Amyris, Inc.
Q3 2017 Earnings Call Transcript

Published: 15 Nov 2017

[Operator:]

Welcome to the Amyris Third Quarter 2017 Conference Call. This call is being webcast live on the Events Page of the Investor Section of Amyris' website at amyris.com. This call is the property of Amyris, and any recording, reproduction or transmission of this call without the expressed written consent of Amyris is strictly prohibited. As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the Investor Section of Amyris' website. I would now like to turn the call over to Peter DeNardo, Director of Investor Relations and Corporate Communications.

[Peter DeNardo:]

Thank you, Glenda. Good afternoon, and thank you for joining us this afternoon. With me today are John Melo, our Chief Executive Officer; and Kathy Valiasek, our Chief Financial Officer. Please note that on this call, you will hear discussions of non-GAAP financial measures. Reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures is contained in the financial overview slides of the accompanying presentation or the news release distributed today, which is available at investors.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. During this call, we will make forward-looking statements about events and circumstances that have not yet occurred, including projections of Amyris' operating activities, anticipated transactions we are contemplating and are closing, our strategic plans regarding these potential transactions and their anticipated financial impact on our business and financial results for 2017 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 on the company's recent SEC filings and the Risk Factors section of its quarterly report on Form 10-Q filed on May 15, 2017. 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 discussion of the relevant risks and uncertainties. Before we begin today, I'd like to note that included in our webcast is a slide presentation that we will refer to in today's presentation. I'll now turn the call over to John Melo. John?

[John Melo:]

Thanks, Peter. Good afternoon and thank you for joining us today. We've had another very good quarter with continued strong demand for our high-value ingredients and a continued strong track record of growing and expanding our collaborations and licensing revenue. We are engineering, scaling and manufacturing better performing sustainably sourced products and commercializing them through partners that are market leaders in their respective segments. This activity is delivering sustainable growth and is quickly leading to the highest quality returns in our sector. I'll focus my comments today on our business results and outlook through the end 2017 and Kathy will update you on our financial performance. Let me start with our topline results for the quarter. During the quarter we experienced solid demand for our products and significantly expanded our collaboration portfolio. These agreements and short-term payments led to adjusted revenue of $32.5 million in the third quarter. GAAP revenue of $24.2 million, which excludes about $8.3 million in license revenue from DSM that because of the number of transactions with DSM during the period and the related accounting treatment we were unable to recognize in full as GAAP revenue for the third quarter. We expect a portion of this revenue to be realized in the fourth quarter due to a subsequent transaction that will impact how this revenue was treated. Revenue for the quarter of $24.2 million includes collaboration revenues of $12.9 million or $21.2 million in collaborations when including the $8.3 million I mentioned a moment ago and product sales of $11.3 million. Our base product business continues to grow as planned and we are expecting a stronger full year performance than previously communicated. You'll notice that on Slides 3 and 4, if you're following along with slides during our call. Our strategic relationship with Royal DSM has resulted in a number of short-to-medium term product development and production collaborations in vitamins and other nutritional ingredients. The relationship is off to a great start and is really leading our growth within the health and nutrition markets. The agreements we've completed with DSM are consistent with our strategy and business model. We are entering into product development, scale up and manufacturing collaborations where we have the potential to deliver significant market disruption. We are targeting markets where DSM has excellent market reach and credibility. In most cases we are partnering on the development we scale and manufacturer and they distribute and sell. The commercial arrangements provide us funding for the development costs, scale up and value share for the value we jointly create in the final market. We have 100% success rate with our other development projects in this business model as the products become commercial and we expect the same results with DSM. Much of our success comes from our partner's ability to target the right products and markets. These are projects that have a clear and known existing market and in most cases, we are delivering a lower cost, better performing product that it is sustainably sourced to replace our current source of the material. The combination of our partner's knowhow in the end market and our best-in-class technology platform, scale-up capability and people enable us to be fastest and lowest cost to market. The collaboration agreements we completed this quarter include a food and nutrition molecule, this is specifically for a dietary supplement commonly found in both human and animal food products. Vitamin A where DSM is funding the development of the technology to produce vitamin A on a cost advantage basis, utilizing Amyris' and DSM's capabilities. Vitamin A is a key ingredient in animal feed because it supports animal growth, reproduction and digestion. And finally, a new class of infant nutrition ingredients. Our technology will enable the production of these critical ingredients on a cost advantage basis, utilizing Amyris's capabilities coupled with DSM sustainably focused business model and brand recognition. DSM will commercialize new human nutrition solutions, incorporating these ingredients, utilizing its robust, global sales and marketing channel. This product has applications across numerous products and in terms of world health, what's exciting is that it can enhance nutrition [cost] [ph] effectively to better meet global nutrition needs, including that of infants in the Third World. The combination of the momentum we have with DSM, the strong demand of our current commercial products and our expanding footprint in health and nutrition are supporting very good visibility into our fourth quarter results and driving our confidence in exceeding our 2017 financial plans. In addition to the strong third quarter results, we just executed a $27.5 million commercial license agreement that will be coupled with several other commercial agreements that are in process [Indiscernible]. The $27.5 million license and the rest of the agreements are anticipated to result in a better than expected cash balance to end the year. This is also expected to more than support increasing our revenue guidance for 2017. We expect to complete and announce the remaining agreements in the coming week. We'll also plan an Investor call and visits to key shareholders after the Thanksgiving break to provide a more detailed update of these transactions and the positive impact on our cost structure and operating performance going forward. We continue to make good progress on our sweetener product. For example, one key aspect necessary is the completion of a generally recognized as safe or GRAS accepted by the FDA, which is a requirement for food and beverages. We just completed a very successful GRAS assessment by an independent expert panel. This GRAS conclusion with support information will be submitted to the FDA for market approval and this was made possible in record time through the incredible team focus and collaboration here at Amyris' and with our partner on this project. This product targets the $90 billion sugar market where responsible brands around the world are seeking healthy sweeteners to reduce the use of unhealthy sugar. We've completed initial tastings with several very large consumer companies around the world and they love the sweetness of our product and purity of the taste and mouth feel. We have a winning product and need to successfully complete our development and scale up. The health and nutrition segments including the sweetener product will begin demonstrating topline growth as products reach market come on stream beginning in 2018 and 2019. Finally, momentum in our cosmetics business continues and we will be expanding into SEPHORA Canada in January and likely SEPHORA Brazil later in 2018. Our revenue in this business continues to exceed partner expectations and the performance of like brands. As a reminder, our success with bioscience has all been achieved with one of the lowest marketing spends among cosmetic Indie brands and we continue to garner excellent industry reviews for these industry-leading products. We have now developed a significant portfolio of higher value products whereby a smaller quantity produced delivers significantly higher revenue and margin than large quantities of commodity type products. By year-end this portfolio focus and business optimization should result in most of our products being produced having around a 60% gross margin when we account for the value share payments associated with these products. And now for outlook for the fourth quarter and full year 2017. We expect our revenue to continue growing at the current rate and our overall financial performance to continue improving. Our fourth quarter is expected to deliver significant positive free cash flow and for us to end the year with a best cash position in years. We have built a sustainable business that is expected to generate cash to fund our growth. We expect to exceed our prior year outlook for 2017 revenue of approximately $115 million to $125 million and anticipate a higher range of about $130 million to $132 million of revenue for 2017. We expect our full year gross margin to be above 50% and expect very strong momentum and a much better capital structure as we go into 2018. All our products are delivering very strong growth this year and we expect this to continue into the following years. You'll notice the growth level of our products by segment if you look both at Slide 5 in your slide presentation and then Slide 6, which shows by segment the growth we're experiencing year-on-year for the last three years. Our pipeline has fully transitioned to high-value ingredients where we can be cost and performance advantaged and are focused for our development pipeline is an help, nutrition and personal care, including flavors and fragrances. We successfully scaled two new fermentation ingredients so far this year. We now have seven fermentation molecules successfully scaled and delivering commercial value and many derivative products from these fermentation molecules. We have built a great track record of engineering, scaling and producing low-cost, high-performance ingredients for our customers and expect to continue this as global demand continues to shift to sustainable solutions that deliver better performance and help for our customers, consumers and our planet. As our customers like to say Amyris does it better, faster, cheaper and that's what's shifting the growth to our business today. We are and expect to be the key enabler to supplying to help, nutrition and personal care ingredients the world needs to support the strong demand of more and wealthier consumers in a sustainable way. We are very well-positioned and committed to continuing our strong product sales growth and with our upcoming agreements, you'll get a sense for how we will deliver on this with a high level of capital efficiency and the leading returns in our industry. Let me now turn to Kathy for a detailed financial review of the third quarter. Kathy?

[Kathy Valiasek:]

Thank you, John and good afternoon, everyone. We are pleased with our progress thus far during the second half of the year, which is providing us with additional confidence in our ability to meet and exceed our plan for 2017 revenue. Now let me review our third quarter results and provide an update on our debt and capital structure. Q3 2017 GAAP revenue was $24.2 million compared with $26.5 million for the third quarter of 2016 adjusted Q3 2017 revenue was $32.5 million including $8.3 million from revenue for an upfront license with DSM and this also compared with $26.5 million for the prior-year quarter. Product sales were $11.3 million up 66% over $6.8 million for the same period a year ago. This increase was driven primarily by higher product sales in our health and nutrition segment. Collaboration revenues of $12.9 million compared with $19.7 million for Q3 of 2016, collaboration revenue for the quarter did not include the $8.3 million related to DSM. Included within collaboration revenue for the quarter, were contributions from ongoing activities such as DARPA, Firmenich, Givaudan and other activity with DSM. We also recorded significant collaboration revenue from the completion of our Michelin Nebraskan partnership. Adjusted gross profit was $16.5 million compared with $16.2 million for the third quarter of 2016. The key driver here is higher adjusted revenue with partially offset a higher cost of goods sold. We're highly focused on taking necessary steps to improve our profitability by better optimizing our product portfolio to leverage higher margin products while reducing the margin impact of commodity type products. I would also like to note that the significant projects we are involved was DSM are anticipated to be a strong contributor to our margin in 2018. For the third quarter of 2017 selling, general and administrative expenses were $15.5 million compared with $11.4 million for the same period last year. Included within SG&A increase were unplanned expenses related to transactions and activities as well as expenses Biossance sales channel expansion and increased personnel cost to support higher revenue. R&D expenses were $15.2 million compared with $12.3 million for the third quarter of 2016. The increase was primarily driven by higher than expected collaboration activity that has bolstered revenue in the second half of this year and is funded by our partners. Non-GAAP operating expenses representing combined R&D and SG&A expenses excluding stock-based compensation and depreciation and amortization were $27.6 million compared with 19.6 million for the same period a year ago. This increase was primarily due to the one-time expenses and higher collaboration and commercial activity I noted a moment ago. Net loss attributable to common stockholders for the third quarter 2017 was $42.8 million or loss of 1.14 per basic and diluted share. This compared with a net loss of $19.7 million or 1.19 per basic and diluted share for the third quarter of 2016. Total debt, net of debt discount stands at $165 million with $152.9 million of that being long-term debt. As a reminder, about $21.2 million of this amount is mandatorily convertible or convertible to no significant debt due until and the earliest of Q4 2018. Board affiliated investors and partners hold more than half of our total debt. We have executed a significant reduction in our even and continue to review options to reduce that further cash, cash equivalents and short-term investment excluding restricted cash, the $17.6 million at September 30. Based on our cash inflow forecast from collaboration, product sales and the commercial license agreement, we believe we are well funded into the near-term. In addition, we are currently actively engaged in additional activities and we anticipate will bring a significant amount of cash into Amyris. Rest assured, none of these current near-term activities involve equity, debt or any kind of dilutive finances. The cash we generate from these activities is capable of funding the build of our Brotas 2 production facility and support yet another year of topline revenue growth for Amyris in 2018. Again overall, we are pleased with our results thus far this year and at this point in the fourth quarter we are feeling great about finishing the year on a strong note. Following the close of the year and entering 2018, we'll have improved our balance sheet and capital structure as well as our cash and non-dilutive cash generating activities in place to take advantage of our positive momentum. I would now like to open the line for any questions you may have, operator?

[Operator:]

Thank you. [Operator instructions] And our first question comes from the line of Chris Souther from Cowen. Your line is now open.

[Chris Souther:]

Hey, thanks so much for taking the call, just looking at the slides, it looks like this $59 million [Indiscernible] for the product driven when you guys broke it out there, those excluding fuel and that's up slightly from like the Analyst Day. So, I was just curious is there the delta between the guidance, the new guidance and the old guidance, is that coming from fuel or is that more collaboration payments for you guys are expecting in the fourth quarter?

[John Melo:]

It's -- Chris, by the way, thanks for being on the call. It is not fuel. We have not had any revenue in fuel and we do not expect any revenue in fuel going forward. It is a little bit on product and quite a bit on collaboration.

[Chris Souther:]

Okay. And then just looking into 2018, how should we look at the value share as that becomes a bit more meaningful as far as the revenue and did you have a figure and I might have missed it on the call what it was in this quarter? And I also just what the cadence should look like going forward, if you got an idea of that?

[John Melo:]

We expect to be above expectation this year on the value share and for next year, I think we've been talking about around the $30 million level, $25 million to $30 million and we are likely to be above guidance next year on the value share payment - value share payments, sorry.

[Chris Souther:]

Okay. And then just kind of a housekeeping question on the deemed dividends, what are those going to look like on a going forward basis? Are those something we should expect to keep in the fourth quarter in 2018? I was just curious?

[John Melo:]

Chris, could you repeat the question?

[Chris Souther:]

Those deemed dividends during the quarter?

[John Melo:]

Kathy, you want to take that?

[Kathy Valiasek:]

Yeah so, I think that you don't need to factor those in, in 2018.

[Chris Souther:]

Okay. Perfect. Thank you.

[Operator:]

Thank you. And our next question comes from the line of Amit Dayal from H.C. Wainwright. Your line is now open.

[Amit Dayal:]

Good afternoon, everyone. Just to begin with the $8.3 million, are you expecting that to be fully recognized in the fourth quarter?

[John Melo:]

Hey Amit, by the way thank you for making the call. We expect most of that to be recognized in the fourth quarter.

[Amit Dayal:]

Okay. Got it. And John, could you elaborate a little bit on the before-and-after with Ginkgo in terms of what the new agreement is?

[John Melo:]

I don't really want to get into a lot of detail. I can tell you there is one product that we will continue working on together. It's a product that's currently in development that we are both working on and it's a product that's a collaboration product with one of our partners.

[Amit Dayal:]

Okay. So far mostly you generated…

[John Melo:]

The big difference Amit is if I think about before, anything we signed after a certain date, we would be sharing and going forward we have one project that we actually entered into during the relationship that will continue forward and everything else each of us does our own thing.

[Amit Dayal:]

Okay. Understood. Is the sweetener delivery still on for the fourth quarter?

[John Melo:]

Let me go back to your other question for a second Amit. The other thing I want to emphasize is that the access to our manufacturing and Ginkgo's ability to have a scale and produce products for them continues forward, but it's on and as -- it's a choice rather than a must do. I just wanted to make sure that that was clear because that's an important aspect for them and we want to ensure they’ve got access to our manufacturing and scale up if there are products that make sense for us to do on our side and products they like us to work on with them. So back to your question about the sweetener, we've actually had more than we expected demand in the vitamin business during the fourth quarter and are completely out of capacity to be able to run the sweetener in the fourth quarter. So, we did have some flexibility and added it to the January-February timeline. And we did have enough early material, very limited at that but enough early material to actually do some early sampling for some of the consumer companies. So not delaying our overall view of mid-to-second half of next year, commercial volumes, but the one ton of material because of our demand on the vitamin side is shifting to early in the year.

[Amit Dayal:]

Understood. And this $27 million in license agreement, is it so going to be recognized in the fourth quarter or will that be spread over 2018?

[John Melo:]

Yeah, no, 27.5, we're expecting mostly in the fourth quarter and the payment will obviously be in the fourth quarter. Your question was about rev rec, and we do expect most of the rev rec to be in the fourth quarter.

[Amit Dayal:]

Understood. That's all I had for now. Thank you.

[John Melo:]

Great. Thanks Amit.

[Operator:]

Thank you. And our next question comes from the line of Lisa Springer from Singular Research. Your line is now open.

[Lisa Springer:]

Good afternoon. The last time I was following the company, you in the pharmaceutical area you had some deals that were longer-term but very promising, one of which was an ingredient for an oncology drug. Could you give me an update on it?

[John Melo:]

Sure Lisa. Thank you for being on the call. We are on the Pharma side we have one relationship we're continuing and a couple of them that we have completed our work and one of the issues that we've had on the Pharma side is really being able to see short to medium term and I think that short to medium term is in the two to five-year window, any revenue and cash contribution that equals what we're seeing in the other part of our business, specifically in health and nutrition. So being a bit of a focus maniac at this point we are really reducing our emphasis in that area and do have some continued work in that area and I would say the oncology is one where we were not pursuing at this time.

[Lisa Springer:]

Okay. Well that makes sense. Thank you.

[John Melo:]

You're welcome.

[Operator:]

[Operator instructions] And our next question comes from the line of Carter Driscoll from B Riley FBR. You line is open,

[Carter Driscoll:]

Good afternoon. Thanks for taking my questions. If I heard correctly during your prepared remarks. I guess you maybe hinted at potentially new collaborations in the current quarter. Would that be with new customers or expansion with existing customers if I heard that correctly?

[John Melo:]

Hey Carter. Thank you for making the call. We're actually working on agreements on both sides, both with new as well as expanding with current. So, it really depends how much of it gets done this quarter, but we are working on agreements with both, new and existing.

[Carter Driscoll:]

And largely within your existing target end market, I'm assuming? Hello? John? Are you guys still there?

[Kathy Valiasek:]

We are. This is Kathy. I'll answer the question for him. I am not sure what happened, yeah but they are in our existing markets.

[Carter Driscoll:]

Okay. Kathy, if you, let's say best case scenario, were to execute on all the pending agreements, and you talked about not wanting to tap either the equity or debt markets from a dilution perspective, could you give me a range of what you think a target leverage ratio might be in 2018?

[Kathy Valiasek:]

Good question. We'll have to get back to you on that.

[Carter Driscoll:]

Okay. Fair enough.

[Kathy Valiasek:]

We are, as we stated on the call, we'll be at a very, very strong cash position. We are still discussing our plan for debt next year. But we would like to pay down versus [Indiscernible] financing etcetera.

[Carter Driscoll:]

Yes. Well, that leads me to my next question. So how do you think about -- given that you just raised estimates, you've got a lot of positive momentum. The last couple of quarters, you’ve been congratulated for, as well as the balance sheet improvements. How do you think about capacity? Is Brotas 2 adequate for all the potential collaborations you have? Are you still considering using contract manufacturers? And how do you balance the two? And as you just talked about, how do you think about prioritizing the application of capital towards expansion versus debt pay-down versus, obviously, product development

[John Melo:]

I just got back on Kathy. If you want me to take the production side and you can take the capital application.

[Kathy Valiasek:]

Okay. Go ahead.

[John Melo:]

Great. Sorry about that. So, on the production roadmap just to answer that question, we've a very clear roadmap now of where our current facility, our second facility Brotas 2, which we're in development now and then the third facility which is really the completion of our old SMA project that was put on hold when we ran into all of our troubles, those three factories and the third one by the way, the SMA project dedicated to sweeteners. So, a specialty factory Brotas 2, a sweeter factory and then Brotas 1 which is a high-volume single molecule factory Farnesene is really what we see in our footprint for the next three to five years and that footprint, those three factories based on the product mix we have built into our current agreements, with what I'll call some overflow or support from our Antibioticos contract facility in Spain really enables us to support our volume growth through the next five to seven years. So that's and by volume I really mean revenue through the next five to seven years, and anything we do in that portfolio will be really about reducing exposure/maximizing our returns. So, we may have manufacturing partnerships. We may have different ways to manage the capital structure specially around Brotas 1, but the specialty factory access to Brotas 1 for making Farnesene and then our long-term focus on sweeteners at SMA are the three factories that we see supporting our revenue. And then the way to think about it is Brotas 1 obviously exists now. Brotas 2 is in development and we expect to come online sometime late 2019 and then the SMA factory for sweeteners, we would expect to have in operation late 2020 beginning 2021. So, I hope that helps give you a roadmap for the next three to five years of revenue growth for us. And then Kathy, if you want to talk about capital prioritization.

[Kathy Valiasek:]

Sure. So, as we've been saying on the call, we have quite a bit of optionality right now with our current plans and John and I think we're still assessing what is the best due to some our cash in 2018 and over the next three to four weeks, we'll be finalizing that.

[Carter Driscoll:]

So, do you think when you do the update call, you might have some decisions made by that timeframe or no?

[John Melo:]

No. I would say, yeah, go ahead Kathy, sorry.

[Kathy Valiasek:]

No, you go ahead John, yeah probably not. We just are have a lot of options that we're considering and it's probably going to take us little bit longer than that.

[John Melo:]

And we also need to make sure our Board is obviously fully onboard with us. They obviously have a clear view on this. They’ve been giving us guidance. I think in the update call we definitely will give you a clear picture of cash. We'll give you some thinking about our framework, how we think about prioritizing it. But I wouldn't expect a commitment to where we're going to apply the cash.

[Carter Driscoll:]

Okay. No, that's fair. Maybe just last one for me. Last time, I think, you presented, you still talked about being on track with kind of three brands for over $10 million in sales this year, obviously, you have a one large molecule, I'm assuming that $30 million still apply. How about total products? I think you used a barometer last time, the Janssen products were at least $1 million in sales. Is there any change, not necessarily this year, but going forward? Anything you can elaborate on whether you might have, say, a dozen products or another handful or maybe a fourth brand that could eclipse that metric?

[John Melo:]

You know what, I think it's a great question. What I'll do is add that to the update, the update session that we do and give you a view into '18 and how that base expands, but it is expanding. We do see more both in the million-dollar category and then in the brand's performance. So, I'll be happy to give more color around that and build around what we mentioned about '17 and we're going in '18 regarding the product portfolio. I think it's good to say that our product portfolio is performing very well and we expect the growth to be maintained going into '18, which would mean more million-dollar products and you would also wouldn't be surprised that the molecules we've launched this year are doing very well.

[Carter Driscoll:]

Got it. That's very helpful. Thank you, John. And maybe just squeeze one last one in. With the expansion of the Sephora launch to other countries, is there any incremental spend associated with that?

[John Melo:]

It's minimal. Think of it as, well I'll just say minimal or not material right. It's basically in each country we need a point person. We already have one in Canada and we have one that's a contract person for us in Brazil. And the cost structure around it is really minimal and that we're leveraging a lot of the Sephora infrastructure for how we go to market.

[Carter Driscoll:]

Excellent. I must say, my wife loves the product. So, there is one.

[John Melo:]

Very good to hear.

[Operator:]

Thank you. And our next question comes from the line of Lauren Landfield from Zazove. Your line is now open.

[Lauren Landfield:]

Hi guy. Question regarding the production in the quarter in Q3, can you give us a little update on your volumes?

[John Melo:]

We've not disclosed volumes and one of our issues is with our partners really in the vitamin and the fragrance side of the business. We are really conflicted on giving volume. So, I can tell you the plant as of right now is operating very well and again we're not giving volume targets at this point Lauren or production on a volume basis. We're reporting revenue and we're also staying away from revenue by specific product for the same exact reason. The vitamin business is extremely competitive and the fragrance business is extremely sensitive around confidentiality.

[Lauren Landfield:]

Understand, with some of the product that you're expecting to recognize revenue for in Q4 with that have been produced in the prior quarter?

[John Melo:]

Yeah very, very good question. Yes, the answer is yes. Obviously not all right. We're running all out right now and we're going to have a I think the third quarter production. I am sorry, the fourth quarter production volume is the fact that if everything continues the way it is, we'll be the highest production volume we've ever had, but you can imagine that we also have revenue in the fourth that's about products that we produce in the third where we had cost associated but no revenue because of some of the finishing steps required in those products.

[Lauren Landfield:]

Got it. So relative to the guidance it looks like you're in the 130 range and I don't know if you've provided the explicit breakout on the products, but you got $71 million in the year to date it appears non-GAAP. So, of the $60 million in Q4 what is your expectation for product there?

[John Melo:]

I'll tell you that the -- how do I say this, I'll tell you that we will meet or exceed our expectations and what we said as expectations in the product revenue and the rest will come in the form of collaborations. So, the other way to say it Lauren and I am just trying to again be careful about what I'm putting in the market, another way to say it is we'll have a better performance, probably one of our better performances on the collaboration and license side in the fourth quarter and also a very strong product performance that will take us a little bit above or right at what we said the guidance would be for product revenue.

[Lauren Landfield:]

Okay. And that was about $60 million was it.

[John Melo:]

Yeah exactly, $59 million, $60 million I think was our prior guidance on product.

[Lauren Landfield:]

Got it. And then do you have any margin that you could offer up in terms of the cash margin on that product?

[John Melo:]

I think I gave you the guidance which was -- will be above 50% margin in total. And what we record for product margin, specifically in the fourth will depend a lot on two things, one is already the question you asked right. How much of it carries from the third quarter and how much of the fourth quarter production goes out. And then secondly, how much of the value share payments come in, in the fourth quarter. And since those are two variables, that's really why I just guided towards above 50% rather than giving you some breakdown on cost of goods.

[Lauren Landfield:]

Sure. Got it. And then final question the large $27 million you would expect to recognize that all upfront in Q4 that's not any ratable recognition?

[John Melo:]

That is correct. At least the majority of it. I never want to say all of it because accounting is complicated, but I would say most of it we would expect to recognize in the fourth quarter.

[Lauren Landfield:]

Great. Congratulations on the momentum. Thank you.

[John Melo:]

Thanks Lauren.

[Operator:]

Thank you. [Operator instructions] And I am not showing any questions over the phone lines. I would like to turn the call back over to John Melo for closing remarks.

[John Melo:]

Great. Thanks Glenda. Thank you all for your questions. Our business today is in a strong commercial position to really disrupt multiple markets and this has attracted global companies to collaborate with us, the leverage that power. As I said earlier fast -- faster. better, cheaper, I think is the -- our customers talk about the power that we're delivering for them and while it's been a long hard road to get here, with our advantage position, our opportunity to grow profitably has never been more evident. During the third quarter we added Eduardo Alvarez, as our Chief Operating Officer. Eduardo is another key part of our shift to quality growth and positive cash generation. He will focus on manufacturing excellence, managing the delivery and prioritization of our key collaboration programs and help me and the rest of our executive team continue to execute on our strategy. We will have Eduardo as well as Joel Cherry, the President of R&D, join on our future earnings calls to continue to provide you with transparency into our activities and provide more color around how we're doing and what we're doing. We've also made significant progress in simplifying our business and as part of this, have significantly reduced the scope of the Ginkgo partnership. We both Jason and I had a great vision for how we could create a single phase to customers and bring together the best of our technology platforms. This became unmanageable with customers and within our organizations, we have decided to significantly reduce the scope of our relationship to one product we will work on together -- that we work on together and to support each other where it makes sense and where there is clear mutual economic value. This is a very good outcome for both Ginkgo and Amyris and keeps us both working hard to make renewable products and fermentation-based performance ingredients as the key to making our planet healthier. Thank you for your time and support we look forward to talking with many of you as we announce our multi-contract commercial transaction in the coming weeks. Between now and then we'll be sharing our growth story with new and existing investors. I would like to note that Amyris will be participating in a non-deal investor roadshow to visit investors in the coming weeks we'll also be presenting at the Singular Research Best of the Uncovered and LD Micro Main Event investor conferences, what a name for a conference, on December 4 and 5 in Los Angeles. Thanks again and have a good evening, everyone.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.