Amyris' CEO Discusses Q3 2012 Results - Earnings Call Transcript

| About: Amyris, Inc. (AMRS)

Amyris (NASDAQ:AMRS)

Q3 2012 Earnings Call

November 6, 2012 5:00 p.m. ET

Executives

Joel Velasco - SVP of External Relations

John Melo - CEO, President

Steven Mills - CFO

Analysts

Smittipon Srethapramote - Morgan Stanley

Vishal Shah - Deutsche Bank

Jeff Zekauskasif - JP Morgan

Michael Ritzenthaler - Piper Jaffray

Benjamin Kallo - Robert W. Baird

Pavel Molchanov - Raymond James

Jeff Osborne - Stifel Nicolaus

Brian Lee - Goldman Sachs

Operator

Amyris Third Quarter 2012 Conference Call. This call is being webcast live on the Events and Presentations page of the Investors section of Amyris website at www.amyris.com. This call and the accompanying slides are the property of Amyris, and any recording, reproduction or transmission of this call without the expressed written consent of Amyris is strictly prohibited. As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the Investors section of Amyris website.

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

Joel Velasco

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

The current report on Form 8-K furnished with respect to our press release is available on the company’s website and on the SEC website.

We will also provide certain forward-looking statements about events and circumstances that have not yet occurred including projections of Amyris' operating activities for the remainder of 2012 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 available on the SEC website at www.sec.gov and the risk factors section Amyris' quarterly report on Form 10-Q filed with the SEC on August 8, 2012. Amyris disclaims any obligation to update information contained in these forward looking statements whether as a result of the new information future events or otherwise. Please refer to the Amyris' SEC filings for detailed discussions of the relevant risk and uncertainties.

I would now turn the call over to John Melo.

John Melo

Thanks Joel. Good afternoon and thank you for joining our quarterly update all. As I did last quarter, let me start with highlights of our recent accomplishments and then provide some additional context for what you should expect from us in the coming months.

First, our farnesene plant located at Paraiso in Brazil is entering its final stages of commissioning with consideration progress across all areas of the plant. We remain on budget and on target with planned commercial production at Paraiso expected in early 2013. In parallel we have achieved our fermentation efficiency targets at our contract manufacturing operation at Tate & Lyle in Illinois to support demand.

Second, we continue to see significant improvement in our synthetic biology platform thanks to a new generation of strengths with higher yield and productivity. Our process is working at industrial scale as in the lab and we are achieving our internal manufacturing targets.

Third, our product demand pipeline remains strong and our customer feedback continues to be very positive. We expect our increased production in 2013 to meet anticipated demand for not only existing products, squalene globally and diesel in niche markets but also provide renewable farnesene for emollient as well as certain polymers and lubricant applications.

Fourth, the improvements to our cost structure over the last several months are bearing fruit. Our production and operating costs are better than expected and continue to improve. We have made considerable progress on renewable product and collaboration revenues. We plan to close additional funding before the end of the year.

Now let me review in greater detail our progress in these four areas. First, our farnesene plant at Paraiso is in the final stages of the successful commissioning and on target for initial commercial production in early 2013. We have made considerable progress at Paraiso in the last quarter. When we last spoke at the end of July we had achieved mechanical completion of the main aspects of the plant. To date we have successfully completed a range of critical milestones from automation testing of our cleaning in place CIP and sterilization in place SIP systems for a septic fermentation through a number regulatory approvals, including biosafety and other environmental permits.

Over the last few days, we have begun the sterile hold phase (ph). All activities on the critical path to commercial production are on track and on budget. I continue to visit the site on a monthly basis often with board members and partners. We remain confident that we are on the right track for Paraiso commercial production in early 2013. We continue to use the take while facility in Illinois as our CMO contract manufacturing operation.

During the past quarter our process development, engineering and manufacturing teams have also made a number of process design improvements, which improved the quality of our feedstock mix and met our target performance and cost levels. As a result of this process modifications and improved strengths, we have had a marked uptick in yield, productivity and recovery in our fermentation runs. Also we have validated these improvements at our pilot plant in Brazil, which is operating at a scale model of our Paraiso plant.

In summary, we are achieving our production performance targets at our CMO. Paraiso commissioning is in final stage and on track for commercial production in early 2013. Our strengths are achieving our targets at industrial scale.

To my next point, our synthetic biology platform has reached new milestones with a new generation at each strengths performing better than our first generation strengths in lab sale and new product and feedstock opportunities are emerging.

About a year ago, our research and development team began working on a second generation metabolic pathway for our new strengths to deliver higher performance, particularly as we scale up our industrial production of farnesene. Initial results from the lab fermenters show that these second generation strains exceed the performance of our first generation strains to date. This breakthrough gives us confidence that we can profitably produce our desired molecule farnesene at scale for chemical applications and provide the visibility for longer-term commodity fuels markets.

In addition to developing a new improved metabolic pathway to produce farnesene in yeast, our team has delivered two other important milestones. First we’ve developed farnesene strains capable of utilizing cellulosic sugars with similar yield as conventional sugars. We have always said we seek to be feedstock agnostic and we have shown ability to produce farnesene from cellulosic sugars at pilot scale at rates similar to conventional sugars. We will be ready for the day when cellulosic sugars are cost competitive at scale with conventional sugars.

Second, at our last call we announced we had delivered test samples of our fragrance oil to our partner Firmenich. During the past quarter we made considerable progress in improving those fragrance oil producing strains. In fact, our strain performance is ahead of our projected timeline for delivery that was agreed with our partner. This progress provides further proof that the investment in our synthetic biology platform, not just for farnesene, but also for making compounds like this fragrance oil is paying off.

To summarize, our high-performance second generation strains underscore our confidence and furthers our visibility. Two, of our renewable compounds (indiscernible) acid and farnesene are being produced consistently and reliably at industrial scale, and third, our fragrance oil we will begin production next year and that would differentiate Amyris. We are not producing one molecule and trying to push it into as many markets as possible. We have a platform to make those specific molecules that our customers and partners need. We have the partners and collaborators that can take these high-performance pure molecules and transform them chemically into many other products. We engineer yeast to make what we want and through industrial fermentation, we are making large volumes of exactly what we expected.

I would now like to update you on our finished product sales before turning to see Steve for a review of our financial results and funding. We continue to enjoy considerable product demand from our customers and partners. Currently our renewable diesel in Brazil and our cosmetic emollient squalene globally. We have a number of additional product opportunities in the coming year to coincide with the ramp up of our production at Paraiso.

First on fuels, we continue to deliver renewable diesel to nearly 300 public transit buses in São Paulo and Rio. We have now launched over 11 million km or about 7 million miles with a blend of Amyris renewable diesel. Thanks to the success of our efforts on fuels and the superior performance of our no compromise renewable diesel, we are now starting to supply corporate fleets and have a number of other public transit authorities interested in using our renewable diesel in Brazil.

We have recently received an order from the U.S. Navy for further scale testing of our renewable diesel against their marine diesel and with our partner profile (ph) we are in advanced stages of testing our renewable jet fuel for the required ASTS certification.

Second on squalene, our best in class cosmetic emollient, we have cemented our position in the market with a high-quality differentiated product and continue to expand our markets in Asia and Latin America. As anticipated in our last call we have developed two new emollients to complement our current offering. This portfolio of cosmetic ingredients is generating considerable interest from both distributors and formulators. We expect to finalize agreements for the new emollients with customers in the coming months.

As we continue to develop our diesel and squalene opportunities we remain focused on new opportunities for using Biofene our renewable farnesene as the building block chemicals for finished products. Our partner Kureha of Japan continues to make significant progress introducing a polymer made with Biofene which they have named liquid farnesene rubber LFR to the tire industry.

They have received their first order for LFR for the development of tires from a leading global tire manufacturer. We expect to accelerate shipments next year. We have eight additional of the world’s leading tire manufacturers conducting product testing with very positive early results. We also made progress with Total and exploring new short-term opportunities for farnesene the right products. As planned under our partnership announced in late July we expect Total to test our compounds for certain applications in the fields of specialty fluids, polymers and base oils. We anticipate one of these opportunities will lead to an offtake in 2013. The success of our technology investment and our differentiated product portfolio has resulted in 180 patients issued to date and 340 patents applied for globally.

In summary we appreciate the interest and commitment we continue to receive from our customers and partners. They continue to validate the strong attractiveness of our no compromise products, high-performance, cost-effective renewable products that have a positive impact in enabling sustainable growth. Our plans for commercialization remain on track.

Let me now turn the call over to Steve Mills for a brief overview of our financial results before some comments about funding. Steve?

Steven Mills

Thank you, John and good afternoon. As you will have seen from our earnings release we reported a loss for the third-quarter of $20.3 million or $0.34 per share. A significant improvement over the results from both the prior year third quarter as well as from the past few quarters.

Amyris’ third quarter financial results reflect the results of the activity that John just described to you and are consistent with the strategy that we outlined for you earlier this year. Financial highlights for the quarter include a transition out of the ethanol and ethanol blended gasoline business and amended agreement with Total including $30 million of new funding and the related accounting ramifications of the amended agreement, the finalization of the construction at Paraiso and the ongoing commissioning across that increased sales revenues from our renewables product portfolio and continued reduction of our OpEx cash burn rate.

Total revenue for the quarter was $19.1 million, down from $36.3 million in the third quarter of 2011. This decline in revenue was principally due to the company’s planned transition out of the ethanol and ethanol blended gasoline business. And this transition is now complete. Partially offsetting this decline were increased revenues from brands and collaboration, primarily related to the amendment that accompanies collaboration agreement with Total. As a result of this amended agreement we were able to recognize as revenue about $8.8 million of collaboration revenue related to cash we had received from Total in prior quarters.

Revenues from the sale of Amyris’ renewable product squalene and biodiesel also continued to grow during the quarter. For the third quarter our weighted average selling price of renewable product increased to $8.99 per liter compared to $8.08 per liter last quarter. Our cost of products sold also declined for the quarter principally due to costs associated with the lower sales volumes relating to the company's planned transition out of the ethanol and ethanol blended gasoline business.

On a sequential quarter basis, our costs related to the production of our renewable product was also down significantly as we intentionally produced minimal amounts of farnesene in the third quarter while we commissioned Paraiso and as we undertook planned plant and process improvements at Tate & Lyle that will improve operational efficiency and lower production costs. This work at Tate & Lyle is now complete and we’re back in operations.

During the third quarter we continued to take steps to lower our operating expenses. Excluding the impact of the non-cash stock-based expense our combined R&D and SG&A expenses were down 28% from last year’s third quarter and down 15% from the previous quarter due principally to lower personnel related costs.

Turning to the balance sheet, our cash balance stood at approximately $44.4 million at quarter end. We had the following significant cash related items during the quarter. We received $30 million from convertible notes issued related to the amended Total agreement. We repaid bridge loans related to the Paraiso project, and we secured permanent financing for the plant.

We also had CapEx net of disposals of about $5.5 million for the quarter principally related to Paraiso. As we look forward, we expect additional CapEx spending for the fourth quarter to be around $12 million. As to the larger cash flow picture we are committed to becoming cash flow positive by the end of 2014, and we will need to secure additional funding to support our cash needs between now and then.

To reaffirm what we said on last quarter’s conference call, we will need to raise cash in the fourth quarter in order to fund our operations beyond the fourth quarter of 2012. We are currently in the midst of this fundraising activities. We look forward to speaking to you in February about our year-end results. At that point in time we should be in a much better place to give you more forward-looking information.

I will turn the call back over John for his closing remarks.

John Melo

Thank you, Steve. I would like to provide an update on our strategy and funding. At the end of our last call we told you to expect the following during the second half of the year: additional funding, successful commissioning of Paraiso, continued reduction in cash burn and steady increase in renewable product sales. We have made considerable progress on those four areas to date.

Let me expand on our progress. First on funding, during this past quarter we strengthened our relationship with Total, which remains focused on technology development and commercialization of fuels. Total has contributed $3 million under our agreement in the third quarter and remains committed to Amyris’ technology platform with another $52 million pledge over the next two years.

Second on Paraiso, we are on track for successful commercial production in early 2013 as planned. The lessons learned from our CMOs and the improvements in our technology and processes will help deliver on profitable predictable production at Paraiso in the coming quarters.

Third, on cash burn, we have made considerable strides in our efforts to reduce our expense profile. As Steve explained, we have had a step change in our OpEx without sacrificing performance. We know there is more to do here and view the progress so far as sustainable for our business.

Finally on sales, we’ve generated commercial sales of renewable products with two products diesel in Brazil and squalene globally. Although these volumes are limited by our deliberate production ramp we are developing additional long-term collaborations that result in product opportunities and commercial commitments.

For instance in the flavors and fragrances area where we have had tremendous technological breakthroughs, we are in advanced discussions with multiple partners for expanded collaborations that provide revenues, while adding to our product portfolio.

To sum it up before taking your questions during the third quarter we continued to see the results of our focused manufacturing strategies with lower operating costs, improved efficiencies and growing sales of our renewable products. We realized tremendous improvements in our technology platform with a new generation of strains. Our product commercialization activities remain on track. Our industrial scale farnesene production facility at Paraiso is in the final stages of a successful commissioning.

We remain confident about commercial production in early 2013 and achieving cash flow positive in 2014. Joey, would you please open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Smittipon Srethapramote with Morgan Stanley.

Smittipon Srethapramote - Morgan Stanley

I have two quick questions for you. First is on the second generation strain that you just announced, at what scale have you been able to produce farnesene using the second-generation strain and will this be used to utilize when Paraiso ramps up in early 2013?

John Melo

We expect or right now we are working with that second-generation strain at two leaders, and we expect somewhere in the first few quarters of Paraiso starts to transition the strain to Paraiso.

Smittipon Srethapramote - Morgan Stanley

And then maybe just follow up on the capital raising that you guys are in midst of right now. Approximately how much money are you guys is targeting?

John Melo

We’re not disclosing that at this time.

Operator

Our next question comes from the line of [James Advata] with Cowen and Company.

Unidentified Analyst

So I am going to just press a little further on that funding question. What was it that caused the accounting treatment to trigger that 8 million sort of catch-up accounting on the revenue line from the Total money?

Steven Mills

Have been receiving cash from Total over a period of time, prior to this quarter, the accounting rules based on the agreement that we had in place with Total at that time basically made us record that as a liability until such time that we did eventually release that. The new amendment allowed us to free it up a bit earlier than we expected. So it’s really based on the agreement as they were and the agreement that they were amended.

Unidentified Analyst

Then of the $30 million, how much is yet to be realized in revenue?

Steven Mills

I think we got – I think you possibly could have a two items mixed up. The 30 million that came in September of 2012 has been recorded as convertible notes. The 8.8 that we recognized had to do with cash that came in quarters prior to September 30.

Unidentified Analyst

So there is nothing additional from that catch-up accounting treatment?

Steven Mills

Not from a cash perspective.

Unidentified Analyst

If there was $44 million of cash on the balance sheet, and I think you said $12 million of CapEx expected in the fourth quarter, what is the urgency to add cash so quickly right now?

Steven Mills

So we certainly have continuing OpEx as well and we know that we are in this business for a long time. So we are going to need to get some funds right in this quarter to be – to put us in a place to really be comfortable running the operations going forward.

Operator

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

Vishal Shah - Deutsche Bank

Thanks. Steve, wanted to just understand the cash burn comment, you said the cash burn has gone down. Can you just maybe talk about what your cash burn will be in the fourth quarter and how should we think about cash burn as you start ramping Paraiso?

Steven Mills

I think as we look at the fourth quarter, we don't see any significant difference from the rates that we have been running. Again we continue to look for ways to optimize and get more efficient but there haven’t been any significant changes as we see here in the fourth quarter, I think that the biggest items will be the timing of the CapEx as you mentioned – and as I mentioned earlier. We had commissioning costs relating to Paraiso in the third quarter, and we expect those to be similar in the fourth quarter. So I don't see anything significantly different cash burn wise.

Vishal Shah - Deutsche Bank

Can you remind us what your CapEx will be for the year for 2012, if you’ve seen 12 million for Q4?

Steven Mills

I will find that. I don’t have that –

Vishal Shah - Deutsche Bank

And as you sort of think about that, how do you see 2013 CapEx shaping up?

Steven Mills

We don’t see significant expenditures in 2013, the bulk of the money sent 2012 were on Paraiso, our São Martinho joint venture and to get our CMOs up and operating. We don’t see similar needs at all for 2013 and believe CapEx will be significantly down.

Vishal Shah - Deutsche Bank

So less than $50 million?

Steven Mills

I would think substantially less than that.

Vishal Shah - Deutsche Bank

As you think about the funding situation, I know you had said last quarter that you were working with a few strategic partners and said in sectors like the chemical industry. Are you still following that path or are you exploring other options as well?

John Melo

We are continuing that path, we have a significant number of collaboration partners in the pipeline. In addition to that like we indicated in the last call we will also be pursuing additional sources in addition to the collaborations. So we actually have both very active and as Steve mentioned expect to have that complete before year-end.

Operator

Our next question comes from Jeff Zekauskasif with JP Morgan.

Jeff Zekauskasif - JP Morgan

What was your cash flow from operations in the quarter?

Steven Mills

Jeff, if I could guess, I am just flipping the page here. I’ve got – I don’t want to misquote. It was a use of about $28 million.

Jeff Zekauskasif - JP Morgan

You talked about getting better yields in your strains and you thought you might use some of those strains at Paraiso. But when Paraiso is up and running, how many liters of farnesene do you expect it to produce on an annual basis?

John Melo

Jeff, it’s targeted at 50 million liters per year. It will step up to that level over a three-year period.

Jeff Zekauskasif - JP Morgan

What about next year though? What about in ’13, how many liters do you think you can get out of that facility?

John Melo

We are not providing any guidance on volume at this time.

Jeff Zekauskasif - JP Morgan

I don't mean on volume, I mean on your -- what you expect out of your strains?

Steven Mills

I think two things I would add. One is that we're going to be ramping that facility up during the year, six pemitters and we’re going to open it up with two and certainly going to gauge how fast we move with volumes based on how we see the ramp up though. It will also be tied to the demand for the product. So we’re going to manage that accordingly.

Jeff Zekauskasif - JP Morgan

Now is it the case that this really will begin to ramp up in the second quarter of 2013 for seasonal reasons or would you be selling any material amount of product in the first quarter of 2013?

John Melo

We expect to start before mid-2013. I think we have said early 2013 Jeff and we are operating year-round at that site. Not just for the season.

Jeff Zekauskasif - JP Morgan

Right but you expect to really scale it up come April, is that right or you expect to really scale up come January?

John Melo

We expect to start early in the year. We expect to run for most of the year at the two tanks and based on how the process evolves, we could expand from the two to the six but we’re not actually connecting that to specific time of the year.

Jeff Zekauskasif - JP Morgan

So lastly, so you’re going to run two of the six fermenters so that means that your capacity all things being equal will be a third of what it would produce if they were optimally producing?

John Melo

Well done, Jeff.

Operator

Our next question comes from Mike Ritzenthaler with Piper Jaffray.

Michael Ritzenthaler - Piper Jaffray

Just to kind of follow up to some of the cash questions, the CapEx less on Paraiso you said $12 million for the fourth quarter, and I am sure you have a budget for next year little sixes and things like that? Can you talk what that is?

Steven Mills

We are in the midst of our 2013 planning, I don’t have number rate to talk about but I will on the next call. But as I said earlier, we’re not even going to be close to – we don’t expect even be nearly close to what we’ve done this past year, it should be about –

Michael Ritzenthaler - Piper Jaffray

And so the brands and collaboration revenue going forward, is that basically a way for other vehicle for Total, the collaboration with Total put forward into the income statement, is that – where should we expect that to be over the next couple of quarters?

Steven Mills

I think as John described, we expect that collaboration revenue line to grow over time. Right now we don't really see much more activity from Total through that line right now with that part funding and second funding, we see coming through that not as a revenue at least at this point in time. We just add it as convertible note. So most of it is going to be in the ongoing collaboration that we have in place now with a variety of customers, including flavors and fragrances impact that John talked about. That’s several of the new collaborations that we are pursuing right now. So we see that line item growing in 2013.

Michael Ritzenthaler - Piper Jaffray

And as you roll out the fragrance oils, is that going to be seen one kind of activity as very user focuses on farnesene.

John Melo

No we actually expected it in the immediate frame 2013 and 2014, that will be CMO and it will transition to specialty molecules manufacturing path at Paraiso.

Michael Ritzenthaler - Piper Jaffray

And then I was wondering if we could look at just the gross margins on just the farnesene in the quarter, obviously there is a cost of goods line but I wondered how much of that was from the ethanol piece that was left over?

John Melo

What I can tell you that ethanol and ethanol formulated gasoline basically is a very low margin business. So if you take the related revenue amount out of that you will see that it leads that margin line close to breakeven.

Operator

Our next question comes from Ben Kallo with Robert W. Baird.

Benjamin Kallo - Robert W. Baird

I wanted I guess step back, as we’ve gotten to a lot of details. John, you have been through a lot in the past 18 months. How do you feel where you are right now compared to maybe our last call, your progress you have made? And then as we look out to some of the opportunities for funding, do you have to give up a piece of the business for you guys to get funding or is there some of the step in there to provide funding as a partnership? And then finally on the new strains, what does that really mean to us? Does that mean lower cost, does that mean that sort of market? What does that mean?

John Melo

Ben, I will actually hit your first and last and then let Steve take the middle of the questions. I think there is a word and I will explain, the word I use is survived when I think about the last 18 months. And the way I would explain that is we basically thought we had a strain markets production and everything wonderful and then we went into the reality of what it takes to actually scale up and produce products at industrial scale. I think we’re now on the other side of that. It feels much more comfortable, and I have a very good view now and a confident view not based on expectation but based on the reality we've gone through in the last 18 months for having transitioned the company from a R&D company to a commercial and industrial fermentation company. And we’ve done that throughout as you’ve seen over the last 18 months both in our process, our plants and our people.

And so I think I’d say I am feeling optimistic that and more on a solid foundation than I've been in my almost 6 years here. And then on your last piece regarding the new strains, what I would say is what they will do is accelerate our time to additional and bigger markets than what we had with the old pathways. And then secondly, they give us greater confidence in being able to achieve the ultimate target yield and productivity and enact this into fuels market. But in the short term it’s really about access to more markets faster as a result of the new pathways and the new strains.

Steven Mills

Ben, I will pick it up on your funding question. I think we really got several balls in the air and your questions are right on, one, it’s everything from equity debt to collaboration to partnerships to pieces of the business. I think all those things are in consideration. I think that it’s one of the unique attributes that Amyris has where we have an ability to make a variety products and participate in a variety of marketplaces, which gives us an opportunity to work with specific customers for funding opportunities with particular partner.

So as we advance discussions with various partners we’re really looking for what the best value for the shareholders and for Amyris long-term and it’s something that we wrestle with and deal with as we negotiate with – and discuss this with all the folks. So we’ve got all those pieces in the air right now.

Benjamin Kallo - Robert W. Baird

One more if I can. You guys get the nod of new molecules as far as being the adoption time that can take for all these different end markets, it could be too long. You guys have been out there producing CMOs a couple years out and you have been treading this market. Is it time for us to stop knocking you on that, time to market, have you actually opened up some of these markets with farnesene as an molecule, can you talk about that a little bit?

John Melo

I will give you two examples rather than a speculation. And the first one liquid farnesene rubber, where we’ve now advanced to the point of a tire manufacturer and are now ready to start making a tire. And I think that is a big step and the way to think of it is to enter a formulation is an 18 to 36 month cycle and like you highlighted we’ve been into that cycle now for 24 months in many of markets. And I think squalene is another great example of -- squalene we’re about 12 months – little more than 12 months into marketing it globally. We have a little bit more than about 12% of the global market and we’re growing very rapidly and have significant demand for it.

So I think we are, beyond that there is still applications we need to go through the cycle on. So it's not like all of our applications and products were complete through the cycle and in some of these applications we are helped a lot by our partners and I think the fragrance oil is a great example where it’s a very specialized application, our partner have fantastic skills in both the regulatory as well as the market adoption as well as being a large consumer of the product globally. So we think of it as we've already successfully gotten to market with our (indiscernible) with farnesene as a base with squalene as a derivative of farnesene and now I have faced significant progress on liquid farnesene rubber. We are at the end of the cycle for several of our products and about mid cycle for a few others and we don't have that barrier at this point. Our barrier at this point is bring on them only with the right cost and start building up revenues.

Operator

Our next question comes from Pavel Molchanov with Raymond James.

Pavel Molchanov - Raymond James

The first just a quick housekeeping item, Q1 and Q2 you provided farnesene volumes, I think it was something like 300,000 liters in the June quarter. Can you give us a Q3 number?

Steven Mills

The Q3 number was quite small, it was 60,000 liters or so and as we said earlier we really weren't running any of our facility at production capacity, we were working on our processes and procedures at Tate & Lyle. So that’s a minimal number, but that was part of the plant.

Pavel Molchanov - Raymond James

And then let me switch gears to look at your kind of 2014 year-end comment, what are the key assumptions behind positive cash flow by the end of 2014? So presumably Paraiso running at full scale by that point and what else?

John Melo

It’s really Paraiso and Tate & Lyle by that point and then the collaborations we have in the pipeline.

Pavel Molchanov - Raymond James

I think you mentioned on the last call that your target for São Martinho startup was mid 2014, is that still the case?

John Melo

We don't expect to realize revenue volume, commercial volumes till 2015 from São Martinho. So the 2014 target and what we’re tracking to does not include São Martinho volume.

Pavel Molchanov - Raymond James

Even exiting the year?

John Melo

That is correct. Commercial and planning perspective.

Operator

Our next question comes from Jeff Osborne with Stifel Nicolaus.

Jeff Osborne - Stifel Nicolaus

A couple of quick questions on the Tate & Lyle facility in Illinois are they using same size fermenters that you folks are using in Paraiso?

John Melo

Yeah about the same, about 200,000 liter fermenters.

Jeff Osborne - Stifel Nicolaus

And then on the new strain, I know couple of questions have been asked. But you mentioned even at the 2 liter scale reaching kind of the cost points and yield points that you are hoping for on the diesel production side? If my memory is right, when you went public, I think the goal is to be in the 22 to 24% yield range to cost-effectively produce diesel. Is that an indication that you are in that yield ballpark even at this smaller scale production?

John Melo

No, it does say that these strains and what we've seen on them is mostly through the fact that they’ve now surpassed the first generation. We've got a clear visible path to get there and are confident being able to do that but we are not at that level today.

Jeff Osborne - Stifel Nicolaus

And just the last question, we kind of fast forward six months from now and think about the 2Q earnings call and Paraiso is up and running for a couple of months, how are you folks going to articulate what kind of the startup costs are in terms of your cost per liter? I imagine that would be bumped up for a couple quarters in a row, you just have some teething pains and bits and starts. But is that something you’re going to break out separately because I would imagine at that point Tate & Lyle’s running little bit more smoothly. And that would then be offset on the margin side by a startup ramp costs throughout 2013 and as you have articulated things would be much better in 2014. But again just trying to get a sense of are you going to separately breakout what those start-up costs are so we can look at what the contract manufacturing side of the business is doing from a margin perspective separately?

John Melo

A couple of points and I will let Steve comment on what to expect regarding how we report. We are at a stable process and understand stable economics at Tate & Lyle. We expect based on the transfer of technology what we are seeing during the commissioning phase at Paraiso very quickly attaining that same level of performance and our whole focus on the I would say very measured ramp-up during 2013 is really to ensure that we set ourselves up for success in 2013. So it's not necessarily that we think is going to take two to three quarters to stabilize based on everything we've achieved so far and what we're seeing. And I think my last point will be, where our production stability is today, where our production costs are today is a significant step change from where we were at the beginning of this year. And so our ability and our visibility on both the startup at Paraiso and the current performance at Tate & Lyle, don’t give us the view of a steady state hope we get there evolution in 2013.

Steven Mills

Just to build on that a bit, I haven’t completely thought through what reported model is going to look like. I am pretty sure that we will not breakout each plant separately but we want to be in a place where we could give all the readers of our financial statements and our analysts good visibility on what our expectations are. So to the extent that we’ve got startup and other related costs, I think we will find ways to be able to share those with you. Just haven’t completely thought it through yet.

Jeff Osborne - Stifel Nicolaus

One last quick one for you, Steve, the 8.8 million this quarter in revenue, was there any cost associated with that or is that a 100% profit?

Steven Mills

There were no – no current costs associated with that. Again that have to do with cash in prior periods.

Operator

Next question comes from Brian Lee with Goldman Sachs.

Brian Lee - Goldman Sachs

I apologize I jumped on late, so if you’ve answered these, again apologies. I was wondering what drove the improvement in product costs quarter on quarter and I guess what trajectory can we expect from this level into early next year?

John Melo

I think two things on the product costs. One, we continue to transition out of the ethanol and ethanol blended gasoline business. So that was a big chunk of the cost and then from -- on the renewable products, we just didn’t have much activity there, and we purposely – we only had Tate & Lyle and we purposely had Tate & Lyle down for the quarter as we implemented process and equipment changes there. So looking the only production facility that we have running little bit of a downstream process, at some of our other CMOs, but most of it would be Tate & Lyle. And I don’t see at this point in time a lot of activity and a lot of cost there based on what we look forward to the rest the year. So I think there shouldn't be much change.

Brian Lee - Goldman Sachs

And I may have misunderstood this (audio gap) I had thought on the renewables product side that some of the Q3 volume if not a lot of it was being shipped out of inventory. So I am curious wouldn't that have been a cost that is similar to Q2. Maybe I am missing something here.

Steven Mills

It would have been shipped out of inventories but Q2, especially early in Q2 had costs related to the other CMOs and the other activity as we built that inventory up. And then downstream processing costs that we had to take the farnesene and squalene. So we had additional costs in Q2. But you are right. Virtually all of the shipments and the sales that we had in Q3 came out of inventory.

Operator

Thank you. And that does conclude our time for questions. I would now like to turn the program back over to John Melo for closing remark.

John Melo

Thank you Joey. I would like to thank all of you for your time today and your interest in Amyris. Have a good afternoon or evening.

Operator

Thank you sir. And again ladies and gentlemen this does conclude today's conference. Thank you for your participation and have a wonderful day. Attendees you may disconnect at this time.

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