Aemetis, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Aemetis develops and operates renewable-fuels businesses, including an ethanol plant in Keyes, California, and a biodiesel facility in Kakinada, India. Financial statements are unaudited; amounts below are in U.S. dollars unless noted.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $60.7 million | $19.4 million |
| Gross profit | $15.6 million | $0.2 million |
| Gross margin | 25.7% | 1.3% |
| Operating income (loss) | $12.7 million | $(4.2) million |
| Net income (loss) | $7.7 million | $(9.8) million |
| Net income (loss) per diluted share | $0.34 | $(0.54) |
| Net cash from (used in) operations | $11.3 million | $(4.0) million |
- North America generated $59.1 million of revenue and $15.7 million of gross profit; India generated $1.6 million of revenue and a $48,000 gross loss. North American sales were concentrated: ethanol and WDG sales to J.D. Heiskell represented 98% of that segment’s revenue.
- Management attributed the North American improvement to a full quarter of Keyes plant operations versus the plant being idle from January 1–14, 2013, 11% higher average ethanol prices, and 32% lower corn prices. The plant averaged 117% of nameplate capacity. India revenue fell 86%, and its biodistillation plant was out of commission during feedstock testing.
- Cash and cash equivalents were $7.3 million at quarter-end, up from $4.9 million at December 31, 2013. Current assets were $15.6 million versus current liabilities of $30.2 million; the reported current ratio was 0.52. Stockholders’ deficit was $4.2 million.
- Total debt was $85.2 million, including $73.1 million classified as long-term. The company reported $66.5 million outstanding on Third Eye Capital financing arrangements, with no remaining availability to draw. Interest expense was $2.9 million and debt-related amortization expense was $2.1 million.
- Operating cash flow was offset by $8.6 million of net financing outflows, principally debt repayments; investing activities used $0.2 million. The cash-flow statement reports quarter-end cash of $7.3 million.
Material changes and significant events
- Revenue rose 212% year over year, primarily because Keyes operated for the full quarter in 2014. India revenue declined from $11.5 million, reflecting unusually strong prior-year international and palm-oil sales and lower current-period production.
- In May 2014, Third Eye Capital extended its notes’ maturity to July 1, 2015, set the interest rate at 14%, and revised cash-flow provisions. The amendment requires a $2.0 million extension fee and escalating monitoring fees beginning January 2015. The notes were classified as noncurrent in the March 31 balance sheet following the extension.
- A 1-for-10 reverse stock split became effective May 15, 2014, reducing common shares outstanding to approximately 20.2 million. The company said the split was intended to help meet Nasdaq listing requirements; listing eligibility or a lasting share-price effect is not assured.
- On April 9, 2014, the company agreed to acquire a second Keyes corn-oil separation unit for approximately $1.0 million.
Outlook, risks, and contingencies
- No specific earnings or revenue guidance was provided. Management’s plans include operating Keyes in a positive-margin environment, using lower-cost feedstocks, raising additional EB-5 financing, refinancing senior debt, and increasing India biodiesel and glycerin sales.
- Management stated that substantially all excess operating cash had been remitted to the senior lender and that continued operations depend on operating cash flow, financing, and lender support. It cautioned there is no assurance that cash flow or additional financing will be sufficient or available on acceptable terms.
- Commodity-price spreads are volatile: results depend on ethanol, WDG, corn, grain sorghum, natural gas, biodiesel, tallow, and palm-oil prices. Customer and channel concentration is also material.
- The State Bank of India loan was in default on principal, interest, and covenants; the company reported approximately $3.1 million of principal and $3.0 million of accrued and default interest. The bank is pursuing recovery, and an interim stay obtained in May 2014 required two payments of approximately $0.2 million each. The filing warns that unsuccessful litigation could result in recovery proceedings against company property.
- Other legal matters include a $2.3 million accrued UBS judgment with enforcement activity and a patent-infringement case over corn-oil extraction. The company disputes the patent claims but could face damages, treble damages, fees, and injunctive relief; it could not predict the outcome.
- Management reported disclosure controls and procedures effective at a reasonable-assurance level and no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether Keyes can sustain its reported production and margins as input and product prices change.
- Whether the company can refinance or repay the senior debt before its July 1, 2015 maturity, and fund the amendment fees and monitoring charges.
- Whether additional EB-5 financing, other capital, or operating cash flow is available in time to meet liquidity needs.
- The status and potential financial or asset consequences of the State Bank of India, UBS, and patent litigation matters.
- Whether India operations resume and achieve higher output, international sales, and sufficient cash generation.
- Whether the reverse split improves listing prospects without materially impairing share liquidity or value.