Metabolix's (MBLX) CEO Joe Shaulson on Q1 2014 Results - Earnings Call Transcript

May.14.14 | About: Metabolix, Inc. (MBLX)

Metabolix, Inc. (NASDAQ:MBLX)

Q1 2014 Earnings Conference Call

May 14, 2014 4:30 PM ET

Executives

Lynne Brum – VP, Corporate Communications

Joe Shaulson – President and CEO

Joe Hill – CFO

Analysts

Laurence Alexander – Jefferies and Company

JinMing Liu – Ardour Capital

Operator

Good afternoon, and welcome to the Metabolix’s first quarter 2014 conference call. Today’s call is being recorded for Internet replay. You may access an archived version of the call on Metabolix’s website at www.metabolix.com. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference call.

I will now like to turn the call over to Ms. Lynne Brum, Metabolix’s VP of Corporate Communications. Please proceed, Ms. Brum.

Lynne Brum

Great. Thanks, Jen. Good afternoon everyone. Welcome to Metabolix’s first quarter 2014 conference call.

If you do not have a copy of our first quarter news release, which was issued earlier this afternoon, one can be found in the Investor Relations section of metabolix.com. In addition, slides accompanying the presentation are available on Metabolix website on the Events and Presentations page in the IR section.

Please turn to Slide 2. Please note that as a part of our discussion today, management will be making forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. Investors are also cautioned that statements that are not strictly historical constitute forward-looking statements.

And such forward-looking statements are subject to a number of risks and uncertainties that could cause the actual results to differ materially from those anticipated. These risks included risks and uncertainties detailed in Metabolix’s filings with the Securities and Exchange Commission, including the earnings release filed this afternoon in the company’s most recent 10-K. The company undertakes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this conference call.

On the call with me today are Joe Shaulson, President and Chief Executive Officer, Johan van Walsem, Chief Operating Officer, Joe Hill, Chief Financial Officer and Oli Peoples, Co-founder and Chief Scientific Officer.

With that, I would like to turn the call over to Joe Shaulson. Joe?

Joe Shaulson

Thanks, Lynne. Hello everyone and thanks for joining us today. Given that our fourth quarter call was just a short time ago, our prepared remarks this afternoon will be brief.

Please turn to Slide 3. As we discussed during our fourth quarter call, securing financing for the execution of our business plan is our highest priority. Although, we do not have anything to announce today, we are working every day towards the achievement of this goal.

You’ll recall that our financing plan is to raise to $50 million to $60 million over the next 12 to 15 months. To that end, we’re looking at a variety of different structures ranging from smaller staged financings to larger, more comprehensive solutions. While we’re not in the position today to say how this will all play out, what we do know is that we intend to complete at least the first phase of our financing by the end of June and that we plan to use the capital we raised to execute our business plan and to build an intermediate scale specialty polymers business that serves as the foundation for our longer range plans and future growth of our business.

Please turn to Slide 4. Our strategic priorities remain unchanged. Get our biopolymer manufacturing up and running in 2015. Intensify product and applications development with customers. Keep leveraging our technology to advance our strategy. Keep looking to capture value from chemicals and crops. And never forget that we’re a customer-focused specialties business and that we need to think and act like one in everything we do.

Now a few words about the business. As discussed during our last call, one area of great promise for PHA additives is that the processing aid for flexible and rigid PVC. In this area, we have recently progressed with a couple of customers to tonnage sale trials, a significant step in the commercialization of our product in PVC applications.

We also talked about using our PHA biopolymers in latex form as a thin barrier coating for paper and cardboard. Although, there is still a lot of work to be done here, we are seeing tremendous interest from major industry players since we started working on applications with customers just a couple of months ago.

Why is there such interest? Because our PHA latex offers the potential for truly repulpable coated paper and cardboard. What I take away from these recent developments is that our business strategy is on point and beginning to pay off.

With that in mind, I’m sure some of you are frustrated with our progress on financing. I get it. And I look forward to putting it behind us because I’m really excited by what I’m seeing in the business and I can’t wait to redirect the time I’ve been spending on financing to execution of our business strategy.

For me, it helps to remember that no news does not mean no progress. And we plan to build on the progress we’ve made to complete the first phase of our financing before the end of June. With that, I’ll turn the call over to Joe Hill for a review of our quarterly financials and then we’ll take some questions. Joe?

Joe Hill

Thanks, Joe. And thank you all for joining us today. I’ll now focus on the financial results for our first fiscal quarter ended March 31, 2014.

As always, we manage our finances with an emphasis on cash flow and deploy our financial resources in a disciplined manner to achieve our key strategic objectives, and to maximize value from our technology and product portfolio. We’ve maintained this focus, and ended the fiscal quarter with $10.4 million in unrestricted cash and investments.

I would now like to take you through some of the highlights of the financial results. Turning to Slide 5, I’ll first review product orders and associated revenue recognized. Product revenue for the first quarter of 2014 was $500,000, which primarily represents revenue deferred from Q4 product shipments.

We shipped and billed $600,000 of product in Q1 2014, nearly all of which will be recognized in Q2 2014, in accordance with our revenue recognition policy. By way of comparison, during the first quarter of 2013, the company recognized $800,000 of product revenue. We continue to hold significant product inventory in the form of resins and blended material which we are using together with pilot production of newer materials to support market development with customers and prospective customers.

Cost of product revenue has increased from $600,000 in the first quarter of 2013 to $700,000 in the first quarter of this year. The increase of $100,000 was primarily attributable to selling new product formulations with higher manufacturing cost basis in the first quarter of 2014.

Cost of goods sold also includes the cost of sample inventory shipped to prospective customers, warehousing and product packaging costs and certain freight charges.

Turning to Slide 6 for a review of financial results, you’ll notice that in the first quarter of 2014, research and development expenses were $4.9 million which is consistent with Q1 2013. Selling, general and administrative expenses were $300,000 higher in Q1 2014 versus Q1 2013.

Net loss for the first quarter was $8.2 million or $0.23 per share was compared to a net loss of $6.8 million or $0.20 per share for the first quarter of 2013.

Now on to the balance sheet, turning to Slide 7, as we look at cash usage, you can see at the bottom of the table, we had unrestricted cash and investments of $10.4 million as of March 31, 2014. This compares to $37.7 million at March 31, 2013.

For the first quarter, net cash used in operating activities was $9 million. As compared to the fourth quarter of 2013, the total cash usage was $6.4 million. This represents the planned increase in net cash usage of $2.6 million which was mainly attributable to the timing of accrued annual variable compensation payments of $1.7 million in timing of accounts payable disbursements. This compares to the first quarter of 2013 where total cash usage was $8.5 million.

Ignoring onetime cash usage items is highlighted on this slide. Normalized cash usage increased in Q1 2014 over Q1 2013 by $500,000, mostly driven by increased inventory build for formulated products.

We are focused on strengthening our balance sheet. And we will during 2014 require significant additional financing to continue to fund our operations and to support our capital needs. Based on our current plans and projections, which remain subject to numerous uncertainties, we intend to raise $50 million to $60 million over the next 12 to 15 months.

The timing, structure and vehicles for obtaining this level of financing are under consideration by the company and it may be accomplished in stages. Failure to receive additional funding by the end of June 2014 will force us to delay, scale back or otherwise modify our business, operating plans, and/or pursue strategic alternatives.

Strengthening our balance sheet is very important and it a top priority. And now, let’s open the call to your questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now be conducting the question-and-answer session. (Operator instructions) Our first question comes from the line of Laurence Alexander with Jefferies and Company. Please proceed with your question.

Laurence Alexander – Jefferies and Company

Good afternoon, and apologies for the background noise if it’s coming through. A few questions. First, can you give a sense for how the depths of your process that is if are you really focusing on just one or two partners or do you have several avenues with the same goal? And so if you can give us a sense for how many layers there might be.

And secondly, are your counterparts, people who are looking for specific performance hurdles to be realized were they testing products and waiting to see the results? Or is this purely just a debate about structure and goals of whatever arrangement is being set out? Can you just give us some flavor on that? Thank you.

Joe Shaulson

Hi, Laurence, how are you? I guess what I would say is that we’re very busy. There’s a lot of activity around the financing, and we are talking to a bunch of different people about a variety of different structures. The focus has really been about the long term business plan and making sure that we’re securing the capital that we need to execute it. And we’re focused specifically on counterparties who share that interest.

I can’t really say much more about where we are in the process other than to say that we are very active and very busy.

Laurence Alexander – Jefferies and Company

And can you just give some detail on whether any of these counterparties or the counterparties were being shared with previously of six, nine months ago? Or how are you seeing the return in the mix of counterparties?

Joe Shaulson

Yeah, I don’t know that I could really comment about that. I don’t think we talked six or nine months ago about who we would have been talking to about financing. I mean, we’re talking to folks who are strategically interested in the business. They like the business plan, they’re interested in what they see and they see it as a strong investment opportunity. And that’s where our focus is.

Laurence Alexander – Jefferies and Company

Okay. And then I guess just lastly, when we get to the July date sort of the next soft state [ph], how much detail do you expect to be able to give at that point? Or will it just be a matter of – and that you’ve had a certain set of milestones and more news to comment. Can you just give a sense for what point people think the priority [ph] you left [ph] in your focus will shift back to operation?

Joe Shaulson

So yes, I mean our plan – right now, our focus is balanced between financing and operations. I’m looking forward to the point in time where the balance shifts more to the operations than where it’s been for the past couple of months. But I would say that our plan to complete at least the first phase of financing by the end of June and we would expect to have a full set of information for investors about what that financing looks like when we announce it. And to complete it by the end of June, it means we’d have to announce it by the end of June.

Laurence Alexander – Jefferies and Company

Thank you.

Joe Shaulson

I’m sorry. You’re cut off, Laurence.

Operator

Mr. Alexander, your line is still live.

Lynne Brum

I think he was cut off, Jim [ph].

Operator

Okay. (Operator instructions) Our next question comes from the line of

JinMing Liu with Ardour Capital. Please proceed with your questions.

JinMing Liu – Ardour Capital

Thanks for taking my question.

Joe Shaulson

Hi, JinMing.

JinMing Liu – Ardour Capital

Hi. First is regarding financing. Are you getting any support from your current shareholders?

Joe Shaulson

So like I said, we’re not really talking about who the counterparties we’re in discussions with. And we’ll have an opportunity to talk about that when we have a financing to announce.

JinMing Liu – Ardour Capital

Okay. Fair enough. So just looking at your operating expense, it still looks very high given what is happening. So two questions here. One is what is your emergency plan here? I mean, how much you can save by cutting your operating cost? You, say, somehow the financing got delayed.

Secondly, once you get at least the first page of financing in place, are you going to lower your operating expenses?

Joe Shaulson

So our focus JinMing is on executing our business plan and to execute our business plan, we need to execute our financing plan. And that’s what we’re focused on. We have a lot to do over the coming year and we’re staffed to accomplish that. I think that we’ve been staffed to accomplish that for some time. And we’ve been – so for example, we’ve had plans to move forward with manufacturing for some time and we’re staffed to move forward with manufacturing. And we haven’t done that to date. But we’re going to do that. That’s our plan for the next year.

And as we do that, we need the resources that are on staff to pull that off as we work on the commercial development activities that we’re involved in where we’re seeing really exciting progress, we need more resource than we’ve had historically because the effort is much more intensive than the approach that we’ve taken historically.

So our focus is not really on cutting resource. It’s on executing our business plan and executing our business plan means executing our financing plan. And that’s what we’re focused on.

JinMing Liu – Ardour Capital

Okay, okay. Lastly, operational-wise, can you give us any idea – some idea how much of your shipped product go into the additive applications versus [ph] traditional biopolymer applications?

Joe Shaulson

So we don’t – we’re starting with relatively small numbers at roughly $600,000 of product shipments in a quarter. And we wouldn’t want to get down into detail on where product is going. What I can say is that some of the product is going to additive applications.

And as I mentioned in my prepared remarks, we’ve got a couple of customers now that have progressed to tonnage scale product trials in additive type application. So that is something that we do expect to see increase over the coming quarters as we continue to push forward with those application development efforts.

JinMing Liu – Ardour Capital

Okay. Just lastly, just one last question for me. Is your current financing situation affecting you getting business?

Joe Shaulson

No, I don’t think it’s affecting us getting business. But I think, look, we live in the real world. People are aware of it. They’re concerned about it. We’re telling our story, our business plan, they’re intrigued by the products that they’re sampling and working on applications development with.

So we’ve been able to manage that so far. And like I said, our plan is to put the first phase of financing behind us in the coming month and a half. And that will certainly help us to continue that initiative with the customers.

JinMing Liu – Ardour Capital

Okay. Thanks a lot.

Joe Shaulson

You’re welcome. Thanks for your questions.

Operator

Thank you. I would now like to turn the floor back to Joe Shaulson for any closing comments.

Joe Shaulson

Well, thanks again everyone for joining us today. And thanks also or your continued support on Metabolix. We look forward to talking with you again soon, and wish you a good evening.

Operator

Thank you. Ladies and gentlemen, this concludes this afternoon’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Metabolix (MBLX): Q1 EPS of -$0.23 misses by $0.02. Revenue of $1.1M (-45% Y/Y) misses by $0.4M.