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Solazyme, Inc. (NASDAQ:SZYM)

Q3 2012 Earnings Conference Call

November 14, 2012, 16:30 PM ET

Executives

Jonathan Wolfson -- CEO

Tyler Painter -- CFO

Mike Smargiassi -- IR

Analysts

Sanjay Shrestha -- Lazard Capital Markets

Brian Lee -- Goldman Sachs

Ben Kallo -- Robert W. Baird

Laurence Alexander -- Jefferies

Smitti Srethapramote -- Morgan Stanley

Weston Twigg -- Pacific Crest

Chip Moore -- Canaccord Genuity

Patrick Jobin -- Credit Suisse

Mahavir Sanghavi -- UBS

Rob Stone -- Cowen and Company

Operator

Good day, ladies and gentlemen and thank you for your patience. You have joined the Solazyme Incorporated Fiscal Q3 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, this conference may be recorded.

I would now like to turn the call over to your host, from Investor Relations, Mr. Mike Smargiassi. Sir, you may begin.

Mike Smargiassi

Thank you, Latif. Good afternoon and thank you for joining us on today's conference call to discuss Solazyme's fiscal third quarter 2012 results. With me on today's call are Jonathan Wolfson, Solazyme's Chief Executive Officer; and Tyler Painter, Chief Financial Officer.

This call is being broadcast live over the web and we have prepared a PowerPoint presentation to accompany this call. The release and presentation can be accessed at the Investor Relations portion of our website, solazyme.com.

I'd like to direct you to slide 2. It says among other things that some of the comments constitute forward-looking statements that reflect management's current views and estimates of future events and economic circumstances, industry conditions, company performance and financial results.

Statements are based on many assumptions and factors including availability and prices of raw materials and equipment, market conditions, operating efficiencies, access to capital and actions of government. Any changes in such assumptions or factors can produce significantly different results.

To the extent permitted under applicable law, the company assumes no obligation to update any forward-looking statements as a result of new information or future events. Solazyme has provided additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation and encourages you to review these factors.

Also, please note that certain financial measures we use on this call are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. We have provided reconciliations of these non-GAAP financial measures to GAAP financial measures in today's release.

With that, I'll now turn the call over to Jonathan.

Jonathan Wolfson

Thanks, Mike, and thanks to everyone for participating in today's call. Solazyme continues to execute against all of our key initiatives and I have some strong progress to share. I'll focus my comments today in two areas; our capacity build-out and the value we're creating with our technology platform.

On the capacity side, we remain on track and on schedule in Brazil, in France and in Peoria. Beyond this, we've also announced today two major agreements with the largest marketers of vegetable oils in the world that put us on a clear path towards securing 400,000 metric tons of manufacturing capacity.

First is our new partnership with ADM, which will significantly enhance our manufacturing profile. This is a tremendous collaboration for us that makes capital efficient use of vital manufacturing capacity, further establishes our commercial footprint in the US and greatly complements our existing capacity build-outs in Latin America and Europe.

We've also signed a market development agreement with ADM as part of this partnership that brings with it ADM's broad market reach. The other major agreement is a joint venture expansion framework agreement with Bunge. This agreement sets forth our combined intent to increase the production capacity of the Solazyme Bunge Renewable Oils joint venture three-fold to 300,000 metric tons of annual production capacity by 2016.

In addition, this agreement provides for the expansion of oils and fields into the JV plan to include tailored food oils for sale in Brazil. This is important because Bunge is the number one marketer of edible oils in Brazil's rapidly growing market. The progress we're making on our current capacity build-outs combined with these two new agreements brings us that much closer to achieving broad commercial scale.

In addition to our progress on the capacity and market development fronts, I'm also going to update you on the continued development of unique and valuable tailored oil profiles. On our last two calls, I described our advances in high stability oleics and our new myristic oil profile. Today, I'm announcing another breakthrough in oil profiles of a cocoa butter replacement for food and personal care applications.

Turning now to the business update, starting with Solazyme Bunge Oils. We are on schedule with our plan build-out in Moema. Slide 4 includes photos of recent activity. Since breaking ground in June, we've concluded earthworks activity and are in advanced stages of foundations and pilings.

We've placed orders for all of the key long lead time equipment items including fermenters and critical downstream equipment. Our engineering teams are on site and fully staffed. We remain on schedule and we're pleased with the progress we're making at the work site.

As I mentioned earlier, we announced a joint venture expansion framework agreement with Bunge. This agreement lays out a path to expand the oil production capacity at Solazyme Bunge Oils from the current 100,000 metric tons under construction in Brazil to 300,000 metric tons under the next two years.

In addition, we're working with Bunge to expand the portfolio of oils to be commercialized out of the facility in Brazil. This includes certain tailored food oils to be marketed with Bunge as new, healthy and nutritious edible oils in the Brazilian market. Bunge is a fantastic partner and this agreement clearly signals the positive momentum as our relationship continues to grow.

Solazyme Roquette Nutritional also remains on track and on schedule with the 5,000 metric ton Phase II capacity build-out scheduled to be completed in Q2 of 2013. SRN has seen higher than expected premarket interest in the protein products and continues to make significant progress with major consumer packaged goods companies. We look forward to having larger scale capacity online in the second half of next year to meet market demand for our new-to-the-market Almagine HL and HP products.

At Peoria, we're now in production and our sampling large quantities of tailored oils to multiple partners. Peoria is demonstrating the flexibility inherent in our platform. We're producing multiple unique oils and bioproducts in the facility for sampling and commercial sale. Peoria's successful production of an array of tailored oils offers a preview of the operations of the commercial scale facility at Moema.

The ongoing activities at the integrated biorefinery in Peoria provide proof to our current and future customers and partners of our ability to reliably produce tailored oils at scale. As you can see we're on track and on schedule on the capacity side of our businesses.

Our new agreement with ADM to produce tailored oils at its Clinton, Iowa facility adds a transformative piece to our overall production profile. The partnership adds large scale capacity in the US which complements our existing manufacturing footprint in Europe and Latin America. Together, we will produce Solazyme's tailored oils in ADM's existing advanced fermentation plant in Clinton, Iowa with an initial production target of 20,000 metric tons.

The agreement contemplates the potential for expansion of up to 100,000 metric tons. We'll be getting the work immediately with minor retrofitting work and permitting with a target to begin commercial production in early 2014.

We're excited about our partnership with ADM for a number of reasons. It aligns us with yet another blue chip partner. It provides feedstock and geographic manufacturing diversity introducing corn-based dextrose feedstock and a large scale US manufacturing presence. It will enable us to quickly demonstrate to potential customers in high value markets that we can produce oil at commercial scale.

ADM is one of the world's largest commercial suppliers and marketers of triglyceride oils. Our partnership not only provides us with a pathway to significant manufacturing capacity in a capital efficient manner, but also includes strategic collaboration and market development agreements that give us access to ADM's unique research and application resources.

And this is a smart deal for Solazyme and its shareholders. The ADM agreement is structured such that Solazyme has sole ownership of revenues and cash flow from oil production. With this deal, we effectively double our bottom line for a given capacity. In other words, the initial startup of 20,000 metric tons at Clinton provides bottom line impact equivalent to nearly 40,000 metric tons of capacity for a 50-50 JV. The potential 100,000 metric tons at Clinton is equivalent to nearly 200,000 metric tons in a 50-50 JV.

As I mentioned before, we believe this is a highly capital efficient production opportunity. Since the facility is already built, the margin investment has been made, the facility has fermentation capability and possesses key downstream units that require only minor retrofits, we do not have to expend large amounts of capital to get it up and running.

Let's move on to our technology progress in developing new and unique tailored oil profiles. Over the last two quarters, I've provided early insight into two new oils in development that offer potentially important market benefits; high oleic and high myristic oils. In just the past three months, we've continued to make significant progress in the composition of these strings.

Our progress – I mean that we've driven the oleic acid level to over 90% in the high stability high-oleic strain. At the same time, we've increased the level of myristic acid by over 30% since last quarter. We've now achieved the total of over 40% myristic acid, almost three times more myristic acid than in any widely available oil today. Once again, our platform enables us to innovate rapidly and disrupt existing markets.

I'm pleased to introduce a new tailored oil we're developing, our version of cocoa butter, a high value oil that we will be able to produce in any of our facilities. Generally, when people think of cocoa butter, they think of chocolate. Cocoa butter is a key ingredient in chocolate but also in other food and personal care products. Cocoa butter is very valuable because of its unique melting properties. Think of how chocolate melts in your mouth and creates that distinctive texture. Cocoa butter is the key to this and its melting properties which originate from its oil composition make it a highly valued oil in the confectionaries market.

With our technology, we've developed an oil with a fatty acid composition very similar to cocoa butter. We've also developed another first of its kind capability, the ability to control the specific position of specific fatty acids in the oil. Positioning the fatty acids plays a major role in creating the physical properties of cocoa butter like its sharp melting curve. The same melting properties of cocoa butter are ideally suited for a range of personal care products such as lotions, emollients and moisturizers.

To put this in economic terms, global average selling prices for cocoa butter currently run at over $3,600 per metric ton and a five-year average is over $5,000 per metric ton. Cocoa butter alone represents a global market of more than $5 billion. These developments have two benefits. First, they position us to provide higher value triglyceride oils. Second, they further differentiate our technology platform in the marketplace. We are continuing to innovate and invest R&D dollars into oils with similar high value applications and we will keep you updated on our progress.

I also wanted to briefly mention the announcement yesterday of our solar diesel pilot with Propel Fuels. This is our first retail fuel agreement. For the next month, our SoladieselBD is being pumped at Bay Area Propel Clean Fuel Points. The oil for this fuel was produced at our Peoria facility.

Moving on to an update on Algenist and our Solazyme Health Sciences business, year-to-date revenues for Algenist are nearly $12 million across three quarters versus a bit over $7 million for the full year 2011. We're well on our way to reaching our target of more than doubling 2011 revenues for the 2012 year.

During the quarter, we introduced two new SKUs bringing the total number to 15. Algenist continues to grow at Sephora and we're proud of the amazing success of Algenist on QVC. In fact Algenist recently won the brand Rising Star award on QVC.

This is now my 10th year at Solazyme and my second as the CEO of a public company. We're at a fascinating an exciting period in Solazyme's development. Our technology, operations and prospects have never been stronger. At the same time, the investment community's view of the company has seemingly never been weaker. This is an unfortunate divergence that I want to address directly.

We've been getting a number of phone calls from investors and analysts and the primary message being delivered by the callers is no news is bad news. I think we've demonstrated today this is not the case. We're not managing by press release. We're building a company that we believe will create significant shareholder value by commercializing very important and extremely valuable technology with world-class partners. Such companies are not built in a quarter. They're built quarter by quarter over many years with the strong focus on the long-term objective.

I'm committed to delivering news that is important to tracking our progress against the core objective to build a very valuable sustainable company. You've seen that today with our ADM and Bunge announcements.

As a final comment, I'd like to thank a few folks. As you know, we're engaged pretty deeply with several great partners here in the US, in Europe and in Latin America. We forging important new relationships like the one with ADM and our anticipated JV expansion with Bunge. The collaboration and support of all of our partners has been invaluable and we're as committed as ever to delivering to them.

I also want to thank the many industry experts who voted us the number one hottest bioenergy company in Biofuels Digest. This is the third time in four years that we've won this award. In addition, this morning, our Solarjet [algae] jet fuel took top honors in the aviation and space category in popular sciences Best of What's New 2012 awards.

Overall, the recognition we received from industry partners, influencers and customers is gratifying. Along with our continued execution which comes first, it says to us that we're on the right track as we build our leader in tailored oils with a sustainable, profitable future.

Thanks for joining us. And now, here's Tyler.

Tyler Painter

Great. Thanks, Jonathan, and thank you all for joining the call today. During my remarks, I will provide a brief recap of our third quarter and year-to-date financial performance as well as further update you on the strategic progress we are making.

As a reminder, all numbers I will be discussing are non-GAAP and exclude non-cash stock-based compensation expense and unrealized gains associated with vesting of warrants. A reconciliation of this non-GAAP information to GAAP can be found in our earnings release issued earlier today.

Since our last quarterly update, we've continued to deliver solid execution across the company. Jonathan discussed our ongoing strategic investments in our technology platform enabling us to expand our future product offering of high valued tailored oils with attractive commercial potential.

However, our existing capacity projects to deliver those tailored oils are on track. And as announced today, we've expanded manufacturing partnerships with a clear path to over 400,000 metric tons of annual capacity with important partners including Bunge, Roquette and ADM.

Before discussing a few of the more important value creating progress points in detail, I'll review our financial results for the quarter. Total revenue in Q3 was 8.6 million compared to 8.9 million in Q3 last year. Product revenue was 3.8 million in the quarter double Q3 last year as Algenist continued its strength in the marketplace.

We also remain on track for full year product revenue to more than double last year's results. Revenue from funded research programs was 4.8 million versus 7.1 million last year as we guided ending our quarter.

Revenue for Q3 reflected that the Department of Defense fuel and testing certification programs in the first half of the year were not replicated in the back half of the year. Also active programs with the Department of Energy and California Energy Commission continued in the quarter.

Total non-GAAP costs and operating expenses were 28 million for the quarter, down modestly from 29.6 million for the second quarter. R&D expenses were 15.5 million in the quarter versus 17.4 million in Q2. R&D expenses continued to be driven primarily by disciplined investments in our tailored oil platform and expenses related to our integrated biorefinery coming online at the end of Q2.

SG&A expenses were basically flat for last quarter at 11.1 million. Non-GAAP Q3 net loss was 19.4 million for the quarter or $0.32 per share compared to a net loss of 11.5 million or $0.19 per share last year.

Briefly summarizing our year-to-date results, revenue was 35.7 million, up 48% compared to 24.1 million in the same period last year. Total operating expenses were 84.3 million, up from 51.3 million last year. And year-to-date net loss was 48.5 million versus 27.2 million for the first nine months last year.

This higher net loss in Q3 and year-to-date primarily reflect the impact of our investments in our expanding portfolio of oils, our ongoing efforts to grow and commercialize our business, our capacity and the completion and operation of our integrated biorefinery in Peoria. On September 30, our employee count stood at 211 compared to 200 at the end of the second quarter.

Turning now to our financial position. We ended the third quarter with approximately $167 million in cash, cash equivalents and marketable securities. Net cash used in operations excluding changes in working capital in the quarter totaled approximately 17.1 million.

Cash outflows for capital expenditures, JV investments and the repayment of debt principle for the quarter were approximately 13.8 million, driven primarily by planned investments in Peoria as well as a $10 million equity investment in Solazyme Bunge Oils during the quarter. As a reminder, our joint venture partner Bunge also contributed 10 million in equity investments in Solazyme Bunge Oils during the quarter.

And more importantly we are committed and continue to work with Bunge to secure the ADM financing for our Moema projects, which we believe could fund in excess of 60% of that project. We have a solid balance sheet and we've successfully been working with our partners and outside financing to accelerate our scale up and commercial operations.

In general, we intend to focus our current balance sheet on existing projects, technology advances and commercial investments. As we continue to evaluate capacity expansion opportunities including those announced today with Bunge and ADM, growth capital will likely include a combination of continued partnered commitments, public sector financing on BNDES, standard project financing and direct balance sheet investments.

As an example of additional flexibility, we're pleased to note that as part of our ADM agreement, Solazyme will have the option to make certain payments via stock instead of cash. As we've always maintained whenever we evaluate these growth opportunities, we will focus on the optimal ways to maximize our flexibility, our control and the net present value in order to deliver the most compelling shareholder value. In addition, we believe our cost of capital will go down over time as our existing and future projects come on line and begin to deliver sustainable revenue and cash flow.

Turning to our outlook, we expect full year revenue for 2012 to be up approximately 15% versus 2011 to $44 million on the year. As Jonathan discussed, we're hard at work executing against our commercialization, capacity and technology initiatives. The new and expanded partnerships we announced today further bolster our manufacturing capabilities and provide us a clear path to meet the strong and growing demand for our tailored oils.

On the product and technology side, we remain enthusiastic about the value proposition of our growth slate of tailored oils which increases our assets to a diverse set of end markets. Our core profitability goals are a function of both reaching scale and making valuable differentiated products with high attractive margins. Scale requires production capacity build-out, high valued products with high average selling prices to drive margins. I'm pleased with the progress we've made in both of these key fronts throughout the year and I look forward to updating you again next quarter.

With that, I would like to conclude our formal remarks and turn it back over to the operator for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). Our first question comes from Sanjay Shrestha of Lazard Capital Markets. Your line is open.

Sanjay Shrestha -- Lazard Capital Markets

Thank you. Good afternoon, guys. Congratulations on Bunge and ADM. So first I have a housekeeping question given the current political environment, what's your view even though you guys are no longer going to be an R&D company, how should we think about that R&D number into 2013?

Jonathan Wolfson

Look, if you're talking about the political environment, Sanjay, the quick answer I'll tell you is the political environment was and is tough partially because of bills that are pending in the House and Senate with respect to fuels and the composition of the House and the Senate and the Executive did not change. So at a qualitative level, I'll answer you that I don't think we think a lot has changed at this point from a political outlook perspective.

Sanjay Shrestha -- Lazard Capital Markets

Okay, fair enough. So on this ADM sort of the announcement today, obviously pretty good positive for you guys. It really demonstrates the value of the technology. Now the question I had is how do we think about sort of the total capital commitments here to build out 100,000 metric tons plant and how exactly does the economics sharing work? You guys said you get to keep a lot of economics and gross profit level, but any detail you guys could share with us on that.

Jonathan Wolfson

I guess well I'll answer part of it and then Tyler will probably answer the rest. The first thing I'll say is it's important to us as a partner to respect our partners and the confidentiality of our arrangements with those partners. And so that's kind of a hallmark that will govern anything we can say on this. That said, with respect to this arrangement, this is an arrangement in which yes, it's a broader relationship that includes market development and we're very excited about that.

With respect to the economics of production, we're essentially on some level going to be paying for ADM to do a lot of the production work with respect to oils, to producing oils and we're going to be working together more broadly than that. But I think the revenue, the cash flow and the earnings are going to flow to Solazyme after some net of payments to ADM for certain services that they're going to provide. Some of those services may be, we have the alternative in some of those services maybe paid in stock as opposed to cash.

Sanjay Shrestha -- Lazard Capital Markets

Okay. Now one final question, guys. So in terms of the Bunge expansion, 300,000 metric tons here, so one – it's sort of a two-part question; one, just a little bit on ADM. So given the market that you guys are going to be going after, is it fair to say what you're going to be producing out of this plant is going to come in as a high end of the margin target you guys have had? And second part of the Bunge is, how do we sort of think about that ramp up? When do we sort of get more detail? And is 300,000 nameplate capacity in '16 or do you expect actually to be producing in '16?

Jonathan Wolfson

I think a couple of things. Maybe I'll answer the first question which is that you should see the announcement that we're going to be in production in early 2014 at Clinton with ADM as our manufacturing partner there. You should see that as a signal that we believe that we have strong market opportunities. I wouldn't make any assumptions about a need to start parceling things out in such a way that you're going to look at a particular plant as only being able to produce a certain range of products.

I don't think that would be a good way to look at it. With respect to our partnership with Bunge, I think what I would say about that is our first order of business is making sure that Moema comes up on time. It runs well. Right now, as you can see from the announcement, we're going to be expanding oils and fields into that joint venture and we're going to be developing projects to expand to 300,000 tons with the intent to expand to 300,000 tons by '16. But to be clear, Sanjay, it's to expand to nameplate by 2016. It's not a commitment that we're going to be producing 300,000 tons in 2016.

Sanjay Shrestha -- Lazard Capital Markets

Fair enough. Just wanted to clarify that. That's all I had guys. Congratulations.

Operator

Thank you. Our next question comes from Brian Lee of Goldman Sachs. Your question please.

Brian Lee -- Goldman Sachs

Thanks for taking the question and also congrats on the two new developments here. I guess my two questions are on those developments, so first on Bunge. I'm curious, how much of your volume are you expecting to be driven by the tailored food oils? And how does pricing in that segment compare to others? And also, are there any regulatory approvals that are required?

Jonathan Wolfson

So three parts, let's see. One is regulatory and the answer is yes. There are regulatory approvals dependent on the jurisdiction. And I guess one point I'll make to you there, Brian, just as a food for thought kind of point is that inside the joint venture with Roquette, a joint venture we're really proud of, the first [algal] oil received a GRAS, no question certification relatively recently for fairly broad use across markets in food in the US and also a novel determination in Europe freeing up the way for that particular oil to go into the two largest markets in the world.

And what I would say is we view that as a very positive forward indicator of our ability to continue getting regulatory approval in markets like the US and Europe for additional oils. But we most certainly will need those approvals in additional markets. I think another point there is that it depends what you're comparing it to, whether you're comparing it to the alternative around fuels or whether it's [oleic] chemicals or whether it's functional fluids.

But I would say as a practical manner overall that the ASPs and margins around food oils are likely higher than a number of the other applications. I would be careful about offering up an estimate of how much of our business that food oils overall and tailored food oils specifically will comprise although I think it will be quite significant.

Tyler Painter

Brian, the only thing I would add to that is I think clearly we haven't given specific guidance of what that mix of product will look like in the out years, but it does point to the power of the technology platform as we implement it in one asset, one facility to be able to make oils for each one of these end markets.

Brian Lee -- Goldman Sachs

Okay. That's helpful color. Thanks guys. And then quickly on the ADM relationship, when do you expect to sign off-take agreements for that capacity, the initial 20,000? And then can you quantify the cash impact to you as a result of the collaboration in terms of any additional CapEx or will you get licensing payments from them or anything of that sort? Thanks.

Tyler Painter

Great. So why don't we start from the back of the question first. From a capital standpoint, this is again the way we view it is a very capital efficient and risk mitigated way to basically get into production and a leadership manufacturing position in the US. The facility has been built to – it's a wonderful facility for our technology and it would be minimal investments for the first phase. We haven't given 2013 guidance at this point, but -- I'm not sure if you're getting the airport or what's there. But anyway, it will be a minimal investment as we give our 2013 guidance at a later date. We'll give you more clarity in regards to that. But it's a very capital efficient way for us to build our capacity.

Jonathan Wolfson

And I guess Brian, I'll take the other half which relates to markets and I think we're – look, we're really excited to announce a market development agreement with ADM as part of this and we think that that – ADM is obviously one of the largest marketers of vegetable oils in the world with a deep reach, and importantly application capabilities as well that they bring to this and so we view that as very exciting. Another point I'll make is that we're now shipping very significant quantities out of Peoria, which is running as an integrated facility and we're in the process of qualified customers. And obviously we feel good about the prospects to put more capacity in the US.

Brian Lee -- Goldman Sachs

Okay. Thanks guys.

Operator

Thank you. Our next question comes from Ben Kallo of Robert W. Baird. Your line is open.

Ben Kallo -- Robert W. Baird

On the ADM front, can you guys just walk us through how long you've been working with them? I know they have a significant amount of experience in fermentation, so I don't know if there is anything you can talk to us about how they got comfortable with your technology?

Jonathan Wolfson

I guess that, Ben, one thing I would say is you should definitely assume that this was a discussion that's gone on for some time. I will tell you that the ability to do what we're going to be doing in Clinton is an opportunity that didn't exists nine months ago, to be clear.

And look, I'm really not in a position to give you a lot of specifics here expect to say that ADM is clearly one of the most advanced companies in the world in large scale industrial fermentation and in order to enter into an agreement with us, the strategic collaboration, market development and manufacturing agreements, a lot of work was done qualifying on both sides of this.

Ben Kallo -- Robert W. Baird

Okay, great. And then the Bunge expansion in the press release reads a lot about the food market and tailored oils for the food market. I think some of us out here were expecting the next plant to be focused on fuels. Could you just walk us through if that's just a timing issue, if they're partners are still out there or any focus has changed? And then tying into that, have you seen any of your potential partners kind of take the wait and see mentality and so Bunge is up and running or is that non-existent? Thanks.

Jonathan Wolfson

I'll answer the last question first and say that I'm sure there are people who are taking a wait and see attitude until Bunge is up and running. I'll also tell you that nobody said that to us directly. It would be hard for me to believe that nobody is taking that perspective or is using that in their calculations. It just doesn't seem to me that that's even feasible. But I think as a general matter, we're seeing significantly greater inertia in our ability to move forward with partners and potential partners as they start to see the broader depths of capability we have with respect to tailoring oils. So I'd actually say that's really much more positive than anything else.

I would tell you one thing that we've been pretty consistent about going back a lot of years is that our market entry strategy has always been kind of based on a theory that we go into markets where we can generate the highest margins earlier and that we stage our market entry to some extent as it relates to margin. The more margin you make in a particular product area, the more cushion you have as you bring plants up and you make sure that you're qualifying customers appropriately.

And so in answer to your question, I think that we've been pretty consistent in saying that fuels and even fuel blends would be – which is probably the reason we started the company is still probably a little bit further down the line in our priority, not in our overall global long-term priority but in our priority as we kind of step through what products we're going to be producing out of plants in the near term.

One thing which we've said consistently, for instance, is that as we look at Moema, we saw at least 75% of the capacity in Moema coming in, in industrials and chemicals and 25% or less coming in fuels. And I would say that that basic point that we've made consistently hasn't changed. And moreover one more point. We see a huge opportunity in food and I think that's just the important point to make.

Ben Kallo -- Robert W. Baird

Just one more if I can. I think I saw that there was a warrant issued to ADM and I just want to understand is that something that you guys do to help them hurry up, is that – what does that really mean to ADM that's such a big company, a couple hundred thousand warrants. Does it help you have them [stay] in the game, right? What's the approach there because it is the same thing you have with Bunge?

Tyler Painter

Right. It's from a multifaceted, Ben, so it provides another mechanism for us as we look at the right way to both align our interest and also how we fund access to either capacity or rollout capacity. And we found that that's an important kind of piece of the overall equation when we can add equity into the mix.

Ben Kallo -- Robert W. Baird

Great. Thanks guys. Congrats.

Operator

Thank you. Our next question comes from Laurence Alexander of Jefferies. Your line is open.

Laurence Alexander -- Jefferies

Three quick questions. Can you give some more granularity around Roquette is targeting at this point and can they commercialize the new product streams that you've identified? Secondly is the Soladiesel demonstration run, is that going to be cash neutral or is there a significant cash burn associated with it? And then lastly for the expansion of the ADM facility, I think originally they had discussed publicly sort of it being expandable fourfold rather than fivefold, is there something different about your technology versus the PHA process that lets you expand it more easily or is there a more significant construction process implied by the number?

Jonathan Wolfson

I guess I can just run through them quickly and I can say, look, Laurence, with respect to Roquette, the Phase I 300 metric ton facility – remember this is a JV and there is the 300 metric ton Phase I facility is shipping product today, that I know. I can't tell you the exact product mix of what's being delivered out of that plant right now. But I can tell you that our focus as partners is very much on bringing up Phase II and being able to deliver much larger volumes to customers as Phase II comes online. It should be completed by the end of the second quarter and coming online and we're really focused on that right now.

With respect to solar diesel and Propel, for us that's an important proof point. We're measuring with Propel the demand in the market and what it means. I would be very clear to tell you that that not being down profitability with respect to selling oils, however, it's being done as part of our deal we integrated by our refinery work at Peoria demonstrating that we can run the entire process. The alternatives to get into the fuel markets and scale as you know really is more to us today about blends and more today about when we get into the largest scale facilities. So right now, it's really more a proof of concept and because we have the availability to do it.

And I think the third with respect to the expansion up to 100,000 metric tons, that's work that was done between ADM and Solazyme's engineering groups and then moved into the business side and it would be very dangerous for me to be commenting on our process as it relates to the PHA process that ADM was running in the facility.

Laurence Alexander -- Jefferies

Thank you.

Operator

Thank you. Our next question comes from Smitti Srethapramote of Morgan Stanley. Your line is open.

Smitti Srethapramote -- Morgan Stanley

Good afternoon, Jonathan and Tyler. Just had a follow-up question on the Bunge announcement. I was wondering if you guys can give us some color on which partner was a driving force behind the new MOU framework agreement? And what milestones will need to be reached before the MOU can be converted to a definitive agreement? Will that – you might need to start up before this agreement will be inked into a definitive agreement?

Jonathan Wolfson

The first answer is both. And I think that we're both really pleased with the relationship right now and with its trajectory and we're willing together to put out a framework under which we could dramatically expand it, I would say. It will happen in parts though, Smitti, and I expect the first things that you'll see will be discussions of exactly how we're going to expand the oils and fields. And following that will be more definitive news on specific capacity expansion.

Smitti Srethapramote -- Morgan Stanley

And how many – if you go to 300,000 metric tons, will this be done at Moema or will this likely be done at several different sites?

Jonathan Wolfson/Tyler Painter

That's actually something that's part of the discussion about what we're going to be working on together. We've said clearly that its worldwide facilities, worldwide Bunge processing facilities and that could be in Brazil, it could be at Moema, it could be elsewhere and that's part of what we're working on together.

Smitti Srethapramote -- Morgan Stanley

Thank you.

Operator

Thank you. Our next question comes from Weston Twigg of Pacific Crest. Your line is open.

Weston Twigg -- Pacific Crest

Hi. Thanks for taking my questions. Just actually two quick questions. One, could you tell us or give us an idea of what the ramp profile in terms of revenue will look like in 2014 given the ADM and Bunge facilities will be ramping at that time?

Tyler Painter

West, at this point we haven't given the actual revenue guidance for 2014. Clearly, those are the key drivers as these facilities come on line and we ramp into full production, that will drive our product revenue but we haven't given specific guidance at this point.

Weston Twigg -- Pacific Crest

Can you give us an idea on the production timing quarter-to-quarter in 2014?

Jonathan Wolfson

I think, West, one thing we've said is that when you bring up facilities, it can be up to 18 months to get them running at nameplate and I think we probably stopped at that in saying that hopefully you can do it significantly quicker than that. But anywhere up to 18 months to get facilities running up to nameplate. And we hope to be running ADM in – the ADM credit facility in early 2014, with significant room for expansion. But I think we're going to have to leave it at that.

Tyler Painter

And the only thing I'd add to that is that we've been – as we mentioned on the call, that we're on schedule for the Moema facility to come on line in Q4 next year.

Weston Twigg -- Pacific Crest

Got it, okay. And then with ADM, are there other manufacturing opportunities, is sounds like this particular facility came in pretty well or happen to work out pretty well for you, but did it have anything else where if you expand it out to 100,000 metric tons, they might have something else available for further expansion?

Jonathan Wolfson

Look, if you're talking about with ADM I think that would be kind of an inappropriate topic for discussion for me given – look, we're thrilled about where we are right now. We've worked hard, we're excited about this agreement with ADM and I think that I would hold up at the shores of the agreement on that right now and say, look, we're starting out at 20 with the prospects of moving it up to 100 is exciting. And I think the only other thing I'll point out to you is that I think we have a good track record of delivering for partners. We've been able to say that we've never missed a joint development agreement milestone in our history and you're seeing Bunge's interest in announcing expansion before the first facility is up. So I'd make those two observations.

Weston Twigg -- Pacific Crest

Fair enough. Thank you very much.

Operator

Thank you. Our next question comes from John Quealy of Canaccord Genuity. Your line is open.

Chip Moore -- Canaccord Genuity

Thanks. It's Chip Moore for John. So was wondering if you can give us a little bit an update on timing of funding for the Moema facility? What should we be thinking about in terms of rest of 2012 contribution and then for 2013?

Tyler Painter

Yeah. So clearly we're at the stage where the project is ramping up in terms of its overall capital requirements. And we also are making real progress. I don't have enough, Chip, for you today in terms of our progress with BNDES, but we do remain confident that we're going to be able to secure that. As we reach any news there, you would hear from us. But we're working through the process with BNDES.

Chip Moore -- Canaccord Genuity

Okay. And just as a follow-up, would you pursue similar funding mechanisms for the expansion then of 300,000?

Tyler Painter

Certainly. I think when we look at what our technology brings as a growth vehicle for agriculture and sugarcane in Brazil, what we've seen to-date is the Brazilian government seems to be very supportive. We also think there are many other kind of alternative sources of project or additional financing that can come into these different projects.

Chip Moore -- Canaccord Genuity

Okay. And then on the ADM collaboration, it looks like they're scheduled to get warrants when it starts up, when commercial operations start up. When should we be looking at that to hit the diluted share count?

Tyler Painter

What we've said right now is we actually expect the plant to be commercially operating in the early part of '14. The details -- the actual details will come in an 8-K shortly. So you'll be able to walk through that.

Chip Moore -- Canaccord Genuity

Okay, fair enough. Thanks.

Operator

Thank you. Our next question comes from Patrick Jobin of Credit Suisse. Your line is open.

Patrick Jobin -- Credit Suisse

Jonathan and Tyler, thanks for taking the question. So two quick questions here actually, first on Moema. Tyler, can you speak to either the CapEx firming up or if anything's changed now that you're underway with construction? And then also on the off-take side, kind of how you see that progressing as you approach start up?

Tyler Painter

I'll take the first part and then I'll let Jonathan answer the second piece of it. In terms of the projects when we say it's on schedule and it looks on budget, as I mentioned right now it's fully committed from both partners to fund the project. We do expect that if we are successful in securing BNDES financing, that it will achieve to be 60% or higher of the overall projects just financed to BNDES. But again, that would reduce our overall capital requirements from our balance sheet. We are fully committed in the projects moving forward and it's on budget at this point.

Jonathan Wolfson

And I would say at the risk of – I would say that I think we remain optimistic with respect to the [prospects] for BNDES financing. With respect to selling the plant, I would tell you that we're in the process of using Peoria now to qualify a lot of customers and the ability to also announce the intent of Solazyme Bunge to join market development as a very significant new layer, Bunge is not just the largest market of edible oils in Brazil but a very broad marketer of vegetable oils into all kinds of industrial applications in the country as well. And I'd tell you that we feel good about our ability to sell that plant.

Patrick Jobin -- Credit Suisse

Great, thanks. And then just one quick follow-up here. Has anything changed with your cash flow outlook? I know previously you put out some targets as to a breakeven threshold. Obviously the ADM agreement seems very favorable for capital deployment from your perspective. How should we think about that if anything's changed?

Tyler Painter

Again, we haven't given any specific update on guidance for cash flow. Clearly, it's very much tied to the capacity coming on line and as we get these higher value oils in the marketplace and high volumes. So when you look at price coming on line in Moema at the end of '14 and the price coming on line in – I'm sorry, at the end of '13 and the ADM facility coming on line at the beginning of '14, then you would start to see that product revenue ramp – product revenue ramp and the resulting cash flow from that.

Patrick Jobin -- Credit Suisse

And as far as gross margin target ranges are still holding with the different…?

Tyler Painter

Yeah, they're holding. I think we feel really good about that particularly as we have more oils in the quiver to choose from. Of course the margins will increase relatively quickly over time. They'll be at their lowest point when you start up the plants probably, but should be getting where they need to be pretty quickly after that and we feel good about what we've said about margins in the past.

Patrick Jobin -- Credit Suisse

Great, thanks. You're building quite the quiver.

Jonathan Wolfson

Thanks.

Operator

Thank you. Our next question comes from Mahavir Sanghavi of UBS. Your line is open.

Mahavir Sanghavi -- UBS

Hi, Jonathan and Tyler. I'll add my congrats on a strong execution. Jonathan, I just wanted to explore more on the capital efficiency you will achieve at ADM without getting into the details. If you could explain to us how should we think about capital efficiency versus other greenfield plants, just in relative terms? And does this change your capital outlook for expansion plans and you're talking roughly $5 per gallon from Moema. How should we think about future expansion plans from that point of view?

Jonathan Wolfson

I'll broadly say that this obviously is an arrangement that gives Solazyme and ADM the ability to work together for an extended period of time. It's not a short-term agreement. But if you're interested more in the exact kind of capital impact, I would tell you that this is an excellent facility at ADM. And I'm not going to comment on anything about the facility that I shouldn't be commenting on, but I would suggest that you can go out and read a lot about the facility that's already out there.

And I will tell you that the ability to access that facility and match up that facility, but the extremely well trained team that comes along with that facility is something that we're really excited about. But as you can see it has very, very significant impact on both timing and capital, if we had to try to duplicate or replace that kind of facility. So I think you can do the math yourself, but it has enormous impacts on our ability to get up into production in the US with a great facility and a great workforce quickly and with a very attractive feeds stock as well going into developing the process.

Mahavir Sanghavi -- UBS

All right. And then maybe just a follow-on question on the Bunge expansion. It seems like you were able to adapt your process to work on ADM facility. Could we perhaps think about going beyond 100,000 metric ton with Bunge, could you use (inaudible) of the Bunge existing facility or are we going to be greenfield? That's first part. And second, are the economics on the expansion gallons or tons similar to the economic on the first 100,000? Thank you.

Jonathan Wolfson

I think that the expansion could happen either – it could either happen at, for instance, the existing facility or other facilities and different facilities will have different economics, but I would certainty say that there's lots of opportunities in Bunge's large array of facilities to have at least this good or even potentially better economics. I wouldn't venture an exact guess right now, but I would say that Bunge has deep assets globally and fantastic assets in sugar in Brazil. And that's part of what we're going to be working to develop to determine whether it would be an expansion or whether we would be building sites adjacent to other existing facilities. And so we feel very good about the ability to produce additional significant large volumes of oil at attractive and an attractive cost structure.

Mahavir Sanghavi -- UBS

Thanks Jonathan.

Operator

Thank you. And we have time for one final question. Rob Stone of Cowen and Company, your line is open.

Rob Stone -- Cowen and Company

Hey guys. Thanks for fitting me in.

Jonathan Wolfson

Hi, Rob. How are you?

Rob Stone -- Cowen and Company

Good. Jonathan, I wonder how you think about the big picture as you weigh your global opportunities, capacities, markets, partners and so forth. Which is the next biggest piece you'd like to fill in since you got now Europe biggest country in Latin America, additional capacity in US? What's the next logical fill-in point? And then my follow-up was curious on the Bunge with food oils, why that's just Brazil initially, is that just sort of a stage one thing? Where else might you expand that that doesn't overlap with other partners and range (inaudible)?

Jonathan Wolfson

I think Bunge's a good agreement to kind of use this as a base firm. I think the first thing I would say is we were clear in our agreement with our partners there to announce that capacity could come anywhere in the world in which they have appropriate facilities and those could be sugar, those could be dextrose. We're comfortable on either feet, definitely more comfortable on others as well. But I would be – I mean, look we're really head down trying to execute on what we have on the plate right now which is putting up our process in Clinton with ADM, having Moema come up on top and on budget in Brazil and working with our partners Roquette to see the Phase II come up in France. That's a lot for Solazyme. It's very manageable but it's a lot and that's what we're focused on. That's what we're focused on right now. I'm not going to venture a guess at that about where – about where the future might lie although I think you know what regions were not covered in right now.

Rob Stone -- Cowen and Company

Right. I was going to say Asia. Thank you.

Jonathan Wolfson

Thanks, Rob. And just I guess finally we really appreciate you guys calling in and taking the time to continue to track the company. And we're going to continue to execute. Thank you.

Operator

And at this time, I'd like to turn the call back over to Jonathan Wolfson for any closing remarks.

Jonathan Wolfson

I think I just made them. So instead thanks again.

Operator

Thank you, sir. Thank you, ladies and gentlemen, for your participation. That does conclude your program. You may disconnect your lines at this time. Have a great day.

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