looking at multiple ways of monetizing this aspect of the business. . . [Gevo plans on] establishing multiple new strategic partnerships to accelerate the development of its hydrocarbons business, inclusive of Gevo’s new ethanol-to-hydrocarbons technologies.

A few weeks after this update, Andy Marsh, CEO of Plug Power (a company that needs a better, cheaper way to produce hydrogen) gets appointed to Gevo’s board of directors. Plug could obviously benefit from a strategic partnership with Gevo, so it’s not too farfetched to believe that this is the real reason why Marsh joined the board.

This is Andy Marsh’s first gig serving on multiple boards at one time. Every move Marsh has made while at Plug Power has been made with great calculation and precision. He isn’t known to show his hand without an impending end-goal in sight. Being on Gevo’s board gives him insight into their alcohol to hydrocarbons technology, which is currently drawing interest for its hydrogen-producing capabilities. And Plug is making it obvious that cheaper hydrogen generation is their largest goal, so this partnership could make sense. Gevo is a struggling company at the moment, so it would be smart for Plug to license or purchase their technology while it is relatively cheap.

So, for Gevo, my primary thesis is short: Andy Marsh and their hydrogen-producing alcohol-to-hydrocarbons technology. If Gevo sells-off this aspect of their company, I will likely sell my position in Gevo.

I also have a smaller, secondary thesis point, though, and it surrounds Gevo’s budding isobutanol technology. Their isobutanol mixes well with existing fossil-fuels, making it possible to produce cleaner, more renewable fuels without much effort. Isobutanol’s use as a drop-in, turnkey addition to existing fuels makes the substance desirable for licensees who want a quick and easy way to clean-up their fuels and their image. Customers can quickly work towards their renewable energy goals without needing to modify their existing technology.

This secondary thesis-point is a small percentage of my overall thesis for now. However, I will closely monitor this aspect of Gevo’s business over the coming months and decide whether or not it deserves to become a larger percentage of my thesis.

Plug Power Continues to Impress



This past Wednesday, Plug Power christened the new year with a much-anticipated business update. The goal of the conference call was to sum-up the successes of 2014 (and even a few mistakes) and to give the investment community a look into 2015. As is human nature, though, different people took away different things from the event. As for me, I came away from the call incredibly impressed and excited, and here’s why:

1. Plug nailed their lofty $150-million bookings goal and their shipments goal

Leading-up to the day of the conference call, analysts and investors alike were skeptical about Plug’s ability to achieve their bookings and shipments goals, but Plug nailed these two numbers in 2014. They continue to struggle with revenue recognition, though, but they’ll likely figure it out with experience as they move out of the start-up phase.

For a start-up company like Plug, bookings are a critical number and deserve major emphasis. It might not look pretty to the pocket book initially, but start-ups have to ‘start-up’ somewhere. In order to ensure long-term success, Plug needs to get companies into the habit of using Plug hydrogen and eventually re-buying Plug fuel cells every few years.

Ideally, all bookings turn into this growth-friendly recurring revenue stream down the line. Plug can never establish that recurring revenue stream without an initial crop of GenKey bookings, though. By closing-out GenKey’s first year with $150 million worth of orders, Plug has demonstrated the potential value of this stream in a big way, all while reassuring shareholders that many different companies are quickly getting into the habit of using Plug products. Plug continues to land new deals and prove that they can diversify their client-base while keeping existing customers happy (according to Marsh, some distribution centers are seeing a record output per individual since switching to Plug fuel cells). Plug has given me every reason to believe that this trend will continue.

[As a small aside, if you do the math, only $126 million of the $150 million in orders have been announced via PR to-date. That means there are at least $24 million in bookings from 2014 lingering in the background waiting to be announced. Coincidentally, we never got a PR for that eighth Walmart DC in Calgary, Alberta that Marsh mentioned on the call.]

2. Marsh stated that Plug will make an extensive investment in hydrogen generation and distribution in 2015

During July’s shareholder meeting, Marsh first revealed his plans to make a significant investment in hydrogen generation and distribution. This made me a little nervous at first, especially when Marsh stated that the company would likely spend about one-third of their total cash on this endeavor. Once I took my blinders off, though, I began to see the potential. . . I started to dream of analogies between Plug and Hewlett Packard. . . instead of selling massive amounts of ink, though, Plug would sell massive amounts of hydrogen. I eventually came back to reality, and my skepticism-turned-dream became curiosity. Ever since that meeting, I’ve wanted to hear more details about Plug’s plan to monetize their hydrogen vision and improve their current GenFuel margins.

During Wednesday’s conference call, Marsh resurrected this subject. He talked about testing electrolyzers in retail stores later this year. He talked about using Plug’s old reformer technology with a new focus. Then he capped the conference call by saying:

Just as 5 years ago I said the key to Plug’s future was to invest in material handling and build out a full product line, we will be putting a similar focus on hydrogen this year. . . We are going to be the ones who figure out hydrogen fuel. . . We can open-up the $40-billion global market and expand our reach past material handling.

Marsh is raising the bar quite high for this company, and I’m eager to see if Plug can deliver on his promise. Plug has proven their worth at promoting and growing GenDrive, so I have no problem giving them another opportunity to prove themselves with hydrogen generation/distribution. I really can’t wait to see what they come-up with this year.

3. They have $146 million in the bank to help grow the company

Plug has $146 million in cash going into 2015, leaving them a lot of room to invest and expand; the CFO promised to invest this money “aggressively, but prudently.” As a long-term investor, I appreciate a company’s willingness to spend aggressively when the right opportunity presents itself. . . and $146 million gives them plenty of firepower to do just that.

4. There were more than 600 people listening to Wednesday’s conference call

It may seem like something ridiculous to get excited about, but I truly believe this is a positive that most people overlook. Such a large turnout on the call demonstrates the growing popularity of PLUG stock, and that popularity continues to serve as free advertising for the company. Whether it’s from happy investors or disgruntled traders, one cannot underestimate free advertising (wherever it’s source). The company’s lore continues to spread through word-of-mouth (for free). And because of this popularity, Plug is quickly becoming synonymous with hydrogen fuel cells, a coveted position in the alternative energy sector previously held by Bloom Energy.