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Sunday, January 24, 2021

Amyris Inc (NASDAQ:AMRS) Making Great Strides

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Amyris Inc (NASDAQ:AMRS) is a complex stock to say the least. Depending on the time period in question, if I asked you what Amyris (AMRS) did, it’s possible you would give me different answers. To put it simply, business model has changed over the years. In regards to today, the company is making its footprint in the bio-manufacturing industry.

What I find interesting, fifty or so years ago, there wasn’t a business model for bio-manufacturing. However, today, Amyris is one of the industry leaders, producing molecules for the cosmetic, nutraceutical, drug and rubber market(s).

Amyris Inc (NASDAQ:AMRS) is a prime example of weird and unusual industries like the bio-manufacturing market that are experiencing rapid growth. Moreover, companies like Amyris are starting to realize the growth and cash flow potential. For an example, in Q2 product sales grew almost 50%, while SG&A fell 21% Q/Q. Not only did the company have a record quarter, but they signed new collaboration agreements with Givaudan, Ginkgo Bioworks, The Bill & Melinda Gates Foundation and Janssen Biotech. It was an impressive quarter, to say the least.

The CEO had the following to say in regards to the quarter:

“We’re very pleased with reaching our best ever quarter of signing new collaborations that have already funded more than $20 million of payments this year and are expected to more than underpin our full year targets,” said John Melo, Amyris President & CEO. “We are encouraged by these results and our success in delivering on our stated milestones and goals thus far this year.  Additional progress in the coming months is anticipated to further grow our customer base, improve our balance sheet and further position the company as the leader in industrial biotechnology.”

It’s hard to not get excited about the company. They are making revolutionary steps to create life-changing molecules, the company is growing at a rapid clip, huge names have signed agreements to work with the company and expenses are beginning to fall. Given my value background, the latter is the most exciting for me. If Amyris can manage to continuing cutting costs – and pull some profits in the near-term, the valuation will begin to look enticing. The company is still a tad away from cash in-flows, but the improvement in the first six months is putting the company on the right track. And for the record, free cash flow in the first six months was -$17.4 million from the -$28.8 million Y/Y.

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Even though the company is making great strides, there are still a few overhangs. One of the biggest overhangs is the convertible debt on the balance sheet. This is a two-pronged overhang; giving the company a scary risk profile due to the lofty debt position and potential for real dilution if and when the debt converts. On the flip-side, there is reason to believe this debt overhang will be subdued in the near-term.

First and foremost, the company is cutting costs. Not only are costs rapidly falling, but there is operational leverage as sales increase. I like companies that can increase their margins when sales increase – Amyris is one of those companies. Likewise, the company believes it will be free cash flow positive sometime in 2017 – allowing them a better handle on the debt profile. Sure, they have stated in the past that they will be free cash flow positive in the future, which never took hold. However, the recent cost-containments and sales growth may help them hit their guidance this time.

Secondly, the company has plans to sell $40-60 million worth of assets. If and when this happens, it’s likely they will pay down their lofty debt position, putting the company in a much better risk/reward standpoint. I am not sure if they can hit this lofty goal, but if done, the risk profile will decrease. I like to think of an asset sale as a type of hidden upside for the company.

Thirdly, the majority of the long-term debt is due in 2019. If the company sells these assets, cuts costs and continues growing the top line, while becoming free cash flow positive, it’s very possible for the company to cut debt – or pay it off completely – without shareholders taking any dilution.

Finally, John Doerr recently purchased $16 million of the notes and warrants (through a private placement), allowing him to purchase 2,285,714 shares of the company’s stock. Doerr is a highly regarded venture capitalist – being an investor in Amazon and Google (on both companies’ boards).  I’m not saying Doerr is always right, and the purchase was a PP rather than an open market purchase, but sometimes it’s not bad to coattail big names in the investment community.

Overall, the company looks quite attractive. They continue to sign new contracts (a new one with Ginkgo and $25 million with a nutraceutical company to be exact), profitability is around the corner and the market they serve is rather hot. With insiders owning 35% and an impressive amount of institutional owners, the investment is rather attractive. For continuing coverage on shares of $AMRS stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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