Aemetis, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2014. Amounts are in U.S. dollars; financial statement amounts are in thousands unless otherwise stated. The filing is unaudited.
Business context
Aemetis operates a 55-million-gallon-per-year ethanol plant in Keyes, California, and a 50-million-gallon-per-year biodiesel facility in Kakinada, India. Keyes produces ethanol and related co-products; the India facility produces biodiesel, glycerin and refined palm oil. The company also develops advanced renewable fuels and biochemicals. Keyes production averaged 106% of nameplate capacity in the quarter and 112% in the first nine months.
Key financial results
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $48.3 million | $56.7 million | $166.2 million | $123.5 million |
| Gross profit | $7.7 million | $3.0 million | $34.7 million | $7.0 million |
| Operating income (loss) | $4.6 million | ($1.0 million) | $25.1 million | ($5.5 million) |
| Net income (loss) | $0.5 million | ($8.3 million) | $10.9 million | ($27.7 million) |
| Operating cash flow | Not separately presented | Not separately presented | $22.0 million | ($6.1 million) |
- Gross margin was approximately 16.0% for Q3 2014 versus 5.4% a year earlier, and 20.9% for the first nine months versus 5.7%.
- Q3 basic and diluted earnings per share were each $0.02. Nine-month basic and diluted EPS were $0.54 and $0.52, respectively. Share and per-share figures reflect the 1-for-10 reverse split effective May 15, 2014.
- Cash and cash equivalents were $5.5 million at September 30, up from $4.9 million at year-end 2013. Current assets were $12.6 million and current liabilities $33.0 million; the reported current ratio was 0.38.
- Total debt was $77.6 million, including $16.4 million classified as current and $61.2 million as long term. Short-term borrowings on the balance sheet were $10.5 million. The company reported $54.3 million outstanding on Third Eye Capital notes, including principal, interest and fees net of discounts.
- For the nine months, investing activities used $1.7 million, primarily for capital expenditures; financing activities used $19.6 million, reflecting $27.7 million of borrowing repayments against $8.1 million of new borrowings.
Changes versus comparable periods
- Q3 revenue fell 14.7%, mainly due to lower ethanol and co-product prices in North America and lower India sales, including no palm-oil sales in the quarter. North American ethanol price declined 14%, while corn feedstock cost per ton declined 33%; this spread improvement helped lift gross profit.
- Nine-month revenue rose 34.6% because Keyes operated for the full period in 2014, whereas the plant was idle for part of early 2013. North American revenue increased 67.9%; India revenue fell 66.5% amid lower biodiesel production and sales during facility upgrades and testing.
- Net income improved substantially from losses in 2013, but results included financing-related charges: nine-month interest expense was $7.7 million, debt amortization expense $5.4 million, and debt-extinguishment loss $1.3 million.
Outlook, risks and unusual items
- No quantified earnings or revenue guidance is provided. Management’s plans include maintaining positive Keyes margins, using lower-cost non-food feedstocks, securing additional EB-5 financing, refinancing senior debt, restructuring the State Bank of India loan, and expanding India sales and international shipments. Management cautions that funding and continued operations are not assured.
- Third Eye Capital debt was due July 1, 2015 under the terms described at quarter-end. A November 7, 2014 amendment, disclosed after the reporting date, made up to $6.0 million of additional credit available and provided an option to extend maturity to January 1, 2016 for a 3% fee. The amendment requires a preferred-stock offering yielding at least $20 million net, with proceeds applied to repay the lender. The filing states $5.7 million remained available after fees.
- The India State Bank of India loan was in default, with principal and interest payments missed and a recovery action before the Debt Recovery Tribunal seeking approximately $5.0 million. An interim stay was obtained subject to payments. A judgment could result in recovery actions, including seizure of company property.
- Liquidity remains constrained: the company relied on senior-lender funding, remitted substantially all excess operating cash to lenders, and reported no remaining availability under its revolving loan facility as of the report’s publication. Operations are exposed to volatile feedstock, energy and product prices and may require additional working capital if margins narrow.
- Approximately $21 million of EB-5 funds had been received into escrow as of November 11, 2014, but release depended on USCIS approval, which could take a year or more or be denied. The company also noted reliance on working-capital providers and the possibility that additional financing may not be available on acceptable terms.
- On October 15, 2014, the company agreed to build a 300-ton-per-day liquid CO2 facility at Keyes, with expected construction cost of about $15 million. The filing does not provide a clear financing plan for this project.
- In the corn-oil patent litigation, a court ruled on October 23, 2014 that the patents at issue were invalid; the company expected an appeal. If the ruling is reversed, the filing says damages could be $1 million or more. In the UBS dispute, the company agreed to pay $1.0 million in September 2014 and monthly installments of $0.1 million until the settlement amount is paid.
- Management reported disclosure controls were 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 required preferred-stock offering and Third Eye Capital refinancing or extension were completed, and the resulting debt, fees, covenants and liquidity.
- Whether EB-5 escrow funds were approved and released, and whether the company secured sufficient working capital to operate.
- The status and payment terms of the State Bank of India default and recovery case, including any exposure to asset seizure.
- Whether North American ethanol/feedstock spreads remained favorable and whether India production, shipments and customer concentration improved.
- The final cost, financing, schedule and customer demand for the liquid CO2 project, and the status of the patent-litigation appeal.