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Amyris (NASDAQ:AMRS)

Q3 2013 Earnings Call

October 31, 2013 4:30 pm ET

Executives

Joel Velasco - Senior Vice President

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

Steven R. Mills - Chief Financial Officer

Analysts

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

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

Britt Boril - Goldman Sachs Group Inc., Research Division

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

Michael J. Ritzenthaler - Piper Jaffray Companies, Research Division

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

Operator

Welcome to the Amyris third quarter 2013 conference call. This call is being webcast live on the events page of the Investor section of Amyris' website at www.amyris.com. This call is a property of Amyris, and any recording, reproduction or transmission of this call without the express written consent of Amyris is strictly prohibited.

As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the investor section of Amyris' website.

I would now like to turn the call over to Joel Velasco, Senior Vice President.

Joel Velasco

Good afternoon. Thank you for joining us to discuss highlights of Amyris' third quarter financial results, our recent progress and business outlook. With me today are John Melo, our Chief Executive Officer; and Steve Mills, our Chief Financial Officer. On the call today and on this online webcast, you will hear discussions of non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is contained in the press release distributed today, which is available at amyris.com.

The current report on Form 8-K furnished with respect to our press release is also available on our website, as well as on the SEC's website at sec.gov.

We will provide certain forward-looking statements about events and circumstances that have not yet occurred, including projections of Amyris' operating activities for 2013 and beyond. These statements are based on management's current expectations and actual results, and future events may differ materially due to risks and uncertainties, including those detailed in the company's recent SEC filings and the Risk Factors section of Amyris' quarterly report on Form 10-Q filed with the SEC on August 9, 2013.

Amyris disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the Amyris SEC filings for detailed discussions of the relevant risks and uncertainties.

I will now turn the call over to John Melo.

John G. Melo

Thank you, Joel. Good afternoon, and thank you for joining us on our third quarter call today. Steve and I will review our quarterly results and update you on our business performance and outlook. As we have done in prior quarters, let me begin with a review of activities today, namely, farnesene unit production cost reduction, the progress in commercializing our renewable products and our strength and financial position.

Let me start with our farnesene production at Brotas. This is the plant we have located next to the Paraiso sugarcane mill in Brazil. During our last call, in early August, we indicated that all 6 fermenters were fully operational after successful commissioning and ramping up of production over the prior 6 months. I am pleased to report the plant continues to be operating well, with all 6 fermenters running and most recently, with our second generation of farnesene-producing strains.

As we announced earlier this month, we achieved our highest production run rate to-date, with over 1 million liters of farnesene produced in a 45-day period. This production performance achievement was an important milestone related to our recent financing. And we are on track to meet the remaining milestones as we'll discuss later.

We are on track to produce over 4 million liters of farnesene this year at Brotas. We are very pleased with the performance of our Brotas plant and our team.

As you would expect, by operating Brotas at better tank utilization and up times, our farnesene production costs are coming down. At the start of the year, our production cash costs were in the $12 per liter range. For the third quarter, our cash production costs were below $5 a liter, and we continue to expect to achieve $4 per liter or better by the end of this year as we benefit from the use of our second generation strains and continued operational improvements. We

anticipate to continue delivering improved unit cost for next year and beyond. We continue to adjust our [indiscernible] at Brotas to improve performance and efficiency at the plant. Our foremost focus is on safety and operational excellence. To ensure continued, reliable and consistent operations, we anticipate taking a planned annual maintenance outage for several weeks in the early part of the first quarter. Consistent with standard practice in Brazil, we will take advantage of the sugarcane inter-harvest season to carry out this activity, which will include some modifications to improve plant performance as well as the normal preventative maintenance activities.

While we anticipate there will be limited disruption to our production plans, we are building a buffer level of inventory during the second half of this year to ensure our sales pipeline is not affected.

In summary, during the third quarter, we had our best manufacturing performance with the highest farnesene volumes and lowest unit cost to-date.

Turning now to our commercial activity, we continue to build a strong product sales pipeline. During the third quarter, we maintained our pace of renewable product sales at slightly above $4.1 million. Our third quarter fuel sales were on par with the prior quarter. During the quarter, our renewable diesel sales to public transit bus fleets in metropolitan areas of Brazil continued as planned. We also received a request for additional volumes and anticipate increased sales volume to additional buses during the fourth quarter.

We're very excited about an impeding pilot program with select buses running on 100% Amyris diesel in São Paulo. We have held our renewable diesel sales to about 1/3 of our overall revenues -- renewable product revenues.

As we announced last week, we are working on a partnership with Brazil's largest airline, GOL, with the objective of supplying our renewable jet fuel to their commercial flights next year. GOL indicated a desire to operate about 200 flights in Brazil with a blend of our sugarcane-derived fuel, starting as early as the FIFA World Cup in June 2014. Along with our fuels partner, Total, we are focused on achieving regulatory approvals and ASTM validation. This will enable us to begin supplying GOL and other airlines next year. We believe the data obtained during our demonstration flights, as well as various other tests provide sufficient evidence to the industry of our jet fuel's compliance with Jet A, A-1 specification.

We also see great opportunity in enabling airlines to make a meaningful progress to achieve the aviation industry's goal for the 50% reduction in greenhouse gas emissions by 2015.

Our cosmetics emollient NEOSSANCE, with squalane, continues to gain acceptance by leading brands worldwide. We have experienced significant year-on-year growth on our overall squalane sales with half of our products shipped to Asia and the balance split between Europe and United States. In the third quarter, we shipped our first squalane product to a South American customer so that we could begin entering and penetrating the growing cosmetics market in South America. We are very pleased with continued strong commitment from leading formulators and brands who tell us they prefer Amyris sugar-derived squalane due to reliable supply, high-performance attributes and a stable price. They are choosing Amyris NEOSSANCE over olive oil and shark-based squalane.

In addition to our commercial businesses, fuels and cosmetics, we also sold various grades of farnesene for further processing and development into a range of products. We sold farnesene to Novvi, our lubricants joint venture with Brazil's Cosan. Novvi is using our renewable hydrocarbon for producing base oils as the joint venture begins to supplying customers and partners with test quantities of products.

We also supply Kuraray, our Japanese partner, with farnesene during the quarter for continued testing with the world's leading tire manufacturers for our liquid farnesene rubber.

Another exciting development is the production of our first fragrance oil, which began at the end of the third quarter. I will be able to discuss this in much more detail in the coming months. For us, this product demonstrates our continued ability to use our core competency of engineering strains that make products in high demand today that our customers want.

In summary, I remain confident on our renewable product sales and in a strong customer pipeline we are building with our partners. Steve will provide more details on our sales outlook as well as our total revenues, which include our collaboration funding, a critical element of our business plan.

Let me now provide you with an update on our recently completed financing, which closed after quarter end but was the culmination of efforts in the third quarter. As you recall, from our August 8th call, we announced our agreement to issue convertible notes in a financing with existing investors. One of our largest stockholders, Temasek, agreed to lead the private placement with $35 million in a first tranche and up to $25 million in a second tranche. At the time, we indicated that other investors, including Total, would likely participate. On September 12, we received the required stockholder approval to issue up to $110 million of securities in 2 tranches of $55 million each. The closing of the first tranche was completed on October 16, which explains our cash balance at quarter end. The primary reason for the closing delay was a required regulatory approval, namely a review by Brazilian competition authorities.

In early October, while we waited for the completion of the review, Temasek provided a $35 million bridge loan that we repaid at closing of the convertible note placement a couple of weeks later. On October 16, at the closing of the first tranche, we sold about $52 million in notes. Temasek led the round, purchasing $35 million, Total exercised its pro rata rights by acquiring about $9.3 million in notes to the cancellation of existing promissory notes, and Fidelity purchased about $7.6 million in notes. This transaction resulted in a total of $42.6 million in new cash proceeds to Amyris. Temasek has committed to purchase $25 million in the second tranche and Total, its pro rata share of that second tranche, which would be approximately $5 million, should Amyris meet the closing condition and choose to draw on the second tranche.

We are very pleased with the continued and steadfast support of our largest investors and are in discussions to place the remaining securities authorized by our stockholders. This financing provides Amyris with the needed cash to meet our objectives. We currently expect becoming cash flow positive from operations in 2014.

Let me now turn the call over to Steve for a review of our third quarter financial results and to provide an updated outlook before we take some of your questions. Steve?

Steven R. Mills

Thank you, John, and good afternoon, everyone. As you will have seen from our earnings release, we reported a GAAP loss for the quarter of $24.2 million or $0.32 per share. Our loss on an adjusted non-GAAP basis for the third quarter, which excludes stock-based compensation was $19.8 million or $0.26 per share. This compares to a non-GAAP loss of $25.5 million or $0.34 per share in our second quarter. We are pleased with the progress on reducing our losses on both the dollar and EPS basis.

Total revenues for the quarter were $7 million. As John described, sales of our renewable products, squalane, renewable diesel and farnesene for performance material application were about $4.1 million, basically equal to our prior quarter and 35% higher than the third quarter of 2012. Also, when comparing 2013 product sales revenues to the prior year, remember that the 2013 product sales revenues consist only of renewable product sales, whereas the 2012 figures also included sales from the ethanol and ethanol-blended gasoline business, a business that we completed transitioning out of in the third quarter of last year.

Collaboration and grant revenue was $2.9 million for the quarter, down from both the second quarter and down from Q3 of 2012. This area will vary quarter-to-quarter due to the timing of receiving payments and the time of meeting milestones. Both of which will impact revenue recognition timing. As an example, in last year's third quarter results, we recognized $9.8 million of revenue as a result of amending our collaboration agreement with Total. As we've done in prior quarters, we have provided details of the actual cash received from collaborations and grants in the back of our earnings release.

During the 9 months of 2013, we have received $53 million in collaboration funding and that compares to $59 million for the same period in 2012. Collaborations and grants are a critical element of our business strategy and annual revenues. Collaborations provide us with upfront funding to build strong technical partnerships intended to end with product commercialization. Collaborations also generate a longer-term cash stream as we capture a share of the gross margin from the total value chain of the product.

Our cost of products sold for the quarter declined to $8.3 million, a reduction of about 6% compared to the prior quarter, as we achieved better performance at our farnesene production factory at Brotas, producing greater volumes at a lower per unit cost.

We continue to reduce our overall operating expenses. Our combined R&D and SG&A expenses declined 20% to $26.4 million from $33.1 million for the same quarter of the prior year, primarily due to reductions in personnel-related costs and overall lower spending. On a sequential quarter basis, our expenses were down about 8%.

Turning to the balance sheet. Our cash balance at the end of third quarter was $6.3 million. During the quarter, we received $20 million in cash from Total as part of our collaboration agreement and our CapEx spending was about $2 million. And as John noted, since the end of the third quarter, we have received $42.6 million in cash proceeds from the sale of convertible notes.

Let me now turn to the outlook for the remainder of the year before turning the call back to John. In our previous calls, we indicated our 2013 plan called for a relatively modest level of capital expenditures, about $10 million, and we estimated our cash expenditures for SG&A and R&D would be less than $85 million for the year. This $85 million number excludes depreciation and stock-based compensation. Based on where we stand today, we believe our OpEx and CapEx targets are in line.

We also indicated we were targeting $60 million to $70 million in collaboration funding for 2013 to cover at least 80% of the $85 million of cash operating expenses. With $53 million collaboration funding in hand through 9 months, we believe this target is achievable as a result of the technical progress we are making on our existing collaborations and our ongoing discussions with prospective collaboration partners.

We expect our total revenue for Q4 to be in the $19 million to $22 million range, with about $11 million of that total coming from collaborations and grants and between $8 million and $11 million coming from renewable product sales.

This would result in renewable product sales of somewhere between $20 million and $23 million for the year, slightly below our previous guidance. This change is due to slower than anticipated volume uptake that may push some of our anticipated Q4 sales into 2014.

With our farnesene production cost decreasing, thanks to a combination of increased volumes, improved yeast strains and increased efficiencies, we remain confident that we will achieve a $4 per liter or lower cash production cost for farnesene this year.

In summary, we have demonstrated disciplined execution, we have our costs under control and we are delivering on our milestones, focused on revenue growth with the right team and the support of our leading investors.

I'll turn the call back over to John for some closing remarks, and then open the call up for questions.

John G. Melo

Thanks, Steve. I'd like to now provide some context regarding our commercial product and collaboration pipeline. Let me first summarize where we stand today. Our niche fuel program is well-established. Our diesel is progressing to new municipalities in Brazil with increasing blend rates. We believe industry approval of our jet fuel is there and we hope to begin making a positive impact in the aviation industry next year.

Value-added products, like our emollient squalane, delivered cash contribution for our company. As noted said earlier, our squalene sales have grown at a significant rate year-on-year with new market areas and applications. Our ability to use farnesene as a hydrocarbon in a broad range of applications is exciting and we continue to accelerate development and time to market from base oils to specialty drilling fluids to polymers for the tire industry. We're also scaling new molecules and delivering what our partners have identified as important to their industries and businesses. Our first fragrance molecule is just one example of what we expect will result in sustainable products over time.

With our original invention, semi-synthetic artemisinin in full production by Sanofi, our own farnesene plant operating in Brazil and our initial batches of our first fragrance oil for the flavor and fragrance industry, we continue to expand our sales and collaborations of No Compromise products. This is just the beginning of what The Washington Post last week suggested may be the beginning of the third industrial revolution.

We expect to double renewal sales revenue in 2014 and cover about 80% of our operating expenses with collaboration funding. With this relentless focus on sales and collaborations, we expect to achieve cash flow positive from operations in 2014 and really change the way products are being made, enabling sustainable growth across our target markets.

Let me share with you how we expect to do this. Artemisinin, farnesene and the fragrance oil are just the first 3 renewable molecules for specific markets we have produced through our industrial biotech platform. We are not a single-molecule company trying to use complicated chemistry to adapt a single molecule into many markets. We have developed leading-edge technology to engineer microbes, to be specific, yeast, to make molecules for our customers' needs.

In our labs, we have designed multiple strains for our partners and customers that we expect to scale up in the coming years. Our core technology is the ability to engineer microbes, like baker's yeast, to produce a target molecule like artemisinin, farnesene and potentially, thousands of other isoprenoids. For instance, in the flavor and fragrance industry, we have more than 10 molecules under agreement with 4 industry leaders that we plan on developing and scaling over the next 5 to 7 years. We expect by 2020 to be approximately 30% to 40% of the supply into this growing segment. These are high-performance and high-value molecules that can provide good early returns. This is realized in the form of significantly higher average selling prices in commodities, chemicals or fuels.

All of this would not have been possible without inspired science backed by great partners. Amyris is leading the way to applying the principles of engineering to biology. Some call this Synthetic Biology. Whatever you may call it, Amyris is at the vanguard of this revolution. Using an intricate cycle of design, build, test and learn, we are making commercially viable, what was once hypothetical production of targeted hydrocarbons from living organisms.

Amyris' goal is to build a specific living factory after a single design cycle in a matter of days instead of weeks, or months or in the past, years. Here is some data to underscore the strength of our technology and our progress. We have developed and screened millions of different strains, demonstrating a unique ability to apply this engineering cycle to organism engineering. And we have learned to do that very well, quicker and quicker every time. We have generated nearly 3 million unique strains since 2005. In the last year alone, we generated roughly 600,000 strains. Designing new strains is just part of our success of industrializing Synthetic Biology. We can perform roughly 500,000 assays per month, which works out to be about 100,000 strains screened per month. That's the now renowned design, build, test, learn cycle, taking place every day at our labs in California, teaching us more about how cells work at every iteration. Our plan is to make the promise of Synthetic Biology real and safely for a better planet.

Lastly, our investors continue to support our business strategy. That financing Steve and I discussed earlier is intended to provide us with the necessary funding to reach cash flow positive from operations based on continued execution of our business plan. Our investors and partners have continued to support the company, not just because of the promise of our technology, but as a result of our performance. In addition to technology performance, we have demonstrated a disciplined approach to our cost base and to our scale up. This discipline has resulted in a reduction of over 1/3 in our operating expenses over the 9 months ended September 30. We are delivering more with less and are a way to being a profitable operating company. For the third year in a row, we will generate more than $60 million in collaboration funding. This is short-term cash from our partners to deliver our long-term product pipeline that underpins our growth. And we expect to double our renewable product sales in 2014.

In closing, over the last 18 months, Amyris has moved beyond scaling up to make industrial biotech a reality. We have strong support from our shareholders for growth capital and have the technology to deliver molecules that help our customers meet growing world demand in a sustainable way.

Jonathan, would you please open the line for questions?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Silke Kueck from JPMorgan.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

I was wondering if you can tell us what the average selling prices that you achieved and how much inventory have you built so far?

Steven R. Mills

Well, the average selling price for this past quarter was about $5.90 for the quarter. From an inventory sales, the number isn't significant. As John pointed out, really, the third quarter was our -- really, first heavy production quarter and we knew we would have both the additional fourth quarter sales that we're expecting and as well as the buffers level that John has talked about, which will build up in Q4. So the numbers are relatively small, and in the balance sheet we're showing about $8 million of inventory total and the bulk of that is either farnesene in process or finished goods.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

So that means that the is about like $5.90 a liter and your sales were $4.1 million, you sold about like 700,000 liters?

Steven R. Mills

I'll let you do the arithmetic, but that sounds right.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

And if I can ask 1 follow-up question. The related party product sales of $1 million, these are sales to Total?

Steven R. Mills

No. Those are sales to our joint venture called Novvi, which is our base oil and lubricant partnership with Cosan. I'll just add this, I won't -- if we have sales to Total, they will end up being in that line as well. But the bulk of that line item this quarter is Novvi.

Operator

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

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

Good to hear that you're looking to turn cash flow breakeven by the end of next year, but I guess the intermediate step to getting there would be to turn gross margin positive on your product sales. When do you think that happens?

Steven R. Mills

Well, we certainly -- we're at a place where individual products are cash flow positive now. We think the portfolio will be close to breakeven by the end of this year and then turning positive in 2014 at some level.

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

Okay. Turning positive in Q1 of 2014 or any additional specificity on that?

Steven R. Mills

Well, it's always going to depend on product mix. So I hate to jump out there much farther than that. We anticipate being positive during 2014. I think it will all be dependent on the particular mix of the quarter.

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

Okay. And kind of in that same context, to turn cash flow breakeven in 2014, are there any assumptions for OpEx that you're making?

Steven R. Mills

We don't expect our cash OpEx to move a great deal year-over-year. We certainly will need to evaluate it as new collaborations come on, et cetera, but we don't see any significant changes. I think the one assumption that is there for 2014, and we define as part of operations, is collaboration funding. Because collaboration funding is integral to what we do, so that is one of the significant inflows, as well as the expected margins from sales.

Operator

Our next question comes from the line of Britt Boril from Goldman Sachs.

Britt Boril - Goldman Sachs Group Inc., Research Division

I'm on for Brian Lee. I was wondering, can you provide any more color on the MOU with GOL? So about how long do you expect those regulatory approvals to take and then is it likely that they will be approved before the World Cup next year? And then as far as the blending volume goes, is that what needs to be established for those regulatory approvals and does 10% blending seem reasonable?

John G. Melo

A few responses to you, Britt. I mean, the first thing is we're expecting somewhere around the end of the first quarter for the regulatory approval. The second thing is the blend rates we're talking about are about 10%, so that's an accurate assumption. And then a lot of the work around the MOU is really ensuring that the supply chain is in place and we're able to actually support the airline's needs. And that's really the feasibility work being done between the teams. That has been established to us to complete this.

Britt Boril - Goldman Sachs Group Inc., Research Division

Okay, that's helpful. And then how much of your renewable product sales this quarter were squalane? Can you provide kind of a breakdown? You said 1/3 were renewable diesel, I think.

Steven R. Mills

It varies quarter-to-quarter. I don't have that number in front of me. I think it's usually between 30% and 40%, that's ball park, if that's close enough for you. Because 1/3 of it is renewable and then we have, as you could see on the face of the financials, about 1/4 of it was from sales to Novvi. With that arithmetic, it looks like that's pretty close.

Operator

Your next question comes from the line of Jeff Osborne from Stifel.

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

Just a couple for me. On the lower guidance for the year, you mentioned lower volumes of sales. Can you just touch on what end market that was for? Is it on the diesel side or some other cosmetics that was a little bit softer than the original plan?

Steven R. Mills

I'll start, and John can fill in. It's a mix. I think cosmetics, we think, is more timing. The diesel, we continue to evaluate. There's been some uncertainty in Brazil in some of the cities, and frankly, that's our lowest margin sale as well. So we're always cognizant of that. And then we're still talking to our base oil and lubricant partner, Novvi, to kind of land on what exact volume they need for their rollout and testing. So it kind of fits into all those pieces to a point and all have a little bit different flavor to them.

John G. Melo

Just to add and Jeff, if I look at kind of where the bulk of the difference is for 2013, we had expectations of a scale up or said differently, a development cycle with Total around specialty fluids, which is a specific category of products we're working with Total. Reality is, we got off to a slow start in providing them volume. That delayed the overall process and that's actually having probably the biggest impact year-on-year from what we expected our volumes to be versus what it is.

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

Okay. And then, John, I think you mentioned in your prepared remarks, and maybe I missed this in the past, something about specialty drilling fluids or liquids. Can you just expand on what exactly that is you're referring to?

John G. Melo

Yes, we're working with several different companies currently on a very interesting application, which is we've realized that one of the derivatives of farnesene is actually very interesting in drilling wells. So it is biodegradable, it has lower toxicity and it appears to perform as good or better than some of the drilling fluids being used today.

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

Do you need a partner or sales channel for that? A Halliburton or someone like that? Where are you in commercialization or is this still in the labs?

John G. Melo

The people who are actually working with us are the -- I'll call it the channel partners/end user. So we can't disclose who they are but we can tell you this is actually in the development cycle with them, and we expect to be in wells or a well going into 2014.

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

Okay, great to hear. And just 2 other quick ones. Of the kind of flattish OpEx that you mentioned earlier for 2014, the 80% coverage they need from partners, how much of that, if you could remind us, is kind of committed on prior term sheets that you have versus what you need to go get?

Steven R. Mills

Well, there's -- I'll put it in 3 buckets. One, we've got commitments. Total still has $21 million that they contractually have arrangements with us. There is a decision point for them to make that. And that's split half between kind of mid year and end of the year. Permenashe [ph] is an ongoing contractual arrangement and then we've got several others that are in various stages. So it's probably not quite half of what we need yet but -- so we still -- but we've got ongoing dialogues with quite a few very, very interested partners.

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

Okay. And then the last question is, is there any CapEx impact for next year with the shutdown? And I may have missed the duration of that in Q1. So A, that's kind of part 1 of the question, what is the number of weeks? And then how should we be thinking about CapEx for your tweaks in Q1, just in general for the year?

Steven R. Mills

John can talk about the length of time but we had $10 million in the budget here for 2013, which will be relatively close and our outlook for 2014 is for that number not to be much different. It's probably in that $10 million range as we -- and that's for everything, not just what needs to be done in Q1. We don't see -- at least as we sit here today, don't see anything significant coming out of the shutdown in the maintenance work that we need to do. John?

John G. Melo

Just to build on that, Steve and I think again, we expect very little of that to be -- or a small amount of that to be related to the turnaround. And then I think the timing, to your question, is probably going to be a few weeks that we'll be doing the work at the plant.

Operator

[Operator Instructions] Our next question comes from the line of Mike Ritzenthaler from Piper Jaffray.

Michael J. Ritzenthaler - Piper Jaffray Companies, Research Division

Was it about 1/4 of the sales this past Q3 with Novvi? Is that about right? And how much of that $8 million expected in Q4 is for Novvi?

Steven R. Mills

Well, the short answer is the 25% of sales for Novvi in this quarter was right. It was $1 million out of the $4 million. And we're still having conversations with Novvi's needs for Q4, et cetera. So I'd rather not get specific on that even though it's a related party, it's a 50-50 venture.

Michael J. Ritzenthaler - Piper Jaffray Companies, Research Division

. Who decides when Novvi takes volumes? What's that decision process like?

Steven R. Mills

Well, I mean Novvi ends up making the decision, but it has its own management and it has a Board looking at the business plan and the needs and the timing of its off takes. I don't know, John, do you have anything you want to add?

John G. Melo

I think what I would add is it is based on a specific business plan. The business plan is reviewed and approved by the board and the board is really a combination of Amyris and folks at Cosan who sit on the Board.

Michael J. Ritzenthaler - Piper Jaffray Companies, Research Division

I think I'd just like to establish how much influence Amyris has over how much volumes go into Novvi.

John G. Melo

Not a lot. I think we're half of the Board but at the end of the day, it's an important aspect of the business building approach that Cosan is taking and how we build a reliable and sustainable business going forward.

Michael J. Ritzenthaler - Piper Jaffray Companies, Research Division

Okay, that makes sense. And as a follow-up, on the Q4 collaboration funding, it's a bit -- it's quite a bit of a pick up from 3Q, obviously. Is that an artifact of the contracts? And are there milestones that have to be met in Q4 in order to hit some of those collaboration numbers or is that...

Steven R. Mills

It's exactly right. It's contractual and it's milestone driven and we gave you that expectation because of how we see the expectations of hitting the milestones. In fact, I'm thinking that all of it is milestone driven.

Michael J. Ritzenthaler - Piper Jaffray Companies, Research Division

Just one last, if I could. On GOL, what is driving the interest from the airlines? I mean, is it -- clearly the ASPs are going to be a little higher or maybe you could kind of clue us into how much jet fuel costs down in Brazil versus where you guys expect to be kind of longer-term? Or are there maintenance costs that they're saving or is there a green branding that they could do? What is driving their interest? Because this is the second collaboration you guys have announced in the airline space.

John G. Melo

We see it as a very interesting space. I mean, at the end of the day, I want to keep reemphasizing that what we've seen in fuel for the foreseeable are niche applications and these niche applications are really driven by the performance of our products and the desire the partner has to continuously improve their overall environmental footprint.

Operator

Our next question comes from the line of Jeff Zekauskas from JP Morgan.

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

What's the capacity of the Brotas mill?

Steven R. Mills

Well, I think we talked about it in a couple of different ways. We built it so it can absorb the capacity that we expect to get when our new strains are performing at the kind of optimal place. So we know that there's a lot more room to go. Right now, the plant, as we run the 6 fermenters with the current yeast strain is running at its capacity not when it's running at its ideal space. So we said before that the capacity, when it's running at theoretical max is in the kind of 40 million liters per year, maybe a little higher, but somewhere in that ballpark. But of course, we're not close to that now. We expect that really to come in a couple of years.

John G. Melo

I think what we said, Jeff, in the past is we expect and we're actually probably as good or slightly better than we expected to finish this year, the run rate that gets us 8 million to 12 million liters. We expect that over the next 2 to 3 years, we'll get to the number Steve mentioned of about 40 million liters, and I think that will be staged next year, 2015 and 2016.

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

I thought that in response to one of the questions, you said that you were running at 700,000 liters in this quarter?

Steven R. Mills

No, we didn't answer that. I think one of the analysts did some arithmetic about what the volume sold was for the quarter. I think that's where that number came out. So that was a sales number that she calculated.

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

I see. So what do you think your effective capacity is next year?

John G. Melo

We have not stated that publicly. I think the numbers I've given you regarding the run rate exiting this year and how we expect to see it go over the next 2 and 3 years, and Steve's answer of the 40 million capacity or so kind of gives you a way to breakdown the next 2 to 3 years in total volume.

Steven R. Mills

I think the one other thing that we can say from a factual perspective is that we made 1 million liters over a 45-day period, and we're on track to produce over 4 million liters at Brotas this year. And I think from all that we described, we know the first half of the year, we didn't have much production as we got to plant ironed out and ready to go.

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

Okay. If I can just ask a couple more questions. If you sell jet fuel, will that be within the joint venture or that's not within the joint venture?

John G. Melo

Yes, sales in Brazil will be likely outside the joint venture and then sales that we do outside of Brazil will likely be in the joint venture.

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

Okay. And then lastly, if you took all of the funding that you've received and you converted all of the debt to equity, what would your shares outstanding be?

Steven R. Mills

Well, I certainly -- I know that number, but I don't have it off the top of my head, Jeff, and I wouldn't -- I don't want to be on the phone guessing. But I will get that because [indiscernible] public information. So let me get that for you and send it to you separately.

Operator

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to John Melo for closing comments.

John G. Melo

Great. Thank you, Jonathan, and I want to thank everyone for listening to our call, and have a good rest of the evening or afternoon.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

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