Amyris Inc (AMRS) 2011 Q3 法說會逐字稿

Good day, and welcome to the Amyris Third 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 the property of Amyris, and any recording, reproduction or transmission of this call without express written consent of Amyris is strictly prohibited. You may listen to a webcast replay of this call by going to the Investors section of Amyris' website. As a reminder, today's call is being recorded. And now, I'd like to turn the call over to Miss Erica Mannion, Investor Relations for Amyris. Please go ahead, ma'am.

Good afternoon. Thank you for joining us to discuss Amyris' financial and operating results. With me today are John Melo, Chief Executive Officer, and Jery Hilleman, Chief Financial Officer. We have prepared a PowerPoint presentation to accompany their presentation which you can 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 website at www.SEC.gov. Please refer to these filings for detailed discussions of the 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 results, 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 Investors section under SEC Filings, and on the SEC website.

You will also hear discussions of non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is contained in the press release and supplemental materials which are available on the Company's website at Investors.Amyris.com under Events and Presentations.

Finally, we'd like to let you know that Amyris will be participating in three conferences this quarter, including Barclays Biomass to Bioproducts conference on November 29 in New York City, R.W. Baird Clean Technology Conference on December 1 in San Francisco, and Goldman Sachs Sixth Annual Global Clean Energy and Power Conference on December 8 in New York City.

Now, I will turn the call over to John Melo. John?

Thank you Erica, and good afternoon, everyone. We are very pleased with our accomplishments since our last call, which include agreement on the terms for our planned collaboration expansion with Total, completion of our agreement with Michelin, and execution in our first full quarter of production.

For those of you looking at our PowerPoint materials, the image on the first page is our first truckload of farnesene, a culmination of years of preparation and hard work and a true reason to celebrate.

Our agenda for the call today is to go over these highlights as well as other recent accomplishments, and to discuss our view of 2012 and beyond. First, let me update you on Total.

We have now reached agreement on the expansion of our collaboration to include funding of our farnesene development program, as well as key terms of our joint venture to manufacture and commercialize products we develop together including our renewable diesel and jet.

Under the agreement, we expect Total to provide over $100 million in development funding through the end of 2013, as well as other financial support within the joint venture. We mutually expect to sign these agreements by mid-November, with the first funding for the expanded collaboration to occur in November. Our intention is to have the joint venture company operational by the end of the first quarter 2012.

The joint venture company will be the exclusive vehicle for commercialization of Amyris renewable diesel and jet fuel, and will also have non-exclusive access to up to five other farnesene- and farnesane-derived products for immediate commercialization. These include drilling fluids and base oils for the use in Total finished lubricants.

We expect the joint venture company to achieve first commercial sales in 2012.

We also now have collaboration and supply agreement with Michelin, adding isoprene to our product development portfolio. We entered into the Michelin agreement predominantly to address the increasing scarcity of Isoprene, but also for the benefit of having a renewable component to their tires.

Michelin is committed to an initial uptake volume of isoprene. Thereafter, we are able to sell it to other customers as well. We have extensive interest from other companies interested in joining this collaboration for Isoprene and are in active discussions to add one major additional partner to this collaboration.

As a further potential expansion of the use of farnesene in household products, we were very pleased to enter into an agreement with another Bay-area company, Method. Method is one of the leading innovators in premium eco-friendly household and personal care products, and we expect our recently-signed joint development agreement to generate multiple ingredients from farnesene, such as surfactants and solvents, for use in Method's products. We are both excited about the no-compromise performance of farnesene as a surfactant and solvent, and are in process of developing applications that we would expect to scale commercially in 2013.

We are expanding our addressable markets by acquiring the assets of an early-stage company called Draths Corporation. Draths developed a platform that's applicable to opportunities in polymers, but were very early in development. Their work was in e-coli, and needed to be translated into yeast in order to scale. We felt this was a good fit for us, as we believe we are among the world's experts at yeast engineering and we have the scale open infrastructure and access to feedstock needed to deliver on these applications.

The specific addressable markets we are targeting represent over $50 billion of new opportunity, in markets very complementary to those already in our product development plan and in demand with our current customers and partners. These include bio-PTA and nylon. We have a strong pipeline of customers and collaborators that we expect will fund this development through our biology, fermentation and production platform.

We made significant progress in Brazil, gaining access to an additional 3 million tons of cane crush capacity. We have announced that we entered into a Memorandum of Understanding with ETH, a leading producer of ethanol and sugar controlled by Odebrecht. Our intent is to form a joint venture with ETH where they are the majority owner and majority provider of capital, and to bring this production facility online in 2014.

In addition to ETH, we have just signed another MOU agreement that we had not announced prior to this earnings call, with Alvorada. With this agreement, we expect access to 1 million tons of cane juice under arrangements similar to our agreement with Paraiso. The expansion of our cane access is critical to our customers, who are seeking capital-light access to production and security of supply for their growing demand.

Turning to production, we are now operational at three facilities, Antibioticos, Biomin and Tate & Lyle. We have been advancing our best-performing strains to production and achieving target performance at scale. Our technology and scale of focus is on yeast productivity where we achieved close to a 40% increase during the third quarter.

It is our expectation that these three production sites have the expansion capacity to meet our 2012 production targets, thus significantly de-risking our volume ramp for 2012. Antibioticos alone has capacity to represent the full fermentation potential of 1.5 times Sao Martinho's industrial capacity at target.

Looking forward to our product sales in 2012, we expect to deliver Amyris renewable products in five of our six vertical market groups in 2012 -- diesel, lubricants, polymers, flavors and fragrances, and cosmetics. We expect polymers and lubricants to account for the majority of FENE volume with the highest margin contribution sales in cosmetics, and flavors and fragrances. Controlling this mix of business across our customers is one of the key ways we can shape our business and optimize our profitability.

Our identified 2012 customers are very familiar with our products, generally having performed extensive testing and evaluation prior to entering into an agreement with us. To share a sense of their perspective on our products and their level of excitement, I would like to highlight four examples.

First, Kuraray, a leader in liquid polymers, with a strong portfolio of number one and number two products across the globe and in Japan. They've identified and developed a breakthrough application of farnesene as a polymer that significantly enhances tire performance. We have been working with M&G and have developed the high performance oxygen scavenger to incorporate in their PET bottles, and they are now working with their significant customers for final confirmation on the bottle.

Firmenich is looking to expand the market using our product not only in their products, but to sell it themselves to expanded markets. And finally, Nikkol, a leader in performance materials for the cosmetics industry, is working with us in developing several applications beyond squalane for the Asian cosmetic market.

We have established a strong track record of delivery with our partners with most expanding the number of products we are developing with them. This is a great source of confidence around our technology, the performance of our products, and the capabilities of our team.

Shifting gears from customers back to our feedstock and production, I would like to give you some further insight into our expectations in both areas. For feedstock in Brazil, our model is to source sugarcane at the lower of the cost of ethanol or sugar. Right now, the low point is hydrous ethanol, which is illustrated in the chart of historic data in our supplemental materials. Whether sugar or ethanol is the lower-priced feedstock will change over time as the market dynamics shift and the price of both will be volatile.

However, to offset this volatility, we believe we are shielding our margin in two ways. First, we intend to move our lowest margin and highest capital intensity products, our fuels, into our joint venture with Total. This enables us to target a long-term average selling price of $3 to $4 a liter, based on current pricing for our products. We believe that this pricing against our target production efficiency builds in significant protection for our long-term renewable products margin.

In addition to accessing feedstock at incremental economics, most of our agreements provide access to additional services that are included in the unit cost of our feedstock agreements. This provides us with a blended feedstock cost below the market price of sugar.

Regarding our production, we have learned a great deal. There's nothing like actually running a commercial-scale plant to achieve true clarity and understanding on what works and what needs to be improved. That has been the case with us this past quarter. Fortunately, the hardest elements to change are equipment and process design, construction cost and timeline, and our yeast all worked as planned. We have learned how to improve deployment regarding our team and capabilities, automation and equipment redundancy.

Regarding the team, hiring and training the long-term operating team takes considerable time, and should be done in advance of startup. For automation, we needed experience to complete automation design but we gained that experience at Biomin and have applied it at Antibioticos and Tate & Lyle. And finally, having some redundant equipment including a second seed fermenter, and extra storage tanks, enables recovery when there are the inevitable glitches.

As corroboration that we have successfully addressed some of the earlier shortcomings, we have had a very successful experience at Biomin with these corrective measures in place. We recently ran the fermentation operation continuously for over 570 hours, something our internal experts tell us is a rare accomplishment for the fermentation industry as a whole, so we are very proud of this achievement. Antibioticos achieved stable operation several weeks ago, and we are currently engaged in optimizing our processes further to drive further production efficiencies.

After several months longer than planned, we are pleased with having stabilized our production across our facilities. To give ourselves space from the learnings to implement these changes and underpin our production for the ramp into next year, we decided to slow down our production ramp this year to produce a total of 1 million to 2 million liters of farnesene and achieve a year-end run rate in the range of 700,000 liters of production a month.

In summary, I would like to recap our key achievements in the context of their overall impact on our business. First, we have reached agreement with Total on the expansion of our collaboration resulting in a minimum of $100 million in collaborative funding through the end of 2013. In addition to securing financial support for farnesene development, our largest technology spend, this also provides a commercialization [pad] for our lowest margin and highest capital intensity product outside our current financial framework. We believe this will result in a higher long-term ASP for our products of $3 to $4 a liter, and the ability to scale our business with our capital-light model.

Second, as a result of the isoprene partnership, our access to Draths technology, and the growing demand for applications in cosmetics and flavors and fragrances, we have a strong pipeline of collaboration partners that enhance our short-term funding and our product pipeline. Collaborations are an integrated part of our business model as they fund an accelerated and secure time to market and establish a strong lock-in with our customers. We believe that cash contributions from collaborations blended with our product revenue and contributions enable us to mitigate short-term results and deliver on our financial targets.

Third, we are operating at commercial scale, shipping product to our customers, and our technology is working as planned. This has not been easy. Many lessons learned. The current sites and the expansion access at Antibioticos provide production volume to meet our 2012 production volume targets.

Sao Martinho and Paraiso projects are on budget and on schedule. We are reviewing construction timing with a view to manage our CapEx spend to fit with our sources of funding, as Jery will explain in further detail.

And lastly, based on the strength of our production optionality, we believe that we can achieve our 2012 volume without either of these projects coming online in 2012. We expect that the net benefit of this flexible, adaptive project management is that we will meet our production ramp targets under a lowered CapEx outlook with less risk for scale-up plans.

In conclusion, we have a clear and de-risked path to our production volume and customers, as we ramp our commercial volume and sales into 2012 and 2013. Our execution focus is now on becoming great operators of fermentation facilities while maintaining our position as a leader in bioengineering and fermentation process development. Our partners and customers are demonstrating great performance in downstream process chemistry and application development, helping lead the way to making the FENE [economy] a reality.

Now, let me turn it over to Jery.

Thank you John, and good afternoon. Our year-to-date revenue continues to derive from sale of fuels through our subsidiary, Amyris Fuels, and from our collaboration [and grants]. During the quarter, we had nominal sales of our renewable products while initial production quantities at Biomin and Antibioticos underwent finishing. We expect sale of renewable products to ramp in the fourth quarter as the availability of finished products increases, enabling us to complete planned sales to Nikkol, the Sao Paolo bus fleet, and Novvi.

Following the decisions that John referenced earlier in the call, our target is to achieve a year-end production run rate in the range of 700,000 liters a month. We continue to forecast total farnesene production of 40 million to 50 million liters in 2012, supported by the expectation that our current three production facilities, with minimal expansion, can achieve our production targets.

Our target average selling price for 2011 and 2012 remains unchanged at $6 to $7, and $4 to $5 a liter, respectively. Based on our volume outlook for 2011, our production costs are going to be higher than our previous target of $3.70 a liter, because our cost includes fixed payments to the producers, and since we have reduced our volume outlook these costs now get spread over a smaller production quantity.

We are also forecasting that a high percent of our 2012 volume was sourced from our current contracted production facilities. As a result of that cost structure, while we do continue to expect to deliver sustainable renewable products gross margin of around 40%, we expect to ramp toward that goal between now and 2013.

As a near-term target, the combination of our forecasted 2012 renewable product and related collaborations revenue would be approximately 40%, including revenue from the expansion of Total and additional targeted collaborations.

Our outlook for operating expense remains unchanged, as does our outlook for net cash OpEx, meaning the gap between collaborative funding we receive and our cash operating expense. As John described, we continue to optimize our production plan and supporting mix of facilities in order to achieve our 2012 production volume and ramp into 2013.

Based on our current view, we are lowering our aggregate 2011 to 2012 project CapEx outlook by $30 million to $35 million. This spending includes $90 million to $100 million in 2011 and $70 million to $85 million in 2012. It is our intention to time this spending to be largely in sync with receipt of project financing in order to achieve a net project CapEx spend of $70 million to $80 million in 2011 and $10 million to $25 million in 2012.

Toward that end, we have recently received approval of the first loan from the Brazil National Development Bank, or BNDES, covering all of the CapEx in the Biomin project, and we expect funding under this approved loan in the first quarter of next year.

We are delighted by this approval, not only because it provides a source of capital, but it also serves as an indication that BNDES is supportive of our project.

We are actively engaged in seeking similar funding for both Paraiso and San Martinho, and hope to begin receiving approval of funding on these projects starting in early 2012. Our goal is to minimize our cash out for CapEx consistent with our strategy to leverage optionality by continually evaluating the most efficient way to realize production capacity as we ramp.

Our cash balance at the end of the third quarter was $123 million. During the fourth quarter, we expect a significant increase in funding from Total under the expanded collaboration. We continue our view that we have sufficient cash to attain positive cash flow from operations in 2012 and expect to supplement our cash balance in 2012 through the addition of incremental collaboration, project financing, and positive cash contribution from the sale of our renewable products. We may, however, consider additional financial sources for Amyris in 2012 for the achievement of two purposes. First, to strengthen our balance sheet as we pursue a steep ramp in our business, and secondly to address the many opportunities that we are not able to fund today which we believe can add incremental value to our company.

That concludes our formal comments, and we'd like to address questions at this time. Tom, would you please open the lines for questions?

(Operator Instructions) We'll take our first question from Mark Wienkes with Goldman Sachs.

Oh great, thank you. Just wondering, on the deals you announced on the feedstock side with ETH and Alvorada, could you help us with the general terms? You said it was similar to one of the prior ones, but with respect to timing, moving from an MOU to when you expect to get an agreement, when would you need to do construction in order to come online and then just the general terms around how you think about the CapEx sharing on those?

Mark, this is John. Both of those are similar projects to Paraiso, even though the ETH project is double the capacity of Paraiso. It's intended to be the modular build of Paraiso. So, both of those are projects that we see as 12 months from steel -- from dirt moving to plant being complete, and we expect that both of those plants will come online in 2014, since we have the projects in hand today to deliver the 2013 volume ramp, which are really the existing CMO's plus the addition of Paraiso and Sao Martinho for 2013 volume.

So, our expectation is beginning of 2013 construction for the 2014 season in Brazil, and regarding CapEx, we see the majority of the CapEx for the ETH project being ETH-sourced, and we see the Alvorada being very much a 50/50 or option on our side for where we access CapEx for that project.

Okay, and then the cash flows would tie to the rough CapEx split, or not necessarily so?

Yes, the CapEx, we actually get advantage terms on ETH so ETH is one of the first deals where they are putting in more CapEx and we get more economics than the CapEx they're putting in. So, that is the first deal where we've started to get access to more of the margin, and get more of the CapEx from a partner.

Okay, excellent, thank you.

Thanks, Mark.

We'll take our next question from Smitti Srethapramote with Morgan Stanley.

Yes, hi John. You talked about experiencing 40% yeast productivity improvement at one of your plants. Can you talk about what you've seen on the other three key technical cost drivers, yields, separation efficiency and titers, in Q3?

Yes, I would say that titers and separation efficiency have continued to improve. I'd say that our focus during Q3 was absolutely driving productivity, because we saw that as having the greatest leverage in reducing our production costs, and so we held yield and improved productivity 40%.

Great, thank you.

We'll take our next question from Jeff Zekauskas with JPMorgan.

Hi, good afternoon.

Hey, Jeff.

Hi. When do you expect the Paraiso plant and the Sao Martinho plant to come on stream?

Right now, it's targeted to come on stream from mid-year 2012.

So, those have not been delayed even though you're going to delay your CapEx, is that correct?

No, what we're basically saying is, we're going to lock in our CapEx with (technical difficulty) funding to ensure that we're not actually forwarding CapEx ahead of having funding sources or said differently, ahead of the funding being complete. At this point, we're reviewing the match of that CapEx funding to the projects and we've underpinned all of our production needs in 2012 without the need of those projects, giving us the flexibility to move them if we need to, but we've not made a decision to do that at this time.

Okay, and what you said I think, is that for the Antibioticos, you could produce 1.5 times the output of the Sao Martinho plant. So, that would be -- so do you mean that you could produce 75 million liters, or 50 million liters?

Yes, let me go to the absolute and work my way back. On an absolute basis, Sao Martinho at target is a 100 million liter plant. Antibioticos has the capacity for 150 million liters.

Why would you want that amount of capacity from a contract manufacturer?

Because in the way -- let me give you some background on what's happened with Antibioticos. They were an antibiotic manufacturer. The Chinese manufacturer of antibiotics over the last two quarters, has basically put them out of that business. So, as a result, our access to that facility has changed dramatically, so we have a significant access to the facility at advantaged economics, and the focus is really not on an operating cost basis, it's really an ensuring we have good sustainable access to feedstock as we bring in capacity at that site.

And you're still seeking a partner for Paraiso, is that correct?

No, for Paraiso we are in active discussions with both Total and Novvi/Cosan who are interested in that supply, and we're exploring between the three of us which will have access to that supply based on the CapEx that's put in. In addition to that as Jery mentioned, we're also in discussions with several funding sources including BNDES to fund that directly ourselves, through that.

Okay, and just a couple quick ones more. So, your production, did you say that your production volumes this year would be 1 million to 2 million liters?

That's correct.

Yes, we did.

Okay, and so why was there the change from the original whatever it was, 7 million to 9 million liters, to 1 million to 2 million liters?

You can think of it as three months of issues that we've had at the facilities as we've worked through learnings to get them stabilized and producing at target.

But you also said that your yields went up 40%.

Yes, that the productivity went up 40%, which is basically $1 a liter in production costs. The issue is that no matter how good the yeast is, the fermentation has to complete and has to be effective, and so to give you an example at Biomin, we've had a significant number of problems with utilities staying on regularly. Everything from power, to steam, to water, and we've had to understand that and then basically correct it ourselves, which we have done. But, it's cost us a quarter of production ramp. The good news is, it's now stabilized and we feel very confident about our volume. We have the volume online we need for 2012 now, but it's cost us in 2011 production volume.

Okay. Thanks very much, for all of the answers.

Thanks, Jeff.

We'll take our next question from Robert Stone with Cowen and Company.

All right John, Jery, let me take this production question from another angle, if I could. You talked about lots of different optionality, timing things to get access to funding which might be from partners, might be from debt, and that you could produce all the 2012 target volume with the existing operations. Is it also fair as an option or possibility that if all goes well with the construction and the funding, that you could therefore end up producing meaningfully more than the 40 million to 50 million? Do you have the demand lined up from customers for that?

Yes, we do.

Okay. And with respect to the sectors, your verticals that are going to be in production next year, 506 there's a question mark under personal care. Is that because of not having enough volume to go around, if it's only 40 million to 50 million?

It really is prioritization of volume for those [offtake] agreements, particularly P&G and Method we just initiated our collaboration. So, whether we have something in 2012 is an aspiration, but not something we're prepared to commit to as a delivery.

Okay.

And another -- just to build on that, the Method is early, it's going to take us a year to do what we need with Method to be commercial. With P&G it's one of our lower-value agreements, so the reason why we [issued] it out was, if we had tons of volume and we wanted to sell it at incremental margin, we would ship to P&G. However, in light of the other applications we have and the higher selling price, it's not really our interest in turning P&G on in 2012.

Okay. And that list is really only intended to address 2012, you now have three customers in that category. Wilmar is the third, correct? But they're not --?

Those aren't 2012.

Yes, those are all 2013.

Okay, so Wilmar's not gone from the list, it just isn't on that slide?

Absolutely correct.

Okay.

Rob, let me iterate that answer, actually. No customer has left our list, and actually every collaboration we started has expanded a number of products, and so what we did on the slide was focus on what's coming online for commercial production in 2012.

Okay. A couple of housekeeping questions for Jery. One is, ETH is going to be a majority owner but because you're going to have better economics, will you be able to consolidate the revenue from that joint venture, or is it too soon to tell?

It's too soon to tell. We have to make that determination as we work through the actual definitive agreement with them.

Okay.

Even -- it's set up though in a way that even if we don't, we'd be the seller of the product and receive fees such that we believe it could be consistent with the overall economics, whether or not we consolidate the project.

Okay. Just one other housekeeping thing. Could you give us the parameters on fuel, how many gallons and what price, and cost?

For Q3, I assume you mean?

Yes.

The Q3 sales, give me a second, for AFL were 10.6 million gallons at an average selling price of $2.93.

And the cost was?

We're not breaking out the costs.

Okay, but I'm just trying to figure out whether the significant negative growth margin there is that you were recording negative margin on your nominal bioproduct sales, or whether it was just your usual bad spread on fuel.

There were some startup costs, but largely there's also a significant amount attributable to fuel.

Okay, thank you.

We'll take our next question from Vishal Shah with Deutsche Bank.

Hi, this is Scott Reynolds for Vishal Shah. I just wanted to ask, with regard to the AFL business, how do you see that progressing for next year? Obviously, it's been a big drag on margins, and I'm not sure if it's progressed exactly how we originally thought it would.

We expect by the end of next year, Scott, it won't be part of our portfolio.

Okay. And, to the timing of those Total payments, how should we think about those for next year?

They're quarterly.

Okay, quarterly payments, should -- are they going to be front-end weighted, back-end weighted?

A little bit front-end weighted, but not materially.

Okay. And to the -- to your 40% margin target, so for the Total payments and minus the AFL, what should we be looking at for renewable products kind of margins?

We are not breaking that out at this point, largely because in our first year of production we're really looking at managing to margin through the combined collaborations, which are what really gives us our future pipeline in the renewable products, and with our -- the actual sales of products.

Okay, and then finally, for the Total agreement, what kind of volume should we expect there in 2012?

For the Total joint venture sales?

Yes.

I would expect somewhere around 5 million to 10 million liters of sales moving through the Total joint venture in 2012.

Okay, thank you.

It's outside of our current volume forecast, since it's in the Total joint venture.

Tom, or who's on now? Do you have more questions?

We do have a couple more questions queueing up right now.

I wasn't sure if we'd lost you or not.

No ma'am, we're still here. We do have Mike Ritzenhaler with Piper Jaffray.

Okay, great.

Good afternoon, everyone.

Hey, Mike.

My first question is on the diesel offtakes for the bus fleets. So, we heard this morning from ADM about maybe some short-term over-capacity in biodiesel down there. I know you guys aren't competing in biodiesel directly, but the regulatory tailwinds, management of ADM was particularly bullish on looking at the blend rates going, stepping up over time, and maybe a shortage in '12. Have any of your partners, SP Trans for example, have they noted any of these types of concerns with you in '11 or '12?

Yes, let me comment on that. We've been working very close with Petrobras regarding diesel in Brazil. Brazil now has become the largest consumer of biodiesel in the world, actually more than Europe combined. There was significant demand filled, and the way Petrobras is looking at it today, they see us as supplementing the demand. They have a structural short for diesel in Brazil to begin with, petroleum diesel, never mind biodiesel. And then secondly, they're using us as an additive to improve the overall performance of fuel when you blend it with biodiesel, so our issue for supply in Brazil is all to do with getting the production up and getting it to market.

Our current agreement and the type of niche markets we're selling actually provide good economics and something we want to ramp up through 2012 in Brazil, and most of that we're partnered pretty closely with Total to do it inside the Total joint venture.

Yes, sure, that makes sense. And then, a quick follow-up, you had the one supply agreement in hand as far as I could tell. Could you give us a little more color on the roadmap from here to the I think it was $2 million per month run rate that you're looking for diesel kind of in the near term?

Yes, I mean I'd say again, we actually have several contracts now in hand, and again we have more contracts in hand for diesel than we've been able to supply in light of some of our startup in the prior quarter. So, I'd say right now we're starting to supply to meet the contracts, and I expect us to be ramped up by the end of December in meeting the current contracts on hand that meet or exceed what our target had been for a couple of million dollars of revenue a month on diesel in the short term.

Then one I guess for Jery, on the accounting mechanics. As lubricant volumes ramp up in the fourth quarter, could you walk us through the JV structure a little bit? It's a little confusing to try to follow, sort of the cash flows and even the product flows. I guess the spirit of the question is, how revenues are recognized by Amyris and where the product is in the pipeline as it moves to market?

You're thinking specifically of Novvi?

Yes, Novvi, yes.

In this process? Okay. So, Novvi is the joint venture that we are not consolidating at this point, and what we will do then since it's a separate entity is when we sell them farnesene, we will recognize revenue. When Novvi sells base oil, we will not recognize that revenue, but we will have an adjustment for the minority interest below net income. And then, in addition to that, some of that base oil is supplied back to Amyris, which we will then blend and sell as finished lubricants as potentially those would go through the joint venture with US Lubes. When we sell that product, if it's an Amyris product, we would then have revenue from the finished lubricants.

Okay, that makes sense, thanks.

We'll take our next question from Jeff Osborne with Stifel Nicolaus.

Great, most of the questions have been answered, but John, just on the challenges you had in terms of the fermentation -- was it really the fermentation, or the recovery, or a bit of both that you faced issues with over the past three months?

It was actually the utilities. It was the speed process for the tank, so prior to the large fermentation tanks, where we grow the yeast and how we seed the big tanks, and then it was a lot to do with operating procedures and the people at the site. I'd say probably 60% people, 30% utilities, and then 10% some of the equipment configuration for the fermentation process we're running.

The only thing I'd add is just having manual processes which we've since automated.

Got you, so some of the issues or challenges will be more of a learning lesson for the kind of super-fermenter, the 650,000 liter Sao Martinho plant? It's not really an obstacle to have something that size?

No, I mean, to give you an example, the number of learnings we had resulted in 232 projects, small projects, to address all the process learnings and implement changes. Once we've implemented them and closed off the projects, we've actually been quite stable in the operation which gives us great confidence in the ramp-up. Doesn't make better the last quarter, but it makes very good the ability to scale up in our learnings in that plant.

Okay. Just two other lines of thought. What do we think about in terms of your contacted cane crush that you're going to utilize in 2012 and 2013, any changes there? I know you added a recent contract, but how do we think about that?

No, I'd say we are planning the same kind of scale up, which is using the contracted volume to some extent regarding 2012, and then really ramping up access to that under the Paraiso and Sao Martinho agreement for 2013, and then putting in a combination of the Cosan agreement, the ETH agreement, and likely the Guarani agreement going into 2014.

Got you. And then, the last question was just on the Draths deal, how do we think about the OpEx implications there? My understanding is most of the people were laid off, but also just commercialization of Nylon 6 and PET and some of the other products they were working on?

I'll address the commercialization, and Jery can address the OpEx impact. We are in active discussions right now with several very large companies that are interested in significant collaborations around that platform, and the approach is very simple. They want access to our platform, to be able to scale up the Draths technology and it's structured in the same way that we've done our other collaborations. We developed with an offtake on the back end, and then we scale and commercialize together with some of these potential partners. So, I'd expect over the next several quarters we'll have those actually complete, and then Jery can talk about the OpEx impact.

Yes, I was just going to add that the technology that Draths has will integrate very, very well into our current research activities, so it won't be driving a material increase in OpEx, and as that may ramp over time -- it would do so under the collaboration funding that John just talked about.

Very good, thanks much.

Thanks, Jeff.

We'll take our next question from Pavel Molchanov with Raymond James.

Thanks very much. Quick one on Total JV in August, as you were announcing it, you were targeting production startup in 2013 or 2014, and then annual revenue potential about a year after that at $1 billion a year. Are those timelines and revenue targets still accurate?

Those are accurate for diesel. No change at all. What's changed is we're now adding five additional projects or products on a non-exclusive basis, of which two of them I mentioned, the base oils and the drilling fluids, and those actually have an earlier commercialization and revenue than diesel does which is why they're starting in 2012.

Okay, understood. And Total is still providing the funding for essentially 100% of the CapEx for the future production plans?

Exactly right. We have a protection mechanism as the JV scales up where we maintain our equity ownership and then get a royalty on projects we decide not to participate in CapEx funding if we decide not to, and that's specifically because of the scale-up beyond the $1.5 billion that Total wants for diesel.

Very good, thanks.

Thanks, Pavel.

We'll take our next question from Ben Kallo with Robert W. Baird.

Hi, thanks for taking my questions. My first question is on matching your CapEx with your debt now, so when should we look for a close on the debt to make sure that those plants stay on target for what you guys have planned so far?

We expect that we may get approval on our first funding as early as Q1 for Paraiso, and then there's a couple other tranches we have planned for Q2 and Q3 of 2012.

And that keeps both plants on track for the second half of '12?

It would keep one of them on track for second half of '12, but if for some reason there was a CapEx delay we would move one of them to 2013.

Okay. And then, could you help me, and I'm sorry if I missed this. If I'm at an end-of-year run rate of 700,000 liters a month, and that's all coming from contract manufacturers, what kind of step up is going to happen so I can get to 40 million to 50 million liters a year in 2012, just from those plants?

Yes, the way to think of it is, those plants at their current capacity just by applying the technology and having them work 100% of the time, or let's say it differently -- hitting our utilization target, at 100% of the time, actually takes them to 30 million liters. And so, the only requirement to go between the 30 to the 40 to 50 in our target volume is actually a slight expansion for using more tanks than we are currently planning on using at Antibioticos.

Okay. And then, you also mentioned that you have some sales, I think you said 5 million to 10 million liter sales coming from the Total JV in 2012. Where is that production coming from, because you said it's excluded from the 2012 numbers?

We have as I mentioned, we have in 2012 about 1.5 times the capacity of Sao Martinho at Antibioticos. So, one of the things Total has asked about, is whether or not they could access some of the tanks, and when I say Total, the joint venture company, us and Total, access some of the tanks available at Antibioticos that we will not be using as a way to have production capacity early and be able to turn it on very quickly in 2012.

Okay, great. And then, also Jery, one last question. On the cash operating expenses I see that you guys have stepped that down next year. What's that a result of?

It's a result of largely Total incremental funding as well as reflecting a couple other collaborations that we anticipate closing in 2012.

Okay, thanks.

You're welcome.

(Operator Instructions) We do have a follow-up question from Jeff Zekauskas with JPMorgan.

Yes, what's the capital expenditure number for the fourth quarter? Or for the year that you expect for 2011?

Let me go back and reference it in the script, and it is in the supplemental materials, so bear with me. I'm trying to make sure you --

Sorry about that.

-- the right number. The total CapEx for the year that we had forecasted for our projects is $90 million to $100 million. In addition to that, there's probably about $15 million of lab and TI spending for total capital expenditures.

Okay, and how much CapEx is there left for the Paraiso and Sao Martinho plants?

Well, we haven't broken it out by individual ones, but that's a lot of the CapEx for next year would be in Brazil and the total that we have given in our forecast there is $70 million to $80 million. Net against debt, that would work out to about $10 million to $25 million CapEx spending for next year for those -- for our total production projects.

Okay, and if you postponed one of the plants, which one would you postpone?

You know, I think I would probably want to defer that as we were really looking at our optionalities, it involves other partners and so forth, so I don't think we want to give an explicit answer to that. I think the key point we really want to get across is that we do have confidence in meeting our production target, and in managing our cash and CapEx to achieve our plans for 2012 without sacrificing the ramp-up for 2013.

Okay, thanks very much.

Mr. Melo, at this point there are no further questions left in our queue. I'll go ahead and turn the call back to you for any closing remarks.

Great. Thank you. I'd like to thank everyone for your comments and as always, I appreciate your interest. Let us know if we can answer any further questions. Thank you.

This does conclude today's conference. We appreciate your participation. You may disconnect at this time.