Aemetis, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited financial statements; amounts below are in millions of U.S. dollars unless noted.
Business context
Aemetis develops and operates renewable fuels and renewable natural gas businesses. Its reportable segments are California Ethanol, California Dairy Renewable Natural Gas, and India Biodiesel. The Keyes ethanol plant restarted near the end of Q2 after an extended maintenance period and energy-efficiency upgrades. At quarter-end, the RNG segment had seven operating dairy digesters and five under construction.
Financial performance and liquidity
- Q3 revenue: $68.7 million, down 4.4% year over year. California Ethanol revenue was $47.4 million (down 22.1%); India Biodiesel was $20.1 million (up 84.4%); Dairy RNG was $1.1 million.
- Q3 profitability: Gross profit was $0.5 million, a 0.7% gross margin, versus a $1.1 million gross loss a year earlier. Operating loss was $8.5 million. Net income was $30.7 million, or $0.79 per basic share ($0.73 diluted), compared with a $66.8 million net loss in Q3 2022. The 2023 net income included a $55.2 million income-tax benefit from selling investment tax credits; pre-tax loss was $24.6 million.
- Nine-month results: Revenue was $116.0 million, down 38.9% from $189.8 million. Gross profit was $1.2 million versus a $4.4 million gross loss; operating loss was $28.4 million. Net loss was $21.0 million, or $0.56 per share, compared with an $85.3 million loss in 2022. The current-year period included a $54.5 million income-tax benefit from investment tax credits.
- Cash flow: The cash flow statement reports $20.1 million used in operating activities and $10.9 million used in investing activities for the nine months; financing provided $31.6 million. Capital expenditures were $18.6 million, partly offset by $7.7 million of grant proceeds. Management’s discussion separately states operating cash use of $19.2 million; the filing text does not reconcile this difference.
- Cash and liquidity: Balance-sheet cash was $3.9 million at September 30, versus $4.3 million at December 31, 2022. Current assets were $78.5 million and current liabilities $114.4 million; the reported current ratio was 0.21. Current assets included a $55.2 million tax-credit receivable, collected October 6.
- Debt and obligations: Total debt, net of issuance costs, was $286.5 million, up from $246.2 million at year-end; $66.5 million was classified as current. Long-term Series A preferred-unit liabilities were $137.8 million. Interest expense was $8.7 million for Q3 and $24.1 million for the nine-month period; Series A accretion and related expense were $7.7 million and $20.2 million, respectively.
- Capital structure: Common shares outstanding increased to 39.4 million at September 30 from 35.9 million at December 31, 2022. The filing reports 39.45 million shares outstanding at October 31.
Material changes versus the prior period
- Nine-month revenue fell sharply, primarily because the Keyes plant was shut down for an extended maintenance cycle during the first five months of 2023. Ethanol sales volume for the nine-month period was 16.7 million gallons.
- India Biodiesel revenue increased substantially as the company fulfilled Indian Oil Marketing Company tenders; nine-month biodiesel volume rose to 43.7 thousand metric tons from 7.0 thousand.
- Q3 California Ethanol sales were concentrated: one customer accounted for 99.7% of segment revenue. Management attributed improved ethanol gross loss versus 2022 mainly to lower corn and natural-gas costs.
- Interest expense and Series A preferred-unit accretion increased year over year, while SG&A also rose. The prior-year comparison included a $49.4 million debt-extinguishment loss, contributing to the much larger 2022 net loss.
Outlook, risks, and unusual items
- Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern. It cites negative capital, operating losses, volatile market conditions, asset collateralization, and reliance on its senior lender. The company says it must refinance debt or obtain continued lender cooperation to meet obligations over the next 12 months.
- Debt dependence and refinancing: Third Eye Capital facilities carry high interest rates and covenants; the company had received multiple waivers, including for minimum ethanol production. The company reported $50 million of reserve liquidity capacity, but no borrowings under that facility at September 30. Future liquidity plans include lender cooperation, refinancing, equity or bond issuance, EB-5 fundraising, and vendor financing.
- Subsequent financing actions: On October 16, the company used $50.2 million of the tax-credit sale proceeds for debt and preferred-unit repayments, including $30.0 million toward the Series A arrangement; the filing says GAFI availability increased to $37.5 million. On November 8, after quarter-end, the Series A redemption deadline was extended to December 31, 2023, with a stated redemption price of $102.5 million plus a $5.5 million closing fee. Failure to redeem would trigger a credit agreement.
- Operating and project risks: Results depend on volatile prices for feedstocks, fuels, natural gas, and environmental credits, as well as plant operating levels and margins. RNG, carbon capture, and Riverbank renewable diesel/SAF projects require construction funding, permits, grants, and successful commercialization. India-to-U.S. cash repatriation depends on governmental approvals.
- Other notable disclosures: The company held 64.69 thousand MMBtu of produced RNG not yet dispensed; associated future LCFS credits and D3 RINs were not recorded as assets. The CEC declined to extend a Riverbank-related grant deadline. Management concluded disclosure controls and internal controls over financial reporting were not effective, with remediation underway for previously identified material weaknesses.
- Guidance: No specific numerical revenue or earnings guidance is provided. Management describes plans to improve Keyes efficiency and margins, expand digesters and pipeline, develop India sales channels, and finance Riverbank and carbon-capture projects.
Most important facts for investors to verify
- Whether the company can meet near-term maturities, maintain senior-lender support, and convert stated borrowing capacity into available cash.
- Whether the Series A preferred-unit redemption or replacement credit agreement is completed on the amended terms and by the stated deadline.
- Whether the $55.2 million tax-credit proceeds and October debt repayments improve liquidity sufficiently, given the remaining debt and operating cash requirements.
- Whether Keyes sustains operations with positive margins and reduces customer concentration, and whether India biodiesel sales remain profitable as prices and feedstock costs change.
- Whether RNG construction, grant funding, permits, and credit monetization proceed as planned; also verify the timing and value of credits from stored RNG.
- The cash-flow disclosure discrepancy ($20.1 million versus $19.2 million operating cash used) and the status of remediation of ineffective controls.