Solazyme Management Discusses Q1 2013 Results - Earnings Call Transcript

May. 8.13 | About: TerraVia Holdings, (TVIA)

Solazyme (SZYM) Q1 2013 Earnings Call May 8, 2013 4:30 PM ET

Executives

Jeff Majtyka

Jonathan S. Wolfson - Co-Founder, Chief Executive Officer and Director

Jean-Marc Rotsaert - Chief Operating Officer

Tyler W. Painter - Chief Financial Officer and Principal Accounting Officer

Analysts

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

Charles A. Dan - Morgan Stanley, Research Division

Laurence Alexander - Jefferies & Company, Inc., Research Division

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

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

Michael J. Ritzenthaler - Piper Jaffray Companies, Research Division

Michael Klein - Sidoti & Company, LLC

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

Operator

Good day, ladies and gentlemen and welcome to the Solazyme Inc. Fiscal First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Jeff Majtyka. Sir, you may begin.

Jeff Majtyka

Thanks, operator. Good afternoon and thank you for joining us on today's conference call to discuss Solazyme's First Quarter 2013 results. Leading today's call are Jonathan Wolfson, Solazyme's Chief Executive Officer; Jean-Marc Rotsaert, Chief Operating 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, www.solazyme.com.

I'd like to direct you to Slide 2. It says among other things that some of the comments constitute forward-looking statements that reflect management's current views and estimates of future events and economic circumstances, industry conditions, company performance and financial results. Statements are based on many assumptions and factors, including availability and prices of raw materials and equipment, market conditions, operating efficiencies, access to capital and actions of government. Any changes in such assumptions or factors can produce significantly different results. To the extent permitted under applicable law, the company assumes no obligation to update any forward-looking statements as a result of new information or future events. Solazyme has provided additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation and encourages you to review these factors Also, please note that certain financial measures that 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, now turn the call over to Jonathan.

Jonathan S. Wolfson

Good afternoon, everyone, and thanks for joining us on today's call. With me today are Tyler Painter, our Chief Financial Officer, as well as Jean-Marc Rotsaert, our Chief Operating Officer.

As many of you know, Jean-Marc joined Solazyme in October of 2012 bringing with him valuable industry expertise to help us commercialize our oils. On our last call I talked about how we're approaching the process of working with commercial partners as our plants come online. I've asked Jean-Marc to join today to provide some additional insight on the sales process and overall approach. You'll hear from him in a bit.

Slide 4. On our last earnings call, I said our plan in 2013 was executed in 3 specific areas: Product development with our tailored oils; getting production up and running; and commercializing our products. In the first quarter of 2013, we performed according to plan and remain on track. We continue to strengthen our portfolio of oils, we met expected progress on our plant build outs, we continued to hit our JDA commitments and milestones, and we continued to actively negotiate our initial commercial supply agreements.

Slide 5. The following are the key highlights from the first quarter. First, product development. We further validated our tailored oils platform through a multi-year, multiproduct JDA with Mitsui. We believe this partnership offers a number of significant benefits to Solazyme, including potential entry in large asian markets, as well as a number of attractive and market applications for our oils. In addition, today we announced an agreement with AkzoNobel, targeting the development and supply of oils for application in the surfactants and paints and coatings markets. We've also continued to advance our disruptive technology platform. Over the past 12 months, we regularly introduced new tailored oil profiles, this continued innovation, factors prominently in our partnerships and customer discussions. Today, I'll be discussing our most recent biotechnology breakthrough with structuring oils, which to the best of our knowledge has never been substantially demonstrated before.

Second, production. The Lestrem, Moema and Clinton facilities remain on schedule, and we continue to expect that we will be producing commercial products in multiple facilities by early 2014.

Third, commercialization. Algenist continues to demonstrate success in the market. First quarter sales of approximately $4 million are on track with our expectations. We expect a strong year of growth from our Algenist line and have plans to further expand the line over the course of 2013, including international expansion and new SKUs formulated with microalgae oil. Perhaps most importantly, we're quite pleased with the progress we're making on the partners and customers, including the partnership we announced today with AkzoNobel.

Finally, we had a very strong first quarter with respect to solidifying our financial position as many of you know BNDES, the Brazilian National Development Bank, approved project financing of $120 million for the Solazyme Bunge Renewable Oils JV. Today, we can announced that the JV and BNDES have completed and signed the loan agreement for this financing, a big milestone.

We also successfully completed a $125 million convertible notes offering, and more recently, we entered into a beneficial new credit facilities. Tyler will talk about this when he reviews the results.

Taken together, these developments have added significant capital to our balance sheet and position us well to meet our commercialization goals.

I'd now like to update you with more detail on our progress. Slide 6. Our capacity projects remain on schedule. In Brazil, Solazyme Bunge Renewable Oils is making steady progress toward commencing production in the fourth quarter of this year. All of the long lead time equipment has been delivered or is on track for delivery. Construction remains on schedule and on budget. The Solazyme Roquette Nutritionals facility in Lestrem, France remains on schedule to begin commissioning in June with production of salable product a few months after that. And here in the U.S., the Clinton facility is on a scheduled to begin production by early 2014. The equipment modification and permitting are well underway and on schedule.

Slide 7. The growth of Algenist continuous, sales for the quarter were on track as projected at approximately $4 million. Although year-over-year quarterly revenue was flat, if you control for the line's major PR success on Doctor Oz in Q1 2012, then Q1 2013 performance actually represents strong year-over-year growth. During the quarter, 2 new products were introduced and 20 SKUs are not available. In addition, the brand continues to expand its retail presence. We expect to open in Sapporo, Mexico in the second half of this year, and I'm delighted report that we're also preparing for significant launch in Asia.

Finally, on the products side, we're preparing for the imminent launch of a new microalgae oil-based line extension.

Slide 8. We've continued to advance product development of the oils in our portfolio. Since we introduced our high-myristic oil last summer, we've steadily increased its value proposition by elevating its myristic acid concentration in partnership with Mitsui. Today, I can report that our myristic oil has now reached 60% myristic acid, a fourfold improvement over coconut or palm kernel oil, and up from 50% less than 2 months ago. This further progress advances the value proposition of our myristic oil.

Slide 9. Today in addition to our financial results, we announced a new partnership with AkzoNobel, which includes a joint development agreement. AkzoNobel is a world leader in specialty chemicals and we're delighted to work with them on developing a range of tailored oils for applications in the surfactants and paints and coatings markets. On the last call, we talked about our path to producing salable commercial products. More specifically, we talked about how the timing of sales agreements is tied closely with the development of our tailored oils platform. In addition to the JDA with AkzoNobel, our agreements target future commercial supply of algal oils from Solazyme Bunge Renewable Oil's Moema facility for use by AkzoNobel in the Americas. AkzoNobel see specific opportunities for our oils in their surface chemistry and decorative paints businesses, and we expect to jointly develop a variety of applications.

Slide 10. I'd now like to switch gears to our product development capability. Over the last year, we've spent time describing for you why the ability to tailor oil matters, and the advancements we've made in tailoring oils in different ways. Today, I'm going to talk about a new breakthrough we've made, but first, I'd like to give a little background on triglyceride oils.

Every plant or animal based oil on the planet is a triglyceride oil, and this represents over 1 billion barrels of oil per year, and the fourth largest annual liquid by volume on the planet after water, petroleum and LNG. The triglyceride is composed of 3 fatty acids attached to a glycerol backbone. Triglycerides at normal room temperature may be liquid or solid. When solid, they're called fats or butters, and when liquid, they're called oils. We used the terms fats and oils interchangeably. The illustration you're seeing on Slide 10 is an oil in which the glycerol is shown in grey, and the 3 fatty acids are shown with red and beige boxes at the ends. Red for saturated fatty acids, and beige for unsaturated fatty acids. Saturation or unsaturation refers to the lack of or presence of double bonds.

Slide 11. Now let me explain our tailoring capabilities: Chain length, saturation and positioning. First chain length. When we say we can modify the chain length of fatty acids, we mean we can either extend or shorten the length of the carbon chains of the fatty acids which are attached to the glycerol. Watch in the next Slide as fatty acid 1 is modified with the addition of carbon molecules.

Slide 12. We've demonstrated that we can modify all chain lengths from 8 carbons to 22 carbons, and we believe we can expand this range. As a reminder, part of our program with Mitsui is focused on increasing myristic acid concentrations which is enabled by chain length control, in this case, to get to 14 carbons and a valuable fatty acid.

Moving onto our saturation capability, and to Slide 13. Watch as fatty acid 1 is modified with the addition of a double bond, making it unsaturated. When we say we can modify the degree of saturation of a triglyceride, we can actually add or remove multiple double bonds between carbon molecules. In previous calls, we've highlighted our valuable high-stability, high oleic algal oil. This is an example of modifying saturation, which conveys benefits such as greater stability and higher flashpoints. And now, we've developed a new biotechnology based oil tailoring technology to create structured oils which, to the best of our knowledge, has never been substantially demonstrated before anywhere. This is the ability to control the position of the fatty acid on the glycerol. Watch carefully as fatty acids 1, the beige, unsaturated fatty acid, and fatty acid 2, the red saturated fatty acid are moved into different targeted positions.

Slide 14. This positional control is extremely valuable and greatly enhances our molecular biology toolkit for dialing in the functionality of oils. What you're looking at here is a family of oils where positioned control is important. In this case, SUS, which stands for saturated, unsaturated, saturated, with unsaturated in the middle position. In a moment, we will talk about a specific oil in this family that we're developing.

Slide 15, the reason this positioning capability is so important, is that the resulting structure cause have multiple and valuable uses in markets from Nutritionals to industrials and personal care. In foods that require body or shape at room temperature, such as pastries, the choice for producers has typically been to use partially hydrogenated vegetable oils that result in trans fats, or heavily saturated oils or blends with the well known disadvantages of saturates. Our structuring capability opens up a new toolkit that is likely to result in significantly healthier profiles without compromising on functionality. This capability applies equally to the industrial and personal care markets where our restructuring oils will improve product formulations, particularly where texture, melting and pour point properties are important.

Slide 16. Our high throughput molecular biology capability enables significant progress and improvements in short periods of time. Progress in engineering seeds for plant oils is measured in months and years, resulting in only incremental changes achieved at very high costs, whereas our platform's progress is measured in weeks and months with dramatic results at a fraction of the cost. Slide 16 shows progress over the last 12 months. It compares a specific SUS triglyceride we are developing, code-named SUS1, with the existing commercial supply of this structuring oil. Last year, the SUS1 triglyceride content in our oil was 0.4%, as compared to 25% for the main incumbent commercial oil containing SUS1. Today, we're near 50% SUS1 content, a dramatic improvement in just a year and an improvement that required our breakthrough positioning control to achieve. And commercially, this is relevant, because there are multiple SUS structuring blend stock oils, valued at above $2500 per metric-ton with large volumes.

I'm now going to turn the call over to Jean-Marc who is going to give an update on our commercial efforts. Please move to Slide 17.

Jean-Marc Rotsaert

Thank you, Jonathan and good afternoon. I'm delighted to be on the call today to update you on our commercial progress. The oil tailoring capabilities that Jonathan just walked you through, the ability to control chain length, saturation and positioning enable us to make products that we believe no one can with multiple benefits that our customers understand very well. The opportunity to lead the effort to commercialize and market oils based on this breakthrough platform is a truly unique challenge for someone in the bio business, and that's what attracted me to Solazyme.

Before I continue, let me take a moment to quickly introduce myself. I joined Solazyme having previously been with AAK, one of the world's largest suppliers of specialty fats and oils, where I was President and CEO of their North American business. Before that, I was with Frito Lay, where I led the transition to higher oleic sunflower oil from palmoline [ph], in one of Frito Lay's most profitable markets. This is to say that I've been fortunate enough to have extensive first-hand experience with fats and oils, from both the user and supplier sides, which has allowed me to develop a keen understanding of what it takes to help companies switch the oils they use in their products. In simple terms, my job is to help transition Solazyme to become a profitable, commercial enterprise that delivers compelling stockholder returns.

Slide 18. To start, I wanted to emphasize that our oils aren't simply replacements for existing agriculturally derived oils. Instead of our customers having to work with what's available, they're excited by our ability to rapidly develop oils that excel in they're chosen applications. We also bring tangible supply chain benefits to buyers and users of our oils. Solazyme's oil production platform for instance, offers a fundamental advantage in the sales process because of assured, timely supply of product in comparison to agriculturally derived oils that are subject to weather and other variables. In discussions with large users, this is one of the items that always resonates the most. Remember also that we can produce specific oils at anytime of the year, in production runs that last a few days. In simple terms, we have multiple harvest per week. This is in contrast to conventional vegetable oils which generally provide 1 or 2 harvest per year. This capability also resonates well with the customers that I have personally spoken with because they quickly make the jump to understanding our ability to significantly and positively impact their logistics and working capital needs. Today, formulators make financial decisions months or even years in advance on inventory and supply-chain management. Shortly, our customers will for the very first time, have a reliable commercial supply of valuable oils, with the added flexibility to react quickly to changing market demands. This is oppose to locking in full supply needs months or years in advance. The implications of this versatility are vast, for our customers and the specialty oils markets generally, and they provide unique margin capture opportunities for Solazyme.

Slide 19. On the last call, Jonathan shared some insights on our value-added sales approach. I'd like to build on that today and report back on some of the activity we have ongoing with customers and prospects. There are 3 key areas of activities that our commercial team is executing on, that drive our value-added sales strategy and we're making significant progress on each of them. First, we're working with a range of potential customers on applications development using our Peoria facility to make large scale samples ahead of the opening of Moema, in Clinton. We view Peoria as an accelerator to our commercialization capability. By way of recent example, we have completed a number of consumer and product tests and have more upcoming, with target customers that validate critical elements of our value propositions. We have also recently successfully completed factory trial with an oleochemical equipment leader.

Second, we're working actively with our existing JDA partners and adding new ones including Mitsui and AkzoNobel. These relationships provide a lower risk path to commercialization because these partners bring critical capabilities to the table. For market knowledge and supply-chain relationships to logistics and infrastructure to end customer relationships. You heard from Jonathan about the work we're doing with Mitsui, and understand how the myristic acid contents make a high ASP profitable for both Mitsui and Solazyme. In the case of AkzoNobel, we expect to target new-to-the-world tailored oils under defined terms that meet our financial expectations. As announced, we expect AkzoNobel to also be a customer of Solazyme Bunge Renewable Oil, in Moema, in 2014.

Third, we're collaborating with market development partners to identify market opportunities to jointly pursue. It's worth noting that our market development partners also figure prominently in the demand equation, this is because they too purchase large quantities of oil. Two examples that we have publicly disclosed are the work that we're doing a nutritional oils in Brazil with Bunge and in frying oils with ADM. We announced breakthrough frying oil test results in a series of joint presentations at the American Oil Chemists' Society meeting last week in Montreal, and we're actively testing our oils with a number of leaders in the space.

In conclusion, our team is focused on our value-added sales strategy as we structure supply agreements and deliver on defined value propositions that support premium pricing for our tailored oils. These sales are about defining how our oils solve real problems for these customers and their end customers, and assuring them we capture our fair share of the value. Early customer and industry response to our offering has been extremely positive. There is, of course, a lot that remains to be accomplished over the coming few quarters. We're very optimistic and working hard to build a commercial track record that can match the impressive technical track record and reputation of our technology team.

Thank you and now I'll turn the call over to the Tyler to review our financial results.

Tyler W. Painter

Side 20. Great. Thanks, Jean-Marc, and thanks everyone for joining the call today. As both Jonathan and Jean-Marc noted, Q1 was a strong start to the year for Solazyme, in which we remained laser focused on reaching profitable commercial operations. I will review our financial results for the first quarter,as well as provide our outlook for the remainder of the year.

As a reminder, I will discuss non-GAAP numbers that exclude noncash charges for stock-based compensation, unrealized gains or losses related to warrants, and a mark-to-market expenses associated with an embedded derivative feature in our convertible note. A reconciliation of our non-GAAP to GAAP results can be found in our earnings release issued earlier today. Total revenues in Q1 were $6.7 million, in line with our expectation for the quarter. Q1 product revenue for alternates were $4 million, this was consistent with our internal plans. We saw momentum in all regions in the back half of the quarter, and we expect significant revenue growth from Algenist in Q2 and the remainder of the year.

Revenue from funded programs -- funded research programs was $2.7 million in Q1, compared to $9.6 million in Q1 last year, this negative comparison was primarily driven by decline of $5.5 million in government related program revenue versus last year. As we've mentioned in each of the last 3 quarterly updates, we continue to see the Department of Defense and Department of Energy as valuable strategic long-term opportunities, but we do not expect new government program revenues in 2013.

Operating expenses were $26 million in Q1, compared to $26.7 million in the first quarter last year. When breaking these expenses down further, Q1 R&D expenses were $12.6 million, versus $14.4 million last year. The decrease reflected reduced expenses related to government programs compared to last year. SG&A expenses were $12 million in Q1 versus $11 million last year, this relatively modest growth in SG&A reflected our continued focus on aggressively managing our cost structure, while also building our commercial infrastructure. Net loss for the quarter was $21.5 million, slightly better than our internal expectations. CapEx, was $1.2 million in the quarter, excluding $5.5 million, contributed to Solazyme Bunge Renewable Oils joint venture from Solazyme in the quarter.

Slide 21. Q1 was an important financing quarter in which we further reduced risk by adding over $250 million of additional financing commitments. With 3 distinct financial transactions, we effectively augmented our financial strength to broadly commercialize our technology. As announced earlier, our Solazyme Bunge renewable oils joint venture and BNDES, the Brazilian Development Bank, entered into a loan agreement for approximately $120 million to support the construction of our 100,000 metric ton commercial facility in Brazil. This financing significantly reduces the equity capital requirements for both Solazyme and Bunge, and features a low average interest rate of approximately 4%. We expect the JV to begin drawing against this project financing in Q2.

We also completed a successful $125 million convertible notes offering that provides important growth capital and additional flexibility, with a 6% interest rate over 5 years. The cash impact to service the 6% coupon rate is approximately $7.5 million annually.

Lastly, we replaced an outstanding $20 million credit facility with a new $30 million credit facility with HSBC at a decreased interest rates. We ended the quarter with $239 million in cash and cash equivalents. And we these financings complete, we believe we are in an excellent position to commercialize our business.

Slide 22. For those of you who were on the call as well, you may recognize this slide as it is the same slide that we presented on that call. Our first quarter was in line with our internal expectations, and we are on track to achieve the full-year revenue and expense guidance we provided entering the year. We continued to expect overall revenue growth of approximately 25% in 2013, this includes over 35% growth in skin and personal care product revenues, and over 75% growth in joint development agreement and non Algenist commercial revenues.

As previously stated, we anticipate no new government revenues this year. We expect 2013 cash operating expenses to remain in the range of $115 million to $120 million, as we closely manage our growth and commercialization investments. And we expect our capital expenditures for the full year to remain in the range of $20 million to $25 million.

Slide 23. We are intensely focused on executing against our product development, production and commercialization goals. Our product development efforts will continue to focus on advancing and broadening our tailored oils platform, our production goals are focused on bringing each of our commercial production facilities online on schedule. And ramping commercial production toward nameplate capacity throughout 2014. And on a commercialization side, we will continue to pursue our value-added sales strategy, focused on application development, existing and newly JDAs like Mitsui and AkzoNobel, and continued market development with strategic partners. In summary, we are off to a good start this year. The most exciting developments are yet to come, and we remain focused on executing against our plan so firmly established a sustainable and profitable commercial entity.

I'd like to now turn the call back over to Jonathan.

Jonathan S. Wolfson

Thanks, Tyler, and thanks, Jean-Marc. In summary, the first quarter has gone well in each of our key focus areas. We're working hard to continue de-risking our business and creating substantial stockholder value. We look forward to keeping everyone posted on our progress. Thanks for joining us today. Now let's open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Brian Lee from Goldman Sachs.

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

Just had two on the AkzoNobel agreement. First I guess, is the scope of the agreement a take or pay? And can you give us any sense of the amount of capacity at Moema this will represent once sales start in 2014?

Jonathan S. Wolfson

Well, we're not in a position to disclose more details than what's been said so far. But what we can tell you is that we expect to start providing oils as of 2014 from Moema. We're also very excited about having an agreement with Akzo about multiple oils.

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

Okay, if I ask it a different way, are there targeted volumes in the agreement or minimums that are specified contractually?

Jonathan S. Wolfson

Brian, nothing that we're allowed to disclose. This is a new relationship for the company and we've disclosed everything that our partners have agreed to let us disclose on the release that we put out today.

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

Okay, one more from me and then I'll jump back on the queue. You mentioned pricing on the agreements, it'll be competitive and based on your cost to manufacture. Does that imply that margins are fixed or how should be thinking about the AFP in margin profiles?

Tyler W. Painter

I think the best answer I can give you is that we've been pretty explicit about the margin targets that we have for the various types of business, it was that 30% on fuels and chemicals, 40% on nutrition, 60% on skin and personal care. For this particular agreement we're totally in line with what we've previously announced.

Operator

Our next question comes from Charles Dan from Morgan Stanley.

Charles A. Dan - Morgan Stanley, Research Division

Just a quick follow up on the AkzoNobel announcement, can you give us a sense for what are the traditional materials that you anticipate that your products will be replacing?

Jonathan S. Wolfson

Yes. There are basically 2 classes, right? So you may know that certain triglyceride oils are used in the production of paints and coatings today, and in surfactants today, you also no doubt are aware that there also petroleum-based materials, particularly in surfactants that often are replacing their kind of oleochemical brethren. So you can kind of deduce that would be the petro comical kind of surfactant application, and the oleochemical surfactant applications, what the materials are and those that were talking about in Akzo, in some of the oleochemical applications, some of the triglyceride oil applications used in paints and coatings. And then there are also, without giving you the clarity there, there also there's also potential on the petroleum side on the paints and coatings side as well.

Operator

Our next question comes from Laurence Alexander from Jefferies.

Laurence Alexander - Jefferies & Company, Inc., Research Division

So I guess a couple of questions. First, on the Akzo deal and just in general, as you're formulating these different agreements, are there any penalties or paymen or potential liabilities if there is a delay in bringing the Bunge facility on stream?

Jonathan S. Wolfson

Lawrence, the answer to that question is that there can be in certain agreements. With respect to Akzo, we're not position to comment anything about that agreement. But you're asking a reasonable overall question, because you can imagine that if we're guaranteeing supply and then we can't supply -- and somebody's guaranteeing to buy, and then we can't supply, you can imagine that there's an opportunity for penalties. The way I would also put it though, when you think about some of that stuff is -- what ends up happening is there are likely to be certain opportunities where our contracts state that if we can supply algal-derived oils, we may be committing to supply standard vegetable triglyceride oils that could meet the same needs. So we may be guaranteeing supply in certain cases.

Laurence Alexander - Jefferies & Company, Inc., Research Division

Again, just a broad philosophical question. I thought you've had enough discussions with different partners that you're not trying to get into a particular agreement, my impression is that your findings are more leveraged in the R&D capabilities than you might have expected a couple of years ago. And the customers arguably, should be finding the new capabilities more interesting than what that might have been presented with a few years ago. So are you seeing any shift in the customer's willingness to either preemptively fund R&D programs to accelerate activity, increase the size of milestone payments relative to what you would've expected on your initial agreements or pay a premium for the finished products? Can you just walk us through what's happening in terms of customer receptivity?

Jonathan S. Wolfson

I think it's kind of a 2 part question. I suggest Jean-Marc pick up the first part of that and I'll see, Lawrence, if I can address the second part of that.

Jean-Marc Rotsaert

Well I think the first part, relates to the flexibility of our technology platform, which is just absolutely tremendous. And just as you surmised, we're receiving very positive responses from many sectors of the market as the capabilities become more widely understood and we're able to show more and more proofs. So this is leading us to have an incredible array of possibilities that we can show. What that means is that now what we need to do is increase the discipline in the pipeline management because we could be focused on turning these oils into products that are ready to sell the moment the factors are coming online, and that's the focus. But I think I'll hand it off to Jonathan to answer the second part of your question.

Jonathan S. Wolfson

Yes. I think, one thing that Jean-Marc probably could have added to that is that he's brought us a specific discipline to the company in terms of developing a real stage gate. Lawrence, you asked the question -- some people would call it a nice question, which not all of yours are -- and we can say that the, look, the technical capability provides outstanding opportunities. But you can imagine it also provides substantial challenges, and one of the things that Jean-Marc has doing from the day he got here is kind of beating the drums on our states gate process to make sure that we're not pursuing every single opportunity that comes in from customers, but to the latter part of your question, we are focusing on the unique product opportunities, where we can actually -- while remaining good partners, extract additional margin, because what we're doing really adds a lot of value and isn't doable in any other way from what's out there on the market. So the answer to your question, on the last part, these, a thing, is that there is quite of the opportunities, because now people are really starting to understand how this is different from the materials that they've been using before, we are able to say, well, we're going to have a limited capacity and in order to commit some of that capacity, we're going to need things that are going to help us and that may come in the form of margin or other things. So that's a process that's ongoing now. And I would say it's still a work in progress but what we're seeing a fair amount of traction in some leverage there.

Laurence Alexander - Jefferies & Company, Inc., Research Division

And then just a very quick clarification. When you say commercial sales, how much of a lag do you expect between your customer having commercial sales to a consumer? One of us at a shopping mall versus you're booking, your first commercial sale with a customer, is it like a 1 or 2-year lag?

Tyler W. Painter

Well you know that we're using the Peoria facility to do heavy sampling and customer trials and the like. The idea is to use that facility as an accelerator so that the customers can then be ready when we are ready. Obviously, different applications have different needs and different possibilities. And so what you're going to see a different in the moment that they actually buy the product and the moment that you are able to see the product on the shelves or on the B2B transaction that results to have the product on the shelves, and I think that's about the extent of what we can say but you know we're operating in the breadth of industries.

Operator

Our next question comes from Rob Stone from Cowen and Company.

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

On the structuring of the oil profile, which has some obvious benefits as I understand it, in food as well as cosmetics and other things. On the food side, does changing the lineup of the fatty acids in that way lead to additional time to get necessary approvals?

Jonathan S. Wolfson

That's actually an interesting question. You're asking about it from a regulatory standpoint. We don't believe the answer to that is yes. I think, as we've mentioned on a number of the past few calls, we're deep into the process, the first algal oil for broad food use that we took through both a self-affirmed and an FDA-no-questions notification from GRAS who's part of our Solazyme Roquette Nutritionals joint venture. But since then we've done the safety work on a number of additional tailored oils. And this may be more than what you asked, but we're expecting, hopefully before the end of this year, to see self-affirmed and FDA-no-questions on at least a number of these tailored oils next year, and there isn't any belief by anyone on the regulatory team or elsewhere that the structuring technology which allows us to target placement on the backbone would create any different regulatory concerns or process. There are some chemical ways to do that in a more scaled down way that are already used in the food industry.

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

Okay. A follow-up question if I may. This is more of a big picture question. Back around the IPO you talked about nutritionals, chemicals, fuels, cosmetics, a number of different market, and fuels of course have the biggest potential volume but the lowest value per unit. It feels like, as you continue adding agreements and adding capabilities versus your capacity, that you don't necessarily need to go after the fuels market anytime soon, relative to an expanding pie of possible other places to allocate your volume. Is that impression accurate or not?

Jonathan S. Wolfson

Well, there's a difference between that -- I suppose it's the difference between the word need and want, in this case, and I think that -- and we've been out front, all the way since before IPO, that our first capacity was going to be focused much more toward chemicals and nutrition than it would be toward fuels. And I think that everybody understands for that is ultimately you're going to after higher-margin markets first. You want each of these plants to show very high return rates. So you can build more than more rapidly. That said, Rob, we started this company with a focus on fuels and we've never lost a strong interest in pursuing fuels and I think maybe I've mentioned this in the past, maybe I haven't, but even the way we'll get into the fuels market, will be what we call kind of the tip-of-the-spear strategy, where we really enter that market by providing higher value blend stocks. But if the question you asked was need, and I think based on need, we don't need to produce fuels out of these plant to fill these volumes up. And we could build a lot more plants and still not need to add fuels, but I would expect that it's our interest to start the shift, at least, some volume over time into the higher value blend stocks and expand our market reach.

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

It sounds like we these unique capabilities that you're offering, one could assume you could grab a bigger market share than otherwise. That combined with the supply chain benefits.

Jonathan S. Wolfson

If you're talking about fuel, the answer is yes. Of course, the other question, as you know, when it comes to fuel is it very much depends on what you're making, which is why I'm talking about blend stocks, if you're talking about a straight barrel to barrel, or gallon to gallon replacement for a petroleum based fuel, if you take WTI or Brent right now, you're under $1,000 a ton, maybe add a little bit on that for refining, but you can understand why that isn't going to be the first place of focus for us. But as you get into the blend stocks, you can create a be competitive advantage and generate higher ASPs and margins.

Operator

Our next question comes from Sanjay Shrestha from the Lazard.

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

Two questions. First, Jonathan, is been a bright strategy on your part to not commit any capacity to any other partners right away, right? But you guys do have an enviable list with the guys you work with, a leader in every segment of the market. At what point do say, okay, I've got the plan coming online in Brazil, I've got a plan coming online in U.S., I'm now at the point where R&D is done. When it is done, I got to start committing with some of these capacity to multiple different partners, and we start to hear announcement from you guys, hey, gee, for my full team capacity I am completely sold-out. Because, clearly, demand is bigger than what your capacity is at this point in time.

Jonathan S. Wolfson

Look, there's a couple of moving parts to the questions, Sanjay, and there's probably pieces to it that Jean-Marc can answer better than me. My perspective on this is that you're trying to manage a few different things. You're trying to manage creating as many customer relationships as possible for markets that are excited in, with as I've mentioned before, there's a pretty big drum beat coming from our COO to maintain discipline around our stage gate process, which means that not all the request coming in are things that we're really going to work on. In the past, we probably started Technology Development on more oils than we should have. And I think so part of it right now is how to manage relationships and figure out how to kind of ride the line between making commitments when customers are ready, at times, figuring how to keep you guys happy, with respect to giving guidance on where we are in that process, which is easier said than done. And third, third is kind of balancing this measure between what we call base loading a plant in keeping the optionality for higher margin generation in it, right? And so I think you know -- a lot of what Jean-Marc is doing -- maybe Jean-Marc, I don't know if you want to comment on this at all.

Jean-Marc Rotsaert

Well, I think you've said it very clearly, Jonathan. It's making sure that we balance the pipeline, the margin, the time at which it comes online, the moment at which the customers are going to want to do it, the supply chains that the customer's need to turn on and off, and the marketing plan that the customers have to be able to put things together and make it so that it works for everybody. So it's a multifaceted problem that we're dealing with everyday, and I think effectively that's where we're at.

Jonathan S. Wolfson

Although Sanjay, I guess, what I would say is there some relationships in which we will want to disclose information about sales commitments significantly ahead of the opening of plants in which we may have very good sales commitments for significant volumes. And there's also, in negotiation, some things we don't want to disclose, and then there are things we're going to want disclose very much, that our customers and potential customers are already pushing back on in certain areas, because of a fear that have about disrupting supply chains before our plants are online and sending them products. So it's like, there's a bunch of things that we're kind of considering all the way around this in a circle.

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

Fair enough. So a quick follow-up guys, I just want to make sure. So when you have talk about sellable product out of the Moema plant by 4Q '13, right? How should we think about sort of iron-on-the-ground plant capacity up and the ramp-up process, right? So I got to imagine that you'll still be ramping up in Q4 and that's sort of the utilization goes up really more in 2014, not so much really in the fourth quarter of '13, right? Just want to make sure that, that is accurate?

Jonathan S. Wolfson

Yes. I mean, we've been consistent, this is a 12- to 18-month process to get the nameplate. So Q4 is initial quantities and then we're kind of ramping up over the course of '14.

Operator

Our next question comes from Mike Ritzenthaler from Piper Jaffrey.

Michael J. Ritzenthaler - Piper Jaffray Companies, Research Division

I guess my first question is on one of the comments that Jonathan that you have made in your prepared comments about the long lead equipment is on schedule to be delivered. So we're, whatever, 6 months away from mechanical completion plus salable product, is that all on track with your expectations that you're still delivery some of these larger pieces of equipment?

Jonathan S. Wolfson

Yes, it's not all on site, Mike, if that's your question, but everything is either on-site or ordered and right now, you can imagine that part of the process is we actually have a lot of our people that are traveling to some of the bigger equipment vendor sites to check on progress on things like fermentors and other pieces of downstream equipment to make sure -- but for instance, lots of the pieces of fermentors are already on-site. So I'll just reiterate yes, we believe that everything is either on-site or on schedule to be delivered to the site to get us to start up on the schedule producing product in Q4.

Operator

Our next version comes from Michael Klein from Sidoti & Company.

Michael Klein - Sidoti & Company, LLC

Can you talk about how long you been in talk with AkzoNobel and how far along you are in developing the oil profiles that you announced today?

Jonathan S. Wolfson

Not without upsetting our new partners.

Michael Klein - Sidoti & Company, LLC

Sure. Okay. And just a follow-up on the last question, when do you actually expect to have all construction complete at Moema and start commissioning the plant, is that a third quarter activity?

Jonathan S. Wolfson

I think, just to be clear, what we're given, we haven't given out dates for commissioning, we've given out dates where we believe we'll be producing products. And I'd rather stick to that because we want to stick the things that we believe have a high degree of certainty. And rather than give you a commissioning date, I'd rather just say that we're comfortable right now that will be able to produce commercially salable product in the fourth quarter.

Operator

Our next question comes from Pavel Molchanov from Raymond James.

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

So, first one, I suppose you'd losely consider this a competitor, a company in your space that's in the process of going public. In their S1 they mentioned the ramp-up for their first commercial plant of 3 years, going roughly 40%, 65%, 90% utilization. I think for Moema you're talking about a much shorter, much more accelerated ramp up to full capacity. I'd be curious, what gives you the confidence that you can get there relatively quickly?

Jonathan S. Wolfson

Well, remember, we've said 12 to 18 months, that's not a short ramp-up to get to nameplate. I'm not going to opine -- I'm pretty sure I read the S1 you're talking about, but I'm not going to opine on their process. What I would say is understand that we've been running our own technology in large scale industrial fermentors since 2007, and when we give you an estimate of what we think the timeline will be, we're not trying to shorten it. I'd love to tell you that it was a quarter or 2 quarters, it's likely to be longer. 12 to 18 months, we think is a very reasonable timeframe. It's been done in quite a few other industries, and one of the big things we think about a lot is risk. And, frankly, Peoria has removed significant amount of that rest from that ramp-up schedule.

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

Okay. Let me also go back to one of the points you mentioned about the recent capital raise. I think at a time you signaled that the proceeds would go towards supporting your negotiations with perspective partners. Taking AkzoNobel as a case study, was the extra $100 million that you guys raised in January, was that useful? Is that the kind of discussions that you were aiming for at the time?

Jonathan S. Wolfson

It doesn't hurt. But there are quite a few discussions ongoing, and that was one of them, where it's useful to have better balance sheet. It wouldn't be one of the top ones I would pick and say this was one of the ones that's -- that benefits the most from Solazyme having a bigger balance sheet, I would say. There are other that probably would sit higher on that list than AkzoNobel, with respect to that. You could imagine that we're not announcing with Akzo, we're not announcing production capacity jointly with them, and other things, and you can imagine that other kinds of broader relationships would entail more confidence from the people on the other side in our balance sheet. So they wouldn't be my first pick, to validate what we said in January. But the other point I'll make though is that wasn't the only reason for the capital raise, just to be clear. The capital raise is also because we saw lots and lots of opportunities in places where we think we can take advantage of those opportunities and return better to shareholders. From a growth perspective, we want to have the ability to do that. So, yes, giving us negotiating strength was certainly one part of it, but not the only part.

Operator

Thank you. I show no further business, I would like to turn the conference back to management for closing remarks.

Jonathan S. Wolfson

I just -- we appreciate having everybody on the phone. And thank you for following the company and thanks to Tyler and to Jean-Marc, and we will do our best to keep you posted on our progress. Thank you.

Operator

Ladies and gentlemen thank you for your participation in today's conference. This does conclude the program. And you may all disconnect at this time.

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