Aemetis, Inc: Form 10-Q for the period ended Sep 30, 2024

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated condensed financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

• Overview. Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the remainder of MD&A.
• Results of Operations. An analysis of our financial results comparing the three and nine months ended September 30, 2024 and 2023.
• Liquidity and Capital Resources. An analysis of changes in our balance sheets and cash flows and discussion of our financial condition.
• Critical Accounting Policies and Estimates. Accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

The following discussion should be read in conjunction with our consolidated condensed financial statements and accompanying notes included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Report, particularly under “Part II, Item 1A. Risk Factors,” and in other reports we file with the SEC. All references to years relate to the calendar year ended December 31 of the particular year.

Overview

Founded in 2006 and headquartered in Cupertino, California, Aemetis, Inc. (collectively with its subsidiaries on a consolidated basis referred to herein as “Aemetis,” the “Company,” “we,” “our” or “us”) is an international renewable natural gas and renewable fuels company focused on the operation, acquisition, development, and commercialization of innovative technologies to produce low and negative carbon intensity renewable fuels that replace fossil-based products. We do this by building a local circular bioeconomy using agricultural products and waste to produce low carbon, advanced renewable fuels that reduce greenhouse gas ("GHG") emissions and improve air quality.

Our California Ethanol segment consists of a 65 million gallon per year capacity ethanol production facility located in Keyes, California (the “Keyes Plant”) that we own and operate. In addition to low carbon renewable fuel ethanol, the Keyes Plant produces Wet Distillers Grains (“WDG”), Distillers Corn Oil (“DCO”), and Condensed Distillers Solubles (“CDS”), all of which are sold as animal feed to more than 80 local dairies and feedlots. We also capture the Carbon Dioxide (“CO2”) emissions from our fermenters and sell it to Messer Gas for use to produce liquid CO₂ that it sells to food, beverage, and industrial customers. We are implementing several energy efficiency initiatives focused on lowering the carbon intensity of our fuels, primarily by decreasing the use of fossil natural gas. These energy efficiency projects include high efficiency heat exchangers; a two-megawatt solar microgrid with battery storage that became operational in the second quarter; a Decision Control System (DCS) to manage and optimize energy use and other plant operations; and a Mechanical Vapor Recompression (MVR) system that is expected to replace about 80% of our natural gas consumption with low carbon electricity. These changes are expected to lower the carbon intensity (CI) of the ethanol we produce and allow us to sell it for a correspondingly higher price.

Our California Dairy Renewable Natural Gas segment, Aemetis Biogas or “ABGL,” operates anaerobic digesters at local dairies near the Keyes Plant (many of whom also purchase WDG produced by the Keyes Plant as animal feed) to produce biogas from dairy waste; transports the biogas by pipeline to the Keyes Plant site; and converts the biogas to Renewable Natural Gas (“RNG”) that is delivered to customers through the PG&E regional natural gas pipeline. As of September 30, 2024, we had nine operating digesters that receive dairy waste from ten dairies, and we are actively growing with an additional five digesters currently under construction that are expected to receive dairy waste from eight dairies. We expect to initiate construction on several additional digesters in the fourth quarter when we close on currently planned debt financing. We have constructed 36 miles of collection pipeline and have received environmental approval to construct an additional 24 miles. We currently have agreements with a total of 44 dairies and are seeking to increase that number.

Our India Biodiesel segment includes a biodiesel production plant in Kakinada, India (“Kakinada Plant”) with a nameplate production capacity of about 60 million gallons per year. It produces high quality distilled biodiesel and refined glycerin for customers in India. We believe the Kakinada Plant is one of the largest biodiesel production facilities in India on a nameplate capacity basis. The Kakinada Plant can process a variety of vegetable oils and animal fat waste feedstocks into biodiesel that meets applicable product standards. Our Kakinada Plant can also distill the crude glycerin byproduct from the biodiesel refining process into refined glycerin, which is sold to the pharmaceutical, personal care, paint, adhesive, and other industries.

Our planned sustainable aviation fuel (SAF) and renewable diesel (RD) production plant is currently designed to produce 90 million gallons per year of combined SAF and RD from feedstocks consisting of renewable waste oils and fats. Our planned facility will be located at the Riverbank Industrial Complex in Riverbank, California. We signed a lease with an option to purchase for the Riverbank Industrial Complex in 2021 and took possession of the site in 2022. In 2023, we received a Use Permit and CEQA approval for the SAF/RD plant, and in March 2024, we received Authority to Construct air permits for the plant. We are continuing with development activities, including permitting, engineering, and financing. The site has access to low carbon hydroelectric power, and our plant is designed to use renewable hydrogen that will be produced from byproducts of the SAF/RD production process.

Our planned CCUS projects will compress and inject CO₂ into deep wells that are monitored to ensure the long-term sequestration of carbon underground. California’s Central Valley has been identified as one of the world’s most favorable regions for large-scale CO₂ injection projects due to the subsurface geologic formation that absorbs and retains CO₂ gas. The two initial Aemetis CCUS injection projects are being designed to capture and sequester more than two million metric tons per year of CO₂ at the Aemetis biofuels plant sites in Keyes and Riverbank, California. In July 2022, Aemetis purchased 24 acres at the Riverbank Industrial Complex in Riverbank, California to develop a CCUS injection well with more than 1 million metric ton per year of CO₂ sequestration capacity. In 2023, we obtained a permit to construct a geologic characterization well at the Riverbank site to obtain information to support an EPA Class VI CO₂ injection well permit application. Once operational, we expect that these projects will generate revenue by selling California LCFS credits and federal Internal Revenue Code Section 45Q tax credits.

Our Minneapolis, Minnesota research and development laboratory evaluates and develops technologies that would use low carbon intensity biomass and waste feedstocks to produce low or below zero carbon intensity biofuels and biochemicals. We are focused on processes that extract sugar from cellulosic feedstocks and then use the remaining biomass to produce low carbon ethanol, renewable hydrogen, sustainable aviation fuel, and renewable diesel.

Results of Operations

Three Months Ended September 30, 2024, Compared to Three Months Ended September 30, 2023

Revenues

Our revenues are derived primarily from sales of ethanol and WDG for our California Ethanol segment, renewable natural gas ("RNG") for our California Dairy Renewable Natural Gas segment, and biodiesel for our India Biodiesel segment.

California Ethanol. For the three months ended September 30, 2024, the Company sold 15.5 million gallons of ethanol at an average price of $2.12 per gallon and 106 thousand tons of WDG at a price of $84 per ton. For the three months ended September 30, 2023, the Company sold 13.8 million gallons of ethanol at an average price of $2.64 per gallon and 98 thousand tons of WDG at a price of $96 per ton. The change in revenue primarily was attributable to a 20% reduction in the ethanol average sales price and a 12.3% reduction in the WDG sales price.

California Dairy Renewable Natural Gas. During the three months ended September 30, 2024, we produced 86.6 thousand MMBtu of RNG and sold 86.0 thousand MMBtu at an average price of $2.77 per MMBtu. In the third quarter of 2024, we also sold 935 thousand D3 RINs at an average price of $3.37 per RIN and 20,000 LCFS credits at an average price of $43 per metric ton. As of September 30, 2024, we had 67.6 thousand MMBtu of RNG available for dispensing. During the three months ended September 30, 2023, we produced and sold 66.6 thousand MMBtu of RNG at an average price of $2.13 per MMBtu and we also sold 271 thousand D3 RINs at an average price of $2.97 per RIN and we did not sell any LCFS credits.

India Biodiesel. For the three months ended September 30, 2024, we generated 97% of our revenues from the sale of biodiesel, and 3% of our revenue from other sales compared to 96% of our revenue from biodiesel, and 4% of our revenue from other sales for the three months ended September 30, 2023. The increase in revenues was primarily due to an increase in biodiesel sales volume to 26.0 thousand metric tons in the three months ended September 30, 2024, compared to 15.5 thousand metric tons in the three months ended September 30, 2023, and offset by decrease in the sales price per metric ton by 4%.

Cost of Goods Sold

California Ethanol. For the three months ended September 30, 2024, we purchased 5.5 million bushels of corn at $6.07 per bushel and incurred $ 1.6 million in chemicals and denaturant costs, $ 2.2 million in natural gas costs, and $ 2.6 million in transportation costs. The decrease in cost of goods sold was due to 19% decrease in corn costs offset by 10% increase in bushels of corn grind.

California Dairy Renewable Natural Gas. Cost of goods sold includes dairy manure payments, equipment maintenance, and depreciation. The increase from the third quarter of 2023 to the third quarter of 2024 was primarily due to the increase in the number of operating digesters.

India Biodiesel. In the three months ended September 30, 2024, we processed 26.0 thousand metric tons of feedstock, compared to 15.6 thousand metric tons of feedstock in the same period in 2023. During the three months ended September 30, 2024, the average price of biodiesel feedstock was $984 per metric ton compared to $752 per metric ton in the same period as in 2023. The increase was attributable to the increase in biodiesel production along with 31% increase in the average price per ton for feedstock.

Gross profit (loss)

California Ethanol. The increase in gross income during the period ended September 30, 2024, was attributable primarily to lower corn costs.

California Dairy Renewable Natural Gas. The increase in gross income in the three months ended September 30, 2024, compared to the same period in 2023 is due to the substantial increase in sales of RNG, D3 RINs, and LCFS credits without a corresponding increase in costs.

India Biodiesel. The decrease in gross profit was attributable to an increase in the feedstock costs by 31% and a 4% decrease in biodiesel price.

Operating (income)/expense and non-operating (income)/expense

Selling, general, and administrative (“SG&A”) expenses consist primarily of salaries and related expenses for employees, marketing expenses related to sales of ethanol and WDG in California and biodiesel and other products in India, as well as professional fees, insurance, other corporate expenses, and related facilities expenses. Total SG&A also includes receipts of lease payments as an offset to expenses. Research and development expenses are also included in the SG&A expenses. Other expense (income) consists primarily of interest and amortization expense attributable to our debt facilities and accretion of Series A preferred units.

The decrease in SG&A expenses for the three months ended September 30, 2024, was due to decrease in (i) a $2.0 million in professional fees, (ii) decreases in utilities, penalties, and insurance of $0.2 million, offset by increase in (iii) salaries, supplies, and other of $0.9 million.

Interest expense increased in the three months ended September 30, 2024, due to an increases in principal under the Revolving Loans and Revolving Credit Facilities, and the impact of rising interest rates on our variable interest rate debt compared to the same period in the prior year. The lower accretion and other expenses of the Series A Preferred Units was due to a decrease in the effective interest rate on the PUPA redemption obligation in the recent PUPA amendments. The decrease in other income was due to receiving USDA grant income of $1.8 million during the 2023 compared to a $1.0 million of income recognized in the sale of unused feedstock at higher prices than the acquisition costs.

Nine Months Ended September 30, 2024, Compared to Nine Months Ended September 30, 2023

Revenues

Our revenues are derived primarily from sales of ethanol and WDG for our California Ethanol segment, RNG for our California Dairy Renewable Natural Gas segment, and biodiesel for our India Biodiesel segment.

California Ethanol. For the nine months ended September 30, 2024, the Company sold 44.4 million gallons of ethanol at an average price of $1.97 per gallon and 305 thousand tons of WDG at a price of $90 per ton. For the nine months ended September 30, 2023, the Company sold 16.7 million gallons of ethanol at an average price of $2.72 per gallon. The increase in revenue was attributable to operating the Keyes Plant for nine full months during 2024 compared to 2023 when the Keyes Plant operated during only four of the nine months due to an extended maintenance period.

California Dairy Renewable Natural Gas. During the nine months ended September 30, 2024, we produced 236.3 thousand MMBtu of RNG and sold 234.8 thousand MMBtu at an average price of $2.88 per MMBtu. During this period, we also sold 2.0 million D3 RINs at an average price of $3.23 per RIN and 43 thousand metric tons of California LCFS credits at an average price of $55.16 per metric ton. As of September 30, 2024, we had 67.6 thousand MMBtu of RNG available for dispensing. During the nine months ended September 30, 2023, we produced and sold 142.0 thousand MMBtu of RNG at an average price of $5.06 per MMBtu. We also sold 270.7 thousand D3 RINs at an average price of $2.97 per RIN and did not sell any LCFS credits.

India Biodiesel. For the nine months ended September 30, 2024, we generated 96% of our revenues from the sale of biodiesel, and 4% of our revenue from other sales compared to 97% of our revenue from biodiesel, and 3% of our revenue from other sales for the nine months ended September 30, 2023. The increase in revenues was primarily attributable to fulfilling the demand from India's Oil Marketing Companies during the first nine months of the 2024 compared to absence of OMC contracts in the first three months of 2023. Biodiesel sales volume increased to 73.5 thousand metric tons in the nine months ended September 30, 2024 compared to 43.7 thousand metric tons in the nine months ended September 30, 2023 while price per metric ton decreased by 4%.

Cost of Goods Sold

California Ethanol. For the nine months ended September 30, 2024, we purchased 15.6 million bushels of corn at $6.25 per bushel and incurred $4.6 million in chemicals and denaturant costs, $7.0 million in natural gas costs, and $7.0 million in transportation costs. For the nine months ended September 30, 2023, we incurred corn or other chemical costs for four months due to the extended maintenance at the Keyes Plant, which was offset by costs incurred for starting up the Keyes Plant along with resuming full operation of plant during third quarter of 2023 with 15% higher corn costs.

California Dairy Renewable Natural Gas. The cost of goods sold includes dairy manure payments, equipment maintenance, and depreciation. The increase in the cost of goods sold was primarily due to the increase in the number of operating digesters.

India Biodiesel. The increase in costs of goods sold was attributable to the increase in production and sales of biodiesel. In the nine months ended September 30, 2024, we processed 74.0 thousand metric tons of feedstock, compared to 43.7 thousand metric tons of feedstock in the same period in 2023. During the nine months ended September 30, 2024, the average price of feedstock was $835 per metric ton compared to $797 per metric ton in the same period as in 2023.

Gross profit (loss)

California Ethanol. The increase in gross loss during the period ended September 30, 2024, was attributable to a 28% decrease in the price of ethanol. During the maintenance cycle in 2023, the fixed expenses that would have normally been accounted for in gross profit/(loss) in that period were charged to SG&A.

California Dairy Renewable Natural Gas. The increase in gross profit in the nine months ended September 30, 2024, is due to an increased RNG production and sales quantities and sales of D3 RINs and LCFS credits after June 30, 2023, compared to sales of only RNG in the six-month period ended September 30, 2023.

India Biodiesel. The decrease in gross profit was attributable to an increase in feedstock usage by 69%, an increase in average feedstock price per metric ton by 5%, and a decrease in average sales price of biodiesel by 4%.

Operating (income)/expense and non-operating (income)/expense

Selling, general, and administrative (“SG&A”) expenses consist primarily of salaries and related expenses for employees, marketing expenses related to sales of ethanol and WDG in California and biodiesel and other products in India, as well as professional fees, insurance, other corporate expenses, and related facilities expenses. Total SG&A also includes receipts of lease payments as an offset to expenses. Research and development expenses are also included in the SG&A expenses.

Other expense (income) consists primarily of interest and amortization expense attributable to our debt facilities and accretion of Series A preferred units.

The slight decrease in SG&A expenses for the nine months ended September 30, 2024, was due to (i) a $3.6 million loss on an asset write-off during 2024 and increase salaries and supplies of $1.4 million offset by (ii) decreases in expenses of $2.5 million that had been reclassified from cost of goods sold due to maintenance at the Keyes Plant during the five months half of 2023, (iii) decreases in professional fees of $2.4 million, and (iv) decreases in utilities, penalties, and insurance of $1.3 million.

Interest expense increased in the nine months ended September 30, 2024, due to the new Construction and Term Loan debt, increases in principal under the Revolving Loans and Revolving Credit Facilities, and the impact of rising interest rates on our variable interest rate debt compared to the same period in the prior year. The lower accretion and other expenses of the Series A Preferred Units was due to a decrease in the effective interest rate on the PUPA redemption obligation in the recent PUPA amendments. Other income consists of USDA grants of $1.8 million during 2023 and the recognition of $1.0 million from the purchase and sale of feedstock.

Liquidity and Capital Resources

Cash and Cash Equivalents

Cash and cash equivalents were$ 296 thousand at September 30, 2024. Our current ratio at September 30, 2024, was $0.26 compared to $0.43 at December 31, 2023. We expect that our future available liquidity resources will consist primarily of cash generated from operations, borrowings under debt arrangements, and sales of equity.

Liquidity

Cash and cash equivalents, current assets, current liabilities, and debt at the end of each period were as follows:

Our principal sources of liquidity have been cash provided by operations, the sale of equity, and borrowings under various debt arrangements. Our principal uses of cash have been to fund operations, fund capital expenditures, and pay indebtedness. We anticipate these uses will continue to be our principal uses of cash in the future.

We operate in a volatile market in which we have limited control over the major components of input costs and product revenues and are making investments in future facilities and facility upgrades that improve overall margins while lessening the impact of these volatile markets. As such, we expect cash provided by operating activities to fluctuate in future periods primarily because of changes in the prices for corn, ethanol, WDG, DCO, CDS, biodiesel, waste fats and oils, glycerin, non-refined palm oil, natural gas, LCFS credits, and D3 RINs as well as the timing of the sales of environmental attributes held in inventory. To the extent that we experience periods in which the spread between ethanol prices and corn and energy costs narrows or the spread between biodiesel prices and waste fats and oils or palm oil and energy costs narrow, we require additional working capital to fund operations.

As a result of negative capital and negative operating results, and collateralization of substantially all the Company assets, we have been reliant on our senior secured lender to extend the maturity dates of our debt and loan facilities. In order to meet obligations during the next twelve months, we will need to either refinance our debt or receive the continued cooperation of its senior lender. We plan to pursue the following strategies to improve the course of the business.

For the Keyes Plant, we plan to operate the plant and continue to improve its financial performance by adopting new technologies or process changes that increase energy efficiency, reduce costs, and enhance revenue, as well as execute upon awarded grants that improve energy and operational efficiencies resulting in lower cost, lower carbon intensity, and overall margin improvement.

For our dairy RNG production, we plan to continue to operate our existing digesters as well as continue to build new dairy digesters and extend the existing pipeline. Funding for continued construction has been based on government guaranteed debt financing and grant programs. We are seeking multiple sources of additional project funding to allow us to accelerate the addition of new digesters. We began generating revenue from D3 RIN sales in 2023 and first generated revenue from the sale of LCFS credits in January 2024. We expect to have a full year of revenue from both sources in 2024, which will provide increased liquidity.

For the Kakinada Plant, we plan to continue to enter cost-plus contracts with the OMCs as our primary customers. We also plan to continue to upgrade our plant to increase capacity and expand feedstock flexibility. We are also evaluating the production of additional products and developing channels for the export of allow. The Kakinada plant has had positive gross income during the last two years and we expect this to continue. We also will continue to rely on our working capital lines with Gemini and Secunderabad Oils to fund our commercial arrangements for the acquisitions of feedstock.

For the Riverbank SAF/RD production plan, we are continuing with engineering and other development activities and seeking both debt and equity funds needed for development and construction.

In addition to the above, we plan to continue to locate funding for existing and new business opportunities through a combination of working with our senior lender, restructuring existing loan agreements, seeking project specific debt and equity, selling equity through the ATM and otherwise, selling the current EB-5 Phase II offering, and by vendor financing arrangements.

At September 30, 2024, the outstanding balance of principal, interest and fees, net of discounts, on all Third Eye Capital Notes was $205.3 million. The maturity dates for the Third Eye Capital financing arrangements are March 1, 2025, for $39.3 million; March 1, 2026, for $140.6 million; and, April 1, 2026, for $25.4 million based on the Company's option to extend the maturity.

Change in Working Capital and Cash Flows

The following table describes the changes in current and long-term debt (in thousands) during the nine months ended September 30, 2024:

Working capital changes resulted from (i) a $1.5 million increase in inventories (ii) a $0.7 million decrease in accounts receivable due to the last day of quarter falling on a weekend, offset by $85 thousand increase in India accounts receivable, and (iii) a decrease in other current assets of $0.5 million in North America and an increase in India current assets by $2 million due to tax receivables. This was partially offset by a $2.3 million decrease in cash.

Net cash used in operating activities during the nine months ended September 30, 2024, was $20.4 million, which was calculated based on non-cash charges of $31.5 million, net cash provided by operating assets and liabilities of $19.5 million, and net loss of $71.3 million. The non-cash charges consisted of: (i) $4.9 million in amortization of debt issuance costs and other intangible assets, (ii) $6.1 million in depreciation expenses, (iii) $6.9 million in stock-based compensation expense, (iv) $10.1 million in accretion expense of Series A preferred units and (v) $3.6 million in loss on asset write-off. Net changes in operating assets and liabilities consisted primarily of (i) an increase in accrued interest of $20.9 million, (ii) an increase in accounts payable of $3.5 million, (iii) an increase in other liabilities of $1.5 million, (iv) an increase in inventories of $1.6 million and (v) a decrease in prepaid expenses of $1.6 million, (vi) an increase in other assets of $6.9 million, and (vii) an decrease in accounts receivable of $0.6 million.

Cash used in investing activities included $13.5 million used for capital projects, partially offset by grant proceeds and other reimbursements of $3.0 million.

Cash provided by financing activities was $27.8 million, consisting of $21.7 million from sales of common stock and proceeds from exercises of stock options and $12.5 million proceeds from borrowings, partially offset by repayments of borrowings of $4.8 million, payment of debt renewal and waiver fees of $1.4 million and payment on finance leases of $0.2 million.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of net sales and expenses for each period. We believe that of our most significant accounting policies and estimates, defined as those policies and estimates that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain are: revenue recognition; recoverability of long-lived assets, Series A Preferred unit liability, and debt modification and extinguishment accounting. These significant accounting principles are more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Recently Issued Accounting Pronouncements

None reported beyond those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

Off Balance Sheet Arrangements

None.

Evaluation of Disclosure Controls and Procedures.

Management (with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our CEO and CFO concluded that, although remediation plans were initiated to address the material weaknesses over financial reporting as identified in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, the disclosure controls and procedures along with the related internal controls over financial reporting were not effective to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and is compiled and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

As discussed in greater detail under Item 9A, Controls and Procedures, in our Annual Report on Form 10-K for the year ended December 31, 2023, we continued implementing a remediation plan to address the material weakness in our internal control related to information technology general controls and information technology systems.

There has been no change in risk factors since the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 29, 2024. We urge you to read the risk factors contained therein.