Aemetis, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018; financial statement amounts below are unaudited and in U.S. dollars. Aemetis operates a California ethanol business, a Kansas plant under development, and a biodiesel and glycerin business in India.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $44.6m | $38.9m | $132.7m | $111.3m |
| Gross profit | $2.7m | $2.0m | $7.3m | $3.1m |
| Operating loss | $(1.3)m | $(3.1)m | $(4.2)m | $(8.7)m |
| Net loss | $(6.6)m | $(8.2)m | $(24.0)m | $(22.7)m |
| Net loss attributable to Aemetis | $(5.9)m | $(7.5)m | $(21.6)m | $(22.0)m |
| Basic and diluted loss per share | $(0.29) | $(0.38) | $(1.07) | $(1.11) |
- Gross margin was approximately 6.0% in Q3 and 5.5% for the first nine months, compared with approximately 5.0% and 2.8%, respectively, in 2017. The company remained loss-making at the operating and net-income levels.
- Q3 revenue rose 15%; nine-month revenue rose 19%. North America revenue increased 7% in Q3 and 14% year to date. India revenue increased 107% and 76%, respectively, largely with higher sales volumes.
- North America produced at an average 121% of stated 55-million-gallon annual capacity in Q3 and 119% year to date. Management attributed improved gross profit principally to higher WDG prices and sales volumes, alongside higher ethanol volumes. India gross profit also improved, while feedstock costs increased.
- Interest expense and debt-related fees/amortization totaled $5.4m in Q3 and $19.8m for nine months, versus $5.1m and $14.0m, respectively, in 2017. Nine-month debt-related fees and amortization included a $3.1m debt extension/redemption fee and other amendment and waiver costs.
Cash flow, debt and liquidity
- For the first nine months, operating cash use was $3.4m, compared with $6.4m in 2017; investing cash use was $2.5m, versus $0.7m. Financing provided $5.5m, and cash declined by $0.36m to $68,000.
- At September 30, cash was $68,000, current assets were $10.7m and current liabilities were $43.3m; the current ratio was 0.25. Total debt was $171.6m, including $19.4m classified as current. Total stockholders’ deficit was $103.8m.
- Third Eye Capital debt was extended to April 1, 2020, with a potential further extension to April 1, 2021 subject to a fee. The company obtained quarterly covenant waivers, including one for Q3; it said no senior-security default occurred during the quarter. The filing says no senior debt or Goodland facility availability remained.
- GAFI loans totaled about $25.0m and mature July 10, 2019, subject to extension conditions. A separate reserve liquidity facility had up to $6.0m of stated borrowing capacity, at 30% annual interest; no amount was drawn at quarter-end.
Outlook, risks and notable items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern, citing dependence on senior-lender cooperation or refinancing to meet obligations over the next 12 months. Management believes planned actions may provide liquidity, but success is not assured.
- Plans include improving Keyes plant operations, developing the Riverbank cellulosic ethanol project, monetizing CO2 under a Linde arrangement, growing India sales, and raising funds through debt restructuring, a planned $50m EB-5 Phase II offering, vendor financing, or other financing. The company also cited a proposed $125m USDA loan guarantee for Riverbank; these are plans and contingent funding sources, not assured proceeds. No quantitative earnings or revenue guidance is provided.
- Results are exposed to volatile feedstock, energy and product prices, financing availability and high debt costs. North American sales were highly concentrated: J.D. Heiskell accounted for 99.8% of North America segment revenue in Q3 and 99.6% year to date. India revenue also depended on a small number of biodiesel customers.
- Amendment No. 14 to Third Eye Capital debt was accounted for as a troubled debt restructuring. It extended maturities and added fees; management’s covenant assessment relied on forecasts, operating cash flow, project liquidity and EB-5 proceeds. Subordinated notes were extended to December 31, 2018, subject to earlier repayment triggers, with an extension fee and warrants.
- Aemetis reported ongoing litigation relating to a terminated EdenIQ merger agreement and related claims; it said the outcome could not be estimated while discovery remained pending. Management reported disclosure controls effective at a reasonable-assurance level and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the company can refinance or otherwise meet near-term obligations, including the $19.4m current debt and GAFI’s 2019 maturity, and whether lender waivers or extensions remain available.
- Actual cash generation, interest and fee burden, and progress toward restoring liquidity given $68,000 of reported cash and a 0.25 current ratio.
- Whether EB-5 Phase II fundraising, escrow releases, the proposed USDA guarantee, and Riverbank/Linde project milestones materialize on the stated terms and schedule.
- Whether improved revenues and gross margins persist as corn, energy, biodiesel feedstock and product prices change, and how customer concentration affects sales continuity.
- The potential financial effect and timing of the EdenIQ-related litigation; the filing does not provide a clear estimate of the outcome.