SZYM - It's worse than it seems

Some of you may still be stuck in Solazyme stock. I hope not. In a last desperate attempt to fend off bankruptcy they just changed their name to TerraVia and are reinventing themselves as a food company. They also announced a five year deal with Unilever with whom they’ve already been working for years.

However a MF HG article warned about getting too carried away as they’ve made big promises over and over again, and never came through. I personally remember Encapso, which was supposed to be their road to riches. (I hoped so for a while). It’s no longer hardly even mentioned.

Last year they had $33 million in product revenue. With $152 million in expenses, and $141 million in losses. The cost of producing the product they sold was $18 million, so only $15 million (gross margin) went to cover that $152 million in expenses. Do you realize how really bad this is???

And that $152 million in expenses already reflected R&D almost cut in half from the year before and $10 million off SG&A as well, so there probably isn’t that much more to cut. Management doesn’t seem to expect any revolution in revenue in 2016:

…we expect our reported TerraVia product revenues will be flat year over year in 2016, reflecting growth in both food ingredients and in algeanous, offset by expected reductions in industrial revenues.

we anticipate product sales at our SB JointVenture will increase more than five-fold versus the $4 million from 2015, largely comprised of the initial sales under the Unilever contract, where we expect our sales for 2016 will be up to ($20 million). AlgaWise food oils and animal nutrition ingredients will also contribute to the JV product revenue.

we also expect a flat to modest increase year over year in TerraVia’s funded program revenue (grants), reflecting work we are doing with a number of strategic partners.

In sum, despite the transitional nature of this year, we expect to see double-digit growth in revenues when looked at in combination.

That’s double digit growth, anything over 10%. But, if they magically beat everyone’s expectations and raise product revenue by 50%, or $17 million, to $50 million, that doesn’t add $17 million towards reducing losses. No, that would only add $7.5 million in gross margin after costs of goods produced. They say they hope to get losses down to $70 million, in 2016, but I don’t see how.

In fact if they not only doubled, but tripled product revenue to $100 million (drum beats here…), some years from now, they would have all of $45 million in gross margin against $152 million in expenses!!! We’re still looking at roughly $100 million in losses, give or take. And that’s if they could triple revenue to $100 million without any increase in SG&A and R&D, which is unlikely. That means more money raises and more dilution of current shareholders.

The chances of them breaking even (much less make a profit) anytime in your lifetime is questionable at least. Doesn’t mean it won’t happen, just very questionable.



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