Amyris, Inc.
Q3 2014 Earnings Call Transcript

Published: 5 Nov 2014

[Operator:]

Welcome to the Amyris Third 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 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 this call today, 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 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 Factor section of the Amyris' quarterly report on Form 10-Q filed with the SEC on August 8, 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. As we look back during the past quarter, we delivered strong performance across the board from R&D activities to manufacturing and commercial sales. This resulted in a step change in our results, with total product sales and collaboration inflows of $27.2 million for the third quarter or $53.3 million for the year-to-date. As I will detail later on, this puts us at a run rate of about $40 million per year in renewable product revenues, in line or better than the plans we shared with you in prior calls. It was another record quarter for Amyris. In fact, as you can see from our press release, we achieved positive product gross margin for the quarter of $1.3 million and are nearing our objective of achieving cash flow positive from operations. In this call, I will update you on the progress since the end of the second quarter. And after Paulo provides further details on our financial results, I'll provide our current business outlook, building on our prior guidance and based on the continued execution of our business strategy. Let me start where it all begins. Our innovative technology to deliver No Compromise renewable products. For several quarters now, Amyris has been delivering, at industrial scale, the strong results we see in our labs. During the third quarter, we completed the production of our second molecule, a fragrance oil at our multiproduct biorefinery in Brotas, Brazil. This is the first of more than a dozen unique molecules that we are in the process of taking from lab scale to industrial production, then commercializing with our partners. We are quite pleased with the results as we produced more volume than our partner expected at a better cost than we ourselves had planned. This resulted in revenues and increased product margins in line with our plan. As you recall, we have been producing farnesene, our building block hydrocarbon molecule for multiple applications at incrementally lower production costs for nearly 2 years. As the third quarter neared its end, we transitioned from our fragrance molecule back to farnesene production as planned. In less than a week after completing our fragrance oil production, we introduced a new farnesene production strain. Based on this improved strain and our strong operational performance, we are on track to deliver yet another record in terms of production costs, with farnesene production cash costs below $3 per liter. This has been made possible, both due to the continued technological advances in our labs here in California, but also continued manufacturing success at our plant at Brotas. In Brazil, despite a below average weather and sugarcane harvest this year, our plant has been running for nearly 3 months without any unscheduled interruptions. This is a sign, not only that our technology works at scale, but our people and operations are performing well, day in and day out. We expect to continue operations until the sugarcane season comes to a close in the coming weeks in southeastern Brazil and while we are capable of operating on alternative feedstock during the off-season, we'll take advantage of the time to perform some planned maintenance before resuming production in early 2015. As Paulo will describe in more detail in a few minutes, our operational success, mainly our improved production efficiencies and lower production cost, is resulting in better product margins and is building our confidence on our medium and long-term plans. In addition to our positive gross margin performance, I'm pleased that we also narrowed our operational cash loss to $2.2 million in the third quarter. Building on our technology and our proven ability to manufacture at scale, we continue to see expanding opportunities for our renewable products. We see strong demand for sustainable products that perform better than the alternatives, are cost competitive and solve the supply challenges some of our customers face in growing their business. Let me describe some of our progress since the end of the second quarter by highlighting 4 key areas. First, we have been selling a best-in-class emollient, squalane, under our brand, Neossance, for nearly 2 years with continued growth in market share as well as expanding the opportunities for this breakthrough product. During the second half of the year, we are increasing our marketing activities to win additional squalane customers while maintaining positive cash margins. We added more than 10 new customers, including some large household brands. We began sampling over 50 accounts with our second emollient and also recorded our initial sales of hemisqualane, that second emollient which will be sold through our global distributor network. We remain focused on our strategy to grow this emollient market with superior product applications from hair to fabric care in addition to cosmetic use. We are experiencing good early results for squalane sales into these new applications in the Japanese market and are working with our partners to expand these applications globally. Based on our continued execution of our strategy, we believe emollient products will represent about 1/3 of our revenues and product gross margin for the next few years. Second, in fragrance ingredients, the F&F space, we delivered to our partner Firmenich our first fragrance oil produced from sugar through our innovative fermentation technology. As I just mentioned, we produced more than expected at a lower cost than planned, strengthening our value proposition to our partner. In addition to this tailored fragrance oil, we have also advanced our development work with our other flavor and fragrance partners for producing farnesene derivatives for the fragrance market, paving the way for commercial sales of several new farnesene derivatives in the coming quarters. The step change you saw in our product revenues this quarter is largely a result of our success in the flavor and fragrance market. I like to highlight to you that the fragrance oil we produce is the first of what we expect will be more than a dozen new molecules that we bring to market through our expanding collaboration pipeline, moving from R&D to manufacturing and then commercial scale in the years to come. We believe there is a recurring and material positive impact to our product revenues as we continue to move from collaboration agreements to product commercialization in our pipeline. Third, we remain focused on commercializing a range of farnesene derived performance materials, including our breakthrough solvent under our brand name, Myralene. Our No Compromise solvent is derived from renewable farnesene and performs equal to or better than current industrial cleaners that are facing regulatory and performance challenges. We have over a dozen prospects working with samples and 3 times as many expressing interest in possible formulations. We anticipate beginning commercial sales in early 2015, following standard regulatory review in the United States. Another performance material product is our Liquid Farnesene Rubber targeted mainly at the tire industry. We have been told by our partner, Kuraray, that at least 2 tire manufacturers plan to begin initial production of specialized high performance winter tires containing Liquid Farnesene Rubber in 2015. In short, as you think about our performance materials, these products should drive volumes in coming years, while allowing us to maintain strong product gross margins, in line with our plan of about 50% to 60% gross margins in our overall product portfolio. On fuels, we have begun the commercialization of our renewable jet fuel with increasing flights. In July, less than a month after ASTM approval, we launched our renewable jet fuel business with Brazil's GOL airlines flying the first commercial flight with our jet fuel from Orlando to São Paulo. We are in the final stage of regulatory approval for our jet fuel in Brazil and expect to begin selling our jet fuel locally in Brazil following that ratification. We are working in partnership with Total in Europe, where Air France began a weekly service between Toulouse and Paris in a year long commitment to our fuel. Additionally, Lufthansa tested our fuel with an initial flight in Germany and KLM announced at the United Nations Climate Change Summit in September their intent to use our jet fuel on transatlantic flights. We have -- had also advanced discussions with multiple partners from the Middle East to Asia and would expect to commence additional routes in the coming months. While we are growing our renewable jet fuel business, we continue with our renewable diesel business in Brazil with over 400 municipal buses running on a blend of Amyris diesel called Diesel de Cana. Our aim is to address climate change with concrete measurements of impact. Finally, we continue to invest in Novvi, our lubricants and base oil joint venture with Cosan. Last year, we sold about 1 million liters of farnesene to Novvi, which they recently converted into base oils and finished lubricants for testing with key accounts ranging from automotive oils to high performance transformer oils and industrial lubricants. With Novvi's production capabilities proven at scale and Amyris' farnesene production costs falling below $3 a liter, we are confident that our Novvi joint venture will be able to capture significant volumes at positive margins in the lubricant space. In all of these product areas, consumer care, performance materials, renewable mobility and lubricants, we believe we are revolutionizing the way materials are made, one molecule at a time. I encourage you to review some of the recent press and accolades we have received ranging from an article on our jet fuel in The New York Times to the Presidential Green Chemistry Award we received for innovation on renewable fuels by the U.S. Environmental Protection Agency. We are proud of our team's work and the progress Amyris has been making. In addition to our growing renewable product revenues, collaborations are the other key element of our business strategy. Collaborations allow us to work on molecules of strategic interest to our partners. I've said it before, but it bears repeating, these technology collaborations deliver a recurring cash stream and above all are a critical element of our product pipeline and underpin our long-term product revenue growth. The production of our fragrance oil and the realized revenues during the third quarter are a clear testament to this strategy, which we believe differentiates Amyris. During the third quarter, we received cash inflows of approximately $16 million from multiple collaboration partners that count on Amyris to deliver breakthrough solutions and advance their R&D efforts. When we look on a GAAP basis, the grants and collaborations revenues recognized in the third quarter mostly correspond to inflows from prior quarters. Accounting rules dictate the way we recognize these revenues, so there is always some choppiness on a quarter-on-quarter basis. As you look over the last 3 years, we have moved from being primarily dependent on inflows from our collaboration with Total, which has provided us with about $30 million or half of our collaboration inflows in the prior 2 years, to broadening the base of collaborations without a significant drop in inflows. As you see from our GAAP results in 2012, we recognized about $14 million in collaboration revenues and in 2013, we increased that to $25 million. At the same time, Total's collaboration contributions have gone from over $30 million in 2012 to about $10 million this year. Also, as some of our technology collaborations are nearing the successful completion of their technical milestones, we have been mindful of the opportunity to adjust our collaboration strategy to provide a more balanced economic outcome to our partners. This has been made possible by our stronger cash balance and our improved track record from fuels to fragrance oils and facilitates our pursuit of collaborations that we believe are accretive to our investors. As I will describe later, this may result in slightly lower collaboration inflows for this year. This transition to milestone payments instead of a heavier upfront cash component will also make our collaboration inflows more predictable. We continue to have a strong pipeline and good execution and remain consistent with our view of $60 million to $70 million of annual inflows into 2015 and beyond. Our advantaged product portfolio and strong operational execution resulted in a renewable product average selling price of $10.20 a liter for the third quarter. This is in line with what we expect for the next few years. Let me now turn the call over to Paulo Diniz to discuss our third quarter financial results before we provide some guidance for the coming quarters. Paulo?

[Paulo Sergio de Oliveira Diniz:]

Thank you, John, and good afternoon, everyone. Our third quarter results represent a step change in Amyris history, not just in terms of numbers, but also in the quality of our operational performance. We not only delivered our record renewable product sales of $11.5 million in the quarter, but also saw for the first time positive product gross margin on renewable products. Starting with our top line renewable products and collaborations revenues, we achieved total revenues of $16.3 million on a GAAP basis. This total revenue represents 133% increase over the third quarter of 2013. Our renewable products revenues were $11.5 million, primarily representing revenues from sales of our fragrance oil ingredient, squalane, for consumer applications and renewable fuels. As anticipated in prior calls, these renewable revenues are considerably higher over the prior quarters. During the third quarter, our revenues from grants and collaborations were $4.9 million on a GAAP basis. Looking at a no-GAAP basis, which is the way we manage our business with focus on cash growth, our total renewable product revenues of $11.5 million plus cash inflows from grants and collaborations of $15.7 million resulted in total inflows of $27.2 million for the quarter. The difference between the $27.2 million in no-GAAP inflows and the $16.3 million in GAAP revenues is due to timing of revenue recognition for collaboration payments and the collaboration cash from Total, which is treated as debt for GAAP purpose. As John noted, the vast majority of our GAAP grant and collaboration revenues recognized in the third quarter relate to inflows from prior quarters. Turning to our COGS. Our cost of product sold were $10.1 million compared with $8.3 million for the same period in 2013. The higher cost of product sold in the third quarter was driven by the growth in our sales. When considering our production cost improvements and higher average selling prices for the $11.5 million of product sales, we delivered our first quarter of positive product gross margin of 12% on our renewable portfolio. On a no-GAAP basis, this is cost of product sold excluding depreciation and amortization. We had cost of product sold of $8.7 million for the quarter, resulting on a no-GAAP product gross margin of 24%. Overall, during the third quarter, we achieved a no-GAAP gross profit of $18.5 million, representing a 68% cash gross margin on our total no-GAAP top line of $27.2 million from the renewable product sales and collaborations inflows. During the first 9 months of 2014, we achieved a no-GAAP gross profit of $33.6 million, representing a 63% gross margin on our total no-GAAP top line of $53.3 million from renewable product sales and collaboration inflows. As you can follow with the reconciliation to GAAP to no-GAAP financial information table in our press release. Our combined R&D and SG&A expenses were $27.3 million in the quarter, a slight increase of $0.9 million over the same quarter in 2013, mainly due to project expenses related to new products. We continue to manage our operating expenses closely despite increasing collaboration activities. On a no-GAAP basis, that is excluding noncash items such as depreciation, amortization and stock-based compensation. Our combined operating expenses were $20.6 million in the third quarter, in line with our targets of $80 million to $85 million for the full year. As a result of our no-GAAP inflows of $27.2 million, no-GAAP COGS of $8.7 million and no-GAAP operating expenses of $20.6 million, we've registered an EBITDA of minus $2.2 million, very close to operating cash neutral for the quarter. As detailed in the press release, we reported a GAAP net loss of $36.6 million for the quarter or about minus $0.46 per share attributed to common stockholders, which includes a no-cash loss relate to change in fair value of derivatives and debt extinguishment of $6 million and other expenses of about $9 million, mainly related to our outstanding debt. On a no-GAAP basis that is excluding no-cash items such as depreciation, amortization, stock-based compensation, change in fair value of derivatives and write-offs, net loss was at $22.3 million for the third quarter or minus $0.28 per share compared to a net loss of $20.6 million or $0.27 per share for the same period of 2013. Turning to our balance sheet. Our cash position at the end of the second quarter was $68.6 million, which compares with $90.2 million at the end of the second quarter of this year and $6.3 million at the end of the same quarter of 2013. We closed the quarter with a debt position of $229.5 million, net of debt discount of $83.4 million. It is important to note here, the quality of our debt, 75% of it is in the form of convertible notes issued to our leading shareholders such as Total, Temasek and Fidelity as well as loans from development banks in Brazil. These instruments are very much aligned with the success of the company. Let me turn the call back over to John now for a review of our outlook and to take your questions.

[John G. Melo:]

Thank you, Paulo. Let me briefly address our outlook for the remainder of 2014 and beyond. Building on the foundation of our robust technology platform, strong operational performance and a focus on financial discipline over the last several quarters, we delivered our best quarter in terms of renewable product sales. Our business model appears to be delivering the best sales growth in our sector and has the most advantaged cash gross margin structure in a range of around 60%, largely driven by our collaboration model and advantaged product portfolio. We are now transitioning our focus going forward to profitable and consistent top line growth. I'd like to provide you with more specific guidance for the balance of 2014 and then address 2015 and beyond. On inflows, we expect renewable product sales for the year to be around $30 million and collaboration inflows, a non-GAAP measure, to be around $50 million for 2014. Our 2014 outlook is lower than prior guidance due to timing of collaboration inflows, but in line with our longer-term outlook to double product revenues annually as well as to maintain annual collaboration inflows in the range of $60 million to $70 million annually. Our timing on the collaboration inflows are a result of a change in our agreement structure to more of a milestone-based payment, rather than upfront cash. This is a more balanced approach to risk for our customers and will help us become more predictable around future collaboration inflows. On expenses, we continue to expect cash operating expenses for R&D and SG&A to be around $85 million and capital expenditure to be less than $8 million in 2014. We expect to maintain similar level of expenditures in the coming year. On earnings, based on the continued progress of our fragrance oils and emollient offerings, we believe there's an opportunity to achieve positive cash flow from operations in the coming quarters. For our outlook beyond this year, we expect to operate at our current annual run rate of about $40 million a year in renewable product revenue during the first half of 2015 and maintain similar collaboration inflows through 2015, in that $60 million to $70 million a year range. We expect to increase our top line performance to an annual run rate of over $80 million in renewable product sales in the second half of 2015 and to be cash flow positive from operations for the full year 2015. Our renewable revenue growth for 2015 is mainly driven by the introduction of 6 new products that include 2 farnesene derivatives for the flavor and fragrance industry, sales execution of our hemisqualane emollient, 1 new fragrance molecule to market and 2 new products for end consumers. Most of these new products have completed initial customer acceptance and have very strong positive customer feedback. These new products represent about $20 million to $30 million of our planned renewable product sales growth. We'll introduce several of these to you in more detail during our next earnings call. We are planning on $10 million to $50 million [ph] of our renewable sales growth in 2015 coming from the continued expansion of our squalane, fuels, lubricants, performance materials and our first flavor and fragrance molecule. Over half of our expected growth over the next few years is based on renewable products we are commercializing with our partners, products that are strategic to their needs and sustainable growth. We believe that our current product portfolio, partnerships and strong manufacturing performance underpins around $1 billion of revenue at a 50% to 60% gross margin by the end of this decade. We have the products, technology and the cost we need and our focus now is on profitable sales growth, continued financial discipline and strong operational performance. Our current product portfolio is focused on solving strategic product performance and supply challenges for our customers or delivering better performing products that are cost competitive. Other than fuels and lubricants that are partner driven joint venture companies, we are not directly exposed to crude oil prices. I would now like to open the line for any questions you may have. Can we get Nicholas' help in opening up the call for questions?

[Operator:]

[Operator Instructions] And our first question comes from the line of Pavel Molchanov from Raymond James.

[Pavel Molchanov:]

So it looks like there's a bit of a push out in your cash flow guidance, right? You previously were saying cash flow turning positive by the end of this year, in fact second half of 2014. Now your -- it sounds like it's not going to happen until 2015, maybe even the second half of 2015. Other than timing of collaboration inflows, what's the change here?

[John G. Melo:]

Pavel, thanks for the question. Two parts to the answer. I think the first is, if you look at the 3 quarters averaged out, this quarter, next quarter and the first quarter, from an operational perspective, will be cash flow positive. I think the second part is that the only difference we see in the guidance is really related to the timing of inflows on collaborations and really as a result of this shift to milestone versus upfront cash payment.

[Pavel Molchanov:]

Okay. And then sort of following-up on that, you mentioned $2 million cash burn in Q3, but your cash on hand went from $90 million to $69 million. So it was a $20 million cash outflow. Where is the $18 million delta coming from?

[John G. Melo:]

Yes, the majority of that delta, just about all of it, is working capital. And again, a lot of that, we'll see return back in the fourth quarter as the products that we sold get paid for during the fourth quarter.

[Pavel Molchanov:]

Okay, okay, fair enough. And one kind of bigger picture question, if I may. We've seen the price of Brent crude drop about 25% in the last 90 days. And I'd be interested in sort of hearing your thoughts on the sensitivity of your product mix specifically to what's been happening in the oil market.

[John G. Melo:]

When I think about the growth part of our product mix, the areas we're growing in and investing in, we actually are seeing no linkage at all to the crude price drop and impact on customers' demand and growth, mainly because they're buying for performance reasons or to take volatility out of their supply. So no issue there. I think on fuels, again, we've been in a partnership with Total. Total's commitment to renewable fuels is unchanged. As a matter of fact, with our recent cost performance, they've gotten more interested and committed to the long term for renewable fuels coming from our technology.

[Operator:]

Our next question comes from the line of Brian Lee with Goldman Sachs.

[Brian K. Lee:]

I had a few clarifying ones to start off, I guess, first, on the last call, John, I thought you guys had forecasted that you weren't expecting revenue from fragrance oils in the back half of this year, but it seems like maybe that timeline has accelerated. Can you talk about some of the dynamics there and also whether all of that revenue is coming from Firmenich? And if that's going to continue to be the case as you look into 2015?

[John G. Melo:]

For partner related reasons, as you can imagine, we're not able to disclose who it came from directly. But we could tell you that a majority of it came from the launch of our first oil, and we did say in the call that, that first oil was for Firmenich in the partnership. But I want to be careful not to associate it all there. And I think the second part is, it is a bit better than we expected and a lot of that is we had good success, both with the production run and the development of the technology. And we now continue to expect to see obviously not every quarter at that level. It'll be choppy quarter-on-quarter, but we continue to see on a quarterly basis fragrance revenue and that revenue expanding to beyond just a few partners.

[Brian K. Lee:]

Okay, that's helpful. And then, not to nitpick here, but it's a couple million bucks. Can you help me think about why the renewables product revenue in Q4 is going to be flat to down? That's what you're implying in the guidance here. Are there some initial shipment volumes on certain products that aren't following through into Q4? Is it all seasonally driven due to sugarcane production? Because I would have assumed, given what you just said about fragrance oils maybe being a little bit ahead of schedule, that you could have seen some sequential growth into Q4.

[John G. Melo:]

Your assumptions are mostly right, Brian. I think that the big item -- and I don't know how much we've communicated that is, our ramp in the jet fuel sales is about a quarter behind schedule. So even though we're better than expected in the fragrance oils and how we're seeing that quarter-on-quarter, we are about a quarter behind in what we would have liked to have seen in the jet fuel ramp. And that's really because we got about a month behind on the regulatory approval and that set back a lot of the relationships and the ramp-up again about a quarter from what we expected.

[Brian K. Lee:]

Okay, that's very helpful. Last thing from me and then I'll pass it on, and more of a housekeeping question. For the collaboration inflow amounts, I know you're talking about the non-GAAP portions. But what will the GAAP-recognized revenue amount be for 2014? I think you had implied about $50 million on a GAAP basis in the past. And I think now, based on your comments in the press release, it's $50 million on a non-GAAP basis.

[John G. Melo:]

Yes. I don't -- I'm going to let Paulo -- he's looking it up right now. He'll give you the answer here in a second. But I don't think we had given guidance around $50 million. I think we had said that about half or so, about 50% to 60% of the collaboration target, could end up being GAAP basis, just to kind of correct that piece about the guidance we had given. But then I'll let Paulo talk to the specific question you have.

[Paulo Sergio de Oliveira Diniz:]

That's basically it, John. I guess that we are talking about revenue recognition methodology here extremely complex and therefore difficult to guesstimate. Therefore, best forecast for the year, if this is what we are looking for is really to have something very similar to what we had last year that we talked about basically $25 million.

[John G. Melo:]

I think that's great guidance, Paulo. So the way to think about it is really, Brian, if you think about last year it was around $25 million. And I think our total delivery for last year was around $55 million in inflows and about $25 million in GAAP related to that. I think if you use that, that should be very close to where we are.

[Brian K. Lee:]

Okay, that's great. Just -- and maybe last one on that same point. For the $60 million to $70 million that you're talking about annually going forward, that same 50% to 60% rev rec assumption is fair on that amount going forward as well?

[John G. Melo:]

I think you'll see that increase stepped over the next 2 years. So you'll see probably half of that made up next year and then linking very close to what the inflow is to what the GAAP number is in 2016. So you'd almost go 2/3 in 2015 and then close to the same in 2016.

[Brian K. Lee:]

Okay. So if I hear you right, it could be 60% to 70% of rev rec in 2016.

[John G. Melo:]

That's exactly right.

[Operator:]

Our next question comes from the line of Sven Eenmaa with Stifel.

[Sven Eenmaa:]

I first wanted to ask about the revenue mix in the quarter on renewable product side. What was it between squalane and flavors, fragrances and renewable diesel and performance materials?

[John G. Melo:]

It was quite good.

[Sven Eenmaa:]

Any more detail there?

[John G. Melo:]

I was just kidding on that, Sven. The way to think of it is, probably -- and Paulo help me if I'm wrong, probably around 20% fuel and the rest of it mixed across the other products.

[Sven Eenmaa:]

Got it. And so based on the commentary made before on the patchouli oil side, should we assume kind of lumpiness of shipments from quarter-to-quarter? Should we assume that the next quarter's average selling price is lower than it was in the September quarter?

[John G. Melo:]

Slightly lower, but I wouldn't think of it as dramatically lower. I think we've given some guidance as to what you should expect or the range for our ASP, and I'd expect us to stay in that range.

[Sven Eenmaa:]

Got it. And then finally, I wanted to ask in terms of progression on to moving the kind of revenue run rate from $40 million to $80 million range, what needs to happen on the cost structure side for these additional revenues to materialize?

[John G. Melo:]

0. We are at the cost structure we need to be today and really it's just about continuing to execute. And these are all products we've been -- when I say are mostly products we've been testing and have had great customer feedback. So the real focus here is just really executing the sales side of our business at this point.

[Operator:]

[Operator Instructions] Our next question comes from the line of Jeff Osborne with Cowen and Company.

[Jeffrey D. Osborne:]

I just wanted to understand the ramp in the middle of next year and how to think about the product transition in terms of the 6 new molecules you talked about ramping up in the second half. How do we think about an ASP guidance for next year? And what would be the cadence through the year?

[John G. Melo:]

I think I'll start with the last part of the question, Jeff, which is the ASP you should think about the same, right? I think we've given guidance this year. I think you're seeing us around 10. I think we're a little bit lighter last quarter, but I'd say, guidance has not changed at all for ASP. And I think the cadence on how it shows up, I mean, we intentionally kind of talked about that shape of run rate consistent when you average the next 3 or 4 quarters and then stepping up as you get into the third quarter of next year. The reality is, that's underpinned by products that are going to market in the second quarter. So what we're really creating some space for ourselves is, we're putting several of those products, the most material ones, in the market at the beginning of the second quarter. We expect to see the revenue start to show up in the second quarter, but then really expecting a real step in that revenue in the third quarter, plus keeping in mind that the next patchouli run also occurs in -- I'm sorry, the next fragrance run also occurs in that third quarter of next year.

[Jeffrey D. Osborne:]

Got it. Understand. I may have missed this, John, but did you disclose what the production cost was in the quarter? I know you talked about the new strain and sub-$3 or around $3, but I missed what the actual number was for the quarter itself.

[John G. Melo:]

Two parts. I talked about the restart at Brotas, that our plant is operating in an excellent condition right now, and we're actually producing or have been producing in the fourth quarter for less than $3 a liter farnesene. We did not talk about costs at all in the third quarter and mainly because in the third quarter, we produced the fragrance oil. And what I did say is that the fragrance oil was produced for a lower cost than we expected.

[Jeffrey D. Osborne:]

Okay. Very good. And then I think you mentioned the run rate of a third squalane. And then kind of following up to Sven's question, how do we think about the first half of next year in terms of, in particular, your focus on the lower margin fuels business?

[John G. Melo:]

Yes, I mean the -- to use the word focus on the lower margin fuels business I think is a pretty strong statement, right. So I'd back that off a bit to say, there's a specific revenue number we're expecting from fuels. It is not going to be the majority of our business and we actually are selling it to people who are using it for very strategic reasons. And the ASP is actually higher than what we're realizing today for diesel sales, just to give you a sense of that.

[Jeffrey D. Osborne:]

Okay, got it. And then the last question in terms of the cadence of the inflows for next year in light of the potential -- was it multiple deals, first of all, that were renegotiated in terms of milestone payments? And just how do we think about it? Is that historically, you've been pretty back-end loaded, although this year was a bit better? But as you look at that $60 million to $70 million next year, do you anticipate that being back-end loaded or a bit more smoothed out with the change to some of the terms?

[John G. Melo:]

Much smoother, number one. Number two, these are not renegotiated agreements. In other words, the agreements we have, we've kept the way they are. It's new agreements that we're doing. So there's 2 to 3 new agreements that are either executed or in process of being executed that will not have the upfront payment that we initially planned.

[Operator:]

And we have a follow-up from the line of Pavel Molchanov, Raymond James.

[Pavel Molchanov:]

Yes, just one more quick one, if I may. Here we are looking at the U.S. elections, but obviously Brazil had one 2 weeks ago and I suspect there is some read-through for the bio industrial sector in Brazil. Any thoughts on that in terms of the second term for President Rousseff?

[John G. Melo:]

Pavel, I'm going to let Joel take that. He just spent some time down there and he's been involved in some of the managing around the elections. So...

[Joel Velasco:]

I mean, Pavel, this is Joel. I don't -- for Amyris, I don't think it really makes a difference. I mean, Brazil has got to address it. There's probably even some upside either way, whoever would have won because they have to address their fuel pricing structure, which is ultimately going to help us. And -- but I think regardless of who would have won, they would have been -- they will be very supportive of kind of innovative companies like ours. The NDS may actually have to reduce the total money they put out, but for sectors like ours, they're actually talking about increasing. So I think to us, it's kind of a wash in a country like the U.S.

[Pavel Molchanov:]

And are you looking to -- I suppose, would it benefit you if Brazil ended up raising retail gasoline and diesel prices as Petrobras wants?

[John G. Melo:]

Yes.

[Operator:]

And with that, I'm not showing any further questions in the queue. I would like to turn the call back over to CEO, John Melo, for closing remarks.

[John G. Melo:]

Thanks, Nicholas. I'd like to thank everyone for their time today and your continued interest in Amyris. We're pleased with our results. We're confident about the balance of the year and we're optimistic about the outlook for the company. So thank you and look forward to our next call.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a good day, everyone.