Aemetis, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unless noted otherwise, financial amounts are in U.S. dollars. The company operates renewable-fuel and byproduct businesses in North America and India, and is developing renewable natural gas, carbon-zero fuels, and carbon-capture projects.
Financial performance and liquidity
- Q2 revenue was $54.9 million, up 15% from $47.8 million. North America revenue rose 21% to $54.7 million; India revenue fell 94% to $0.2 million.
- Q2 gross profit declined to $3.6 million from $14.1 million; gross margin was approximately 6.6%, versus 29.4%. Operating loss was $2.1 million, compared with operating income of $10.0 million. Net loss was $10.6 million, versus net income of $2.2 million; diluted loss per share was $0.34.
- First-half revenue was $97.7 million, up 12%. Gross profit was only $0.04 million, versus $13.6 million a year earlier. Operating loss was $11.1 million versus income of $5.5 million; net loss widened to $28.7 million from $9.9 million. Diluted loss per share was $1.00.
- Drivers: Q2 North American ethanol sales benefited from higher volume and price, but corn costs rose sharply and lower high-grade-alcohol sales weighed on margins. India sales volumes contracted substantially amid COVID-related disruption and unfavorable feedstock economics.
- Cash flow: First-half operating cash use was $18.2 million, compared with $4.9 million provided in 2020. Investing cash use was $11.7 million, including $12.9 million of capital expenditures, partly offset by grants. Financing provided $36.5 million, including $86.3 million from common-stock offerings, offset in part by debt repayments.
- Cash and liquidity: Cash was $7.2 million at June 30, compared with $0.6 million at year-end. Current assets were $19.0 million and current liabilities $62.9 million; the reported current ratio was 0.30. The company stated that substantially all assets were collateralized and that excess operating cash was remitted to its senior lender.
- Debt and obligations: Total debt was $180.9 million, down from $229.6 million at year-end, including $113.0 million of Third Eye Capital notes and $32.5 million of EB-5 notes. The balance-sheet current portion of long-term debt and short-term borrowings totaled approximately $24.0 million. Series A preferred-unit liabilities were $43.8 million, including current and long-term portions.
Material changes and developments
- North American ethanol volume and pricing increased year over year; average Q2 ethanol price was $2.78 per gallon versus $1.48, while average corn cost rose to $8.04 per bushel from $4.55. Keyes production averaged 110% of stated 55-million-gallon annual capacity in Q2.
- India biodiesel sales volume fell 96% in Q2, and refined-glycerin volume fell 98%. For the first half, biodiesel volume decreased 93% year over year.
- The company repaid GAFI debt in Q1 and reported $48.7 million less total debt than at year-end, while raising substantial equity capital. Common shares outstanding increased from 22.8 million at December 31, 2020 to 31.6 million at June 30, 2021; 31.7 million were outstanding July 31.
- During Q2, Aemetis signed a fuel-ethanol offtake agreement with Murex, with sales scheduled to begin October 1, 2021. It also established a carbon-capture subsidiary and opened negotiations for CO₂ supply and sequestration projects.
Outlook, risks, and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. Meeting obligations over the next 12 months depends on refinancing debt or continued senior-lender cooperation.
- Financing developments after quarter-end: On August 9, 2021, Third Eye Capital agreed to allow extension of specified notes to April 1, 2023, subject to a 1% fee, waived certain debt-ratio covenants through 2022, and waived a capital-expenditure covenant breach for Q2. It also reduced the available reserve-liquidity facility from $70 million to $40 million. The facility carries 30% interest (40% following a continuing default); no amount was drawn at June 30.
- Subordinated notes were amended July 1 to extend maturity to the earlier of December 31, 2021, a qualifying equity financing, or specified default events; the amendment added a 10% fee to the balance and warrants.
- Management’s plans include improving Keyes efficiency and margins, expanding dairy digesters and RNG, financing the Riverbank Carbon Zero project, and rebuilding India sales. The filing provides no quantified financial guidance or assurance that project funding will be secured.
- Key risks include volatile corn, energy, and fuel prices; dependence on lenders and future capital raises; customer concentration; project execution and funding; and COVID-related disruption. Two customers represented 77% and 23% of North America segment revenue in Q2.
- The company reported a $1.1 million gain from forgiveness of PPP loans. The $6.2 million EdenIQ litigation fee award remains recorded; the company intends to pursue further legal action. Accrued unpaid property taxes were $6.4 million, and discussions with the county on a payment plan were ongoing.
- Management concluded disclosure controls and internal controls over financial reporting were not effective, citing an unresolved material weakness identified in the 2020 Form 10-K. Remediation efforts were ongoing.
Important facts for investors to verify
- Whether Aemetis can refinance or extend debt on workable terms and maintain senior-lender support, including the actual availability and cost of the reserve-liquidity facility.
- Whether operating margins recover as input costs, ethanol and coproduct pricing, and high-grade-alcohol demand change.
- Progress, financing, permitting, and expected economics for the RNG, Riverbank Carbon Zero, and carbon-sequestration projects.
- Whether India operations restore sales volumes and whether customer concentration or working-capital support creates additional risk.
- Developments in the EdenIQ litigation, property-tax payment discussions, ABGL preferred-unit obligations, and remediation of the material weakness in financial controls.