Aemetis, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Unless otherwise indicated, financial amounts below are in U.S. dollars; statement amounts are in millions.
Business context
Aemetis operates an ethanol and co-products plant in Keyes, California, and a biodiesel and glycerin plant in Kakinada, India. It is developing technologies intended to expand production of advanced renewable fuels and biochemicals.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 or comparison |
|---|---|---|
| Revenue | $33.3 million | $34.7 million; down 4% |
| Gross profit (loss) | $2.1 million; 6.3% margin | $(0.2) million; negative margin |
| Operating loss | $(1.0) million | $(4.0) million |
| Net loss | $(5.1) million; $(0.26) per share | $(8.6) million; $(0.42) per share |
| Operating cash flow | $0.7 million | $(1.7) million |
| Capital expenditures | $0.3 million | $0.01 million |
| Cash at period end | $0.3 million | $0.3 million at December 31, 2015 |
| Total debt, net of discounts | $104.4 million | $100.9 million at December 31, 2015 |
Revenue in North America fell 16% to $28.1 million, reflecting lower ethanol and WDG sales volumes and lower WDG prices. India revenue rose 247% to $5.3 million as biodiesel volumes increased substantially, partly offset by lower selling prices. Gross profit improved in both segments, principally as lower North American feedstock costs supported margins. Interest expense remained significant; the company reported $4.1 million of total other expense.
Current assets were $6.3 million and current liabilities were $27.8 million at March 31, 2016; the reported current ratio was 0.23. Stockholders’ deficit was $40.0 million. Operating cash flow benefited from inventory reduction and increased accrued interest, among other working-capital movements; it should not be read as equivalent to recurring operating profitability.
Material changes and financing
- Third Eye Capital debt increased during the quarter, including fees added to principal. A March 2016 amendment extended the senior notes’ maturity to April 1, 2017 and gave the company an option to extend to April 1, 2018 for an additional 5% fee. The amendment included a $1.5 million fee and a 5% extension fee added to the revolving facility balance.
- Third Eye Capital waived or suspended certain free-cash-flow covenant requirements through September 30, 2016, revised a plant-value covenant, and required USCIS I-924 approval for at least $35 million of additional EB-5 financing by June 1, 2016.
- The $64.5 million Third Eye Capital balance was due April 1, 2017 under the then-current terms. The debt is secured by company assets and includes cross-default provisions. The filing’s debt schedule shows $71.5 million of repayments in 2017.
- The company reported $12.0 million of EB-5 investor funds in escrow, not yet released pending USCIS approval. Release timing and access to additional EB-5 financing were uncertain.
- The State Bank of India settlement required a final payment in August 2016; successful completion could provide relief from approximately $2.1 million of prior accrued interest.
- After quarter-end, Aemetis signed an agreement to acquire Edeniq in a stock-plus-cash transaction. Consideration was expected to include 1–2 million Aemetis shares and cash payments over five years of up to $20 million (or up to $18 million if Edeniq shareholders chose all-stock consideration). Closing was expected in Q2 and was subject to customary approvals and financing to refinance certain Edeniq liabilities.
Outlook, risks, and contingencies
Management said it intended to operate the Keyes plant, use lower-cost non-food feedstocks when economical, increase Kakinada shipments, seek further EB-5 funding, refinance senior debt, restructure or refinance the India loan, and raise equity through its ATM registration statement. The filing provides no quantified operating or earnings guidance. Management stated it believed these actions could fund operations for the foreseeable future, but cautioned that financing and adequate liquidity were not assured.
Key risks include very limited cash, a substantial working-capital deficit, high debt and near-term maturities, dependence on lender accommodations and external financing, volatile fuel/feedstock prices, and reliance on key commercial relationships. North American sales were highly concentrated: J.D. Heiskell-related sales represented 93% of North America segment revenue. One biodiesel customer represented 53% of India segment revenue. The filing also describes patent litigation over corn-oil extraction; prior patent claims were found invalid, but an appeal and a remaining claim were unresolved. Potential damages were described as $1 million or more if the invalidity findings were overturned.
Management reported that disclosure controls and internal control over financial reporting were effective at the reasonable-assurance level. The filing states that risk factors were unchanged from the 2015 Form 10-K.
Important facts for investors to verify
- Whether the company obtained required USCIS approvals and released the $12.0 million EB-5 escrow funds, and whether additional EB-5 financing became available.
- How the April 2017 Third Eye Capital maturity was addressed, including any extension, refinancing, covenant compliance, and associated fees.
- Whether the company completed the State Bank of India settlement and received the expected accrued-interest relief.
- Whether the Edeniq acquisition closed, how it was financed, and its resulting dilution and cash obligations.
- Whether improved gross profit and operating cash flow were sustained without relying on inventory drawdown, accrued interest, or other working-capital changes.
- Developments in the Greenshift litigation and the company’s exposure to concentrated customers and suppliers.