KiOR Earnings Not Worth the Wait

Last week, KiOR (NASDAQ: KIOR  ) cancelled its scheduled release of fourth quarter and year-end results. Though the company has yet to release an official press release, the results on their Annual Report to the U.S. Securities and Exchange Commission (SEC) provide a lot of insight into why the company was not eager to share earnings results with their shareholders. In short, the company is losing money and struggling to raise new money to support much-needed improvements for both the technological side as well as for process operations.

Delaying the inevitable
Cancelling the release of fourth quarter results without providing a reason for the cancellation was enough to scare off some investors last week as the stock price dropped nearly 10% the day after the announcement. The only justification suggested for the delay was to align the release of the company's earnings results with the submittal of its Annual Report to the SEC. The company likewise delayed submitting its Form 10-K to the SEC as long as possible, hoping that investors might appreciate its slow pulling on the Band-Aid over ripping it quickly from the skin.

Unfortunately for KiOR, it had to eventually submit its Annual Report. Within the report, the company disclosed the reasons most likely to blame for its desire to avoid sharing the information with investors. The even worse news for investors is that these reasons had little to do with actual earnings and revenue, even though net losses for the year far exceeded analyst expectations.

KiORs first commercial scale facility in Columbus, Mississippi halted production at the end of the year, and plans to keep the plant on shut-down throughout the first quarter of 2014 until modifications can be made to improve productivity. When active, the plant was functioning well below nameplate capacity. The Columbus facility has been the company's sole utilization of positive results from pilot- and demonstration-scale plants, and is KiOR's only source of notable potential revenue.

Caught in a vicious cycle
KiOR now finds itself chasing its own tail. The company has investment commitments that are contingent on production milestones, but the production milestones are nearly impossible to achieve without further investments.

The Columbus facility needs upgrades and the overall production process at the facility needs refining before the company will resume operations at the plant, but the much-needed improvements to come with a substantial price tag. Vinod Khosla has long been committed and heavily invested in the success of KiOR, and he continues to pledge his support for the company. However, the terms for continued investments from Khosla Ventures will include installments dependent on set production milestones, which is something that KiOR has been unable to impress with at the production scale.

Financing agreements dependent on production milestones are common in the biofuel industry, and have helped KiOR previously advance to the production scale. Other companies involved in the sector like Amyris (NASDAQ: AMRS  ) have likewise benefited from such agreements, and they have been able to leverage their achievements to not only continue but also expand production.

The takeaway
Khosla is currently KiOR's sole near-term financing source until the company is able to demonstrate that their production facilities can produce cellulosic fuels at a level where they can start to utilize the established offtake agreements with Hunt Refining Company and others. While the ambitions and market potential for KiOR are enormous, until they can demonstrate some level of consistent production and ease substantiated fears of bankruptcy, they remain an extremely risky investment and a company I would avoid even as the stock price continues to drop.

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