Amyris (AMRS): Why These Sweet Dreams Should Keep Investors Up At Night

by Sonya Colberg, Senior Investigative Reporter - 3/7/2014 10:42:09 AM

Tucked within the wide, green hills in eastern Brazil, a little factory churns out a fragrant oil that nourishes the hopes and dreams of Amyris Corp. (AMRS) investors.

One day, the dream goes, people might splash their wrists with perfume made from it. They might slather their faces with it, drive to work on tires made of it and even take off in a jet fueled by this stuff made by engineered bugs – or microbs.

And 6,000 miles to the north, at the Amyris headquarters in Emeryville, Calif., executives churn out reasons for investors to cling to that dream.

So, they pour out creative phrases like “collaboration revenue” and “collaboration inflows” and generally stretch the boundaries of believability as the company tries to maintain its stock price.

TheStreetSweeper is here to cut through the gibberish and explain why we don’t like Amyris.

This company is light on cash, heavy on loans – practically giving itself away to its partners in order to stay afloat. The chief financial officer and three other officers recently fled – a classically bad sign - while the remaining executives are left to try to breathe life into a business plan currently thrashing in its deathbed.

Which brings us to Amyris’ funny numbers and funny wording.

“Collaboration revenue” and “collaboration inflows” are actually debt

Real revenue simply isn’t the same as those eyelid-snapping, fudging phrases used by executives to charm us into believing things are going great.

Here’s what CEO John Melo said in the recent earnings call:

“We expect to maintain a healthy cash gross margin for the next three to four years with renewable product revenues doubling each year and collaboration revenues reaching $60 million to $70 million annually.”

Sounds great until you find out what the footnotes to the company’s filings say about “collaboration revenues” or the more recently coined “collaboration inflows.”

Collaboration revenues are actually loans and advances from partners that the company books as revenues now.

That would be like someone taking out a $300,000 home loan and calling it income.

The company did not respond to TheStreetSweeper’s requests for an interview.


The truth is out there

The footnote, available here, tells it like it really is:

(1) The largest differences between the GAAP and non-GAAP collaborations numbers are (i) timing of revenue recognition, and (ii) the TOTAL collaboration cash, which is treated as debt for GAAP purposes. 

The years ended December 31, 2013 and 2012 includes $30.0 million for both years from Total fundings which is in the form of convertible debt financing as contemplated in the July 2012 Amended Collaboration Agreement with Total.

(2) Non-GAAP Gross Profit is calculated based on non-GAAP Product Sales & Grants and Collaboration Inflows and Cost of Products Sold, and does not include costs related to collaborations.

Yet the company had the audacity to churn out this recent head-spinning headline:

Amyris Reports Fourth Quarter and Year-End 2013 Financial Results

Record Renewable Product Sales, Continued Lower Operating Costs, and Strong Collaboration Inflows

But a more truthful headline would have read: “Amyris Financial Results Not So Bad: After All, We’re Claiming Debt and Advances as Revenue (or Strong Collaboration Inflows)”

“For the third year in a row, we achieved approximately $60 million in annual collaboration inflows,” said Mr. Melo.

But here’s how those funny numbers (non-GAAP), propped up by the funny phrases, compare with the real numbers (GAAP), according to TheStreetSweeper analysts’ calculations:

                        2013    GAAP            Non-GAAP

Revenues                    $41,119           $70,393

Cost of products sold (47,619)           ( 32,159)

Gross Profit                  ( 6,500)              38,234

Gross Margin                (    -16%)             +  54%

R&D                               ( 56,065)          (42,915)

SG&A                            ( 57,051)           (41,609)

D&A                                10,545                  -

EBITDA                      (-$109,071)        (-$46,290)      

Bottom line: reality isn’t pretty. The company’s financial picture looks downright hideous.

The company would like investors to believe revenues are nearly double the real numbers.

The company wants investors to think it turned a $38 million gross profit. But it really suffered a $6.5 million loss.

The company would also like investors to believe the truest measure of net income – EBITDA – is just a negative $46 million instead of the real figure – a negative $109 million.

Indeed, a Securities and Exchange Commission task force is investigating such non-GAAP measurements. The concern is these metrics have the potential to mislead investors about the true nature of any given company’s business.

SEC troubles have already hit Amyris in the form of two lawsuits. One stockholder class action lawsuit alleges securities law violations based on the company’s commercial projects.

The other alleges some Amyris managers and others breached their fiduciary duties. It says they wrongly lined their own pockets by making allegedly false and misleading statements and omitting material facts from its SEC filings. The company says both complaints lack merit.

Issue: Tiny fuel volume.

Under its business plan, Amyris hopes in the next few years to commercialize diesel and jet fuel. The company inked a joint venture last December with Total to try to use Amyris technology to produce fuel.

But our research indicates this plan is doomed.

There’s the volume issue, a major Achilles heels for Amyris’ sugar and other alternative fuels. As The New York Times says, “The problem with producing fuel oil is that volume is king.”

Oil producers generally make a few bucks a barrel and have to sell billions of barrels to make huge profits. Similarly, Amyris could become fantastic at creating wonderful clean fuel but it wouldn’t matter if it couldn’t make enough of it.

Sadly, investors shouldn’t hold out hopes that Amyris can fool Mother Nature and get higher yields. Organic chemists know that, at best, the chemical process can cook up only a 27 percent yield. Amyris, recently stuck around the 20 percent mark, knows it cannot fool Mother Nature.

Amyris’ own figures, as shown recently in Chemical Week, hint of the difficulty of the task.

Amyris (Emeryville, CA) says its biobased farnesene plant at Brotas, Brazil, has achieved a production run rate of 1 million liters over a 45-day period, meeting the company's technology, volumetric, and cost targets.”

In a few days, one jet eats up all the fuel Amyris can produce in 1 ½ months!

Running the numbers, it took Amyris 45 days to produce just about 263,000 gallons.

How long could a fleet of jets run on that? The answer is stunning.

TheStreetSweeper found that the fuel that took 45 days to produce would be consumed by one Boeing 737 in about two to five days!

Issue: Production cost

Costs add to the developing nightmare. Mr. Melo said in the last earnings call that production costs run about $4 per liter.

This equates to over $15 per gallon.

TheStreetSweeper found that jet fuel costs about $3 per gallon.

Even if Amyris sold the fuel at the cost of production, airlines would have to shell out 5 times more money to fuel their jets.

Forget about those extra bag fees that irritate airline passengers now.

Anyone willing to pay $2,500 for an airline ticket that now costs $500?

In Amyris’ target markets of cream and fragrance, high production wouldn’t be as critical as it is with jet fuel. But Amyris would still somehow have to drastically cut production costs.

Unfortunately, Paraiso, the company’s sole supplier of sugarcane juice requires that even if another supplier wanted to sell its juice for less, Amyris would have to pay Paraiso its premium price as if it had bought the juice from Paraiso in the first place.

Investors can read it for themselves on page 54 here.

The company’s warning puts it in shocking clarity: “Currently, our costs of production are not low enough to allow us to offer many of our planned products at competitive prices.” The filings offer no-to-slim prospects of that situation changing.

On top of that, the plant looks to be running at a low manufacturing rate we would estimate at about 20 percent.

The company now refuses to say another word about production costs or volume, according to Mr. Melo’s statement in the recent earnings call.

Issue: Financing terms bite or why note-holders may sell AMRS now

We’ve already hinted that Amyris practically gave away the farm in its dealings with partners like Total Energies Nouvelles ActivitA.

But let’s take a closer look at the debt deals that Amyris likes to call “collaboration revenue.”

Total has invested well over $230 million on this joint venture to exploit the Amyris technology.

“These big companies are dancing with this little company because they’re getting sweet deals from a company that is desperate,” said an analyst who requested anonymity.

So here’s the deal.

Total holds about $80 million in notes that can now be converted at $3.08 and $2.20 per share.

With the stock at about $5 per share, who wouldn’t be tempted to convert some of those 26 million to 36 million shares and sell now?

Who wouldn’t be tempted to turn an $80 million investment into $180 million?

Similarly, a $6 million fragrances joint venture with Firmenich says Amyris will get 70 percent of profits initially. When that figure adds up to $15 million, Firmenich’s share drops to 50 percent.

Also, an August note of $51.8 million is now convertible at $2.44 per share. If Amyris fails to reach 5 percent gross margins from product sales before June 30, 2014, that conversion price drops to just $2.15 and could go even lower.

The desperate company just signed an amended agreement for a $34 million loan. Total and the other two note-holders have the option to convert that into stock anytime 12 months after Jan. 15, 2014 for just $2.87 a share.

If everything goes south, note-holders will be cushioned.


The 10 percent interest rate jumps to 16 percent if – and here’s a real confidence-builder - Amyris gets delisted from the NASDAQ.

Issue: Dilution warning

After acknowledging it has diluted shareholders’ stock through a series of private offerings and convertible note deals, Amyris filings caution that more may come.

The company warns it may issue another $3.2 million in notes convertible at $2.44 and another $55 million convertible at $2.87. That equates to about 20 million shares.

Add another 1 million shares to that, potentially, because the company issued a conditional warrant for that amount that Temasek could exercise at just 1 penny per share.

Indeed, company filings say if it doesn’t meet milestones and conditions under its August note, it faces “the release of a security interest in our intellectual property held by Total.

“These reductions would cause significant additional dilution to our stockholders if the notes are ultimately converted.”


Issue: Viability

Amyris is facing dilutive secondary offerings, stock conversions, draconian loan deals and overwhelming production issues that would kill the average early-stage company.

Those problems will turn this one-time tech dream machine into an investor’s worst nightmare.



* Important Disclosure: The owners of TheStreetSweeper hold a short position in AMRS and stand to profit on any future declines in the stock price.


  • Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to



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