Aemetis, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2016; filed August 11, 2016. The company operates a 60-million-gallon-per-year ethanol facility in California and a 50-million-gallon-per-year biodiesel facility in India. Financial amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $33.1 | $38.1 | $66.4 | $72.8 |
| Gross profit | $1.9 | $1.9 | $4.0 | $1.7 |
| Gross margin | 5.9% | 5.1% | 6.1% | 2.4% |
| Operating loss | $(1.1) | $(1.3) | $(2.1) | $(5.3) |
| Net loss | $(5.0) | $(6.3) | $(10.1) | $(14.9) |
| Loss per common share | $(0.25) | $(0.32) | $(0.51) | $(0.74) |
- Six-month operating cash flow was $(0.9), investing cash flow $(0.4), and financing cash flow $1.7. Cash increased by $0.3 to $0.6 at June 30.
- At June 30, current assets were $7.5 versus current liabilities of $29.7; the current ratio was 0.25. Total debt, net of discounts, was $110.1, compared with $100.9 at year-end 2015. Total assets were $80.5 and stockholders’ deficit was $44.8.
- Interest expense for the first six months was $5.6; debt-related amortization expense was $2.8. No dividend or formal earnings guidance is reported in the supplied filing text.
Changes versus comparable periods
- Q2 revenue fell 13% year over year. North American revenue declined 6%, while India revenue declined 74%, chiefly because the Kakinada plant shut down for maintenance in May, sharply reducing biodiesel and glycerin volumes.
- For the first half, revenue declined 9%. North American revenue was down 11%, reflecting lower ethanol and WDG volumes/prices; India revenue rose 16% as biodiesel volumes increased, despite lower selling prices.
- North American gross profit improved to $4.3 for the first half, helped by lower feedstock costs. India recorded a first-half gross loss of $0.3, versus gross profit of $0.3 a year earlier, as product prices weakened and feedstock costs rose.
- Net loss narrowed year over year in both periods, aided by improved gross profit and lower debt amortization expense. First-half interest expense increased 23% in North America amid higher debt balances.
Outlook, liquidity, and risks
- Management says it relies on its senior secured lender and must remit substantially all excess operating cash to that lender. It plans to operate Keyes, use lower-cost non-food feedstocks when economical, seek EB-5 funding, refinance senior debt, restructure or refinance the State Bank of India loan, increase Kakinada shipments, and potentially raise equity through an at-the-market offering. Management believes these steps can fund operations for the foreseeable future but cautions that funding may not be sufficient or available on acceptable terms.
- The Third Eye Capital notes had a stated April 1, 2017 maturity, with an option to extend to April 1, 2018 for a 5% fee. Senior debt included a $1.5 million amendment/waiver fee and a $3.1 million extension fee added to principal. A $1.2 million bridge note was extended after quarter-end to September 30, 2016, at 18% interest.
- The company expected $12.5 million of EB-5 funds held in escrow to be released from Q3 2016 to early 2017, subject to USCIS approval; release was not assured. The State Bank of India settlement’s final payment of approximately $4.3 million was due August 25, 2016, with approximately $2.1 million of prior interest relief contingent on performance.
- Subordinated notes were amended July 1, 2016, extending maturity to no later than December 31, 2016 or specified financing/default events; the amendment added a 10% fee and warrants for 113,000 shares at $0.01 per share.
- Management cited volatile spreads between product prices and feedstock/energy costs, financing availability, debt refinancing, and lender accommodations as key uncertainties. The filing also reports a pending patent-related lawsuit: the court had found the asserted patents invalid, but an appeal and a remaining inequitable-conduct claim were possible; damages could be $1 million or more if the invalidity ruling were overturned.
- The company announced an agreement to acquire EdenIQ, a cellulosic ethanol technology company; the supplied filing text does not establish that the acquisition was completed.
Most important facts for investors to verify
- Whether the $12.5 million EB-5 escrow funds were approved and released, and whether additional EB-5 financing was obtained.
- Whether the company refinanced or extended the $67.3 million Third Eye Capital balance before maturity, and its ability to meet near-term debt and State Bank of India obligations.
- Whether operations generated sufficient cash and whether product/feedstock spreads and plant utilization improved, particularly at Kakinada.
- The status and terms of the EdenIQ acquisition and any equity issuance under the ATM program.
- Developments in the Greenshift litigation and the potential financial exposure if the patent rulings change.