Solazyme (SZYM)

Newsletter 82
April 16, 2015
www.thefocusedstocktrader.com

Solazyme, Inc. (SZYM)

Ticker:
Current Price:
Target Price:

SZYM
$4.15
$6.00

52 Week High:
52 Week Low:

$12.44
$2.00

Shares Out:
Public Float:

79.60 million
64.25 million
$330 million

Market Cap:

PE Ratio: Price to Book: EV/Sales:

ROE: Debt/Equity:

EV/EBITDA:
NA
3.63
4.15
NA
-143.92%
231.66%

We first wrote about Solzazyme in March 2014 . Despite continued

improvement in the companys operations, its share price dropped. In our
view, the share price drop and continued improvement in operations
provides a good entry point.
Based in San Francisco, Solazymes mission is to improve our lives and our
planet by producing sustainable, high-performance oils and ingredients
derived from microalgae.
Solazyme harnesses the power of an ancient resource, transforming
microalgae into solutions for the worlds biggest problems.
The company pioneered an industrial biotechnology platform that harnesses
the prolific oil-producing ability of microalgae making Solazyme is the world's
largest producer of algal oils.
The company uses standard industrial fermentation equipment to efficiently
scale and accelerate the microalgae's natural oil production time to just a
few days. Its platform is feedstock flexible and can utilize a wide variety of
plant-based sugars, such as sugarcane-based sucrose, corn-based dextrose,
and sugar from other biomass sources including cellulosics. The company
grows the microalgae in the absence of light using fermentation tanks to

Solazyme (SZYM)
Newsletter 82
April 16, 2015
www.thefocusedstocktrader.com
convert photosynthetic plant sugars into oil, in effect utilizing "indirect
photosynthesis."

The company has three production plants Moema, Clinton, Iowa with
downstream facilities in Galva, Iowa, and Peoria, Illinois.
Moema Plant, also known as the Solazyme Bunge Renewable Oils plant is
located in Orindiva, Brazil. It is a JV partnership with Bunge, one of the
largest agribusiness and food companies in the world. Moema is a 100,000
MT/year facility with an adjoining co-gen facility producing power and steam.
In December 2014, Solazyme had periods of fully integrated plant operations
from sugar input all the way to final crude oil validating the plants' capability
for integrated operations. The production facility still is having reliability
issues with power and steam, which is expected to be resolved in the first
half of 2015 by improvements at the co-gen facility and electrical grid tie in.
In the second half, the JV expects full production ramp and process
optimization.
The Iowa plants are Archer Daniels Midland (ADM)s Clinton, Iowa facility, and
the downstream companion facility operated by American Natural Products
(ANP) in Galva, Iowa. ADM is one of the largest food processing and
commodities trading companies in the world, while, ANP offers a complete
line of organic contract manufacturing services. The ADM and ANP facilities
are expected to ramp to a nameplate capacity of 20,000 MT/yr within 12-18
months, with targeted potential expansion to 100,000 MT/yr in subsequent

Solazyme (SZYM)
Newsletter 82
April 16, 2015
www.thefocusedstocktrader.com
years. For 2015, Solazyme is not planning significant volumes out of
Clinton/Galva in Q1 2015 as the focus is fixing issues at the Moema plant and
getting it to full production capacity. Clinton/Galva is anticipated to ramp
throughout the year as the company builds the market for Encapso and
introduce higher-value tailored oils.
Peoria was Solazymes first wholly owned renewable oil production facility.
The facilitys integrated biorefinery was partially funded by a U.S.
Department of Energy grant to demonstrate commercial-scale production of
algal-based fuels. The facility is commercially producing cosmetic and food
ingredients, as well as providing routine production of multi-ton sampling and
commercial quantities. Peoria has a nameplate capacity of nearly 2,000
metric tons per year.
At its three production facilities, Solazyme produces its major products
Encapso, AlgaVia and other Food Ingredients, and Algenist.

Encapso is the first in class, renewable, biodegradable, and nonhazardous

encapsulated lubricant for oil field services. With its unique, on-demand
lubricant delivery system, Encapso increases rates of penetration, decreases
drag, and reduces both rotational torque and friction in a variety of vertical
and horizontal drilling applications leading to reduced drilling costs and
accelerated operations.
Encapso is used in 37 commercial wells with plans to increase the usage to
more than 15 additional wells in coming months. As an example of potential
savings, an operator in the Williston Basin used Encapso on consecutive
wells recognized a 25% reduction in drilling time at the well sites versus
drilling with incumbent lubricants translating to savings per well over

Solazyme (SZYM)
Newsletter 82
April 16, 2015
www.thefocusedstocktrader.com
$100,000. Based on the companys calculations similar results applied to a
rig over the full year, the savings will exceed $1 million per year on the rig
demonstrating Encapsos value proposition. Given the recent decline in oil
prices, cost savings are increasingly important for E&P companies. Further
demonstrating the innovative nature of the product, Encapso was the winner
of the Presidential Green Chemistry Challenge Award.
On April 14, 2014, Flotek Industries, Inc. (NYSE:FTK) and Solazyme
announced the companies entered into agreements to commercialize
Flocapso. In addition, Flotek will market Solazyme's Encapso in certain Middle
Eastern markets.
Flocapso is a proprietary formulation combining Flotek's patented Complex
nano-Fluid chemistries with Solazyme's proprietary Encapso technology to
create an environmentally conscious, highly effective drilling fluid additive
focused on better lubricity and greater stabilization for drilling programs
worldwide.
Solazyme's development of Encapso and its rapid recognition as a breakthrough lubricant in drilling applications is testament to Solazyme's worldclass research team.
Earlier in 2014, Solazyme announced a partnership with Versalis, the
chemical subsidiary of Eni S.p.A., one of the world's largest oil and gas
companies, where Versalis will market Encapso in multiple regions with an
initial emphasis for Encapso will be oil and gas fields operated by Eni.

Solazyme (SZYM)
Newsletter 82
April 16, 2015
www.thefocusedstocktrader.com
AlgaVia Microalgae Food Ingredients provide an array of benefits that can
make reduced-fat foods taste richer, vegan protein fortification simpler, and
the reduction of saturated fat with great taste and texture possible.
Experience a food revolution that makes the future bolder and brighter.
Solazyme's High Stability High Oleic algae oil received the prestigious 2014
Innovation Award from the Institute of Food Technologists.
Whole Algal Protein is a vegan-friendly, gluten-free product that contains a
rich collection of protein with fiber, lipids, and micronutrients such as lutein
and zeaxanthin. With a protein that is protected by a natural cell wall, this
ingredient enables fortification in challenging applications such as low pH
beverages, dressings, and crackers.
Whole Algal Flour is a trans-fat and cholesterol-free lipid powder that enables
the creation of healthier products with satisfying taste and texture. This new
fat source enables the reduction or replacement of dairy fats, oil and egg
yolks
In February 2015, Solazymes High Oleic food oil recently received FDA GRAS
No Questions Letter. In January 2015, the companys AlgaVia portfolio,
including Whole Algal Protein and Whole Algal Flour, also received the FDA
No Questions Letter. For both products, this was the last regulatory hurdle
before commercialization.
The company currently has over 65 active application projects with leading
food and beverage manufacturers worldwide, doubling the number of active
projects in the last 6 months, with projects ranging across more than 30
product categories.

Solazyme (SZYM)
Newsletter 82
April 16, 2015
www.thefocusedstocktrader.com

The company also has a branded personal care business. At year-end,

Algenist had a presence in more than 2,500 stores in 21 countries driving
year on year top line growth of 23%. Solazyme now has 34 SKUs in the
Algenist line, most recently introducing the new Genius C serum, tinted
moisturizers, and Genius White.
The company partners with some of the largest retailers in the world
including Nordstrom, QVC, Sephora, and Ulta. At Nordstrom, all products will
retail between $25 and $110 and will be included in Nordstrom's "Advanced
Skincare" category. The Algenist line has won numerous awards, including
the 2014 Marie Claire Prix d' Excellence de la Beaut in France, and the QVC
Rising Brand Star award.
In addition to Bunge, Eni, Nordstrom, QVC, Sephora, and Ulta, Solazyme
partners with Unilever who sells Lux soap brand incorporating Solazymes
oils. The company also has a partnership with AkzoNobel, a leading global
paint and coating company and a major producer of specialty chemicals. The
partnership is a multi-year supply agreement targets annual supply of up to
10,000 MT of renewable Tailored algal oils pending successful product
development.
Conclusion

Solazyme (SZYM)
Newsletter 82
April 16, 2015
www.thefocusedstocktrader.com
Solazyme is right at the cusp of commercializing many of the companys
products. With a 52% increase in sales and 85% increase in product revenues
in 2014, commercialization near and extremely innovative products, the
companys should see exponential growth over the next five years. The
company is also expecting to decrease cash operating expense by over $18
million in 2015. With the top line growth expected and the increased
operating efficiencies, the company is significantly undervalued only trading
at four times sales.