Verenium Corporation (VRNM)
Q3 2012 Earnings Conference Call
November 07, 2012 5:00 PM ET
Executives
James Levine - President and CEO
Jeff Black - SVP and CFO
Janet Roemer - EVP and COO
Analysts
Unknown Analyst - Jefferies & Co
Presentation
Operator
Good day ladies and gentlemen, and welcome to Verenium Corporation Third Quarter 2012 Earnings Conference Call. (Operator Instructions)
I’d now like to introduce your host for today’s conference, CFO Jeff Black. Mr. Black, you may begin your conference.
Jeff Black
Good afternoon an d thank you for joining Verenium’s third quarter 2012 conference call. I’m Jeff Black, Chief Financial Officer, and with me today are Jamie Levine, our Chief Executive Officer, and Janet Roemer, our Chief Operating Officer.
The agenda for today’s call is as follows. First, Janet will discuss commercial operations, including third quarter performance. Next I will review our financial results for the period and provide updated 2012 financial guidance. And Jamie will conclude with some commentary on the third quarter, the next strategy and outlook going forward.
Before we begin, I would like to advise you that this discussion will include certain statements that are not historical facts and are forward-looking statements that involve a high degree of risk and uncertainty. These statements relate to matters such as our strategy, future operating plans, markets for our products, including our ability to develop and launch new product and timelines for doing so, including our market size and our ability to access those markets, partnering and collaboration activities, including our ability to enter into any future partnership or collaboration, the benefits of our invent collection, public policy, financing activities, technical, and business outlooks.
The company’s actual results may differ materially from those projected in such forward-looking statements. Factors that could cause or contribute to differences include, but are not limited to, those discussed in our filings with the SEC, including, but not limited to, our report on Form 10-K for the year ended December 31, 2011, and in our subsequently filed quarterly reports on Form 10-Q. These forward-looking statements speak only as of the dates hereof.
I will now turn the call over to Janet.
Janet Roemer
Thank you, Jeff. Good afternoon everyone and thanks for joining us. I’ll now provide you some detail on our products and operational performance and our outlook. Our service revenue from our largest product line, animal health and nutrition and our lead product, Phyzyme Phytase. The decrease in our topline in the third quarter there is an explanation that is unrelated to market conditions.
Because we needed to take one of our three preventers out of service for planned upgrades in the third quarter, we chose to shift Phyzyme manufacturing to our partner, DuPont and consequently did not recognize the related manufacturing revenue ourselves, which carries no margin because we transferred the product at cost.
Gross revenue for the third quarter is down considerably versus the second quarter, though this did not impact product gross profit. Though we do not break out the components of revenue in the animal health and nutrition product line, after accounting for these factors, the underlying business is about on par with 2011 year-to-date despite generally soft market conditions.
Turning to our second largest product line, grain processing, revenues fell in the third quarter and is down year-to-date, reflecting continued adverse industry conditions, largely due to reduced demand for gasoline and therefore ethanol. Decreased ethanol prices combined with continued high corn prices have resulted in poor and even negative margins for ethanol producers, forcing plants to reduce operating rates or halt operations entirely until margins recover. We saw these effects in both the US where we sell directly and in Europe where we sell through a distributor.
On the positive side, trial activity for our lead product, Fuelzyme alpha-amylase, picked up in the third quarter and we are winning some new customers as a result of demonstrating the economic benefits of our product and recently we have seen some improvement in European demand. In concluding my commentary on grain processing, the outlook for the industry continues to be weak. For Verenium, our job is clear and that is to increase our share of the market by winning new customers and we are confident that our value proposition of reducing enzyme cost per gallon of ethanol resonates well with customers looking at all sorts of savings.
Turning now to oil field services, in the third quarter we continued to sell small volumes of Pyrolase cellulase enzyme used in hydraulic fracturing or fracking operations as an alternative to chemicals. While Pyrolase is a superior fluid breaker solution for use in situations with downhole temperatures up to 180 degrees Fahrenheit, we also announced last quarter that we developed a hypothermal stable guar breaker for use in more extreme temperature and PH condition and received EPA authorization to mark this product.
We recently named this product Pyrolase HT for high temperature and it’s one of the present products disclosed with last quarter’s conference call. Last month we presented a paper co-authored with Schlumberger summarizing their laboratory evaluation of this new product relative to chemical breakers at the Society Petroleum Engineers Conference. We are happy to report that we presented to a packed room and the paper generated significant interest from three important tiers in the oil and gas industry, oil field service companies, oil and gas producers and chemical suppliers. The paper is now available for purchase on the SPE website and the next important milestones will be producing this product at commercial scale and conducting field trials to confirm the performance parameters predicted by the lab data.
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