Aemetis, Inc. — Q3 2012 Form 10-Q
Business context and reporting period. Unaudited results cover the three and nine months ended September 30, 2012. Aemetis produces ethanol, wet distillers’ grains and corn oil in California, and biodiesel, glycerin and related products in India. On July 6, 2012, it acquired Cilion, owner of the Keyes, California ethanol plant.
Key financial results
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $53.4 million | $56.6 million | $141.9 million | $84.6 million |
| Gross profit/(loss) | ($2.3 million) | $0.8 million | ($6.5 million) | $0.4 million |
| Operating loss | ($5.0 million) | ($1.8 million) | ($14.0 million) | ($6.3 million) |
| Net income/(loss) | $20.7 million | ($5.5 million) | $2.6 million | ($16.1 million) |
| Cash used in operating activities | Not presented by quarter | ($12.5 million) | ($2.1 million) |
Q3 revenue declined about 6% year over year; nine-month revenue rose about 68%, mainly because the Keyes plant operated for a longer period than in 2011. The Q3 and nine-month gross losses reflect North American segment losses. Q3 net income included a $40.3 million non-cash bargain-purchase gain from Cilion, partly offset by an $11.4 million debt-extinguishment loss. These unusual items substantially affect reported earnings; operating performance remained loss-making.
Q3 basic and diluted earnings per share were $0.12; nine-month earnings per share were $0.02. At September 30, cash was $77,667, current assets were $7.0 million and current liabilities were $49.3 million, a working-capital deficit of about $42.2 million and a 0.14 current ratio. Total debt was $66.0 million, including $27.8 million scheduled as current. Stockholders’ equity was $11.4 million, versus a $22.2 million deficit at year-end 2011. Nine-month cash declined by $171,799.
Material changes, outlook and risks
- Cilion transaction: Aemetis paid $16.5 million cash and issued 20 million shares to Cilion shareholders; the consideration also included a seller note with a recorded fair value of about $3.6 million. Purchase-price allocation and the bargain-purchase gain were provisional pending final valuations.
- Financing and liquidity: Debt increased from $29.6 million at December 31, 2011 to $66.0 million, substantially in connection with the acquisition and related financing. Third Eye Capital’s October 2012 amendment extended maturities, raised the revolving commitment from $18 million to $24 million, waived specified covenant and payment defaults, and deferred interest payments. A $4 million waiver fee was paid, leaving $2 million available to draw. These post-period arrangements provide relief but underscore dependence on the senior lender.
- Going concern: Management cited recurring losses, negative operating cash flow and a working-capital deficit. It said continued operations depend on maintaining lender support or securing alternative financing, including potential subordinated notes or equity. Management believed its plans would sustain the company, but gave no assurance financing would be available on acceptable terms. No specific operating or earnings guidance was provided.
- Debt and legal exposure: The India subsidiary’s State Bank of India loan was in default on principal, interest and covenants; the bank had demanded repayment and filed a recovery action. The filing warns that an adverse ruling could result in recovery measures affecting company property. A separate UBS contract action was at an early stage, and the company could not estimate the likelihood or amount of loss.
- Operating and concentration risks: North American revenue depended heavily on J.D. Heiskell, which accounted for 90% of consolidated revenue in the first nine months. In Q3, ethanol prices received fell 11% year over year and corn costs rose 9%; management reduced production because of unfavorable margins. The Keyes plant averaged 102% of nameplate capacity in the quarter.
- Controls: Management concluded disclosure controls were not effective at quarter-end because of inadequate personnel with sufficient GAAP knowledge, experience and training. Remediation efforts were underway.
Most important facts for investors to verify
- Whether the final Cilion valuation changes the provisional $40.3 million bargain-purchase gain or related asset values.
- Available cash, actual revolver availability after fees, compliance with amended debt terms, and the timing and amount of upcoming debt payments.
- Progress in reducing operating cash burn and restoring positive gross margins, particularly at the Keyes plant.
- Developments in the State Bank of India recovery case and UBS litigation, including any material change in potential exposure.
- Whether customer concentration, weak liquidity and ineffective disclosure controls are being addressed.