Solazyme misses on Q3 revenues, expands JV with Bunge, adds new project with Unilever, drops Clinton, Galva production

In California, Solazyme, reported Q3 revenue of $11.4M compared with $17.6M for Q3 2014.The year over year decline in revenues was due to expected decreases in funded program revenue and slower than anticipated adoption rates for Encapso lubricant, the company said. On a sequential quarter basis, revenues were roughly unchanged due to improved Algenist performance, offset by funded programs. GAAP net loss was $34.9 million for the third quarter of 2015, compared to net loss of $39.7 million in the prior year period.

In the major news of the day, Solazyme and Bunge expanded their joint venture to include a focus on food and as part of the agreement, Bunge’s global food team will take a leadership role in the sales, marketing and application development for certain food oils. In addition, Bunge will provide oil processing, global distribution and logistics, while Solazyme will be committing certain expertise in food related technology.

In other Solazyme news, the company extended its Joint Development Agreement with Unilever, expanded its relationship with BASF for the first commercial microalgae-derived surfactant utilizing AlgaPū, and said it was expanding the Algenist brand, which is now available in 22 countries and has reached 39 SKUs with a number of product introductions planned for early 2016 including a new Power moisturizer and a color correcting cosmetics line.

At the Moema plant, the company said it will now ocus production at Moema and Peoria, and to terminate its existing contracts for the Clinton and Galva manufacturing facilities. The company said it is now producing its first food oils in Brazil, reaching the production requirements necessary to begin selling food grade oils, and irecording mprovements in its cost profile. The company said it is making “routine deliveries to Unilever and are shipping to Natura Cosméticos as well.”

Reaction from Solazyme

“At Solazyme, we are committed to improving the lives of people and the planet by leveraging the power of microalgae to produce sustainable, high performance oils and ingredients,” said Jonathan Wolfson, CEO of Solazyme. “Today we have announced important milestones with increased commitments from some of our key strategic partners. These partners have been working with us for years, understand our manufacturing capabilities, our commercial path and the power of our technology platform.”

“We are making significant progress across our food, personal care and industrial markets,” said Tyler Painter, COO and CFO of Solazyme. “Although some of this progress is not yet reflected on the top line, we believe we are building a strong integrated business foundation with a competitive cost structure and first class manufacturing capabilities. As we continue to focus on high value products and our ability to bring new, sustainable solutions to market, we are becoming increasingly well positioned to deliver value to our stakeholders.”

Reaction from analysts

At Cowen & Company, Jeffrey Osborne showed enthusiasm for the Bunge update. “The expanded agreements with Bunge and Unilver are great to see as investors had questioned Bunge’s commitment to the JV. While we are excited about the food platforms prospects, we note that it can take 12 to 24 months for approval from buyers.

Given the likely depressed Encapso and lubricant sales in 2016 in a low commodity price environment, we see food and oils as a key growth driver for the company in 2017. We look to monitor the ramp of Moema given the cutbacks at Clinton/Galva and off take agreements for foods through Bunge. We believe this may take a few quarters to play out and are staying on the sidelines despite the recent pullback in shares. Given that one of the three facilities will be offline in 2016 and our subdued outlook for Encapso and other commodity impacted products, we are taking a much more conservative approach with our 2016 estimates.”

At Piper Jaffray, Mike Ritzenthaler was less enthused. “Despite ongoing progress toward a fully operational Moema, we are still not convinced that the company’s markets are ready for commercial-sized volumes anyway. Progress toward sustainable operations at Moema may sound encouraging, but is meaningless to Solazyme’s P&L in the absence of demand for the company’s products. Ultimately, substantial demand improvement beyond face creams, retail cooking oils, and vegan cookies will be needed to get to cash flow break even. Discontinuing operations at Clinton to reduce burn rates makes good sense, seeing as though the assets were mostly idle.”

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