The Good, the Bad, and the Ugly From Amyris' Financing Deal

Cash is king, but it's not all good news for Amyris shareholders.

May 28, 2014 at 2:41PM

Here's a list of words that were not uttered during the first-quarter conference call of synthetic biology leader Amyris (NASDAQ:AMRS) on May 8:

  1. "Financing"
  2. "Convertible debt notes"
  3. "$90 million"

Although it wasn't discussed on the call, the company did sneak a nugget into its press release about possibly raising $100 million in debt notes in favorable market conditions. I didn't think the market conditions were favorable, but I did daydream about a hypothetical version of Amyris that had more than$100 million on its balance sheet. Well, the company that is 20% owned by energy giant Total (NYSE:TOT) thought otherwise, and decided to successfully offer, price, and close a financing deal amounting to $75 million in convertible debt notes with an option to grant an additional $15 million.

Amyris' ability to raise much-needed funds certainly means great things for shareholders, but there are some not-so-great conclusions from the deal, as well. Let's review the good, the bad, and the ugly, and what it means for your investment.

The good
Heck, how's finally having cash on hand for some good news? This should alleviate any fears over growing concerns that were stated in the latest 10-K. If Amyris raises the maximum amount of funds, then investors can expect the company to end the second quarter with close to $100 million on its balance sheet after paying off a $25 million loan attained in the first quarter, and paying nearly $10 million to Total to retire old debt -- described in "The bad." To put that in perspective, the company hasn't ended a quarter with this much cash since the first quarter of 2012. Better yet, the company is in a much better place, both financially and technologically, than it was then.

AMRS Chart

AMRS data by YCharts

It's also encouraging that Amyris was able to find suitors for the notes, and offer them at just 6.5% -- a relatively low and acceptable interest rate. Temasek purchased at least $10 million of the notes, despite just purchasing $28 million in notes in the first quarter and already owning more than 10% of Amyris. That hardly paints the picture of doom and gloom that others might conjure up about the company's future. While there are risks, I tend to agree with Temasek that the potential rewards are large and attainable.

Last but not least, this could be the last financing deal Amyris needs while on shaky financial footing. That doesn't alleviate the need for financing, but it provides flexibility for operations, and instills confidence in investors for future offerings. Consider that the synthetic biology leader is already guiding to achieve cash-flow positive operations in 2014. In fact, its biorefinery in Brotas, Brazil is expected to contribute $10 million-$15 million in cash this year, and $40 million-$50 million in 2015. Couple that with collaboration inflows of up to $70 million in both years, and the opening of a second facility twice as large as Brotas in 2016, and you can see the importance of the financing round.

The bad
Unfortunately for shareholders like me, it can't all be good news. While Amyris expects maximum net proceeds of nearly $86 million, investors should expect that to dwindle down by an additional $35 million. The company will need to pay off a straight-term loan of $25 million in addition to a $9.7 million payment to Total, which is allowed to exchange new debt notes for old debt notes under an existing agreement that protects the company from diluting itself. With $35 million essentially gone, the true net proceeds get less optimistic if the company does not raise the maximum amount from the financing. It appears that may partially be the case, as an SEC filing from Temasek shows just $10 million in notes. If that's for the option to purchase up to $15 million in additional notes, then Amyris fell $5 million short from the maximum financing possible. 

In other words, investors should think of the financing in two parts: (1) debt consolidation of nearly $35 million, and (2) raising an additional and much-needed $50 million, at the most. The company ended the first quarter with $49 million in cash, so after accounting for the two parts above, and cash burned during the quarter, you'll arrive at an estimated $90 million in a best-case scenario. I consider that a major improvement over the quarter-to-quarter exercise of fretting over cash, but it's clear that Amyris is still paying for past engineering mistakes.

The ugly
Even more unfortunate for shareholders like me is the fact that it can't all be good and bad news. Sometimes, it just has to get ugly. Some simple math shows that offering a maximum of $90 million of notes that convert to common stock valued at $3.74 per share equates to an additional 24 million shares hitting the market. That will increase the current number of outstanding shares by 31% when the notes come due! That kind of dilution will be tough to swallow for some investors -- and it's one of the biggest reasons to avoid Amyris as an investment. Investors need to decide for themselves if the risk and/or dilution are worth the potential reward.

AMRS Chart

AMRS data by YCharts

Foolish bottom line
Honest investors will look at the financing with three different lenses on -- none of which are rose colored. There's good news to cheer about, bad news to gripe about, and ugly news to scream into a pillow about. If the company achieves cash-flow positive operations in 2014, then the cash raised could go much further than any past financing deals. Hopefully, this will provide the bargaining and financial power needed to complete the 65,000 metric ton per year farnesene facility for performance materials (tire applications), which could add more than $150 million in revenue by 2017, and considerably more at nameplate capacity.

Dilution isn't something investors can find comfort in, but at least Amyris will be able to continue cleaning up its financial mess on its way to rewarding patient investors. I'll be looking to add to my position in the coming weeks, and continue holding for the long haul.

Forget big risks and ride America's energy bonanza
Amyris is probably too risky or complex for many investors to consider, but it's not the only investment in revolutionary energy and chemical opportunities. Consider the shale oil and gas boom. Finding the right plays, while historic amounts of capital expenditures are flooding the industry, will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report, "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free.

Maxx Chatsko owns shares of Amyris. Check out his personal portfolioCAPS pageprevious writing for The Motley Fool, or his work for SynBioBeta to keep up with developments in the synthetic biology industry.

The Motley Fool recommends Total (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers