Codexis Inc (CDXS) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Second Quarter 2011 Codexis, Inc. Earnings Conference Call. My name is Lisa and I'll be your operator for today. At this time, all participants are in listen only mode. Later, we will conduct a question and answer session.

(Operator Instructions)

I would now like to turn the conference over to your host for today, Mr. Hank Adriaenssens, Vice-President of Investor Relations. Please proceed.

Thank you, and good afternoon. Today after the market closed, we announced our fiscal second quarter 2011 financial results. The press release is available on the Investor Relations page of our website at Codexis.com. With me today are Alan Shaw, our President and CEO, and Bob Lawson, our CFO.

During the course of this conference call, management will make a number of forward-looking statements. These forward-looking statements include the ability of Codexis and Chemtex to develop and commercialize detergent alcohols from biomass, the ability of our new Chemtex collaboration to accelerate our path to market in detergent alcohols, our belief that our detergent alcohol products will offer our customers a sustainable lower cost product with advantage performance characteristics, our belief that we can produce commercial quantities of detergent alcohol in 2014, the ability of our technology to improve current yields of first generation ethanol quickly and with modest development work and no capital investments, our projected full year 2011 revenue and adjusted EBITDA, and the number of FTEs that we expect to be funded in 2011 in our Shell biofuels program.

These forward-looking statements are based on assumptions and are subject to risks and uncertainties that could cause actual results to differ significantly from those projected. Given these risk and uncertainties, you should not place undue reliance on these forward-looking statements. Please refer to our Form 10-Q filed with the Securities and Exchange Commission on May 6, 2011, for some of the important risk factors that could cause actual results to differ materially from the forward-looking statements made on this call. Except as required by law, we disclaim any obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur after this call.

During this call today, we will discuss certain non-GAAP financial measures for comparison purposes only. The non-GAAP amount of adjusted EBITDA is calculated by adding depreciation, amortization, net interest expenses, income taxes, warrant related costs and stock compensation to our net loss. This non-GAAP measure is in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Please refer to our press release today for a reconciliation of non-GAAP financial measures to GAAP. Now I'll introduce Alan to discuss the quarter.

Thanks to everyone for joining us on the call and online. This is an historic day for Codexis. We introduced our CodeXol line of detergent alcohols and the announcement of our partnership with Chemtex. This enables us to enter the $6 billion detergent alcohol market with a sustainably-sourced cost advantaged product. Under terms of our agreement with Chemtex, Codexis will develop proprietary enzymes for use with Chemtex's leading PROESA pretreatment technology to enable the production of detergent alcohols from biomass.

Chemtex will also provide design and engineering services for commercial facilities. We expect to pilot production in Chemtex's R&D facility in Rivalta, Italy, and scale in a 40,000 metric ton plant under construction in Crescentino, Italy which will come on line in late 2012. As announced today, our new partnership with Chemtex gives us all the elements of a fully integrated solution to produce detergent alcohol and, more importantly, accelerate our path to market.

Detergent alcohols are a 2 million metric ton, $6 billion market. Production feedstocks today are unsustainable palm kernel oil and petroleum. Global demand is growing, particularly in the developing world, putting more pressure on the environment and increasing costs for the companies who use detergent alcohols in the production of their detergents and household products.

Consumer goods companies are seeking alternatives that are sustainable, lower costs, and with advantaged performance characteristics. We believe we can offer all three benefits and have been working to put the pieces in place to deliver.

Steps to date are -- in October of last year, we acquired the intellectual property of our former parent company, Maxygen, for $20 million. That transaction enabled us to enter the biobase chemical market using our patented and proprietary CodeEvolver technology. We identified our first chemical target as detergent alcohol, leveraging the work we've been doing with Shell since 2006, on development of a fatty alcohol as a diesel fuel.

Earlier this year, we produced our first CodeXol product samples and have put them in the hands of potential customers. In June, we successfully scaled up cellulose enzyme production for the first time outside of our fuels relationship with Shell. While the enzymes aren't yet commercially ready, we successfully scaled to 20,000 liters of production, giving us [learning] and confidence in our ability to produce the quantity of enzymes needed for large scale production of detergent alcohols from biomass. Today, we announced the relationship with Chemtex, combining our enzymes with industry-leading pretreatment design and engineering expertise and access to a 40,000 metric ton plant in 2012.

As we said last quarter, we're also putting additional R&D resources to work on detergent alcohols to enable us to get to market more quickly, including shifting resources from working on fatty alcohol as a diesel fuel for Shell to working on it as a detergent alcohol. In short, we're putting the pieces in place to meet the needs of global consumer product companies seeking alternatives to today's offerings and believe we can produce commercial quantities of detergent alcohol in 2014.

Our key focus area, ethanol, is not a new one, but it has grown in potential and importance. The Shell Cosan joint venture, Raizen, was formed in early June, creating Brazil's largest sugar cane and ethanol producer. Raizen is now Codexis' largest shareholder with approximately 16% ownership of our company. We were fortunate today to announce the appointment to our Board of Directors of Pedro Mizutani, who heads Raizen's upstream business which includes the production of sugar ethanol and bioenergy.

Pedro, as the former CEO of Cosan Sugar and Ethanol, brings to the Board his vast experience and industry-leading operating expertise in the Brazilian sugar cane and ethanol industry and will be a valuable asset to Codexis as we grow our opportunities in Brazil and beyond. We couldn't hope for a better addition to our Board at this point in our growth plan.

Our new relationship with Raizen is in addition to our relationship with Shell, the world's largest distributor of biofuels, predominantly ethanol. As you know, we've been working with Shell on the production of cellulosic ethanol since 2006. The need for Codexis' technology in ethanol, particularly in Brazil, has never been greater. Raizen today produces 2.2 billion liters of ethanol annually with stated plans to increase production to 5 billion liters in the next five years. This is against a backdrop of ethanol shortages in Brazil as a result of growing demand for ethanol, higher sugar prices driving production of more crystallized sugar at the expense of ethanol, and lower yields this season versus last.

The Brazilian government estimates that ethanol production in Brazil -- currently more than 6 billion gallons per year, needs to double in the next decade just to meet domestic demand. Given the time it takes to increase new production, planting new fields, building mills and associated infrastructure, we believe cellulosics are the best solution to this challenge. We also believe we can use our technology to improve current yields of first generation ethanol quickly with modest development work and no capital investment. Like detergent alcohols, we're adding resources to our already world-leading cellulosic ethanol program, growing from 108 to 116 scientists to enable us to accelerate development and deployment of our technology.

Bob will talk about our Shell FTE funding and financial results in more detail. But we completed a solid second quarter and are reiterating our guidance for full year revenue of $120 million or more, and adjusted EBITDA of $5 million or more. More importantly, we're making strides toward commercialization of products in the markets that we expect will drive long term growth.

Our objective is to become a world leading enzyme and products company. We use our patented and proprietary directed evolution platform to enable the economic and sustainable production of pharmaceuticals, fuels and chemicals and to economically capture carbon dioxide. But the most exciting potential comes from the chemicals and fuels market with our largest and fastest to market initiatives being ethanol and detergent alcohol. With that, I'll turn it over to Bob to review the financials.

Thanks, Alan. Let me start by taking you through a discussion of our June quarter financial results and then provide more details about our outlook for full fiscal year 2011. Revenue for the second quarter was $26.1 million, up 6% versus the second quarter of 2010. Sales of pharmaceutical products were $8.4 million for the quarter, down 1% from the prior year quarter. As we've said before, sales by quarter will fluctuate, based primarily on timing of shipments to innovators which were lower this quarter than last and lower than we expected in the second half of the year.

Note that pharmaceutical product sales are up 45% for the first half of this year. Also, Q2 did include sales of intermediates for 2 new innovator drugs in our pipeline. One for a cancer therapy under FDA review, and another for an established, branded drug.

Pharmaceutical product gross margins were 15% this quarter, up 5% from the first quarter, reflecting the mix of generic versus innovator products and the mix of intermediate versus enzyme sales.

Related party collaborative R&D revenue, the R&D funding we get from Shell, was $14.8 million in the second quarter, up 1% from the prior year quarter. Revenue from collaborative R&D was $2.5 million in the second quarter, up from $851,000 in the prior year. The growth was driven by revenue from our carbon capture program with [Alston] and Alcoa, and collaborations with pharmaceutical customers.

Total operating expenses for the quarter were $24.2 million, up from $21.7 million in the prior year quarter. The year-over-year increase is primarily attributable to the amortization of the intellectual property we acquired from Maxygen in October of last year and investments in detergent alcohol. Adjusted EBITDA for the second quarter was $67,000, compared to $527,000 in the prior year quarter.

Turning to the balance sheet, we ended June with cash, cash equivalents and marketable securities of $72.4 million, compared to $82 million at the end of the first quarter. The change in cash was primarily driven by the timing of Shell payments under our collaborative research agreement.

Now let me turn to our outlook for 2011. Recall that our guidance policy is to give annual guidance, which we will update each quarter. As Alan said, for the full year 2011, we are reaffirming our expected revenue of $120 million or more, and adjusted EBITDA of $5 million or more. We expect continued growth in pharmaceutical product sales and collaborative R&D revenue. As Alan noted, we shifted resources from our Shell diesel into our cellulosic ethanol and detergent alcohol programs. Let me give you some more color on what that means.

We currently have 128 scientists working on our Shell fuel programs. 108 working on cellulosic ethanol and 20 working on fatty alcohol as a diesel fuel. Shell and Codexis concluded that, despite strong technical progress, the diesel program should be discontinued in favor of cellulosic ethanol and detergent alcohol. As such, we're stopping our work on the fatty alcohol diesel program and shifting 8 resources to cellulosic ethanol and 12 to detergent alcohol.

Since detergent alcohol is outside our relationship with Shell, Codexis will assume funding for those 12 FTEs beginning in mid-August. Shell will therefore fund a total of 116 rather than 128 FTEs. We expect in the second half to maintain 116 funded scientists working on cellulosic ethanol with Shell and to earn technical milestone revenue consistent with our prior guidance. Lastly, we expect to earn grant revenue from the Singapore Economic Development Board supporting our R&D work in Singapore. With that, I'll turn the call back to Alan.

I spent the first part of the call talking about our primary long term growth drivers, ethanol and detergent alcohol. I believe they're the keys to unlocking the enormous value of our technology platform. Before my closing remarks, let me touch on our other businesses which are performing very well.

As Bob noted, pharmaceutical product sales are up 45% in the first half of the year and our backlog for the second half is strong. I'm confident in the longer term growth in our pharma business based on the products we have in markets, a growing pipeline and growing sales of our Codex panels and screening kits. Our pharma business also demonstrates our ability to scale with production of multi-ton quantities of intermediates for sale to some of the world's leading pharmaceutical companies.

In carbon capture, the technical progress in our work with Alston and Alcoa has been excellent. While the development of those markets is likely further away, our work demonstrates the power of the Codexis CodeEvolver platform.

But let me close where I started -- with the enormous opportunities in front of us with ethanol and detergent alcohol. Our detergent alcohol collaboration with Chemtex gives us the elements needed to produce sustainable detergent alcohols from biomass.

Our next objective is a line of feedstock and customers. In ethanol, we're focused on our cellulosic ethanol program with Shell and are starting work with our newest, largest shareholder, Raizen. Though Raizen has only existed for less than two months, were very enthusiastic about our potential in Brazil. We're gaining focus and momentum, giving me great confidence in the bright future of the company. Now to your questions.

(Operator Instructions)

Your first question comes from the line of [Mike Ritzenthaler] of Piper Jaffray. Please proceed.

Good afternoon, guys. My first question is around, of course, the Chemtex collaboration. If you could provide a little bit more information to us on who will pay for production of the chemicals at first or will the cost be shared or if there's some sort of breakdown of the costs. And then a follow up to that would be if your enzymes are to be used in any of the pretreatment technology or if it's just the downstream.

Absolutely. Great question. We're very excited about this collaboration. M&G Chemtex is regarded by many people as a market leader in their development of pretreatment. They've been working on this system for many years and we're very proud to be associated with them. This relationship is exclusive both ways. It -- a key driver for us is to get our enzymes exposed to M&G Chemtex because the market here is way larger than just detergent alcohol.

M&G Chemtex offers a value pretreatment that goes beyond biobase chemicals and could extend into cellulosic fuels and one of our objectives is to be the industry leader in supply of cellulose. It's not just for biobase chemicals but also for biofuels. Working with M&G Chemtex, we now have a very, very strong -- we're in a very strong position to essentially set, what, for me, will be the industry standard going forward.

As for the costs, the development program -- the costs will be shared, but, of course, we get access here to assets that are already on the ground, the pilot plan -- they've already commissioned -- the larger plant. So, really, this deal doesn't just bring world class engineering expertise and a very well-developed pretreatment process, but it also brings hard assets that today, we don't have ourselves. So this is a very strong relationship and a significant announcement for Codexis.

I would like to jump in as well and give you just a little bit of framing that says for us to produce detergent alcohols from biomass, we essentially need three things. We need feedstock, we need a production protocol and we need a customer, or customers. This gives us everything between the feedstock and a customer and Chemtex's business model is really focused on the development of this pretreatment and engineering and design work, both of which we need to enable our enzymes to work. We envision ourselves longer term as the people selling detergent alcohol, so, while development costs are shared, ultimately this will result in a business in which CodeXol (tm) detergent alcohols are being sold by Codexis to customers.

And, may just for completeness, I'd like to pick up on that point that Bob made about feedstock and customers. I'm actually totally relaxed about both of those. The critical thing for us to do was to do this deal. Why am I relaxed about feedstock? Well, we're partnered with Brazil's largest producer of sugar cane. We just appointed the most respected man in Brazil's sugar cane industry to our Board. I have no concerns about where we will deploy this technology, where we will produce our first detergent alcohol and whether we'll have access to significant feedstock. That box for me is ticked.

In terms of customers, I'm also relaxed. The world market for detergent alcohol is 2 million metric tons. We're targeting our first plant to produce 60,000 metric tons. We'd like to build three plants -- that would be 180,000 -- that's still less than 10% of the global markets. I believe we could almost sell these plants out on the basis of our CodeXol product being advantaged, both in terms of its superior sustainability, and economic benefits. There are, obviously, people out there already buying these products. We know who they are and we've already sampled. But, for me, this was the key part of the jigsaw to pull together, and we're off to the races, as we say now.

Right, yes, no doubt. I guess one follow up on the recent JV and how the JV will account for the loss of any electricity production if the cellulases are deployed at mills that count on that electricity generation or if it's going to be targeted on plants that don't have -- that don't use the co-gen.

Great question. Not all plants use co-gen, that is correct, but that's not -- that's not really what the solution is. When you look at Brazil, the key thing you need to understand is they just do not produce enough ethanol for their own domestic demand. Import tariffs are falling, if they haven't already, into the US

Ethanol is flavor of the month for the moment. It is on everybody's agenda and the need for more ethanol is just going to skyrocket over the coming years. Brazil needs to produce double its current production capacity. Now, how can it do that? It needs to start planting different crops.

Raizen is already way ahead of the curve and these new crops don't only produce small sugar as sucrose but they also produce more lignocelluloses and one-third of a sugar cane plant is currently left on the field. It's known as tops and leaves. It's only the [burgass], which is a third that could be burned currently for cogen. The tops and leaves are not collected.

The bottom line on the answer is collect the tops and leaves, use all of the gas for cellulosic and you haven't affected your ability to produce any electricity. The one-third tops and leaves is currently completely underutilized carbon and there will be more lignocellulose produced as they deploy different crops because they actually produce more lignocellulose than they'll produce more relative sugar. The whole productivity will go up. If there was ever a time to deploy cellulosic, it is -- it is now, and this won't affect cogeneration at all.

Okay. Thanks for the color, guys.

Your next question comes from the line of Ed Westlake with Credit Suisse. Please proceed.

Hey, congratulations on the JV.

Thank you.

Thank you.

I'm sure a lot of work went into it. Just in terms of the -- how are we going to fund this? I mean, we're going to build maybe up to 360,000 MT plants? Are you going to try and get the customers or the feedstock owners to fund it and Codexis would be profiting on the sale of enzymes or what's the sort of business model going to look like here?

Yes, I'd start -- this is Bob -- this isn't a place where we envision profiting on the sale of enzymes. It's actually -- we envision profiting on the sale of the CodeXol detergent alcohols. That said, there are multiple ways we could produce them and I think it's really dependent on how the supply chain develops. We know that we have access now to Chemtex's pilot plan and Chemtex has a 40,000 metric ton plant coming online in 2012, so we know we've got the availability of plant resources relatively shortly for production.

I think beyond that, we've said a lot that we've got enough capital on our balance sheet to meet our needs. I stand by that. If we got further down the line with an off take agreement and where the economics make such sense and the risk profile made such sense that we wanted to invest in a plant, I'd consider it but the pieces need to be in place for us to do that.

And then following on in terms of the pieces being in place, presumably you sign this, you start testing, you start marketing to customers. Those decisions would probably be late 2012 in terms of allocating significant capital?

It's all in here, Ed. It certainly a 2012 event. I'm actually thinking this one may move a little bit quicker. We're already in active discussions with Raizen on a number of fronts: first generation ethanol, second generation ethanol, and, of course, detergent alcohol. We're already getting our arms around the supply chain, who the players need to be. It is classic (inaudible) but whatever happens, my priority is to get this -- our product in the hands of customers quickly.

The good news is Chemtex can support us essentially throughout the 2012 period with the capacity they have. But I want to be making some serious decisions on this as we go into 2012 so that we can get into the market as soon as we can.

When I said that the market needs this product, I mean it. In Brazil, this -- detergent alcohol is one of the fastest growing consumer products in emerging markets, but in Brazil, in particular, it's a hot market and the volumes are growing significantly. This is the perfect time for us to get into the market with this product.

Maybe just a point of clarification. When in 2012 will the Crescentino plant be operational?

They said late 2012. I don't have a more exact date out in front of me.

Okay. And then, coming back to Brazil and the decision. When do you think you might be able to give us more color on terms of how you might be able to sell just into the existing first generation market there?

I think it's in the next several months is what I would describe. I'd say -- the Raizen JV has only existed for something like 50 days, so we're certainly very encouraged, as Alan said, by their -- by the work that we've done to date with Raizen and I expect things to move reasonably quickly in the next few months.

But I would say, Ed, is first generation is clearly -- that the place to go first. I mean, virtually no capital, relatively speaking, a relatively short development time frame. We've, we've already started to look -- there are at least 3 different entry points where we can inject Codexes' proprietary technology into a first generation process and, of course, even marginal improvement of current production capacity could be quite meaningful tools.

And if we're successful, this is something that could hit our books in 2012, so the nearest to market with Raizen would be first generation but also, obviously, second generation -- there's huge political will in Brazil to deploy and obviously strong economic drivers. So we're really very infused by the meetings we've already had with Raizen and we're sending teams down there almost every other week at the moment.

Great. I'll let someone else chip in. Thank you.

Thanks, Ed.

Your next question comes from the line of Chris Kovacs with Robert W. Baird. Please proceed.

Hi. Congratulations on the announcement today.

Thanks, Chris.

Thank you.

Yes. Thinking about, now that Raizen is closed, do you guys have any updated negotiations with Shell in regard to your collaboration agreement there in terms of, I don't know, extensions or things that got --

Absolutely. Absolutely. I think everyone is well aware that the current agreement, which was a full five-year agreement, is set to expire in November 2012. That agreement covers the funding for the resources we talked about earlier. Now the bottom line on all this is that Shell has just asked us to increase FTE funding on cellulosic ethanol. So I have -- I am not concerned at all about where this program is going.

Shell has indicated that they want to be scaling up in the 2014-2015 time frame, true pilot plant, and the period between 2012 and 2014 will have intense activity in deployment, scale-up, process development and associated bioprocessing engineering. It's inconceivable to me that we can get to the end of November 2012, deliver the enzymes, and that is our objective. We want to be done by the end of next year. We want to be able to say to Shell, here are the best cellulases in the world. This is what you've paid for. Now get on and scale up. That is exactly our intention. But it's inconceivable that we could go from [116 to 0]. It's just not going to happen.

Shell has indicated that that's not their intention. We're in ongoing discussions and as and when we're able to communicate what the terms of any extension or whatever those discussions are, I can assure you we'll do it. But those discussions are happening, will happen, and this is a commitment through -- for the medium term. This is a major program and it isn't just about research. There's an important other word there and it's called development.

Great. And kind of related to that. With the shift of your full time employees out of the fatty diesel program. With you guys funding that now, should we look at that, going forward, as coming at the same costs that Shell was previously funding those employees at -- it was like $450,000 per?

The impact from the funding that shifts is equal to that, Chris, but the arrangement that we have with Shell on reimbursement of employees is designed to cover more than just the direct compensation and benefit of those employees.

Okay. Got you. And then, I guess it's -- is there any -- do you guys have any updates on the work you're doing with Iogen?

There's no formal release today and I'm happy to tell you that things are going very well there. Iogen gives us access to demonstrate our technology and deploy our technology on a separate feedstock. That's the driver with Iogen. It's wheatstraw from Northern hemisphere. Wheat straw is very important in emerging markets like China and Russia, let alone Canada and the US Brazil is all about sugar cane in the gas, so the good news is we're actually looking at global deployment here, not just a regional deployment. Our enzymes will be used to produce cellulosic ethanol for the first time at Iogen in its calendar year. We've also -- developed significantly improved ethanologens for Iogen. We're very pleased with the work that we're doing with Shell Iogen in Canada and we have every expectation that that will lead to significant deployment of our technology that, through Shell, in the coming years.

Great. Thank you and congratulations again.

Thank you.

Thanks.

(Operator Instructions)

Your next question comes from the line of Pavel Molchanov with Raymond James. Please proceed.

Thanks for taking my question and as everyone said, congrats on the announcement today.

Thank you.

I wanted to ask a follow up about Shell. Have they given you any rationale for why they're de-emphasizing the diesel opportunity, given that, generally speaking, it is the faster growing of the fuels?

Oh, absolutely. I mean, this one's really easy. The priority for Shell is cellulosic ethanol. There's no question about it. Even today, Shell announced in their excellent second quarter earnings -- they made specific reference in slides used by Shell's CEO, [Peter Vosa], they specifically call out Raizen and they specifically call out next generation technologies and this is the first time that Shell's CEO has made specific reference to our good work and we're finally getting recognition and I think it's tremendous.

But cellulosic ethanol is actually a much more important target for Shell. There are mandates on cellulosic ethanol in the US which are important. The ethanol industry in Brazil is exploding. To be honest with you, from a macro issue, there's much more focus on ethanol and cellulosic ethanol. Why did -- and that explains why Shell asked us to put more people on the cellulosic ethanol program so they're commitment is very strong and they put their money where their mouth is.

The chemical product, detergent alcohol, is outside of our relationship with Shell. It was inconceivable and unrealistic for us to expect Shell to fund something when they don't have access to our own. So we actually encouraged this development. We're happy to fund detergent alcohol because it's our product and we want to capture the back end economics, so it makes sense. But no, Shell are clear. They're very focused on cellulosic ethanol. It doesn't mean they don't believe in diesel. It's just that their priority is cellulosic ethanol.

Okay. Yes, that's helpful. And then, I asked the same question three months ago and maybe you guys have better visibility on it at this point. As far as the Saskatchewan commercialization and the Brazilian commercialization of cellulosic ethanol, has Shell chosen which of those two directions will be done at a more accelerated road map?

I honestly can't speak for Shell. It's not my job to. But what I can do, and I'm more than happy to be helpful, is firstly I would say that I believe in my interactions with Shell, that they're committed to deployment on both. They're committed to deployment with Iogen Canada because it's wheat straw. You cannot get sugar cane to gas in China and Russia and North America at scale. You've got to look at the macro issues and it's all about biomass. Biofuels is as much of an agriculture as it is about biotechnology. In fact, you need both.

So Shell is committed for all the right reasons to both. Now your question was about which one may or may not get deployed first. I believe, based on macro issues, that deployment in Brazil may be first, not because Shell has said it will be first, but I believe that the political pressure on Brazilian ethanol producers will increase. Ethanol -- sugar production in Brazil is challenged at the moment due to some issues around crop failure and bad weather. Yields are down. At a time, sugar pricing's higher.

And the Brazilian government has made it clear that they want double, 100% increase in ethanol availability for the working people in Brazil and the one thing that the Brazilian government will not tolerate is that the working man and woman in Brazil cannot get to work because they can't get fuel to drive their car. These countries run somewhat differently. It's a very socialist-minded country and they will do what is necessary to ensure the people get gas in the car and don't pay too much for it. So, based on those macro issues, I would expect deployment to be accelerated and a lot of pressure in that direction in Brazil. But no, Shell is committed to both.

Okay. Just a quick one. The only one of Shell's biofuel partners that you guys are not, to my knowledge, currently working with, is [Virant] and I wanted to ask, number one, is there any cooperation between you and Virant and if not, is there potential to have that in the future?

Well, certainly, we are aware of Virant, and, in fact, I have nothing but the greatest respect for the people there and some of my executive team have had on and off discussions with them and that company's doing very well. They're not a logical first pick for us. They're technology platform is different. They're more chemical. They're not a biotechnology company. Is there potential down the track to leverage the capabilities of both companies to mutual benefit? We actually believe that there are, but I wouldn't say it was a priority for today. Our priority is to get detergent alcohol to market and to get Raizen and Shell to market with cellulosic ethanol.

Perfect. I'll leave it there. Thanks.

Thanks, Pavel.

Your next question is a follow up from the line of Ed Westlake with Credit Suisse. Please proceed.

Hey, just coming into maybe 2011. The $5 million EBITDA guidance on an adjusted basis obviously so far, it's been running at a bit less than that so just wondering what might change in the second half of the year?

A couple of things, Ed. One is I know that we expect some grant revenue from the Singapore Economic Development Board associated with our R&D center there, given that those employees are costs that we're incurring anyway. That falls straight through. I think the other thing that I don't know if we mentioned, frankly, on the script, is we have actually noticed Shell in June that we achieved two of our Shell technical milestones and, assuming that they validate achievement of those milestones, we'll earn that revenue in the second, excuse me, in the third quarter, and, again, since there's no cost associated with it, that helps our EBITDA.

Great.

There are no additional questions at this time. I would now like to turn the presentation back over to Mr. Alan Shaw for closing remarks.

Well, we'd very much like to thank you for your time and your attention and we look forward to speaking to you again in three months.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.