August 19, 2015

Fretting Over FutureFuel

by Debra Fiakas CFA

Earlier this week FutureFuel Corporation (FF:  NYSE) reported financial results for the second quarter ending June 2015.   Sales of the company’s biodiesel and specialty chemical products increased 53.7% to $104.6 million compared to the prior-year quarter when reported revenue was $68.0 million.  The company delivered a profit as usual, but traders appeared unimpressed.  The stock gapped lower on the news and two days later set a new 52-week low price.  Granted net income was lower year-over-year by 30.9%, coming in at $3.8 million or $0.09 per share. 

A closer look at the sales mix reveals what has FutureFuel shareholders gnawing their nails.

Sales of the company’s various chemical products were essentially flat in the June quarter after registering a 13.0% leg higher year-over-year in the March quarter.  The June quarter plateau should not have come as a surprise given that the chemicals segment has been erratic at best, shrinking in 2013 after registering weak growth in 2012.

Chemical products include an diverse mix of herbicides, industrial formulas and a bleach activator.   Historically, the bleach activator has been FutureFuel’s bread winner, responsible for 15% to 20% of total sales over the last few years.  In the June quarter sales of this product dropped to just 6% of total sales.  The bleach activator is used in powdered laundry detergents, which have lost market share to liquid detergents in recent years.  FutureFuel’s primary customer for this product is terminating its order arrangement by the end of 2015.  Management has claimed negotiations are still underway, but if sales in the June quarter are any indication, a new supply agreement is not likely.

Orders for other chemicals helped make up the short-fall in bleach activator revenue.   Sales volume of proprietary herbicides doubled in the June quarter compared to the same quarter last year.  However, revenue increased only 75%, which the company attributed to ‘product mix.’  Apparently, certain contributors to the elevated volumes were lower priced items.  Revenue also increased 25% for intermediate chemicals used in the production of antimicrobial solutions and other custom chemicals.  As encouraging as these revenue pick-ups might be, the loss of a major customer for a principle product is certainly a ‘fret’ worthy turn in events.

This brings us to the biofuels segment, which contributed $71.9 million in total sales to the June quarter, representing 3.6 times biofuel revenue in the previous quarter and 2.0 times revenue the year-ago period.  Increased sales through common carrier pipelines offset volume declines in the June quarter.  The revenue accomplishment should have shareholders squat jumping high-fives!  Unfortunately, profits in the biofuel segment were nothing to celebrate.

FutureFuel reported a gross profit margin of 10.2% in the biofuel segment in the year 2014, and the profit margin increased to 12.3% in the first quarter this year.  However, in the June quarter pricing pressures got the best of FutureFuel, gobbling up profits and leaving the company with a profit margin of negative 6.2%.  In other words, it cost FutureFuel more to produce its biofuel products than it recorded in sales.  Management cited erosion in selling prices for transportation fuel and uncertainly in U.S. regulatory mandates for renewable fuels.  

Few if any analysts or economists are predicting a near-term recovery in crude oil prices.  What is more, in the lead up to elections no one should hold their breath waiting for Congress to set policy on much of anything let alone renewable fuels standards.  Thus it seems shareholders could expect more of the same volume and profit dynamic in coming quarters for FutureFuel’s biofuel segment.  This is definitely something to fret about.

Top-line stress is probably not the only factor sending FutureFuel shares into free fall.  Operating cash flow reveals more reasons for FutureFuel shareholders to worry.  The company generated $41.1 million in operating cash in the first three months of 2015.  However, in the June quarter FutureFuel actually used $6.2 million of its cash resources to support operations.    This is not a positive turn of circumstances.  While the company saved some cash by drawing down inventory by $8.5 million in the quarter, approximately $7.2 million in reported sales got bogged down in accounts receivable.  Another $7.9 million in cash was lodged during the quarter in an income tax receivable.  The company also paid down accounts receivable by $980,000. 

The ebb and flow of working capital accounts only creates temporary cash flow problems.  For FutureFuel it is really the quality of earnings that should worry shareholders.   The company reported $3.8 million in net income in the quarter, but a total of $1.8 million or 47% came from a mix of non-operating sources:  $627,000 came from a deferred income tax benefit, $770,000 from increased value in marketable securities, and $450,000 from the sale of investments.

FutureFuel has traded to a record low for the year, taking the price to an enticing 7.8 times trailing earnings.  The dividend yield is a very interesting 2.4% at the current price.  With $142.0 million in cash and another $85.9 million in marketable securities on the balance sheet, the company appears capable of withstanding a few more quarters of negative operating cash flows before the dividend would come under scrutiny.

For investors with a long-term time horizon, the dividend yield could be a good reason to fret less about the last quarter and look more carefully at the company on the basis of annual sales, profit margins and cash flows.  The temporary influences that make the quarter results look exceptionally good or bad get smoothed out.  The erosion in profit margins cannot be escaped by looking at full-year comparisons, but a dividend check helps make worthwhile the wait for resumption in sales growth.

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

August 18, 2015

Propel Fuels' Sales of Neste Renewable Diesel Jump 15x

Jim Lane

West Coast renewable fuel retailer says the launch of 100% drop-in renewable diesel has spiked sales on a per-outlet basis — 5X jump in renewable content, and 3X jump in gallons sold.

In California, Propel Fuels is reporting a 15X jump in per-outlet sales of renewable fuel for diesel engines, based on a 3X increase in gallons sold of its new Diesel HPR fuel and 5X increase in renewable content for Diesel HPR (100% renewable content, vs the 20 percent renewable content in B20 biodiesel, which Propel formerly sold).

With the news, Propel is expanding distribution to Southern California, adding 13 new locations in Los Angeles/Orange County (Fullerton, Harbor City, La Mirada, Lakewood, Norwalk, Torrance and Wilmington), San Diego (Chula Vista and Kearny Mesa), and the Inland Empire (Arcadia, Claremont, Hemet and Ontario). Propel debuted Diesel HPR at 18 locations in Northern California in March.

Diesel HPR is a low-carbon, renewable diesel fuel that meets petroleum diesel specifications and can be used in any diesel engine. Utilizing Neste’s [NEF.F] NEXBTL renewable diesel, Diesel HPR is designated as ASTM D-975, the standard for all ultra-low sulfur diesel fuel in the U.S., and is recognized as “CARB diesel” by the California Air Resources Board even though it contains no petroleum.

What’s the secret?

Propel-3For one, everyday low prices. The US Energy Information Administration is reporting an average retail diesel price of $2.96 in the state of California, for the week of August 10. The average retail price for Propel Fuels Diesel HPR, for 12 of its new locations in Southern California is $2.55 per gallon (Propel’s Torrance location is reporting a $3.89 per gallon price, a real outlier).

By the way, Propel’s 100-octane E85 is averaging $3.07 per gallon in Southern California, compared to $3.56 for 87-octane regular and $3.81 for 91-octane premium — a discount of 14 percent to regular and 19 percent to premium, not a compelling discount given the fuel economy differential.

(Note, for the discounts reported above, we’re comparing local (Southern California) Propel prices to a statewide average, so it’s not a precise apples-to-apples comparison.)

California retail fuel prices 081715

The other secret

Propel looks cool, and has good locations they’ve “re-thought the American fueling station”, as put it, offering customers a chance to offset their carbon, as well as re-fueling. In short, they’ve gone some lengths to change the retail mindset.

Propel Fuel

The secret in the Fuel

It’s not a top-secret fact, but it’s not widely known that Neste is supplying its NEXBTL fuel to Propel. Interested to learn more about that fuel, and the technology behind it? Our 8-Slide Guide to Neste is here.

Renewable diesel’s low-carbon fuel performance

According to the U.S. Department of Energy’s Alternative Fuels Data Center, renewable diesel’s high combustion quality results in similar or better vehicle performance compared to conventional diesel, while California Air Resources Board studies show that renewable diesel can reach up to 70 percent greenhouse gas reduction compared to petroleum diesel, and reduces nitrogen oxides (NOx) and particulates (PM 2.5) versus petroleum-based diesel.

Commercial and bulk fueling options

In addition to new retail locations, Propel has launched Diesel HPR commercial and bulk availability for business and government fleets statewide. Delivered in bulk to businesses and agencies, Propel’s HPR is bundled with the company’s CleanDrive emissions accounting software, allowing fleets to easily quantify and report GHG reductions and air quality benefits.

Where to find it, pricing, and customer testimonials

A complete list of locations is also available here. Directions and real-time pricing can be found on Propel’s mobile app available in the Android and Apple app stores. Customer testimonials are available here.

Reaction from stakeholders

“Drivers across Southern California can now experience the power, performance and value of Diesel HPR, while making a positive impact on the air quality of the region,” said Rob Elam, CEO of Propel. “Any diesel vehicle can fill with Diesel HPR since it meets the ASTM D-975 quality standard for petroleum diesel.”

“It’s good to see this high quality, low-carbon diesel coming to corner gas stations across Southern California,” said Mary D. Nichols, Chair of the California Air Resources Board. “This renewable diesel will now be conveniently located for all consumers, and joins a growing suite of new, cleaner transportation fuels in California thanks to our Low Carbon Fuel Standard and forward thinking companies like Propel.”

“We congratulate Propel Fuels on their initiative to introduce Diesel HPR to consumers in California and are excited to be their supplier of choice with our NEXBTL renewable diesel,” said Kaisa Hietala, Neste’s Executive Vice President of Renewable Products Business Area. “NEXBTL renewable diesel reduces emissions as well as enhances engine performance leading to lower maintenance and service costs.”

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

August 17, 2015

Green Bonds From Terraform Global, SolarCity, and Hannon Armstrong

by the Climate Bonds Team

Yieldco TerraForm Global (GLBL) issues a whopping $810m green bond (7 years, 9.75%, B2/B+)

TerraForm Global Operating has issued an $810m green bond, with 7-year tenor, 9.75% coupon and ratings of B2 and B+ from Moodys and S&P respectively. TerraForm Global is a recent yieldco spin off (IPO last month) of SunEdison (SUNE) group (have a look here if the yieldco concept is new to you).

Terraform Global owns and operates renewable energy assets - solar, wind and hydro - in emerging markets, in the following locations:

  • Solar: China, India, South Africa, Honduras, Uruguay, Malaysia and Thailand.
  • Hydro: 6 projects in Peru (for 336MW aggregate capacity), as well as 3 small operational hydro projects in Brazil (aggregate capacity of 42MW).
  • Wind projects: China, Brazil, South Africa, India, Honduras, Costa Rica and Nicaragua.

The emerging market focus sets Terraform Global apart from its sister-yieldco Terraform Power Operating, which has so far issued 3 bonds for a total of $1.25bn, but who only has one emerging market project, in Chile. Their renewable energy power plants are predominately in the US, with some assets in Canada and UK.

Terraform is really showing the potential for yieldcos to issue green bonds to finance renewable energy in a wide range of countries – way to go!

SolarCity (SCTY), the US largest solar developer, comes to the green bond market yet again with $123.5m of solar asset-backed securities. The 7-year tenor green ABS is split across two different ranking tranches; the larger $103m senior A-rated tranche has a 4.18% coupon and the smaller $20m junior tranche, rated BBB, with a 5.58% coupon. Great to see solar-backed ABS moving up the credit ratings!

SolarCity has been a pioneering company in the solar securitisation space; in November 2013, they were the first corporate to issue a fully solar-backed ABS, and several more deals followed in 2014.

This latest deal from SolarCity adds to other recent green ABS deals, with July seeing green ABS issuances from both RenewFund and Toyota.

Hannon Armstrong (HASI) announced it will issue another round of green asset-backed securities (it calls them Sustainable Yield Bonds), this time for $125m and 25-year tenor. As its previous issuances of green asset-backed securities, they will be backed by renewable energy and energy efficiency assets. The ABS offering will be offered by an indirect subsidiary of Hannon Armstrong.

——— The Climate Bonds Team includes Sean Kidney, Tess Olsen-Rong, Beate Sonerud, and Justine Leigh-Bell. 
 The Climate Bonds Initiative is an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. 

August 14, 2015

Green Plains Bets on Ethanol Recovery

by Debra Fiakas CFA

Last week the Chief Executive Officer of Green Plains Renewable Energy, Inc. (GPRE:  Nasdaq), Todd Becker, revealed during conference calls following its quarter earnings report that the company has been in discussions to sell ethanol to industrial users in Mexico.  It is news that could be music to shareholders ears.  U.S. storage tanks are brim full of ethanol as producers like Green Plains stock pile inventories waiting for better selling prices.  Green Plains has made claims to Mexico sales before, but has never revealed customer names or volumes.  None were named this time.

Can Mexico rescue Green Plains from the ethanol doldrums?

Mexico reportedly bought 4% of U.S. ethanol exports in 2014.  That is not an impressive all things considered.  Canada and Brazil are more important and larger customers for the U.S. ethanol industry.  In 2014, Canada bought over 1.2 billion liters of Yankee ethanol and Brazil placed orders for another 375 million liters.  Even the United Arab Emirates is a more significant importer of U.S. ethanol, at least in terms of the rate of growth in purchases by that country.
However, the pace of purchases from our good friends down south could accelerate.  At the beginning of 2015, Pemex, Mexico’s state-owned oil company, announced its intentions to begin selling gasoline mixed with ethanol as part of a plan to reduce emissions.  However, Pemex let contracts to source ethanol from domestic producers not U.S. producers.  Two of the initial contracts were cancelled due to ‘irregularities’, revealing the difficulty Mexico might be having in cultivating an effective domestic ethanol industry.  Perhaps that will leave open a door for enterprising U.S. exporters.

Of course, ethanol is only one part of the picture.  Ethanol production results in several by-products, including corn meal, corn oil and distillers gains among other agricultural products.  Exports of ethanol production by-products continue to be robust and industry analysts are predicting strong long-term growth.  Distillers grain (DDGs) exports by U.S. producers were $3.4 billion in 2014 , setting volume and value records.  China is the largest importer of U.S. DDG production and Mexico comes in second place.  The countries in the European Union favor U.S. corn gluten feed and Indonesia is the largest customer for corn gluten meal.  About three-quarters of U.S. high-fructose corn syrup ends up in Mexico.  The in the Middle East and Africa buy about two-thirds of U.S. corn oil production.  Corn meal, feed and oil exports were valued at around $1.6 billion in 2014.
Besides the usual ethanol production by-products, Green Plains also earns fees for ethanol marketing, trading and logistics services provided to third-parties.  Sales of by-products and services represent about 70% of Green Plains’ total sales.

Green Plains reported $3.2 billion in sales in the twelve months ending June 2015, providing net income of $88.3 million.  Cash flows of $93.8 million for the twelve-month period are probably a better barometer for an ethanol producer.  Free cash flow after capital expenditures was $33.5 million, enough to support a dividend near $12 million per year and meet debt payment obligations.
Despite the struggle that ethanol producers are facing at this point in the industry cycle, Green Plains appears to have the balance sheet to see it through to better times.  At the end of June 2015, the company had $527.9 million in cash on the balance sheet.  Total short- and long-term debt was $672.8 million.  

Green Plains stock has been in a free fall for the past two months as investors anticipated the June quarter results.  The company reported a profit in the quarter, but not enough to meet expectations for a far more robust performance.  Perhaps management should spend more time simply producing sales and profits and less time pumping up investors for sales that have not been made yet.

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

August 13, 2015

LG Chem: Storage Battery Leader

by Debra Fiakas CFA

The post “Energy Storage Restart,” which was published last week, discussed the efforts by
General Electric (GE:  NYSE) to get back into the market for utility-scale energy storage.  After some difficulties that required the partial closing of its battery manufacturing plant, GE has got back in the game with new contracts wins.  In April 2015, the company won a contract to supply Con Edison Development with an 8-megawatt-hour battery storage system at a solar project in California.  GE will be integrating lithium-ion batteries rather than its own battery technology into the project. 

Where will GE source the lithium-ion batteries for the California project?  So far, spokespersons have been non-committal on the name.  Today’s post profiles a company that may not be a likely ‘bedfellow’ for GE, but it is a leader in lithium ion energy storage technology.
LG Chem (051910: KS) is Korea’s largest specialty chemicals company.  It’s bread and butter business is supplying petrochemical feedstocks such as ethylene and propylene, aromatics such as benzene and toluene, and specialty polymers such as butadiene-based synthetic rubber.  The company reported US$18.7 billion (21.8 trillion Korean won) in sales in the twelve months ending March 2015, providing US$9.48 in earnings per share (11,047.80 Korean won).  LG Chem shares the wealth with a dividend that provides a 1.6% yield at the current share price near US$205 per share (238,000 Korean won).

The company got into the battery market thought its long-standing competence in materials sciences.  LG Chem began a research and development effort in lithium ion technology in the mid 1990s.  According to the Korean Intellectual Property Office, the company is responsible for over two thirds of patents and patent applications related to energy storage systems in Korea.  That deep experience has given the company an edge in the automotive battery market.  The company’s first product was a lithium-ion battery for a hybrid electric vehicle.  In 2015, LG Chem is selling to more auto makers than any other electric vehicle battery producer.  The other two leaders, Panasonic and AESC, are heavily dependent upon single customers  -   Tesla for Panasonic and Nissan for AESC.

In 2010, just five years ago LG Chem brought a residential energy storage unit to the market for households with solar energy installations.  The company cuts its teeth in utility-scale energy storage by working with Korea Electric Power on domestic smart grid projects.  By 2013, Southern California Edison bought LG Chem storage units for its Tehachapi Wind Energy Project.  At the time it was the largest battery energy storage system in North America.
In early 2015, LG Chem recent forged a four-party agreement with Gexpro, Ideal Power and Geli to pursue the energy storage in the North America market.  Under the pact, LG Chem will supply its lithium-ion batteries to electrical products distributor GexPro, mostly for residential ‘peak-shift’ applications.  Interestingly, Gexpro was founded by General Electric as the old GE Supply and then sold in 2006 to its current parent, Rexel of France.  While the partnership is not focused on utility-scale applications, it win a meaningful presence for LG Chem in the fast growing residential U.S. market.

LG Chem may never be a supplier of lithium ion batteries for General Electric.  Yet it appears the company has a much if not a greater presence in the North American energy storage market than GE.  Shares of LG Chem are trading at 21.5 times trailing earnings.  For a company that delivers a 6.0% operating profit margin on mostly commodity products, that is a compelling value.  It takes a bit of extra effort to take a position in a stock that is not trading on a U.S. exchange, but it may be well worth it based on LG Chem’s leadership in the battery space.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

August 12, 2015

Bosch: a Strange Bedfellow for GE

by Debra Fiakas CFA

The post “Energy Storage Restart” highlighted General Electric (GE:  NYSE) efforts to get back into the market for renewable energy storage.  Two of the company’s most recent contract wins requires GE to install lithium-ion batteries rather than its own battery technology.  This serves up an entertaining game of ‘who’s the supplier.’  Indeed, GE has partnered with a variety of companies for battery development and any of those could be candidates. 

One of the reasons GE might have won two utility-scale contracts is its ability to manage large, complex assignments.  GE’s performance guarantee has to be attractive to solar power producers who need a fool proof storage solution.  Thus GE needs a battery supplier that can be equally reliable.
Robert Bosch GmbH is best known for its appliances, tools and after-market car parts.  It gets less credit for its batteries.  In 2008, Bosch entered into a joint venture with Samsung, SB LiMotive, to develop and manufacture lithium-ion batteries for all-electric and hybrid vehicles.  The joint venture set up a development center and a battery cell manufacturing plant in Korea.  A U.S. manufacturer of nickel-metal hydride batteries, Cobasys LLC, was acquired in 2010.  SB LiMotive was ready to supply BMW and Fiat with car batteries before the joint venture was dissolved in 2012.  Samsung kept the development and manufacturing facilities in Korea and Bosch walked away with the Cobasys operation and some cash.  Both partners retained access to thousands of patents covering an array of battery technologies.

Since the Samsung adventure, Bosch has moved on with additional automotive battery innovations and a new solar energy storage solution.  Bosch’s BPT-S5 Hybrid is a fully integrated storage solution with inverter and batteries rolled in to one and run by a software application.  Bosch claims its design makes it easier to install and operate.
Since GE has its own inverters and management system, it may have no interest in Bosch’s integrated storage solution.  However, Bosch claims its lithium-ion batteries are special, with exceptional storage capacity from 4.4 kilowatt-hours to 13.2 kilowatt-hours and charging power of 5 kilowatts.  Bosch says its batteries can be fully charged in one hour and that discharged can be equally rapid.  The company also claims its batteries are sturdy enough to handle the charge and discharge cycle at least 7,000 times. 

GE and Bosch compete head to head in the sale of a variety of appliances such as cook stoves and refrigerators.  A little friendly competition is not likely to be an obstacle if sourcing lithium-ion batteries from Bosch means GE can salvage its renewable energy storage effort.  It may be an exercise in futility for investors to track the potential relationship.  Bosch is privately held by the Bosch family charity.

Bosch is not the only pretty face at the prom.  The next post highlights a few other producers of grid-ready lithium-ion batteries.    

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

August 09, 2015

REG Buys Imperium Renewables

Jim Lane

The biggest US biodiesel, renewable diesel producer Renewable Energy Group (REGI), or "REG" buys the biggest US facility in asset deal.

The fully-operational 100-million gallon nameplate capacity biorefinery will be renamed REG Grays Harbor. The facility includes 18 million gallons of storage capacity and a terminal that can accommodate feedstock intake and fuel delivery on deep-water PANAMAX class vessels as well as possessing significant rail and truck transport capability.

REG will pay Imperium $15M in cash and issue 1.5 million shares of REG common stock in exchange for substantially all of Imperium’s assets. In addition to these payments, REG will pay either $1.75 million in cash or 175,000 shares of REG common stock at closing as elected by REG. For two years post-closing, Imperium may receive up to a $0.05/gallon payment for biomass-based diesel produced and sold. Were the Washington state-based plant to be used at 50% of operating capacity, the additional payments would be $5 million to Imperium’s investors.

At closing, Imperium will retain its net working capital value of approximately $25 million, and REG will also assume $5.2 million of Imperium’s debt from Umpqua Bank, which has agreed to provide REG Grays Harbor, LLC with an additional loan capacity of up to $5 million to fund capital expenditures and improvements at the Grays Harbor facility. Closing is subject to satisfaction of customary closing conditions.

With debt assumption and working capital retained by Imperium, the deal valued Imperium at $62 million, plus the value of the back-end deal.

Deeper look behind the story

Our 2015 5-Minute Guide to REG is here.

Reaction from the stakeholders

“Bringing the Imperium assets and their team into the REG network is a tremendous addition to our business,” said REG President and CEO Daniel J. Oh. “As we combine our companies, we will expand the reach of REG along the west coast, including production and distribution. We already sell into these markets as they have responded to the call for more clean, advanced biofuels through low carbon fuel standards. This will enable REG to be more efficient and timely in our delivery and improve our supply assurance. We look forward to working with Imperium’s experienced staff and plant employees, maintaining operational activities at Grays Harbor, and becoming active members of the community working with the Port of Grays Harbor and the cities of Hoquiam and Aberdeen.”

“REG’s growth over the last eight years has made them an industry leader and our biodiesel facility in Hoquiam will greatly expand their domestic production footprint and continued success.” said John Plaza, president and CEO of Imperium Renewables. “We hope our facility will help them continue to grow and diversify biofuel production and sales both locally and around the region.”

Umpqua Bank officials welcomed the deal. “We are very pleased to support REG in its acquisition of Imperium and growing their business here for the long-term future,” said Danielle Burd, Executive Vice President and Regional Manager at Umpqua Bank. “We had a great relationship with Imperium over the last several years and look forward to continuing that as a lender to REG Grays Harbor.”

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

August 08, 2015

Lower Revenues at Solazyme, But Also Lower Losses and New Customers

Jim Lane

In California, Solazyme (SZYM) reported Q2 revenues of $11.7M compared with $15.9M in Q22014. GAAP net loss was $37.2 million for Q2 2015, compared to net loss of $42.9M in the prior year period.

The company said that “year over year decline in revenues was due to expected decreases in funded program revenue as well as in product revenue due to the timing of certain Algenist sales activities and slower than anticipated adoption rates for Encapso.” The market responded to the results by slashing the stock price 20 percent in Friday trading.

Analyst reaction was more positive, Raymond James analyst Pavel Molchanov describing the results as “Uneventful” while reiterating an Outperform rating, while Cowen & Co analyst Jeffrey Osborne referred to “Wrinkles In Revenue Performance,” while pointing to “Weak Drilling Market Disappoints”.

Osborne recapped the quarter” “Revenue for the quarter came in below expectations, management attributed this shortfall to lower than expected adoption rates of Encapso, the company’s drilling lubricant. New product introductions and manufacturing improvements at the Moema facility should translate to potential future gains.”

Piper Jaffray analyst Mike Ritzenthaler raised the product demand question again, writing: “We maintain our Underweight rating and $2 target on SZYM shares following light Q2 revenues and a suspension of forward guidance. Importantly, both product revenues and funded R&D declined y/y, while costs were essentially in-line.

“Despite modest progress toward an operational Moema, we are still not convinced that the company’s commercial markets are ready for commercial volumes anyway. The Clinton asset is apparently already capable of producing in-spec product and was essentially unused again in 2Q15. Progress toward sustainable operations at Moema may sound encouraging, but is meaningless to the company’s P&L without firm product demand. Ultimately, substantial demand improvement will be needed to get to cash flow break even, and we are unsure whether a novel product focused on drilling fluids in the current environment is the right strategy.

Molchanov countered: “The versatility of Solazyme’s algae-produced oils – which, importantly, are drop-in replacements rather than “novel molecules” – leads to wide-ranging opportunities across the chemical, personal care, and nutrition markets. While operational shortfalls over the past year clouded the production scale-up outlook at the Moema plant in Brazil, we believe the tightened business model’s focus on the highest-value products is strategically sound. The balance sheet also remains in good shape, with the largest cash balance in the peer group. We reiterate our Outperform rating. Our rating balances the large upside to our DCF estimate with financial metrics that remain choppy and difficult to forecast.”

Deeper looks behind the Story

More on the BASF deal here.

Our 2015 5-Minute Guide to Solazyme is here.

Solazyme’s progress

The company said:

“We are making good progress against our core deliverables, the commercialization of high value products across food, personal care and industrial markets, and the delivery of key milestones at the Moema JV production facility in Brazil,” said Jonathan Wolfson, CEO of Solazyme. “While there is a lot of work ahead, I am proud of the Solazyme team, and what they have accomplished so far this year. I am excited about what is to come.”

“We are maintaining financial discipline in our operations and focusing our sales efforts on strategic revenue streams,” said Tyler Painter, COO and CFO of Solazyme. “On the commercial side, our product portfolio is well aligned with trends across our targeted end markets, and we are seeing a growing number of projects and customers today.”

Company highlights

• Foods – AlgaVia and AlgaWise:

“We have a growing number of application projects in process with a variety of food and beverage manufacturers and are starting to see conversions from projects to customers. Most recently, a division of a major multinational food company launched a series of baking mixes using the AlgaVia protein and an exciting new beverage company is launching a meal replacement drink made with an AlgaWise oil.”

• Personal Care – AlgaPūr and Algenist:

“We transitioned Natura Cosméticos, one of Latin America’s largest cosmetics and personal care product companies, from a development partner into a customer of AlgaPūr microalgae oil. We also partnered with BASF for the launch of the world’s first commercial microalgae-derived surfactant for use in home and personal care applications, utilizing AlgaPūr. We continue to grow and expand our Algenist brand, which is now distributed in more than 2,500 stores in 22 countries and has reached 37 SKUs.”

• Industrials – Encapso and Soladiesel

“We continue to expand our Encapso work with Flotek in South America, including multiple successful wells in Colombia. In North America, Encapso is experiencing longer than anticipated sales cycles due to lower petroleum prices and substantially reduced rig counts. In our renewable fuels business, we were named one of three suppliers of blended fuel to UPS in support of its renewable fuels program, and we also successfully completed a two-year renewable diesel evaluation with Volkswagen of America.”

Elsewhere in today’s Digest,w e focus on that renewable diesel program here.

• Moema

“During the second quarter of 2015, key power and steam redundancy projects were successfully completed which, along with other ongoing work at the facility, has led to significant improvements in power and steam reliability and allowed us to establish fully integrated operations on a more consistent basis. We are currently focused on optimizing and enhancing fully integrated operations from fermentation to oil production and improving overall performance.”

The Digest’s Take

Demand will come. One key for Solazyme is application development, as more cost-effective production capacity comes online.

But most importantly, keeping the dialogue intact when it comes to giving companies and individuals reasons to make low-carbon, sustainable sourcing “table stakes” for the future of all companies. At points in their evolution, Starbucks and Apple rightly concluded that no one makes the argument for new ways of looking at “commodity experiences” better than companies that have better solutions — and that case must be made all across the supply chain, especially including consumers who have little influence on supply chain decisions but have the ultimate power over supply chain policy.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

August 07, 2015

ReneSola and Jinko Loosen Their Grip On Beijing Apron Strings

Doug Young 

Bottom line: Chinese solar panel makers who can set up profitable offshore factories could be poised for good long-term growth, demonstrating they can survive without support from Beijing.

Two new moves on the solar front show that leading Chinese panel makers continue to march offshore in a bid to avoid anti-dumping sanctions in the US and possibly in Europe. One move has ReneSola (NYSE: SOL), one of the most advanced in the offshore migration, announcing a new joint venture in the US. The other has JinkoSolar (NYSE: JKS) landing new financing for a panel manufacturing plant in Malaysia.

Both news items look relatively encouraging, showing the Chinese panel makers want to demonstrate they can manufacture profitably in these overseas locations without financial support from Beijing. But JinkoSolar’s announcement is also showing just how tough that transformation could be, since most of the funding for its new Malaysia plant is coming from a major Chinese policy lender.

The trade wars that have rocked the solar sector for much of the last 2 years have mostly settled by now, following an acrimonious period that saw the US, Europe and even India accuse China of unfairly subsidizing its panel makers. The ruckus ended with the US slapping punitive sanctions on most imported Chinese panels. The EU negotiated a deal that saw the Chinese panel makers voluntarily raise their prices, though that deal now looks set to collapse and could be followed by formal anti-dumping sanctions later this year. (previous post)

Worried over the loss of 2 of their biggest markets, the Chinese panel makers have begun to build offshore factories whose panels are exempt from the anti-dumping tariffs. In the latest move related to that migration, ReneSola has just announced it will form a joint venture with Pristine Sun, an independent power producer based in the US. (company announcement)

This particular announcement doesn’t involve panel production, but is part of the offshore move because it presumably would see the venture import ReneSola’s panels manufactured outside of China to build new solar plants in the US. ReneSola has been one of the most aggressive of China’s panel makers in the offshore migration, with overseas plants planned or already producing in Poland, Turkey, South Korea, Malaysia and Indonesia.

The new joint venture with Pristine Sun would be majority-owned by ReneSola, and aims to build new solar power plants with 300 megawatts of capacity in the US. It aims to have half of that built by the end of next year, indicating it will move ahead quickly with new construction. Investors seemed to like the plan, bidding up ReneSola’s shares 7.1 percent, though they still trade near lows not seen since late 2012.

Jinko Gets Backing From Policy Lender

Investors were also excited about JinkoSolar’s announcement that it has received financing for its planned Malaysia plant, with its shares rising 6 percent in the latest session amid a broader rally for solar stocks. The company announced plans for the $100 million plant earlier this year, and said it has now received $70 million in financing for the project from the Export-Import Bank of China. (English article)

JinkoSolar has completed much of the construction of the plant, which is already manufacturing and can produce 500 megawatts of solar cells each year and 450 megawatts of panels. The fact that JinkoSolar had to turn to a Chinese policy lender to finance the project isn’t the most encouraging sign, since such a move represents the kinds of government support that sparked the trade war in the first place.

But in this case the bigger picture seems more important, namely that the Chinese panel makers are trying to show they can survive and thrive independently without strong state support. I’m not completely convinced that this migration will work for everyone, since many of these panel makers aren’t very healthy financially. But the ones that can make the move successfully could be poised for strong growth in the future when the industry finally settles into a longer-term recovery mode.

Doug Young has lived and worked in China for 16 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

August 06, 2015

Gevo Boosts Revenue, Gets Favorable Ruling

Jim Lane
gevo logo
In Colorado, Gevo (GEVO)  reported Q2 2015 revenues of $8.9M compared with $7.7M for Q2 2014, and Q2 loss of $6.5 million, compared with $9.0 million in Q2 2014. The increase in revenue during 2015 is primarily a result of the production and sale of approximately $8.0 million of ethanol, isobutanol and distiller’s grains at the Luverne plant. Hydrocarbon revenues were $0.8 million, primarily related to the shipment of bio-jet fuel and isooctane during the quarter.

The company highlighted a flight planned with Alaska Airlines, an upcoming wood waste-to-fuels flight with an undisclosed airline, fulfillment of alcohol-to-jet supply agreements with the Defense Logistics Agency, the first retail pump sales of isobutanol-blended gasoline, in Texas, an agreement with FCStone to originate and supply corn for Luverne plant and endorsement for Gevo’s isobutanol in the marine fuel market from the National Marine Manufacturers Association.

Late-breaking news from the courts

Just as Gevo’s earnings were announced news filtered out from the US District Court for the District of Delaware in the complex Betamax vs Gevo patent litigation:

“On July 3, 2015, the United States District Court for the District of Delaware issued its determinations concerning several pending motions for summary judgment in Case Nos. 12-1036-SLR; 12-1200-SLR; and 12-1300-SLR. Specifically, the Court denied all of Butamax’s motions for summary judgment that Gevo, Inc., (the “Company’) infringed various claims of U.S Patent Nos. 8,241,878 (the ‘878 patent); 8,273,558 (the ‘558 patent); and 8,283,144 (the ‘144 patent). The Court granted one of the Company’s motions for summary judgment of invalidity regarding the asserted claims of the ‘878 patent, finding that the claims are not definite. The Court granted the Company’s motion for summary judgment that claim 3 of the ‘878 patent was not infringed under the doctrine of equivalents, and the Court granted the Company’s motion for summary judgment of no willful infringement. Disputes of fact regarding infringement and invalidity of the asserted claims of the ‘144 and ‘558 patents remain alive and are set to be included within a trial set for August 24, 2015.”

Gevo CEO Pat Gruber hailed the news.

“We have a trial set for August 24 in one of our ongoing patent litigations with Butamax. In this litigation, Butamax has asserted three patents against Gevo. We refer to these patents as the Butamax ‘144, ‘558, and ‘878 patents. In the litigation, as is typical, the parties filed various motions in an attempt to simplify the trial. Butamax filed motions seeking a summary judgment of infringement with respect to at least one claim in each of the asserted patents, and Gevo filed motions seeking summary judgments that the asserted claims of the ‘144, ‘558, and ‘878 patents are not valid, that claim 3 of the ‘878 patent was not infringed, and that Gevo had not willfully infringed any of the patents.

“Yesterday, the Court issued rulings on those motions. The Court denied all of Butamax’s motions for summary judgment of infringement of the asserted patents. It granted one of Gevo’s invalidity motions finding that the asserted claims of the ‘878 patent are not valid, because those claims are not definite and infringement cannot be determined. And, it found that Gevo has not willfully infringed any of the asserted patents, because Gevo’s defenses are credible.

“As such, factual disputes regarding infringement and invalidity of the ‘144 and ‘558 patents remain alive and will be included in the trial set for August 24.”

Comments from analysts and stakeholders

Cowen & Company energy analyst Jeffrey Osborne said: “Gevo continues to expand the commercialization applications for its isobutanol. The company has made meaningful entryways into the $1 billion/year marine fuels market. The alcohol-to-jet fuel market is a long-term strategic opportunity for the company as well. Lastly, management expects legal clarity on its pending litigation by 2H15.”

Looking at isobutanol fuels, Osborne added: “Management estimates that the addressable market for marine fuels is approximately $1 billion/yr. This is one of the nearer term opportunities for the company. We are also pleased to see the company securing its first service station to sell gasoline blended with Gevo’s renewable isobutanol. The Express Lube station in Texas will be selling the fuel for around $4.50/gallon, which is a premium over the E10 fuel that sells for close to $2.75. The fuel is primarily targeted towards marine, outdoor, and off-road applications.”

Meanwhile, Gevo CEO Pat Gruber said, “Our balance sheet is in its strongest position since the end of 2013 and this will support us in meeting the important milestones that we established earlier in the year, namely signing our first binding license agreement, securing ASTM certification for our alcohol-to-jet fuel and developing further strategic partnerships to propel our alcohol-to-hydrocarbons business. These are all targets that we still expect to achieve in 2015.”

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

Crowdfunding and Clean Energy

by Beth Kelly

The digital era has enabled an “entrepreneurial explosion”, equipping ordinary people with the tools to invest in a myriad of early stage companies. Rather than investing millions of venture capital at once, interested individuals can use online platforms like Indiegogo and Kickstarter to invest smaller sums in projects they feel passionate about. Crowdfunding holds vast potential in the renewable energy sector in particular, opening up a world of opportunity for both investors and “green” project developers.

Now that renewable energy technology is becoming viable and cost-effective, firms in the industry are turning to crowdsourcing as a means of attracting capital. There are even a few platforms that cater exclusively to clean energy projects. Mosaic and Divvy are two crowdfunding endeavors that allow people to put their money into new renewable energy enterprises particularly those dealing with solar energy.

It's perhaps not surprising that renewable and clean energy is seeing quite a bit of investment on these platforms. Many people are looking for ways to do their part to help the environment, and crowdfunding allows the little investor to participate in this communal undertaking. From the companies' perspectives, this new model of raising money allows them to solicit investment for ideas that are risky and speculative, which may drive off more traditional institutions and private equity investors. It also allows them to finance small, local installations that may be too tiny to grab the attention of the rich and powerful.

There has been a growing awareness in recent years that clean energy goals aren't likely to be achieved by a single, monolithic approach. Rather, multiple forms of energy production and distribution will probably have to come into play. Crowdfunding sites act as laboratories for innovation since many new ideas can be tried out without the lengthy and uncertain funding processes that have been used in the past.

Solar Roadways has plans to create roads that also act as solar panels. It achieved more than double its $1 million fundraising goal, setting a record on Indiegogo in the process. In the Netherlands, more than 6,000 shares in a wind turbine were sold by Windcentrale for €200 each. The organization thereby collected more than €1.3 million in funding in less than 13 hours.

In the United States, there are laws restricting some activities to accredited investors only. Despite the passage of the Jumpstart Our Business Startups Act of 2012, which aimed to make it easier for everyone to invest, there are still restrictions on the types of activity that are permitted with crowdfund investing. For example, Kickstarter and Indiegogo are prohibited from offering returns on investment, so they operate on a different model whereby those seeking funding instead offer gifts or perks to their investors instead of cash payouts.

Companies can get around most of these restrictions by offering bonds as a means of acquiring financing. Solar equipment installer SolarCity [SCTY] offers solar bonds with a 5 percent coupon rate, which compares favorably with CDs, muni bonds and other low-risk investments. This allows people to invest in solar energy without the risks and uncertainty inherent in backing an unknown or newer firm.

The benefits of crowdfunding aren't restricted only to developed economies; in some ways, they may be even more important for countries without well-developed financial infrastructures. If many small investors get together to pool their resources, there will be less need for banks, venture capital funds and other financiers whose presence may be lacking in some third-world nations. The Kenya Climate Innovation Center has, in this year alone, assisted six new businesses that are seeking crowdfunded investments. This is the first such initiative in the East Africa region.

These examples aside, there are some drawbacks and problems with crowdfunding, to go along with an uncertain legislative climate in some jurisdictions. Some issues are inherent in the way crowdfunding works; for instance, startups that have the best marketing departments or concepts that sound cool but are impractical could reap the largest share of funding, leaving those with more staid and solid business prospects out in the cold.

Others are more structural, but ultimately represent bigger problems. For instance, sourcing funds from the crowd rather than from seasoned, expert investors can lead to inflated expectations of your company’s viability, since it’s more likely that no one will be vetting your business plan from a skeptical perspective. Even if a company becomes initially successful just from using crowdfunded capital, problems can arise when a network of experts then doesn’t exist to give good advice about business decisions that begin to arise at this stage, like when to take a company public.

Much as it has done for education and entertainment, the internet is causing a sea change in the world of investment (estimated to be around $65 billion at the end of 2014). People now have their choice of new renewable energy projects to get involved with. While crowdfunding still has a few challenges ahead and many wrinkles that need to be ironed out, investments in green tech already seem to be more widespread and democratic than those in most other industries.

Beth Kelly is a guest writer and blogger for, where she tracks news and emerging trends in the clean energy sector. A graduate of DePaul University, she continues to live and work in Chicago, IL.

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