Amyris, Inc.
Q1 2015 Earnings Call Transcript

Published: 6 May 2015

[Operator:]

Welcome to the Amyris First Quarter 2015 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 like to turn the call over to Peter DeNardo, Director of Investor Relations and Corporate Communications. Sir, go ahead.

[Peter DeNardo:]

Thank you Carmen. Good afternoon and thank you for joining us this afternoon. With me today are John Melo, our Chief Executive Officer and Raffi Asadorian, our Chief Financial Officer. Please note that on this call you will hear discussions of non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most comparable GAAP financial measures is contained in 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 and financial results for 2015 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 Factor section of its annual report on Form 10-K filed with the SEC on March 31, 2015. 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 we will refer to in today’s presentation. I will now turn the call over to John Melo. John?

[John Melo:]

Thank you Peter, and welcome aboard. Good afternoon and thanks to everyone for joining us today. Today I am pleased to report the first quarter marked solid progress and execution against our plans to deliver and grow multiyear collaborations while investing in sales of our high performance, no compromise renewable products. We delivered total cash revenue inflows for the first quarter of $30.3 million. I am also pleased to report that we delivered on our previously stated goal of achieving positive cash flow generating 1.7 million of positive free cash flow for the first quarter. This achievement was despite a negative currency impact of cash flow of $1.2 million. Our customers within the cosmetics markets are also reporting very strong end user demand of our products. Raffi will take you through our financial performance in more detail later but first, I would like to update you on the business results and our progress in the first quarter. As highlighted on our fourth quarter call, 2015 is the year for us to focus on strengthening our commercial efforts to accelerate revenues and expand into higher margin business lines. Following are some of the ways in which we are doing this. During the first quarter we doubled our volume of Squalane sales and have become the lowest cost and largest supplier of Squalane to the cosmetics industry. We experienced our strongest growth to date of sales to end customers from distributor inventory with growth of 140% versus the first quarter of 2014. This strong growth was represented across all our geographies when Asian sales growing at 180%, European sales at 200%, and the U.S. at 86%. This compares to about 30% growth for the same period in the prior year and we are continuing to see this end user demand into the second quarter based on feedback from our customers. Most of this is coming from the confidence cosmetic brands are gaining in the consistent quality, reliable supply, and multiyear price guarantee we are providing. We have much more production capacity available to sustain this level of growth and are experiencing early signs of market expansion through the wider use of Squalane as the leading emollient informulations with expansions into hair care, sun care, and other applications including [indiscernible]. We expect some of this end market demand to be realized in our product revenue in the second half of the year as distributors continue to sell through current inventory. This is a very good start to the year for Squalane in an area where we are investing in additional growth with expansion of sales staff capability and growing our distributor base as we expand our product line by adding a high performance, mid priced emollient to our product portfolio. We are seeing very strong interest in this new emollient Amyris Squalane and have already shipped our first order of this product into the Chinese market, where skin care is one of the fastest growing personal care markets in the world. In fuels, Brazil Diesel de Cana, sales remained at about the same volume as prior quarters with significantly lower revenue in the first quarter, as we completed the transition to our new distributor Razen from BR, the Petrobras distribution company. To complete this transition, we facilitated the BR inventory transport to Razen instead of new product sales from Amyris directly to Razen. This is now complete and second quarter revenue will be consistent with prior quarters with some adjustments for currency headwinds as the Brazilian Real remains weak in relation to the U.S. dollar. Most of the remaining sales and marketing activity, we experienced in the first quarter was related to the introduction of our new products, an important part of our growth strategy. And we expect this will start favorably impacting our revenue in the second quarter and lead to potentially significant revenue growth in the second half of 2015. The new products include the Biossance skin care line, Muck Daddy industrial hand cleaner, Myralene industrial cleaners, our industrial monomers and polymers through our Kuraray partnership and Neossance squalane. Combined with the products we make for our partners from our collaborations, these products provide the underpinning to our growth over the next two or three years. Since the end of the quarter, we have completed a private introduction of Biossance, where we sold out our opening inventory. We will begin official commercial sales of Biossance through our website biossaance.com at the end of May and are already encouraged by the strong initial consumer response to this product. We also completed the early market introduction of our new Muck Daddy hand cleaner, to automotive repair shops in the Denver area at a small trade show held by our distribution partner Autoforce, one of the largest auto parts entire distributors in the U.S. This was a very successful early introduction with over one third of the buyers present choosing to switch to Muck Daddy from their current industrial hand cleaner. We are planning an official market launch of Muck Daddy to the automotive industry in Chicago in early July. We are expecting significant contribution from both of these products to our second half revenue. Also during the quarter we signed a letter of intent with Fosun Pharma, a leading publicly listed pharmaceutical company in China to establish agreements for Amyris to supply a precursor to an active pharmaceutical ingredient and to develop additional target molecules of interest. We are not going into too much detail while discussions are ongoing; this move is in-line with our strategy to focus on the pharmaceutical market as an additional growth platform for Amyris. As you may recall, Amyris was founded on a project to develop artemisinin, an effective drug uses for treatment of malaria. This agreement will also explore other applications for the precursor compound beyond the treatment of malaria and we expect it to serve as a strong win entrance for Amyris to the field of pharmaceuticals. We are in active discussions with other large global pharma companies and have had meetings with almost a half dozen of them. Some have already expressed a high level of interest in the potential of our micro farm platform for generating target diversity as well as screening for and manufacturing successful molecules. We expect our first agreement to be completed by the end of the year and continued strong demand to generate several agreements in 2016. In addition, in the first quarter we entered into an agreement with Genome Compiler Corp a leader in computer rated design in collaboration platforms for the synthetic biology industry. This agreement calls for Amyris' automated lab service to be integrated with Genome Compiler’s on my designs, tools, and e-commerce platform to enable customers in the pharma and biotech industries to leverage a comprehensive platform for all their synthetic biology development needs. The first quarter was another successful quarter for our flavor and fragrance ingredient activity. We received several milestone payments and several annual collaboration payments. We are on track for around $35 million to $40 million of combined product revenue and collaboration in flows from this segment in 2015. This compares to about 25 million in 2014. In cooperation with our – we will have four molecules in commercial sales stage by the end of this year for this segment. This is an increase of three molecules from the single molecule we commercialized in 2014. We also made additional progress on our collaboration with Braskem and Michelin for the development of renewable isoprene too among other potential uses give Michelin a sustainable sourcing channel for poly isoprene for the production of quality tires using a high performance, environmentally responsible material. We are continuing to deliver significantly ahead of schedule on our milestones for this project. And finally after the quarter ended we have restarted our industrial fermentation plant Brotas. After our annual scheduled maintenance during the sugarcane off season, the plant had a very successful restart and is operating contamination free and meeting or exceeding our operational targets. We expect to end the year with farnesene production cash cost under $2 a liter and have visibility on farnesene production under $1 a liter with the next 24 months to 36 months. This could not be accomplished without the amazing effort and leadership of our manufacturing team and all of our team in Amyris Brazil operation. With our technology continuing to deliver product supply solutions to our partners and our manufacturing platform performing very well at industrial scale, our focus is now fully on rolling our top line sales through expansion of our product portfolio, access to greater value downstream and closer to consumers and deepening our collaboration portfolio into new markets where our technology can deliver breakthrough performance for our partners. Let me explain each of these active road activities. In assessing our current portfolio we realized that when you consider all the current collaborations and the most probable scenarios from our collaboration pipeline excluding fuels, our portfolio represents what we believe is about $1 of annual product revenue at maturity for each dollar of collaboration revenue we achieved from our partners. We believe this could potentially represent about $500 million of annual product revenue from products we are developing for our partners. This excludes products we produced and sell outside of collaborations. As illustrated by our Biofene platform and our products into the cosmetics and performance material markets. Our technology platform and collaboration business model illustrates the power of partnering with large companies for our leaders in their markets. We are extending this model to multiple applications where product sales to partners give us market access that would be difficult for us to achieve independently. We are expanding our existing collaborations in the flavor and fragrance market and also inter commodity markets that are facing significant headwinds like ethanol to help in further reduce production cost. In commodity markets we expect to participate with a royalty from reduction cost improvements. We are expanding into pharma by applying our high throughput system to help provide additional target diversity while using our best in class scale and production platform to make initial test material and provide low cost API precursors. We expect the combination of these activities to deliver 3 to 5 new or expanded multiyear partnerships this year. These partnerships that we call collaborations deliver cash inflows in the first three to four year and then recurring revenue and cash from renewal product sales that are typically 10 year or longer relationships. While we are developing the technology and scaling up the production for these partnerships, the GAAP reporting for the revenue is not fully predictable. This is why we report these at inflows, the cash amount paid and reported as inflows when received. The translation of these inflows to GAAP revenue varies based on the type of agreement and whether it is milestone based, technology delivery based, or some mix of the above. The tiny relationship is improving as TOTAL becomes a much smaller part of our collaboration portfolio. We currently have about 10 collaboration partners with a good mix of inflows from each partner and market segments representing over 20 molecules contracted, some of which have already been commercialized. These collaborations have delivered over $250 million of inflows over the last four years and we expect to average between $60 million and $70 million of annual collaboration payments through the end of this decade. These partnerships more than paid for our direct R&D expenses and provide us with significant revenue growth as each of the products reach commercial production and result in annual revenue and margin growth. About $20 million of our $50 million to $60 million of product revenue this year, is expected from collaborations that have reached commercial production. Our expanding product portfolio drive the next dimension of our top line growth. We’ve indicated that we will be introducing two to three new products annually. This year we are introducing three new molecules from collaborations, one new molecule for the cosmetics industry, and two new brands to sell directly to end users. Biossance as a skin care brand to end consumers and Muck Daddy as an industrial hand cleaner to the more than 10 million industrial workers that get their hands dirty with oil and grease every day. We expect these products to represent $25 million to $35 million of renewable product revenue growth in 2015. Our final top line growth driver is our expansion downstream. To access more of the value available for our proprietary products, our pharmacy derived best in class no compromise molecules. These are products where we have a performance advantage and are the low cost producers. Here is why we are moving near to the end consumers with our pharmacy derivatives. Between our fragrance ingredients and cosmetic ingredients, we are participating in about $2 billion of end market revenue. This reflects Amyris capturing about 1% of the final product sales revenue, when you consider the product revenue we generated from these end markets in 2014. Through a deeper understanding of the end markets, we’ve realized that ingredient providers like Amyris realized 1% of the end market revenue, formulation providers about 5% of the end market revenue, and products sold through distributors about 30% of the end market revenue. After much work within consumers and with people working in industrial environments, we believe we can make a significant positive impact on their lives while doing less damage to the environment and improving our top line growth. There are more than 10 million people who spend their work day working with the oil and grease on their hands. Through a combination of regulatory changes and low quality formulations, they are not happy with their current hand cleaning products. They are frustrated with products that leave their hands feeling rough and have an after smell of petroleum while in many cases not doing a good job cleaning their hands. Our new brand Muck Daddy deals with these issues head on. We have a unique formulation that meets VOC regulations, cleans as well as their old products used to and leave the hands soft without the petroleum after smell. We are making a difference by delivering a no compromise product to these customers. We expect our industrial performance products to grow from around $1 million in 2014 to around $10 million in 2015. This includes our Myralene industrial solvent product line and our direct sales through the Muck Daddy brand. Biossance is our brand for consumer care. We are launching the refinalizer later this month and as several additional products slated for introduction before year-end. We also plan on additional lines extending into hair care, sun care, and spa to be introduced in 2016. We’ve completed early testing with over 600 consumers and received very strong interest in the product with over 70% of consumers agreeing that Biossance is better than the products they are currently using. From the last year we have hired a team with a strong track record of developing and launching products into these markets and are very pleased with our progress. We expect our two new brands to support our direct sales product portfolio while our distributors continue growing our ingredient and formulation sales into the cosmetics industry. We expect our total cosmetic sales to grow from around $10 million in 2014 to around $25 million in 2015. This includes our continued strong growth in Squalane, the introduction of Hemisqualane, and our direct to consumer products sold through the Biossance brand. We have a strong track record of developing disruptive technology, scaling and consistently improving our production cost performance. We’ve lowered our production cost of pharmacy from over $19 a liter in 2012, to around $2 a liter this year and tracking towards below $2 a liter by year end. The same discipline and focus with the addition of strong sales and marketing skills is driving our top line growth. We expect our renewable fuel sales to remain around $10 million for this year with new product volume from renewable jet sales and then some currency headwind from Diesel de Cana in Brazil. We are most encouraged from our latest technology performance that provides visibility to less than $1 a liter fuel production cost in the next 24 to 36 months. Now let me turn the call over to Raffi to discuss our first quarter financial results before we provide our business outlook for the remainder of 2015. Raffi?

[Raffi Asadorian:]

Thank you John and good afternoon everyone. To help explain our numbers and results we’ve included some slides that will help everyone following on. During the first quarter we continue to make marked progress towards bolstering our financial condition. Most notably we are pleased to have exceeded our stated target of achieving positive cash flow for the quarter with net cash flow of $1.7 million exceeding plans despite a negative currency effect of $1.2 million. We are also are pleased to have completed the previously announced upgrades or Brotas plans during the seasonal shutdown and we are now ramping up production. As results of these improvements and introducing better trends we expect to pick up where we left off at the end of last year and continued to realize lower production cost as highlighted on our fourth quarter call. Now let me take you through our first quarter results in more detail. If you turn to slide 8, I will take you through our collaboration in flows. As John noted earlier collaboration partnerships are an essential part of our business model and the key innovation engine for future growth. With that in mind we expect our collaboration revenue in flows and non-GAAP measure to be approximately $50 million to $60 million for this year. Just as a reminder collaboration revenue in flows represent the cash received from collaboration partners related to agreed payments such as milestones or upfront payments. In the first quarter of 2015 alone we generated collaboration revenue in flows of 28.2 million compared with $15 million for the first quarter of 2014. So we are on a solid track to achieve this goal. Cash revenue in flows another non-GAAP measure is the sum of collaboration in flows and product sales. The difference between cash revenue in flows and GAAP revenues is the revenue recognition accounting for collaboration of revenues. If you turn to slide 9, we have provided a reconciliation to GAAP collaboration revenue from collaboration in flows. As a result of revenue recognition rules. The collaboration in flows can differ significantly from GAAP revenue. Historically approximately 70% of collaboration in flows were recognized into revenues which can fluctuate quite a bit within quarter. However we expect this to be more closely aligned in the rest of the year given the expected terms of some new agreements as well as how the existing agreements are structured. This correlation is expected to increase to the 90% range although it will vary depending on how agreements are finally structured. Moving now to total GAAP revenues on slide 7, total GAAP revenues for the first quarter of 2015 were $7.9 million an increase of 30% over the same quarter last year. Revenues for the quarter consisted of $5.8 million in collaboration and grant revenues plus an additional $2.1 million in product sales. Collaboration revenues were up significantly from $3.2 million for the first quarter of 2014, due to Amyris, achieving additional collaboration mile stones, while product sales were down 26% over the same period a year ago. Product sales in this quarter consisted mainly of cosmetic sales which increased 53% over prior year. Offsetting this increase in cosmetic sales was a decline in Flavor and Fragrances products and diesel sales. First quarter 2014 flavors and fragrance sales included the initial shipment volumes of our first flavour and fragrance product while additional flavor and fragrance shipments are not forecasted until the second half of this year. The decline in diesel sales is a result of a change in distributor and related rebalancing of their inventory levels despite solid end user demand for our diesel product in Brazil. Accordingly we expect diesel sales to return to normal levels going forward. Our average selling fagrant product in Q1 was $9.98 per liter which exceeded to $6 to $8 per liter range provided on our fourth quarter call. The driver of this favorable variance is attributed to the mix as our cosmetic product sales exceeded the fuel sales by a larger margin blend. As fuels ramp backup to a normalized level, we expect ASP to fall back in line with the range previously provided. Moving down the P&L and cost to products sold which we have broken down to you on slide 11. For Q1 our cost of product sold was $6.6 million compared with $6.2 million for the first quarter of 2014. There are three main components of our product cost of sales. First, it includes the actual cost of production of our products. Second, when the plant is not operating at normal capacity and certain overhead costs are charged directly to the P&L in the period and not absorbed into the production cost of our products which return excess capacity and finally any charges are benefits related to inventory provisions. The increase in cost of products sold for the first quarter of 2015 was due to an inventory reserve reversal benefiting the first quarter of 2014 plus higher excess capacity charged to the P&L in the first quarter of 2015 related to the seasonal shutdown of Brotas and a company – facility to operate and maintenance. We expect the excess capacity cost to decline throughout the rest of the year so that our facilities get back on line with production. Furthermore as we sell inventories of lower production costs we will see the benefit coming through our P&L through the upcoming quarters. The product cost of sales in the first quarter of 2015 related to product that was produced in the second quarter of 2014 which was at a higher cost than current production. We are currently moving back into production at Brotas and we continue to believe we should see production -- cash production cost, excluding excess capacity charges of farnesene below $2.50 per liter which for comparison our average farnesene cash production cost for 2014 was $3.40 per liter with an average of below $3 per liter achieved in the fourth quarter of the year. Lower production costs were mainly to be realized in our P&L in Q3 and Q4 of this year as we continue to sell through a higher cost inventories that were produced earlier in 2014. The achievement of which will support reaching our expected cash margin targets for the year. For the quarter, we posted a non-GAAP gross margin including collaboration inflows of 82%. This was up from 73% for the first quarter of 2014 and compared with a negative 41% for the prior quarter. Please refer to the reconciliation of our GAAP to non-GAAP financial information table in our press release for more details. Moving now to our operating expenses illustrated on slide 12. Combined R&D and SG&A expenses were flat at $26.4 million for the first quarter of 2015 and the first quarter of 2014. These amounts includes certain non-cash expenses such as depreciation, amortization, and stock based compensation. On a non-GAAP basis which excludes these non-cash items, our combined R&D and SG&A expenses were $21.5 million for Q1 of 2015 and compared with $20.4 million in the first quarter of 2014. This increase was due to a severance charge of around $400,000 taken in the first quarter of 2015 plus a planned increase to headcount supporting our commercial function which is focused on the plan launch of our two new consumer products Biossance and Muck Daddy. As we previously mentioned we continue to maintain our focus on cash generation while holding to our target of around $85 million in cash operating expenses for 2015. For the first quarter we reported a net loss of $52.2 million including a non cash loss related to a change in fair value of derivatives of $17.4 million or $0.66 per basic and diluted share. This compared with net income for the first quarter of $16.4 million or $0.21 per basic share and on a diluted basis, the company posted a net loss per share of $0.34. Our adjusted net loss for the first quarter of 2015 was $32.2 million or $0.41 per share when compared with a net loss of $28.1 million or $0.37 for the same period in 2014. Turning to our balance sheet on slide 13, our cash, cash equivalents, and short term investments at March 31, 2015 was $44.9 million an increase of $1.5 million from the $43.4 million at December 31, 2014. Net working capital declined during the first quarter as we work down the inventories since there was little production in Q1 with collection and tiling of payments favorable during the quarter. In summary we are pleased with our progress in the quarter and as we continue to work towards achieving our targets for the year we will begin to transition over to increasingly providing GAAP information. As you are aware historically a GAAP number have been quite bumpy and this is why we have historically provided non-GAAP financial information which management believes is important to gaining a good understanding of the business trends. As we work through the accounting for historically complex arrangements, our intent to try and transition away from predominantly communicating non-GAAP information to GAAP information to make it easier for everyone to follow the business trends. I don’t intend to eliminate non-GAAP information as it is relevant to understanding the business, but instead it will be increasingly used as supplementary information. Before handing the call back over to John, I’d like to update you on our potential financing past. As you know in April we filed a universal shelf registration statement. The shelf gives us some flexibility as we intend to continue to opportunistically consider financing sources when they make sense for Amyris and its stockholders. I’d also like to note that we expect in the coming days to file resale registration statements for our previously announced equity line of credit and separately for some of our existing investors. The resale registration statement filing for existing investors is in response to our obligations to those investors under existing registration investor rights agreement. Administration statement will cover common stock underlying securities that are already outstanding. Let me turn the call back over to John now for a review of our outlook and then we will open it up for your questions.

[John Melo:]

Thanks Raffi. Now I’d like to provide you with our business outlook for 2015. We continue to expect to achieve cash revenue in flows into $100 million to $110 million range for 2015 and expect it to be balanced between collaborations and renewable product revenue. Our product sales are expected to expand through multiple channels including direct to consumer for our Biossance brand and through US out of force and US Lubricants for our Muck Daddy product both of which will be officially launched in the coming weeks. Combined with the introduction of three new fragrance molecules and additional shipments of our existing fragrance molecule in the back half of the year, we expect product revenues to accelerate into the third quarter and fourth quarter. These new products should favorably impact product gross profit margins closer to our goals of 50% by the end of the year. Finally as previously mentioned a reduction of customer inventory levels of our cosmetic and fuel products in the first and second quarters of 2015 will have a positive impact on our second half product revenues as our product revenues are expected to catch up with customer demand and sell through. We are very pleased with our positive free cash flow in the first quarter, our strong demand, and sell through to end customers and the successful restart of our Brotas facility. Our product portfolio is expanding, we are in process of two terrific product launches and we have the deep and high quality collaboration customer pipeline. We are fully focused on our top line growth while remaining disciplined with our operating costs. I would now like to open the line for any questions you may have. Carmen.

[Operator:]

[Operator Instructions]. And our first question comes from the line of Sven Eenmaa from Stifel. Your line is now open.

[Sven Eenmaa:]

Yes, thanks for taking my question and I apologize for the background noise here. First I wanted to ask in terms of the second quarter revenues, what is the mix expected there and what is the ASP level expected to be? And then the second question there is have you launched a new products and more into the second half of the year, what should we model in terms of that kind of price effects and cross margins as those products start to ramp? And the final question is, with the new product there is always some upfront marketing expense which are -- how should we think about that in to the second quarter?

[John Melo:]

I think between Raffi and I, we will try to address some of the questions so let's give it our best shot. I think on the ASP and revenue mix, I would expect fuel to stay flat on a volume basis if we look at the last couple of quarters and then going forward. And then I would expect higher revenue products coming in, in the second half of the year. So, I would say ASP in the second quarter will be slightly lower in the high-end of the range we had given. I think we had given six to eight and then in the second half of the year I had expected ASP not to be very far from what we delivered in the first quarter. I think on the OPEX question, then I will turn it to Raffi, on the OPEX question, we are focused on being really very disciplined in managing our costs internally. So, I don’t expect overall OPEX decline and expect it to stay barely flat to where we are as we look at cost opportunities internally to fund the investment and marketing expense going forward.

[Raffi Asadorian:]

Okay, and your second question Sven was on the new product launches and expected margins on those throughout the year, am I correct.

[Sven Eenmaa:]

Yes, it is correct.

[Raffi Asadorian:]

Yeah, so the majority of that -- of the impact will be seen in Q3 and Q4. We will launch, John had mentioned at the end of Q2 on the cosmetics product and in early Q3 for the Muck Daddy product. Those are significantly higher margin products that we are selling today. We do expect an uplift in Q3, Q4, gross margins on that combined with some of the lower cost production and inventory currently that will be coming through. We are still selling through Q2 of last year inventories and we will sell through in Q2 of 2015 some of the Q3 inventories and then we will start benefiting from sort of the lower cost production at the end of last year and then what we will start producing in this actually in the second quarter of this year. So, I would expect that we are ramping up quite a bit to hit those targets that we have previously stated on gross margins.

[Sven Eenmaa:]

Great, thank you.

[Raffi Asadorian:]

Just to add on to that, the excess capacity cost will go down quite a bit in Q2 to Q3 as we ramp up production.

[Sven Eenmaa:]

Okay, good to know. Thanks.

[Operator:]

And our next question comes from the line of Pavel Molchanov from Raymond James.

[Pavel Molchanov:]

Hey guys thanks. Thanks for taking the question so, based on your Q1 inflows of 30 million and your full year guidance does it follow that Q1 was kind of the high water mark for the year?

[John Melo:]

Pavel, this is John. I would say no. I’d expect Q3 and Q4 both have the potential to surpass Q1 and I’d say Q2 will definitely be lower than Q1.

[Pavel Molchanov:]

Okay, understood and is that purely based on TOTAL or your other partnerships as well?

[John Melo:]

Actually predominantly in other. So the way to think about the inflows part, the collaboration part is we have been guiding to the 50 million to 60 million in collaborations and imagine that we have about half that number done and the other half split evenly across three quarters. And then the product revenue significantly stepping up in Q3 and Q4 and then being up Q2 over Q1.

[Pavel Molchanov:]

Okay, that’s useful. You also spent a lot of time today talking about sort of everything other than fuel and clearly there are interesting opportunities there but is there kind of a deemphasizing of fuel market for you guys and is that obviously premised on what’s happened to oil prices?

[John Melo:]

Actually the contrary, we are in the middle of several moves with our fuel technology which we’ll announce in subsequent quarters. And I think all of that especially in light of our new visibility on sub dollar a liter fuel production costs I think you will see a new emphasis on fuel force.

[Pavel Molchanov:]

Alright, I’ll leave it there. Thanks.

[Operator:]

[Operator Instructions]. And our next question comes from the line of Thomas Boyce [ph] from Cowen. Your line is now open.

[Unidentified Analyst:]

Hi, gentlemen thank you for taking my question. With Muck Daddy kind of outlined how you are going about attacking that market for more of the cosmetics angle that’s launching in the second half of this year, what kind of distribution strategies are you looking at if something perhaps in other companies look like QVC or how are you kind of going out there and moving that product?

[John Melo:]

On the Biossance as you can imagine we are using a multi prong channel approach initially focused on online. Very quickly moving into a retail, moving into hospitality, moving into private labeling, and then talking in active discussions with a couple of the online shopping channels for presence on one of those channels before year end.

[Unidentified Analyst:]

Excellent, great. That was it for me. Thank you very much.

[John Melo:]

Thank you.

[Operator:]

And our next question comes from the line of Kensey Berry from Goldman Sachs. Your line is now open.

[Kensey Berry:]

Thanks guys, thanks for taking the question. You mentioned your cosmetic product was gaining confidence because of the multiyear price guarantee you are providing, is there any more color you can provide around that?

[Raffi Asadorian:]

Great question Kensey. Lets -- I’ll start with one of the problems in that market has been significant price volatility, a lot of quality variability, and inconsistent availability of the product which actually over the last five or six years has really frustrated many of the large brands that use the ingredient in their products. So we are focused on solving the three issues. One, we have been a consistent provider, reliable supply for the last three years. Our quality in the last 24 months has been absolutely consistent and then we realized that to really shift the dynamic in the market we should offer price guarantees which is something that I think we’re uniquely positioned to offer based on our manufacturing process and we’ve seen that in the last two quarters significantly shift demand for the product. And the way we approach it is really simple we basically guarantee large volume buyers that they can walk in prices for anywhere from 3 to 5 years and we also ensure that if there is a significant price move downwards in the market that they will get benefit of that. So there is really little to lose and a lot to gain by walking in a flat price for three to five years based on the volume for the large volume customers.

[Kensey Berry:]

Okay, great, that's really helpful. And one more question, is there any visibility you have into the recipe life cycles of your customers, are any of them coming up on the period they would be looking to redo some recipes that you could work into?

[Raffi Asadorian:]

Another great question, it is a very high turnover market. If I didn’t talk about cosmetics today, lot of the products we supply ingredients into, they are literally turning over all skews. So that means every year one third of the skews turns over. And as you can imagine that has been a favorable thing for us to see ourselves go into new formulations through those cycles.

[Kensey Berry:]

Hey great, thank you.

[Operator:]

[Operator Instructions]. And I am not showing any further questions and I will like to turn the call back to Mr. John Melo for any closing comments.

[John Melo:]

Very good, thank you Carmen. And thanks everyone for joining us and your continued interest in Amyris. We are very pleased with our execution during the first quarter of the year as we ramp up our momentum for the second half and as we take our new products to market and start to see some of the benefit of that showing up in our results. I look forward to reporting our second quarter results sometime in August and in the meantime we will be presenting at the Cowen and Company 43rd Annual Technology Media and Telecom Conference in New York on May 28th and we hope to see some of you there. Thank you and have a very good rest of your day.

[Operator:]

Ladies and gentlemen thank you for participating in today's conference. This concludes today's program and you may all disconnect. Have a great day everyone.