Amyris Inc (AMRS) 2013 Q1 法說會逐字稿

Welcome to the Amyris first quarter 2013 conference call. This call is being webcast live on the investor page of the investors section of Amyris's 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. As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the investors section of Amyris's website. I would now like to turn the call over to Joel Velasco, Senior Vice President.

Good afternoon. Thank you for joining us to discuss highlights of Amyris's first quarter financial results, our progress and our business outlook. With me today are John Melo, our Chief Executive Officer; and Steve Mills, our Chief Financial Officer. On the call today and in this online webcast 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, which is available at Amyris.com. The current report on Form 8-K furnished with respect to our press release is also available on our website as well as on the SEC's website at SEC.gov.

We will provide certain forward-looking statements about events and circumstances that have not yet occurred, including projections of Amyris's operating activities for 2013 and beyond. These statements are based on management's current expectations and actual results and future events may differ materially due to risks and uncertainties including those detailed in the Company's recent SEC filings and the risk factors section of Amyris's report on Form 10-K filed with the SEC., on March 28, 2013. Amyris disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the Amyris SEC filings for detailed discussions of relevant risks and uncertainties. I will now turn the call over to John Melo.

Thank you, Joel. Good afternoon and thank you for joining us for a review of our first-quarter financial results and an update on our business outlook. As we outlined in our press release, we are executing on the plan we detailed to you over the last year and are on track with our milestones and optimistic about the future, both in our commercial and financing activities. Let me begin with a review of activities to date focused on the following three areas -- manufacturing, collaborations and commercial sales and pipeline.

First, on the manufacturing front, during the past quarter we operated our farnesene industrial production facility according to our plans, bringing various fermenters online, improving our processes, and we shipped high-quality, in-spec renewable farnesene. The Amyris plant at Brotas, Brazil, is running as we expected with no significant surprises. Our deliberate plan has been to ensure a smooth ramp-up of production and to achieve target efficiencies. As we complete this methodical startup process, we will focus on increasing volume, throughput to lower our production costs during the second half of the year. As we indicated in our last call, with the start of the sugarcane harvest in Brazil we have successfully switched from raw VHP sugar crystals to concentrated cane syrup as the in-season feedstock for our fermentation.

Also as planned, we are in the process of introducing one of our latest yeast strains at the plant in Brotas to further improve yield and productivity. We expect the combination of these actions to further reduce our farnesene production costs. All in all, a good start for our first quarter in terms of farnesene production, as evidenced by the receipt of $5 million in milestone funding from one of our shareholders. With the success of the scale-up in Brazil and the positive visibility this delivers in farnesene volume and cost, we have paused our contract manufacturing for farnesene.

Second, turning to collaborations, we have made considerable progress in securing additional funding through our partnerships for new products. During the quarter, we closed a major expansion of our collaboration in the flavor and fragrances industry, finalizing the terms for our multi-year project with Firmenich, which builds on the success we have achieved with a fragrance oil-producing strain. Together, Amyris and Firmenich will work to develop and commercialize various other flavor and fragrance compounds.

As part of this project, we received $10 million in collaboration funding, which, as Steve can explain further, appears as deferred revenue on our balance sheet. We anticipate similar funding levels under this collaboration in the coming years. This is a multi-year collaboration with $10 million of annual funding that could result in over 30% of Firmenich fragrance ingredients being supplied from our technology platform.

And, as we announced yesterday, we have a separate collaboration with International Flavors and Fragrances, IFF, another leading flavor and fragrance company, to develop a specific set of new fragrance ingredients. We have received initial funding during the second quarter and are confident we can meet our upcoming milestones. I am pleased to say that in the first quarter, we made significant progress in our plan to generate $60 million to $70 million in collaboration funding cash for 2013 with approximately $12 million received in the first quarter plus confirmation from Total that they are satisfied with the progress of our farnesene technical development and the associated $30 million in funding from Total during the second quarter. Our collaboration funding target is mostly contracted for the year and we have visibility on the balance.

You may have heard me say it before, but it is worth repeating. We can develop and are developing strains that are able to produce multiple molecules. The proof of this capability lies in our collaborations with market leaders such as Firmenich, IFF, the folks at Michelin and others where we are developing new molecules beyond farnesene and where we expect to produce these new molecules at scale. That's the power of our synthetic biology platform -- to build living factories for a range of renewable chemicals and fuels that meet the world's needs and being capable of scaling those effectively.

We are also extremely pleased with the success of our first and not-for-profit technology breakthrough on artemisinin, the key ingredient in the world's most effective and preferred drug in combating malaria. Last month, Sanofi started large-scale industrial production of artemisinin, utilizing Amyris's design strains. Production of these life-saving drugs produced with our technology underscores not only the success of Amyris's synthetic biology platform at scale, but also the positive impact this technology can have on our planet.

Turning to my third point, we have continued to make progress on growing our commercial sales and our future pipeline. During the quarter, we maintained our sales volumes, focused on squalene and diesel for niche markets and testing. We also sold diluted volumes of high-purity farnesene to Kuraray for customer testing and performance tires and expanded the scope of our lubricants joint venture with Cosan.

On squalene, we entered the year supplying approximately 10% of the global market for this best-in-class emollient. This is a notable milestone when you consider 2012 was our first full year of sales. While squalene use had been increasing because of unsustainable and expensive sources such as deep-sea shark liver and ultra-refined olive oil, we believe demand for our squalene has been growing as formulators take note of our pricing and supply stability for a more sustainable high performance replacement for existing squalene sources.

I was just recently in Paris for In-Cosmetics, the leading trade show for the industry, and our disruptive impact in the market was clear. For instance, one of the leading personal care ingredients suppliers in Europe committed to purchasing 90% of their annual renewable squalene needs from Amyris. In short, we are about to become the world's leading squalene supplier in 2013, working closely with our global network, Nikkol in Japan, Laserson in Europe and Centerchem, in the United States.

We are also developing new channels in Brazil and beyond as well as building direct ties with some of the largest cosmetic houses in the world. We are experiencing several of the world's leading cosmetics brands moving to sugar squalene and increasing their overall use.

On fuels, we continue to sell diesel for the public bus fleets in Rio de Janeiro and Sao Paulo, where we are supplying about 300 buses with Amyris renewable diesel locally produced from sugarcane. We received considerable interest for additional fuel from these and other cities in Brazil as well as corporate fleets and expect we may opt to increase volumes for diesel as our production costs continue to come down.

I am also pleased to note that we produced and delivered all required volumes of renewable diesel to the U.S. Navy for testing against their marine diesel specifications during the first quarter. We currently anticipate the Navy will exercise its option for additional shipment in the coming quarters.

Our work on jet fuel continues at rapid pace. We are working closely with Total with a clear plan to achieve regulatory approval in 2014.

Onto our commercial pipeline, let me make three quick points. First, as noted earlier, we have begun shipping test quantities of high-purity farnesene to Kuraray, testing by leading tire manufacturers around the world. Polymerized farnesene reacts with tire rubber more easily than traditional materials such as isoprene and butadiene and can strengthen adhesion of rubber components to improve tire shape, stability and performance. Testing by our partner Kuraray showed this liquid farnesene rubber, or LFR, as we call it, reduces heat loss from fiction between fillers, which leads to decreased rolling resistance and improved fuel economy. Leading tire manufacturers representing three quarters of the global tire market are at various stages of testing this product in their own formulations.

Along with our partner Kuraray, we expect first commercial sales of farnesene for tire manufacturers later this year. We believe this application has the potential to be $1 billion in sales over the next 5 to 7 years.

Second, we expanded our joint venture with Brazil's Cosan to include renewable additives and finished lubricants in addition to the joint venture's original scope of renewable base oils for industrial, commercial and automotive markets. This expansion is consistent with our stated strategy to move our high-volume products into joint ventures. Moreover, by moving the Amyris personnel working on lubes to Novvi, we will further reduce our operating costs associated with developing this market. The Novvi team is in advanced stages of testing with the various customers and expects to begin converting Amyris farnesene into renewable base oils and finished products, such as transformer oils, later this year or early next. This is another business that we believe has the potential to be a $1 billion in sales over the next 5 to 7 years.

Third, late this year we expect to begin commercial production of a fragrance oil molecule developed under our collaboration with Firmenich. For competitive reasons, we cannot identify the particular fragrance oil, but suffice it to say it is not made from farnesene but it is another isoprenoid and is widely used in household products and fragrances such as laundry detergents and high-end perfumes. This fragrance oil will be the first of several new aroma and flavor molecules we will produce for the flavor and fragrance industry. We understand the flavor and fragrance ingredients market is about $6 billion and growing at a 5% annual rate. Working with the leading flavor and fragrance houses, we believe Amyris technology could address about a third of this market. And based on our plans on our current collaboration or supply agreements, our technology platform could address around $800 million of this market.

For those new to the flavor and fragrance space, formulators have suffered from the unreliable supply of natural ingredients with supply issues stemming from a range of causes from protection of threatened species to inconsistent quality and political instability. In collaboration with the leading flavor and fragrance houses, we are designing, manufacturing and planning to commercialize these sought-after molecules from sugar feedstocks. Various other molecules, some derived from farnesene and others produced directly from fermentation, are in development or commercial phases. Again, based on what we have seen to date, we are optimistic we could become a major supplier to the flavor and fragrance ingredient market in the next 3 to 5 years. In short, we are optimistic about our commercial pipeline, now led by Simon McPherson, who joined us during the past quarter from Cargill.

So just to recap, before I turn the call over to our CFO, Steve Mills, for a review of our financials and to provide some additional guidance, let me say that we are pleased with the progress to date at our manufacturing plant, producing and shipping farnesene in spec, and we continue to establish collaborations that can help us accelerate product development and commercialization.

Steve will now take us through the financials before I discuss funding outlook and take some questions. Steve?

Thank you, John and good afternoon, everyone. As you will have seen from our earnings release, we reported a loss on an adjusted non-GAAP basis for the first quarter of $28.4 million or $0.39 per share. This result is both an earnings and EPS improvement from our previous quarter and was a significant improvement compared to the results for the first quarter of 2012.

Total revenue for the quarter was $7.9 million, up from fourth quarter of 2012 revenues due primarily to the increase in collaboration and grant revenues. When comparing revenues to the prior year, please remember that last year's Q1 revenues included $23.9 million of sales related to the ethanol and ethanol blended gasoline business, a business that we transitioned out of during 2012.

Sales revenues of our renewable products -- squalane, renewable diesel and farnesene for specialty chemical applications -- were essentially flat for the quarter as we delivered product out of existing inventory and began to ship product from our Brotas plant. For the first quarter our weighted average selling price of renewable products was about $7.33 per liter. We expect to see our weighted average ASP trend down during the year as we increase sales volumes in the second half of the year.

To help keep you informed of our progress regarding collaboration funding, we have provided additional disclosure in the supplemental financial information section of our earnings release. Since collaboration funding does not always match up with collaboration revenue in a given quarter due to the specific accounting treatment for a given collaboration agreement, we will provide you with both the revenue amount and the funding amount in our release.

For the first quarter of 2013 we received approximately $12 million in collaboration funding with this amount including the $10 million from the Firmenich collaboration. Cost of products sold declined for the quarter as compared to the first quarter of 2012, principally due to the absence of the costs associated with the ethanol and ethanol blended gasoline business. Our first quarter 2013 cost of products sold number includes costs related to the scale-up and production of our farnesene plant at Brotas.

During the first quarter, we continued to reduce our operating expenses. Our combined R&D and SG&A expenses were $30.6 million, down 29% from last year's first quarter due to lower personnel-related costs and lower spending levels. On a sequential quarter basis our reduction in operating expenses was 14%. We anticipate these operating expenses to be even lower in coming quarters.

Turning to the balance sheet, our cash balance stood at approximately $25 million at quarter end and we had the following significant cash-related items during the quarter. Equity financing -- we received $15 million in January and another $5 million in March as part of private placements to existing Amyris shareholders. We received a $10 million collaboration funding from Firmenich and our capital expenditures net of disposals were about $2 million for the quarter.

Let me now turn to the outlook for the rest of 2013. In our previous earnings call, we indicated our 2013 plan called for a relatively modest level of capital expenditures, about $10 million, and we estimated our cash expenditures for SG&A and R&D would be less than $85 million for the year. As a reminder, this $85 million number excludes depreciation and stock-based compensation. Based on where we stand today, these OpEx and CapEx targets are still in line.

We also indicated that we were targeting $60 million to $70 million in collaboration funding for 2013 to cover at least 80% of our $85 million cash operating expenses. As John noted, based on the funding received to date and the next $30 million tranche of collaboration funding from Total, we're well on our way to achieving our collaboration funding goal for the year.

It is worth repeating that collaborations are a critical element of our business plan, helping us build strong technical partnerships that end with product commercialization as well as generating a longer-term cash stream as we capture a share of the gross margin from the total value chain of the product.

I would also like to provide you with additional guidance regarding our sales outlook. We expect our renewable product sales revenue to be in the $30 million to $40 million range for the full year of 2013. We plan for stronger production and sales volume in the second half of the year as our farnesene production costs come down through a combination of improved yeast strains, lower feedstock prices and increased efficiencies at our plant in Brazil.

I will turn the call back over to John for some remarks on our funding outlook and to open the call up for questions.

Thank you, Steve. Over the last year, Amyris has been guided by a clear plan, bringing down our expenses and maintaining an unrelenting focus on cost controls while not losing sight of the innovative, disruptive impact our technology can have. We developed new collaborations to cover a significant portion of our operating expenses and to drive our product pipeline across not just farnesene-related products but, as in the case of the flavor and fragrance industry, new molecules from our technology platform. With success in executing this plan and the startup of our plant in Brazil, we are now focused on maintaining these gains and ensuring the Company has enough funding to achieve sustainable ongoing business performance.

To that end, we are closing on terms with one new investor for a mixed structure funding opportunity that would give us greater financial flexibility. We plan to close this transaction during the second quarter and, based on our current plan, expect this as the last equity financing event prior to cash flow positive in 2014. Our plan is to end the year with a $4 a liter or lower production cash cost, and we remain on track for positive cash margin from our renewable products by year end. We also continue to expect to achieve cash flow positive Amyris operations in 2014.

Before I turn the call to you for questions, let me recap. With the consistently improving technology to engineer living factories and our own plant operating according to plan, we are delivering commercial products in-spec and on time to our customers globally. We are on plan to achieve our goals and with continued support from our leading shareholders, we are confident and funded as we grow into the future.

John, the operator, would you please open the line for questions?

(Operator instructions) Rob Stone, Cowen and Company.

I wanted to just put two things together, John, if I could. So you are well along on your expected collaboration funding. I wonder if you could give us a sense of how much of that you have visibility on but it's not contracted for yet. And the second part of the question is -- is that distinct from this equity financing that you just mentioned?

Last question first -- it is distinct from the financing that I described. And then, secondly, most of it is contracted, and we have visibility on all of it.

Well, can you give me a sense of how much of the $60 million to $70 million, how much is visible but not contracted?

I would say there is somewhere around $10 million where we have visibility but is not contracted yet.

Okay, that's helpful. A question on the production cost -- I think it was mentioned that there were some one-time expenses and that you were selling previously produced inventory, which probably was at higher cost. So how should we think about the impact of those factors going forward? For instance, how long do you think it will be to use up the remaining higher-cost inventory and start to be seeing costs from what you are producing reflected in your cost of goods?

I think two points. One, the inventory that we have been selling out of has already been written down. So it's not coming into the quarter at a very high cost. We recognize that our deliberate ramp-up of production at Brotas is going to leave us at a little bit higher per unit cost then certainly we will end up enjoying because we are running at less-than-full volumes. So we knew this first quarter and really going into the second quarter we would be running at higher costs at our own plant, simply based on efficiencies and volume. And the expectations are that we will ramp up significantly in the second half of the year as we work on using the syrup in production as well as getting efficiency from our newest yeast strain.

Just to make sure I am parsing that correctly, so cost per liter is actually going to be higher in the second quarter and then you expect a big improvement in the second half?

We will certainly make improvements in the second half. And I don't, as I sit here today, don't think that there will be a significant difference between the quarters. We think we will become more efficient at Brotas and really don't see it on a per-unit basis much different.

Well, but I thought John said that you were targeting a $4 cost or something by the end of the year, or did I not get that correct?

No, you got that correctly. It will be by the end of the year, but that's also expectations we will be running the plant at much higher capacities in the second half of the year.

Okay, so not much difference quarter to quarter is from Q1 to Q2, or from Q2 to Q3?

Q1 to Q2.

Oh, okay, thank you.

Sorry, I was thinking about Q1 with the Q1 release, but we are talking Q1/Q2. Once we get to Q3, our expectations are that costs will come down significantly.

Okay, that's helpful, thank you.

Brian Lee, Goldman Sachs.

Thanks for taking the question. I just had to -- first off, kind of a follow-up to Rob's questions on the cost of goods sold. I was wondering how much, Steve, did startup costs impact COGS this quarter? And then what is the cadence we should expect for that to normalize or decline to zero, just so that we can get a clear view of the product-related COGS here?

Well, we didn't disclose that amount specifically, and it was a mixture. As we looked at scaling up, we turned the plant on really right before January 1. We don't have that cost broken out separately. We expect less of the startup costs in the second quarter. But I would, as I explained in answering Rob's question, the real benefit in efficiencies will be coming in the second half of the year.

So based on that answer, is it fair to assume that by 3Q you won't have any more startup costs embedded in the COGS line?

That's our expectation.

Okay, and then my second question was just on the IFF agreement, if you guys could maybe provide a bit more detail. I'm just curious how long you had been in talks with them, if you have had any collaboration with them in the past. And then I see you guys aren't talking about any financial implications or upfront funding, so wondering if this is unique to ISF or what we should expect for future partners.

In general, our partners are very sensitive about what we disclose. So I just want to preset expectations with that. And then there was actually an upfront cash piece of it which we disclosed in the release. There is a total cash that we did not disclose. This is a relationship we have been in discussions with for over two years, and it's very material for both of us and what the applications are and the potential impact. Again, we are not disclosing the specific applications for competitive reasons at the request of IFF.

Okay, thanks, guys.

(Operator instructions) Vishal Shah, Deutsche Bank.

John, can you just remind us again what your revenue levels would be in order for you to get to cash flow breakeven in 2014; and also, what sort of expectations you have for collaboration and funding revenue as you exit the year?

I'll take a couple of those and let Steve build on the back end with your third question. So the first one I will take is, our expectation year on year is to remain about the same. And I think we said $60 million $70 million in collaboration revenue or, said differently, covering about 80% of our OpEx, which is what we expect again going into 2014.

Second part of your question, the way I would answer it, Vishal, is when you are looking at our breakeven for 2014, it is a combination of what shows up in revenue and collaborations that, based on how they are being accounted for, don't show up in revenue, which is the way to think about our total cash generation from operations, which again breaks down into those two big buckets. So it's not necessarily just revenue to costs that gets you to cash flow positive based on our model, it's actually total cash in from operations, which includes multi-year collaborations as we bring those -- cash for those deals in each year. So the ones we are doing this year are multi-year. There's an element of cash coming in next year from those collaborations, both in Firmenich, Total and some for IFF. And then some of the others we either have or will have going into the end of the year, but they are not all revenue impacting based on the structure of the agreements. Steve?

I think the revenue level, as we talked about for 2013, we are looking in the $30 million to $40 million range. Our expectations for 2014 are to be something, we believe, at least double that. And in conjunction with John's collaboration comment, that's what gets us to the cash flow positive from operations because we look at the collaboration funding as an operational activity, if that makes sense.

That's helpful, thank you. And then you talk about the funding that you expect to receive in the second quarter from this equity raise. What is the size of the funding that you expect? You said that's going to be the last one before you start generating positive EBITDA.

I think, Vishal, I clarified in my statement that it's a mixed financing, so it's not all equity, and we have not disclose the total amount. Steve, I don't know if you want to --

No, it's still in discussion and negotiation as we come to it. So I just think, at this point in time, we need to say, stay tuned.

Just maybe another way to think about it is, what is your cash requirement going to be between now and, say, mid-next year as you think about -- on a quarterly cash burn going to be? Is it going to be $20 million, $30 million a quarter?

I think we had mentioned this in the last call, that I think for this year, we had mentioned $15 million to $25 million as the range of net cash burn. That's cash burn offset by collaboration cash as well as operating cash. That's what we had said on the last call, and I think we still believe that's the case.

I think, secondly, we are looking at this funding as partially to fund us to cash flow positive, but also to ensure the Company has a bit of security on the balance sheet and can continue to grow and achieve its objectives.

Okay, great, thank you very much.

Mike Ritzenthaler, Piper Jaffray.

It seems like, in order to hit the cash flow inflection next year, that the capacity in Brotas is enough to basically get you to that. Is that a fair statement, or will it include some kind of flexible manufacturing on top of that?

That's a fair statement. We will have minimal contract volume, but really for a new molecule we are scaling production of, not for any material production volume in 2014. We expect, for this year and next year, based on what we are seeing operationally at Brotas, for Brotas to be able to meet our volume requirements and our cost needs.

Okay, and then maybe a question for either you, John, or Joel, on the sale of the crushing assets down in Brazil. I know that Paraiso was one that recently changed hands. Is that something that is being orchestrated at a high level for the government, or is that -- is there something that is changing in the industry?

I really would prefer not commenting. We are very close to the private equity firm that actually is an owner in both assets. We were familiar with the process, but that's about all we could comment on at this point.

Okay, fair enough, thanks, guys.

Jeff Zekauskas, JPMorgan.

What was the cash flow from operations in the first quarter?

The cash flow from operations, Jeff, were approximately $24 million, $25 million, when you back depreciation and stock-based comp out of the loss.

I'm sorry -- $24 million?

$24 million, let's say $24 million.

Negative or positive?

Oh, yes, from operating -- negative if you -- before collaborations and before the financing, but just strictly the net loss and if you net out the significant non-cash expenses.

Right. And you talked about perhaps achieving $30 million to $40 million in revenues this year from renewables. In rough terms, if you had to carve it up into big pieces, what are the big pieces that gets you to $30 million to $40 million in revenues?

Well, it's going to be a combination of squalene, renewable diesel and sales to our joint venture partners, probably for base oils and lubricants would be the biggest chunks. There are some other opportunities, but as we sit here today that's the main parts.

So is that -- in the order of size, is squalene the largest?

No, it wasn't in the order of size. I just --

From a revenue perspective, Jeff, that is about right, a third, a third, a third. From a volume perspective, that is not the mix because of the average selling price of squalene versus the other products.

Okay, thank you very much.

Pavel Molchanov, Raymond James.

You didn't talk a lot about this, this time, but I thought I would ask about the JV with Total, what the status is, when the joint venture is supposed to be formalized and how you see the commercialization on that front progressing.

We expect the JV to be complete during the second quarter, and then we expect early volumes for products other than fuels to be supply or early supply sometime this year, early next year.

And what production capacity -- is that going to come out of Paraiso, or is there going to be a dedicated facility ready for the JV?

This is out of Paraiso for the next 2 to 3 years.

Okay, so no -- we should not assume any separate capacity expansion for the purpose of the JV?

That is correct, for the next two to three years, for the medium term.

Okay. Will there be -- over that 2 to 3 years, is going to be all non-fuel product?

Mostly. There will be some fuel, like some jet and some of minimal niche diesel, but predominantly non-fuel sales.

Okay, got it, I appreciate it.

Okay, ladies and gentlemen, I am showing no further questions in the queue at this time. I would now like to turn the call back to John Melo for any closing remarks.

Thank you, John. We are pleased with our first quarter's performance and believe it is just a sign of the improvements that are to come from Amyris this year and beyond. Our ability to deliver renewable hydrocarbons of equal or better performance in petroleum-based or plant-derived products allows us to meet specific consumer needs at competitive prices. And with increasing demand from industry leaders who are seeking better-performing alternatives to petroleum products and looking to develop these products in collaborations with Amyris, we believe we are well on our way to industrializing synthetic biology and transforming renewable chemicals and fuels, much like biotech did for the pharmaceutical industry.

Thank you for your time today and your continued interest in Amyris.

Ladies and gentlemen, this does conclude your conference. You may now disconnect, and have a great day.