Gevo, Inc. (GEVO) FY 2022 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
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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| Year Ended December 31, | ||
|---|---|---|
| (in thousands, unless otherwise indicated) | 2022 | |
| RNG Revenues | ||
| Natural Gas Commodity | $ | 640 |
| Natural Gas Environmental Attributes - RINs | 214 | |
| Natural Gas Environmental Attributes - LCFS | — | |
| RNG Total Revenues | $ | 854 |
| RNG Metrics | ||
| RNG production volumes (MMBtu) | 125 | |
| Plus: Prior period RNG volumes dispensed in current period | — | |
| Less: RNG production volumes not dispensed | (116) | |
| Total RNG volumes available for RIN and LCFS generation (1) | 9 | |
| RIN Metrics | ||
| RIN generation (x 11.727) (2) | 101 | |
| Less: Counterparty share (RINs) | — | |
| Plus: Prior period RINs | — | |
| Less: RINs carried into next period | — | |
| Total RINs available for sale | 101 | |
| Less: RINs sold | (101) | |
| RIN Inventory | — | |
| RNG Inventory (volumes not dispensed for RINs) (3) | 116 | |
| Average Realized RIN price ($) | $ | 2.12 |
| LCFS Metrics (4) | ||
| RNG Inventory, volumes not dispensed for LCFS (5) | 125 | |
| Operating Expenses | ||
| RNG Operating Expenses | $ | 7,121 |
| RNG Operating Expenses per MMBtu (actual) | $ | 57.19 |
(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)
| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | Change ($) | Change (%) | |||||||||||
| Total operating revenues | $ | 1,175 | $ | 533 | $ | 642 | 120 | % | ||||||
| Operating expenses: | ||||||||||||||
| Cost of production | 8,698 | 7,687 | 1,011 | 13 | % | |||||||||
| Depreciation and amortization | 7,887 | 5,128 | 2,759 | 54 | % | |||||||||
| Research and development expense | 7,427 | 6,775 | 652 | 10 | % | |||||||||
| General and administrative expense | 39,941 | 25,493 | 14,448 | 57 | % | |||||||||
| Project development costs | 10,061 | 10,581 | (520) | (5) | % | |||||||||
| Facility idling costs | 4,599 | — | 4,599 | 100 | % | |||||||||
| Impairment loss | 24,749 | — | 24,749 | 100 | % | |||||||||
| Loss on disposal of assets | 499 | 5,137 | (4,638) | (90) | % | |||||||||
| Total operating expenses | 103,861 | 60,801 | 43,060 | 71 | % | |||||||||
| Loss from operations | (102,686) | (60,268) | (42,418) | 70 | % | |||||||||
| Other income (expense) | ||||||||||||||
| Interest expense | (1,167) | (251) | (916) | 365 | % | |||||||||
| Investment income (loss) | 3,043 | 571 | 2,472 | 433 | % | |||||||||
| Gain on forgiveness of SBA loan | — | 641 | (641) | (100) | % | |||||||||
| Other income, net | 2,803 | 104 | 2,699 | 2,595 | % | |||||||||
| Total other income, net | 4,679 | 1,065 | 3,614 | 339 | % | |||||||||
| Net loss | $ | (98,007) | $ | (59,203) | $ | (38,804) | 66 | % |
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):
| Year Ended December 31, | ||||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||
| Net cash used in operating activities | $ | (52,613) | $ | (48,271) | ||
| Net cash provided by (used in) investing activities | 93,394 | (411,358) | ||||
| Net cash provided by financing activities | 138,562 | 517,324 |
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.