Who’s Up, Down, Top, Charmed and Strange in the Bioeconomy: Learnings from the Earnings, as four bellwether stocks report

December 17, 2018 |

In Digestville it’s Earnings Season and everywhere investors are pinning their stockings to the Industrial Chimney and hoping that Father Bioeconomy will leave presents for all the good de-carbonizing companies and less for the naughty ones who’ve yet to take the low-carbon path.

Looking at earnings is like looking at quarks — you quickly sort of what’s top, bottom, up, down, charmed and strange. So, let’s look at Q3 earnings statements now just coming out from four of the sector’s signature companies in light-duty and heavy-duty fuels, enzymes, and nutrition and wellness. Namely, Aemetis, Novozymes, Renewable Energy Group and Amyris.


In California, Aemetis said that revenues for Q3 jumped increased $5.7 million and gross profit jumped 36%, while ethanol volumes rose 8.4 percent over Q3 2017. , Overall reaching $44.6 million for the quarter, compared to $38.9 million in Q3 2017.

The company noted that the increase in revenues was driven by the rise in ethanol volumes and also by a rise in the prices for wet distillers grains, and stronger demand for India biodiesel. The jump in revenues translated into a gross profit of $2.7 million compared to $2.0 million in Q3 2017. Operating loss decreased to $1.3 million for Q3 2018 compared to $3.1 million for Q3 2017. Net loss declined to $6.6 million from $8.2 million.

The big highlights. Two stand out. On the operating efficiency side, the company will be implementing the Mitsubishi Chemical Corporation ZEBREXTM membrane dehydration system at the 60 million gallon per year Aemetis fuel ethanol plant in Keyes, California. The sales transaction involves a subsidiary of MCC, Mitsubishi Chemical America, Inc. The Aemetis plant upgrade is the first ZEBREXTM system installation in North America and is the largest implementation of the ZEBREXTM system worldwide.

The upgrade from the traditional Pressure Swing Adsorption (PSA) dehydration process to the ZEBREXTM system can reduce energy consumption in the production of biofuels by up to 25%, increasing production capacity while reducing the usage of fossil fuel-based energy and lowering the carbon intensity (CI) of ethanol produced at the plant.

On the ethanol side, the company continues small-scale production of cellulosic ethanol from waste orchard wood and nutshells at its newly constructed integrated demonstration unit at the InEnTec Technology Center in Richland, Washington — and is progressing toward a construction start on its new cellulosic ethanol facility in California to capture the very high prices that cellulosic fuels are commanding in the California market right now.

Meanwhile, we’ve been reporting on the Edeniq-Aemetis lawsuit and more on the latest on that front here.


In Denmark, Novozymes touted healthy if not spectacular organic sales growth of +4% (Q3: +5%) in the first nine months: The spectacular side was in bioenergy where revenues jumped 14%. Other sectors had choppy results: Agriculture & Feed +5%, Food & Beverages +4%, Household Care 0%, Technical & Pharma -7%. EBIT margin 28.2%. Net profit growth was +3%. The full-year 2018 outlook is now almost locked in with a net profit growth of 1-3%;, and organic sales growth more likely to end toward the lower part of the 4-6% range, despite what the company referred to as “challenging markets in the Middle East.”

Novozymes CEO Peder Holk Nielsen noted We delivered solid earnings and organic revenue growth of 5% in the third quarter and 4% after the first nine months. This is overall satisfactory, and we increase the outlook for net profit growth. Despite recent challenging markets in the Middle-East, we maintain our 4 – 6% organic revenue growth guidance, albeit with the likelihood that we will close the year toward the lower part of the range. On our innovation efforts, we further demonstrate our strong pipeline and ability to commercialize game – changing solutions with the third – quarter launch of Balancius™ for animal feed.”

The big highlights. 3 out of 5 segments grew, with Food & Beverages and Bioenergy performing very well. Agriculture & Feed should be benefitting now from the altered BioAg-sales cycle moving sales from 1H to 2H, and we may see continued brightness there. Bioenergy’s been a star all year. Novozymes Innova yeast has been gaining an impressive set of trials — and looking more like a growth0-stage company in the bioenergy sector than a maturing company — interesting development, one to watch especially as US E15 deployment begins to be realized.


In California, Amyris reported Q2 revenues of $14.9M compared with $24.2M for Q2 2016, The company recorded less of a hit in margins, with Q3 2018, reporting an adjusted gross margin of $8.2 million, or 55% of revenue, compared to Q3 of 2017 of $8.3 million, or 34%. But losses mounted, with Amyris recording a non-GAAP net loss for the Q3 of $38.6 million, compared to $30.4 million for Q3 2017.

Amyris CEO John Melo noted, “We are pleased with the rapid ramp up of our new, zero calorie sweetener product and our continued strong recurring revenue growth. However, we are very disappointed with the volatility of the Vitamin E market and its direct impact on our third quarter revenue. Some of this shortfall is expected be made up with our core market revenue performance through year end. We are very pleased by the strong growth of our Clean Beauty business, the early demand for our zero calorie sweetener and for the better than planned growth of our ingredients business. Our recurring revenue has been doubling year on year and we are on pace to deliver for the fourth quarter at an annualized rate of about $200 million in recurring revenue. This is double what we did in recurring revenue for the fourth quarter of last year and a great testament to the quality of our product portfolio and of our partnerships where we are delivering strong results.

The Big Highlights. Obviously, headwinds in the Vitamin E market. Also, Amyris’ zero calorie sweetener made from sugarcane has received designation as GRAS (Generally Recognized as Safe), and allows Amyris to begin commercial sales. The company expects to make and ship significant commercial tonnage this year and over 200 thousand metric tons in 2019. Finally, Amyris signed a “multi-year, multi-million-dollar collaboration agreement” with China’s Yifan Pharmaceutical Co.,in September and another pact was inked this month. The first product is expected commercially in China and elsewhere in 2021. Sales, general and administrative expenses were $21.0 million for the third quarter of 2018 compared with $15.5 million for year-ago period, primarily reflecting Biossance growth and an increase in headcount as well as one time costs. Research and development expenses of $16.4 million for the quarter were up from $15.2 million for third-quarter 2017 due to increased spend for advancements in purification and process development for the commercial ramp of the company’s sweetener product and for work related to products moving into commercialization phase over the next six months.

Renewable Energy Group

In Iowa, Renewable Energy Group, Inc. reported net income attributable to common stockholders of $24.3 million in Q3 2018, compared to a net loss of $11.4 million in the third quarter of 2017.  The improvement in net income reflects better margins in 2018 as well as more gallons sold.  Adjusted net income was $19.8 million compared to a loss of $15.1 million in Q3 2017.

REG sold a total of 178.8 million gallons of fuel, an increase of 18.0%, primarily due to increased biodiesel and petroleum gallons sold, partially offset by fewer sales of biomass-based diesel gallons produced by third parties. The average selling price per gallon was $3.03, a decrease of 5.6% excluding allocation of the 2017 BTC. The Company produced 139.2 million gallons of biomass-based diesel during the quarter, a 15.7% increase.

We have to do some special math for REG because biodiesel continues to be in a sort of tax credit limbo. If you reallocate the net benefit of the biodiesel tax credit to applicable periods in 2017, adjusted net income was $40.4 million and adjusted EBITDA was $55.0 million in the third quarter of 2017.

And, if the currently lapsed BTC is retroactively reinstated for 2018 on the same terms as in 2017, REG’s net income, Adjusted net income and Adjusted EBITDA would each increase by approximately $70.0 million for Q3 2018 and by $178.7 million for the first nine months of 2018. So, you might say there’s quite a bit of winking and finger-wagging going on between Ames and biodiesel’s supporters in Washington DC.

REG CEO Randy Howard noted, “We have added another very positive quarter to our already strong financial performance in the first half of 2018,” said Randy Howard, President and Chief Executive Officer.  “We generated $34.6 million of Adjusted EBITDA without the BTC being in effect.  Adjusted EBITDA for the first nine months of 2018 was $94.4 million, reflecting a favorable market environment and our continued efforts to optimize the efficiency of our biodiesel and renewable diesel plants.”

The Big Highlights. Well, there’s the fate of the Biodiesel Tax Credit, and with the lame-duck session now on in Congress, we’ll be keeping our eyes on the fate of tax credit reinstatements. Could be a windfall there for shareholders. Meanwhile, look at REG’s small mountain of cash (by bioeconomy standards, not Apple’s). At September 30th REG had cash and cash equivalents of $156.6 million, an increase of $79.0 million from December 31, 2017.  Additionally, REG had $52.9 million of marketable securities. Will the company conclude the “winter is coming and gird its loins” for potential loss of the BTC? Likely, for now. But if the BTC is restored, we might find that the company could accelerate plans to fund its share of development of its proposed renewable hydrocarbon plant in Ferndale (Wash,) with Phillips 66, or may well look to re-enter the M&A market.

The Digest’s Take

In this sector, there’s the bleeding edge, the leading edge and the volume business.

At the bleeding edge, we generally see high losses, high promise, high-value products — emphasis is on strategic collaborations and financing increasingly from strategics. REG’s Life Sciences unit is there, most of the Amyris development business remains there with a few notable escapees like beauty, flavorings and vitamins. We’d put Aemetis’ cellulosic ethanol business poised between the bleeding edge and the leading edge as the LanzaTech technology is getting substantially derisked in its China-based deployments — and that’s de-risking on someone else’s dime, which sounds like a good idea for Aemetis investors. Novozymes does a huge amount of R&D but its generally been using its discovery pipeline to feed leading edge segments and to improve the efficiencies and costs in volume businesses.

At the leading edge, we see lead products getting traction in the marketplace with some volume orders for products based on advanced technologies. The companies here struggle with debt to the extent that they had trouble with a volume business downturn or too much time in the bleeding edge sector developing the technology. Breakout is generally imminent, and this is where the blockbusters are found. Amyris is here with its beauty business, and we see sharp upticks in demand though off a low base — the prices are phenomenal, too. Novozymes is here with yeast although we don’t see a specific breakout of results, and likely the financials are small potatoes at the moment while product trialing goes on. REG is here with its hydrocarbon business and we don’t see a specific breakout — but that proposed expansion with Phillips 66 is huge and of huge importance. And Aemetis had landed here with its biodiesel business, which tips on the edge of being a commodity business, but is just a little tender while we await the outcome of all the noise that the Indian government is making about finally, really decarbonizing heavy transport.

In the volume business, the companies have solid products, established customers, shiny brands, good R&D pipelines, but tend to rise the commodity price rollercoaster with their customers — they get exposed on price where they are selling finished commodity products, or exposed on volumes if they are selling to biorefiners. Novozymes is here for its enzyme business — and we see the Middle East rollercoaster on a downhill. Aemetis is here in conventional ethanol, and volumes have been good though prices lousy. REG has been riding along well in volumes, price has been iffy. Amyris has really never been in this sector until entering the Vitamin E business — and voila, the disappointments of depending on someone else’s pipeline in a tough competitive market are now apparent.

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