Amyris Inc (AMRS) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Amyris fourth-quarter and year-end 2011 conference call. This call is being webcast live on the events and presentations page at 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 the express written consent of Amyris is strictly prohibited. You may listen to the webcast replay of this call by going to the investors section of Amyris' website. As a reminder today's call is being recorded. I would now like to turn the call over to Erica Mannion, Investor Relations for Amyris.

Good afternoon. Thank you for joining us to discuss highlights of Amyris' recent progress and current 2012 outlook. With me today are John Melo, Chief Executive Officer, and Jeri Hilleman, Chief Financial Officer. On the call today you will hear discussions of 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 or in the supplemental materials which are available on the Company's website at investors.amyris.com.

We will also provide certain forward-looking statements about events and circumstances that have not yet occurred including projections of Amyris' operating activities in 2012. 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 discussions of relevant risks and uncertainties. The Company undertakes no responsibility to update the information in this conference call. The current report on form 8-K, furnished with respect to our press release, is available in the Company's website in the investor section under SEC filings and on the SEC's website.

I will turn the call over to John Melo now. John?

Thank you Erica and good afternoon. I'd like to start this call by thanking our shareholders whose steadfast support and additional commitments have reaffirmed the long-term potential of Amyris. For our call today there are three themes that I will be addressing to illustrate the ways we are creating value. First, our proven technology, production and commercial platform. Second, our near-term strategy for applying our technology to generate commercial value. And third, our long-term opportunities and roadmap which include both our core value opportunities and our high-volume joint venture growth opportunities.

Let me now take you through each of these areas. First, our technology platform is working. We have three operating facilities and have produced about 1.3 million liters of farnesene to date. We are finishing that farnesene into squalane and diesel to deliver to customers in Asia, Europe and Brazil. Our technology is working and we are successfully transferring from lab to large-scale manufacturing. Our focus is now on maintaining yields at scale over a longer fermentation period to achieve highest volume, lowest cost of our production. With additional time we will continue to gain more experience in our operations and establish a track record of stable, predictable operations. These are the challenges of large-scale fermentation, challenges for which we have the right team in place with decades of experience.

Secondly, we are building our Company and delivering commercial production as we continue scaling up our technology. Our strategy to achieve this alignment includes several key elements. First, focusing our commercial product activities to provide highest value at existing scale of production with current strains. Using this metric we are concentrating our efforts on our immediate opportunities which include diesel in metropolitan areas in Brazil, squalane for cosmetic suppliers, and specific fragrance and polymer applications that we have been developing with existing partners. Our customers continue to give us very positive feedback and to express support for the approach we are taking to ensure long-term supply reliability at target costs.

Second, we are delivering on key milestones with our collaboration partners. We have existing collaborations and grants from which we expect to receive payments of over $70 million in 2012. These collaborations improve our visibility to our product pipeline over the next two to three years. Our collaboration partners are some of the world's leading companies in each of our core markets and are focused on our No Compromise product proposition with a strong commitment to these products as a growing component of their overall product mix for the future. Our collaborations provide short-term funding to support our leading technology platform while also establishing visibility into our product roadmap and long-term revenue.

Third, we are fine tuning our manufacturing activities, managing production volumes in line with value-focused product applications. We will be managing production volumes at our contract manufacturing sites very closely, in line with core value applications. Because we believe Paraiso is the road to the SMA project, we will be sequencing the completion of the Sao Martinho plant to follow the successful startup of Paraiso. Bringing 50 million liter Paraiso plant online gives us the opportunity for additional earnings which will mitigate risk at Sao Martinho. In short, we will focus on delivering predictable, profitable production by continuing the build-out of our manufacturing capability and by getting Paraiso right.

The final theme I'd like to address today is our roadmap. Our production roadmap for the next two to three years will lead from Paraiso to SMA and other projects following like ETH, Alvorada and others, while we continue to use the CMOs to provide flexibility in our production and generate key learnings for scale-up. We will also build additional capacity with our high-volume, joint venture partners in addition to our core value product production. We have visibility into our product platform and have the flexibility to match products to production as our target economics are achieved. For this roadmap we have aligned our finances with our view of near-term commercial opportunities and manufacturing needs. Our consistent approach is to have the majority of our R&D and SG&A spend covered by funding from collaborations and to have most of our CapEx covered by project financing or other attractive debt structures.

To achieve this we have carefully evaluated our activities and have made a decision to continue to provide strong support to our core value generating activities. Notably, farnesene focused on the large market opportunities in polymers and plastic additives, flavors and fragrances, cosmetics, and home and personal care end markets. For example, the polymer and plastic additive applications that are currently being developed by our partners represent multiple billion dollars worth of potential revenue for Amyris. And the currently identified potential for farnesene in the entire space includes greater than $10 billion of revenue opportunity. This will enable us to streamline our efforts to reduce operating costs and focus on delivery of the highest impact, value generating milestones, while delivering on both our near-term product opportunities and long-term vision.

In addition, we have further strengthened our Company with the private placement of equity and convertible notes that we announced earlier today. The investors in the equity financing are investors that know our Company well, including Total, Naxos and Temasek. Total and Naxos are represented on our Board of Directors, and Temasek has been a shareholder of the Company since before our IPO. Two Board members, John Doerr and Fernando Reinach, also participated in the round. And I am delighted that His Highness, Sheikh Abdullah bin Khalifa Al-Thani of Qatar is joining us as an investor and as a Board member. The convertible notes we issued were purchased by a large global institutional investor. Before I review our long-term roadmap I will turn the call over to Jeri who will take you through our fourth-quarter results.

Thank you John and good afternoon. As John just discussed, our most recent financial highlight is our just-completed $58 million private stall or private placement and $25 million convertible debt placement. Other recent notable sources of cash have been funding from collaborations and from debt associated with our Brazilian project. Most of the $37 million in payments we received from grants and collaborations during the fourth quarter were provided by Total under both our original and expanded collaborative agreements. We also received project funding from the Brazil National Development Bank of $12 million for our project at Biomin and a $19 million advance on approximate $30 million of BNDS loans which we expect will fund early in the second quarter.

On the expense side, we incurred substantial production costs during the fourth quarter driven by scale-up activities that did not vary with revenue, including fixed overhead at some of our production and finishing operations. We anticipate that these start-up production costs will decrease as we continue to improve our processes and increase production throughput. Excluding stock-based expense, depreciation and nonrecurring charges, we lowered our fourth-quarter R&D and SG&A expenses by $6.1 million or 18% compared to the third quarter, the result of cost reduction steps taken during the quarter. Let me now turn the call back to John.

Thank you, Jeri. My final point today is to reinforce that our long-term view remains on track. We are focusing our resources on high value renewable chemicals in polymers and plastic additives, flavors and fragrances, cosmetics, and home and personal care markets. We are supporting our highest volume opportunities in fuels and lubricants through joint ventures with Total and with Cosan. We are continuing to develop our products to No Compromise standards designed to perform as well or better than the non-renewable products they replace. We have the opportunity to be disruptive.

Our customers are leaders in their segment who value innovation and are willing to invest time and resources with us to develop specific applications. We collaborate with them to accelerate time-to-market and meet the strategic needs of their markets. We expect to deliver on and communicate with you about important milestones this year, including regular quarterly improvement in our production metrics, new collaborations, deliveries to customers and the completion of construction at Paraiso around midyear. Our roadmap remains clear. Paraiso mechanical completion by mid-2012, Sao Martinho after Paraiso start-up, and the application of Paraiso learnings at our subsequent projects. Joint ventures will build their own capacity, CMOs, contract manufacturing sites, will continue to provide flexibility and learnings for our core R&D.

We maintain leadership in access to feedstock, our core technology platform and a clear pipeline of No Compromise products with some of the world's leading companies. I'm humbled by the learnings of 2011 which have taught us to be more prudent with our growth plans, but our fundamental outlook remains unchanged. We know what it takes to scale-up fermentation and what it takes for our technology to work well. We are confident that with the actions taken in the last 90 days and the focused agenda shared with you in our call a couple of weeks ago we have the right plan and priorities for 2012 and beyond. This future was strongly supported by the confidence of this latest round of financing.

We are, and will continue to be, much more conservative in our plans and external communications, while inside our Company the long-term opportunities remain unchanged. We expect that by 2015, 2016 we will continue as a leader in renewable No Compromise products within polymers and plastic additives, flavors and fragrances, cosmetics, and home and personal care markets. With our JV partners we will be building a successful renewable diesel business and one of the world's leading high-performance renewable base oil businesses. At our core, high-value business will be generating around $1 billion dollars in revenue, most importantly we will have delivered real positive impact to our planet and to our shareholders. We now would like to take your questions. One reminder, as you shape your questions, we will be filing our 10-K in the next day or two and would like to refer you to that filing for any financial questions. Keith, would you please open the line for questions?

Thank you.

(Operator Instructions)

We will pause a moment to assemble the queue. Smitti Srethapramote, Morgan Stanley.

Hi, John. You mentioned that you would be starting work on Sao Martinho after the start-up of Paraiso, can you give us some idea of in terms of what timeframe you expect the start of Paraiso to be?

We expect to have mechanical completion around midyear and to start the plant sometime after that. If you look at both projects, the Paraiso project right now is over 45% complete and the Sao Martinho project is about 40% complete. When you look at the smaller project, it is well on track to having completion around midyear and we expect that once we start the Sao Martinho project back up with the benefit of the Paraiso learnings we should be within a year of completion of the Sao Martinho project based on where we are to date in its finish.

Got it. So, the mechanical completion for Sao Martinho around midyear, 2013?

Or I'd probably say more like end of year 2013 because our focus is going to be to take the time to apply the learnings to the Sao Martinho project.

Maybe one quick follow-up to that, you had mentioned earlier that you be giving us regular quarterly guidance regarding various production metrics. What are the near-term production metrics that we should be keeping an eye on?

I think the near-term one is stable, predictable, low-cost production and what we will do is every quarter report to you what we sold and what applications we sold so that you get a sense of how we are making progress in ramping up our production to our customers.

Great, thank you.

Rob Stone, Cowen & Company.

Hey John. A question related to the potential follow-on investment of another $15 million. I guess from the press release it seems like you have a deadline to finish commissioning Paraiso by Q1 next year to get that investment. Would that be triggered by this mechanical completion around midyear or what are the milestones that you have to clear and can you comment on the terms of that additional financing?

Yes, will do Rob. First of all, it's a milestone that we set, which is a milestone to indicate the successful scale up of large-scale production for our Company. And we did that based on being on track for completing the facility around middle of 2012 and then starting it up and basically is setting for ourselves enough space to have the facility operating and achieving our targets by the end of the first quarter of 2013. So the milestone is facility is up, it is operating, it is achieving our targets and it is doing that by the end of the first quarter, March 31, 2013. Then we would have access to the $15 million, take in the $15 million at market price, at the time that we took in the $15 million in April of 2013. We also have a term that gives us mutual, or the right to mutual agreement to extend it further if we decide it is in our best interest.

Okay. Not asking financial questions sort of leaves out a lot of details, but you alluded to $70 million plus of grant and collaboration funding this year. I recall, if I recall correctly, the range from the last set of slides that referenced that was something like $70 million to $90 million. Have your expectations changed at all or were you just speaking to the low end of the range?

We were speaking to the low end of the range, Rob.

The expectation remains the same. We spoke to the low end which is what we have agreements in place for now. We expect that to evolve during 2012.

Great, thank you.

Chris Kovacs, Robert W. Baird.

Thanks for taking my question. I remember at the time of the Q3 call, you guys kind of gave us a run rate metric of where you thought you'd exit the year at, I think it was 700 liters per month or something like that. Could you give us an update on where you are today and maybe talk about some of the things that you've learned recently at some of your CMOs?

Sure. Let me first of all, give you the data and where we ended up. We produced 565,000 liters in Q4, 717,000 liters during 2011 and I think I announced that we are to date total over 1.3 million liters, so you can get a sense of where we are over the last few months since we ended the year. What I'd say to you is that 717,000 was lower than the 1 million liters we expected and that really is result of, as we entered into December and we started to see what was happening across all of our sites, just a much more prudent approach to focus on stabilizing production, focus on getting it at the right cost, and manage working capital best so that we're not continuously pouring cash into production volume. But instead matching production volume to our highest value application.

So that's the model by which we are operating and taking a much more balanced approach to how we are driving for value versus volume. What we've learned across our production system is -- let me first of all say, where we've ended up across our production system is, that we now have stable manufacturing across the three sites. And what we've learned is, and we're continuously evolving is, what we could do with feedstock and operating process and conditions to lower our costs and maximize value from the production we're currently making. So lots of good learnings. First, we start with stable production, lots of good learnings and continuing to work down the cost curve month-on-month from December, January and now in February.

Okay. Thank you. Before I sign off here, just a quick housekeeping question. I know you're going to file your 10-K, but for modeling purposes, what are you projecting the diluted share count to be post that offering?

$56.3 million as of the 23rd of February.

Okay, thank you, guys. I appreciate it.

You're welcome.

Vishal Shah, Deutsche Bank.

Thanks for taking my question. John, maybe could you talk a little bit about the collaboration agreement that you expect to, or at least the areas that you expect to work on in 2012?

We are currently working on diesel jet, we're working on -- and that's for Total. We're working on patchouli oil for [Veniche], and we have several other agreements which we are not able to disclose publicly and we are pursuing the expansion of a new, or an evolution of our technology platform with a new pathway that will be in addition to our farnesene pathway for growth in 2012 around collaborations.

Great. So I know you mentioned production metrics --

I didn't want to leave out that we've already made public that we are also working on isoprene with Michelin and that was not left out intentionally, I just forgot about it but I want to make sure you know that we have Michelin for isoprene as a current collaboration.

That's great, that's very helpful. So I just wanted to follow-up on the question on production metrics that you expect to do during the quarterly calls. Maybe you can help us with at least some of the qualitative metrics that you expect to give and then we can follow-up with you after your 10-K on some of your other earnings calls and what the base was in Q4?

John really just went through some of those production metrics and what our volume is going to be. What we said on the last call and continue is that we will report our production volume each quarter where we are and then you can see the progress on that. And then really what gets presented in the financial statement.

Our mission is number one, be very conservative, report to what we have done rather than try to predict the unpredictable and we're taking a lead from competitors in our field today who are reporting nothing to you. And based on the public data out there our view is we are producing more than anyone else in our sector and we would like to report what we've produced rather than trying to foreshadow future production.

Great, thank you.

Pavel Molchanov, Raymond James.

First just a quick housekeeping item guys. You mentioned the 2010 number, or 2011 production number, can you mentioned total cumulative as of present, please?

1.3 million.

Slightly over 1.3 million.

1.3 million, okay, great. Then on the JV with Total, when originally announcing it last August you mentioned $1 billion revenue target for the 2015 timeframe with production starting in 2013 or '14. Have you revised any of those forecasts or are they still intact?

Still the intention of our partner in the joint venture company and we are not changing any of that at this time.

Okay. Just to be clear, can you tell me what the current share ownership on a percentage basis of Total is, post the deal?

It's just over 21%.

Just over 21%. Okay. Thanks very much.

Mike Ritzenhaler, Piper Jaffray.

Good afternoon. A question is around how much customer churn do you expect to have as a result of having sort of modest amounts of supply available to seed various projects. If we look at examples of the companies in the space and I have seen this movie a couple times now, significant churn happens when product is just not available at the right price and the customer who sees a supply risk simply moves on. How is Amyris incenting customers in the pipeline to be patient?

Actually, we haven't had to incent because we are actually pretty transparent with our customers where we are. And we have focused our early two market applications on high-value applications that we actually see ourselves being profitable on a production cost basis in the foreseeable future, so as result we are not delaying how we are going to market with our existing customers. And actually, what I'd say is we are in discussions with several of them about additional applications that they'd like us to do with them. So we do not see customer churn. We do see a slower ramp up in our high-volume applications, the base oil business to be explicit. However, the partner in our base oil business, Cosan, has had enough feedback from the market regarding the product and its performance that they are very committed and actually working with us in how we match our production cost decline and volume ramp over the next two to three years to meet what we both believe as partners will be a significant business for both of us.

Okay, that kind of leads into my second question I guess on the lubricant side. That was targeted at the Analyst Day last year and at these quarterly calls is highlighted as a very high-profile opportunity. Is that -- so now that they've gotten enough data that they are comfortable, is it just going to slip into when Paraiso starts up it will get an allocation from that and I guess how are you thinking of from a portfolio standpoint how to allocate those volumes?

No, it's exactly the way you described, right, I mean the first thing is the early volumes are all about volumes to big branded lubricant companies who are starting to formulate tests and get ready to either approve or use the base oil in their applications. That seed volume is volume we will be providing to Novvi, the joint venture company, as they work with these partners to get that uptake and then volume to market. What we see is the ramp to achieving the business' full potential is going to be slower than we expected. So we expected to see potentially a pretty steep ramp into 2012, beginning of 2013, that's probably more like into 2013, beginning of 2014 is what we see now as the ramp for high volumes in the base oil business. What that means is, again, early volumes, the seed volumes to be branded customers we will provide. In the intermediate timeframe we will provide some volume as an allocation as they scale but in parallel, Novvi will start to build out its own production to access volumes of farnesene for conversion to base oils as we reach that end of 2013 beginning of 2014 period.

Okay. Then on the 565,000 liters produced in Q4, can you provide an average ASP for those sales?

We are not making that public, what we can tell you is that our ASP both for 2012 and what the applications we sold in 2011 were again narrow in scope and higher than the average we had indicated during our IPO road show. But I want to emphasize that's really a result of us focusing the volume down on the highest value applications we have in our portfolio.

Okay. And one last question on the $38 billion US dollar program that the Ministry of Ag announced on Friday for basically for expanded cane replanting. What are your mill partners and your contacts at UNICA, what are they saying about this program and does Amyris expect it to lead to lower feedstock costs, and if so, how much lower, I guess?

I don't want to speculate, especially at how specific the question is on how much lower. I think all of us, and we've had quite a bit of discussion in the last 24 hours with some of our Brazilian partners, all of us are optimistic that that kind of program and more cane planting is exactly what the sector needs and will in effect lead to a stabilized production cost long-term. How much of a difference and exactly when is really hard to predict, but I'd say again we have had discussions with our partners, we see it as very positive and we are going to -- we will be working with them as we have been to ensure that we get our fair share to the partnerships and we all are in service of more cane planting in the sector.

Okay, great, thanks.

Jeff Zekauskas, JPMorgan.

Hi, good afternoon. What were your renewable revenues in the quarter?

We didn't disclose that. Right now we have it mixed in with product revenue. We still continue to expect that we will be exiting ASL at some point during the year with respect to renewable revenues that will stand on their own as product revenue.

Maybe another way to put it is, you said that you produced 565,000 liters in the quarter, how many did you sell?

Jeff, I'll refer you to the K, but you can tell from just looking at the trends in the top line that there were fairly low sales for the quarter.

Okay.

I should add to that by the way, a lot of that has to do with the time to finish so a lot of the December inventory is still in the process of being finished to product.

Okay. So the 565,000 should be a harbinger of what might be sold in the first quarter?

Yes.

Okay. You spent about $100 million in CapEx this year. How much went to Paraiso and how much went to Sao Martinho and how much is left and what is the CapEx next year in 2012?

John gave you sense of completion of those projects. Paraiso is the one that we are continuing to work on most actively this year and that project is, I think John said about 45% complete -- .

Right.

(inaudible) completion it is about 55% complete. We will continue spending the overall project budget on that, we've disclosed in the past it's around $50 million. Most of our CapEx spending for this year will be Paraiso, and in addition to that, we will have -- we expect to have funding from the BNDS for project finance against that spending.

Okay, I'm sorry, so what do you think the total CapEx will be in 2012?

We've not updated our guidance on 2012.

Okay.

I've given you the total for Paraiso, that is the bulk of our CapEx spending for the year, we expect to offsets from BNDS

Okay. Then the cost of goods sold number from the third quarter to the fourth quarter went from roughly $36 million to $56 million so it was up $20 million. What's in that $20 million? Does that reflect --? (multiple speakers) Sorry.

I was just going to say that $20 million is production costs. A lot of that represents fixed and overhead costs on very low volume associated of course with the manufacturer, and with the ramp up of finishing operations. We do expect that that is going to come down as we improve our process development and have higher throughput. Obviously the impact to those fixed overheads will become less material.

So was the cost of goods sold number in the fourth quarter unusually high and the third quarter is a more representative level or is the fourth quarter a more representative level?

Probably not an either/or and I think if we have a track record of production and report our first and second quarter, I think that will become more indicative. December was an area where we were working very intently to ramp up some operations. I don't want to say anything further than that.

Okay, great, thanks very much.

Colin Rusch, ThinkEquity.

Thanks so much. Can you talk a little bit about ASPs for biofeed sales and your expectations for trend lines through the year?

John was just giving an indication that we've been selling squalane and diesel, we've given out that squalane has an average selling price in the range of $25 to $30 a liter. Our diesel price we have not disclosed, and then as we add additional products that will obviously will be focusing on the higher ASP opportunities consistent with managing to positive cash margins on our production.

Great, and then as you look at the capital spending plan for the year, are there particular breakpoints where you could dial that back or might want to accelerate and how should we think about when you make those decisions, what the impact might be?

We are really looking to match our outlay of CapEx as much as possible with inflows from the project financing. That's why we were able to secure an advance on the BNDS funding and that's gone a long ways to recovering the CapEx as we go along. We do expect to receive additional funding from BNDS towards the beginning of the second quarter, so we're really trying to manage the remaining CapEx from the project in conjunction with the timing of the inflows from debt. And we do have leverage in the project to enable us to do that.

Great. And then with the contract manufacturing sites, how much of your available fermentation capacity are you currently using right now?

Probably somewhere around 50% of our available capacity.

Perfect. And then one just final one on the manufacturing. Can you just give us a quick update on the yield percentage by weight at the contract manufacturing side?

We are not disclosing that.

Okay. Perfect. Thank you so much.

(Operator Instructions)

Rob Stone, Cowen & Company.

Housekeeping item for Jeryl, if I may. In the past you've provided a few more details on Amyris Fuels to give us a sense of the volume and what the gross margin was like on that piece of the business. Are you able to comment at this time?

Yes, in the interest of simplicity Rob, we are not going to go into some of that detail. It will just be the financial data that's provided in the K.

Okay. And I think I heard you say earlier that the plan is still to exit that business by the end of this year?

During the year, correct.

So it may be before the end of the year?

That's correct.

One other housekeeping thing. There's a new or bigger amount of about $37 million that shows up as another long-term liability, can you comment on what that is?

Yes, I can. It is associated with our funding from Total and because there is a contingent repayment potential obligation depending on the going forward commercialization of diesel. We are booking that as a non-current liability rather than as revenue.

Okay. So, at a certain point based on milestones you'd be able to book that as deferred revenue or something?

It would be booked as revenue contingent on the decision to move forward.

Okay, thank you.

Ladies and gentlemen, this does conclude today's question-and-answer session. I would like to turn it back to the speakers for any additional or closing remarks.

Thank you, Keith. In closing, I just wanted to thank our shareholders, but also our employees and partners for their continued support in this time of rapid change. As we now begin our early days of commercialization and for sharing our enthusiasm and vision for what we believe we can and will achieve. Thank you and have a good afternoon.

Ladies and gentlemen, this does conclude today's discussion. We appreciate your participation.