Aemetis, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Unless stated otherwise, financial amounts are in millions of dollars. Aemetis operates renewable-fuels businesses in North America and India, including ethanol, high-grade alcohol, biodiesel, and related products.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $47.8 | $50.6 | $87.3 | $92.5 |
| Gross profit / margin | $14.1 / 29.4% | $3.3 / 6.5% | $13.6 / 15.6% | $2.9 / 3.2% |
| Operating income (loss) | $10.0 | $(0.8) | $5.5 | $(5.4) |
| Net income (loss) | $2.2 | $(13.9) | $(9.9) | $(24.6) |
| Operating cash flow | Six-month period: $4.9 | Prior-year six-month period: $(1.2) |
- Q2 diluted earnings per share were $0.10; six-month loss per share was $0.48.
- At June 30, cash was $3.4, current assets $17.9, current liabilities $60.0, and total debt $219.5. The current ratio was 0.30; the working-capital deficit was approximately $42.1. Stockholders’ deficit was $164.2.
- Six-month investing cash outflow was $8.6, primarily capital expenditures; financing cash inflow was $6.5. Cash increased by $2.8 to $3.4.
Changes and business developments
- Q2 revenue declined 6% year over year. North American revenue rose 15% to $45.2, while India revenue fell 77% to $2.6. For the six months, total revenue declined 6%; North America increased 7% and India decreased 62%.
- High-grade alcohol sales, launched during 2020 for sanitizer and other uses, contributed 48% of Q2 revenue. This helped lift North American gross profit. Ethanol volumes and prices were lower: Q2 gallons sold fell to 9.8 million from 16.2 million, and average price declined 20% to $1.48 per gallon.
- India biodiesel volumes fell sharply amid COVID-19 disruption and delays in government tender bidding. Q2 biodiesel sales volume declined 80% year over year.
- The CO2 project began operating in late April, with revenue recognized in Q2. Construction of the first two dairy digesters and pipeline was expected to be completed in August 2020; management anticipated operations in Q3.
- Capital expenditures were $8.6 for the first half, versus $1.0 in the comparable 2019 period. Net property, plant and equipment increased to $98.5 from $84.2 at year-end.
Liquidity, debt, outlook, and risks
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. It depends on senior-lender cooperation or refinancing to meet obligations over the next 12 months and said substantially all excess operating cash is remitted to the senior lender.
- Third Eye Capital debt was approximately $150.9, including GAFI debt. The principal senior notes were extended to April 1, 2021; an August 11, 2020 amendment permitted further extensions to April 1, 2022, subject to fees, and waived specified debt-ratio covenants through June 2021. GAFI debt was extended to July 10, 2021.
- The filing reports $18.0 of additional capacity under Reserve Liquidity Notes and $4.0 released from escrow under the EB-5 Phase II offering; substantial Phase II funding remained unsold. Management identified lender support, refinancing, EB-5 proceeds, equity financing, and vendor financing as potential liquidity sources. No quantified operating guidance was provided.
- Debt carries substantial financing costs: the senior revolving facility rate was 17% at June 30, and other Third Eye Capital notes generally carried rates of 14% or prime plus a spread. Six-month operating cash flow included a $10.4 increase in accrued interest, a significant contributor to the reported cash generation.
- COVID-19 reduced fuel demand and disrupted operations and markets, while temporarily boosting sanitizer-related alcohol demand. Management expected high-grade alcohol demand to continue but at lower volumes than Q2; it cautioned that market normalization was uncertain.
- A $6.2 EdenIQ litigation fee award recorded in 2019 remained subject to the company’s planned appeal. The company also disclosed unpaid property taxes of approximately $5.0 and ongoing discussions with the county regarding a payment plan.
- Disclosure controls and internal controls over financial reporting were reported not effective, following a previously identified material weakness; remediation efforts were ongoing.
Key investor verification points
- Assess near-term liquidity and refinancing needs, including the large scheduled debt maturities, covenant waivers, lender dependence, and whether extension or refinancing terms are secured.
- Verify the sustainability and margins of high-grade alcohol sales after the pandemic-related demand spike, and the company’s progress toward higher-grade production and consumer channels.
- Track India tender awards and biodiesel volumes, and the commissioning, funding, and expected credit revenue of the biogas and Riverbank projects.
- Review operating cash flow quality, especially the contribution from accrued interest and working-capital movements, alongside ongoing capital spending.
- Monitor the EdenIQ appeal, property-tax arrangements, PPP loan forgiveness, and remediation of the disclosed control weakness.