Amyris Inc (AMRS) 2011 Q1 法說會逐字稿

Good day. Welcome to Amyris' first-quarter 2011 earnings conference call. This call is being webcast live on the events and presentations page of the investors section of Amyris' website at www.Amyris.com.

This call is property of Amyris and any recording, reproduction, or transmission of this call without the express written consent of Amyris is strictly prohibited.

As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the investor relations section of Amyris' website.

I would now like to turn the call over to Erica Mannion, Investor Relations for Amyris. Please go ahead.

Good afternoon. Thank you for joining us to discuss Amyris' financial and operating results. With me today are John Melo, Chief Executive Officer; and Jeryl Hilleman, Chief Financial Officer.

We'd prepared a PowerPoint presentation to accompany their remarks today, which you will find in the investor relations section of our website under events and presentations.

On the call today, we'll provide certain forward-looking statements about events and circumstances that have not yet occurred. Actual outcomes and results may differ materially from those contained in these statements due to a number of risks and uncertainties, including those provided in the Company's recent SEC filings available on the SEC's website at www.SEC.gov. Please refer to these filings for detailed discussion on relevant risks and uncertainties. The Company undertakes no responsibility to update the information in this conference call.

The press release distributed today that announced the Company's result is available on the Company's website at www.Amyris.com in the investor section under financial press releases.

The current report on Form 8-K, furnished with respect to our press release, is available on the Company's website in the investor section under SEC filings and on the SEC's website.

You will also hear discussions on non-GAAP financial measures. Reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is contained in the press release distributed today, and available on the Company's website.

During the second quarter, the Company will participate in the Cowen Technology Media and Telecom Conference in New York on July 1; and the Lazard Alternative Energy Investor Summit in New York on June 2. Additionally, the Company will webcast a discussion on the Brazilian Sugarcane Industry on May 19. A link to that webcast will be made available on the Company's website in the investors section of the website under events and presentations.

Now, I'll turn the call over to John Melo.

Thank you, Erica, and good afternoon. We're very pleased to be speaking to you today about our achievements in the first quarter of 2011.

These accomplishments include significant advances and production capacity, technology, and customer demand, which serve to reinforce our outlook for production, cost production volume, and average selling price.

First of all, we have now completed our first commercial production facility at Biomin, and are progressing with our equipment installation in 2 other contracted facilities for start up in the third quarter.

We remain on schedule with construction at our joint venture plant with Sao Martinho. We have further expanded our production capacity through an agreement with Paraiso. And they're located in the heart of the established sugarcane region in Sao Paulo state. And expect to begin operations at that plant by first half of 2012.

We continue to advance our technologies, improving the main technical levers driving our production costs. One of these technical measures is yield where we continue to make steady progress when yield at 2-liter scale at over 20%.

Finally, we are focusing on market introduction of our first renewable product, squalene. We recently delivered squalene to our first customer and received broad indication of interest from customers, and in cosmetics -- the Annual International Cosmetics Conference in Milan.

Our technical achievements and construction advances reinforced our outlook for production cost and volume. The indicated customer demands supports our expectation at squalene sales were way up in the second quarter as we begin operations at Biomin.

And finally, our outlook for growth is supported by Biomin, plus 4 in development production facilities by our distribution partners in cosmetics, base oils, and finished lubricants, and by off-take agreements.

Together, we expect these 5 facilities to produce about 200 million liters at target production efficiency. And we believe that the demand potential represented by our distribution partners and current off-take agreements is over $1 billion in annual sales by 2013.

Further, we expect to add to this portfolio of off-take agreements substantially during the remainder of this year, with active discussions underway with customers representing an additional $400 million to $600 million in annual revenue potential.

Looking at these accomplishments more closely, Biomin is now complete and we expect to begin production shortly. We installed 2 200,000-liter fermentors in the facility, which we expect will produce between 2 million to 3 million liters of Biofene this year. And at full-year operations, at target production efficiency, will produce about 17 million liters of Biofene a year.

To prepare for the start of operations, we took 2 critical steps during the first quarter. First, we successfully tested our yeast strains and processes at industrial scale in several runs at 2 different locations.

Secondly, we started running the Biomin process in our demonstration plant in Campinas. And are now transferring over to Biomin where the same personnel are involved in executing operations.

Our installation that take a while at Antibioticos are progressing on plan. And we expect to start off those operations in the third quarter.

On a bigger scale, construction also remains on track at our joint venture plant located at Usina Sao Martinho. We contracted with a construction manager last December and the site is now cleared and ready for excavation.

Fabrication of our fermentor is progressing well and assembly has begun. This is a large project and we are pleased to have strong partners in the mix, with Sao Martinho's experience, our construction manager, and CNEC WorleyParsons.

Our technology, including yield, continues to advance. Yield is one of the technical metrics driving a reduction in production costs. And as I mentioned, we are seeing multiple strains producing farnesene would yield at over 20% at the 2-liter scale.

In addition to our farnesene efforts, we have commenced the program, funded by Total, for the development of C10 molecules for jet fuel and are progressing ahead of plan on a non-farnesene molecule for fermenting, which we expect to commercialize in 2012.

Our production outlook remains the same as in the previous guidance we provided -- 6 million to 9 million liters of Biofene this year, and 40 million to 50 million liters in 2012.

During the quarter, we added Paraiso as our fifth active production project in addition to our 3 contract manufacturing relationships and the Sao Martinho joint venture. We are designing the plant at Paraiso to be about half the size of Sao Martinho, and our engineering to achieve a fast time to production.

We therefore view Paraiso as a great way to reinforce our confidence on the 2012 production target, while offering the possibility of expanded volume.

Paraiso also demonstrates our increasing leverage in working with mill owners as we have now secured feedstock at this facility at the lower of ethanol or sugar values through the cycle. First, is a blending of the 2. With Paraiso, we are bringing the total cane crushed we have under contract to 13 million tons, which would supply our target production through 2014 of over 600 million liters of production. This year, we expect to sell farnesene finished into squalene, lubricants, and diesel in targeted markets.

The reception of our renewable squalene has been very enthusiastic. Customers at the recent In-Cosmetics Show, representing more than an estimated one-third of worldwide market demand for squalene, have indicated that they will buy our product provided they are sure that we can offer a reliable supply source.

Supply problems have been significant issues for these customers as they have had trouble with sourcing from shark liver oil and refined olive oil. Many customers have reduced their use of squalene overtime, but have told us they would like to expand if these issues are overcome. They see it as the solution to the supply problem, and we expect this demand to support our sales reps starting this quarter. Based on our order indications, channel access, and current negotiations, we expect to end the year with around $2 million a month sales run rate for squalene.

We are also gearing up to deliver lubricant sales starting in the fourth quarter of this year. Toward that goal, we are establishing 3 joint ventures as channels to market -- a joint venture with Cosan for global sales of base oils; a joint venture with Total for finished lubricants; and a joint venture for Amyris' finished lubricants distribution with US lubricants.

We are working towards key pre-launch milestones in base oils production in the second quarter of an initial 4,000-liter test run, an implementation of our production process at scale in the third-quarter. These activities are on track.

Overall for 2012, we are maintaining our product introduction plan and expect to build on this year's sales through sales under our base oil joint venture with Cosan and through our agreements with customers, including Grupo Energy for use in PET bottles; Firmenich and Givaudan for 2 ingredients for the flavors and fragrances market; and Proctor and Gamble for use in consumer products.

We are also expanding our product base. We have built our near-term outlook on farnesene, a 15-carbon molecule, and are now expanding into additional C15 molecules as well as C10 and C5 molecules. Our strategy for growth is to work with partners as we engage in additional applications for these molecules. And to ensure that there is an off-take agreement in place for these products.

Our target C10 molecules include molecules like limonene and pinene, which are like farnesene, very adaptable. They can be used in applications as diverse as jet fuel, polymers, fragrances, and cosmetics. Where there are specialty chemical roadmap, we are already targeting a total opportunity of approximately $14 billion in specific C5 and C10 market opportunities by 2015.

Beyond this, the application of C10 molecules is targeted jet fuel applications in the US, Brazil, and the EU, representing an initial [$10 billion to $15 billion] addressable market, which we expect to enter starting in 2015.

We have started work on a C10 jet fuel with Total and are in discussions with customers, other customers for applications of these molecules in the flavor and fragrances market.

Our primary target for C5 molecules is isoprene, which represents a $12 million market as a substitute for natural and synthetic rubber. We plan to pursue this program in conjunction with a partner to support in development and to have in place an established off-take agreement.

Isoprene is currently supplied equally from distillation of crude oil and through synthetic production. In the past 4 years, isoprene prices have risen as ethylene production, of which isoprene is a byproduct, is shifted from (inaudible) to lighter components. This dynamic has in turn challenged isoprene supply and created an opportunity for an isoprene alternative.

As we look out to our longer-term growth potential, we expect to grow in all our 6 verticals -- cosmetics, flavors and fragrances, polymers and plastics, consumer products, lubricants, and fuels. In addition to the organic growth we plan to achieve, we also expect to benefit from Total's [right] to access biomass to produce renewable lubricants and diesel. We are committed to Total for joint commercialization of jet fuel, and see an opportunity to partner with them for Amyris' diesel. This with the [outsign] of our current agreement and represent the opportunity for just to become a commercial partner in Europe for Amyris' diesel.

In summary, we continue to deliver on our milestones, adding value with each achievement. Our technology progresses on plan, including our yields. We are strengthening our 2012 production outlook through the addition of Paraiso and by continuing the Sao Martinho joint venture plant construction on schedule. And we are progressing with commercialization through a defined product introduction plan, leveraging a growing distribution network and working to fulfill existing customer supply agreements.

Looking out further to 2013, we expect to expand production to 150 million to 200 million liters through the addition of 1 production site and expansion at current facilities.

Our outlook for 2013 revenue is to sell that volume with an ASP of $350 to $450 per liter, based on current and in-process off-take agreements plus sales through our distribution joint ventures.

I'd like to turn the call over to Jeryl to take you through our financials and future milestones. Jeryl?

Thank you, John, and hello. Our guidance for 2011 production volume cost and ASP remains unchanged. We continue to expect to deliver positive gross margin on our renewable products for this year, and 40% gross margins for 2012. We also expect our fuel distribution business, Amyris Fuels, to remain at current volumes selling 40 million to 50 million gallons during the year.

Our outlook for non-GAAP operating expenses, excluding stock-based compensation, remained at $120 million to $125 million.

Our first quarter non-GAAP OpEx was $32 million, excluding $4 million in stock-based expense. To reconcile this actual with our outlook, note that our Q1 expenses include a $3 million of nonrecurring charges associated with our process test and executive hiring. This OpEx outlook may expand during the year as we had additional programs. So we would expect to have that expansion offset in whole or in part by contribution from our development partners.

Finally, our 2011 CapEx outlook is also unchanged to $75 million, pending our decision on how we will fund construction at Paraiso. We expect this project to cost between $40 million and $50 million.

There are 3 funding options under consideration. First, the partner will fund the project, which we are evaluating under our joint venture with Cosan. Secondly, that we elect to have Paraiso fund it. And lastly, that we choose to fund it ourselves to benefit from the full economics.

Regarding our project with Sao Martinho, our outlook for the total construction cost remains at $80 million to $100 million, which we expect to fund it on a shared basis at Sao Martinho from debt from Brazilian sources. The expenses for this project are largely in Brazilian reais so our CapEx will probably fluctuate based on currency. Overall, we continue to expect to see positive cash flow from operations in 2012, and we have sufficient cash on hand to reach that milestone.

Regarding our outlook for [chemo], as John mentioned, we are on track or ahead of schedule for our expectations. Thus far this year, we've had this farnesene finishing capabilities, delivered our first squalene shipment to our customer, and completed construction of the Biomin production site.

We've expanded our production capacity through the addition of the Paraiso and Antibioticos facilities, and added a supply agreement with Givaudan.

As we look forward, key milestones for the rest of the year are to get Tate & Lyle and Antibioticos completed during the third quarter and to start selling lubricants in the fourth quarter.

For next year, our key milestones include completing the Paraiso and Sao Martinho production sites, introducing new products and plan to fulfill existing off-take agreements, and moving from letter of intent to file a contract on an additional facility for 2013 production.

This concludes our presentation and we now like to invite those of you participating on the dial-in line to ask questions. For those of you participating via webcast, please contact us directly with any further questions. We greatly appreciate your interest. Justin, we're ready for questions.

Thank you. (Operator Instructions). Smitti Srethapramote, Morgan Stanley.

Hi, John and Jeryl, and congratulations on the great progress on the yields. My question is more related to the impact of the recent movement in commodity prices, particularly whale. Can you talk about whether you've seen more interest from potential customers as well it grows throughout Q1?

Okay. Smitti, this is John. Welcome and thanks for being on the call with us, and thank you for the comment regarding our 20% yield accomplishment.

On the commodity pricing, I'd say that our active discussions, and again, we have a significant number of active discussions plus we've accomplished in the recent quarter, have all been driven by other or had other key drivers than the absolute price of oil. There's no question the absolute price of oil has obviously driven some interest, but the majority are other issues. For instance, in isoprene it's really related to natural rubber prices. It's related to the shift to North American gas for some of the chemical crackers in the US, and the desire for some of the [tire] companies to have an alternative source to be able to actually mitigate the long-term risk of supply around isoprene. So oil is a small part of the conversation, not the key driver in that discussion.

Flavor and fragrance is it's all about really reducing their production costs by being able to have a better molecule that's actually lower cost to get to the finished product in their current solution. So not directly oil related.

And in lubricants, I'd say we have more oil relatedness or correlation. But even in lubricants, I'd say, the real sensitivity hit at around $70 or $80 a barrel, not when it got to $100 a barrel -- just to give you a sense of key drivers in the market. And all of the key volume takers that we're currently working with are integrating their business, which is a key driver for the kind of relationships we've established with both Cosan and Total. So the answer is yes, it's always in the conversation. It is not the biggest driver of the demand that we're seeing from our customers. It is one of them.

Great. And maybe just one more follow-up. As the recent announcement by the Brazilian government that they may look to regulate the sugar and ethanol market. What kind of impact has that had in terms of you guys being able to -- what are you hearing from potential partners about that -- this development?

0 impact. And if anything, actually the impact we're seeing is a more aggressive drive from our biggest partners in wanting to secure a relationship for production with us because they want to have, more than ever, an alternative production source for use of the cane to just be an expose to a fear of the control around ethanol, and obviously the sugar side.

And on the other side of the equation, we want to be a positive contributor to the dynamic in Brazil. And when you look at the dynamic in Brazil, the real message from the government is, they want to see more cane plantations grow. Because right now, what they've experienced, especially since the 2008 financial cycle has been a lot of consolidation and a reduction in investment from [cane] plantations.

So the real message that they're giving and we've been, again, very integrated into that activity is they want to see more plantation growth. And we're working very closely with the oil sector, specifically Petrobras and Total, to facilitate that to be net investors in growing the cane through those relationships in service of having more cane or what their needs are, which is really diesel from cane, our renewable diesel products.

Great. Thank you.

Mark Wienkes, Goldman Sachs.

Thank you, great to see the continued momentum. Just wanted to follow up on the capacity arrangement with Paraiso. I guess, I'm saying that correctly. It seems slightly different than the other strictly contract manufacturing arrangement from the 3 different scenarios you detailed. I guess, can you help us understand how the economics on the splits of the economics might differ under those 3?

Yes. Thanks, Mark. And again, Mark, welcome to the call. It's very different. In a lot of our arrangements, either we're paying somebody to use their facility and we have a higher operating cost space by Biomin, as an example; or we have a joint venture structure, Sao Martinho as the example plus some of our pending big arrangements in the other joint venture sites.

Paraiso is basically a utility sharing land access and feedstock contract for a site that we've been -- have the full optionality of what we want to do. And for us, the key reason for driving that was basically on the economics of that agreement. We get about 12 to 18 months payback on the capital. Again, thinking of the capital as Jeryl indicated, $40 million to $50 million for target capacity of 50 million liters of production. Think about it as the site. So we wanted much more flexibility and wanted to really lock in a very tight relationship, which is what we've done.

So what that gets us to is we have a structured relationship for the supply of the cane syrup. They provide the utilities that are associated with that syrup so that we get utilities as part of that package. They deal with taking that as an [ash] and dealing with an ash, which typically means spreading in the fields as fertilizer. And we have access to a part of land from their site, which then gives us flexibility to expand either using just their syrup or buying third-party syrup from adjacent cane fields to supply our facility. There is no value sharing unless we opt to take in some of their CapEx, and we have full flexibility in what we do with the site long-term..

Okay, that makes sense. And then the decision about whether or not to partner, I just didn't have a clear understanding of the comment about thinking about the partnership with Cosan, so scenario 1.

Yes. There's 2 things going on there. First, it's a scenario that Jeryl communicated, which is Cosan, because of their interest in scaling the lubricants joint venture fast and getting access to quick production, has indicated they would be interested in doing a joint venture with us at the Paraiso site, i.e., funding half of the plant if we decide to go that route.

The second is -- Cosan, as well as several others in the market, have now come to us and said, we like that Paraiso structure, would you like us to do facilities like that? And if you would, we're happy to contribute 50% or all of the CapEx and some value share with you.

And that's why you're talking about the potential for the better -- the lower of ethanol or sugar economics?

Exactly, right. What we realize, and again, before when we did not have -- we have this conceptually in our minds. We have not had full access to it in past negotiations.

As we started to demonstrate technical success, it starts to ramp up, more of the sector in Brazil has been approaching us, and we've been pushing more this kind of structure. Once we make public, what we did with Paraiso, everyone else that has been working with us has come to the table and said, we will do that deal right away. And the economics are really simple.

What we have to realize is that 40% to 50% of their current cane supply is used for the lower value production product. So in a way what we're doing is providing an alternative use for the low end of their economics. And that's based on the split that they have between ethanol and sugar production in their current facilities.

Right. It's like a free [good] option for them. Just a follow-up for Jeryl, is it safe to assume that incremental $3 million is all in the SG&A line?

No. All of it are R&D because it comes from the testing we did in the first quarter. So you could probably assume that it's about two-thirds -- one-third R&D, SG&A.

Okay. Thank you.

(Operator Instructions). Rob Stone, Cowen and Company.

Good evening, John, Jeryl. Congratulations on all the good stuff going on. A question respect to your initial comments on 2013 targeting 150 million to 200 million liters. You talked about Paraiso as providing insurance on 2012 and possible upside. You just reviewed the component of what contributes to the leaders in 2013. Is that capacity gated? Is it the customer ramp? What could make that higher or lower?

It's all capacity gated. We actually have slightly above the [operate] of that and demand based on our current portfolio of opportunities and real gating factor is the production we ramp up. And in those numbers are the contract facilities, Paraiso, Sao Martinho, one additional facility like Paraiso and potential expansion of new tanks or additional tanks in the existing facility we're contracted with.

With respect to your decision to branch out now into additional C5, C10 other molecules, what drives the timing of that now. It seems like you have lots of opportunities within the (inaudible) stream, and then what are the implications for headcount in R&D as R&D expects us? And as you think about those market segments, do they represent different ASPs than the one you have now?

A couple of things, Rob. But I think the first point on cost, for the most part, these are partner-covered costs. So when we think about C10, it's 100% paid for by Total.

The C5 deal is going to be 50% paid for by a partner. We're currently in the middle of a negotiation on that deal, and the C5 will be advanced based on that. And they both provide a significant opportunity.

If I think about the C5 deal, it has the potential of becoming one of our biggest off-take agreements to date, with one partner in the market that we really like. And it also, to your last point on ASP, what it's now done as we look at the C5, C10, and the C15 platform, we now clearly see a band, kind of a very large band of market that leaves our ASP around this $350 to $450 range, which is a very different view than we have initially are needing to get below the $2 range to be able to meet what we see is our 5 to 10 year horizon. So it's done with (inaudible), enabled us to leverage our technology platform and that's really around the robotics, what I'll call the component libraries and our understanding of the yeast to be able to go in 2 additional platforms and end up bolting on and then adding volume and margin as we go beyond the 2013 range.

And if you think about the C10, we expect the C10 outside of jet to be something we can start taking to market around 2013. And we see C5s in some of the smaller C5 opportunities being able to scale around 2014. So we see them as accretive short-term, paid for by partners, leveraging the current technology platform, and not taking any resource away from our continued success in the farnesene or yeast to farnesene milestones.

Okay. And looking a little closer in now on squalene now that you talked to a big chunk of the potential customers out there, do you have any updated thoughts on how the ASP roll off for that? And how do you see -- I know it's not entirely squalene, but how do you see the leaders for this year to be ramping through the remaining 3 quarters? Is it heavily a bunch in Q4? What does the slope look like?

Lubricants, which are around half, it's not slightly more of our volume -- for 2011 that comes in the fourth quarter, to start at the beginning of the fourth quarter. Squalene ramps up so we start shipping or ramping our shipments month on month all the way through the fourth quarter, with the fourth quarter being our biggest volume quarter for squalene but ramping throughout the year.

And then I'd say that our diesel sales are also really ramping in the third and fourth quarter. So I'd say, it's squalene ramping through the year with maximum volume in the fourth quarter, lubricants fourth quarter, diesel second half as the way to ramp plays out.

In your question regarding squalene ASP, we really verify what we already have this ability on, which is that squalene ASP is probably around $25 to $30 a liter. And we see the market with significant demand. And I think what we started to say in the last call, which we verify during the show, is the market is about 5 times its current size. And it's going to take about 18 months for that expansion as people start to reformulate what they change to over the last 4 to 5 years. Last 4 to 5 years has been a significant decline in the squalene market because of the availability and reliability of supply. Making it a reliable, making us a reliable supplier, making it more available, staying in that price range will give us about 5X the market size. And we know where the customers are and we have relationships with them. So we feel very good and it was a validation being face to face with the end customers.

So that would imply a pretty steep ramp for squalene next year to -- would it not?

Exactly, right. I would expect, through next year, our squalene volumes are doubled from where it's ending this year.

Jeff Zekauskas, JPMorgan.

What I'd like to do is just start with some housekeeping, if I could. Could you mention what was cash flow from operations in the quarter? What was CapEx? And did you sell some of your renewable profits in the first quarter?

We took an order in the first quarter and delivered it in the second quarter to answer your last question. [Appreciation] was for the quarter $2.1 million and cash flow from op and a negative 19.96.

19.96. And what was your CapEx?

Total CapEx was around $14 million. I'm going to check. Around $14 million.

Do you think you could update us on your relationship with Procter & Gamble and how your R&D relationship is going?

Quite well. We have a team actually -- hi, Jeff. This is John. We haven't seen that P&G this week. We are continuing to work with them on additional application that they've been involved and beyond the first one. And we expect to have a product uptake relationship for the first application starting probably somewhere around the end of 2012.

The end of 2012. Okay. And this year you said your production volume will be 6 million to 9 million liters. What do you think your sales volume will be?

I'd say it will be within 80%, 90% of that production volume.

80%, 90%, okay. And in terms of the completion of the Sao Martinho facility, from your point of view, that's still on target?

Correct.

It's [under] construction mid-2012.

Mid-2012. And when you bring that up, what do you think the primary products will be that you'll sell from that facility?

That facility will predominantly dedicated to polymers and plastic additives. It will be dedicated to 1 of 2 customers. One we have not announced yet and the other we have, Grupo Energy. Those are the 2 customers in the polymer space that that facility will be dedicated to.

Right. Thank you very much.

And that does include the question-and-answer session. I'll now turn the conference back over to Mr. John Melo for any additional or closing remarks.

Thank you, Justin. Let me close by saying thank you for participating in this call. We appreciate your support and interest, and look forward to speaking with you again soon. And hopefully seeing many of you shortly.

And that does conclude today's conference. Thank you for your participation today.