Investors looking for signs of life from Amyris (AMRS +0.00%) may be pleased with the progress witnessed in the company's fourth-quarter and 2012 full-year earnings released yesterday, but there is still a long way to go before the company is the force in renewable chemicals that was once promised. Did the results hint at more stumbling ahead or is the company finally getting its feet under itself?
It depends on how you view the numbers. Here is a thorough recap of the conference call with CEO John Melo and what investors need to look for in the industrial synthetic biology pioneer in 2013.
The financials
First let's note the company's financial results to keep with standard earnings reporting. Amyris walked away from Dec. 31 with the following highlighted numbers compared to the year ago period:
|
Metric |
4Q11 |
4Q12 |
2011 |
2012 |
|---|---|---|---|---|
|
Product Sales |
$36.84 million |
$3.02 million |
$129.84 million |
$49.64 million |
|
Collaborative Revenue |
$2.8 million |
$4.7 million |
$17.15 million |
$24.06 million |
|
Total Costs and OPEX |
($59.3 million) |
($42.8 million) |
($179.2 million) |
($201.8 million) |
|
Net Loss |
($59.6 million) |
($43.6 million) |
($179.5 million) |
($206 million) |
|
Loss per Share |
($1.30) |
($0.72) |
($3.99) |
($3.62) |
Source: Amyris
It doesn't take much detective work to see that things are still pretty bleak and will remain so for the near term. The coffers held around $45 million in cash in the beginning of 2013, after raising over $100 million in 2012. Revenues were down after a planned withdrawal from the ethanol and ethanol-blended-gasoline business in Brazil, which was necessary in order to focus on ramping up production at the company's first commercial scale facility in Paraiso (pronounced "Pear-ow-eese-oo").
While exiting the market has slowed Amyris' burn rate, losses still managed to top the previous year's watermark. Finishing Paraiso and furiously testing products for partners were costly expenditures. Amyris wrote off $45.85 million of production assets in 2012 to equilibrate the balance sheet after hardships earlier in the year.
An increased number of shares outstanding gave the illusion that loss per share has improved, but don't be fooled by dilution. There will be nearly 74 million shares outstanding at the end of the first quarter with currently announced offerings, compared to 46 million at the end of 2011 (not the weighted average).
The outlook: financials
Should product sales and production increases go as planned, Amyris expects to be cash flow positive in 2014. Of course, investors reserve the right to be skeptical given the company's past performance. Things are no doubt improving, however. This year's cash burn rate of less than $85 million (compared to $115 million in 2012) will be the lowest since going public in 2010.
Combining the lower overhead with increased product revenues and an expected $60 million-$70 million in collaboration funding throughout the year will nudge the company's financial health toward the black. Even then, Amyris will see a net capex of $15 million-$25 million in 2013.
Management continually fixed investors' eyes on the latter half of the year during the conference call when asked about improving financial strength and product lineup. Melo says the company will grow gross margins for each of its products as the year progresses and expects to exit the year with positive gross margins for each.
The outlook: production
The good news is that Paraiso opened two months ahead of schedule and is now creating initial quantities of farnesene (Biofene) without problems. In fact, Melo said that last quarter represented the "best technical performance on record." Who knew having a commercial scale facility up and running could result in such a statement?
The biorefinery is currently employing the second generation of the Amyris' industrial yeast and using a feedstock of raw sugar, but will switch to cane syrup during this year's harvest. It is also operating at less than full capacity, but will be running on all cylinders by the second or third quarter. Nonetheless, investors are eagerly awaiting the company's announcement that it will open the doors to its idled farnesene biorefinery with Antibioticos in Leon, Spain.
Good luck with that. The fallout from the initial production timetable handed to investors years ago, which was proved to be incredibly unrealistic, is still looming over management's head. Melo refrained from giving a new production timetable for at least another quarter, although it sounds like investors may be left in the dark until the second half of 2013 or later.
He did say that all products sold from here on out will come from internal facilities, as the company is no longer depending on third-party manufacturers. Previously, the company had sourced product from Biomin in Brazil, Antibioticos in Spain, and Tate & Lyle in the United States.
The outlook: products and partners
Amyris products sold at an average price of $8.72 per liter in 2012 as the company focused on higher margin farnesene applications. The number will drop as lower margin products, namely diesel and squalene, increase their presence in the company's product lineup. Higher volumes and increased efficiency will absorb lower cost, while also enabling positive gross margins as noted above.
Paraiso has been providing customers with test quantities of products for nearly a year now, and management ensured investors that partners are ready to begin incorporating them into their own product lineups. Amyris' farnesene (Biofene) will be used to provide commercial quantities of liquid rubber for Japan's Kuraray, base oils for the Novvi joint venture with Cosan, and specialty fluids to various other partners in the second half of 2013.
The company's flavor and fragrance oils, to be sold to Firmenich and Givaudan, have also made strides in their development, which would further enhance Amyris' financial outlook heading into 2014.
Foolish bottom line
I have followed Amyris closely over the past several years and was even an investor as recently as August. While I am encouraged by the gradually improving picture being painted by the company, I would remain cautious about getting into the company or adding to a position with current developments.
There is still plenty of risk left in the company. If Amyris had a stronger balance sheet, then perhaps I would have a different outlook given its $200 million market cap. One more bad twist in this story and the company will be weakened considerably, unless it can convince its partners for "just one more chance" and more funding.
What do investors want to see? Paraiso needs to ramp up to full production quickly, partners for home and personal care products need to be brought in, and a production timetable needs to be laid out for the shuttered biorefinery in Spain. Then, investors may be able to give Amyris a hard look.
