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Executives

Joel Velasco - Senior Vice President of External Relations

John G. Melo - Chief Executive Officer, President and Director

Steven R. Mills - Chief Financial Officer

Analysts

Brian K. Lee - Goldman Sachs Group Inc., Research Division

Robert W. Stone - Cowen and Company, LLC, Research Division

Vishal Shah - Deutsche Bank AG, Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Michael J. Ritzenthaler - Piper Jaffray Companies, Research Division

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Amyris (AMRS) Q4 2012 Earnings Call February 19, 2013 5:00 PM ET

Operator

Good day, ladies and gentlemen, and thank you for standing by, and welcome to the Amyris Fourth Quarter 2012 Conference Call. This call is being webcasted live on the Events page of the Investor Relations section of Amyris' website at www.amyris.com. This call is the property of Amyris, and any recording, reproduction or transmission of the call without the express written consent of Amyris is strictly prohibited. As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the Investors section of Amyris' website. I would now like to turn the call over to Joel Velasco, Senior Vice President.

Joel Velasco

Good afternoon. Thank you for joining us to discuss highlights of the Amyris' recent progress and our business outlook. With me today are John Melo, our Chief Executive Officer; and Steve Mills, Chief Financial Officer. On the call today and on this webcast, you will hear discussions of non-GAAP financial measures. Reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is contained in the press release distributed today. The current report on Form 8-K, furnished with respect to our press release, is available on our website at www.amyris.com, as well as on the SEC's website at sec.gov.

We will also provide certain forward-looking statements about events and circumstances that have not yet occurred, including projections of Amyris' operating activities for 2013 and beyond. These statements are based on management's current expectations, and actual results and future events may differ materially due to risks and uncertainties, including those detailed in the company's recent SEC filings and the Risk Factors sections of Amyris' quarterly report on Form 10-Q, filed with the SEC on November 9, 2012. Amyris disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the Amyris SEC filings for detailed discussions of the relevant risks and uncertainties.

I will now turn the call over to John Melo.

John G. Melo

Thank you, Joel. Good afternoon, and thank you for joining us for a review of our fourth quarter 2012 financial results and an update on our business outlook for 2013. Simply put, we built a track record of execution over the course of the last year. We told you we would focus on completing our first farnesene plant, Paraíso, located in Brazil. We began commercial production in December and are proud to have successfully completed, operated and already shipped product from our very own purpose-built industrial scale facility. We told you to expect lowering of our operating expenses. We delivered on our lowest cash burn since our IPO. We also secured over $100 million in funding and, as we'll discuss on this call, are on track for achieving cash flow positive next year.

We told you that we would focus on high-value core markets where we have a distinctive competitive advantage, aligning our manufacturing production with the highest average selling prices. We delivered on increased renewable product sales and have a robust pipeline in place for 2013 and beyond. In 2013, we've already made good progress on these areas. With these achievements, we have turned a corner for our company and are optimistic about 2013 and beyond.

Let me review, in greater detail, our progress in these 3 areas. First, our farnesene plant in Brazil began commercial operations ahead of schedule, thanks to a robust construction and commissioning process. We have been operating the plant for nearly 2 months, producing in-spec product from multiple tanks, without contamination or any other significant problem to date. As we discussed in prior calls, we are going to be methodical and deliberate on our ramp up, focusing on operational excellence. To that end, our current plan is to switch feedstock streams from raw sugar crystals and molasses blend to concentrated cane syrup as the Brazilian sugarcane harvest begins in the next couple of months. We also plan to upgrade to our newest farnesene producing strains, to take advantage of their improved performance. Both of these actions will support our goal of achieving stable, predictable, low cost production.

Second, with reduced operational and capital expenses, and strong product and collaboration revenues, we are on track to achieving cash flow positive in 2014. As announced in late December, we secured about $42 million in equity funding, which underscores the continued strong commitment from our major investors to our business strategy. As a result of our successful scale-up at our Paraíso facility, we received strong interest for additional investment from both current and new long-term investors.

Our plan is straightforward. First, keep our expenses low and under control. Secondly, maintain a low capital investment plan to support our core capabilities. We have the benefit of early investment in Paraíso and the São Martinho plants that provide us with the necessary volume to deliver our business plan through the end of 2016. We don't need to make additional CapEx investment for production and we'll only do this opportunistically. Third, collaborations cover a significant portion of our OpEx cash spend and drive our product pipeline. And fourth, our products pipeline, supported by strategic partnerships and collaborations, underpin our earnings growth. As Steve will detail shortly, this combination of reduced burn rate, which we can control, and collaboration funding, where we have good visibility, coupled with an expected improvement in our product margin contribution as our production costs come down this year, put us in a strong position to achieve cash flow positive in 2014.

Third, our technology and product pipeline continues to strengthen, particularly as we deliver on critical milestones to our collaboration partners and customers. Over the course of the last year, including the fourth quarter, we have continued to witness steady progress in our technology development, both in our second generation farnesene strains, as well as in the fragrance oil we are developing for our partner, Firmenich. We are well ahead of our collaboration targets with both of these partners. Building on the success of our first collaboration, we've reached initial agreement to significantly expand our partnership with Firmenich. Firmenich is the world leader in fragrances, and we jointly believe that working together can create a strategic advantage and underpin their growth plans. We expect to provide details of this expansion once we have completed the definitive agreement.

We are not a single-product company looking for a market to sell our product, or a capital-intensive fuel company that must have government support to survive. This is what sets Amyris apart. Our world-leading synthetic biology platform allows us to deliver high-purity in-spec molecules for our partners and customers. We have a strong collaboration pipeline and we'll continue to secure our future by partnering with some of the world's leading brands. We engineer living factories, our yeast, that allow us to make better products, which support these companies' growth strategies. Our squalane and niche diesel sales continue to go as planned, and we are optimistic about the prospects of using farnesene in 3 key segments in the coming year, specifically, liquid rubber for tire applications, base oils for lubricants and specialty fluids.

Through our partner, Kuraray, we have engaged with 10 of the top 12 worldwide leading tire manufacturers, with several of these tire manufacturers moving beyond the lab scale to end-use testing, to validate the expected benefits of an improved tire performance and vehicle fuel efficiency. We expect to ship increased volumes to Kuraray in the second half of this year.

In our joint venture, Novvi, with our partner Cosan, we have a clear pipeline of customers at advanced stages of evaluating and testing our HeNe [ph] -derived base oils, for applications such as engine oils, transformers, hydraulics and other industrial uses. We plan to begin shipping initial volumes to Novvi in the second half of this year. Total continues to evaluate the use of farnesene for specialty fluid applications, where they see opportunities for commercialization ahead of renewable diesel and jet fuel. As you may recall, our partnership with Total envisioned using farnesene in non-exclusive product markets, and we anticipate some volume uptick from Total for these products toward the end of this year.

To manage this pipeline of commercial products, earlier today, we announced the appointment of Zanna McFerson as our Chief Business Officer. Zanna's experience in commercializing products on a global basis, from managing complex customer relationships to developing marketing strategies, will be critically important to our success in the coming years. Peter Boynton will focus on collaboration partnerships and working with some of our key customers.

Let me now turn the call over to Steve Mills for a review of our financial results and an outlook for 2013. Steve?

Steven R. Mills

Thank you, John, and good afternoon, everyone. As you will have seen from our earnings release, we reported a loss on an adjusted non-GAAP basis for the fourth quarter of $29.7 million or $0.49 per share. Amyris' fourth quarter financials reflect the results of the activities that John just described for you and are consistent with the strategy that we outlined for you last year.

Total revenue for the quarter was $5.9 million, down from $41.5 million in the fourth quarter of 2011. This decline in revenue was principally due to the company's transition out of the ethanol and ethanol-blended gasoline business, a transition that was fully completed in the third quarter of 2012. Fourth quarter revenue was also down as compared to our third quarter revenues of $19.1 million. As a reminder, the third quarter had the last of the sales related to the ethanol and ethanol-blended gasoline business, and also included $8.8 million of collaboration revenue resulting from the amendment of the company's collaboration agreement with Total. Due to the nature of collaborations and grants, we will likely have some quarter-to-quarter revenue bumping us.

Sales revenues of Amyris' renewable products, squalane, renewable diesel and farnesene for specialty chemical applications, were basically flat for the quarter as we continued to deliver product out of existing inventory. For the fourth quarter, our weighted average selling price of renewable products was $8.39 per liter. And for the year, we averaged $8.72 per liter. Our cost of products sold also declined for the quarter as compared to the fourth quarter of 2011, principally due to the absence of the costs associated with the ethanol and ethanol-blended gasoline business. On a sequential quarter basis, our cost of products sold were higher due primarily to a $7.8 million charge in regards to firm commitments related to our contract manufacturing operations.

During the fourth quarter, we continued to benefit from the steps we took during 2012 to lower our operating expenses. Our combined R&D and SG&A expenses were down 20% from last year's fourth quarter, due principally to lower personnel-related costs and overall lower spending levels.

Turning to the balance sheet, our cash balance stood at approximately $30.7 million at year-end. And we had the following significant cash related items during the quarter: In December, we sold approximately 14.2 million shares of common stock in a private placement to existing Amyris shareholders. From that private placement, we received $22.25 million of cash in December, which is reflected in the December cash balance; $15 million in January, which was not in December's cash balance; and Total converted $5 million of senior unsecured convertible notes into common shares, converting this debt into equity in December. This December's private placement caps a year where we raised over $100 million in equity financing. We had capital expenditures, net of disposals, of $6 million for the quarter, principally related to our Paraíso production facility.

I'd now like to take a look at 2013. For 2013, we are expecting capital expenditure spending to be approximately $10 million for the year, principally payments related to Paraíso and for normal R&D-related capital items. From an operating expense perspective, we are targeting a 2013 cash burn rate for SG&A and R&D of less than $85 million for the year. When we speak of cash OpEx burn rate, we are excluding depreciation and stock-based compensation. $85 million for 2013 compares to a number of about $115 million for 2012. Much of this reduced OpEx will be the result of the cost reduction steps that were taken throughout 2012, plus we have already taken additional cost savings actions in this first quarter of 2013 to bring us to this lower level of spending. You will see the majority of the benefits of the 2013 actions in the last 3 quarters of this year.

As an operating philosophy, we are targeting collaboration funding to cover at least 80% of our cash operating expenses. Thus, with $85 million of OpEx, we are targeting $60 million to $70 million of collaboration funding for 2013, creating a net OpEx after collaboration level of approximately $15 million to $25 million. I'm specifically using the term collaboration funding and not collaboration revenue, since our various collaboration agreements have different structures and consequently, the accounting rules for recognizing revenue will dictate the timing of how we record revenue and what amounts remain on the balance sheet. As a point of reference, the estimated $60 million to $70 million of collaboration funding for 2013 compares to $61 million of funding we received in 2012, and $68 million of funding we received in 2011. For 2013, well over half of this collaboration funding is already under agreement, with several new agreements currently in advanced discussions.

As John mentioned earlier in this call, multiyear collaborations with market leaders are a critical aspect of our business strategy, providing us with funding to develop new molecules, helping to establish our pipeline of new products, building strong partnerships that end with product commercialization and generating a cash stream as we capture a share to gross margin from the total value chain of the products. With collaboration funding providing a financial underpinning, we can then generate our earnings growth from increasing gross margins from renewable products sales. For 2013, we expect to be generating positive gross margins for each of our products by the last half of the year. We currently plan for our production and sales volumes to pick up in the second half of 2013, as our farnesene production costs come down through a combination of improved yeast strains and increased efficiencies at our Paraíso plant. As the year unfolds, I expect to be able to share more insights in anticipated production and sales volumes.

As to the larger cash flow picture, our plans call for us to become cash flow positive in 2014. Funding will come from a mix of collaborations, product margins and additional financing.

I'll turn the call back over to John for his closing remarks.

John G. Melo

Thank you, Steve. As Steve described, we reduced our cash burn and are operating our very own plant successfully, with increasingly lower costs. We have completed our restructuring based on a focused product portfolio, confident on our production ability and a cost profile and ability to achieve our target average selling prices. We've successfully scaled our technology, have our first industrial plant working, making high-quality product and achieving our production targets. We are well positioned to cover over 80% of our OpEx cash spend from our collaborations with some of the leading brands in the world. Our collaborations and partnerships have provided us with a strong, high-value product portfolio. We are on target for positive margin from all our products by the end of this year, and cash flow positive in 2014. Our focused strategy over the course of the last year has borne fruit and we enter 2013 confident we are on the right path to success.

Huey, would you please open the line for questions?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Brian Lee with Goldman Sachs.

Brian K. Lee - Goldman Sachs Group Inc., Research Division

I just had a couple. I appreciate, Steve, the detail around some of the cash flow optics on 2013. I'm trying to make sure I understand all of this though. So the $85 million, is that basically your OpEx guide for 2013 on a non-GAAP P&L basis?

Steven R. Mills

Yes, it is. We're certainly hoping to achieve lower than that, but $85 million is that target.

Brian K. Lee - Goldman Sachs Group Inc., Research Division

Okay. And I guess from where you guys are at today, it seems like there's still quite a lot of OpEx that's going to be coming off here. How should we think about the cadence over the next couple of quarters?

Steven R. Mills

Well, as I mentioned on the call, relative to the OpEx, that we see the benefits of most of our actions here, that we've taken in 2013, to show the reductions in the second, third and fourth quarters, if I understood your question right.

Brian K. Lee - Goldman Sachs Group Inc., Research Division

Okay. Maybe I'll catch up with you offline. Sort of related to that, can you update us on where you guys think your funding situation stands as you look over the next 12 months, given the CapEx year-to-year and sort of the updated OpEx run rate you're expecting in 2013? How much cash do you expect to end Q1 with of the $30 million that you have right now? And then how should we be thinking about modeling cash burn, maybe just in the very near term?

Steven R. Mills

I think, Brian, that I laid out the 2013 numbers. I'd rather not get into the detail by quarter. We're certainly going to manage our cash needs as based on the description that I gave you, which was really very little CapEx for the year, a declining OpEx basis and an increase in sales volumes and production -- sales and production volumes ramping up towards the back half of the year. As I mentioned, as part of the equity raise, $15 million of that equity raise came in, in January to supplement the $30 million or so that we had on the balance sheet at December 31, and I think from that place, I'll just leave that.

John G. Melo

Just to build on Steve's comment, Brian, I think Steve provided quite a bit of information during the call around the net burn being about $15 million for the year, OpEx of about $10 million. And then I think we've just given you some information about an additional $15 million, which Steve mentioned during the call, that is funded in January, that was part of that year-end equity sale that we made.

Brian K. Lee - Goldman Sachs Group Inc., Research Division

Okay, fair enough. That's helpful. Maybe last one, if I could squeeze one in. On gross margin for renewable products, will there be any contract commitments for some of the outsourced manufacturers beyond what you saw in 4Q?

Steven R. Mills

No, I don't believe so.

Operator

Our next question comes from the line of Rob Stone with Cowen and Company.

Robert W. Stone - Cowen and Company, LLC, Research Division

I wonder if you could provide any color on the mix between squalane and diesel in the fourth quarter? Squalane and diesel and whatever else you may have had? And any sense roughly on how we should think about that for this year?

Steven R. Mills

Well, the $3 million of renewable sales which we had, is approximately $3 million, both in the third quarter and fourth quarter. The mix was relatively the same. I think, early here in 2013, we don't see that trend changing very much. As we mentioned, we think that the volumes, as some of these other applications take hold and as our production costs come down, will pick up in the last half of 2013.

Robert W. Stone - Cowen and Company, LLC, Research Division

So the mix shift is really in the second half of the year? Okay. Just a housekeeping question with respect to the debt balance after converting some of the converts to equity. Can you say what is the balance of convertible notes on the balance sheet at the end of the year?

Steven R. Mills

I should be able to. They'll be 48 and 25. No, we have more than that. Let me think about it and I'll catch you offline.

Robert W. Stone - Cowen and Company, LLC, Research Division

That's [indiscernible]. And with respect to the collaboration funding that's coming in through the course of the year, some of that is also coming in, in the form of debt, is it not?

Steven R. Mills

That's right. The Total collaboration comes in, in the form of convertible debt. And I think, at this point, that's the only one that comes in as debt.

John G. Melo

Just to build on Steve's comment. The structure of the Total collaboration is based on a key decision point that they have regarding diesel, long term. And if they decide to pursue diesel long term, based on economics, it is all collaboration, not debt. If for some reason they decide to not go forward with diesel, it turns into the convertible debt instrument. The structure was set up as a convertible debt instrument as a default, but it's actually triggered based on a 2015 decision, Rob.

Robert W. Stone - Cowen and Company, LLC, Research Division

But it's going to be $30 million of additional, at least optically, it will show up as an additional $30 million in converts this year?

Steven R. Mills

Yes, that's correct. And at December 31, we would have had $73 million, a little over $73 million of convertible at December 31, so the $30 million will be on top of that.

Robert W. Stone - Cowen and Company, LLC, Research Division

Okay. My final question is for John. You talked about, because of the investments you've already made in Paraíso and the early work at SMA, that you don't really need a lot of CapEx. You're funded through 2016. What kind of capacity then are you thinking about out to 2016, based on a low CapEx plan?

John G. Melo

We're not releasing that number at this time. So we're not providing our guidance as to our volume production numbers. But I can tell you, it's -- I think we've said publicly before what the production targets are from those plants, and our total volume will be within that constraint through the end of 2016. Keep in...

Robert W. Stone - Cowen and Company, LLC, Research Division

That assumes that you will finish off the SMA joint venture plant through 2 phases or just the first phase?

John G. Melo

It'll be completed through the phase that's currently 46% complete, so kind of the first phase that's in place today. Rob, just to complete that piece, keep in mind, when we shifted the product portfolio to higher value, the unit margin contribution at target for that higher-value portfolio is significantly greater than the old expectations. I just wanted to make sure you had that data point.

Robert W. Stone - Cowen and Company, LLC, Research Division

All right. Yes, I was thinking more about what CapEx might be involved to finish off so much capacity, but I guess the margin part, too.

Operator

Our next question comes from the line of Vishal Shah with Deutsche Bank.

Vishal Shah - Deutsche Bank AG, Research Division

John, can you maybe talk about the collaboration funding for this year? What percentage of that funding would -- is this contingent on some milestone achievements and is it supposed to be all second half weighted or are you sort of thinking about more equal first half to second half?

John G. Melo

It's actually pretty well-balanced with a big chunk coming in around middle of the year. And then the second thing is most of the milestones for -- we say it differently, the milestones for more than half of the funding have either already been met or predominantly met for the year.

Vishal Shah - Deutsche Bank AG, Research Division

Okay. And those are the agreements that you've talked about. So the remaining agreements you expect to enter in the next couple of quarters? I mean, how should we think about the visibility in that funding for the rest of the year?

John G. Melo

The way to expect it is, if we should think of it as $60 million to $70 million, as Steve has described, you could think of it as $58 million of that either being complete or very close to being complete. So call it $10 million or so of additional collaborations that we need to either close or contract. And then when you think about the funding, whether it's initial or milestone-based, for the agreements we have either in place or shortly to be in place, we're in a good place regarding the delivery of those milestones.

Vishal Shah - Deutsche Bank AG, Research Division

Great. And then you mentioned 2014 cash flow breakeven. Can you just remind us what your assumptions are to achieve that breakeven? Has anything changed around the volume or profitability levels that you expect to achieve that target? You have assumed your cash growing and OpEx has gone down, so some things have changed.

John G. Melo

I think Steve mentioned, we expect to achieve that through a combination of collaboration funding. I think we've given you a little visibility into that and we expect that rate to continue or increase over the next year. And again, what we have in place are multiyear collaborations. And then secondly, product margin is actually what will bridge the big difference between our rate in 2013, and achieving cash flow positive in 2014. And those are for applications in the pipeline today and basically building on the supply of those products year-on-year 2013 versus 2014.

Vishal Shah - Deutsche Bank AG, Research Division

Great. And there's one last question. On the product sales, you mentioned a gradual ramp through the year with a much bigger second half. I mean, can we assume -- can you give us some sort of guidance on how to think about the volume expectations as you go through the year? Are you starting to build inventory for the second half, I mean, or is it going to be more a decision based on the volume requirements at the time of the year?

Steven R. Mills

Well, I think it's going to be based on the volume requirements. We're just -- as John talked about, we started the plant up at Paraíso at the first of the year, and we're working through that startup very thoughtfully and methodically. And we're really trying to time the production ramp up, as our cost structure goes down, through our efficiencies at Paraíso and the better performing yeast strains, as well as matching that up with our customers' needs as they continue to go through their work on evaluating the products, et cetera. So we see -- we're trying to manage that carefully so we're not building too much inventory up, as you could appreciate, and just managing it appropriately. But we do see -- it won't be a gradual ramp. We really see the first 2 quarters being relatively light, on a volume basis, compared to the last 2 quarters.

Operator

Our next question comes from the line of Jeff Zekauskas with JPMorgan.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

What are likely to be the shares outstanding in the first quarter?

Steven R. Mills

Just give me a second to refresh myself with that number, Jeff. I've got it handy, I don't -- I always hate to guess, but I would think it would be in the neighborhood of 68 million, 69 million shares for the quarter. Now wait, I need to think about that a little more because we did -- that was the December outstanding. And of course, we had the January shares come in. So let me -- I'll do a little work offline and it's not a secret, I just need to make a -- I don't have that number right in front of me.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Okay. Sure. As far as production goes in 2013, will all of your production be at Paraíso or you'll also use some of the contract manufacturers?

John G. Melo

Based on the success we've had at Paraíso, Jeff, and the cost at Paraíso, I expect the majority of our production in 2013 to be Paraíso.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Okay. And because you have a significant second half ramp up in terms of volumes, I take it that most of that volume ramp up has to do with products that you're not selling yet, but will sell in the second half, is that correct?

John G. Melo

There were products that have been in tests with customers over the last year, that we're actually turning on the production and supplying those customers in the second half of the year. And by the way, Jeff, it has a little bit of the current products, obviously, so we're continuing to grow the current products, but the expansion is really with what we're doing for base oils, what we're doing with specialty fluids with Total, so base oils for Novvi, specialty fluids for Total and in liquid farnesene rubber for Kuraray. That's the growth in the second half, on top of the base which are the current 2 products, squalane, as well as niche diesel in Brazil, both of which are growing this year.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Okay. And lastly, what was cash flow from operations for the year or for the quarter?

Steven R. Mills

I know that wasn't in the press release and I'll have to reach for a piece of paper here. I don't have it off the top of my head. Just 2 things, first of all, I'm going to get back to -- on your weighted average shares outstanding, I think the numbers should be in the 73 million to 74 million range for the quarter. And I do have papers here close by, so from operations, it was in the $30 million range, net cash used in operating for the quarter.

Operator

Our next question comes from Mike Ritzenthaler with Piper Jaffray.

Michael J. Ritzenthaler - Piper Jaffray Companies, Research Division

I guess, one question on the new yeast strains. Is there anything that you can share with us with regard to performance of those strains and kind of where you expect maybe more improvement to come from on that side, on the biotechnology side?

John G. Melo

What I can tell you is, the last 2 quarters and obviously the fourth quarter being a big part of that, we've had the best technical performance in the history of our company. And really, in both of our current programs, farnesene, as well as patchouli, I expect that improvement, specifically with farnesene, to continue going forward.

Michael J. Ritzenthaler - Piper Jaffray Companies, Research Division

Okay. Let's see, and then on the Novvi agreement, I was -- I'm just wondering what else -- if you could just add a little bit more color with what needs to happen there to drive adoption?

John G. Melo

We've got a pretty strong pipeline of customers that have been either testing or formulating. They are prepared to launch. Some of those customers prepared to launch new products to market. And the big wait at this point is our ability to turn on production and supply volume into Novvi, which we expect to do in the second half of this year.

Michael J. Ritzenthaler - Piper Jaffray Companies, Research Division

Okay. And I guess just one more for me. On, let's see, on the cost of goods, I just want to -- I think I already know the answer to this question but just to be sure, the cost of production per liter, is it just as simple as taking the COGS and dividing it by the volume or is there some weirdness in the COGS number that would prevent us from being able to calculate a pure cost per liter?

John G. Melo

I think the math works in that way. The only issue is that in cost of goods sold are finishing costs in addition to the farnesene production costs for our applications.

Michael J. Ritzenthaler - Piper Jaffray Companies, Research Division

Sure. Can you help us out with how much that is?

Steven R. Mills

It depends by product. For example, to make a diesel product, it's a very -- it's a relatively small number. For squalane, it's much more significant. So it's really going to be dependent on the mix. That's what would make that challenging, that calculation.

Operator

Our next question comes from the line of Pavel Molchanov with Raymond James.

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

On Paraíso, what milestones -- or I guess, what are you waiting for to get to a point where you could provide a little more production guidance for the year?

John G. Melo

Pavel, I mean, the good news is we've already achieved a stable production and have shipped commercial products that's achieving all of our product specs, and that's a little better than, I think, most companies in the sector. And I think we want to continuously deliver truckloads, have a track record of doing that. And then once we have that, we'll provide guidance as to volume and sales from that plant.

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Okay. Can I also go back to the cash flow numbers? I think Steve mentioned that the cash burn in Q4 was around $30 million. Relative to that, how much of a reduction do you anticipate, let's say, by the end of 2013 on a quarterly basis?

John G. Melo

I think, as Steve mentioned, most of our actions to reduce our OpEx actually took place during 2012. We did take further action already in this quarter and we expect to benefit and see the realization of those actions through the last 3 quarters of the year. So it will be partially realized, but you won't see a lot in the first quarter. And then last 3 quarters, you should see that as a pretty steady improvement from the third -- I'm sorry, from the second quarter forward.

Operator

And we do have time for one final questioner. Our final question will come from Jeff Osborne with Stifel.

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

As we think about those 3 new products that you mentioned ramping up in the second half of the year, how should we think about ASP trajectory?

John G. Melo

I think you will see the ASP come down as those volumes increase.

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Something in the $5 to $6 a liter range sound reasonable on a blended basis? I'm trying to get a sense of where your head's at in terms of diesel production in the back half of the year? If you have any commitments to São Paulo or other regions?

John G. Melo

I think you'll find that the diesel number actually stays pretty steady through the year, some increase in the second half but not significant. The significant growth, again, will be the volumes for base oils and the specialty fluids in that second half of the year. We have the liquid farnesene rubber coming in, but those volumes are not as significant as base oils and specialty fluids.

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Got you. And then on the $7.8 million contract manufacturing charge, can you just talk about the impetus of that? And as we look at your comment about trying to ramp Paraíso and stepping off the gas in the contract manufacturing side in 2013, is there any additional charges that we should be thinking about?

Steven R. Mills

We're not expecting any additional charges. That charge is based on our forecast, is in volumes and margins at that site and we took the loss and we don't think -- of course, a non-cash loss, as it sits in December, and we don't expect, at this point in time, any additional charges.

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Got you. And last question, was there any production in the quarter or was everything that was sold out of inventory?

Steven R. Mills

Very, very small amounts of production during the quarter. Most everything came out of inventory.

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And did you quantify the new yeast strain that Mike Ritzenthaler was asking about? What the cost improvement was? I got the message that the last 2 quarters, you've been running at record levels in terms of, I assume, yield in titer and other metrics that you look at in terms of productivity, but how do we think about what this is in terms of one of these stair step of decreases in production cost per liter?

John G. Melo

I think, in the next call, we'll aim to provide guidance for what that production number will look like. But for now, what I would just say, it is a significant improvement in our production costs.

Operator

And again, ladies and gentlemen, that does conclude our time for questions. I'd now like to turn the program back over to Chief Executive Officer, John Melo, for any additional or closing comments.

John G. Melo

Thank you, Huey, for your help. And I want to thank everyone for their time today and your continued interest and support for Amyris. Thanks, and have a good evening or a good afternoon.

Operator

Thank you, gentlemen. Again, ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. Attendees, you may log off at this time.

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Source: Amyris Management Discusses Q4 2012 Results - Earnings Call Transcript
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