Solazyme still faces production challenges at Moema

I wonder how long the petrochemical industry had perfected its processing technologies before it was able to reach an economical, efficient level?

Unfortunately, investors today are not too forgiving when new, untested technologies from public companies are facing commercialization challenges. Solazyme is now going through this stage and their stocks had plunged from $11.79 a year ago to the recent $2.66.  Yesterday, the company reported a loss of $44.9 million in its fourth quarter earnings.  For the year, its loss widened to $162.1 million.  Revenue for the fourth quarter was $14.5 million and $60.4 million for the year. The revenue only came from Solazyme’s other smaller plants, in Peoria, Illinois (2 ktpa) and Clinton/Galva, Iowa (20 ktpa), as its Moema, Brazil plant (1oo ktpa) is still undergoing production challenges.

According to yesterday’s earnings call, Solazyme said it was able to run the Moema fermentation operations on a fully integrated basis for a good part of December but downstream operations still need to be improved before ramping up to larger volumes.  The company said it undertook a series of mechanical and operational fixes in January, and it till requires further improvements today.  In December, the company said it produced over 1,200 tons of dried biomass at the Moema facility demonstrating that the upstream technology is reportedly working at scale today. However, further optimisation of the downstream oil extraction equipment is required.  Power and steam challenges have also slowed down operations at the Brazil plant.

Brazil has been having power and water shortages recently.  Bunge’s sugar mills cogeneration facility and the Solazyme Bunge JV facility has reportedly both went back online in mid-February. The companies are working on solutions and key projects for this are said to remain on track to be completed within the first half of the year before ramp-up volumes can be achieved.

Here are some of the milestones the company need to achieve this year:

• Competing tie-in to electrical grid
• Completing connection to second Moema sugar mill boiler
• Receiving reliable electricity and stream supply from cogeneration and redundant supplies
• Achieving consistent, fully integrated operations at the facility
• Optimizing downstream productivity including oil extraction improvements
• Production, distribution and consistent delivery on time, in full and in-spec products to key customers

The Clinton/Gava facility currently produces smaller number of higher-value products including Encapso drilling lubricants, high oleic oils and limited volumes of tailored oils for partners. The Peoria facility produces AlgaVia protein and lipid powders, and the Algenist cosmetics ingredient.

In terms of product sales, both the Encapso and ALgaVia revenue for 2014 is reported around $12.8 million while the Algenist product was around $24.5 million. Here are some updates for the company’s product portfolio:

• Encapso – declining crude oil prices have a near-term demand impact. The company said it is seeing extended sales process particularly in the US as rig counts have decreased substantially in certain regions.  Despite the setback, Encapso will be an ideal product to use because of its capability to shorten drilling time, which saves money.  Of course as this article from Motley Fool noted, there are competitors out there also offering renewable-based drilling fluids that could be cheaper and have wider access to the oilfields market than what Solazyme is offering.

• AlgaVia powders – currently in over 65 application projects in the food and beverage sector ranging across more than 30 product categories.  The blog does not focus much on food ingredients but this is a lucrative market.  Solazyme recently received FDA GRAS (generally recognized as safe) approval for AlgaVia whole algal flour ingredients.  The algal flour can replace dairy fats, vegetable oils and egg yolks in different kinds of food to lower saturated fats, calories and cholesterol.  AlgaVia algal flour is reportedly composed of 52% fat, 19% fiber, 6% protein, 2% moisture, 3% ash/micronutrients, 1% simple sugar and 17% other carbohydrates.  Another news for the company is that it has won an arbitration against Roquette concerning intellectual property, patent applications and know-how related to the algal flour/protein powder and the processes for making them. Solazyme has filed in the Delaware court asking to confirm the arbitration award and the company is also seeking extensive damages against Roquette.

• Algenist – by year-end, the personal care product is reportedly used in more than 2,500 stores in 21 countries that helped drove its 23% year-on-year revenue growth although Q4 sales is actually lower than in the third quarter.  Algenist revenue was $6.8 million in Q4.

• High Oleic Algae Oils – Solazyme announced that its high oleic algae oils received an FDA GRAS approval as an ingredient in food products.  The algae oil reportedly offers more favorable fat profiles than olive oil, and higher smoke points than canola.  The algae oil has around 90% monounsaturated fat (oleic acid), 6-8% saturated fat and less than 2% polyunsaturates. Solazyme expects product launches in the US in the second half of the year.  This is actually a great product given that the Monsanto and DuPont have been developing high oleic soybeans for years.  However, are consumers ready for bottled algae oil or algae butters in the supermarket aisle?

I can’t believe it’s not butter… DISCLAIMER: This is not a Solazyme photo but a random image I took via google. Source: Worth1000.com

Solazyme projects revenue growth in 2015 to be more than 15%, partially offset by a slight decrease in R&D revenue. Solazyme is also expecting to lower down its cash operating expenses down by $18 million in 2015 and deliver operating cash burn below $100 million. The company reduces its workforce late last year to cut costs.

The good news is that it has about $207 million in cash entering 2015.  The bad news is the Moema facility needs to be producing soon before investors get antsy.

Here is a time lapse video of the Solazyme Bunge Moema plant construction…