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Solazyme, Inc. (NASDAQ:SZYM)

Q4 2012 Earnings Conference Call

February 20, 2013 16:30 ET

Executives

Jeff Majtyka - Investor Relations

Jonathan Wolfson - Chief Executive Officer

Tyler Painter - Chief Financial Officer

Analysts

Sanjay Shrestha - Lazard Capital Markets

Mahavir Sanghavi - UBS

Brian Lee - Goldman Sachs

Chris Kovacs - Baird

Rob Stone - Cowen and Company

Patrick Jobin - Credit Suisse

Michael Klein - Sidoti & Company

Stacey Hudson - Raymond James

Laurence Alexander - Jefferies & Company

Operator

Good day, ladies and gentlemen and thank you for joining the Solazyme Incorporated Fourth Quarter and Full Year 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. Jeff Majtyka. Sir, you may begin.

Jeff Majtyka

Thanks, operator. Good afternoon and thank you all for joining us on today’s conference call to discuss Solazyme’s fourth quarter and full year 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 at solazyme.com.

I’d like to direct you now 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 Jeff. Good afternoon everyone and thanks for joining us today. I’d also like to welcome newer investors to the company who participated in our recent offering. We had a great fourth quarter that concluded a great 2012 for the company. We put a strong foundation in place last year that we believe positions us for the drive to full commercial production beginning late this year. Executing against that objective will be our biggest area of focus this year.

Each of our production capacity projects in Brazil, France, and the U.S. continues to move forward well, and by early 2014 we expect to be producing our products on three continents. As we focused on delivering these manufacturing capacity projects, we have also begun the year with some very significant developments. Our most recent joint development agreement with Mitsui is a multi-year, multi-product development agreement that we believe sets us up for great opportunities in the oleochemical space. You may remember our introduction of high-myristic oil last year. This oil was now included in our joint development agreement with Mitsui. This further underscores the importance of continuing to deliver new innovations from our disruptive technology platform, more on Mitsui later in my remarks.

We also announced two separate financing events that we believe should reduce any near-term capital concerns by strengthening our balance sheet and reducing our capital commitment at Moema. In January, we announced that BNDES, the Brazilian Development Bank approved funding for up to $120 million of project debt. The partners who committed to funding the plant 50-50 will each reduce their capital commitment to the project by up to $60 million. That’s a greater reduction than we expected. We are very pleased that BNDES is supporting the project.

We also completed a convertible notes offering in January raising $125 million. We think the success of the offering is a big vote of confidence in our strategy and our prospects. We have a number of exciting opportunities in front of us and well we did not this financing to fund existing projects, the additional growth capital provides added flexibility.

And finally, we had tremendous success growing Algenist. In the fourth quarter alone we more than tripled revenue over the prior year period. I’ll put some more perspective around what Algenist has accomplished in a moment. 2012 was a tremendous year. We signed important new capacity partnerships, validated our technology on multiple levels, introduced valuable new oils and in the meantime executed on every single joint development agreement target that we had in front of us. I would like to take a moment to go through our accomplishments.

Entering into our JV with Bunge was a major step forward for Solazyme and we continued to deepen our partnership with Bunge throughout the year. We announced the finalization of the joint venture in April and broke ground on the top 100,000 metric ton tailored oil facility in June. In November we announced the JV expansion framework agreement targeting 300,000 metric tons of capacity as well as a joint market development commitment in tailored oils for nutrition.

Finally we secured approval for approximately $120 million in project financing from BNDES, the Brazilian Development Bank. 2012 was also a year of steady progress in our Solazyme Roquette Nutritionals JV. Roquette operated the Phase 1 facility producing products for sales and sampling and began construction on the Phase 2 facility in Lestrem. We have received an FDA GRAS no questions notification for algae oil and we launched our new Almagine high lipid and protein products.

In November we announced signing of strategic collaboration, manufacturing and market development agreements with ADM. This opportunistic and capital efficient partnership will allow Solazyme to manufacture tailored oil at ADM’s Clinton, Iowa facility and will give us a major U.S. presence close to important target customers. In December we achieved the major milestone with the successful completion of multiple initial fermentations at ADM’s facility in approximately 500,000 liter vessels. In these fermentations we achieved commercial scale production metrics, exhibited linear scalability of our process from lab scale and demonstrated the ability to run at this scale without contamination.

We made tremendous progress in commercializing our oils and scaling up our technology in 2012. We successfully met all JDA targets with partners including Bunge, Chevron, Dow and Unilever. We also demonstrated our ability to produce a variety of high value tailored oil profiles. During 2012 we introduced our high stability, high oleic oil or high-myristic oil and the cocoa butter substitute. We successfully commissioned our integrated biorefinery at Peoria in June bringing together all the major unit operations of our process in one location for the first.

This integrated facility enables us to produce and ship multi-ton samples of multiple oils to our customers for market development activities. In March the Department of Defense conducted the first ever operational deployment on advanced biofuels when the USS Ford Frigate journeyed from Everett, Washington to San Diego using the 50% blend of Soladiesel HRF-76. Solazyme completed another three year testing and certification program with the U.S. Navy that resulted in our Soladiesel and Solajet fuels being used and what we believe is the largest demonstration of advanced biofuels in history with the Green Strike Group at the RIMPAC 2012 war games. Our work with the Department of Defense validates that our oils work, can be produced at scale and can generate end market demand.

Including the Navy certification, our biofuels were demonstrated in the shipping, defense, aviation and automobile markets during the past year. We also demonstrated consumer demand for our fuels after receiving fuel legislation from the EPA we entered into our first pilot retail fuel agreement with Propel Fuels and our Soladiesel BD was sold to consumers at Bay area fuel stations. According to Propel Fuels sales at test sites was 35% higher than sales at Bay area and non-test sites.

And finally Algenist had an incredibly strong 2012. Algenist generated $16.5 million in sales in 2012 about 130% greater than our 2011 performance and we won the coveted QVC Rising Star award. We introduced seven new products during the year which increases our SKU count to 18 and sets us up for another year of growth in 2013. Tyler will cover this in his outlook discussion.

Everything we accomplished in 2012 in fact everything we have accomplished over the 10 years since we started the company is a setup for what’s to come when we exit 2013. We entered this year having proven out our technology, broadened our portfolio of tailored oils, singed major partnerships in the U.S., Europe and Latin America, added further heft to our balance sheet and established a defined path to commercial production. With these pieces all in place 2013 will be year of focused execution in three areas, product development with our tailored oils, getting production up in running and commercializing our products.

I’ll update you on where we are in each of these areas starting with production. We expect to be producing salable product on three continents by early 2014. I want to be clear that we view salable product as the key startup target. As we moved through the year, you will hear terms like commissioning, plant startup, and production. These terms mean different things, but sometimes are treated as interchangeable. So, I want to be clear that we expect all three projects to be producing salable products by early 2014. In other words, we believe that all of our capacity projects are going well and we are pleased.

Our partner, Roquette, has recently confirmed that it expects commissioning at the Phase 2 facility at Lestrem to begin in June with production of salable product to follow within a few months thereafter. We expect Moema to be commissioned in the second half of 2013 and to begin producing salable product in the fourth quarter of this year. And we expect Clinton will be commissioned and begin producing salable product by early 2014. There remains a lot of hard work this year to bring these projects to the finish line. But when that work is completed, we believe we will have set the stage for 2014 to be the first year we are able to capture true financial returns in the form of meaningful growth in revenues and positive cash flows.

Now, let’s turn to product development starting with a review of the Mitsui relationship. Mitsui’s decision to partner with Solazyme is another strong validation of the potential for our tailored oils. One of the key products this relationship is based on is the high-myristic oil we introduced in the middle of 2012. The agreement we have put in place goes beyond that however. We have signed a $20 million agreement for the development of a suite of triglyceride oils, including the high-myristic oil over the next several years. The end-market applications are numerous including plastics, aviation lubricants, and personal care.

Mitsui’s global footprint has the potential to open up huge new geographic regions for Solazyme as we distribute our products. Through its Palm-Oleo joint venture, Mitsui is one of the world’s larger players in oleochemicals and is also a large player more broadly across the chemical sector. Furthermore, Mitsui is well positioned to provide access to Asia’s massive markets for these oils.

Last summer, we began talking with you about our high-myristic oil, and this oil has quickly become a great case study for us in terms of technology and commercial development. You may recall that myristic acid is a valuable raw material in the personal care and oleochemical markets and palm kernel and coconut oil are the dominant sources of myristic acid today. These conventional sources of myristic acid are limited in value as they typically contain only about 15% myristic acid. Our high-myristic oil provides a far greater concentration of myristic acid and as a result a much higher value. When we introduced our myristic oil on the second quarter 2012 earnings call, it contained over 30% myristic acid, which was already about twice the amount that can be found in traditional palm kernel or coconut oils. At that time, we noted that we would continue to increase the oil’s value by increasing its myristic acid concentration.

I can now share that the oil reached over 40% myristic acid during the second half of 2012 and more recently has eclipsed 50% with the potential for even more improvements in the future. The ability to tailor triglyceride oils like our myristic oil and to continue to improve their profiles helped us attract Mitsui as a major global partner to fund further technology development while we build the sales and market development plan. So, to recap in under 12 months, we identified a high value potential oil, made rapid progress in developing it to a point where it delivers a far superior composition to existing oils in the market, and announced a funded development partner that is one of the world’s major players in that market area.

Another example of our commercialization in go-to-market strategy can also be seen with our high stability, high oleic oil. On our first quarter 2012 earnings call, we introduced the high stability, high oleic oil. Like the myristic oil, we have continued to improve this oil which is now comprised of over 90% oleic acid while containing almost no polyunsaturated fats. In November of 2012, we announced our new manufacturing and market development agreement with ADM.

I am happy to present preliminary results of a recent frying study conducted under the market development agreement. As you may recall, our high stability, high oleic algal oil has over three times the oxidative stability of one of the leading premium frying oils on the market, a high oleic, low linoleic canola oil, that’s broadly used in the foodservice industry. Remarkably, ADM found that after 10 days of use in a standard frying study, Solazyme’s high stability, high oleic oil actually had more frying life left than the premium high oleic canola oil had at the start. The lack of foam for the Solazyme oil in the accompanying slide is one good visual indicator of this. Reducing the need to replace the oil in fryers can present significant economic benefit to food and foodservice companies making this oil significantly more valuable. We also believe that the same qualities that make this a more stable food oil will make it valuable in industrial applications like lubricants and heat transfer fluids. Like Mitsui with myristic oils, ADM is one of the best companies in the world to be working with in high oleic oils.

As the next slide shows, we are defining multiple paths to market for our high value oils. The commercial strategy we are pursuing leverages both the diversity of our oil profiles and the flexibility of the production assets we are building to enable us to go after the best opportunities. Our oils address markets that our key partners are focused on functional fluids, oleochemicals, personal care, fuels, and food. By demonstrating the capabilities of our oils in a variety of end markets, we enhance our ability to generate meaningful average selling prices to help secure attractive margins for Solazyme. Today, our partners including two of the world’s largest originators and distributors of vegetable oils and one of the largest end users of vegetable oils are working with us to further expand our portfolio by targeting tailored oils for commercialization in markets greater than 1 million metric tons and with ASPs greater than $2,000 per metric ton.

As we leverage these products and our relationships into sales agreements, please keep in mind a few things. Our business is about selling multiple types of oils to multiple customers. You can see on the slide, we mentioned oleic, lauric, myristic, and cocoa butter. And we view each individual sale as a separate value proposition. This is markedly different from a business model relying on selling one product to many customers, where the industry typically talks about off-takes or disappearance. Each sale we make is based on value for our customers who have indicated that the task of introducing the new oil into their global supply chain is the process that involves prudent timing and communication to minimize disruption.

To illustrate, imagine selling an oleic oil to a customer in Brazil or a lauric oil to customer in the U.S., the value propositions and supply chains for these two customers are very different. By focusing on value-added sales, we can achieve a win-win for our customers and stockholders. We are currently in advanced discussions with some of the world’s most prominent companies in the fields our oils address and believe we’ll be able to reach significant sales agreements by the time our manufacturing plants come online. And let me also remind you, we already have non-binding sales agreements for significant volumes with the number of our partners and we are working to convert these into binding agreements as well.

To wrap up, we now have all the foundational pieces in place to support delivering on our vision for this disruptive technology platform. 2013 is a critical year for us and we are ready for it. This is the combination of more than 10 years of focused work systematically executing our strategy, delivering on our goals, and de-risking our commercial prospects. Today, we have technology that is proven at commercial scale with world-class partners that are highly motivated and interested in sharing the value. We have strong upstream feedstock and manufacturing relationships as well as market development and commercialization agreements. We have developed a unique and highly valuable array of oils and other bio-products and our first commercial endeavor, Algenist, is doing exceptionally well.

We believe we have the financial runway to allow us to take advantage of unique opportunities and achieve positive cash flow generation in 2014. We further believe we have assembled the right team to ensure success. With these pieces all in place, we can focus on execution, something I think that we have proven we are committed to. There is a lot to get done this year and I look forward to keeping you posted on our progress. Tyler is now going to join to review our results and our view of 2013.

Tyler Painter

Thanks, Jonathan. I’d also like to invite or thank you for joining the call today both our existing and our newer investors as Jonathan mentioned. 2013 is an important year for us. Our technology is proven. Our partnerships are strong. We are building major commercial production capacity across three continents and we have a strong balance sheet to take advantage of the growth opportunities ahead of us.

During my remarks, I’ll provide a recap of our fourth quarter and full year 2012 financial results, as well as update you on our recent financings and our outlook for 2013. As a reminder, I’ll be discussing non-GAAP numbers that exclude non-cash stock-based compensation expenses and unrealized gains associated with vesting of warrants that were granted to partners. Our reconciliation of non-GAAP information to GAAP can be found in our earnings release issued today. Q4 was a strong finish to 2012 for Solazyme. In addition to hitting all of our target milestones across product development, production capacity and commercialization, we delivered financials in line with our expectations. Total revenue of $8.4 million was consistent with our guidance entering the quarter. Product revenue of $4.6 million in the quarter was up 182% versus Q4 last year, reflecting the continued momentum of Algenist.

Revenue from funded research programs with industry partners and government was $3.8 million for the quarter versus $8.3 million in Q4 last year. The decline year-over-year was driven largely by a 71% government program revenue decrease or $3.2 million versus 2011. As a reminder Q4 last year included significant activity against our fuels testing and certification program with the department of defense. And our integrated bio-refinery project with the Department of Energy. As we guided in the middle of 2012, we did not expect new government programs in the second half of this year.

Total operating expenses were $28.2 million for the quarter compared to $26.4 million in the fourth quarter of 2011. Research and development expenses were $15.1 million in the quarter versus $16.1 million in Q4 last year, again reflecting lower expenses from government programs year-over-year. Our SG&A expenses were $13 million in Q4 versus $10.3 million last year driven primarily by increased investments in personnel, infrastructure and commercial activities. Net loss for the quarter was also in line with our expectations at $21.5 million.

Moving on to the full year revenue was $44.1 million compared to $39 million in 2011, Algenist sales for the year increased by approximately 130% to $16.5 million. Joint development revenue was $13.2 million and government program revenue was $14.4 million for the year. Total operating expenses in 2012 were $108.5 million compared to $76.1 million in 2011 and for the full year net loss was $70 million compared to a net loss of $39.4 million in 2011. The higher net loss from 2012 was due to increased investments in our technology platform as well as the impact of our capacity initiatives and the completion of our operations – completion and operations of our integrated bio-refinery in Peoria.

Our operating cash burn was $15.3 million for Q4 and $67.6 million for the year. In terms of capital expenditure I’ll remind you that the Phase 2 facility to support Solazyme Roquette Nutritionals is being built and paid for by our partner, Roquette. In addition capital expenditures associated with our 100,000 metric ton facility at Solazyme Bunge Renewable Oils are not consolidated during the construction phase of the project. As such 2012 capital expenditures of $12.6 million as shown on this slide exclude capital investments in both Moema and Lestrem.

Turning now to our balance sheet, we ended 2012 in a solid financial position with $149 million in cash, cash equivalents and marketable security. Subsequent to the quarter close we announced two important financings that further strengthened Solazyme. First, after more than a year of work with BNDES, the Brazilian Development Bank, our Solazyme Bunge Renewable Oils JV with notified that BNDES had approved an award of approximately $120 million to support the construction of our first 100,000 metric tons commercial production facility in Brazil.

This financing is important for a number of reasons, it significantly reduces the estimated equity capital requirement from each partner further demonstrating, our commitments to deploy manufacturing products in a highly capital efficient manner. This financing vehicle has an interest rate of 4% which is actually lower than the current inflation rate in Brazil, giving it a negative real interest rate. We are very pleased to receive this important vote of confidence from BNDES and look forward to working with them on this and other potential future projects.

Second, we completed a successful $125 million convertible notes offering in January. On a pro forma basis including the net proceeds of offering, we had approximately $260 million of cash on hand at the end of January. This convertible note offering was focused on growth capital providing optionality related to unique opportunities. We were pleased by the market demand for our convertible notes and are happy to welcome a number of new long-term investors to Solazyme. The impact on the P&L to service the 6% coupon rate and amortization cost will be over $2 million per quarter or approximately $8.6 million for the year.

Today, we are providing guidance for the first time for ‘13. We continue to expect our first commercial production quantities to come from the Solazyme Bunge Renewable oils facility in Moema in the fourth quarter and we expect much larger volumes of production and sales growth in 2014 into both Moema and Clinton ramped towards full nameplate capacity. In thinking about our P&L for 2013, we expect to see growth in certain key strategic areas where we focus on setting the stage for rapid product growth in 2014.

For the year, we expect overall revenue growth of approximately 25%. And although we don’t normally provide detailed guidance, today we will provide some additional color. We are excited about the market adoption of our Algenist skin care line and expect growth from our skin and personal care business to exceed 35% versus 2012. And as reflected by our recent announcement with Mitsui, we expect joint development agreements with industry leading partners will continue to be an important part of our business. This revenue will be further complemented by market development, large scale sampling, and ultimately product sales.

For 2013, we expect our overall JDA and non-Algenist commercial revenue to grow by more than 75% in comparison to 2012. And although we remain confident that our technology offers a very important long-term strategic solution for the Department of Defense, we see government revenue prospect for 2013 as particularly weak. The net result is that we expect little or no revenue from government this year representing a decline of approximately 98% or $14.1 million in 2013 versus 2012. The impact of the decline on government revenue is magnified in the first half of the year. We expect Q1 revenue to be slightly below Q4 and to ramp throughout the remainder of the year.

On the expense side, we will continue to carefully manage our investments and expect our revenue growth will exceed operating expenses growth for the year. We expect our cash operating expenses for 2013 to be between $115 million to $120 million, up 10% to 15% versus 2012. We also expect depreciation of approximately $5 million and capital expenditures, excluding Solazyme Bunge Renewable Oils and Solazyme Roquette Nutritionals are expected to be between $20 million and $25 million.

The theme for Solazyme in 2013 will be focused execution in the areas of product development, production, and commercialization. On the product development side, we expect to continue making progress with our tailored oils platform delivering against our existing JDAs and pursuing new or expanded JDAs. On the production side, our priorities are clearly focused on bringing three commercial facilities online, on-time, and on-budget. On the commercial side, the focus is on new market development partnerships, market applications for our oils, large scale sampling programs, and commercial product sales.

We appreciate you joining the call today. And we’d now like to turn it over for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question today comes from the line of Sanjay Shrestha from Lazard Capital Markets. Your line is open. Please go ahead.

Sanjay Shrestha - Lazard Capital Markets

Good afternoon guys. Couple of questions here. First on when you sort of talk about the anticipated milestone, guys of new tailored oil, obviously you guys have introduced a lot in ‘12. And I was wondering if you can kind of talk about that a bit more as to get bit more specific as to what you guys referring to? And also along the same lines, can you give us anymore color surrounding this new and expanded joint development agreements that we could expect in ‘13? And I have one more follow-up after that.

Jonathan Wolfson

So, I guess what I would say is that Sanjay, what I would say is one way to think about the way that we want to continue to update our stockholders on our progress can be seen with some of what we showed with respect to progress around both the myristic oil and the high oleic, high stability oil. So, this is a period of time where I think everybody is waiting for our big plans to come online and they want to understand what our progress is towards commercializing these oils. And we spent a lot of time thinking about how we can actually demonstrate that progress is. So, if you think back to those two slides we showed earlier what they do is they identify the oil which is something that we noted each of these oils last year. They identify the profile improvement since we identified the oils which are significant. And then they identify partners and progress we have made in demonstrating applications. And I think that’s one area where we would hope to continue to talk about progress with oils. I also would not be surprised if somewhere along the way you will see additional oil profiles that are different. This is a very powerful platform, I am not going to make any promises about when, where, how, but I would expect that you will see there as well. And so if that’s enough then I’m happy to go to the – you’ve said you had a second part to the question.

Sanjay Shrestha - Lazard Capital Markets

Yes. So, on the expanded joint development agreements, is there anything more you can share with us at this point. I mean you guys had a lot of great success this year again sort of strategically lining up your – lining up with the right partners what could we expect in ‘13?

Jonathan Wolfson

I think as we get closer and closer to market we are hopefully going to be able to talk about more progress made with respect to successful large scale trials and as we get close to and when these points come online obviously talking about sales. So, I would prefer to kind of leave it at that I think.

Sanjay Shrestha - Lazard Capital Markets

Okay, fair enough, so it’s going to be sealed. Got it, okay. So, one final question from me with sort of the recent successful convert on the cash balance where it is two part question I mean you guys – your burn considering the revenue and everything you talked about you will still have ample liquidity at the end of ‘13. So, this cash should be plenty to get you I mean – plenty to get you guys to that profitable territory. So, along those lines how should we think about sort of the parameters we need to be thinking about that gets Solazyme to cash flow breakeven profitability and can you sort of just update us on that. And am I right in thinking that cash balance now is quite adequate to get you guys to that level?

Jonathan Wolfson

I’m going to let Tyler to answer the second part of that question. The first part I would answer and just say is a practical matter. Your original assessment is something I think we agree with which is that we have an ample balance sheet to get us to a place where we turn that cash flow corner. I am going to let Tyler to give you more color about how to think about that?

Tyler Painter

Yes Sanjay, I would just add to that in terms of our – when we look at recent profitability cash flow positive, its really tied to capacity and remind on the call today that our balance sheet was fully funded before the financing all of our existing projects were funded and what this does do is really provide us additional flexibility as we look at our growth opportunities ahead.

Operator

Thank you. Our next question is from the line of Mahavir Sanghavi from UBS. Your line is open, please go ahead.

Mahavir Sanghavi - UBS

Hi thanks for taking my question. Just a question on the ADM facility you’ve said in the past that there are two moving parts to getting that facility operational. So, Jonathan can you give us a timeline of the schedule for construction? And then second maybe can you tell us what permits are needed for the facility and then where you are in that process?

Jonathan Wolfson

I can give you some of that information Mahavir, which is that the downstream process to get downstream up in running is well underway right now, so that we have a process that ends in oil and that’s ongoing right now. With respect to the – and its relatively minimum I would say. But whenever you are talking about any new equipment and foundations or anything like that you are obviously talking about timelines. And this is tough, it takes I think by saying in November that we think that we will be done and running and producing product in early ’14 suggests that the equipment will be in place significantly before then enabling us to do that. The thing that’s a little bit more of a variable and then I am a little less qualified to talk about directly is exactly what the permits are that we – that are required. And I know that our engineering team is working very closely with the ADM team at Clinton to work on adjusting and filing additional permits I would and that the timeline we believe there again is that we are in the position we need to be in towards the end of this year which again sets the table for us to be producing salable product in early 2014.

Mahavir Sanghavi - UBS

Great. And then maybe a question for Tyler, Tyler you gave CapEx number of $20 million to $25 million, does that include – is that only the CapEx required for the ADM facility. And then there is just a second question on the cash balance following up on what Sanjay asked. Does the new cash balance change your estimate of when you think you will be cash flow breakeven Tyler. You have said I believe before this somewhere in the – by the end of 2014 is when you expect to be cash flow breakeven? Thank you.

Tyler Painter

Yeah, Mahavir, so for CapEx the $20 million to $25 million includes all of the capital that we would expect will hit our financials. So, it does include the ADM facility in terms of downstream that would be put there, it also includes other investments we are making across the company whether in the U.S. or in Brazil. So the $20 million to $25 million does not include our projects with Solazyme Bunge Renewable Oils in Moema nor the Phase 2 facility that’s being built in the North of France.

On the cash balance side, what we talked about on the call in the prepared remarks was that as production capacity ramps we expect that we will continue to be able to deliver cash flow positive throughout the year as we ramp our production capacity. Again a lot of that is about bringing the facilities online, ramping them towards nameplate capacity which we said previously will take us between 12 to 18 months.

Mahavir Sanghavi - UBS

Alright. Thanks guys.

Operator

Thank you. (Operator Instructions) Our next question is from the line of Brian Lee of Goldman Sachs. Your line is open. Please go ahead.

Brian Lee - Goldman Sachs

Hey guys. Thanks for taking my question. I guess first thing I wanted to clarify on your revenue guidance for 2013 does that imply full consolidation of the Bunge JV?

Tyler Painter

Brian good question, so during the construction phase the Solazyme Bunge Renewable Oils JV is not consolidated. We do expect as the facility comes online there are certain things that change that we would be able to consolidate the results.

Brian Lee - Goldman Sachs

Okay, that’s helpful. So, I mean if I look at the way you bucket JDA plus commercial revenue how should I think about commercial portion of that guidance, it doesn’t sound like it would be Bunge related am I missing something here?

Jonathan Wolfson

I think you should assume – well, let me put it this way. If we can get – if we can get all the pieces lined up where they need to be with respect to consolidation, I would expect that at least some minor elements of that commercial would potentially be Moema related. I mean certainly that’s the target, but it’s not something that we can absolutely commit to at this point.

Brian Lee - Goldman Sachs

Okay. Thanks. That’s helpful. And then I guess maybe one last one from me on the Mitsui relationship can – how should we think about the longer term implication here, are these guys a potential capacity partner Bunge or would they actually be a potential buyer of volume from the Moema facility any kind of comments around that?

Jonathan Wolfson

I think you could think about them potentially in both buckets, Brian. I think obviously there is a lot more work to get to a manufacturing relationship. And I think that if they weren’t interested in the oils we are producing and also with respect to how they fit with Mitsui’s ongoing activities, they wouldn’t enter into the JDA. So, if you look at both I would say they are candidates for both buckets, I would say the one that’s probably easier of the two to assume will be case will be sales although I don’t have anything firm that I can commit to there.

Operator

Thank you. Our next question is from the line of Chris Kovacs of Baird. Your line is open please go ahead.

Chris Kovacs - Baird

Hi guys. Thanks for taking my question. I have a two part question on the BNDES loan I think in the past you talked about targeting I think 60% of the total CapEx for the project and it seems like a petty big amount with the $120 million. So, can you guys give us a sense of where that stacks up based on your current estimates of how the projects, the total CapEx will shake out? And then with that loan in place and then obviously the increasing amount of liquidity you have after the raise, you mentioned you didn’t need the money, how should we think about what you guys may have in the pipeline in terms of potential growth opportunities that you could be looking at in the future aside from what you have already talked about?

Tyler Painter

Hey Chris, why don’t I take the BNDES question and then I’ll pass to Jonathan for the second piece of your question. You are right what we had expected was we were targeting 60% of the overall project would get financed through BNDES. We were actually very pleased that they came in with a higher debt to equity ratio on the project. So, the overall cost has not increased. The overall cost remains the same. We just got better financing in more favorable financing terms.

Jonathan Wolfson

And I think your second question Chris was really about how to think about the additional capital on the balance sheet. And I am going to be unfortunately more vague here than I think you would like, but I’ll point out that one thing that we have said consistently about additional capital is we will raise additional capital when we think that there are opportunities ultimately that will benefit our stockholders and our ultimate value. And just thinking through ADM as an opportunity, for instance, that’s a really unique opportunity that happens to be on the upstream or manufacturing side, but there is the potential for other opportunities like that and there are opportunities on the downstream side as well. And I would say that this gives us the ability to expand in ways that we think are going to be really positive for the company. I would also tell you something else, which is that it on its face just having that capital on the balance sheet also strengthens our negotiating position with potential partners and customers. And we view it favorably from that perspective as well.

Chris Kovacs - Baird

Thank you.

Operator

Thank you. Our next question comes from the line of Rob Stone from Cowen and Company. Your line is open. Please go ahead.

Rob Stone - Cowen and Company

Hi guys. A couple of questions related to linearity of the year, and I know you are not necessarily guiding by quarters, but with respect to Algenist, should we be thinking about anything that would affect kind of a step function during the year new distribution or new products or you are just expecting sort of linear growth?

Jonathan Wolfson

So, the first thing I want to do Rob, I want to welcome you and into the coverage universe, we obviously appreciate having people who are interested in following us. Our favorite topic is talking about Solazyme. So, welcome for that. I would want to get to an answer to your question. I think that one, I think you kind of hit the nail on the head in an interesting area, which is that as of today, Algenist is really only being distributed in the U.S., a bit in Canada and in Europe. And much of the rest of the world, including Latin America and Asia provide enormous growth opportunities for the company, as well as additional retail faces in the markets we are already in. And I would say that we do expect some expansion this year and that expansion leads to a little bit more lump with respect to sales. And that expansion would probably be coming in the later part of the year, but I think we are not projecting that this year we are going to be opening up a huge swap of the world. This process takes time, it takes registration, it takes distribution partnerships. And although there will be some additional distribution this year on a geographic basis, I think I am going to leave it to be positively surprised on the upside about what our team here is able to deliver.

Rob Stone - Cowen and Company

Okay. And the same question sort of question for Tyler with respect to operating expenses, you gave sort of a trigger for growth for the year. Is that to be more back half weighted because of ramp up activities with Clinton and getting ready to go at Moema or how should we think about the OpEx run rates?

Tyler Painter

Yeah, hi, Rob. It should be as you look at bringing these facilities online, you would see some additional ramp in the back half of the year. You are absolutely correct. That said we expect our ongoing investments to continue. So, when you look at Q1 and Q2, we’d expect our expenses to increase modestly and then you would see some additional increase in the back half.

Rob Stone - Cowen and Company

Okay, thank you very much.

Operator

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

Patrick Jobin - Credit Suisse

Great. Good afternoon. Thanks for taking the question and congrats on all the progress. Jonathan, just a quick question, you mentioned the non-binding sales agreements that you have in place with a lot of partners and then working to convert those to binding agreements. I guess can you put it in context relative to the capacity you see coming online later this year in ‘14 and when should those agreements ideally be finalized? Is it on top of commissioning a few months before once capacity is online? Any color there? Then I have a quick follow-up. Thanks.

Jonathan Wolfson

So, I think Patrick on its face, the volumes of these non-binding agreements is actually larger than the capacity that we will have online for a while. Obviously, you I think understand well that one of the really important value propositions for our platform is the ability to produce a variety of different tailored oils with different value propositions. And that means that we can use the diversity of products to increase our margin opportunities. So, I would say that I wouldn’t necessarily say all of those non-binding off-picks are going to be the highest margin opportunities. So, therefore, we are obviously going to be looking toward making sure that we are bringing on some of that capacity in sales agreements that are going to generate very high opportunities and leaving a portion of that there. But to get to your exact question, which is I think when, I would – I think that we certainly hope that there will be some announcements in advance of significant capacity coming online and we are working hard on that. And that’s both with respect to the agreements that are already signed and ones that we are working on today.

I think one of the things I was alluding to in my prepared comments were that we have a lot of potential customers that are very excited about using our products, but one of the things that we have learned along the way is that they already have products they are using in their processes and they already have supply chains and supply errors, and they are in fact very sensitive to communications, which have the potential to disrupt their existing supply chains much before they know that they are going to be able to get supplies from us. So, that doesn’t mean we are not going to be able to continue to announce progress during the year and before these plants are online, I believe we will and we are very optimistic that there will be significant volumes, but we have learned that we have a much greater upside potential in the value-added sale, but we have also learned that we have to be careful with our potential customers to bring them in.

Patrick Jobin - Credit Suisse

That makes a lot of sense. And just to follow-up on the some of the comments you made about maximizing the margin, I guess running the fermentations in the ADM facility at such large scale gave you lot of visibility into how everything is performing. So, I guess, can you walk us through your comfort level over commercial production metrics and is there any way to get comfortable on kind of a gross margin target that you are looking at?

Jonathan Wolfson

Yeah, look what I would say to that Patrick is that we have consistently said kind of fuels and chemicals above 30, nutrition above 40, and skin and personal care above 60 with respect to gross margin numbers. And I don’t think there is any material difference in our perspective of run rate gross margins for these businesses. I think as we get closer to bringing these plants online, we like everyone who has come before us bringing new technologies commercial has to think about exactly what the ramp looks like to get to those gross margins. And I would say that as you get those gross margins numbers get better as you get closer to nameplate, which is something that I think wouldn’t surprise you, but I don’t think we materially have any different view on how profitable these product lines are going to be for the company as we move into kind of run-rate production.

Operator

Thank you. Our next question comes from the line of Michael Klein from Sidoti & Company. Your line is open. Please go ahead.

Michael Klein - Sidoti & Company

Hi, good afternoon. How do you think about balancing which site to produce at given the economics to Solazyme are better at the ADM facility, because you are not splitting the profits, but are the margins necessarily going to be the greatest there? Can you just walk us through your thought process between which site to produce at?

Jonathan Wolfson

Well, I think one thing I’d say about that Michael is that while the economics from a split perspective are better at ADM initially it is a smaller – it’s a smaller facility. And the other thing I would say is right now as it relates to coming off of a pretty bad drought year, if you compare the price of corn on a per bushel basis versus the price of sugarcane even looking at a non-completely accurate metric like number 11 sugar, you would understand that from a feedstock perspective today, sugar actually provides somewhat better economics than Midwestern corn.

Now, one of the hallmarks of both of those relationships is leveraging in one case our JV partner, and in the other case, our manufacturing partner’s ability to forward and help us hedge out which are important elements of those partnerships. But the only thing I am cautioning you is it’s not as simplistic as saying, because we get all of the economics from Clinton versus half of the economics with Moema that means that we are going to favor Clinton. It’s a more multi-variant kind of analysis we have to do. And frankly, one of the really big drivers of this is also going to be logistics and logistics costs. You can imagine, for instance, that folks in the Midwest to the U.S. using tropical oils for personal care products, they are tying up working capital for 60 to 90 days and spending a whole lot of money to get their product to the Midwest. And there are reasons why we might favor in certain respects delivering product out of one plant or another based on other kinds of benefits to the customer that could involve logistics. So, it really has a lot to do with. And by the way with Bunge, one point I want to make is Bunge is a joint venture partner and there are 50-50 for all intents and purposes joint venture partner, which means that we work together to determine what the product mix out of that plant is. It is not a sole Solazyme decision. So, I want to be upfront about that as well.

Michael Klein - Sidoti & Company

Okay. And one quick follow-up just given the cash balance that you have now, should we assume that the strategy is shifting to one, where maybe you own more the production rights versus joint venture more along the lines of ADM rather than Bunge going forward for some of these growth opportunities is that the way we should think about it?

Tyler Painter

Michael, the way to think about it is having the additional flexibility, where we could take advantage of that for shareholders, but really recognizing we have very committed partners, and those relationships continue to expand. So, there is not a change in strategy, it’s a change and ability to look at every single project on its own merit.

Operator

Thank you. Our next question comes from line of Stacey Hudson of Raymond James. Your line is open. Please go ahead.

Stacey Hudson - Raymond James

Hi, thank you for taking my question. A lot of my questions have been touched on, but I was just wondering if you could speak to the extent to which you can leverage your Clinton experience at Moema and what kind of learnings you had there?

Jonathan Wolfson

I think the answer is a lot in terms of the ability to leverage learnings we have already had at Clinton. What I would say though Stacey is that we were very thoughtful about what it was going to take to make sure that Moema was going to run well. And our decisions around buying and building out Peoria although we were fortunate to be able to use DOE as important partner there. We made a determination that we needed to do a lot of those learnings in places like Peoria. We have had additional learnings in certain areas with respect to recycled loops and things that probably are more detailed than people are looking for. But as a practical matter, although it’s been valuable to run at that scale in Clinton, I think Peoria has provided a lot of and will continue by the way until Moema was up and running to provide a lot of that value. And in fact a lot of the training that we are doing to actually run Moema is going to be taking place in Peoria.

Stacey Hudson - Raymond James

Okay, thank you.

Operator

Thank you. Our next question comes from line of Laurence Alexander of Jefferies & Company. Your line is open. Please go ahead.

Laurence Alexander - Jefferies & Company

Good afternoon.

Jonathan Wolfson

Hi Laurence.

Laurence Alexander - Jefferies & Company

So, I guess three very quick ones. First, on the Roquette partnership, can you discuss a little bit which products are seeing the most traction? And then two longer term strategic questions that are related, as you look at filling up the plants, is the goal to fill up the first plants quickly or is it to wet the appetites of multiple partners to incentivize the expansions with ADM and Bunge? And the finally on the cash flow targets just to be clear, your targets cash burn or another metric of cash like EBITDA, and there is some language in your filings about expecting to continue to incur operating losses for multiple years, so past 2016. So, can you speak to that as to what the variables, what the confidence interval is around that just to put that to rest?

Jonathan Wolfson

Yeah, Laurence I think so and I am going to address the last one first. Obviously, I think what Laurence is referring to for those of you who may not know is the risk factors in our most recent filing along with our convertible notes included a comment that we would continue to incur losses. I think what I would say Laurence is notwithstanding the fact that that risk factor is in there, we have just been what I think is quite clear in our perspective that as these plants come online and we increased capacity, our target is actually to turn cash flow positive in 2014. So, I hope that’s a fair degree of clarity with respect to that. And that’s something which we think is very doable and we are targeting with – I think with respect to Roquette and plants, the way I would think about that is I would think about, well, let me first talk about products, you asked about which products. And I think if I had to rank the products, I think you probably know that the products that are in the few there are really Golden Chlorella, which is actually being sold and is incorporated in some kind of nutraceutical and supplement products today. And then you have the Almagine family, which is a high lipid and a high protein.

And what I would tell you is that from the perspective of where we expect real growth and opportunity, we don’t believe that the real growth opportunity is going to be in Golden Chlorella, and I don’t think we ever have. We believe the high lipid is an incredibly unique product that’s replacing eggs, oil, and butter has a lot of traction, but I think the surprise last year with respect to market excitement was in the Almagine high protein product as well. And so I would now expect that to have a higher profile in the sales mix than I think I would have said if you would ask me six or nine months ago. And I think as it relates to selling out Phase 2, I think you should assume that we both as partners are really looking at this from the big win perspective. And you can imagine that the economics get better, the bigger the size and this is always contemplated to go to a Phase 3. And so the more customers we can get excited about the products and to start to incorporate them, that provides a lot more value ultimately from our perspective than just a couple of customers taking very large volumes.

Laurence Alexander - Jefferies & Company

And then I guess one quick one, the high oleic products any food regulatory approvals that you need or is ADM comfortable you can just put that into the marketplace?

Jonathan Wolfson

So, I guess, the same process that we announced with respect to Roquette if you remember to the Solazyme Roquette Nutritionals, we announced initially that we had gone through a GRAS self-affirmation process. And then we announced probably 9 or 12 months later that we had received an FDA GRAS no questions notification. That is the same process that’s underway right now with respect to a variety of the nutritional oils, including the high stability, high oleic oil. We are also optimistic just to be clear you can’t sell commercially with a self-affirmation of GRAS. And in fact there are literally I think millions of tons of oils that are selling with self-affirmation right now. We are still going to be working on getting a GRAS – an FDA GRAS no questions, but I think we are well on the road there and would believe that we will at least have some opportunity to be selling within a very short period as the first plants come online.

Laurence Alexander - Jefferies & Company

Very exciting then. Okay, thanks.

Operator

Thank you. Our final question comes from the line of Rob Stone from Cowen and Company. Your line is open. Please go ahead.

Rob Stone - Cowen and Company

Hi, Jonathan. Just a follow-up to your last comments there. Is there not still sort of a separate process for European approvals and I know FDA GRAS covers U.S. I mean North America, but what’s the status in the EU?

Jonathan Wolfson

Yeah. So, the status in the EU is a little less clear right now. We are working between different determinations in the first algae oil that we’ve brought to the process. We believe strongly we have actually – we have worked with regulatory there and believe that that oil qualifies us something called not novel in Europe, which allows us to go into those markets right now for the first set of oils. And that’s what we’re determining about the second set of oils right now. I don’t have an answer on that one Rob. And if the answer is that we have to go through a novel foods process it’s going to take from now something like a couple of years to get there.

Rob Stone - Cowen and Company

So, the not novel is something that would allow you to have an outlet for the plants that’s meant to come online in second half of this year?

Jonathan Wolfson

It could come out of anything we’re doing – it could come out of – let’s be clear in SRN, if we’re talking about the SRN products I believe that we are going to be able to sell the SRN products in the U.S. and Europe as the plants come online. I thought the follow-up to last question that was asked before you had to do with our tailored oils. And the answer I was giving you about not novel or novel the determination is still hanging in the air really has to do with our tailored oils. I believe where we are on the Solazyme Roquette Nutritionals is that we are not novel with those products and able to sell Europe. But that’s something we can certainly check on Rob and get back to you on.

Rob Stone - Cowen and Company

Okay, great. Thank you.

Operator

Thank you. And this does conclude our Q&A session. And I would like to turn the conference back over to Mr. Wolfson for any closing remarks.

Jonathan Wolfson

I just really wanted to thank everybody to take time – for taking time to join us on the call today. We really appreciate your interest in following our progress.

Operator

Ladies and gentlemen, thank you for your attendance in today’s conference. This does conclude your program and you may all disconnect. Have a great rest of the day.

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