Aemetis, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Financial statement amounts below are in U.S. dollars; amounts are in millions unless noted. Interim financial statements are unaudited.
Business context
Aemetis develops and operates renewable fuels and biochemicals facilities. Its North American operations include a 60-million-gallon-per-year ethanol plant in Keyes, California, and the partially completed Goodland, Kansas, plant consolidated as a variable interest entity. Its India operations include a 50-million-gallon-per-year biodiesel facility in Kakinada. Q2 revenue was primarily from ethanol and co-products in North America and biodiesel and refined glycerin in India.
Financial results and key metrics
| Metric | Q2 2018 | Q2 2017 | First half 2018 | First half 2017 |
|---|---|---|---|---|
| Revenue | $45.0 | $40.8 | $88.0 | $72.3 |
| Gross profit | $2.8 | $1.7 | $4.6 | $1.1 |
| Gross margin | 6.1% | 4.2% | 5.3% | 1.5% |
| Operating loss | ($0.9) | ($1.7) | ($2.9) | ($5.6) |
| Consolidated net loss | ($6.2) | ($6.0) | ($17.3) | ($14.5) |
| Net loss attributable to Aemetis | ($5.4) | ($6.0) | ($15.7) | ($14.5) |
| Basic and diluted loss per share | ($0.27) | ($0.30) | ($0.78) | ($0.74) |
- Revenue and operating performance: Q2 revenue increased 10% year over year; first-half revenue rose 22%. North America revenue increased 12% in Q2 and 17% in the first half. India revenue increased 2% in Q2 and 62% in the first half.
- Drivers and margins: North American results benefited from higher ethanol volumes and WDG prices; the company reported Keyes production averaging 119% of its 55-million-gallon-per-year nameplate capacity in Q2. India’s Q2 gross profit fell 63%, principally due to higher feedstock costs and lower sales volumes. First-half gross profit improved in both segments.
- Interest and unusual expense: First-half interest expense was $14.4 million, versus $8.9 million a year earlier. Debt-related fees and amortization were $5.7 million versus $2.8 million, including a $3.1 million present-value charge for senior-debt extension/redemption fees and $0.5 million of amendment fees. These costs contributed to the larger first-half net loss despite improved gross profit.
- Cash flow: First-half cash used in operations was $1.6 million, compared with $4.8 million in 2017. Investing used $1.8 million, mainly capital expenditures, versus $0.5 million. Financing provided $4.0 million, compared with $4.2 million. Cash increased $0.6 million to $1.1 million.
- Balance sheet and liquidity at June 30: Current assets were $11.3 million and current liabilities $41.3 million, a $30.0 million working-capital deficit; the current ratio was 0.27, versus 0.32 at year-end 2017. Total assets were $93.1 million and total stockholders’ deficit was $97.1 million.
- Debt: Total debt was $168.4 million, up from $153.8 million at December 31, 2017. The filing lists $19.4 million of debt repayments due within 12 months and $133.3 million in 2020. Senior Third Eye Capital debt was extended to April 1, 2020, with an option to extend to 2021 for a fee; GAFI loans mature July 10, 2019. Debt carries substantial interest and fees, including a 30% rate on the undrawn reserve liquidity facility if borrowed.
Material changes, outlook and risks
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. Aemetis says it needs to refinance debt or obtain continued senior-lender cooperation to meet obligations over the next 12 months. It has historically remitted substantially all excess operating cash to its senior lender.
- Funding plans: Management’s plans include improving Keyes operating performance, developing Riverbank cellulosic ethanol and monetizing CO2, expanding India sales, securing a proposed $125 million USDA loan guarantee, and pursuing debt restructuring, EB-5 funding, vendor financing, or equity. These are plans, not assurances of funding or results. The company reported no availability under its senior debt and Goodland credit facilities and $6.0 million of unused reserve-facility capacity.
- EB-5: Phase I notes totaled $36.0 million principal; $35.0 million had been released from escrow by June 30, with $0.5 million remaining in escrow and another $0.5 million to be funded. The company planned a $50 million Phase II offering; the filing does not establish that the planned amount will be raised.
- Operating and concentration risks: Management cited volatility in feedstock, fuel, energy and product prices and possible additional working-capital needs if margins narrow. J.D. Heiskell accounted for 99.7% of North American segment revenue. India operations rely on working-capital partners and face market and policy risks.
- Other matters: Subordinated notes were extended on July 1, 2018 to no later than December 31, 2018, subject to specified events, with a 10% extension fee and warrants. Aemetis reported ongoing EdenIQ-related litigation and a separate Arizona suit; it said the outcome could not be estimated while discovery remained pending. Management reported disclosure controls were effective at a reasonable-assurance level and no unresolved senior-security defaults for the quarter.
Most important facts for investors to verify
- Whether Aemetis can refinance or otherwise meet its substantial debt obligations, including the 2019 and 2020 maturities, and maintain senior-lender waivers and support.
- Whether operating cash flow and margins improve enough to address the working-capital deficit and high interest burden.
- Whether the Phase II EB-5 offering, remaining escrow releases, proposed USDA loan guarantee, and other planned financing are actually completed, and on what terms.
- Whether Keyes performance, Riverbank project development, CO2 sales, and India sales expansion meet management’s stated plans.
- Whether customer and working-capital-partner concentration, commodity-price volatility, litigation, or regulatory changes materially affect results or liquidity.