Q3 2019 Earnings Call

Ladies and gentlemen, thank you for standing by the Amorous conference call will began momentarily. Please continue to hold and thank you for your patience.

Oh is being webcast live on the events page of the Investor section of amorous website at <unk> Dot com.

This call is a property of Amris and the recording reproduction or transmission of this call without the expressed written consent of amorous 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 amorous website.

Now I'd like to turn the call over to Peter Dinardo director of Investor Relations and corporate communication.

Sure.

Good afternoon, and thank you for joining us today with me today or John Melo, Our Chief Executive Officer, Eduardo Alvarez, Chief operating Officer, and Jonathan Walter Our Chief Financial Officer. Please note that on this call you will hear discussions of non-GAAP financial measures, including gross margin figures.

Conciliation of these non-GAAP measures to the most directly comparable GAAP financial measures is contained in the summary financial information slide of the accompanying presentation or the news release distributed today, which is available at investors Dot Dot com.

The current report on form 8-K first with respect to our press release is also available on our website as well as on the Fccs website FCC Dot Gov.

During this call we will make forward looking statements about events and circumstances, they have not yet occurred including projections of adverse is operating activities.

Our anticipated financial impact on our business and financial results for 2018 and beyond.

These statements are based on management's current expectations and actual results or future events may differ materially due to risks and uncertainties, including not be tell from time to time and finally Everest makes with the Securities Exchange Commission, including annual reports on Form 10-K quarterly reports on Form 10-Q and current reports.

Form 8-K Emirates disclaims any obligation to update information contained in these forward looking statements well there was a result of new information future events or otherwise please refer to the Amherst FCC filings for detailed discussion other relevant risks and uncertainties before we begin today I'd like to know that included.

Our webcast as a slide presentation, we will refer to in todays presentation.

I'll now turn the call over to John Melo John .

Thank you Peter.

Good afternoon, Thank you for joining us today.

Joining me today or Tomorrow Alvarez, our chief operating officer for sure highlights and the outlook, our operational performance and Jonathan will alter our CFO , who will review our financial results and also provide an update on the resolution of RCB I Heights convertible debt.

I'm very pleased to announce that subject to our board approval, Jonathan will be joining us as our permanent CFO and we are dropping the interim from his title.

His focus on delivery and a significant background and experience our critical component for supporting our growth with accurate and timely financial reporting and disciplined leadership inside of amorous welcome John It's been great to have you on board.

I'm very pleased to welcome him and also think and also very happy that we are back into a normal reporting cycle for financials for the first time since the third quarter of 2018. This has been a really challenging year with a lot of trials along the way you had our business. That's remains solid and we are delivering the best growth in our history.

And doing it with a leading product and customer portfolio in our industry.

This has resulted in considerable momentum for E. Commerce that has led to record volumes of product production, what she'd ward, who will discuss later.

Although our capital constraints have made this difficult to manage I believe these constraints have made us more resilient and a fish and while we continue to grow.

We're pleased with our year to date results and we are already having an excellent fourth quarter that we believe will enable us to exceed our business outlook of 150 billion in revenue for 2019 by at least $10 million.

Our product production volumes have continued at record levels in the fourth quarter and this is expected to result in product revenues that are 150% better than the fourth quarter of 2018 and much better than the record third quarter of this year.

Our total revenue for the fourth quarter is currently tracking to be about 250% better than the fourth quarter of 2018 and almost double the third quarter of this year.

I will touch more on our outlook in a moment. So you can better calibrate our anticipated revenue for the year.

Now, let me review our business highlights for the third quarter and provide some color on what we expect for the remainder of the year.

Total revenue for the third quarter was 35 million.

Product revenue COVID-19.7 million or rounding up to about 20 million our product revenue for 2019 is well above our target of more than doubling 2018, our product revenue includes royalties slashed value share that are part of our business model for product revenue with many.

Of our long term collaboration partners when we referenced product revenue. We always include the value sheer component or what's what's recorded as royalty component for products, we produced and shipped to partners that have this component in the product pricing structure of our long term supply agreements to these customers.

To put doesn't perspective, so you can dial in this is part of our revenue expectation for 2019 total product revenue for 2018 was 33.6 million.

Yeah and year to date total product revenue for 2019 is at $44 million and we are tracking to end the year, well over $17 million and product revenue, we're likely to deliver almost as much product revenue in the fourth quarter of this year.

As for all of 2018.

Today I'll focus on grouping our growth drivers into categories. As we did on our last call clean beauty, which includes our biossance and pipette brands as well as our upper know about sway light ingredients business and then our second category health and ingredients, which includes a jumbos.

<unk> vitamins and flavor and fragrance ingredients as well as our sweetener business.

Let me start with clean beauty Queen beauty continues to perform very well in the third quarter and is already on track into fourth quarter to more than double the third quarter of 2019 revenue. We are on track for gross sales in clean beauty to be about $60 million for the year Biossance This call.

Currently approaching our run rate of $1 million and weekly gross sales are biossance dot com daily sales have more than doubled this quarter over last quarter and are about three times, what they were at this period last year.

We are tracking to deliver as much in sales from Biossance dot com and the fourth quarter as all of last year on Biossance Dot com, our launch of the clean Academy and our partnership with Jonathan The Badness are achieving excellent consumer engagement and feedback we are excited to lead the beauty industry transition to clean them.

Radiance and to help educate consumers on the meeting and benefits of clean beauty Queen beauty is quickly becoming the beauty market. This is the right thing for our planet and the health of everybody Scott.

We are achieving this growth with much lower level of discounting the last year and with a much better return on advertising dollar spent we have also doubled our consumer loyalty ratio from last year. For example, our return on advertising spend for Biossance has gone from about $1.40 return for.

Every dollar spent in the first quarter of 2018.

Up to about $3 and 40.

Sense a revenue for every dollar spent in the third quarter of 2019. This along with a great assortment of clean skincare products has led to repeat purchases based on the percent of repeat customers growing from 15% in the first quarter of 2018% to 48%.

In the third quarter of 2019.

This is fostering great customer retention and growth for our Biossance, Brad we are spending less to acquire every new customer and we are getting more of these customers back as repeat buyers.

Our so for sales and productivity growth, which is defined by the average weekly sales since the four stores more than doubled during the period at stores, where they fall in cap format.

Also sales at those stores, where the smaller wall assortment of products and know when caps grew by almost 150%.

Keep in mind that fall in Capsense Afoura are still in high growth deployment with our expectation that 247 out of 480 stores will have in caps by the end of this year and that at the end of the third quarter. There were 219 stores with Biossance end caps.

Stores with food and caps have about two to two and a half times the sales of stores, where they limited assortment wall only formats.

We believe that our sales productivity, it's not far from drug elephants, the big difference in revenue between Biossance indirect drunk elephant is that they have formats with a full product line placement in all 480 stores and we will be in 247 stores by the end of the year, which will have the full biossance product line.

Biossance continues its great organic and comp growth as the top performer its afoura and the continued ramp and then caps at the store level will further propel our sales.

We have also delivered significant geographic expansion in the quarter and sense with Biossance sales now in New Zealand, Australia, and more recently, Thailand, and South Korea, you can see how growth answer for end caps, our digital sales and geographic expansion all have bed and welcome.

I didn't used to be the drivers of Biossance growth for the next several years.

To help you value our performance with Biossance, you could consider our current quarter run rate at over $50 million and annual gross sales and applying to recent valuation multiples for large company acquisition of clean beauty high growth brands like drunk elephant biossance would be valued today at somewhere between.

350, and $400 million, we have no interest in a sale at this time and we believe the current pipeline of products our markets and continued execution will lead to a potential value of over $1 billion over the next 18 months, our mission and focus is to build the leading skin care brand in the world and help the.

Tire industry transition to clean formulas and ingredients that do right by the consumer and our planet. We now have a proven investment and growth model in clean beauty and are just starting to expand.

Our pipette Baby care, Brad is receiving great consumer response, we have over 1700 consumer ratings with over 98% averaging five out of five stars we have experienced over 140000 visitors to the pipette Baby Dotcom site. This is over three times the activity.

Various with Biossance at the same maturity level.

We are now actively selling across each of our early sales channels and we are seeing excellent week over week sales performance. We are hearing great feedback from our channel partners at Amazon and Buybuy Baby along would be in available they love both through our pipe pet baby Dot Com website and Buybuy baby.

Amazon Dot com and drum store as well as all more Walmart dot com in the coming weeks, we are an active negotiations with another big box retailers with a goal of launching at that retailer in the first half of 2020.

Both of these brands use our hero ingredient square line and are squarely in ingredients business continues to deliver we will deliver record volumes of squarely in this year driven by a growing recognition of how effective this clean moisturizer is among the clean beauty trend.

This ingredient is so effective and absorbable in the skin that our tests our clinical tests have shown that it is about 14 times more effective as a carrier of other active ingredients as compared to total oil argon oil or other mineral oils.

This will serve as an advantage platform when it comes to including CBD within our Biossance products and within other skincare or topical brands that use our top performing squarely.

There is clear synergy between our square lane and future CBD offerings, we are tracking to be about 70% of the global market for sport Alain over the next year, well also playing a big role and expanding display market at double the rate of the overall skin care market or about 10% to 15% total.

Market size increase year on year.

And helping ingredients are flavors and fragrance business has continued to be a stable source of revenue growth and innovation our partners like fermentation GE, but on our global leaders in the market and have a deep understanding of consumer taste and preferences.

Gee for Don has had an expert had in helping us formulate our sweetener and making it the best tasting and most sustainable natural sweetener in the market today.

Not only are both great collaboration partners. They are the go to source for CPG companies and a great source of advice on consumer trends and market entry strategies.

There is synergy in our sweetener and can have an always opportunities since food and beverage products that are infuse.

What can happen awaits, which often need a flavor enhancing agent like our sweetener along with formulation expertise to avoid any offtake from can Ave. It's.

Pure Kane and our zero calorie natural sweetener has continued to do very well. We now have several of the largest users of stevia in Latin America converting to our sustainable best tasting pure King sweetener with the first orders now receive and we have also gained significant traction as a sweetener for use in.

Flamer flavor formulations in.

In North America, we have great interest and early sales from innovators. These are smaller brands that are disrupting the industry leaders with brands and products that consumers are switching to.

We also have advanced to the negotiation stage with leaders in specific vertical markets from nutrition to bakery that will become key drivers of our future revenue in sweeteners.

As you'd want to will cover we have sold out all that we have produced at this time and already have orders for the volume for the next production batch.

We have learnt much and also achieved significant breakthroughs during the scale up last year and through the early part of this year. These learnings are now mostly behind US and we are very excited about the continued progress of this product and our leadership in this category.

Our pure came consumer brand isn't the process of launching this month and we are excited to provide consumers I healthy choice to make their life sweeter.

We are very pleased with our canal Benoit development program and are ahead of plan. We are on track to commercially scale CBD and another cannabinoid in 2020, assuming regulatory conditions are met our progress has been better than expected and we expect to deliver samples of two can have an word molecules.

Including CBD for early testing and formulation development starting early in the first quarter.

The Lavanya executive team is very experienced and delivering excellent insight and guidance. They have a track record of leading the industry. We are confident that this will be highly profitable for both companies. Some of you have asked about the royalty structure. What I can share is that it is essentially based on production margin and Lavante business profit.

Margins. In addition, we do have certain controls and minimums to protect Amherst and Lavante returns I think it's safe to say that both parties see that fermentation based highly pure can happen what ingredients will be the key enabler for consumer brands globally to deliver what consumers are demanding doing it safely.

Sustainably and with the highest efficacy of any source of can Ave. It's in the market.

This confidence is based on the fact that the first two can have in wood products will represent the 11 and 12 time that amorous has successfully scaled unnatural fermentation product that is the most sustainable source and lowest cost supply for the end market.

It will be another proof point of our market leadership in delivering natural sustainable clean chemistry that delivers a no compromise product to consumers brands and our partners.

We have certain carve outs in the agreement with Leviathan parameters for amorous to serve skincare and beverage segments on our own what can happen OID ingredients. As you can imagine this is applicable to biossance, an AFE for Nova as well as serving leading beverage companies. We're in discussions with two top beverage companies regarding very.

A large scale CBD supply opportunities when it comes to adding CBD products. The winning companies will be those that can assure purity and consistent quality at reduced cost and that's exactly what fermentation can provide.

This purity need is of growing importance to private companies and consumers a recent U.S. study by legit script found that our products from 300 online the merchants, 98% were noncompliant with at least one regulation one product even contain 18 and a half times deal allowable amount of led.

The can now the cannabinoid market is ready for a company that can offer superior ingredients with less risk on quality, providing high purity more dependable production and scalability and assuring consumers that they are getting what they are getting a safe and exactly what it says on the label.

We continue to view the can adenoids opportunity as one of our most valuable businesses. The belief that we will be the first synthetic biology company to successfully commercially scale multiple lower cost highly pure cannabinoids from our fermentation technology.

Now let me let me begin summarizing we are delivering on our key strategic goals and have the leading portfolio in our industry, our strategic goals, our first exit commodity markets with extremely volatile pricing, where we have no control. We have done this resulting in a simpler and more focused portfolio of the leading health.

Nutrition and beauty clean products meeting, a mega trend for natural and sustainable products for consumers.

Number two we are investing in markets, where we have the number one product customer or partner and where we are delivering the leading solution to the industry. We call. This our strategy of number once.

Next markets, where the current growth and outlook is at two times are better GDP.

Next markets, where there is a mega consumer trend, where we have the leading technology platform to win with this enables us to be a sustainable business.

Lastly markets, where we have access to the consumer and can execute a no compromise value proposition that enables us to be the growth leader.

We want to make big bets, where we have the capability to win and deliver may get impact for global issues that matter here are some examples of where our focus is first we want to lead the sugar reduction strategy for the World Secondly, we want to create a sustainable replacement for opioids, we need pain.

Next I'd management for an aging population and we want to do this safely thirdly, we want to move the beauty industry to a clean beauty world, where we use clean ingredients that performed better than the alternative and don't do harm to people. Our planet. This is no compromise clean beauty and then lastly, we wanted to delivered the best before.

Warming safest products for babies, they are future and they deserve the best without Har pipette is delivering delivering on a need an a promise for our children and our planet.

We shared with you some clear strategic metrics for you to measure our progress.

Let me go over some of these we've said that we would double product revenue and we are doing better on year to date and tracking to exceed this expectation for the four year.

We said that you should expect us to end the year with about 100 million or better of recurring revenue that builds a strong base for next year. We're on track to do this by the end of this year with over 110 million and a clear path to doubling that again next year.

We provided the gross margin range for our business, a 55% to 65% and we're on track to be around the midpoint or slightly better.

We said that we would exit the highly volatile vitamin E market and more than replace it with a high value market, where we had much more control over our destiny. We've achieved this with the can have on whats program. This program will more than we placed the royalties we expected from vitamin E and has enabled us to significantly simplify our R&D portfolio its a.

Largest single contract in our history and has the potential for hundreds of millions in annual recurring revenue from product sale sales as our technology scales.

We frequently get asked how we compare against others in the sector. This is very difficult does our only public direct competitor is on track side, where we have a lower cost base. We are growing at a significantly higher rate and we have a very different portfolio of markets that are much nearer term and delivering strong financial performance. Our other way to compare is the price.

But market our biggest direct competitor in the private market is gingko bioworks based on public data from the recent fundraising we can determine they are burning a higher level of cash we have three markets that each will do more revenue than all of the goes 2008 revenue.

We're almost there total 2008 revenue in our third quarter, we are growing at a much higher rate, we have leading positions in strategic markets that have billions of dollars in town and our growing our best estimate is that they will need 500, the $700 million of new investment to reach our current run rate of performance. While we are look.

At achieving positive cash generation.

From operations in our business in this coming year.

Our biggest negative against the competition has been our balance sheet and the equity value of our business. That's what we've been working on this year and what I'm hopeful we will be out of going into next year. We really respect these companies and competitors and most importantly, we believe strongly that together, we are making the world better and we appreciate all the way.

Work theyre doing to improve and make the industry a reality for everybody.

We've also heard concern from some investors that we are selling our future to date, we have monetized two products through technology licenses, where we can no longer participate in the future economics.

These are for number one renewable diesel in Europe , which we monetized to total and vitamin D from Farnesene two DSMB. The combination of these two markets generated over $400 million of cash to amorous. We have several hundred molecules, where we have proof of concept complete and hundreds of additional mark.

Just where we continue to have access to the long term revenue streams.

The last competitive question I'll address today is whether our business is sustainable long term give you a three simple data points. We have over 3000 large customers who are buying our products globally today and expanding every quarter, we have over 20 customers, where we generate over $1 million annually and most of these are currently doubling.

Thank you are on year, most of our products that had been commercial for over two years generate at least $1 million of annual revenue and each are growing at over 40% annually.

We have a sustainable business that is the fastest growing in our sector with a strategic portfolio that is the most advantage to grow efficiently.

Our fourth quarter is starting very well we are tracking for around $60 million of total revenue and most of it recurring the fourth quarter can be extrapolated into a four year run rate of about $240 million for 2020, our gross margin for the full year is continuing to trend towards the midpoint or slightly higher of.

Our 55% to 65% guidance, we expect the gross margin to can you continue to expand into 2020, we have already implemented actions that would reduce our cost of goods sold by $10 million on this year's volume and we believe lower our Cogs by almost $21 million for next year.

You are to will cover these in more detail our core markets are continuing to deliver very strong growth and you'd wider will cover our operational performance and margin improvements to ensure we deliver a full year positive EBITDA in 2020.

After Eduardo when Jonathan provide their updates I'll provide an outlook and detailed steps for our continued performance into 2020, let me now turn to reward Eduardo.

Thank you John and good afternoon, everyone.

We start by summarizing our production results.

In the third quarter, we produced 770 pounds.

Which resulted in a total revenue of 35 million.

The product revenue portion of this go responded to about 20 million or 56%.

Total revenue.

We produced nine fermentation and fermentation products in this quarter.

Four of them were ahead of production targets entry where unplanned.

Hi production year to date is for 2170 Collyn.

We also have made the required process.

Option improvements are on track to deliver.

Thousand 330 tons for the fourth quarter.

And we will finish 2018 with a total production volume of 3400 tons.

Two reasons, we feel confident about finishing the year, which.

Such a strong finish first as I reported in our last financial review, we continued making process and technical improvements to our exclaim production processes.

These changes were implemented during the second and third quarter.

And they are paying off production throughput.

We are planning to finished the fourth quarter with over 475 tons.

Oh production for squealing.

And in fact squealing production for the full year.

Be 1400 tons as we have planned.

The second reason is we worked hard to secure the required farnesene supply, which has allowed us to start the fourth quarter production with momentum.

We are confident that we can lead to higher production expectation required for this quarter.

For example, as of last Friday, we had already produced 35% are expected volume for the quarter.

Beyond that production volume I also wanted to share some other key accomplishments for the third quarter.

As we discussed in our last earning call.

Production of our zero calorie sweetener resulted in a seeks fall.

DVD improvement over our campaign in the first quarter of 2019.

And we are happy to report as John mentioned that we sold out all of our third quarter production already.

During the third quarter, we also scaled up nine brought up these product it's a fragrance for one of our key partners for Munish.

These first campaign was very successful.

And let me give you some examples of why our production volume was 80% higher can target.

Our quality purity measures were 100% at our goals.

Unit costs were 5% lower than planned.

By all measures. These first campaign was a great success.

We will introduce our second new product in the fourth quarter.

In fact, our production campaign is currently underway for these new flavor product for a partner.

That results to date confirm that these production campaign will also be successful.

We have clear plans to reduce our unit cost in the fourth quarter.

Five or our nine products.

We will compete our year with our gas cost of goods sold on target.

Let me offer one example of how we're doing this.

For heavy skate screening, we have shifted our production from North Carolina, where production site in Brazil.

Where we have also implemented a new process that will increase produce production yields by 14%.

And also are working on reducing our logistics and transportation costs.

And both of these factors will result in a unit cost reduction decrease.

18% by the fourth quarter.

18 2020.

We will continue to focus on these cost of goods sold and gross margin improvement in our products.

We expect that we expect to see that these improvements will amount to $46 million.

Let me describe how maybe talk about using four areas.

We see 7 million dollar improvement in lowering material cost primarily due to lower sourcing of farnesene.

Second.

12 million improvement in our unit cost due to technical process.

Improvements and scale efficiencies across four existing products, including our sweetener.

Our efforts very similar to the one for Hemi squealing that I just described.

Third.

$2 million improvement from new products that we are currently scaling up in particular this too.

Labour and fragrance products I just mentioned we introduced this year.

If you are in fact, the first three points that I. Just mentioned you will derive that 21 million dollar product margin figure to adjust that John just mentioned.

The fourth and final improvement that I see also in 2020.

Gross margin improvement due to the higher volume growth overcame beauty brands Biossance Pat.

And that should totaled 46.

I also wanted to share a couple of examples of how we continue to optimize our capital.

During the third quarter, we invested $200000 in our planned Leland North Carolina and increased its production rate by 45%.

This.

Throughput improvement resulted in the volume increase that equates to about $10 million more in squealing Robin you revenue production capacity on an annualized basis.

Let me offer is second example, during the last four months, we have invested $7 million.

Sweetener production line.

This specific investment anything new purification equipment, which will triple production volume for the next campaign.

This campaign is beginning in December .

And we'll continue into the first quarter 2020.

Revenue from the sweetener production capacity will be about $5 million per month.

And we expect to pay off investment in less than a quarter.

I will close.

With an update about our future production priorities for 2020 and beyond.

We are progressing on our construction for plant.

Rabbani the site.

As mentioned previously we've broken ground and I, beginning our knee next stage of civil construction.

In addition, we're moving rapidly with our production plants were CBD for 2020.

We continue to work with our love and partners on RMB final stages for selecting the contract manufacturing partner and site.

Our plan is to securities capacity.

That's two molecules that John mentioned earlier in this call.

Finally, we are confident on our plan to meet the 2020 production expectation for 5400 tons.

When we remember that our 2018 production volume was 2000 tons.

And that we will complete 2019 with.

3400 tons.

We are proud to deliver in 20, 2030 year old growth with more than 70%.

Product volume growth.

We are more than doubling revenue from this product volumes.

We continued to improve the mix to higher priced applications for these volume.

Now, let me turn the call that they've done it.

Thank you Eduardo.

I'm happy to report that after achieving FCC filing and NASDAQ compliance last month.

So we expect to file our Form 10-Q for the third quarter.

On time Tomorrow.

Now during my review of our third quarter results I will refer mostly to rounded millions of dollars. So let's review those results.

GAAP revenue for the third quarter of 2019 was $35 million compared with $14 million, where the same period of 2018.

Product sales and license and royalty is directly connected to these product sales.

Also known as the value share component of our product sales was $20 million and doubled over the 10 million in the same period of 2018.

Grants and collaboration revenue of $15 million in Q3, 2019, compared with approximately 5 million for the same period of 2018.

non-GAAP gross profit of 17 million or 47% of total revenue.

For the third quarter of 2019, compared with approximately $8 million or 53% of total revenue for the same quarter a year ago.

This was largely due to higher product sales, which equated to higher CMO production cost and other costs as we continue to work to scale our sweetener product.

We expect non-GAAP gross profit will improve in the fourth quarter based on product mix as well as the steps that Eduardo and his team have taken to improve manufacturing and cost efficiencies.

And what you just discussed previously.

Based on product mix and collaboration milestone expectations in Q4, we anticipate that we'll end the year at the approximate midpoint or slightly higher within our gross margin range of 55% to 65%.

Sales general and administrative expenses.

Of $33 million in the third quarter of 2019, compared with $27 million for the same quarter of 2018.

The increase reflects higher headcount to support our growth investment in our Biossance business and the onetime spend on expenditures for professional fees to assist in resolving.

Our previous non compliance filing status.

The non compliance expenditures comprised several million dollars an expense in the third quarter.

And we expect now that sales general and administrative expenses will trend down sequentially in future quarters, and then resume a more historical norm.

Managing these operating expenses overall is a key area of our focus.

As we plan for 2020.

Research and development expense of $19 million for the third quarter 2019 increased from about $16 million for the same quarter of 2018.

Which was due to higher R&D headcount to.

To support collaboration work for our partners.

That this quarter produced over $15 million of collaboration revenue.

Financially supporting the company and maintaining reasonable working capital to meet product demand and debt requirements was certainly no easy task during the period of noncompliance noncompliance of FCC falling.

As John previously mentioned this caused us to leave some revenue on the table during Q3 and.

Candidly and frankly, we were fortunate to have to support a board members on other investors during the period.

Doing so it was no easy task and we did our best to manage these activities and relevant financing terms.

We are now please that we have finalized resolution today and closing is expected tomorrow to refinance our CVI heights convertible debt.

We plan and anticipate to disclose the details of this as early as a filing tomorrow November .

With this behind us and outside of about $10 million in debt that Weve managed well.

And extended with our partner total.

We have no material debt maturities until 2021.

We believe this gives us runway on which to execute our strategic goals and growth plans.

We believe that we're now in a much more financially flexible and attractive position by which to fund our necessary business and working capital needs in the interim toward achieving positive cash flow and 2020 .

Many thanks.

And I'll now turn this back to John .

Thanks, Jonathan.

We're delivering the strongest revenue growth in our.

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At this time around up in the question answer session.

Thats a question you May press Star then one on your Touchtone phone, if you're using speakerphone. Please pick up your handset pressing the key.

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This time a lot Pos.

Dennis I believe that they just we join as this is Eduardo.

Right.

Are you guys, sorry, you guys there.

Yes.

Okay, where did we drop Denise you were just not and then we'll open it up for questions.

Why do we were just.

We're just beginning John we lost you when you were taking over from Jonathan.

Oh, sorry about that so.

Apologies for the technical issues, we're delivering the strongest revenue growth in our industry. We are doing this bolt on product and total revenue and we have a solid recurring revenue base that has the potential to underpin most of our 2020 expectations, we're making significant progress on our gross margin in our Opex is trending down in the fourth quarter as we put.

The accounting and legal costs related to our accounting issues and debt behind us.

Tumors are demanding natural products there sustainably sourced they want these products from clean ingredients. They can trace I understand they don't want to compromise on price and performance. This is exactly what we are delivering in each of our core markets.

We are just getting started we have a strong pipeline of new products that are making excellent progress our technology platform continues to lower our cost of developing and scaling new products as we look into 2020, here's the path to positive EBITDA.

We have $28 million any bit die improvements from the restructuring of agreements with the fine and DSMB. This includes a doubling of molecules with the fine and a restructuring of the current vitamin agreements with you fine.

This also includes a move to monthly payments from DSMB over the next few quarters for the Jumbo agreement. This is both any EBITDA improvement and a contribution to 2020 revenue of about $28 million. Secondly, we expect $50 million of incremental payments for the CBD program.

From Leviathan in 2020. This is also an impact to revenue and direct contribution to EBITDA improvement, we are expecting about $15 million of reduced opex from the elimination of all the accounting and service fees associated with the delayed filings. This is already starting in the fourth quarter this impacts EBITDA.

But not revenue, we are expecting $46 million of incremental product margin from product sales improved cost of goods sold and brand revenue growth. This is net of investment and will impact revenue and EBITDA.

On the downside, we have $57.5 million of DARPA and DSMB payments that were received in 2019, but will not repeat in 2020. This is the part of our revenue that is not reoccurring in 2019. This 57.5 million will be reflected in both EBITDA.

Revenue for 2019.

We are expecting three to four new molecules at commercial scale next year. This is above the two to three range, we previously communicated and reflective of our improved pipeline and technology leadership.

We expect continued doubling of our product revenue and we are expecting a record year in collaboration payments as we've said before these collaborative collaboration payments more than fund all of our R&D costs and deliver future product revenue as these projects represent our product pipeline and each have long term come.

Personal supply agreements.

2019 has been a year of addressing critical balance sheet issues getting our accounting in order, while supporting our core core business activity and strategically shifting into our into industry leadership 2020 will be all about getting the personnel in order, while continuing to growth and strategic execution of our business.

Yes.

We share a common goal with our largest shareholders. We believe the future is about sustainable chemistry that delivers natural and clean products consumers are demanding all over the world. We are in a unique position we have leading brands in the best consumer markets for growth and profitability and these brands are powered by the world's leading technology.

For making natural and sustainable products, becoming a reality, we are extremely thankful for our partners from Hasan and cheap on to support and L'oreal, who are each global leaders passionate about sustainability and share our values for no compromise consumer products, we have cleared our short term debt and.

Our now focused on establishing a stable and solid balance sheet to fully support our growth.

Thank you for your continued support a now operator, we would really like to go to questions.

Now I will now begin the question answer session. You asked a question you know you Press Star then one on your Touchtone phone. If you are you, saying speakerphone. Please pick up your handset. Prior question. The keys to tell your question. Please press Star then kill at this time deposit momentarily to assemble a roster.

Well that's a question from on that though from H.C. Wainwright. Please go ahead Sir.

Thank you good afternoon, everyone.

Thank you for all the color provided on the gold was actually very hopeful well just touching on by the sense first.

You are often you under on half the support our stores right now John .

Within the next 18 months are you potentially going to be at full penetration of suffer or you just started getting specific geographies.

We are in it first of all its hard to predict that perfectly. We do know there is significant expansion happening in the first half of next year and we hope to be at most stores in North America with our whole lie.

So the numbers I refer to our North American not the rest of the world.

And in the rest of the World again, it was really launch by country.

Like I described on the call and the countries I mentioned on the call are all countries, where we are entering through support and focusing on so for as our channel in the near term.

Understood and Outsets before we exclusively data so far so can we also please note these products with other channels.

What I would say is at this point in time, we're very pleased with the so for relationship and as long as we maintain the kind of growth level, we're experiencing with before we'd expect to stay exclusive to support.

Those agreements come up every year and as you can imagine those are always interesting discussions.

Understood. So I'm assuming that these are new roads we.

At least for the near term continue to.

We put in place.

Correct.

Okay. Thank you and then moving onto the sweetener save John .

What I mean, you it looks like you assumed a pretty quickly we'll be soon is there any concentration customer concentration here right now.

Well first of all hospitals.

I can tell you that the larger volume of sales are going into the flavor industry and then outside the flavor industry, it's actually very balanced and spread between customers and Latin American customers in North America.

Understood.

The sales going forward and winner this sort of can be intact in the near term in terms of sweetness sales to similar mix of customers in the near term.

I would say as we go through the next 12 months.

North America will become a larger and larger volume driver I, just because it's a bigger a much bigger market right and then I would say we also are going to start seeing.

The consumer piece really play into the mix of total revenue for sweetener going into next year. So I would say for next year.

A bigger piece of consumer and then as we end the year next year more North America versus Latin America.

Got it.

No commentary you indicated sort of 60 million hundred amounting to roughly 240 million level type of sales were 2020.

Products, now, becoming sort of a bigger portion of sales.

You know how the next full quarters or say the quarters, including 20 look like.

We've had some lumpiness in the past a little bit swing to smoothed out a little bit going forward now.

Yeah, Yeah, I think the way you should see the year play out is obviously the first quarter is always much softer and then steady through the following three quarters by steady I mean, just that continued growth at a constant level for the following three quarters, obviously, peaking in the fourth so that kind of show.

Eight is what you should expect for 2020, it's not going to be.

As choppy as you know one big one small one big one small it's more smaller quarter first quarter, and then building through the year.

Got it.

Thats, what actual now John I'll stop here and a follow up offline. Thank you so much.

Thank him at a thank you for your time.

Our next question is from Graham Tanaka sometime that capital management. Please go ahead.

Yeah first off congratulations on all that you've been doing particularly in the balance sheet.

Aspect of the company in operations so.

Just wanted to get to the financing on the balance sheet side, what is the share count that you expect by the end of this year, perhaps the debt levels by the end of this year and then longer term what do you expect patients on debt. Thanks.

So.

Lot of questions Graham, So I will I will let.

I'll start with Jonathan talking about the share count as some of the obvious things and then whatever Jonathan wants to pass the meal.

Support on the share count side, we would anticipate.

Issued in outstanding in the range of 103.5 at 104000 shares.

As we said.

A bit earlier bat.

That.

We see short term debt.

Maturing in 2021 of about $10 million.

Probably the right when I referred to shares.

I think I said million engineered.

Good I'm done I misled you okay.

Okay falling below the rest of it.

I guess well into the rest.

Fully diluted count as I guess, what are the investors want to here.

Yeah.

I don't have that readily available and I'd prefer not to add about I'd be happy to follow up with you individual okay great.

And Additionally, we're filing our 10-Q tomorrow so.

We feel comfortable with that disclosure.

Okay.

Alright, well I guess, we'll wait to see what the announcement is going to be on refinancing the.

Hi, its debt convertible.

Moving onto some of the items would you did announce on on revenues and progress on new products.

Acceleration that CBD products I Didnt quite here, John what you said would be done but in the first quarter and the CBD two molecules. Thanks.

Thanks, Graham will start providing samples of the first two molecules in the first quarter.

And your <unk> Friday's samples to love on or just some of the bonds customers already.

A little bit of both the idea is for folks to start testing and looking at formulations. Early so we've got several in the mix for that.

And this would be an how many verticals.

I can tell you that early on we've got a three well two verticals and then obviously the flavor industry.

The flavor industry is the one that.

Amorous is going to beat.

Negotiate on its own.

I think in all three we have a we're currently in discussions and actively working all three and then both companies also in line have different customers that were actually bringing to the table in two of them into verticals.

Okay and these address markets that are how large.

Well put it this way we're not in all three we're dealing with.

Billion dollar customers and markets nothing small.

Does this include the beverage market.

It does.

I can move I could.

Well I did want to ask there a lot of issues.

We as investors want to know about in terms of transition.

Your.

Done a great job of breaking out what the difference in costs are going to be next year versus this year.

In terms of.

Some of the nonrecurring items, but just want to understand so the for planning purposes. When do you think that biossance pipe at.

And pure cane might reach breakeven cash flow or earnings just roughly which quarter.

Yeah, we might we see a.

Yeah, we see a I mean, obviously the fourth quarter will be a profitable quarter for biossance of this year, but we see you next year full year being a net income positive here for Biossance.

And obviously, we're still investing in pipette anterior can is that we'll be there first four years.

So they won't they may or may not be problem next year or.

Not sure.

Yeah, I would not expect piping or pure came to be profitable next year and I do expect biossance to be.

Thank you I'll, let you going to others. Thank you.

Thanks, Barry I appreciate your time.

Hi, Dan just as a reminder, if you'd like to ask a question. Please press Star then one on your touched on fine.

Our next question is some Randy back on some technical please go ahead.

Hi, guys.

John I want to Echo Grant said and you know on behalf of all of your Investor just congratulate you and your team I'm, putting this and you sort of Tubeless behind us it's a great call. So congratulations.

Jonathan I just wanted to follow up on one of the answers you get Graham it's a little.

Odd that we're having a conversation where CVR heights is a big topic, but we're not really talking about it October threerd I'm, just let's put it the presentation from B. Riley.

It shows you 191 million fidelity to chairs is that number or we north of 200, now and just want to get a direction in a public forum to put that out there. Thank you.

[noise] I'll I'll I'll answer to two things Randy first of all I completely agree that I would love to be able to share a lot more detail, we literally or exchanging signatures as we came on the call. So we don't that we think it would be irresponsible to get through a lot of detailed but were happy to do a follow up call once the eight.

Okay is out in a releases out in covering the details of the deal. We did so I wanted to touch that point directly I think secondly, you know in that as you can imagine lots of moving pieces and our of outstanding are fully diluted share count and what I would tell you is the fully diluted I don't expect.

Most all this to be significantly more than a number you quoted.

Okay, well that's a that's at least a helpful answer what as you look to next year and now that we're kind of regaining our footing the companies and going great, but as a as a financial going concern you're becoming more of a normal company. What do you think it maybe jonathan's question is for you, but what do you think a the average cost of debt.

For.

Amorous overall is going to be next year.

Called on average and then secondly, what are your actual cash needs going to be next year.

Thank you.

Thanks, Randy Randy Randy we anticipate that current.

Cost of capital from public debt standpoint is going to stay in the range of approximately 12%.

And in terms of our cash needs. We believe that we will obtain positive EBITDA.

In the latter part of next year and entering that.

2020, we see.

Need and desire for cash capital in the range of.

125 too.

Operating.

Cash.

So I hope that's helpful.

And is there an update on the Brazil plant on the last call I think we talked about there may have been a a partner who is going to take some of that burden off if you guys I believe that was $70 million.

Yeah, Randy a couple of things that we're working through that with a partner and we've also had some additional options come to the table and I also want to make sure I build on Jonathan's point about the outstanding cash needs.

That includes everything which as plants it has some.

Movement of current to lower cost so there's a lot in the number so what I what I would say is you know starting in the second quarter, we start generating positive EBITDA from an operating perspective, we're self sustaining and the question is working capital Wise plant and then try to move the debt to longer term.

Lower cost options, we're obviously looking at those options and we've been approached by several fairly large institutions, where we think we can actually lower our cost of capital if we could execute those deals going into the year. So I wanted to add a little color.

To the overall number for you.

Well I appreciate the color because at some point I mean, we all assume amorous, we'll be able to start borrowing against its account receivables, which shouldn't be 12% paper. That's a comment John let me just ask one last question.

You mentioned Biossance dot com and how that's booming can you talk a little bit about gross margins at Biossance dot com, how that compares to the blend and maybe just little bit about the lifetime value Biossance dot com customers. Thank you.

Yeah. Thanks, Randy So I would tell you that especially with a much lower discounting that we're experiencing right. Now you could think of Biossance dot com margins and high Eightys low 90% you can think of blended margin for Biossance at about 70. So that gives you the the first part.

Of the answer and you can think about lifetime value of customers right now running at about 12 to $1400 per customer and growing very rapidly because as you can imagine as our loyalty percentages going up obviously, our lifetime value is starting to grow pretty quickly I would not be.

Surprise over the next six months or so if our lifetime value doesn't exceed 2000, and we don't get to about 60% or better repeat customer base.

Yeah.

And again as a reminder, if he'd like to ask your question. Please press Star then one on your Touchtone phone.

Okay.

Well done if you would like to ask that question. Please press Star then one.

[noise].

[noise].

Well I've a question final question from granted that from tack on capital management. Please go ahead.

John you had mentioned that.

It's actually John if I'm not sure wishing you guys mentioned that you expect double the collaboration payments did I hear that properly, which which would more than pay for R&D I wasn't sure. If you if I heard that correctly and if so what are the main sources of that for next year. Thanks.

Yeah, We Graham I had mentioned that during the the the initial part of the call. There's actually two two comments. There. One is that currently our collaboration payments more than pay for all of our R&D expenses I think the second statement is that we are in the process of year on year just about double.

During our collaboration payments the major driver of that or there are two two major drivers the biggest is obviously.

They'll avant partnership and the second is the you find partnership and those two are changing significantly. The you fund partnership is about double in cash coming in next year, and then Lavanya as I said before is about.

50 million incremental next year versus this year.

Oh live on its just to maybe clinical avant is that going to be 15, or 20 million. This year, and then being increased by 50 actually between.

Between 20 to 25 million this year and increasing by 50 million next year it does that overtime.

70 to 75 million next year.

That's correct.

And you're not this would be.

Kind of spread out over the year front loaded because the acceleration of the two molecules.

It's actually pretty spread out for when the milestones get delivered.

Okay.

And so this is going to provide this is gonna be all cash right. So it should provide what what proportion of your cash needs are going to be provided by these collaboration payments <unk>. It's obviously, it's more than the R&D.

And.

Maybe a big chunk towards the capital spending.

Yeah, I would say about 70% to 80% of our cash needs will be provided by the collaboration payments next year.

Oh your cash needs for for a for working capital plus Capex.

Well everything, but what I'll call production working capital right the cycle of paying for raw materials to make products, but everything else will get funded by.

70, 80% level by the collaboration cash.

I guess I should sorry to be asking specifically what.

Capital expenditures be next year.

This year and ER, and then kind of to close the loop how much funding might you need in terms of additional debt at the lower cost next year. Thanks.

Yeah, I mean, we've not disclosed publicly and we really don't want to put that out there at this point, but I'll answer part of the question which is a.

From a capex perspective, what are these next year in based on what we're putting into the plant this year or by the end of this year.

You know you could expect somewhere around 50 million.

Maybe more than that to be our capex needs going into next year.

And that's roughly versus how much spent this year to be spent this year.

To be spent this year I think when we're done this year, there's probably around 30 30 to 40, a total capex somewhere in that range.

Not a big not a big increase.

Oh.

Thank you.

Our next question from Randy ban from Canaccord. Please go ahead.

Hi, sorry that we're cycling I just want to follow up on the cash question and will grant was asking just the warrant cash are you still expecting a more cash.

Plus everything we're talking about Graham to cover your needs or how much is the warrant cash could it raised at this time. Thank you.

Yeah, no Randy without without stealing an exact amount I'll answer the question. This way between what I'll call lower cost much lower longer term structured debt and our warrants. We think there's a high possibility of covering most if not all of our cash needs.

Fantastic. Thank you.

You're welcome.

And this will conclude my question answer session I'd like to turn the conference back over to John Martin for any closing remarks.

Great. Thank you very much where I'd like to thank everybody for making the call I'd like to also just thank you for your continuous support it is so.

Pleasing I think for us and I'm sure for all of you to be able to have a quarter, where we're back to normal having an earnings call getting a the Q on file and then ensuring that we're getting our debt corrected and getting defaults out of our way. So we can focus on having a normal business environment. So we're happy to be.

Here and we're really looking forward to a good fourth quarter and a a great 2020 ahead of us. Thank you and look forward to seeing some of you as we travel or have calls over the coming months have a great evening everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.