In today’s Digest, let’s look at trends driving the industry’s results at scale — and while money is not the measure of all progress, it is the ultimate yardstick and especially for companies that have reached industrial scale. So, let’s look at Q2 earnings statements now just coming out from four of the sector’s signature companies in fuels, enzymes, crop development & protection, and nutrition and wellness. Namely, Aemetis, Novozymes, Evogene and Amyris.
Aemetis
In California, Aemetis said that revenues for Q2 jumped increased $7.7 million or 23% compared to the second quarter of 2016. “Ethanol revenues increased 11% year over year as we shipped 16% more ethanol product to our customers,” the company noted.
The offset was ethanol and distillers grain price declines, that contributed to a lower gross margin. What happened? The increase in revenue was primarily attributable to increased ethanol and distillers grains volumes, as well as increased sales to bulk fuel customers in India.
Overall, Aemetis continues to see earnings hit by lower fuel prices — operating loss was $1.7M for Q2, and the net loss was up to $6M — that’s up from $5M in Q2 2016 when volumes were lower but product margins stronger. Cash is light — $0.7M compared to $1.5M at the end of 2016.
The big highlights. Two stand out. On its biodiesel side, Aemetis signed a 3-year biofuels supply agreement with BP Singapore, and inked a $6M contract to supply the India Oil Marketing Companies. On the ethanol side, the company started 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.
Novozymes
In Denmark, Novozymes, which these days can justly bill itself as “the world’s largest industrial biotechnology company”, had what it termed “a good first half with 3% organic revenue growth which was better than expected.”
Novozymes CEO Peder Holk Nielsen noted “We had growth in the large segments and delivered 3% organic sales growth with a strong EBIT margin, excluding one-offs. We made important advances in our innovation pipeline within grain milling, vegetable oil and household care opening up new market segments. We should see growth pick up in the second half of the year, but also acknowledge the risk of agriculture-related markets changing swiftly.”
Here’s the detail:
Household Care +1%,
Food & Beverages +8%,
Bioenergy +7%,
Agriculture & Feed -6%,
Technical & Pharma -4%.
The big highlights. 3 out of 5 segments grew, with Food & Beverages and Bioenergy performing very well. The company noted that Agriculture & Feed as down due to changed BioAg-sales cycle moving sales from 1H to 2H
Evogene
In Israel, Evogene reported for the first half revenues of $1.9 million in comparison to $3.8 million for 2016. The company notes that the decline reflects the “advancement of our collaboration agreement with Monsanto, from gene discovery to pre-development efforts, resulting in reduction of activity scope.”
Overall, the company touted that “For the first time, in addition to our robust internal programs, we now have collaborations with at least one world leading company in each of our areas of activity: DuPont-Pioneer in Ag-Biologicals, Monsanto in Seed Traits and BASF in Ag-Chemicals.”
Operating loss during the first half of 2017 reached $10.4M compared to $9.8M in 1H 2016 and net loss expanded from $7.8M in 1H 2016 to $9.6M for the first half of 2017. But cash remains strong. As of June 30, 2017, the Company had $79.7M in cash and equivalents — and expects a burn rate of $16-$18M for 2017. Suggestive that there is no need for dilutive financing in the near term.
The big highlights. The big news is in Ag-Biologicals, via a new collaboration with DuPont-Pioneer for the development of bio-stimulant seed coating products. Additionally, the company has an internal bio-stimulant program in wheat, showing promise and that that will be re-validated in field trials next year. Over in Seed Traits, in the collaboration with Monsanto, Evogene discovered genes are showing resistance to Fusarium in model plants, with the top prioritized genes advancing to testing in Monsanto’s corn pipeline. In Ag-Chemicals, work continues with BASF on herbicides and Evogene has just initiated an insecticide product program.
Amyris
In California, Amyris reported Q2 revenues of $25.7M compared with $9.6M for Q2 2016, Collaboration revenues were $13.0 million, up significantly from $4.7M in Q2 2016, and product sales reached $12.7M, up 159% over 2016’s Q2. CEO John Melo said that “We are continuing to experience very strong product sales growth in our personal care and health and nutrition segments and expect most of our products to generate improved gross margins with the value share component of our business. We have a very strong collaboration and product pipeline with several new partnerships expected to close before the end of this year and several new product deliveries to our strategic partners driving our growth for the remainder of 2017.”
Net loss was $10.3M for Q2, and $47.6M for the first half, compared to $28.9M for the first half of 2016.
The big highlights. In a word, Biossance. The highest quarterly Biossance sales to date came in – along with plans to expand to SEPHORA in over 60 locations across Canada in January 2018 – Biossance margins are running at 70%, BTW – and Amyris is pointing to sales as high as $100M by 2020. In new product development, a first product development and production agreement with DSM for a food and nutrition molecule. That’s related back to two tranches of financing totaling $103 million led by DSM along with participation by institutional investors, which had the effect of reducing debt by just over $85 million to $165M, almost half of which is held by investors and partners. Overall, it’s the company’s strongest product sales quarter to date and the company is saying it expects to meet 2018 revenue projections with existing capacity, as a result of shift of higher-value products.
At Cowen & Company, Jeffrey Osborne wrote, “Strong product revenue growth is a step in the right direction for Amyris. The company is moving in the right direction; however, we want to see more execution before becoming constructive on shares. While we are growing more positive on management’s strategy, we wait for more signs of execution in product sales and margin expansion before we feel comfortable recommending the stock.”
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. Evogene is there, Amyris has been there and is now exiting. Overall, the encouraging sign is the deep engagement by strategics — who have generally replaced the venture capitalists, as the VCs themselves had hoped. Capital for commercial-scale biorefineries is still exceedingly tough to find, so companies like Evogene developing traits rather than products and fitting into someone else’s production — well, that’s a smoother road for investors.
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, Aemetis has some aspects of its business (cellulosic, biodiesel) here. Here, the story is going to be about rate — rate of transition to volume orders, margin rate and rate of production so that (as we saw with Amyris), building of additional capacity is avoided until the orders and margins are screaming for it.
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, and Aemetis in its conventional corn ethanol business. As we can see with Novozymes, its a smoother road for the supplier companies than the producers — as was discovered 160 years ago in the California Gold Rush by companies like Levi Strauss, you can mine the miners more reliably than the miners mine the gold.