Aemetis, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2016; filed November 14, 2016. Financial amounts below are in U.S. dollars, generally in thousands unless stated otherwise.
Business context and period
Aemetis operates an ethanol and byproducts facility in Keyes, California, and a biodiesel and refined-glycerin facility in Kakinada, India. It also develops renewable-fuels and biochemical technologies. The interim financial statements are unaudited.
Financial performance and position
- Third-quarter revenue: $39.4 million, up 2% from $38.5 million. Gross profit was $3.7 million versus $1.0 million; gross margin was approximately 9.3% versus 2.7%. Operating income was $0.4 million versus an operating loss of $1.9 million. Net loss was $4.1 million, compared with $5.8 million; loss per share was $0.21 versus $0.29.
- First nine months: Revenue was $105.8 million, down 5% from $111.3 million. Gross profit was $7.7 million versus $2.8 million; gross margin was approximately 7.3% versus 2.5%. Operating loss was $1.7 million versus $7.1 million. Net loss was $14.2 million versus $20.7 million; loss per share was $0.72 versus $1.04.
- Cash flow, nine months: Operating activities provided $0.4 million, compared with $2.8 million used in the prior-year period. Investing activities used $0.5 million; financing activities provided $0.4 million. Cash increased by $0.4 million to $0.7 million.
- Liquidity and debt: Current assets were $7.4 million and current liabilities $29.4 million; the reported current ratio was 0.25. Total debt was $110.8 million, up from $100.9 million at December 31, 2015. Cash was $0.7 million, and stockholders’ deficit was $48.4 million.
- Interest burden: Nine-month interest-rate expense was $8.7 million, up from $7.6 million. The Third Eye Capital notes totaled $68.6 million and generally matured April 1, 2017, with an option to extend to April 2018 for a 5% fee.
Material changes and management commentary
- Keyes drove the quarterly gross-profit improvement: North American gross profit rose to $3.5 million from $0.8 million, principally as corn costs fell. Quarterly plant production averaged 107% of a stated 55-million-gallon annual nameplate capacity; year-to-date production averaged 100%.
- India’s quarterly revenue fell 10%, and gross profit declined 13%, as sales volumes decreased and biodiesel feedstock costs rose. For the nine months, India reported a $0.1 million gross loss, versus $0.4 million gross profit a year earlier.
- Management said substantially all excess operating cash was required to be remitted to the senior secured lender. It plans to fund operations through plant cash generation, EB-5 financing, senior-debt refinancing, possible equity sales, and working-capital arrangements. These plans are not assured; the filing warns that financing may not be available on acceptable terms and that existing liquidity may be insufficient.
- The company reported no numerical earnings or revenue guidance. Management’s outlook depends on fuel and feedstock price spreads, production and sales volumes, financing access, and its ability to improve margins.
Guidance, risks, contingencies and unusual items
- On October 12, 2016, $6.0 million of Phase I EB-5 funds was released from escrow; $5.0 million remained subject to investor approvals. A new $50.0 million Phase II offering launched October 16. The filing does not establish how much Phase II funding will be raised.
- On October 20, 2016, the India subsidiary made the final required State Bank of India settlement payment and received relief from approximately $2.1 million of prior accrued interest.
- Third Eye Capital debt amendments included fees added to principal, covenant waivers, and an extension option. The filing describes covenant and refinancing dependence; the company said no unresolved defaults on senior securities occurred in the quarter.
- Aemetis sued EdenIQ, its CEO, and Trinity Capital over the alleged wrongful termination of a merger agreement, seeking specific performance and damages. The filing also describes a patent dispute involving corn-oil extraction: relevant patent claims had been found invalid and unenforceable, but further court proceedings and possible appeals remained. The company stated that damages could be $1 million or more if the invalidity findings were overturned.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no change in risk factors from its 2015 Form 10-K.
Most important facts for investors to verify
- Whether the company can refinance or extend the Third Eye Capital debt before its stated maturity, and the cost and terms of any extension.
- Actual EB-5 Phase I escrow releases and Phase II fundraising proceeds, rather than the amounts sought or offered.
- Cash generation, working-capital availability, and the ability to meet near-term obligations given the $0.7 million cash balance and 0.25 current ratio.
- Whether Keyes margins remain improved and whether India can restore positive gross profit amid feedstock-cost and working-capital constraints.
- Developments and potential financial exposure in the EdenIQ and patent litigation, and confirmation of the State Bank of India settlement’s recorded effects.