Demand for AlgaPrime DHA builds as TerraVia beats Q1 forecast

In California, TerraVia recorded revenue of $4.5M for Q1 2017 compared with $4.9M for Q1 2016. GAAP net loss narrowed to $22.6M for Q1 compared to $26.5M in Q1 2016.

Excluding intercompany transactions, revenues from the 50.1% owned unconsolidated SB Oils JV totaled $2.9 million for the first quarter versus $1.1 million in the first quarter of 2016.

“We met all of our commercial and operational goals for the first quarter as we executed against our focused strategy. We remain on track to meet our 2017 guidance,” said Apu Mody, CEO of TerraVia. “In particular, we’re excited about the market traction we are seeing with AlgaPrime™ DHA, which is showing early signs of being a blockbuster new product that can become a vital feed ingredient for aquaculture and potentially other nutrition markets. Also, as we disclosed today, the company now has a defined timeframe in place for the consideration of strategic alternatives that will chart the future course for TerraVia and our valuable technology platform.”

Cowen’s Jeffrey Osborne wrote in a note to investors, “TerraVia’s quarterly results were above our estimates, and in line with the company’s targets with management reaffirming its FY17 guidance. Meeting AlgaPrime DHA demand remains a key focus as new customers gives us increased confidence in the Moema facility ramp. We are closely monitoring the company’s 2 month forbearance period as well as efforts to sell all or part of the company.

1) While the Unilever contract provides long-term visibility for specialty oils, we believe the bulk of revenue growth emanating from the SB Oils JV in 2017 will stem from the new AlgaPrime DHA product focused on Omega-3 replacements for the fish oil supply. The company’s goal in the near term operationally is to maximize revenue at the SB Oils facility in Moema, Brazil with this product line. This increased momentum provides us with additional confidence in the Moema JV facility’s ramp.

2) Management is focused on ramping up it more promising products, shifting them from development to commercialization. The transition of the Bunge funded AlgaPrime DHA program to commercial will likely result in lower sales due to GAAP revenue recognition accounting rules. These contributions will be reflected in unconsolidated Non-GAAP results and through the JV income line. Management is forecasting SB Oils Non-GAAP revenue to grow from $9.8mn in 2016 to $25-30mn in 2017. Management is targeting EBITDA profitability on the JV level in early 2018.

3) The balance sheet remains a challenge for the company, with ~$168mn in convertible debt. On April 3, TerraVia retained Rothschild to help in restructuring and is in negotiations with holders of the ’18 and ’19 debt and also announced they were exercising their right for a 30 day grace period in paying the interest payment that was due April 3rd. We note the 30 day grace period, which was scheduled to end today has been extended an additional 60 days. Management is also seeking the strategic sale of all or part of the company as well as making efforts to monetize its Peoria facility.

4) Beyond DHA, TerraVia has obtained FDA GRAS approval for its new Algal Butter product which will also be produced in Moema and likely ramps up later in the year. Algae Butter is a palm-free, non-hydrogenated, vegan solution for bakery, spreads and confectionery applications.