Aemetis, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; filed May 9, 2019. Aemetis produces ethanol and related products in North America and biodiesel and glycerin in India. Unless noted otherwise, amounts below are in U.S. dollars and millions; the filing’s financial statements report amounts in thousands.
Financial performance and position
- Revenue: $41.888 million, down 2.6% from $43.018 million a year earlier. North America revenue was $36.636 million, down 1%; India revenue was $5.252 million, down 10%.
- Profitability: Gross loss was $0.351 million versus gross profit of $1.866 million; operating loss was $4.625 million versus $2.003 million. Consolidated net loss was $10.667 million, compared with $11.105 million; net loss attributable to Aemetis was $9.729 million versus $10.368 million. Basic and diluted loss per share was $0.48, versus $0.51.
- Margins and cost drivers: Gross margin was negative in Q1 2019, versus positive in Q1 2018. Management attributed weaker North American gross profit to lower ethanol prices and higher corn costs, and weaker India gross profit to lower glycerin prices and higher feedstock volumes. SG&A increased 11% to $4.241 million, including higher North American professional fees.
- Cash flow: Operating cash outflow was $2.107 million, versus $0.027 million in Q1 2018; investing outflow was $0.598 million, and financing inflow was $1.559 million. Cash fell from $1.188 million at year-end to $43,000 at March 31.
- Liquidity: Current assets were $10.312 million and current liabilities $49.885 million; the reported current ratio was 0.21. Stockholders’ deficit totaled $125.834 million.
- Debt: Total debt, net of issuance costs, was $182.017 million, up from $175.117 million at December 31, 2018. Aemetis reported $93.7 million outstanding on Third Eye Capital notes and $26.5 million on GAFI loans. The Third Eye notes mature April 1, 2020; GAFI loans mature July 10, 2019, subject to extension provisions. Debt carries substantial interest and fees, including a 19.25% rate on the revolving facility and 30% on the undrawn reserve facility.
Material changes versus prior year or year-end
- Revenue declined modestly, but cost of goods sold rose 3%, turning gross profit into a gross loss. North American ethanol sales volume edged up while average ethanol price fell 5%; India glycerin’s average selling price fell 43%.
- Net loss improved year over year, partly because debt-related fees and amortization were lower than in Q1 2018, which included significant charges related to a debt restructuring. Interest expense nevertheless remained substantial.
- Cash declined by $1.145 million during the quarter, while accounts payable and accrued interest increased. Total debt rose $6.9 million from year-end.
- The company adopted lease accounting in January 2019, recording $1.040 million in operating-lease right-of-use assets and $1.066 million in lease liabilities at March 31.
Outlook, risks, contingencies and unusual items
- Going concern and funding: Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing reliance on senior-lender support and the need to refinance debt or obtain continued lender cooperation within 12 months. Plans include operating improvements, project revenues, additional EB-5 funding, refinancing, equity or vendor financing. These outcomes are not assured.
- Management plans: Priorities include improving Keyes Plant efficiency and margins; developing Riverbank cellulosic ethanol and dairy-biogas projects; monetizing Keyes CO₂ under an agreement with Linde; and expanding India sales. Management’s plans depend on financing, project execution, market conditions and permits or other approvals. It cited a potential $125 million USDA loan guarantee, which was not assured.
- Debt amendments: In March 2019, Third Eye Capital waived a debt-ratio covenant through year-end 2019 and added a $1.0 million fee to the redemption fee. The lender also increased the reserve facility to $8.0 million and extended its maturity to April 1, 2020; no amounts were drawn at March 31. A $2.1 million February 2019 note was later modified, after quarter-end, to be payable on demand. The company’s covenant assessment relied on forecast cash flows and anticipated financing and project liquidity.
- Concentration and market risks: A single customer accounted for 99.9% of North American segment revenue. A single biodiesel customer represented 45% of India segment revenue. Results are exposed to volatile prices for ethanol, corn, natural gas, biodiesel feedstocks and co-products; working-capital availability also depends on counterparties.
- Litigation: EdenIQ seeks approximately $8.482 million in attorneys’ fees and costs; Aemetis disputes the claim and seeks approximately $1.775 million. The company assessed the loss exposure as reasonably possible and recorded no liability.
- Controls: Management concluded disclosure controls and internal controls over financial reporting were not effective, citing a previously identified material weakness; remediation efforts were ongoing.
- Other items: The company recorded $0.449 million of accretion on redeemable Series A preferred units. It reported no unresolved defaults on senior securities during the quarter and no change in reported risk factors from its 2018 Form 10-K.
Important facts for investors to verify
- Available liquidity, lender support, covenant compliance and refinancing prospects—especially the July 2019 GAFI maturity and April 2020 Third Eye Capital maturity.
- Whether operating cash flow improves enough to fund operations and debt service, given $43,000 of cash and a 0.21 current ratio at quarter-end.
- Actual progress, funding and timing for the Riverbank, biogas and CO₂ projects, including the USDA loan guarantee and EB-5 fundraising.
- Changes in customer concentration, commodity-price spreads and margins across both segments.
- Developments in the EdenIQ fee dispute and remediation of the material weakness in financial reporting controls.