Q2 2020 Amyris Inc Earnings Call
Ladies and gentlemen, thank you for your patience. Please remain on the line while we gather additional participants again, we do appreciate your patience. Please remain on the line at your conference will began momentarily. Thank you.
[music].
Please standby.
Welcome to the Ambrish second quarter 2020, <unk> financial results Conference call. This call is being webcast live on the events cage at the Investor section of the Emerson's website at <unk> Dot com.
Hello.
It's the property of the Ambrish and any recording reproduction or transmission of this call without the expressed written consent Amris 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 Emerson's website.
I would now like to turn the call over to Peter Dinardo, Senior director of Investor Relations and corporate communications.
Thank you Melinda good morning, Thank you for joining us today with me today, or John Melo, President and Chief Executive Officer.
She couldn't Bell Chief Financial Officer, and it Eduardo Alvarez Chief operating officer.
[noise] sleep.
[noise]. Please note that on this call you'll hear discussions of non-GAAP financial measures, including gross margin figures reconciliation of these non-GAAP measures to most directly comparable GAAP financial measures is key.
Changing the summary financial information slide of the accompanying presentation well the news release distributed today, which is available at investors Dot amorous dot com.
Current report on form 8-K furnished with respect your press release is also available on our website as well as on the Fccs web site at Sep Dot Gov.
During this call will make forward looking statements about events and circumstances that have not yet occurred including projections of Emirates is operating activities and their anticipated financial impact in our business and financial results for 2020 and beyond. These statements are based on management's current expectations and actual results in future.
May differ materially due to risks and uncertainties, including those detailed from time to time, and finally Emirates snake, but the Securities Exchange Commission, including any reports on form 10-K quarterly reports on form 10-Q, and current reports on form 8-K, Emerus disclaims any obligation to update information contained in these forward look.
Statements, whether as a result, new information future events or otherwise.
Please refer to the Emirates sq feet volumes for detailed discussion other relevant risks and uncertainties.
Before we begin today I'd like to note that included a webcast of this slide presentation, we will refer to in today's presentation I'll now turn the call over to John Melo John.
Thanks, Peter Good morning, everyone and thank you for joining us today.
Let me a reference slide three with me today I have been why do Alvarez, our chief operating officer, who will share operational performance highlights and key steps, we've taken to reduce our cost of goods sold.
And then we have hard keeping bell our CFO will review, our financial results as well as our outlook for the full year 2020.
Let me start by providing key highlights of our business and strategic activities during the quarter.
I'm on slide four for Q2 highlights.
Before I cover second quarter highlights, let me comment that our business and our people have shown strong resilience. During these unprecedent times keeping everyone safe.
Has been our number one priority, while continuing to grow revenue and improve our operational performance Cobi has added many challenges to our business and our partners, but it's also provided many opportunities that we had not planned for.
We are learning to adapt quickly to these unpredictable times.
Our consumer brands delivered record revenue in the quarter and for the first time were equal in size to our ingredients portfolio.
Lower consumer revenue from supports store closures was mitigated by consumers transitioning online supported by our digital readiness to service them and also the amazing pivot by our partner support to move their business online <unk> Dot com.
We expect second half consumer whether you to more than doubled versus the first half of this year.
This shift in our portfolio will continue which significantly larger sustainable unpredictable product revenue relative to our collaboration programs and revenue.
Q2 margin was impacted by sales mix and lower collaboration revenue and cost for the scale up that you products in our ingredients portfolio.
During the quarter, we heard about $2.7 million a product revenue impacted by Kobe that will be realized in the second half.
This was driven by operating challenges at our CMO our contract manufacturer in Italy.
During the month of April campaign for one of our key flavor ingredients.
We also had about $2 million revenue in the quarter, that's affected by timing from our collaboration.
Expected to be realized in the second half of the year.
These two impacts one timing one cold.
Uh huh.
Yeah, we really had a strong quarter.
Cash operating expenses for the second quarter were the lowest in five quarters with lower Gionee and R&D expense of six and a half million compared to the second quarter of last year.
This is partly reinvested in the robust growth of our consumer brands, where we are delivering $11 Upsells forever advertising dollar invested.
Biossance spreads.
We continue to focus on operating economics relative to new were ingredients and are you weren't brands also we are on schedule with the construction of our specialty ingredients plant in Brazil with full commissioning expected during the fourth quarter 2021.
In the second quarter, we raised 200 million dollar summer private placement with high quality investors of which 70% were new to the company and 90%, where they health care biotechnology or long orientation.
This was the largest raised in the history of the company.
Before I move onto the next slide I want to thank our new and existing investors for their support and helping us execute this financing to further grow our business.
The financing and other activities during the year to date also allowed us to reduce total debt and the cost the servicing that debt, which has done well detailed further.
Please turn to slide five.
Revenue for the quarter was 87% from product sales and 13% from technology collaborations we expect the shift in our portfolio to continue due to continued acceleration in demand for our consumer brand of products.
And this is the second quarter of 2019.
We have $41 million nonrecurring income from the sale of our vitamin E royalty agreement to DSL. Excluding this one time income recurring revenue $30 million grew 36% over year over year and 23% quarter over quarter.
This was driven by strong trends in our consumer and ingredients business, which delivered revenue of $26 million or more than double the prior year period.
Consumer revenue delivered a record quarter and tripled year over year, driven by strong online sales and our rapid adaptability harnessing and optimizing our online sales platform.
We believe higher online purchasing activity is fierce state and we're continuing to maximize conversions and deliver better customer experience through product theory orientation part of education content and improvement in the overall online experience for the consumer.
Based on what we are seeing we believe the consumer business has the potential to exceed $75 million in revenue for 2020 compared to around $17 million in 2019.
Our ingredients business delivered around $47 billion in revenue for 2019, we're on track right now for about $95 billion in 2020.
We're very pleased with our consistent growth rate from our ingredients business.
With a significant acceleration of growth from our consumer activity, especially as we have been sort of phase where most consumers are now working and shopping from all.
Within our consumer branded business Biossance sales were up 132% with our dot com business inside Biocides, increasing six times and the pipe CAD baby and family care, Brad experiencing 10 times sales growth over the first quarter of this year.
This illustrates the performance of our product line customer receptivity to our clean skin care offering and the adeptness of our team navigating through Kobe to convert customers the ecommerce platforms.
We also made similar inroads in online sales for our type that baby and family clean skin care brand and our pure Kane direct to consumer suite her life.
The consumer business overall excelled year over year and is on track to deliver over $50 million and the second half would gross margins of over 60%.
The Biossance brand is delivering around 70% seven zero, 70% gross margin wild type pet in pure Kane are around 55% gross margin.
We have historically double our consumer revenue in the second half versus the first half and this year, we have the benefit for half of hand, sanitizer sales versus only a couple of months at constraint capacity and the first half of this year.
Our three most critical metrics for the consumer business also performed very well in the quarter, our consumer traffic was around 1 million consumers a month through our own web sites. This compares to about 200000 consumers monthly in the second quarter of 2019.
Our return on advertising dollar spend or an extra called rosy.
Was around $11 for Biocides, that's over $11 of sales for every dollar of advertising spend.
And our consumer loyalty continued to improve we gain more loyal customers in the quarter than any quarter in our history.
Based on the continued consumer loved for our products and brands, we expect our consumer revenue to continue more than doubling year on year. This would result in around 160 million of 2021 consumer revenue.
Just shy of what we expect for 2021 ingredient revenue.
96% of our product sales are in clean skincare sustainable held flavors and personal care and household cleaning.
Each of these segments are benefiting from the current covert 19 environment.
The remaining 4% of our business isn't a roma ingredients for use in perfumes and this activity has seen a significant drop in demand during this period.
So we really had sales which are up 56% year on year, excluding one offs swalec continued to be the largest revenue contributor in the second quarter with sales up 31%.
Our second biggest revenue contributor was our zero calorie natural sweetener from sugarcane read that where we sold out all of our production.
The other key contributors were squeri offers for fragrances, as well as cleaning products and Farnesene and Farnesene derivatives, which are also use a in cleaning products.
As expected to be a record year for sway lane and a solid year for read them as it continues to scale.
We now have six platform ingredients in our portfolio that each can deliver over $10 million an annual revenue.
With our vaccine adjuvant are you flavor and are you skincare ingredient, we are adding three new platform ingredients to our portfolio. This year.
Each are capable of delivering 10 million in annual revenue.
Based on current demand at our production capacity, we expect over $70 million of second half ingredient sales. These are predominantly are mostly sold at this point and we're really focused on the production of these ingredients and managing our supply chain to deliver these to our customers.
Let me now provide some color on our portfolio characteristics.
Please turn to slide six.
Our portfolio is comprised of collaboration and grass.
And consumer and ingredient revenue.
The quarter to quarter revenue from collaboration is choppy and dependent on R&D milestone delivery.
Underlined the variability of collaboration revenue over six quarters, we hit a highest 15 million and a low $2 million.
Even though there was that much variability in the rapid you recognize the work being performed the collaboration contracts that we have number of partners number of products were predominantly unchanged. During this period.
Meaning that the wheel variability is really based on how revenue recognition happens quarter over quarter based on milestone delivery for our partnerships.
This source of revenue operates at a 100% gross margin so any volatility in revenue from quarter to quarter as a notable impact on quarterly profit delivery.
That's the benefit of significantly increasing our product sales at the rate there were increasing at so that that choppiness no longer has a direct negative impact on any quarterly profit delivery.
Our consumer and ingredients part of portfolio growth is sustainable and predictable and we'll continue to doubling year over year, while collaboration revenue remains flat and choppy based on contract signing and revenue accounting for the milestone delivery. This is consistent with what we've expected before accounting.
Back to same level going forward, what some years exceeding this level of revenue based on one time licensing opportunities.
We've analyzed our part of the portfolio into two categories scale up products and growth products.
The skeletons views radiance has an impact on quarterly margin as you can see from the slide for the second quarter about $7 million, a total consumer and ingredients revenue of 26 million west from scale, a products, which carry on favorable margin economics at the present time until they reach their full scale. These.
Her products, where we are in the first 18 months of commercialization and we are involving the strain for fermentation and the downstream process to deliver our target cost to goods.
Skillet products impacted second quarter gross margin by around $3 million negative.
Each of our ingredients has reached our target margin within 18 to 24 months of commercialization.
Our target margin for the consumer business is 60% to 70%, which we are realizing currently and for the ingredient business, it's 40% to 50% <unk>.
Maturity, our consumer portfolio delivers around a 30% adjusted EBITDA.
And the ingredients portfolio about a 35% adjusted EBITDA the consumer business has much better gross margins at much higher cost to serve while the ingredient business has lower gross margins in a much lower cost the search.
Growth includes more mature brands and ingredients after hitting a predictable margins and include a more established.
Consumer brands clean beauty, and certain flavors and fragrance ingredients.
Products delivered $7 million of additional revenue in the quarter compared to prior year and also delivered additional gross profit a $7 million due to improved unit costs.
The overall message is that the different parts of our portfolio carry different characteristics as it relates to predictability modern economics and expected growth.
Let's move on to slide seven.
We are executing well against the four strategic priorities, we set out at the beginning of the year to maintain healthy growth, where they focus on achieving profitability and sustained cash generation. Let me highlight a few items around these four strategic priorities.
First.
High growth consumer brands, where we've built the fastest growing brands in their respective categories and have launched a leading hand sanitizer product line that is expected to continue gaining share and delivering strong revenue and margin.
The hand, sanitizer delivered a 40% gross margin in its first few months and is expected to deliver better than a 50% gross margin for the remainder of the year with our significantly improved cost of goods that are you Brazilian production partner.
Secondly, scientific and commercial cloud operations, where we fund our R&D and have insert into two significant partnerships during the quarter, including what we believed to be one of the leading are in a platforms for vaccines.
Thirdly supply chain optimization, where we are managing production across multiple sites, while our you plan is under construction.
Then you plant is expected to start in the fourth quarter of 2021.
The started this plant is expected to deliver around a 1000 basis point improvement to our gross margin and deliver at 18 to 24 month return on the capital employed.
Having this plant operational is estimated to be worth around $20 million in gross profit dollars based on our 2021 revenue forecast.
Some investors have asked whether I will lead to sleep at the site until the plant. This built and I can tell you that the team and I are doing whatever it takes to get this plant built and operational by the fourth quarter of 2021.
This is the most critical deferrable to meet our customer needs and.
To continue improving our financial performance.
Lastly, around our strategic our four strategic initiatives, improving the balance sheet earnings and positive operating cash flow, we solidified our balance sheet. During the second quarter, we expect a significant improvement in our adjusted EBIT that during this quarter and we expect to turn adjusted EBIT. The Pos.
In the fourth quarter based on our current performance and outlook.
Now, let me chart the scientific partnerships one area, we're particularly excited about it isn't helping to address Kobe is our recent partnership with the infectious disease Research Institute or eatery.
Easily has significant expertise and taking a comprehensive approach to combat infectious diseases and cancer, combining the high quality biotech.
Hi quality science of a research organization with a part of developing capabilities of a biotech company to create vaccines and therapeutics I want to point out something important about the binding term sheet. We sign that we believe will lead to a definitive agreement in short order.
Agreement ads eateries are in a vaccine technology platform.
With their NAND Olympic carrier IP to our portfolio by giving us an exclusive license and license and rights to it.
We did this because we believe based in our two years of extensive work with degree developing our vaccine adjuvant early animal testing results and a review by an independent expert.
Indicates that this can be the most effective R&D platform for potential vaccines, starting with a cobot 19 indication.
We also have rights to utilize the platform for other indications, including cancer, where in our in a therapeutic can be utilized.
According to experts they.
Efficacy and scalability of eateries are in a solution coupled with our agitated have key advantage by possibly needing 1000 times less are in a to be manufactured and use in a single vaccine. So a lower dosage of bard eight utilizing more cost.
Nano particles as the delivery mechanism to place are in a on the surface with a self generation attribute.
The potential benefits are much more cost better efficacy enhance supply chain steel ability and the mitigation of manufacturing bottlenecks that other candidate cobot 19 vaccines are likely to face.
We have reviewed much of the data from current vaccine trials and believe there will be a critical need for a second generation technology that is much more effective and lower cost.
Early test advice identified the much lower use of borrowed eight results in a very high efficacy treatment that results at much lower toxicity that other R&D vaccines currently and trials, we expect first human testing around the middle of 2021 with the potential to scale and deploy.
In 2022, assuming the trials are successfully.
Our view is simple there will be a need for a second generation vaccine.
And it's a vaccine that's not just for the billion people enrich countries. It's for the 7 billion people in the world that need to be treated to avoid totaled 19.
At a relatively low cash outlay from Airbus with several go or no go steps along the way as we review available data to de risk our investment the program calls for eatery to utilize its existing novel nano lifted carriers and R&D technology to a phase one clinical trial as.
First target as Kobe, but we have optionality on other are in a therapeutic candidates.
The ALJ event is that ended its independent to the R&D vaccine platform agreement with eatery. We are in process of correlate commercializing the AD agitation and expect first commercial revenue. This year from several other large pharmaceutical companies. Our goal is to be the leading supplier of square.
Laying out you're going to the market. The real message here is a novel R&D vaccine platform that we have added to our portfolio. We will keep you updated our progress of the accelerated development program and will likely hope hold a separate investor conference.
Later in the quarter to update you on the details of the vaccine platform now let me turn to reward you arty.
Yes, Thank you John and good morning, everyone.
Please turn to slide eight.
Let me start with an update on our pandemic response as John mentioned, we continue to apply street controls and to monitor the pandemic very carefully.
We have had treated confirmed cases.
All where for employees were working from home and none of the cases.
It all their employees.
These three employees have all recovered.
And we are thankful for do quick return to good health.
We continue to work with our production team on partners.
To develop site specific approaches to implement onsite activities carefully.
These broader called adjust for local regulation the type of work being performed and the individual circumstances of our employees.
Here's an update of where we are at Emory Berry. Our on site presence is about 50% or about 100 employees and focus is mostly on our lab activity on our pilot.
At our production site in Leland North Carolina, and in Brazil, We already are at 100% a full operation.
Now, let me transition to our production performance.
As John mentioned, our product revenue for the second quarter was 26 million.
411% growth compared to the second quarter of 2019.
Second quarter consumer end ingredient product revenue represented 87% over reported revenue.
It is in alignment with our stated strategy.
To bring to strengthen our recurring product revenue.
In the second quarter, we <unk>, we delivered six products, which comprised of 871 ton finished products.
This was 19% higher volume gotten expectations.
Now, let me go deeper into our young unit cost performance.
As John mentioned will separate the comments between our growth.
Established products on our scale up activities.
Flagstar dynamic portfolio and to provide additional transparency and delineation.
Let me start with the growth [noise] mature products.
I'm happy to report continued success Exclaim production, our Leland North Carolina plant.
The second quarter represented the third consecutive quarter quarter of record production Uh Huh.
In fact, a year to date production, all squealing east, 60% higher than what we have been using the first half 2019.
Our team is also focusing on improving our unit costs for that product.
We have delivered 20% unit cost when compared to the average unit costs of squealing in 2019.
Another stoppage product. These farnesene farnesene is sourced from our strategic partner de ascent I know Farnesene supply has benefited from excellent production controls Brazilian sugar prices and exchange rate factors furnaces easy clean ingredient to four of the.
Growth My true products, we delivered in Q2 I need was critical to de lever all of these products at or below our unit Cox target.
In terms of Netscaler products, let me talk a bit more about read that.
Hey, mentioning the first quarter comments.
We successfully implemented a new purification process for our rent than in the second quarter.
This new processes simpler and much more scale.
Eating could it to new unit operations that initially, resulting in 20% lower than target yield.
During the startup of the campaign.
By the end of the campaign, our teams had optimize the process and we'd running it that's plan.
We did face a corresponding increase in our unit costs during the scale up phase.
However, the new process successfully double production output and the resulting product excel in quality and profile.
By the end of the second quarter, we had sold out all of <unk> available production.
And our need to be clients, we're very pleased with that product.
We continue to have.
Tremendous market success and traction.
As we shared into June announcement regarding our North American partnership with a b matter, we as an example.
Our success, we read them has also extended to our end consumers.
And let me share some result, our ecommerce traffic for pure Kane delivered record growth into second quarter for example.
Our volume and orders for our bakery products doubled during each month in that quarter.
And that momentum continues to accelerate into July.
Pure came in fact ranks in the top tier art of Amazons natural low calorie sweetener category and we continue to receive the highest ratings about 4.5 stars from our consumers simply said.
Our consumers love pure came I know red hat.
I know this came up product I would like to discuss is our hand sanitizer a TV.
In the second quarter.
We scaled this new product line and established additional production locations that added resilience towards came up.
We now have the ability to produce up to 1.5 million units a month.
And our newest produce production facility for the hand sanitizer is in Brazil.
As John mentioned will ensure we had improved the unit costs into next face off our hand sanitizer growth.
We haven't winning formula with excellent feedback and the traction from our pet bias and hand sanitizer products now the focus lease on execution excellence lowering our total supply costs and driving sales to each one of our child.
In summary, our unit cost performance reflects both continued delivery on our growth mature products, but also a focused careful investment on the cost of the scale up activities.
Now let me close by looking ahead at our priorities for the second half of 2020.
Our first priority is to compete to new scale up campaigns, both starting in Q3.
First we're scaling our 10th ingredient.
An ingredient we mentioned in our.
Fourth quarter updating 2019, this is a natural leading ingredient.
And our next campaign is in Brazil, it'll be a campaign eight times as large as the previous one we are on track to the leaving and eating natural favorite with 99% purity produced through sustainable fermentation.
We also remain on track to deliver our favorite large scale cannabinoid campaign.
And we will begin fragmentation in two weeks.
Our second priority for the second half is to de lever on the remaining production plan.
We are confident that we will deliver the growth brought a quality and cost performance for all the sectors and products for the remaining of the year.
Finally, let me share an update on the construction for Brazil plant.
We are in the critical phase of civil construction and during the second quarter. We successfully completed the tie ins duty infrastructure services for the plant and procure all of the long lead items, including the Fermenters.
The plan remains on track for commissioning.
At the start of the fourth quarter of 2021.
I want to recognize incredible dedication and commitment of our operations and production teams.
We are very thankful for everyone's continued health and I'm excited to de lever.
Excellent second half of the year now, let me turn to call over time.
Hi.
[music].
Thank you to Bartow and good morning, everyone.
Before I review the details of our Q2 financial performance I would like to thank our new and existing investors for to support and participation in our recent funding they see the value in our science, driven technology platform and our ability to commercialize synthetic biology to disrupt and grow within multiple markets.
Let me know soon our Q2 financial results at a high level and then food to discuss certain details.
Let's turn to slide nine.
Let me start by highlighting that Q2 of 29 teen included a significant nonrecurring item or 41 million, which was 100% accretive to revenue gross margin net income and EBITDA.
This item represented income from a vitamin D transaction to company completed in Q2 of 29 team.
To help the year on year comparisons I won't excluding nonrecurring items from the analysis.
Here are the key takeaways regarding the quarter.
Total revenue growth continues to outpace collaboration revenue as expected, we had our strongest quarter, yes for consumer revenue.
Scale up of products is key to future success. Good comes out of near term costs, resulting from favorable margin economics until at scale.
As John Coleman says, we expect to see greater margin stability once we get our integrated side in Brazil up and running.
Gross margin was 36% of sales and this was a result of sales mix driven by below average collaboration revenue of 4 million, which is 100% accretive to margin contribution and also scale cost related to new products you know portfolio.
Revenue in margins muscular products are not predictable as yet and feature unfavorable lodge in economics until that scale.
Gosh operating expense all from 43 million was the lowest into five sequential quarters, lower Gionee and R&D expense were partly reinvested in supporting the growth of our consumer brands.
When adjusting for the vitamin E nonrecurring item adjusted EBITDA was up by 3 million or 8% serves as the prior year quarter.
We also significantly improved our balance sheet below a death from two one of the 97 million by a harder than 21 million or 40% since the start of the year and we project second half twentytwenty cash debt servicing cost to be down from 42 million to 11 million.
We completed the 200 million dollar pipe in early June. This race was the largest with the simplest structure in the history of the company.
Let's now turn to slide tend to take a closer look at the sales revenue by category.
This slide provides a presentation of auto sales revenue that provides color on our direct to consumer brands Biossance for pets, amputating as well as our business to business ingredients with our strategic partners into health and wellness favor fragrance and buckets.
By this comparison, our revenue is broken down between consumer ingredients and collaboration that grads, which is revenue from R&D partnership programs.
Yes, you will see 87% about revenue came from consumer ingredients broken down in 43% from consumer and 44% food ingredients, respectively. The remaining 13% of total sales was from collaboration and grants revenue.
Q2 revenue was 30 million with product sales at their highest level in several quarters.
Recurring revenue grew 36% year on year, and twinkie see 3% quarter on quarter.
Consumer at ingredients revenue were 26 million doubled versus the prior year quarter, when excluding the aforementioned nonrecurring item.
Consumer revenue tripled and set a new records with consumer shifting to online shopping driven by covert.
Collaboration revenue before moving into quarter, which is on a percent accretive to margin tends to be somewhat choppy for perspective, let me add at over the past six quarter, we experienced a high or 50 million and the low off to a 2 million.
Let's move on to slide 11, and talk about assumes revenue and gross margin.
Q2 recurring revenue, excluding a 41 million one off as mentioned before was up 8 million or 36%.
But in this metric 14 million of growth came from consumer and ingredients with about 9 million off that directly related to consumer revenue, partially offset by 6 million lower collaboration.
In particular recruiting consumer in agreements revenue of 26 million for the quarter was up 14, though or 100, an 11% year over year over its price was minus 3 million or 27% and volume mix was a positive 17 million or a plus hundred 38%.
Collaboration and grants revenue declined 60% year on year due to timing on program milestone completions.
Gross margin was 36% of revenue and this was the result of sales mix driven by below average collaboration revenue.
And also scale of cost related to new products, you know portfolio.
Let me move to slide 12.
[noise] revenue, excluding the nonrecurring vitamin you loyalty increased by 8 million over the second quarter of 29 tea.
Direct gross profit of 11 million was 36% of sales and this compared to 54% in the prior year quarter when excluding one offs.
Gross profit was 12 million for Q2 29 tea.
To provide insight into revenue and corresponding gross margin dynamics, we are providing a breakdown between scale up and the growth part of our product portfolio.
And collaborations separately.
As I mentioned previously collaboration revenue was down 6 million.
Additionally, revenue related to the scanner part of our portfolio grew 7 million. These products are important to our future success would we are making investments to scale and improve yields in the near term, resulting in an unfavorable unit cost economics until at scale.
Thirdly integral part of the Proto portfolio also grew 7 million in revenue and delivered 7 million in gross profit. These favorable economics would you too much improved margins versus the prior year quarter, particularly with certain ingredients products.
That's I'll turn to slide 13.
Net income of 100 of minus one of them for a <unk> million was adversely impacted mostly due to non cash adjustments related to fair value changes of derivatives and debt extinguishment of debt and higher interest expense and adjustments in debt instruments.
Q2 of Twentytwenty included 49 million of these non cash charges.
Adjusted net income was 50 was minus 58 million, excluding these items and a minus 3 million when excluding onetime items to change was mostly due to higher interest expense of $4 million.
Operating expense off 43 million were the lowest into five sequential quotas and down 3 million from lower Gionee Snow and do you expense to the tune of 6 million, partially offset by investments in marketing and sales to support our consumer bed growth.
Adjusted EBITDA was minus 36 million and improved 3 million excuse me one offs. This improvement was mostly due to improvements in cash operating expense.
Just a DBS of minus 32 cents per share compared with minus 16 cents versus the prior year quarter and improved 28 cents per share when excluding last year's nonrecurring item.
Let's now turn to slide 14.
We continue to make strong progress on reducing our data no debt expense as a reminder June to first quarter, we reduced our overall death by 30% from 297 million to 209 million.
During the second quarter, we made further demonstrable progress by reducing to figure down 276 million by June 30, we paid down certain death and also we made certain death conversions.
Total debt during the first half of Twentytwenty, well produced by a 121 million in total or 40% relative to year end 2090.
Capital expenditure of 3 million, where on par with the prior year quarter with the investments in new Brazil plans proceeding to plan.
At the end of Q2 common shares outstanding were 204.6 million and on a fully diluted basis 278.8 million.
Right off the upcoming special shareholder meeting on August 14, Duffy knows that the conversion of the series E preferred will change Coleman outstanding to 238.7 million and fully diluted shares to 312.9 million.
Now turning to our outlook on slide 15.
Oh business continues to grow at our teams have worked hard to meet demand as steel noted we have lots of execution ahead of us through the second half and not keeping a close eye on the cold and situation and the economy.
Let me point out that the current Covance situation does present, uncertainties to which we do not have full visibility.
Our outlook for the current year, and our comment should be seen where that important context in mind.
We anticipate sort of headwinds during the second half. The goal would also has presented bucket opportunities that we are actively pursuing.
Our current assumptions used up you know mitigate the headwinds by executing on these opportunities on which we expect to report more detail by the end of third quarter.
Based on current estimates full year sales revenues expects to grow around 44% foods is 29 to GAAP revenue of 153 million.
And she 19 for your sales included 49 million or non recurring items. We expect full year Twentytwenty revenue to include an estimated 35 million of nonrecurring items.
We therefore expect twentytwenty revenue on a recurring basis to grow approximately 80% on recurring 29 10 sales of 104 million.
We expect gross margin to be between 55, and 60% of revenue obviously based on the assumptions, we made regarding sales mix and quality of revenue.
And we expect adjusted EBITDA to turn positive during the fourth quarter of this year.
With that let me turn the call back over to John.
Thanks side.
A few closing comments that you can I will turn to slide 16, before we go to Q and eight our leadership in clean beauty and the natural sustainable ingredients could not be better position for the current time consumers are moving aggressively to clean and safe products from the brands They trust and they're doing this online we supply men.
Any of these brands and we have two or the leading brands to help consumers in this time of need.
Our ability to quickly scale, what we believe our market, leading ingredients and branded products that provide exceptional performance and great value has become the hallmark of our business with a much improved balance sheet and capital structure, we have greater flexibility to execute on growth in an era, where better educated consumers are choosing products based on.
On companies and brands that support them and the planet by omitting toxic and questionable ingredients and we are taking advantage of this mega trend our core business is doubling year on year and our pipeline is focused on health with our age or most technology vitamins and can Ave. It's these are each markets where we.
Have the leading technology platform for the purist and best performing ingredients that are currently in development or shortly scaling.
With Kobe, we are at historically difficult time, and the world. It has been challenging for all of us and at times unpredictable cope it has created new opportunities and global help for synthetic biology, we're actively pursuing the developing and launching some new solutions. One thing our customers can count on is that we will continue to meet their needs for clean.
Products that keep them and their families healthy and say, we're doing our part to make the world a better place and we thank you for your support let me now turn to con or questions. Melinda can we go to questions now please.
Thank you Sir the floor is now open for questions. If you do have a question. Please press Star then one on your telephone keypad to join the queue, if you're using a speakerphone. Please pick up your handset to provide the best sound quality again, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time.
First we go to Colin Rusch with Oppenheimer. Please go ahead.
Thanks, So much guy so I just want to make sure I'm unclear in a couple of times. So one the sales targets for the years still consistent at 220 million for the year and about 80% of that is gonna be recurring sales and I am I doing that math correct.
Correctly on the 220, Collin by the way a good morning, and that Hot can you confirm the a recurring piece of that at 80%.
Yeah that is correct.
Okay, perfect and then in terms of visibility around those recurring sales. A you know is that coming from you know so for another customers you know how should we think about your visibility in the sales cycle on each of those lines as we go forward.
Well over 90 million for the full year isn't ingredients and the majority of those ingredients or sold or we have orders in place with some of our big customers a g. the Dod and from an H.B. into at the biggest and then the consumer part of the revenue a again full year consumer.
For a will be around 75 million and that 75 million in consumer.
He is really based on having done about 22 million in the first half.
More than doubling that in the second half, which is what we've done the last couple of years and then adding to it. The current run rate that we have for the hand, sanitizer business, which has been an outstanding performer in the second quarter and we expect the benefit from the full second half of hand sanitizer.
Perfect. That's Super helpful. And then then finally on the eatery collaboration and the edge of an opportunity. So my understanding is that you guys are able to work with anyone.
From an address perspective, and then the EG relationship it really sounds like you're buying or you paid her Roe for.
The next several applications for a additional vaccines can you talk just a little bit or you just confirm that and then also talk a little bit about the the cycle on the development process. Obviously, it's got to a pretty robust platform, but how quickly do you think you could you know brings something to market and start saying.
Some revenue from any of those indications.
Well again, it's it separate the two on the ALJ event. We are currently negotiating the first off take for the ads you been and we expect to have you know two to three agreements in place.
Through the year, which the first could have commercial revenue before end of year. So that's the agitation and the ads have been is in our control. It's a it's a technology that we developed the ability to make swayed need.
As an actor event directly from our fermentation product, which gives us the lowest cost and larger scale ability fragile, but that's against separate then we'd eatery in developing the adds going over the last two years, we discovered they had a really interesting are in a technology for vaccines and with that they have.
Several indications that we have interest in a very good interest and one is an oncology a indication for a therapeutic and the other is the covert 19, and it's not that we're going to be the leading to market covert 19, instead and everything we're seeing in the data or the the leading covert.
19 to market indications seemed to have a toxicity issue that limits the amount of the dose and therefore leads to a challenges with efficacy. We think that's going to be a long term issue and will require a second generation technology to really scale and be sustainable long term and that's really.
What we've licensed Sen from eatery, and we're going to work with them to scale plus we're talking to several governments to jump in with us to really ensure that this is fully resourced and scaling.
The fastest rate how fast it gets the scale Collyn I think depends on the future of covert 19, and other respiratory diseases right. So because you know to get their fast when you to support have a very supportive regulatory environment, which has been there during coded and that would have to stay in place for us to go.
To what we think could be a commercialization sometime in 2022.
Perfect. Thank you so much guys.
Thanks Carlos.
Next we go to admit dialogue with H.C. Wainwright. Please go ahead.
Thank you. Good morning, everyone. Appreciate you taking my questions you know exciting to see a you guys getting to the therapeutics vertical well just one question on so who's going to be managing this losses on unit that they can do phase one phase two et cetera.
Is it.
Yes, and we are looking to build a tumor on all this or will you really being long as well.
Yeah.
We're having eatery actually do.
Development and we're actually in discussions where they third party that specializes in getting through Clinicals. She wants actually drive that we don't have the capability to do that and we do not expect to build I just want to make it really clear our objective here is not to build and you cost basis, something we're not specialists then.
It's actually to take the a advantage technology that eatery has their capability on developing vaccines and therapeutics and connecting it with a large sources of investment or said differently, adding our commercialization and access to help accelerate the vaccines.
Capability.
Understood. Thank you for that and then with respect to the agile inside looks like you know you're close to.
Probably closing some views. We here you know does that play into potentially some upside do the guidance for later today.
We're not a mean, we've got several items that we think could be upside, but at this point because of all the headwinds and unpredictability related to two Kobe you know, we're keeping our guidance at 220.
And we do have again several.
Items that are not into guidance that we're focused on executing odd.
Understood and then you know.
What would drive because in some of the Grand some collaboration side is it just two days are facing some disruptions from executing on that front because in the funding situation.
And things are being pushed out or are there any other sort of drivers that are you know a few beans or some pressure on me.
Now in the first half UTAS literally.
A couple of million dollars that we were not able to recognize as revenue based on the timing of the milestone delivery into how revenue accounting works or we're not a we're not experiencing at this point for our core collaboration portfolio a significant change for the year.
Understood.
Yeah, that's what I'm just thinking so much for taking my questions great. Thanks. Thanks.
Next we go to be line of that Randy Barron with Pinnacle.
Okay model.
Good morning, Andy Good morning, Hon Hai that you administrative questions for you or just caught my medical then John a bigger one for you on just.
Question, how much revenue in the quarter was the occurred but we'll get recognized in the third quarter.
Yeah. It was approximate youre talking specifically about collaboration revenue I take well I mean, you can include the total revenue that wasn't book and so it's it's a drill made reference to answer on too low.
Okay, and then you said, there's 312.9 billion fully diluted shares after August 14th what was the basic still buffer I missed that and.
Core.
Last question there yet.
Yeah. So let me let me quickly go there just give me a second balsam doing that if you want to ask a broader question too John So I can come back to you.
Sure lens on I guess.
I'm trying to get a handle on live on on a lower mill product.
Sure. So generally speaking, but can you just.
In general terms on where that lets it stands kind of why we continue to treat them. That's good operators.
Our other parties lined up and ready to partner with you on CBD and one.
I'll answer the question, which is what would be the benefit to EBITDA in ceased production of molecules three to town.
Quite a bit there.
Probably a bit there's so many.
Excuse me, let me try to take each piece first of all I do need to make clear that I have been restricted I'd, meaning the company has been restricted by Leviathan for making public comments regarding the partnership so I'm going to try to do everything I can to answer your question within that restriction or order that we got from a lot.
We we are we are in process I think as you'd want to announce that need to artery SEC comments about our first cannabinoid is in line with regulatory requirements that we maintain and update you on what we've already made public. So we said we would be scaling up a one of our molecules.
We are absolutely one of the Cape Canaveral ways, and we are absolutely and process of doing that we expect a first production to start happening within the next couple of weeks, a and we think it's a very exciting opportunity for the market and I think the most important thing it's the fastest time and he can happen what has been.
Skilled at this scale that we're gonna be producing at and we will very quickly. This year become I think the largest producer of that particular cannabinoid in the U.S. So we're pretty excited about that we believe that can happen at opportunity continues to be as Weve thought obviously, there are regulatory headway.
Since about the general use, especially in a beverage and other and other items that you would consumed but the application and topical or used in skin, a we still see us pretty significant and as you can imagine you know flavors and fragrances and uses and skin care our markets, we know extremely well and those are my.
Markets that have a keen interest in being able to a partner for can have an always idle without without giving you a lot more detail I hope that helps and I'm happy to take a follow up on that Randy Yeah. I just I just wanted to make sure I'm clear good clinical blanket, we're beginning to go to commercial on.
That is or isn't a for live on it this is something for like but that's something.
This is internal for Enlink are good for part of that partnership and there's not clear that yeah. There is there is in the Luvata agreement.
Got a an area or market area that is excluded from that agreement. So we are producing for that excluded the market.
Understood and then what's the drop dead date, when you're gonna be able to no longer be restricted to talk about it.
Whether they pay it's a as as long as we're in the agreement with them. They have put a restriction and our ability to speak publicly about the relationship.
Okay, just and when so just going back to the original agreement I got semester when's. The termination date and then if they don't pay I guess I get you can't get and details, but there is a point at which you know.
Hi, seamless other parties lined up that wouldn't work this molecule you've created so what how should we think about the original agreement and the time.
Yeah, I am wondering I'm going to stay with what I said, a few minutes ago, Randy which is because there isn't excluded market. Our focus is working within the constraints of the agreement and actually effectively working in the market that we have the right to work at.
Okay, and then I'll ask the last question Wilson and go back in queue do you think lavarnway.
I think lavarnway, what Randy repeat that please I think live on will eventually live up to their part of the agreement and pay when you Dameris has clearly delivered your portion the marks its suspicious that live on will not I'm curious if ever instead the company at this stage believes that live on its negotiating in good faith.
You know, we've we've I shared with them what we've heard from the market, which is exactly what you're just repeated and they've assured us that they are going to hold their side of the agreement and are going to continue doing exactly what the letter the agreement set so I can only repeat for it to you what I've been told.
Okay. Good luck.
Hey, Randy before you leave I did want I'd like to take your question you always you know I've been asked a question around the shares outstanding. So yeah 104.6 at the present time that includes as you know based on the pipe of 200 million. There was 67 million a round number some shares attached to that hi.
Dan in terms of Coleman were already distribute it the other half which is around 34 million rule will become available. After this especially shareholder meeting on August 14, coming up and actually if you go to slide 14 index that we shared today, there's a couple of who knows that actually said that out in detail.
And you'll see an increase based on a common I just made from 204.6 to 238.7 and a difference is does 34 million.
Just to finish on the share topic on slide 21, you have the warrant table, how how much of the call. It 2021 warrants do you think that 92 million all come in heavy receive more worn cash since the end of since the end of June like how should we just think about work Casco no I see no. Since it was you know because there were no.
Warren's expiring and this time period and the few that would they were we owe the money.
The ones that are available in 2021, I'm, mostly priced at the 287 level.
So actually when you cashew eye on that same slides to the left hand side you see to 80 736.7 was attached with most of those arent twentytwenty, one and will become available mostly actually the first having 2021.
Okay.
Sure, Ladies and gentlemen, we take our final question from Graham Tanaka capital.
Yeah, Hi, guys congratulations on all their achievements.
Lots going on I, just wanted to continue one randy's question and.
The CBD CBG opportunity not sure which molecule that is.
But whatever that is what is the revenue potential and would you be entering the market with a direct product or as an ingredient.
Yeah again, a grain by the way good morning, and think it being on the call. We really in light of the restrictions we have with Leviathan I would prefer not to comment on any of the commercial activity or revenue impacts.
Got it okay.
It is this whatever the revenue might be.
Coming in the second half.
I had expected that included in your.
Ah guidance or is that a potential upside.
Again, I'd prefer not to comment and I can tell you that a whats in the guidance is a pretty well solidified.
So.
Not trying to push my luck will further switching to wall lean as an add to that.
Yep similar question is that potential revenue and the second half.
In the guidance or is that potential upside.
Yeah that was a at a question one of the analysts I think asked earlier I think you know our our view is that a lot of the upsides a were really keeping out of the guidance and keeping our guidance focused on the 220 that we started the year, which especially in light of the significant uncertainties around.
Around covert 19.
So.
So it sounds like both of these might be 10 potential upside and you're leaving that.
The way it is because of the uncertainty of potential slowdowns, perhaps in the second half due to covert <unk> <unk>.
Yes, that's exactly right I mean look it to put it differently. If you think about a one of the impacts that we had in the second quarter. As I said was this this manufacturer and the manufacturer in Italy, where we make one of the flavor ingredients Oh, we never expected to be in covert so the way we worked with them.
[music] fracture like that is our team goes to the site to help the manufacturer scale up in produce our product.
The fact that we couldn't do that the manufacture obviously that is not as familiar with our process did not deliver what we expected and ended up really affecting our revenue.
By about two two and a half actually 2.7 million in the quarter off of that particular product I mean, the good news is we actually have the away to make that up because we're now redoing that process. Obviously, Italy is now more available for us to work and and we have access across Europe to be able to get the.
Product produced so the revenue for the year isn't affected but it definitely affected our second quarter. It's those kinds of uncertainties that we wanted to make sure. We keep plenty of cushion to manage through the rest of the year, which is not which is why we're not embedding a upsides in changing what are what our guidance says, we're keeping our guidance where it's at.
We are focused on managing all these issues. All these movements like the example of the Italians manufacture and making sure that were covered for the 220 for the year.
Okay that's understood.
One of things that several of US I'm wondering about is squalene as an add to that.
How significant are the advantages you talked about a thousand.
I think a thousand times more efficient alright, if you could be a little more explicit on the advantages and disadvantages versus other AD driven like aluminums and things like that are more common historically and and and to what it what would be the price or value.
<unk>.
Kind of an expected those.
Whenever a customer pharmaceutical customer might be thank you.
Very good so.
<unk>.
Your question varies significantly by the back the view that the specific vaccine itself. So every vaccine has a very different profile. What is common around squeezed mean as an advantage is typically it's used for vaccines that need to be turbocharge that need to be much more.
A powerful much higher efficacy than a typical vaccine in that class one of the most common use this as an example, our flu vaccines for the elderly our big users of Squalamine as an agile and so that's the way to think of it for certain vaccines sway lean is though.
The most impactful agile that you can use to really increase the efficacy I eat gets better penetration and delivery of the active a into the into the is it a blood stream. So that's how to think about square lean as an agile bench. When you think about economics, you know the way the way we're thinking about.
This is are.
The issue in the market with squealing, because its shark source its not readily available and it's actually pretty expensive. So our value proposition is a we believe we have the lowest cost source square I mean to the world and we have the the only ability to actually produce as much as possible. So.
One of the first orders were up we're negotiating is actually a pretty significant a very high number of vaccines for a company that wants to prepare itself and it's that it's at a cost that I don't think anybody ever thought spoiling could be available for and again I don't want to disclose I don't want to disclose publicly but I can tell you.
You are it's over a thousand in less than 2000, akila right somewhere in that range.
Okay. So how many how money.
<unk> grams or milligrams or use per dose I, we just don't know what how much as you.
To make enough yeah, I mean again it varies by how many people are going to use it in and what vaccines right I can tell you the size the size of agreements renegotiating, our typically around 10 tons each.
And Oh, okay.
Yeah.
Okay, and so what percentage of the 940 vaccine.
Sorry to be so specific but about 140 vaccine being developed currently worldwide for covert 19, what percentage of those might be applicable.
Yes.
Available potential markets for the squalene vaccine are adamant as opposed to another regimen or nonagency.
Look I can probably answer the question differently, which is of the top 10 candidates. We are a you know the offtake discussions we're having a involved three of the top 10 candidates that are currently on a target for coated.
That's great.
Actually I had one where a chance for one more question I just wanted to.
<unk> Khan.
And welcome aboard a welcome to the team.
What what the you.
In terms of a achieving a the cost structure you would like to see.
For the second half that for.
2021.
How confident are you have achieving the cost reductions are limitations.
In order to achieve breakeven cash flow and profit this fourth quarter and profitability sometime in 2021. Thank you.
Sure, Thanks, Graham and a good morning to yes. So.
As we just said we've we've made some good progress we just recorded the the lowest a sequential five quarter sequential quarter, a good old cash operating expense we.
We are continuing to look at it obviously, we're dealing with a lot of new and different dynamics given cold is in terms of how we're operating or sites, but also how you know support staff is working.
We are taking a very close look at out in terms of all these dynamics. So in terms of how we're organized how we operate so that is that as part of continues improvement the way, we see it and for the second half a you know we have targets, particularly we've demonstrated some of that already very clearly.
As it relates to our DNA reductions does that we'll be continuing to be a focus.
You know part of that will be an overall reduction and part of that always do with a view to reinvest in the business, particularly.
As we commented today are without we'll go to market for a poor, particularly supporting the growth of our consumer brand. So that'll be the balanced approach, but you know it's it's a it's an important discussion we have at the company and we'll continue to pursue you know deuce dues improvements you know customers.
Well now turn to John Melo for closing remarks. Please go ahead Sir.
Great. Thanks, Melinda, what's been a long call. So I just like the thank.
The Amherst team and all of our partners for keeping everybody a safe while continuing to execute on our mission.
It's been a an amazing time, a very unpredictable a yet I just realizing significant benefit for our business. During this period, both with our consumer brands and our ingredients and again I just wonder we emphasized the greater appreciation of our partners both in the manufacturing side and then on the on the under.
Customer side, they've just been usually supportive and working with us very carefully as we work to supply their needs and the growing consumer needs for.
Cleaning products and products to keep them healthy and safe. So thanks, everybody appreciate it and hope you all have a very good day.
Thank you. This does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time have a great Jane.
[music].