Aemetis, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Unless noted otherwise, amounts are in millions of U.S. dollars. Aemetis operates ethanol and co-product facilities in North America and a biodiesel and glycerin plant in India.
Financial performance and liquidity
- Q2 revenue: $50.6 million, up 12% from $45.0 million a year earlier. North America revenue was nearly flat at $39.5 million; India revenue rose to $11.1 million from $5.4 million, mainly on higher biodiesel volumes, including government oil-company tender sales.
- Q2 gross profit: $3.3 million versus $2.8 million; gross margin was approximately 6.5% versus 6.1%. North America gross profit fell to $1.0 million from $2.5 million as corn and energy costs rose. India gross profit increased to $2.3 million from $0.2 million.
- Q2 losses: Operating loss was $0.8 million versus $0.9 million. Net loss was $13.9 million versus $6.2 million; loss attributable to Aemetis was $12.9 million versus $5.4 million. Results included a $6.2 million EdenIQ litigation loss and $0.5 million of Series A preferred-unit accretion.
- First-half results: Revenue was $92.5 million, up 5% from $88.0 million. Gross profit declined to $2.9 million from $4.6 million, and net loss widened to $24.6 million from $17.3 million. Loss attributable to Aemetis was $22.7 million versus $15.7 million.
- Cash flow: Operating cash use was $1.2 million in the first half, compared with $1.6 million in 2018; investing cash use was $1.0 million, and financing provided $1.4 million. Cash fell to $0.35 million from $1.19 million at year-end.
- Debt and liquidity: Total debt was $187.1 million, up from $175.1 million at December 31, 2018. Current assets were $10.2 million versus current liabilities of $57.6 million; the reported current ratio was 0.18. The filing identifies $21.4 million of scheduled debt repayments in the twelve months ending June 30, 2020. Senior Third Eye Capital notes mature April 1, 2020, with an extension option to April 2021 subject to a 5% fee.
- Equity position: Total stockholders’ deficit was $139.5 million, compared with $115.6 million at year-end.
Material changes versus the prior comparable period
- Q2 revenue growth came mainly from India: biodiesel sales volumes rose 203% year over year, while biodiesel selling price declined 7%. Refined-glycerin volume and price also fell.
- North America’s Q2 ethanol volume declined 1%, with average price unchanged; higher corn, natural-gas, and electricity costs reduced segment gross profit. For the first half, North America gross profit fell 82% to $0.7 million.
- First-half debt increased by $12.0 million. The filing attributes debt growth in part to accrued interest, new borrowing, fees, and working-capital financing; accrued interest increased $10.1 million in the debt roll-forward.
- Operating lease accounting adopted in 2019 added approximately $1.2 million of right-of-use assets and lease liabilities at adoption; management said the effect on the balance sheet was material, but the income-statement impact was not material.
Outlook, risks, contingencies, and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern. Aemetis says it needs to refinance debt or obtain continued senior-lender cooperation to meet obligations over the next 12 months. It estimates needing approximately $42.4 million of operating cash flow and other subordinated debt over that period to reduce debt sufficiently for covenant compliance and fund operations.
- Funding plans: Management expects to pursue operational improvements, India sales growth, an up-to-$50 million EB-5 Phase II offering, debt restructuring or refinancing, and other financing. Plans also include Riverbank cellulosic ethanol, Keyes CO2 sales, and dairy-digester renewable natural gas projects. These projects depend on execution and financing; the Riverbank plan cites a proposed $125 million USDA loan guarantee. No formal earnings guidance is provided.
- Debt and lender dependence: Third Eye Capital waived the note-indebtedness covenant through December 31, 2019. The company said it believes it can meet future covenant requirements through a combination of operating cash flow, project liquidity, and subordinated financing, but there is no assurance of lender accommodation or refinancing. An $8.0 million reserve liquidity facility was available through April 1, 2020 at a stated 30% annual interest rate; no amount was drawn at June 30.
- Legal and tax exposure: On July 24, 2019, after quarter-end, the court awarded EdenIQ approximately $6.2 million in fees and costs; Aemetis recorded the loss in Q2 and said it plans to appeal while pursuing its claims and defenses. The company also missed an April 10, 2019 property-tax plan payment; $3.9 million was accrued, and the filing says the property could be subject to collection proceedings or potential sale.
- Operating and concentration risks: North America sales to J.D. Heiskell represented 99.8% of North America segment revenue in Q2. The company is exposed to volatile product and feedstock prices, energy costs, and working-capital needs. India sales improved, but customer concentration and lower biodiesel and glycerin prices remain relevant.
- Controls: Management concluded disclosure controls and related internal controls over financial reporting were not effective, despite remediation efforts addressing a previously identified material weakness.
Important facts for investors to verify
- Available cash, near-term working-capital needs, and whether the company can secure refinancing or continued senior-lender support.
- Debt maturities, covenant status after the waiver, extension fees, and the assumptions supporting the stated $42.4 million liquidity need.
- Outcome and timing of the EdenIQ appeal and any further legal costs; status of the overdue property taxes and related asset risk.
- Whether EB-5 funding, the USDA loan guarantee, and planned cellulosic ethanol, CO2, and biogas projects obtain required funding, approvals, and operating milestones.
- Whether North America margins recover as input costs and product prices change, and whether India tender sales continue at profitable volumes.
- Progress in remediating the material weakness and restoring effective disclosure controls.