What happened

Food ingredients manufacturer TerraVia (NASDAQ:TVIA) is being sold off today after slower-than-expected progress was reported during the third quarter of 2016. Shares were down nearly 12% at 1:40 p.m. EDT today.

So what

Investors are understandably frustrated with TerraVia's performance. Formerly Solazyme, the company pivoted its focus from industrial markets for its microalgae ingredients to more lucrative food and feed markets, which are accompanied by significantly higher selling prices. It's the right move after manufacturing issues kept the company from profitably entering lower-margin markets.

Despite a flurry of new deals and products -- a wholly owned cooking oil product, BioMar for high protein fish feed, Nestle Purina for pet food, Soylent for meal replacement products, and a range of other food manufacturers -- the company reported third-quarter product revenue of just $709,000. That's 68.5% lower than product sales in the third quarter of 2015.

Things may appear worse than they really are, however. There are a few factors investors should consider.

This was the first quarterly report to exclude sales from TerraVia's cosmetic brand, Algenist, which historically generated a significant amount of total revenue and provided a cushion for gross margins. The brand was sold for $20.2 million in August, although the company retained a 15% equity stake.

Progress occurring within the joint venture with Bunge, which owns the sole commercial-scale manufacturing facility used by TerraVia and several important growth products, doesn't appear on income statements because the JV is unconsolidated. Revenue from the JV amounted to $2.5 million in the third quarter and $5.5 million for the first nine months of 2016. It's not fantastic progress -- and not enough to trigger consolidation -- but it's progress nonetheless.

Newly announced partnerships will take time to show growth. That's not exactly what investors want to hear after years of broken promises, but manufacturing novel ingredients and breaking into carefully maintained supply chains are difficult to accomplish.

Expanding on that last point, there was no mention in the company's press release of the five-year $200 million supply agreement with Unilever announced in March. While the revenue will be backloaded, activities at Solazyme and the JV don't appear to be ramping up to meet the commitment in 2016.

Now what

It wasn't all bad news in the earnings report. The company has slashed operating expenses nearly 35% for the first nine months of 2016 compared to the same period of 2015. Of course, TerraVia will still need to raise significant amounts of capital before it becomes self-sufficient. Given the current rate of progress, investors are rethinking exactly how long it will take to achieve that milestone. Thus, today's sell-off.