Amyris, Inc.
Q1 2014 Earnings Call Transcript

Published: 9 May 2014

[Operator:]

Welcome to the Amyris First Quarter 2014 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 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 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. With me today are John Melo, our Chief Executive Officer; and Paulo Diniz, our Chief Financial Officer. On the call today, and on 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 on 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 2014 and beyond. These statements are based on management's current expectations, and actual results and future events may differ materially due to risks and uncertainties, including those detailed in the company's recent SEC filings and the Risk Factors section of Amyris' quarterly report on Form 10-K filed with the SEC on April 2, 2014. 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 a detailed discussion 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 today. During the first quarter, we delivered strong collaboration inflows, continued executing on our commercialization road map and ended the quarter with a stronger cash balance. We are pleased with our 2014 manufacturing performance to date, particularly our first 4 weeks of farnesene production at Brotas. We have achieved performance superior to our best fermentation runs last year at Brotas. This start underpins our goal to become cash flow-positive from operations during the second half of this year and profitable during 2015. During our call, I will cover 3 topics

[Paulo Diniz:]

Thank you, John, and good afternoon, everyone. Let me the highlight some key points from our first quarter results. Looking at revenues, from renewable products and collaborations, we finished the first quarter of 2014 with total revenues of $6 million, with $2.8 million from renewable products and $3.2 million from grants and collaborations. This total revenues of $6 million compares to $7.9 million in the first quarter of 2013. However, looking at a non-GAAP cash basis, the way that we manage our business, with focus on cash growth, total renewable product revenues and collaboration inflows, we're at $17.9 million. In other words, in addition to the same $2.8 million for renewable product sales, we had $15 million in collaboration inflows. This $17.9 million in total revenue from renewable products and collaboration inflows compares with $14.7 million in the first quarter of 2013 on a non-GAAP basis. Our first quarter renewable product revenues of $2.8 million represent revenues from sales of squalane for cosmetics, renewable diesel for fuels and our fragrance oil shipments to Firmenich. These renewable revenues were negatively affected by a delayed regulatory approval for our diesel in Brazil, which caused a temporary interruption on diesel sales in the quarter. However, regulatory issues were cleared and shipments of diesel resumed mid-April. As John noted, we are pleased that ENP, the Brazilian government agency that regulates fuels in Brazil, approved a fuel license for a specific usage for our renewable diesel. This is the first of its kind in Brazil and simplifies the process going forward, another important step to our niche diesel business. In terms of grant and collaboration, $3.2 million on a GAAP basis and $15 million on a cash inflows no-GAAP basis, we are on track with our annual target. It's worth noting that these numbers do not include the $2 million cash payment received in April related to the $4 million collaboration agreement with Kuraray we announced in March. Just refreshing, the biggest difference between the GAAP and non-GAAP collaboration figures is timing of revenue recognition, and, as mentioned before, for management, primary focus is on cash inflows. Turning to our cost of goods sold. Our COGS decreased to $6.2 million for the first quarter of 2014 compared to $9 million in the same period of last year when we exclude loss on purchase commitments and write-off of production assets that were $107,000 for the quarter. The non-GAAP cost of goods sold, that is excluding depreciation and amortization, our cash COGS for the first quarter was at $4.9 million and compares to $7.5 million for the first quarter of 2013. Also, let me point it out that on this $4.9 million cash COGS for the quarter, we had $1.2 million for idled capacity related to fixed manufacturing costs that we incurred during the period while Brotas was undergoing a maintenance upgrade John discussed earlier. As discussed in our press release, let me also note that we achieved a non-GAAP gross profit of $13 million in the first quarter, representing a 73% cash gross margin on our total non-GAAP top line from renewable products and collaborations compared to a non-GAAP gross margin of 49% in the first quarter of 2013, so a 24% points improvement. Moving on, financial discipline remains a top priority for Amyris. We continue to focus on reducing our overall operating expenses. Our combined R&D and SG&A expenses were $26.4 million in the first quarter compared to $30.6 million in the same period of last year. On a non-GAAP basis, that is excluding noncash items such as depreciation, amortization and stock-based compensation, our combined operating expenses were $20.4 million in Q1 of 2014 compared to $23.4 million in Q1 of 2013, so a 13% reduction. Our first quarter EBITDA, a non-GAAP measure, but important for how we manage our business, was minus $7.5 million. This compares to minus $16.2 million in the first quarter of 2013, so a 54% loss reduction in EBITDA. This is a clear positive result of how the company's efforts in lowering production costs and reducing spend. As you can see in our press release, we had GAAP net income of $16.4 million for the quarter or about $0.21 per share attributed to common stockholders' base or minus $0.34 per share to common stockholders diluted. Needless to say that such positive result is based on recouping part of the unrealized loss we faced last quarter on the changes in the fair value of derivatives embedded in our outstanding convertible notes. However, when we exclude this non-cash gain in other non-cash expenses such as depreciation, amortization and stock-based compensation, our non-GAAP net loss was $24.1 million for the quarter or a non-GAAP loss of $0.31 per share. Turning to our balance sheet. Our cash balance at the end of Q1 2014 was $49.1 million, which compares with a cash balance of $24.9 million at the end of Q1 2013. In the first quarter, we raised $25 million in a straight term loan and $28 million in a convertible debt led by Temasek. This is another clear demonstration of our strong shareholding base and ability to obtain financial support for our business strategy. We closed the quarter with a debt position of $178.6 million, which the great majority being convertible notes issued to our main shareholders, Total, Temasek and Fidelity. Also important to note is that the balance of $114.8 million of other current liabilities is mostly the result of embedded derivatives in our convertible notes, again, with our main shareholders, Total and Temasek. Let me briefly address our full year 2014 outlook before turning the call back to John to discuss our long-term outlook. Although we do not provide straight quarterly guidance, it is worth saying that our second quarter 2014 earnings will be lower than the current consensus estimate of about $18 million in revenues due to the expected timing of certain activities and inflows in our business plan. This implies that the remainder of the revenues for the year will largely be reflected in the second half of the year when we should be above the current consensus estimate for those periods. We are on track with the targets we discussed with you last quarter, that is

[John G. Melo:]

Thank you, Paulo. As you step back and look at Amyris, here's what we'd like you to see. Our business is about taking problems our customers have, whether a consumer care company faced with supply and price volatility or an airline seeking high-performance fuel, and develop the microorganism, a yeast strain, to produce the molecule they need, scale up and produce this product to access a long-term recurring revenue stream. We use our inspired science to build living factories and establish fermentation processes that convert sugars into target molecules. Through our collaborations, we get paid to develop and scale these molecules, covering most of our overhead and share some of the cost and performance benefit and product sales as a long-term annuity. That's our business in a nutshell. Let me end by providing you a road map of what you can expect over the next several years. First, we expect production of 2 molecules at Brotas this year

[Operator:]

[Operator Instructions] Our first question comes from the line of Jeff Zekauskas from JPMorgan.

[Silke Kueck-Valdes:]

This is Silke Kueck for Jeff. Is there a little more detail on the new Total collaboration? And are you still expecting to collect the -- I think there's like another $20 million or so, too, that was supposed to be collected under the old collaboration. Do you still expect to receive that?

[John G. Melo:]

It's 2 direct answers. First of all, it's, I think, $22 million in total, $22.5 million that's remaining. That has now been guaranteed as part of an agreement that we finalized at the end of the first quarter. And then secondly, the new agreement is specifically for access to the plant and then services and cooperation, and that new agreement is incremental to the old one and goes out for 5 years. We have not disclosed the financial terms of that agreement.

[Silke Kueck-Valdes:]

Okay. Has it become something like an access fee? Or do you think it's something that's more fixed in nature?

[John G. Melo:]

I can tell you that it's an operating agreement that is, I'd say, pretty fixed in nature. It's not a pay for services. We have a fixed amount and then, obviously, an opportunity to do more as we decide to work together on specific projects.

[Silke Kueck-Valdes:]

Okay. That's helpful. And, secondly, as you look at like the 20 new product opportunities that there are, what do you think you'll see in 2015? What are like the most likely product opportunities? Will it be more on the fragrance side or will it be more on the industrial side?

[John G. Melo:]

For 2015, I'd say our growth would be performance materials first; secondly, cosmetics; and, third, fragrance. And I think the 3 will have a pretty even mix as we go into 2015 in growth. When I look at absolute, I'd say on the absolute side, it's really cosmetics being the biggest contributor in 2015.

[Silke Kueck-Valdes:]

Okay. And my last question is in terms of timing of orders, what does it look like of being delayed from like a second quarter to a third quarter? Is it a specific shipment of like the fragrance oils? Or is it that some inventory has been built already and reorders are slow? I was just wondering if you can explain that.

[John G. Melo:]

We actually have no delay. The issue is we never provided quarterly forecasts to the market and no guidance and I think analysts kind of divided equally or somewhat equally across the year our flows, and that's not actually how we had expected them and not how we built out the business. So there's actually no delay on our side, everything is going according to our plan and this is just to ensure we're giving a view as to how we had looked at the flow quarter-on-quarter.

[Operator:]

And our next question comes from the line of James Medvedeff from Cowen and Company.

[James Medvedeff:]

So can you say about how much of diesel sales were lost in the quarter? Was it the entire quarter's worth of sales or just part of the quarter?

[John G. Melo:]

Probably around 2/3 of the quarter. Paulo, you probably have a better -- about 2/3 of the quarter where we did not have diesel sales.

[James Medvedeff:]

Okay. So there were some diesel sales in the quarter but just not as much as one might have expected. And what about base oils to the Novvi joint venture? Any sales there?

[John G. Melo:]

No, we did not expect any and we did not have any. If we have any, it will be late in the year. And again, we're not really forecasting, so anything that comes from Novvi late in the year would be upside to our plan.

[James Medvedeff:]

Okay. Any other categories that would just be squalane and flavor and fragrance and a little bit of diesel was the entire volume in the quarter?

[John G. Melo:]

Yes, I think that's exactly right, squalane, the fragrance and a little bit of diesel.

[James Medvedeff:]

Okay. Let's see. So how much of the $60 million to $70 million of cash inflow do you expect to -- from collaborations do you expect to actually report in revenue for the year?

[John G. Melo:]

I'd say all but about, call it, $15 million or so will likely not be revenue for the year.

[James Medvedeff:]

$15 million will be revenue and $45 million will not. Is that correct?

[John G. Melo:]

All but $15 million will be revenue, should be revenue for the year.

[James Medvedeff:]

Okay. Got it. And that includes the $3 million from this quarter, right?

[John G. Melo:]

The $3 million from this quarter, meaning the second quarter, correct?

[James Medvedeff:]

Well, from the first quarter, sorry.

[John G. Melo:]

Yes, that's exactly right.

[James Medvedeff:]

It's part of the $15 million. Okay -- part of the $45 million to $55 million.

[John G. Melo:]

That's right.

[Operator:]

[Operator Instructions] Our next question comes from the line of Mike Ritzenthaler from Piper Jaffrey.

[Michael J. Ritzenthaler:]

On the related party sales, I just wanted to ask a question about the Novvi marketing and market development efforts there and whether or not we should continue to see quarters that are high, low. Or how -- what's the best way to kind of think about that particular line?

[John G. Melo:]

Mike, this is John. I think the way to think about it is, again, in what we're sharing as a shape and providing a view on going forward, we're not including any of the Novvi potential revenue or volume. We look at that as incremental. And if you could think of it, you could say like, again, I think we've shared during the call, a majority, I'd probably say something around 1/2 or slightly more than that of our revenue for the year will be in the emollients market, the other 1/3 or so will be in the fragrance market and the rest of it will be rounded out by fuel and some performance materials.

[Michael J. Ritzenthaler:]

Okay. And then just on ASPs. I guess I was interested if there's any tie to sugar prices or anything like that with the tick-up, pretty meaningful tick-up from fourth quarter to first quarter in the average selling prices or if that's just a function of mix.

[John G. Melo:]

A function of mix.

[Michael J. Ritzenthaler:]

Okay. Let's see. What was the cash burn in first quarter, cash from operations?

[Paulo Diniz:]

9.5 negative.

[Operator:]

And our next question is a follow-up from the line of Jeff Zekauskas from JPMorgan.

[Silke Kueck-Valdes:]

I was wondering if you'd explain like what the Brotas facility could potentially produce versus the improved strains, because I remember back in the day, there was the idea that maybe the production could be somewhere to between, I don't know, between 30 and 50 liters per ton of crushing material, depending on how far improved the organism was. And so I was wondering what Brotas could potentially produce, at what level is it at.

[John G. Melo:]

Again, we shifted our model from being completely farnesene-focused at maximum farnesene volume to being multiple molecules. So the most important thing is how do we optimize the portfolio for how much cash we generate from Brotas. So I just wanted to get that upfront, Silke. So -- but if we were looking at it that way, you'd say we're currently at a run rate that puts us somewhat north of about 14 million liters at the current technology on a per year basis.

[Silke Kueck-Valdes:]

And how long would you think it will take to scale up? Like it seems there's probably -- like it sounds like there's probably 1 year or 2 left until you would even need São Martinho for the São Martinho plant.

[John G. Melo:]

That's correct. I think we've said that we don't expect São Martinho's volume in our base plan until 2017, and our contract with São Martinho aligns with that need.

[Operator:]

And our next question comes from the line of Brian Lee from Goldman Sachs.

[Britt Boril:]

This is Britt Boril on for Brian Lee. I just have a couple of quick ones. Once you get the approval on the jet fuel, do you have any sense of volumes going to goal given your MOU with them? And in your jet fuel trials and testing, have you primarily been testing 10% blends?

[John G. Melo:]

Britt, we've been testing 10% blends, and we'd expect most of our sales to be 10% blends. And I would say that most of the volume that we see, based on our current negotiations, is actually for some of the large international airlines that fly intercontinental routes.

[Britt Boril:]

Okay. Cool. And then just a final one. What was your CapEx in the quarter?

[Paulo Diniz:]

It was $1.3 million.

[Operator:]

And our next question is a follow-up from the line of James Medvedeff from Cowen and Company.

[James Medvedeff:]

Just a follow-up on volumes. Can you say how much squalane was shipped in the quarter in Q1?

[John G. Melo:]

No, we're not actually disclosing volume and/or price or margin per product, mainly because we've gotten ourselves in a bit of trouble with some of our big customers, and that's just something we're not able to disclose.

[Operator:]

And I see no further questions in the queue at this time. I would like to turn the conference back to management for any concluding comments.

[John G. Melo:]

Great, Sharon. Thank you. I'd like to thank everyone for their time today and your continued interest in Amyris. Our vision remains to apply inspired science, to deliver sustainable solutions for a growing planet, and we do this in a number of ways. We offer consumers a better choice so they can do better for our planet by giving them better products. Our philosophy is simple, you give folks better products, you sell it to them at a competitive price and they'll make the right choice. And we see that with our partners and really working with our partners to solve supply solutions for them by removing volatility and helping them grow sustainably. So I'm really excited about where we are with our plan, our traction currently and our ability to continue to deliver on our strategy at this point. We're pleased with our results during the first quarter and optimistic about our outlook. Thank you very much.

[Operator:]

Thank you. Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation, and you may now disconnect. Everyone, have a good day.