Aemetis, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context
Aemetis develops and operates renewable fuels and biochemicals businesses. Its operations include a 60-million-gallon-per-year ethanol plant in Keyes, California, and a 50-million-gallon-per-year biodiesel and renewable chemicals plant in Kakinada, India. The company is also developing cellulosic ethanol, dairy biogas, and carbon dioxide projects.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $39.48 | $41.89; down 6% |
| Gross loss | $(0.43); gross margin approximately -1.1% | $(0.35); approximately -0.8% |
| Operating loss | $(4.49) | $(4.63) |
| Net loss attributable to Aemetis | $(12.05); $(0.58) per share | $(9.73); $(0.48) per share |
| Cash from operating activities | $0.61 | $(2.11) |
| Capital expenditures | $2.37 | $0.60 |
Operating cash flow less capital expenditures was approximately negative $1.76 million. Operating cash flow included significant working-capital movements, notably a $5.44 million increase in accrued interest and a $1.08 million increase in accounts payable.
At March 31, cash was $0.30 million, current assets were $9.85 million, and current liabilities were $60.96 million; the reported current ratio was 0.16. Total debt was $209.05 million, up from $202.43 million at December 31, 2019. Stockholders’ deficit was $166.69 million.
Material changes and operating trends
- North American revenue declined 2% to $35.87 million. Ethanol prices averaged $1.56 per gallon, down 7%, and volume fell to 15.7 million gallons from 16.2 million. Keyes production averaged 114% of stated 55-million-gallon annual nameplate capacity.
- India revenue fell 31% to $3.61 million. The Kakinada plant shut down for repairs in February and stopped operating in March because of COVID-19 restrictions; biodiesel sales volume declined 31%.
- North America reported a $0.54 million gross loss, while India reported $0.11 million gross profit. Consolidated gross loss widened modestly.
- Interest and debt-related costs remained substantial: reported interest expense was $6.88 million, debt-fee amortization was $1.29 million, and Series A preferred-unit accretion was $0.96 million.
- Property, plant and equipment increased to $90.63 million, including construction in progress of $19.21 million. The company recorded $5.65 million of capital expenditures purchased on financing, with the related obligation included in other liabilities.
Outlook, risks and contingencies
There is no formal quantitative earnings or revenue guidance in the filing. Management’s plans include beginning CO2 project revenue in Q2 2020, targeting biogas operations in Q3 2020, raising funds for the Riverbank cellulosic ethanol facility, and improving margins through new products, markets and lower-cost feedstocks. These are forward-looking plans, not assured outcomes.
The filing states that substantial doubt exists about Aemetis’ ability to continue as a going concern. The company says it needs to refinance debt or continued cooperation from its senior lender to meet obligations over the next 12 months. Management’s liquidity plans rely on operating cash flow, lender support, EB-5 fundraising, debt restructuring, vendor financing and potential equity financing; the filing provides no assurance these sources will be available.
- Third Eye Capital financing other than GAFI was stated to mature April 1, 2021; GAFI financing was stated to mature July 10, 2020, subject to extension conditions. Third Eye Capital notes carried high interest rates, including 17% on the revolving facility, and were subject to covenants. The company disclosed a covenant violation on a promissory note, subsequently waived in May 2020.
- The company had $18 million of stated additional capacity under Reserve Liquidity Notes, carrying a 30% interest rate. It also had $36.5 million of EB-5 notes reported as long-term liabilities and $4.0 million released from Phase II escrow by quarter-end.
- COVID-19 disrupted Indian operations and created uncertainty around demand, supply chains, project schedules and commodity markets. The company said the financial impact could not be reasonably estimated.
- The EdenIQ litigation resulted in a court-awarded fee and cost amount of approximately $6.2 million, accrued in 2019. Aemetis planned to continue pursuing claims and defenses and appeal the award.
- Disclosure controls and internal controls over financial reporting were not effective at quarter-end due to a previously identified material weakness; remediation efforts were ongoing.
- After quarter-end, amendments to the J.D. Heiskell agreements changed purchasing, marketing, grain-procurement and cash-deposit terms. The purchase-agreement amendment removed Heiskell’s obligation to purchase and market Aemetis ethanol.
- The CO2 equipment project was delayed by COVID-19-related installation issues; Messer completed its portion in April. A $1.1 million Bank of America loan was obtained after quarter-end, with potential forgiveness subject to conditions.
Important facts for investors to verify
- Near-term liquidity, lender support, covenant compliance, debt refinancing prospects and the GAFI maturity or extension.
- Progress and actual funding raised through EB-5 Phase II and other financing plans, including applicable fees and repayment terms.
- The financial and operational effects of the revised J.D. Heiskell agreements, including the ethanol marketing change and required cash deposit.
- Whether the CO2 project generates revenue as planned and whether biogas and Riverbank projects meet their construction, funding and start-up targets.
- COVID-19 effects on demand, Indian operations, commodity spreads and project timelines, and the company’s progress remediating its material weakness in financial controls.
- Status and potential outcome of the EdenIQ litigation and the $6.2 million fee award.