Aemetis, Inc. — Q3 2020 Form 10-Q
Business context and reporting period
For the unaudited quarter and nine months ended September 30, 2020. Aemetis operates ethanol, alcohol and related-products facilities in North America, a biodiesel and glycerin plant in India, and is developing cellulosic ethanol and dairy-biogas projects. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial and operating highlights
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $40.9 | $57.4 | $128.2 | $149.9 |
| Gross profit | $0.8 | $4.0 | $14.4 | $6.9 |
| Gross margin | 1.9% | 6.9% | 11.2% | 4.6% |
| Operating income (loss) | $(3.8) | $(0.6) | $1.7 | $(6.0) |
| Net loss | $(12.2) | $(7.2) | $(22.1) | $(31.8) |
| Net loss per share, diluted | $(0.59) | $(0.31) | $(1.06) | $(1.42) |
Q3 revenue fell 29% year over year. North America revenue declined 12%, reflecting lower ethanol and WDG volumes and prices; India revenue declined 60%, mainly on lower biodiesel volumes amid delayed government tenders and COVID-related sales weakness. For the first nine months, North America revenue was nearly flat as high-grade alcohol sales partly offset lower ethanol volumes and prices, while India revenue fell 61%.
Q3 gross profit fell to $0.8 million, with North America reporting a gross loss of $0.4 million and India gross profit down 72%. Nine-month gross profit more than doubled, primarily due to North American high-grade alcohol sales and lower corn costs, partly offset by weaker India results. Q3 operating loss widened despite lower revenue; nine-month operating income improved from the prior-year loss. Interest expense and preferred-unit accretion remained significant.
- Cash flow: Nine-month operating cash flow was $7.1 million, versus cash used of $1.1 million in 2019. The company reported a $22.1 million net loss; operating cash flow benefited materially from a $16.0 million increase in accrued interest and other working-capital/noncash adjustments.
- Investment and financing: Investing cash use was $18.6 million, including $14.9 million of capital expenditures and a $3.7 million note receivable. Financing provided $11.0 million, including $11.6 million from Series A preferred units. Cash declined to $79,000 from $656,000 at year-end 2019.
- Debt and liquidity: Total debt was $226.3 million, compared with $202.4 million at December 31, 2019. Approximately $59.3 million was scheduled to mature within 12 months. Current assets were $13.5 million versus current liabilities of $95.8 million; the current ratio was 0.14 and working-capital deficit was approximately $82.3 million. The filing identifies substantial doubt about the company’s ability to continue as a going concern.
Material changes, outlook and risks
- Third Eye Capital debt maturities and covenant waivers are central liquidity risks. The company may extend specified senior notes to April 2022 for a 1% fee, but refinancing or continued lender cooperation is needed to meet obligations. Management says excess operating cash is substantially remitted to the senior lender. A further covenant waiver was agreed after quarter-end on November 5, 2020.
- Management plans to improve margins through high-grade alcohol and consumer-market sales, CO2 operations, dairy biogas/RNG, plant efficiency, and development of the Riverbank cellulosic ethanol facility. No numerical earnings or revenue guidance is provided. Management expects high-grade alcohol opportunities to continue, but at lower volumes than the Q2 pandemic-related spike.
- The CO2 project began operations in April 2020; the first two dairy digesters and pipeline were commissioned in Q3. These projects and the Riverbank facility require execution, capital and/or additional financing; anticipated carbon credits and project economics are not assured.
- COVID-19 affected fuel demand, alcohol markets and Indian tender timing. Results also depend on volatile commodity prices, product spreads, plant performance, customer demand and access to funding. Sales are concentrated: two customers represented 96% of North American segment revenue in Q3, and two customers represented 82% of India segment revenue.
- Other notable matters: the company recorded a $647,000 allowance for doubtful accounts; it had $5.4 million of accrued property taxes after defaulting on a county payment plan, though the county agreed not to enforce collection while discussions continue. A $3.7 million short-term note receivable to an India working-capital partner bears 12% interest.
- Biogas subsidiary ABGL had not met minimum quarterly operating cash-flow requirements under its Series A preferred-unit agreement; the resulting covenant violation may direct 100% of future free cash flow to redemptions rather than 75%, and may increase conversion rights. Series A preferred-unit liabilities totaled $28.5 million long term, with additional amounts classified current.
- The EdenIQ litigation resulted in a $6.2 million attorney-fee award in 2019; Aemetis intends to appeal and continue pursuing its claims. Management reported disclosure controls and internal controls over financial reporting were not effective, citing an unresolved material weakness from 2019.
Important facts for investors to verify
- Near-term debt maturities, extension options, covenant waivers, and whether refinancing or further lender support is secured.
- Cash runway and the quality of operating cash flow, particularly the role of accrued interest and working-capital changes.
- Collection prospects for the $3.7 million note receivable and receivables subject to the new bad-debt allowance.
- Recovery in Indian biodiesel tenders and customer volumes, and sustainability of North American alcohol margins after pandemic-driven demand.
- Funding, construction progress and commercial performance of the biogas, Riverbank and other capital projects, including ABGL’s preferred-unit covenant status.
- Resolution of the property-tax payment plan, EdenIQ appeal, and remediation of the disclosed internal-control weakness.