“Building on the first gallons of cellulosic diesel we shipped in March, we continue to make progress with operations at our Columbus facility,” said KiOR CEO Fred Cannon. “The on-stream percentage of our core technology in the first quarter improved approximately 500 percent over the fourth quarter. Most of our individual run times are longer than the previous runs, and we are working toward taking the facility into a steady state of operations.”
“Most significantly,” Cannon continued, “our core technology is continuing to operate as designed, and the facility is producing high quality oil and cellulosic fuel. With these positive trends, we expect that our fuel shipments will increase and become more frequent.”
Analyst reaction was generally positive with all precincts reporting significant upside potential on the current $4.43 share price.
Mike Ritzenthaler and Henrique M. Akaishi, Piper Jaffray: We maintain our Overweight rating and $9 price target on shares of KIOR following the company’s 1Q13 print that included $(0.30) in EPS on $71K of revenues. Importantly, progress at Columbus (significantly ramping production sequentially) and Natchez (progressing on the front end design project) were within expectations. Additionally, the RINs sold in the quarter met projections. We believe management is focused on the right things – and we look for better visibility on additional liquidity once Columbus is running reliably.
Pavel Molchanov, Raymond James: The first commercial shipment of diesel from the Columbus plant, achieved in 1Q13 (albeit with minimal volumes), is an important milestone for KiOR and the cellulosic biofuel industry as a whole. As a cellulosic pure-play, KiOR addresses the “food vs. fuel” concerns and price volatility surrounding sugarcane and corn. We also like the versatility of KiOR’s biocrude – the ultimate “drop-in” biofuel, without the blending constraints most recently shown by the spike in ethanol RIN values. Balancing our positive view on the technology platform with scale-up and project financing risks, we reiterate our Outperform rating.
Ben Kallo and Christopher Kovacs at R.W. Baird: “We reiterate our Neutral rating and $6 price target following KIOR’s Q1:13 earnings. KIOR continues to work through the start-up of Columbus which will likely have variable production in the near term before seeing more consistent output later in the year. With its share price depressed, any equity raise will be significantly dilutive to existing shareholders.
KiOR had cash and cash equivalents of just $11.1 million at March 31, 2013, which represents a $29.8 million decrease from the December 31, 2012 balance
Molchanov commented: “With cash on hand down to $11 million at quarter-end, it’s clear that there isn’t much room for more deferrals. The longer-term solution, enabling groundbreaking for the Natchez plant in 2H13, will be a combination of fixed-rate debt (possibly a convert) and equity, with management making it clear that it aims to minimize equity issuance at the current share price.
As Kallo and Kovacs wrote: “While ramp risk exists at this point, our biggest concern is the significant capital requirements the company faces in bringing on additional capacity.” Ritzenthaler and Akaishi added: “We hope to get additional visibility on additional financing around 3Q13 – recall that the company has ~$350 million already set aside from existing debt holders to put toward Natchez.”
KIOR operated the conversion unit at its plant for 441 hours during the quarter with no individual run at the facility of less than 110 hours.
Molchanov called the Q1 results “validation of KiOR’s technology at commercial scale. To put it simply: it works.
But he noted: “Investors want to see revenue. Good news: the wait will not be long. For 2Q, guidance is for Columbus shipments of 300,000 to 500,000 gallons – a sequential increase of 60x to 100x. For the year, guidance remains 3-5 million gallons, implying around 90% of shipments in 2H13.
Ritzenthaler and Akaishi caution: “Hitting the high end of guidance would require essentially hitting rates near the 11 million gallon nameplate capacity this summer, which seems a bit lofty considering the 1Q production. The low end of guidance, however is well within reach, in our view,” but add that “the small fixes are increasingly being put in the rear-view mirror.”
The bottom line
It works, scale-up to 11 million gallons full capacity at Columbus is increasingly becoming “business as usual”. The cap raise for Natchez will be a headache. After that, sky’s the limit.
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