Aemetis, Inc. — 2019 Third-Quarter Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Amounts below are in millions of U.S. dollars unless stated otherwise. Aemetis operates ethanol and coproduct facilities in North America and a biodiesel and glycerin plant in India.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $57.4 | $44.6 | $149.9 | $132.7 |
| Gross profit | $4.0 | $2.7 | $6.9 | $7.3 |
| Operating loss | $(0.6) | $(1.3) | $(6.0) | $(4.2) |
| Net loss | $(7.2) | $(6.6) | $(31.8) | $(24.0) |
| Net loss per share, basic and diluted | $(0.31) | $(0.29) | $(1.42) | $(1.07) |
- Gross margin was about 6.9% in Q3 2019 versus 6.0% in Q3 2018; for the first nine months it was about 4.6% versus 5.5%.
- Cash from operating activities was $(1.1) million for the first nine months, compared with $(3.4) million in 2018. Investing cash use was $5.1 million and financing provided $5.9 million. Cash ended the period at $0.9 million, down from $1.2 million at year-end 2018.
- Total debt was $195.5 million, including $22.5 million classified as current. The balance sheet showed $12.6 million of current assets and $58.5 million of current liabilities; the reported current ratio was 0.22. Total stockholders’ deficit was $146.8 million.
Changes versus prior comparable periods
- Q3 revenue grew 29%, primarily as India revenue increased $13.5 million (223%) with higher biodiesel sales under government oil-company tenders. North America revenue declined 2%.
- Q3 gross profit rose to $4.0 million, but North America recorded a $0.2 million gross loss as higher corn costs and lower ethanol volumes/prices pressured margins. India gross profit improved to $4.2 million.
- For the first nine months, revenue increased 13%, but gross profit declined 5% and net loss widened by $7.8 million. North America gross profit fell to $0.5 million; India gross profit rose to $6.4 million.
- The nine-month loss included a $6.2 million EdenIQ litigation contingency and $1.5 million of accretion on Series A preferred units. Higher interest expense also weighed on results.
Outlook, risks and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. It needs to refinance debt or obtain continued senior-lender cooperation to meet obligations over the next 12 months; substantially all excess operating cash has been required to go to the senior lender.
- Debt and refinancing: Third Eye Capital notes had a stated April 1, 2020 maturity, with an option to extend to April 1, 2021 for a 5% fee. The filing’s debt schedule shows $166.8 million of repayments due in the 12 months ending September 30, 2021. A November 11, 2019 amendment waived a debt covenant through December 2020 for an additional $0.5 million fee. Management cited refinancing, operations, EB-5 funding and equity financing as possible repayment sources; success is not assured.
- Liquidity and funding plans: The company reported $8.0 million of unused Reserve Liquidity Note capacity through April 1, 2020 and $2.5 million released from EB-5 Phase II escrow, against a planned $50 million offering. Management’s plans include improving Keyes margins, developing Riverbank cellulosic ethanol, monetizing CO2 and dairy biogas, and expanding India sales. These are plans, not quantified earnings guidance.
- Contingencies: EdenIQ was awarded approximately $6.2 million in legal fees and costs; Aemetis recorded the loss, stated it intended to appeal, and continued to pursue its claims. The company missed an April 10, 2019 payment under its Stanislaus County property-tax plan; $4.2 million was accrued, and the county could pursue collection or sale of the property.
- Operational and market risks: Results depend on volatile ethanol, biodiesel, corn, feedstock and energy prices. North American sales are highly concentrated: J.D. Heiskell accounted for 98.3% of North America segment revenue in Q3. India’s government tenders contributed materially to growth, while biodiesel and glycerin prices and customer concentration remain relevant risks.
- Controls: Management concluded disclosure controls and internal control over financial reporting were not effective because of a material weakness identified in the prior annual report. Remediation efforts were ongoing.
Investor verification points
- Confirm the company’s refinancing and debt-extension arrangements, maturities, covenant waivers and ability to fund near-term obligations.
- Track cash balances, operating cash flow, current liabilities and whether working-capital partners and the senior lender continue providing support.
- Verify progress and funding for Riverbank, biogas and CO2 projects, and whether projected credits and margin benefits are realized.
- Monitor the EdenIQ fee award and appeal, and resolution of the overdue county property taxes.
- Assess whether India tender sales persist and whether North American feedstock costs and customer concentration continue to pressure margins.
- Review subsequent filings for progress remediating the disclosed control weakness.