As Solazyme, Gevo and Amyris report on results for Q2, update forward guidance – what does the data reveal about demand, supply of advanced biofuels and co-products?
We digest down analyst reports, company comments into a 5-minute summary of “news you can use”.
In California and Colorado, the newswires have been working overtime this week in advanced biofuels, as several industry titans reported their latest quarterlies and subjected themselves to public scrutiny, which sometimes resembles the Puritan practice of mounting minor offenders in the public stocks and pelting them with rotten eggs and tomatoes.
But it was all quite civil this week in biofuelsland, as the companies generally reported that they remain generally on track in terms of the direction and timing of their long-term journeys toward cash flow, and strategic partners continue to provide help with capital and offtake.
Cash, production quantity, offtake and price/margin – these have happily become the new metrics, instead of government R&D contracts, VC financings, and MOUs for future developments.
General themes: as expected, early markets remain focused on higher-value opportunities, fuels (road, aviation or other) are an aspirational goal awaiting the construction of larger capacities and the lower per-gallon costs and assurance of supply that comes with maturity and scale. Analysts are in general agreement on Amyris (AMRS); Gevo (GEVO), all are generally bullish, some more so than others; with Solazyme (SZYM), Piper Jaffray is somewhat pessimistic but overall the consensus is broadly quite positive.
Future capital raises for capacity expansion are expected this year and next for Solazyme and Amyris, with Gevo just completing a raise. Strategic partners continue to arrive with impressive balance sheets: Totral for Amyris, Toray and Sasol for Gevo, Bunge for Solazyme.
Let’s look at the companies one by one for signs in their individual journeys, and some review of the state of play as a whole. Analysts in the mix include the estimable Rob Stone and James Medvedoff from Cowen & Co, Mike Ritzentheler from Piper Jaffray and Pavel Molchanov from Raymond James.
Amyris key takeaways.
Cash. $30M from Total was totally welcome; ultimately, “our cash burn projections imply another equity raise around year-end 2012. The new Total funding package may push that out, so our updated model reflects equity issuance in 2Q13.”
Production quantity. Numbers are small now, Pariso plant is mechanically complete, startup in Q1 2013 remains critical.
Offtake: “Building on their long-standing partnership, Amyris and French oil major Total (TOT) are amending their diesel collaboration to firm up and accelerate R&D funding. The new provision is Total’s commitment to fund up to $82 million over three years, including a $30 million down payment in 3Q, via convertible debt (1.5% coupon, due 2017). To be sure, this project – like Amyris’ overall business plan – is behind schedule. Last year, the aim was full-scale production start-up in 2013-14. While that’s no longer realistic, Total’s reaffirmed commitment is encouraging.”
Price/margin: Owing to start-up during cane off-season, “It may be mid-2013 before performance/cost data at scale can be reported” based on the primary feedstock.
Timeline to cash flow positive: “We project operating cash flow turning positive in late 2014, as the Sao Martinho facility starts up.”
The bottom line: ”Progress On Opex; Cash Needs, Production Cost Remain Hurdles.” No upgrades or downgrades from analysts. Despite “lower revenue and wider gross loss,” Amyris is “behind schedule” but signs are “encouraging”.
For investors: Price targets range from $4 to $4.76.
Gevo key takeaways.
Cash. “Gevo reported cash and cash equivalents on hand of $38.6 million as of June 30, 2012. The concurrent public offerings of common stock and convertible senior notes generated net proceeds of $98.8 million in July 2012.”
Production quantity. “Management announced product shipment, and reiterated their expectation to exit FY12 at a 1 million gallon per month run rate.” ”We still expect Redfield to be up and running in Q4 2013, about a year behind the original plan. However, in order to do so, construction must begin within the next few months (Luverne took 12 months, but was less than half the size).”
“Weak ethanol markets are clearly driving interest in Gevo’s technology – the problem remains capitalization of potential licensees, in our view.”
In addition, Gevo COO Chris Ryan commented to the Digest. “we are not going to get into seriously investing capital at Redfield until there is more data from the Luverne facility.”
Offtake: “The company shipped about 50,000 gallons of isobutanol”… “to both chemical and non-automobile fuel customers.” “Toray has made an upfront capital investment [for a] Gevo pilot plant to produce renewable bio-paraxylene…Toray [will] purchase initial volumes from this plant [for] renewable PET fibers, films and plastics.”
Gevo’s Ryan adds: “On the chemical side, it’s very positive. Within the speciality chemicals that Sasol will be serving, there is lots of demand, positive feedback. In the paraxylene market, we continue to see an increase in momentum there and now talking to others in that supply chain to develop the process, but it will not be commercialized in the next year or two.”
Price/margin: “Gevo’s fixed margin offtake deals largely insulate it from corn cost risk. This summer’s record-high corn prices and awful ethanol economics can actually give Gevo greater leverage in signing up ethanol producers as joint venture partners. That said, Gevo is still focused on transitioning to cellulosic feedstocks.”
Litigation: ” Regarding the IP dispute with Butamax, we continue to believe that Gevo will be able to operate unencumbered…and perhaps the new preliminary injunction filed by Gevo will catalyze a settlement.
Timeline to cash flow positive: “We now model 2012-15 EPS of ($2.06), ($1.15), (50c) and 17c vs. prior ($1.98), ($1.10), 29c, and 84c on lower revenue assumptions”.
The bottom line: “Cutting Estimates On Rollout Pacing; Long Term Intact; Redfield: Construction Needs To Get Started. ” No upgrades or downgrades from analysts.
For investors: Price targets remain widely dispersed, from $5.50 to $17.
Solazyme key takeaways
Cash. Solazyme ended 2Q with cash of $195 million…Solazyme should exit 2012 with cash of $140+ million, and we assume a round of equity issuance in mid-2013, ahead of a likely acceleration in capital spending. “Management reiterated their expectation that their contribution to the 50/50 Bunge (BG) JV would be $72.5 million, and are hopeful that the BNDES will fund 60% or more of the Moema capex, but the visibility won’t come until mid-2013.”
Production quantity. ”I
n April, Solazyme finalized its JV with agribusiness giant Bunge for its first Brazilian production facility to be co-located at Bunge’s Moema sugar mill…The plant, with capacity to produce 100,000 metric tons of tailored oils annually, is expected to come on line in 4Q13.”
Offtake: Algenist sales continue to impress, with 1H12 sales exceeding the total of 2011. Other than a 3Q dip in Pentagon-related fuel sales, there is no change in outlook. Ritzenthler adds: “Underweight rating reflects our view on…building capacity ahead of firm demand [for volume products].
Price/margin: “No surprises in 2Q12. Revenue of $13.5 million, flat sequentially, was within 1% of our estimate, and the mix between product sales and R&D/licensing also stayed consistent. ”
Timeline to cash flow positive: “On track for positive cash flow by mid-2014.Our projections indicate that Solazyme’s operating cash flow will turn positive once Moema fully ramps up, which could be as early as late 2014.”
The bottom line: Management guides down revenues for FY12, primarily on the loss of government-funded projects. No upgrades or downgrades from analysts.
For investors: Price targets range from $9 to $14.00.