Aemetis, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unless noted otherwise, dollar amounts below are in millions. Aemetis operates California ethanol, dairy renewable natural gas (RNG), and India biodiesel businesses, alongside development-stage fuel and carbon-capture projects.
Financial results and key metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $65.9 | $54.9 | $118.0 | $97.7 |
| Gross profit (loss) | $(0.2) | $3.6 | $(3.3) | $0.04 |
| Operating loss | $(7.7) | $(2.1) | $(18.1) | $(11.1) |
| Net loss | $(0.2) | $(10.6) | $(18.5) | $(28.7) |
| Basic and diluted loss per share | $(0.01) | $(0.34) | $(0.54) | $(1.00) |
Revenue rose 20% in Q2 and 20.7% for the six-month period, largely from California ethanol. Despite higher selling prices, increased corn, natural gas, and transportation costs drove the business to a gross loss. Q2 gross margin was approximately negative 0.3%, versus positive 6.6% a year earlier; six-month gross margin was approximately negative 2.8%, versus near break-even in 2021.
Q2 net loss was substantially reduced by a $14.2 million USDA Biofuel Producer Program grant recorded in other income and a $1.4 million gain from settling the EdenIQ litigation. These items do not indicate a return to operating profitability.
- Cash flow: Six-month cash used in operations was $6.5 million, versus $18.2 million in 2021. Investing activities used $16.4 million, including $22.5 million of capital expenditures, partly offset by $6.1 million of grant reimbursements. Financing provided $18.7 million. Cash declined $4.2 million to $3.6 million.
- Liquidity: Current assets were $15.0 million and current liabilities $60.4 million at June 30; the current ratio was 0.25. The company disclosed $4.9 million available on revolving credit lines and an additional $40 million reserve liquidity facility, on which no amount was drawn. The reserve facility bears 30% interest and is due in 2023.
- Debt and capital: Reported total debt, net of issuance costs, was $208.6 million, up from $188.8 million at year-end 2021. Third Eye Capital notes were approximately $140 million; their terms include high interest rates, collateral over substantially all company assets, covenant requirements, and cross-default provisions. Stockholders’ deficit was $122.7 million. Shares outstanding increased from 33.5 million at year-end to 34.6 million at June 30.
- Costs and margins: Q2 ethanol sales averaged $3.13 per gallon versus $2.78; corn cost averaged $10.21 per bushel versus $8.04. Ethanol sales volume was 15.2 million gallons in both periods. For the first half, ethanol volume declined to 29.9 million gallons from 30.8 million while price increased to $2.86 from $2.34 per gallon. India biodiesel reported no biodiesel or refined glycerin sales in Q2 or the first half.
Material changes and operating developments
- California ethanol revenue increased, but higher feedstock and energy expenses more than offset price improvements; Q2 California Ethanol segment gross profit fell from $3.4 million to a $0.15 million loss.
- SG&A increased 22.7% in Q2 and 29% for the first half, mainly reflecting higher salaries and spending on low-carbon initiatives.
- During Q2, Aemetis completed a third dairy digester and commissioned the centralized gas cleanup facility and utility interconnect. RNG delivery into the gas system remains dependent on CARB pathway certification. The segment is still being built out and generated a gross loss.
- The company is developing a planned 90-million-gallon-per-year Riverbank renewable fuels facility and carbon-capture projects; these require substantial financing, permits, and execution. A 24-acre Riverbank site for a planned CCS injection well was purchased in July 2022.
Outlook, risks, and contingencies
Management stated that negative capital and operating results, substantial asset collateralization, and reliance on the senior lender raise substantial doubt about the company’s ability to continue as a going concern. To meet obligations over the next 12 months, Aemetis says it must refinance debt or continue to receive senior-lender cooperation. Management expects to pursue financing, equity sales, EB-5 investment proceeds, grants, and government-guaranteed loans, while seeking cost and margin improvements. These plans are not assured.
- Third Eye Capital amendments and waivers addressed certain covenant matters. After quarter-end, Amendment No. 24 allowed an election to extend certain notes to April 2024 for a fee and waived certain defaults.
- After quarter-end, the ABGL Series A preferred-unit amendment established redemption of all outstanding units for $106 million by September 30, 2022, or $116 million by December 31, 2022. Failure to meet the final redemption date would trigger further financing provisions. The amendment also ties a USDA loan waiver to at least $7.3 million being applied to the Carbon Revolving Line. These terms create significant funding and execution risk.
- Subordinated notes were extended after quarter-end to no later than December 31, 2022, with a 10% cash extension fee added to the note balance and additional warrants issued.
- Management cited inflation, especially corn, natural gas, labor, and transportation costs, as a risk to margins; higher interest rates, supply-chain disruption, and the war in Ukraine could add pressure. Other risks include volatile fuel/feedstock spreads, refinancing, customer concentration, RNG pathway approvals, grant conditions, and project permits and funding.
- Disclosure controls and internal controls over financial reporting were reported as ineffective, with remediation of previously identified material weaknesses ongoing.
Important facts for investors to verify
- Whether Aemetis can refinance or extend upcoming debt and maintain lender support, and whether the disclosed borrowing availability can actually be accessed on acceptable terms.
- How the company will fund the ABGL preferred-unit redemption obligations and satisfy the related USDA-loan and lender conditions.
- Whether ethanol margins recover as input costs and selling prices change, and whether RNG obtains required CARB certification and begins external sales.
- Whether the $14.2 million USDA grant and other reimbursements meet all program conditions, and how much future liquidity depends on grants, equity issuance, or EB-5 proceeds.
- Progress in remediating ineffective controls, and the effect of further financing on debt, interest expense, and shareholder dilution.