Aemetis, Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017. Unaudited financial amounts below are in U.S. dollars; amounts are shown in millions unless stated otherwise.
Business context
Aemetis develops and operates renewable-fuels and biochemicals businesses. It runs a 60-million-gallon-per-year ethanol plant in Keyes, California, and a 50-million-gallon-per-year biodiesel and refined-glycerin facility in Kakinada, India. North America primarily sells ethanol and distillers’ grains; India primarily sells biodiesel and glycerin.
Financial performance
| Metric | Q2 2017 | Q2 2016 | First half 2017 | First half 2016 |
|---|---|---|---|---|
| Revenue | $40.764 | $33.059 | $72.338 | $66.385 |
| Gross profit | $1.705 | $1.944 | $1.118 | $4.030 |
| Gross margin | 4.2% | 5.9% | 1.5% | 6.1% |
| Operating loss | $(1.667) | $(1.064) | $(5.635) | $(2.074) |
| Net loss | $(5.987) | $(4.983) | $(14.514) | $(10.096) |
| Net loss per share | $(0.30) | $(0.25) | $(0.74) | $(0.51) |
- Q2 revenue rose 23%; first-half revenue increased 9%. Higher North American ethanol volumes and substantially higher India sales in Q2 contributed to growth.
- Q2 gross profit fell 12%, and first-half gross profit fell 72%. North American gross profit was pressured by lower WDG prices and higher energy and transportation costs; higher feedstock costs also weighed on India margins.
- Interest-rate expense was $3.164 million in Q2 and $6.006 million for the first half. Debt amortization expense was $1.164 million and $2.847 million, respectively.
- First-half operating cash flow was negative $4.844 million, compared with negative $0.907 million in 2016. Capital expenditures were $0.511 million; financing activities provided $4.244 million. Cash declined from $1.486 million at year-end 2016 to $0.667 million.
- At June 30, current assets were $10.044 million and current liabilities $35.331 million, a $25.287 million working-capital deficit; the reported current ratio was 0.28. Stockholders’ deficit was $63.585 million.
Debt, liquidity and material changes
- Total debt was $124.831 million at June 30, versus $111.714 million at December 31, 2016. The filing reports $17.217 million as current debt and $107.614 million as long-term debt, net of discounts.
- Third Eye Capital debt was subject to a 14% rate on term notes, 18% on the revolving facility, 5% on revenue-participation notes, and 15% on acquisition notes, as applicable. The senior facilities were scheduled to mature April 1, 2018, with an option to extend to April 1, 2019 for a 5% fee. The lender added a $3.1 million extension fee and a $0.75 million waiver fee to debt in connection with March 2017 amendments.
- In July 2017, a $5.6 million Goodland revolving-note facility at 12% was entered into; $1.2 million remained available under the facility. Proceeds repaid the $2.1 million January and $1.5 million April Third Eye Capital notes and funded working capital. The Goodland notes mature July 10, 2019, subject to extension conditions.
- The company reported reliance on lender support and said substantially all excess operating cash was required to be remitted to its senior lender. Management’s funding plan includes EB-5 proceeds, refinancing, equity issuance, working-capital facilities, and improved operating performance. Management believed these actions could fund operations for at least a year, but cautioned there was no assurance of sufficient cash or available financing.
Outlook, risks and unusual items
- No formal numerical earnings or revenue guidance was provided. Management expected revenue growth in the second half of 2017 and into 2018, and expected to sign a Keyes-plant CO2 sales agreement in Q3 2017.
- Management described plans to improve Keyes margins through lower-cost feedstocks and higher-value markets, develop a cellulosic ethanol project, and increase India facility shipments and market access. These plans depend on execution, financing, and market conditions.
- India’s July 2017 GST change raised the combined domestic sales tax rate from 11% to 18%; management said this could constrain domestic revenue growth and reduce margins. Ethanol, corn, WDG, energy, biodiesel and feedstock prices can also materially affect cash flow and margins.
- North America generated 93% of segment revenue through sales to J.D. Heiskell in both Q2 and the first half, presenting significant customer concentration. India also had concentrated biodiesel customers.
- Legal proceedings include the company’s dispute with EdenIQ, which has filed a cross-complaint; potential losses could not be estimated. In the Greenshift patent matter, prior court rulings found the patents invalid and unenforceable, but appeal proceedings remained relevant; the filing said damages could be $1 million or more if Greenshift successfully overturned the invalidity findings.
- Management concluded disclosure controls were effective at a reasonable-assurance level. It reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether operating cash flow and available financing can address the substantial working-capital deficit and debt maturities.
- Progress on senior-debt refinancing or extension, EB-5 fundraising and release of escrowed funds, and use of the Goodland facility.
- Whether Keyes and Kakinada can sustain production, improve margins, and deliver the growth management anticipated, particularly after India’s GST increase.
- Exposure to concentrated customers, feedstock and product-price spreads, and changes in lender or working-capital-provider support.
- Developments in the EdenIQ and Greenshift litigation and any resulting financial exposure.