Amyris, Inc.
Q2 2014 Earnings Call Transcript
Published:
- Operator:
- Welcome to the Amyris Second Quarter 2014 Conference Call. This call is being webcast live on the Events page of the Investor 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 Investor section of the Amyris website. I would now like to turn the conference over to Joel Velasco, Senior Vice President.
- Joel Velasco:
- Good afternoon. Thank you for joining us. With me today are Joe 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. Reconciliations 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 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 Risk Factors section of the Amyris quarterly report on Form 10-Q filed with the SEC on May 9, 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 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 today. As we described in our press release, we achieved our best operational performance to date at our plant in Brotas during the second quarter, added new collaboration partners in strategic areas and continued progress on building our renewable product sales pipeline. We remain on track to double our renewable product sales this year against 2013, and deliver positive operational cash flow in the second half of this year. Today, I will cover 3 topics
- Paulo Diniz:
- Thank you, John, and good afternoon, everyone. Let me highlight some key points from our second quarter results. Looking at revenues from renewable products and collaborations, we finished the second quarter of 2014 with total revenues of $9.3 million being $4.4 million from renewable products and $4.9 million from grants and collaborations. This total revenue of $9.3 million compares to $10.8 million in the second quarter of 2013. Our second quarter renewable products revenues of $4.4 million represents revenues from sales of squalane for cosmetics, renewable diesel for fuels and some farnesene for performance materials. These renewable revenues improved over the first quarter of this year and do not reflect our fragrance oil and jet fuel volumes that we expect to recognize in the second half of this year. Looking at the non-GAAP cash basis, the way that we managed our business with focus on cash growth. Total renewable product revenues and collaboration inflows were slightly lower at $8.2 million, largely due to timing of cash inflows of our collaborations. During the first half of the year, our total revenue and collaboration inflows were about $26.1 million, in line with our plans. As John noted, as of today, we have received cash for more than half of the expected collaboration inflows for the year, so over $30 million in collaboration inflows to date and on track to our target of doubling revenue -- product revenues. Turning to our cost of goods sold. Our COGS decreased to $7.5 million for the second quarter of 2014, compared to $8.9 million in the same period of last year when we exclude loss on purchase commitments and write-off of production assets. The non-GAAP cost of goods sold, that is excluding depreciation and amortization, our cash COGS for the second quarter was at $6.1 million and compares to $7.3 million for the same period in 2013. It should be noted that the $6.1 million non-GAAP COGS reflect inventory produced last year. Having said that, assuming current production costs, our non-GAAP COGS would have been approximately $4 million. During the second quarter, we achieved a non-GAAP cash gross profit of $2.2 million, representing a 26% cash gross margin on our total non-GAAP top line of $8.2 million from renewable product sales and collaboration inflows. This compares to a non-GAAP gross profit of $13.2 million in the second quarter of 2013, which included $10 million inflows from Total. Looking at it another way, during the first half of 2014, we achieved a non-GAAP cash gross profit of $15.2 million, representing a 58% cash gross margin on our total non-GAAP top line of $26.1 million from renewable product sales and collaborations inflows. We continue on track to deliver full year cash gross margin in the range of 60% to 70%. We continue to manage our overall operating expenses even in face of our increasing collaboration activities. Our combined R&D and SG&A expenses were $26.1 million in the second quarter. Now 90 -- 9% over the $28.7 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 $20.2 million in the second quarter, compared to $21.2 million in the same period of 2013. As you can see in our press release, we had GAAP net loss of $35.5 million for the quarter, or about minus $0.45 per share attributable to common stockholders. However, when we exclude noncash impact such as changes in the fair value of derivatives embedded in our spending convertible notes, as well as other noncash expenses such as depreciation, amortization and stock-based compensation, our non-GAAP net loss was $23.7 million for the quarter or a non-GAAP loss of $0.30 per share. Turning to our balance sheet. Our cash position at the end of the second quarter was $90.2 million, which compares with $49.1 million at the end of the first quarter of this year. This is our best cash balance since early 2012 when we faced the scale-up challenges at our contract manufacturing facility. In the second quarter, we received approximately $62 million in cash proceeds from our 144A convertible note offering. And since quarter end, as John noted, we received Total's contribution to our ongoing collaboration in addition to other collaboration inflows. We closed the quarter with a debt position of $222.3 million, net of debt discount of $84 million, with the great majority being convertible notes issued to our main shareholders Total, Temasek and Fidelity. Also important to note is that the balance of $147.8 million of other liabilities is mostly the result of embedded derivatives in our convertible notes, again with our main shareholders Total and Temasek. In summary, add that with the unique quality profile. Well let me turn the call back over to John now for some update guidance and additional comments before taking your questions.
- John G. Melo:
- Thank you, Paulo. Let me briefly address our second half 2014 outlook. We made good progress during the first half of 2014. We achieved strong operational performance, added additional new collaboration partners in strategic areas and continued progress on building our renewable product sales pipeline. We are producing farnesene near the $3 a liter level and have good visibility toward the mid-$2 a liter level. This robust cost performance, along with strong demand for our technology platform and performance products at a competitive price, enable us to reinforce guidance for 2014 and beyond. On the inflows, we continue to expect renewable product sales to be over $32 million, doubling our 2013 renewable product sales number and to achieve positive cash margin from products. In addition, we continue to expect collaboration inflows, a non-GAAP measure in the range of $60 million to $70 million by the end of the year. On expenses, we continue to expect cash operating expenses for R&D and SG&A in the range of $80 million to $85 million and capital expenditures less than $10 million in 2014. On earnings, we continue to expect to achieve positive cash flow from operations during the second half of the year and to achieve positive EBITDA in 2015. On payback, we expect cash payback for our Brotas biorefinery over the following 2 years. This is based on plant cash contribution of $10 million to $15 million in 2014 and $40 million to $50 million in 2015. I would like to open the line now for questions you may have and, Latoya, can you help us with that?
- Operator:
- [Operator Instructions] And we have a question from Jeff Zekauskas of JPMorgan.
- Silke Kueck-Valdes:
- It's Silke Kueck for Jeff. Can you give a little more color on the reduction of the finishing costs in the quarter? Or can you put it in terms of locking of dollars per liter? Or what exactly it is that you achieved?
- John G. Melo:
- Well, I can tell you it was over a 10% per liter reduction and specifically, mostly related to squalane cost reduction, actually enabling us now to clearly be, as we believe, the lowest-cost producer of squalane in the world.
- Silke Kueck-Valdes:
- And 10% means that if it were something like I don't know, $0.15 per liter or smells something that's like, I don't know.
- John G. Melo:
- Silke, I'll help you. It was probably in the 8 to 10 range so it's probably $0.80 to $1 or better in improvement in finishing costs.
- Silke Kueck-Valdes:
- Okay. That's helpful. Secondly, there's a commentary on the payback of the Brotas plant. Does that mean that the $40 million to $50 million mean a step-up in capital expenditures next year?
- John G. Melo:
- No, we, I think, have been clear on maintaining $10 million or less in capital expenditures per year, and we expect to stay at that rate.
- Silke Kueck-Valdes:
- But what do you mean by plant cash contributions? You mean that's like the return that you expect from the plant?
- John G. Melo:
- Yes, exactly. It's a very crude way of thinking about gross cash or cash gross margin from the plant against the amount of capital we have invested in it including the cost of that capital. And the real driver there, just to help with that, Silke, is really based on the product mix we have and the average selling price we're generating and we expect to continue to generate with that product mix, we actually are able to contribute a cash -- a positive cash gross margin that we think is significantly differentiated from really anybody else in the sector we're in today, and it's that level of difference, i.e. the product mix and the positive cash gross margin, that enables us to get such a quick payback on the plant.
- Silke Kueck-Valdes:
- Okay. And lastly, was there a milestone payment that was received in the quarter that was related to your joint ventures with the fragrance companies?
- John G. Melo:
- Actually, especially in light of the partners and the common analysts we have covering some of the partners, it's been made very clear that we're not really talking about when milestones come in and how much they are by partner.
- Silke Kueck-Valdes:
- Okay. But it seems like you received something this quarter.
- John G. Melo:
- We did, that's true. Just not able to connect which partners take what.
- Operator:
- [Operator Instructions] And the next question is from Pavel Molchanov of Raymond James.
- Pavel Molchanov:
- Let me start with kind of a high-level question. Big election in Brazil less than 60 days. Can you talk about any implications of potentially a new administration coming in, either for the sugar market more broadly or specifically for the bio industrial complex that you guys are building?
- John G. Melo:
- Paulo is my in-house expert on Brazilian politics and sugarcane economics. Paulo?
- Paulo Diniz:
- Although I guess it's important to see that as far as the agriculture business in Brazil is concerned, especially the sugarcane business, this is an industry that has been badly hurt during the last 2 years at least. Therefore, regardless of who is going to win the election, everyone is expecting that with the new President, even if it's the current one, a kind of a midterm plan should be in place that somehow should improve the overall situation of the sugarcane industry. Therefore, we are optimistic that, yes, we may have some benefits down the road in case that happens.
- Pavel Molchanov:
- Okay. Okay. And anything for any funding that -- your D&DF? Anything along those lines that might be affected?
- John G. Melo:
- No, not really. I guess that development banks in Brazil continues to be a source of interesting resources. I guess that all our projects in Brazil starting with our pilot plant afterwards our 30 part manufacturing facility and finally our own plant, all of them we are able to access development bank resources. And we do not see a reason why that should change the other way around. Government continue to deposit a lot of trust and a lot of desire in innovation, and therefore we should move forward hand-on-hand.
- Pavel Molchanov:
- Okay. And then let me also ask a question about Total. You've alluded to the fact that you've started selling some limited volumes of biojet. How quickly do you think it can realistically take for Total to make an investment decision on a significant renewable diesel or renewable jet fuel scale up?
- John G. Melo:
- What I would say, Pavel, is I think they are in the middle -- the first thing you start with is they have an annual planning process that they actually update or revise, a 10-year outlook and then they use that, as you can imagine, to allocate short-term capital plans. And I think in looking at that outlook and how they're thinking about their capital plans, it would not be surprising if Total started to focus on bio manufacturing of products especially in Europe during this decade. I would not be surprised if there aren't 2 or 3 plants operating sometime in this decade focused on renewable fuel production especially in light of the visibility we now have to getting to very competitive fuel pricing before the end of the decade.
- Pavel Molchanov:
- Okay. And so you mean the plant would be built by the end of the decade or they would decide by the end of the decade?
- John G. Melo:
- I'd expect 2 to 3 to be in production within the end of the decade or by the end of the decade. They do their own capital planning. All I can share with you is kind of the conversations we've been having in their outlook, and really the energy around what our cost outlook looks like for being competitive in fuel.
- Operator:
- [Operator Instructions] I'm not showing any questions at this time. I'll turn the call back over to John Melo for closing remarks.
- John G. Melo:
- Great, Latoya. Thank you very much. Well, I would just like to thank everyone for their time today and their continued interest in Amyris. We're very pleased with our results, and look forward to our update at the end of the third quarter. Thank you, and have a great afternoon.
- Operator:
- Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day
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