In California, Solazyme joined the wave of companies reporting Q2 results, announcing that revenues were up 68 percent, while losses jumped from $6.8 million to $17.0 million as the company used proceeds from its IPO to begin investment in scale-up. With its heavy load of cash, the company is acquiring additional production capacity and shifting from toll manufacturing to in-house production.
“In May 2011, we completed our initial public offering, increasing our cash and marketable securities position to over $266 million at the end of the second quarter,” said Tyler Painter, CFO, Solazyme. “Our strong balance sheet, proven technology and partnerships position us well to meet our capacity target of over 500,000 MT by 2015.”
Overall, the company hit the consensus Street figure on revenues, but Q2 adjusted earnings of ($0.36) per share, excluding a $0.11 charge related to the conversion of venture debt warrants at the close of the initial public offering, were $0.06 worse than the Capital IQ Consensus Estimate of ($0.30).
“Product sales (including Algenist cosmetics) came in slightly below our estimate at $1.3 million, offset by higher R&D revenue,” commented Raymond James analyst Pavel Molchanov.
“We are focused on rapidly ramping up our capacity and operations to meet significant demand in the marketplace for our high value tailored oils,” said Jonathan Wolfson, CEO, Solazyme. “The success of our recent initial public offering will help us accelerate efforts to enter into commercial partnerships, secure feedstock and enable the commercial expansion of our manufacturing capability.”
Company highlights for the quarter
• Produced over 283,000 liters of military-spec diesel (HRF-76) for U.S. Navy contract. The initial fuel production for phase 1 of a 550,000 liter contract was completed ahead of schedule. Additionally, the U.S. Navy has indicated its intent to exercise its phase 2 option, which would be produced through the first half of 2012.
• Sephora Canada and The Shopping Channel agreed to distribute Solazyme’s anti-aging skincare line, Algenist, throughout Canada. This increases the brand’s physical retail presence by 26 stores. The launch into Canada accompanies Algenist’s debut in the United Kingdom, which includes distribution in all 60 Space NK locations throughout the country.
• Solazyme will shift the location of its integrated biorefinery to its Peoria facility. Solazyme began the build-out of this recently acquired facility, adding fermentation capacity and performing upgrades after completion of the acquisition in May 2011. The fermentation portion of this facility is expected to be operational in the second half of 2011, with end-to-end manufacturing expected in the first half of 2012.
The Analyst View
Pavel Molchanov of Raymond James writes: “The versatility of Solazyme’s algae-produced oils opens the door to wide-ranging opportunities across the fuel, chemical, personal care, and nutrition markets. While fully recognizing the inherent execution risks in an early-stage story such as this, we are bullish on Solazyme’s roadmap to commercialization. We reiterate our Outperform rating.”
The Digest’s Take
Solazyme, like Amyris, KiOR and Gevo, is on the fast track towards scale-up, and now has the cash arsenal, public stock currency, and balance sheet to begin to better control the terms of its expansion. Like most of its advanced biofuels brethren, the company’s challenge is not finding off-take partners, but reaching production levels and yields at which its growth can be economically sustainable in the long-term.
Expect losses and build-up throughout 2012 and 2013 as the company builds capacity – if 2014-15 rolls along as expected and the company continues to hit its cost targets, 2014-15 is a window when the company could go from big in its sector, to big in any sector.
The only thing we wish Solazyme could do faster, is roll their algae-based chocolate chip cookies into the market. Matching Mrs. Fields for flavor, and with a vastly lower fat profile, their absence from grocery shelves is a national calamity. Are they being held hostage in Solazyme’s test kitchens? We demand their release. Congress could make itself a lot more popular, we suspect, if it voted in a Renewable Cookie Standard.