Amyris, Inc.
Q1 2013 Earnings Call Transcript

Published: 1 May 2013

[Operator:]

Welcome to the Amyris First Quarter 2013 Conference Call. This call is being webcast live on the Events page of the Investors section of Amyris' website at www.amyris.com. This call is the property of Amyris, and any recording, reproduction or transmission of this call without the express written consent of Amyris is strictly prohibited. As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the Investors section of Amyris' website. I would now like to turn the call over to Joel Velasco, Senior Vice President.

[Joel Velasco:]

Good afternoon. Thank you for joining us to discuss highlights of Amyris' first quarter financial results, our progress and our business outlook. With me today are John Melo, our Chief Executive Officer; and Steve Mills, Chief Financial Officer. On the call today and in this online webcast, you will hear discussions of non-GAAP financial measures. Reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is contained in the press release distributed today, which is available at amyris.com. The current report on Form 8-K, furnished with respect to our press release, is also available on our website, as well as on the SEC's website at sec.gov. We will provide certain forward-looking statements about events and circumstances that have not yet occurred, including projections of Amyris' operating activities for 2013 and beyond. These statements are based on management's current expectations, and actual results and future events may differ materially due to risks and uncertainties, including those detailed in the company's recent SEC filings and the Risk Factors sections of Amyris' report on Form 10-Q filed with the SEC on March 28, 2013. Amyris disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the Amyris SEC filings for detailed discussions of the relevant risks and uncertainties. I will now turn the call over to John Melo.

[John G. Melo:]

Thank you, Joel. Good afternoon, and thank you for joining us for our review of our first quarter financial results and an update on our business outlook. As we outlined in our press release, we are executing on the plan we detailed to you over the last year and are on track with our milestones and optimistic about the future, both in our commercial and financing activities. Let me begin with a review of activities to date focused on the following 3 key areas

[Steven R. Mills:]

Thank you, John, and good afternoon everyone. As you will have seen from our earnings release, we reported a loss on an adjusted non-GAAP basis for the first quarter of $28.4 million or $0.39 per share. This result is both an earnings and EPS improvement from our previous quarter and was a significant improvement compared to the results from the first quarter of 2012. Total revenue for the quarter was $7.9 million, up from fourth quarter 2012 revenues, due primarily to an increase in collaboration and grant revenues. When comparing revenues to the prior year, please remember that last year's Q1 revenues included $23.9 million of sales related to the ethanol and ethanol-blended gasoline business, a business that we transitioned out of during 2012. Sales revenues of our renewable products, squalene, renewable diesel and farnesene for specialty chemical applications were essentially flat for the quarter as we delivered product out of existing inventory and began to ship product from our Brotas plant. For the first quarter, our weighted average selling price of renewable products was about $7.33 per liter. We expect to see our weighted average ASP trend down during the year as we increase sales volumes in the second half of the year. To help keep you informed of our progress regarding collaboration funding, we have provided additional disclosure in a supplemental financial information section of our earnings release. Since collaboration funding does not always match up with collaboration revenue in a given quarter due to the specific accounting treatment for a given collaboration agreement, we will provide you with both the revenue amount and the funding amount in our release. For the first quarter of 2013, we received approximately $12 million in collaboration funding, with this amount including the $10 million from the Firmenich collaboration. Cost of products sold declined for the quarter as compared to the first quarter of 2012, principally due to the absence of the costs associated with the ethanol and ethanol-blended gasoline business. Our first quarter 2013 cost-of-products sold number includes costs related to the scale-up in production of our farnesene plant at Brotas. During the first quarter, we continued to reduce our operating expenses. Our combined R&D and SG&A expenses were $30.6 million, down 29% from last year's first quarter due to lower personnel-related costs and lower spending levels. On a sequential quarter basis, our reduction in operating expenses was 14%. We anticipate these operating expenses to be even lower in coming quarters. Turning to the balance sheet. Our cash balance stood at approximately $25 million at quarter end. And we had the following significant cash-related items during the quarter

[John G. Melo:]

Thank you, Steve. Over the last year, Amyris has been guided by a clear plan

[Operator:]

[Operator Instructions] So we will take our first question from Rob Stone from Cowen and Company.

[Robert W. Stone:]

I wanted to just put the 2 things together, John, if I could. So you're well along on your expected collaboration funding. Wonder if you could give us a sense of how much of that your -- you have visibility on but it's not contracted for yet? And the second part of the question is, is that distinct from this equity financing that you just mentioned?

[John G. Melo:]

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

[Robert W. Stone:]

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

[John G. Melo:]

I'd say there's somewhere around $10 million where we have visibility but it's not contracted yet.

[Robert W. Stone:]

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

[Steven R. Mills:]

Thanks, Rob. This is Steve. I think 2 points. One, the inventory that we've been selling out of has already been written down, so it's not coming into the quarter at a very high cost. We recognize that our deliberate ramp-up of production in Brotas is going to leave us at a little bit higher per unit cost than certainly we'll end up enjoying because we're running at less than full volumes. So we knew this first quarter. And really going into the second quarter, we would be running at higher costs at our own plant simply based on efficiencies and volume. And the expectations are that we will ramp up significantly in the second half of the year as we work on using the syrup in production, as well as the -- getting the efficiency from our newest yeast strain.

[Robert W. Stone:]

So just to make sure I'm pressing that correctly, so cost per liter is actually going to be higher in the second quarter and then you expect to make improvement in the second half?

[Steven R. Mills:]

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

[Robert W. Stone:]

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

[Steven R. Mills:]

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

[Robert W. Stone:]

Okay. So the not much difference quarter-to-quarter is from Q1 to Q2 or from Q2 to Q3?

[Steven R. Mills:]

Q1 to Q2. Sorry, I was -- I'm thinking about Q1 with the Q1 release, but we're talking Q1, Q2. Once we get the Q3, our expectations are that cost will come down significantly.

[Operator:]

And our next question is coming from Brian Lee from Goldman Sachs.

[Brian K. Lee:]

I just had 2. First off, kind of a follow-up to Rob's question on some of the cost of goods sold. I was wondering how much, Steve, did start-up costs impact COGS this quarter, and then what's the cadence we should expect for that to normalize or decline to 0 just so that we can get a clearer view of the product-related COGS here?

[Steven R. Mills:]

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

[Brian K. Lee:]

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

[Steven R. Mills:]

That's our expectation.

[Brian K. Lee:]

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

[John G. Melo:]

Brian, this is John. I mean, in general, our partners are very sensitive about what we disclose. I just want to preset the expectations with that. And then there was actually an upfront cash piece of it, which we disclosed in the release. There is a total cash that we did not disclose. This is a relationship we've been in discussions with for over 2 years, and it's very material for both of us in what the applications are and the potential impact. And again, we are not disclosing this specific applications for competitive reasons as a request of IFF.

[Operator:]

[Operator Instructions] So we'll take our next question from Vishal Shah from Deutsche Bank.

[Vishal Shah:]

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

[John G. Melo:]

I'll take a couple of those and let Steve build on the back end with your third question. So the first one I'll take is our expectation year-on-year is to remain about the same. And I think, we said $60 million to $70 million in collaboration revenue we said [ph] differently, covering about 80% of our OpEx, which is what we expect, again, going into 2014. Second part of your question, the way I'd answer it, Vishal, is when you're looking at our breakeven for 2014, it is a combination of what shows up in revenue and collaborations that based on how they're being accounted for don't show up in revenue, which is kind of the way to think of it as our total cash generation from operations, which, again, breaks down into those 2 big buckets. So it's not necessarily just revenue to cost to get you to cash flow positive based on our model. It's actually total cash in from operations which includes multiyear collaborations as we bring those -- the cash for those deals in each year. So the ones we're doing this year are multiyear. There's an element of cash coming in next year from those collaborations, both in Firmenich, Total and some for IFF and then some of the others we either have or will have going into the end of the year, but they're not all revenue impacting based on the structure of the agreements. Steve?

[Steven R. Mills:]

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

[Vishal Shah:]

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

[John G. Melo:]

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

[Steven R. Mills:]

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

[Vishal Shah:]

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

[John G. Melo:]

I mean, I think we had mentioned this on the last call, that, I think, the -- for this year, we had mentioned $15 million to $25 million as the range of net cash burn. That's cash burn offset by collaboration cash, as well as operating cash. That's what we have said in the last call. And I think we're -- we still believe that's the case. And I think secondly, we're looking at this funding as -- partially, to fund us to cash flow positive, but also to ensure the company has a bit of security on the balance sheet and can continue to grow and achieve its objectives.

[Operator:]

And we'll take our next question from Mike Ritzenthaler from Piper Jaffray.

[Michael J. Ritzenthaler:]

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

[John G. Melo:]

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

[Michael J. Ritzenthaler:]

Okay. And then maybe a question for you, John or Joel. On the sale of the crushing assets down in Brazil, I now that Paraíso was one that reasonably changed hand. Is that something that's being more orchestrated at a high level for the government or is that -- is there something that's kind of changing in the industry?

[John G. Melo:]

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

[Operator:]

And we'll take our next question from Jeff Zekauskas from JPMorgan.

[Jeffrey J. Zekauskas:]

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

[Steven R. Mills:]

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

[Jeffrey J. Zekauskas:]

I'm sorry 24...

[Steven R. Mills:]

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

[Jeffrey J. Zekauskas:]

Negative or positive?

[Steven R. Mills:]

Negative if you -- before collaborations and before the financing, but just strictly, the net loss and if you net out the non-significant noncash expenses.

[Jeffrey J. Zekauskas:]

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

[Steven R. Mills:]

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

[Jeffrey J. Zekauskas:]

So is that in the order of size? Is squalene the largest?

[Steven R. Mills:]

It wasn't in the order of size. I just...

[John G. Melo:]

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

[Operator:]

And our next question is coming from Pavel Molchanov from Raymond James.

[Pavel Molchanov:]

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

[John G. Melo:]

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

[Pavel Molchanov:]

And what production capacity would that -- is that going to come out at Paraíso or is there going to be a dedicated facility ready for the JV?

[John G. Melo:]

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

[Pavel Molchanov:]

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

[John G. Melo:]

That is correct, for the next 2 to 3 years, for the medium term.

[Pavel Molchanov:]

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

[John G. Melo:]

Mostly. I mean, there will be some fuel like some jet and some minimal niche diesel, but predominantly, nonfuel sales.

[Operator:]

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

[John G. Melo:]

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

[Operator:]

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