Aemetis, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2015. Financial statements are unaudited; amounts below are in U.S. dollars. Unless stated otherwise, figures are in millions.
Business context
Aemetis operates an ethanol and co-products plant in Keyes, California, and a biodiesel and glycerin facility in Kakinada, India. It also develops renewable-fuel and biochemical technologies. North America generated $33.2 million of quarterly revenue; India generated $1.5 million.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Revenue | $34.7 million | $60.7 million; down 42.8% |
| Gross profit (loss) | $(0.2) million; margin approximately -0.7% | $15.6 million; margin approximately 25.8% |
| Operating income (loss) | $(4.0) million; margin approximately -11.4% | $12.7 million |
| Net income (loss) | $(8.6) million; $(0.42) per basic and diluted share | $7.7 million; $0.38 basic and $0.34 diluted per share |
| Cash from operating activities | $(1.7) million | $11.3 million provided |
| Cash and cash equivalents | $5.5 million at March 31 | $0.3 million at December 31, 2014; $7.3 million at March 31, 2014 |
| Total debt | $92.9 million, net of discounts | $77.3 million at December 31, 2014 |
| Stockholders’ deficit | $(15.6) million | $(3.0) million at December 31, 2014 |
Capital expenditures were minimal at $14,000. Financing activities provided $6.9 million in the cash-flow statement. The current ratio was 0.47, up from 0.29 at year-end, but current assets of $13.1 million remained below current liabilities of $27.9 million. The company reported $1.4 million of remaining availability under Third Eye Capital financing in one discussion; elsewhere it reported $1.9 million available under the revolver.
Material changes and management commentary
- North American revenue fell 43.8%, primarily because average ethanol prices declined 43% to $1.67 per gallon and ethanol volume fell 12%. WDG prices declined 9% and volume fell 17%. Keyes production averaged 104% of nameplate capacity.
- Lower revenue outpaced cost reductions: North American cost of goods sold declined 23.1%, and the segment recorded a $162,000 gross loss versus $15.7 million gross profit a year earlier. India also recorded a gross loss, with lower biodiesel volume and glycerin prices.
- SG&A increased 27.9% to $3.6 million, including a $0.9 million increase in North American financial and consulting advisory services. Interest, amortization and debt-extinguishment expenses remained significant.
- The company raised $17.5 million through its EB-5 note program in Q1. EB-5 notes bear 3% interest; the filing said a further $17.0 million could be available subject to attracting qualified investors.
- In March, Third Eye Capital permitted a $5.5 million repurchase of 1.0 million shares, with the purchase price added to revolver debt. On April 30, 2015, it permitted a further $2.5 million repurchase of 500,000 shares and an extension of note maturities to April 1, 2016, subject to notice and a 3% fee.
Outlook, risks and contingencies
No numerical earnings or revenue guidance is provided. Management’s plans include operating the Keyes plant, using lower-cost non-food feedstocks when economical, raising additional EB-5 funds, refinancing senior debt, restructuring the State Bank of India loan, and expanding international biodiesel and glycerin sales. Management said it believed these actions could support operations for the foreseeable future, but cautioned that financing and adequate liquidity are not assured.
Liquidity risks are material: the company relied on senior-lender funding, remitted substantially all excess operating cash to that lender, and faced a stated July 1, 2015 maturity for Third Eye Capital notes, with an extension available under specified conditions. Ethanol prices and operating spreads had declined; margins are exposed to commodity prices, energy costs, interest rates and currency movements. The company also reported a defaulted State Bank of India loan and related recovery proceedings; the bank could seek recovery against company property. In a separate patent case concerning corn-oil extraction, the court found the asserted patents invalid and not infringed, but an appeal was possible; potential damages could be $1 million or more if the ruling were reversed. The company reported no material change to the risk factors in its 2014 Form 10-K.
Management reported disclosure controls and procedures were effective at a reasonable-assurance level and said there were no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the company can refinance or extend senior debt, meet maturity and fee requirements, and maintain access to working-capital facilities.
- Whether further EB-5 funding is raised and released from escrow, and the resulting debt service and liquidity impact.
- Whether ethanol prices, feedstock costs and product spreads improve enough to restore positive gross margins and operating cash flow.
- The status and classification of the State Bank of India loan, recovery case and interim stay, including potential enforcement against assets.
- Cash-flow and borrowing disclosures: the cash-flow statement reports $20.0 million of borrowing proceeds and $6.9 million of financing cash flow, while MD&A cites $25.6 million of proceeds and $7.5 million of financing cash flow; the revolver availability is also stated as both $1.4 million and $1.9 million.
- The effect of debt-financed share repurchases on leverage, share count and per-share value, including the April 2015 transaction.