Aemetis, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2015; financial statements are unaudited. Comparisons are against the same 2014 periods or December 31, 2014, as applicable. Dollar amounts below are in millions unless noted.
Business context
Aemetis develops and operates renewable-fuel facilities. Its North American business includes a 60-million-gallon-per-year ethanol plant in Keyes, California; its India segment operates a 50-million-gallon-per-year biodiesel and refined-glycerin facility in Kakinada. The company reported two geographic segments: North America and India.
Financial performance and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $38.510 | $48.348 | $111.303 | $166.208 |
| Gross profit | $1.034 | $7.715 | $2.755 | $34.692 |
| Operating income (loss) | $(1.857) | $4.642 | $(7.131) | $25.087 |
| Net income (loss) | $(5.755) | $0.464 | $(20.685) | $10.873 |
| Net cash from (used in) operations | Not provided for quarter | Not provided for quarter | $(2.812) | $22.010 |
- Gross margin was approximately 2.7% in Q3 2015 versus 16.0% in Q3 2014; for the nine-month periods it was 2.5% versus 20.9%. Operating margin was approximately (4.8%) and 9.6% for Q3, respectively.
- Basic and diluted loss per share was $0.29 for Q3 2015; nine-month loss per share was $1.04. The company reported positive EPS in both comparable 2014 periods.
- At September 30, cash was $2.516, current assets $9.560, current liabilities $27.119, and total assets $86.967. The current ratio was 0.35. Stockholders’ deficit was $29.028.
- Reported debt, net of discounts, was $101.293, compared with $77.301 at December 31, 2014. This includes $59.558 of senior secured notes and $23.500 of EB-5 notes on the balance sheet. Third Eye Capital financing outstanding was reported as $59.6 million.
- Nine-month investing cash use was $0.022; financing provided $5.110. Cash increased by $2.184 from $0.332 at year-end to $2.516, supported by financing despite operating cash outflow.
Material changes versus the prior period
- Q3 revenue fell 20.3%; nine-month revenue fell 33.0%. North American revenue declined 24.3% in Q3 and 36.0% year to date, while India revenue rose 11.1% and 12.4%, respectively.
- North American revenue pressure reflected lower ethanol prices and volumes. Q3 ethanol price fell 23% to $1.76 per gallon and volume fell 4%; year-to-date price fell 35% to $1.74 per gallon and volume fell 7%. WDG prices and volumes also declined.
- India biodiesel and glycerin sales volumes increased, supported by domestic-market expansion, but lower product prices and higher feedstock costs weighed on gross profit.
- Gross profit declined sharply in both segments. North America generated $0.841 million in Q3 gross profit versus $7.254 million a year earlier; India generated $0.193 million versus $0.461 million.
- Debt rose substantially, primarily with EB-5 borrowings and fees, accrued interest, and costs of share repurchases added to the senior revolving facility. The company repurchased 1.5 million shares during 2015 for approximately $8.4 million, funded by adding the cost to senior debt.
Outlook, risks and unusual items
- Management’s plans include operating the Keyes plant, using lower-cost non-food feedstocks when economical, raising additional EB-5 financing, refinancing senior debt, restructuring or refinancing the State Bank of India loan, and increasing Kakinada shipments. No quantitative earnings or revenue guidance is provided.
- Management said it expects $11.5 million held in EB-5 escrow to be released during Q4 2015 and early 2016, subject to investor and USCIS approvals. The filing also describes up to $12.5 million of additional EB-5 funding as dependent on attracting and approving remaining investors.
- Third Eye Capital debt was due April 1, 2016, with an option to extend to April 1, 2017 subject to conditions and a 5% fee. The company reported meeting the stated conditions, including maintaining $11.5 million in escrow, engaging an investment bank for a subsidiary-share transaction, and repurchasing 100,000 shares for $0.4 million.
- The company said substantially all excess operating cash had been remitted to its senior lender. Only $0.4 million remained available to draw under the revolving facility as of the report’s publication. Management cautioned that operating cash, existing facilities, and additional financing might not be sufficient or available on acceptable terms.
- UBPL agreed to a State Bank of India settlement requiring four payments totaling $4.3 million over 360 days. Upon full performance, approximately $2.1 million of prior accrued interest may be relieved. Two payments had been made by the filing date; remaining payments were due in February and August 2016.
- Legal matters include a corn-oil patent suit in which the court had found the asserted patent claims invalid, subject to possible appeal; the company said potential damages could be $1 million or more if the invalidity findings were overturned. A separate Gibraltar SSI lawsuit alleges fraudulent conveyances and claims damages exceeding $6.5 million; Aemetis disputes the allegations.
- Key risks include volatile ethanol, corn, energy, biodiesel and feedstock prices; dependence on senior lenders and working-capital providers; limited liquidity; debt refinancing and repayment; and customer concentration. One customer represented 72% of India segment revenue in Q3.
Important facts for investors to verify
- Whether the company can refinance or extend the approximately $59.6 million Third Eye Capital financing before its April 2016 maturity, and the applicable fees and conditions.
- Whether EB-5 escrow funds are released and whether additional investors are secured and approved.
- Whether North American ethanol and coproduct pricing recover enough to restore margins and operating cash flow.
- Whether the company makes all State Bank of India settlement payments and qualifies for the stated accrued-interest relief.
- Developments in the patent appeal and Gibraltar SSI litigation, and the potential financial exposure.
- Customer concentration, remaining revolver availability, and the company’s ability to fund operations given negative working capital and the reported stockholders’ deficit.