Q2 2021 Amyris Inc Earnings Call
[music].
Welcome to the Amyris second quarter, 2021 financial results conference call.
This call is being webcast live on the events page of the investors section of the Amyris website at Amyris Dot com.
As a reminder, today's call is being recorded you may listen to a webcast replay of this call by going to the investors section of Amyris website.
I would now like to turn the call over to Han Clifton Bolt Chief Financial Officer of Amyris. Please go ahead.
Thank you Andrea and good morning, and good afternoon. Thank you all for joining US today with me are John Melo, President and Chief Executive Officer that Eduardo Alvarez, Chief operating officer.
This morning, John will provide a business update Eduardo will share operational performance highlights and I will review our financial results for the quarter.
Please note that on this call you will hear discussions of non-GAAP financial measures, including but not limited to underlying sales revenue gross margin cash operating expense and adjusted EBITDA.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP financial measures are contained in the financial summary section slides of the accompanying presentation or the press release distributed today, which is available on our website.
The current report on form 8-K furnished with respect to our press release is also available on our website as well as on the SEC's website.
During this call we will make forward looking statements about future events and circumstances, including Amyris is outlook for 2021 and beyond Amyris as goals and strategic priorities anticipated transactions in other future milestones as well as market opportunities and growth prospects.
These statements are based on management's current expectations and actual results on future events may differ materially due to risks and uncertainties, including those detailed from time to time in our filings with the Securities and Exchange Commission, including our 10-K for full year 2020.
<unk> disclaims any obligation to update information contained in these forward looking statements, whether as a result of new information future events or otherwise.
Before we begin today I'd like to note that included in our webcast is a slide presentation, which we will refer to the slides will also be posted on the investor relations sections of Amyris website following the call.
I'll now turn the call over to John.
Thank you hi.
First of all good morning to everyone and thank you for joining us today I'll provide a business overview as it relates to our lab to market science and technology are on.
<unk> pipeline and our consumer brands and will also speak to our expectations for 2021, and our 5 year strategic ambition.
With the second quarter, we completed a strong quarter of strategic and operational execution.
We delivered another record of underlying revenue growth driven by another record of consumer revenue, while significantly improving our margins year over year.
The quarter was a great moment, where we had more sales than we were able to ship before the close.
We had orders for $2.4 million of products et.
600000, and consumer sales and $1.8 million ingredients that did not get ship in time to make the quarter.
This strong order momentum has continued into the third quarter.
From an operational perspective, we had a record quarter in our consumer business.
Without the revenue contribution of any new brands as such this is a true like for like comparison for last year.
We are experiencing very robust consumer spending in beauty and personal care products across most major markets.
Bioscience doubled revenue versus the prior year quarter.
We witnessed a strong contribution from brick and mortar in the quarter as a result of easing pandemic restrictions in North America and the U K.
Performance of our brands is evidence of the rapidly growing consumer demand for high performance affordable and sustainable clean beauty products.
We delivered another solid quarter of growth for our ingredient business. This is the first quarter with our flavors and fragrance ingredient business performing post the DSM strategic transaction, we completed in the first quarter of this year.
The partnership is operating very well and delivering strong growth as we expected.
We expect this growth to continue into the third quarter, we expect full year ingredient growth around 30%.
Continue in the 30% to 40% range over the next several years.
The first half of 2021 demonstrated strong year over year growth on all aspects of revenue.
The second half of this year looks very robust and we continue to see strong demand for our consumer brands and ingredient.
<unk> with strong year over year and sequential growth.
2021 is on track to be another record year with expected total revenue north of $400 million.
And positive adjusted EBITDA for the full year.
Art.
First half was really about key strategic moves and setting up our second half our second half will be driven by operational revenue and consumer growth.
At Amyris, we have integrated our business model for molecule to consumer product, which is driven by our lap to market Science <unk> technology. This is delivering the best revenue growth margins and the leading financial performance in our sector. We expect to continue this advantage level are performed.
Over the next several years we.
We are experiencing we are experiencing the most growth ever in our product development pipeline and significant interest from current and potential new partnerships.
At the heart of our ingredients pipeline is clean chemistry and sustainability.
Since the start of the pandemic there is a tremendous consumer pool towards clean natural and sustainably produced products. We are leading this transition to clean chemistry, and believe that we deliver more bio manufactured products than the aggregate of our entire sector.
We have been deliberate in our choice of clean beauty personal care health and wellness markets. These markets are high growth high margin and capital light.
The global beauty and personal care market is expected to be $716 billion.
By 2025, growing with 7% cumulative annual growth rate.
America and Asia Pacific represents 75% of the global market, we believe that clean beauty will become the beauty industry segment for which we are viewed as leaders and which is growing at double the rate of the regular personal care market.
We added 4 new brands to our portfolio during the quarter. These brands are a great fit and plug into our platform. They have brought with them outstanding talent. This includes the CEO who built method.
1 of the worlds leading.
Designers amazing, new marketers and great brand builders.
These new brands will all consume our ingredients and become an accelerator to our revenue growth. These are also been great financial transactions in aggregate, we are paying less than 2 times revenue upfront and we are funding most of this with Amyris equity in total we have used less than 1% of our outstanding <unk>.
Share count for these acquisitions, we expect our consumer business to more than double this year and continue growing at this rate for the next several years.
We are well prepared to invest and fund the full potential of our consumer brand portfolio from the proceeds of our future earn outs from the recent strategic ingredient transactions, we have estimated over $250 million in earn out payments and we are tracking to achieve our earn out targets.
We believe there are 3 stages in the journey from lab to market <unk>.
Technology leadership the platform has to work.
Scale up and manufacturing.
From partnerships and ingredients for our own direct ingredients sales and consumer brands.
In addition to the technology and development to scale, we have complete a proof of concept for on over 200 in different 250 different molecules made sustainably from fermentation using our technology. Several of these molecules are under current contract by the U S government and on the path.
<unk> to scale up.
By way of example, 1 of these ingredients that we are developing for our direct use is Colorado asset a war course of the beauty industry and a core product focused on helping us all look better and you know when we make it from our technology and through fermentation, it's a clean source of hollow on the gossip, which.
It means it is likely to perform better be lower cost and be super impactful for the consumers that use it.
We expect to commercialize 4 to 6 new core ingredients annually through 2025.
Each of these ingredients are for addressable market sizes, well in excess of $1 billion. We expect on average are ingredients and products in development to be worth $50 million to $100 million within 2 to 3 years of initial commercialization we base. This on our.
Yes of licensing these technologies to D S and greedy on and many other earlier technology licensing events.
Another area of technology, we made significant progress through the second quarter is R. R. N. A vaccine technology. We are very pleased to partner would that with Doctor Patrick's from Sean.
He's a proven and venture an entrepreneur in biotech and 1 of his companies as the first license for our RNA technology.
We believe we have the most effective booster shot for Covid, along with the best delivery system for our in a vaccines. We are expected to be in human trials in South Africa, very soon and if successful helping patients by early next year the.
The first license covers are total investment in this technology with the upfront payments on the milestone payments and also covers the cost of the human clinical trials. The partnership with Patrick also includes access to manufacturing capacity for our vaccine. We have not included any of that vaccine.
Henshall in our future forecasts and will not do that until we have complete visibility.
Let's now talk about our ingredients are ingredients business is performing very well across the board, we had a very strong quarter for flavor and fragrance ingredients with record setting volume for some of the products and accelerated growth as many of these ingredients are huge and the personal care market, where we are continuing to experience.
Very strong demand across most regions.
We expect European demand to accelerate as we see many consumer companies on the personal care Arena returned to full production and the second half of this year.
Our partnership with D. S. M is working very well in this space. We are expanding the number of molecules. We are working on with our partners while volume for the established molecules continues to grow at a 30% or better rate annually.
Our beauty and personal care ingredients. So directly by numerous are also doing very well we have another record quarter for squalene and he had me squealing combine heavy square Lane is an incredible molecule cause we invented and then scaled to our lab to market platform is for a replacement for silicon and it's the perfect product to improve.
The performance of shampoos body wash soaps, and many of the products that wash off your body.
Silicones don't perform well on delivering real impact of the consumer they are not healthy and they pollute our water systems. They are outlawed for use in Europe and should be banned in the U S. The global here at <unk> hair care market alone is around $75 billion. This ingredient generates millions and rather.
On you for our ingredient business currently and soon will be a significant point of differentiation in our consumer business as we launch our Jonathan Van Ness brand J V N.
Our sweetener business also performed very well and delivered a record revenue quarter. We are very pleased with our your partnership with ingredients and already have developed a list of molecule targets that we are both excited about developing in commercializing we have successfully executed from the lab to market on all.
Our commercialization efforts over the last 10 years, we learn some very hard lessons. When we first entered manufacturing and scale up in 2011, those lessons have shaped us and have made us the best in the industry.
At targeting developing scaling manufacturing and commercializing amazing chemistry, that's making our world better.
Our newest ingredients are performing well C. B G and our breakthrough formulation are well set to deliver a superior treatment for the Acme market and we expect to put me become a leader in this 11.5 billion dollar global market, we will be hosting an investor event to provide a deep dive into the perform.
Since of this ingredient and the breakthrough formulation we.
We plan to include the for an after stories and an interview with a leading dermatologists. We are on track to launch this product through our terrorists undergrad over the next few weeks.
But let's now died deep into our consumer business, Arkansas.
Arkansas on my business deliberate another record court, we've developed and launched brands consumers Love, we see consumer expectations and this has led to brands with a very high level of repeat purchase and brands that are super efficient at attracting a converted new customers.
We expect are you to be launched brands to have a strong uptake in the second half remember we had none of these brands in the first half.
We have already realized much of this with the pre launch orders and demand from retailers. The remainder of the year will add revenue from Rosie Inc. <unk>.
J B N Costa, Brazil Terrace on and the older car brand. We will also bring in 2 consumer businesses named M. G. Empower 1 of the leading agencies and management services for Influencers and beauty laps and Amazing technology company delivering technology am.
Locations that engage the consumer online. These will also contribute to our revenue in the second half.
We executed and delivered great performance across all for key drivers of the consumer business in the second quarter for.
First new brands will be launching 5 new brands, we acquired several new brand new brands are a key part of our growth strategy of using our ingredients and of leveraging our development platform or marketing platform are proud of platform and our channel partners like so for.
New doors, we added over 10000, new retail doors for selling of our branch. This is well beyond all of our expectations new products, we added significant new product launches across both type that in bioscience and this newness was very well received by consumers and contribute to the significant growth and new customers.
Along with a strong repeat purchase for our existing customer base.
And then lastly, new customers as the fourth driver of growth and our consumer business. We started the year with about 1 million consumers visiting our consumer websites monthly.
I expect wiebold in the third quarter with nearly 2 million consumers per month. This is coming from the stronger awareness our brands for building and the traction on success of our brands along with your amazing performance of our products.
We have a unique capability to identify unique opportunities and execute on these opportunities would brands consumers desire and products. They love. This is all curated in detail from identifying a market need for clean color cosmetics that deliver superior performance just selecting a very unique par.
<unk> that has a unique understanding of cosmetics and a passion to deliver outstanding performance, while setting an aspirational reach for the consumer and being super accessible in her voice. We've been match. This perfect combination of a market white space with an amazing new ingredient that we discovered from.
Our waste stream in this case bio silica, we've been apply our world, leading formulation capability and brand building skills and this is the making of Rose Inc..1 of our latest France, a brand that is already love by all that have medic met with it and have been introduced to the product a brand that is likely to deliver.
Over $20 million from revenue and it's full in its first full year of sales.
We are repeating this with the JVM brand a different market a different partner in hero and Jonathan Venice, and it's good for an ingredient that level that revolutionize how was shampoo works and delivers the best performing hair care and the market. In this example, we are removing silicones from her care cleaning up on water systems.
And delivering a revolution and how was shampoo works, we've just announced our partnership with that you only watch to focus on empowering the 1 billion women, who are expected to be on menopause by 2025. These women deserve to be celebrated and not afraid to talk about the challenges they face and a niece they have.
At this amazing stage, where they should be celebrating the stripes. They burn in their lives. This will come with amazing products for skin hair got help and intimacy, we will repeat our formula a unique ingredients on amazing brand the best for for me products in the category on Amazing partner in a on me who has experienced men.
He struggles with menopause and has a unique voice to engage and empower women throughout the world.
Our consumer business is where we generate the greatest revenue from each unit of production.
Think about it.
5% of our swelling production can generate $267 million in revenue is sold through our consumer business, but only $2.2 million. If it's so true or ingredient business. We have already started this revenue upgrade and volume from ingredients to consume.
<unk> for several of our products and you'll see more of this on the coming quarters as we accelerate our revenue growth from the same production footprint.
Every kilo of Squalene is worth 100 times more on revenue when used in 1 of our consumer products.
Now, let me spend a few minutes on our 5 year strategic horizon before.
Before I speak to our 5 year strategic Horizon, Let me address the balance of this current year to provide you with the bridge 2 are for your expectation.
We are already experiencing and are expecting a robust second half.
Cause the consumer revenue is tracking towards an estimated 125 millions of revenue for the second half wild ingredients collaborations and licensing revenue is expected to be in the 50 to 55 million dollar range.
The ingredient revenue is all about maintaining our current growth rate and benefiting from continued robust consumer demand for personal care products and it continued transition to sustainable and focused ingredients by consumer.
Second half consumer revenue is driven by continuing the current growth trend from our existing consumer brands, while benefiting from the seasonality of the fourth quarter with its holiday shopping season.
We expect our you consumer brands and services to contribute about 30% of the hundred and 25 million a second have expected second half consumer revenue.
We expect for your revenue to be north of $400 million and 4 year adjusted EBITDA to be positive for the first time in the company's history.
We set ambitious operation on on financial goals, and we believe that are winning business model and a vanished portfolio is well positioned to achieve an estimated $2 billion for the revenue. During 2025. We believe this is 2 times what our nearest competitors are capable.
Of based on what's been disclosed publicly.
Given the high growth expectation for the consumer portfolio and the end markets. We have chosen to serve the portfolio is expected to ship further towards consumer from 40% of total total revenue in 2022, 72% of total revenue by 2025.
Targeted 2025 consumer revenue is around $1.4 billion from our expanded family of brands.
Meanwhile, we also expect to continue to grow our ingredients business to a total of about half a billion dollars with a total of 30 molecules being scale and actively being manufactured.
We are very excited about the future and believe that we have the technology the products the brands and the people to deliver against our 5 year view.
Expect us to comment more on our 5 year trajectory future investor calls.
Our purpose is to accelerate the world's transition to sustainable consumption are ingredients for founded 20000 products around the world and reached 300 million consumers a year we.
We promote diversity equity and inclusion whenever stablish scholarships for minority the name a few name again, we believe that for our business to be financially sustainable we have to create manufacture and sell sustainable products that consumers want and look this is what motivates us and we believe this will be <unk>.
For to our long term success, we have a simple business model, we use our leading synthetic biology platform to make the world's leading chemistry from sustainable sources and provide access of these ingredients for all we use our consumer brands to accelerate commercialization and access to these ingredients. These brands set.
The standards for consumer expectations once our branch set the standards for consumer expectations and demand. They demand the same kind of performance from all brands around the world. This drives greater demand for clean ingredients and drives growth for our ingredient business. This drives our growth makes R. P.
<unk> healthier to clean sustainable chemistry.
In their right mind would choose dirty chemistry made from non sustainable sources. When you could have better performance for less cost and do no harm to our planet using amyris brands and Amyris technology with that let me turn the call over to weed Ward.
[noise]. Thank you John and good morning today, I will cover our second quarter production on operations result.
Provide an update on our ingredient activity.
Describe this came up on a consumer operations on brands.
I have concluded an update on construction activity on our new Brat, Brazil's ingredients plant.
Let me start with ingredient production.
We deliver 3.
He ingredient sales record this quarter for.
First.
We delivered reckless squalene sales and continue to see strong market demand and growth across all regions.
North America, what's up 57% on Europe up 98% year on year.
And we continue to see growing innovation and adoption for new brands in China.
We see market leader leadership for our squalene continue to grow as our consumers replace squalene traditionally source from shark liver and olive trees and.
And as day average of hold on in Oregon oil formulations withdrawing pace.
Becker, we delivered our largest quarter on record for a red band zero calorie sweetener.
Representing more than 100% growth year on year.
Third we competed our third on August CPG production campaign to date.
Campaign day leave or 5 times, the volume than our previous wanted completed last December.
We also are very pleased to exceed the fermentation and purification targets by more than 20% during this campaign.
We are skating production in anticipation for the great interest on demand from the Acme product for Tara Santa that we would be launching later this month.
As John mentioned.
<unk> just like Squalene is another example, where we are managing and directing our CBE products to our branch and consumer formulations to both maximize value and to drive future demanded synergy in the B B ingredients channel.
We continue to focus on delivering processing through mints and capturing benefits of additional economies of scale.
For example in the quarter, we achieved our largest on lowest cost for effect for patchouli in our history via improvements in fermentation productivity and recovery.
In addition, our first half Hemi squalene production has already surpassed the entire volume we delivered in 2020.
As we discuss Henny squalene is going to be the key ingredient for our JV in her brand being launched this this month.
Let me know sure on an update on our new ingredient programs, starting with our farm activities. We continued to delivering delivery excellent preclinical data on our RNA vaccine and in the second quarter. We competed the licensing agreement with networks to bring the vaccine to Africa, beginning with clinical trials.
In South Africa.
Most recent tests confirm our vaccine performance and validates the significant distribution and manufacturing cost advantage of are leaping delivery particles, making it uniquely suitable for global distribution on affordability.
At a time, where when growing an urgent need for the solution exists.
For our adjuvant squalene, we are on the critical space or profit development.
Technology transfer on our planning to scale up the scale up to start by the end of this year.
During the second quarter, we also fast track to new ingredients for development.
For the end of the year on it for production in 2022 as you can see we are accelerating are unique left to market capability to introduce 4 to 6 new molecules for a year throughout the end of 2025 move.
Moving to our brands.
The second quarter was biosenses largest quarter of revenue ever.
For example are peaky commerce monthly orders for biotech Dot com, where 100 per cent higher than that for your prior peak the for the year before we also introduced 3 new Biosense products, we had great momentum, Inc. Pet, where we converted 5 new retail channels and.
And where are picky commerce orders for May June promotion period, where 80% higher than last year.
We are leveraging our talent across brands and have capture synergies formulating new products across categories like creams bulbs zeros and others using unique ingredients on accelerating innovation with efficacy.
We compete at 28 distinct product formulations using this approach on all of them were in full production by the second quarter in time for the new brand launches.
In the third quarter.
We also Inc are integrated procurement of all the raw materials and secondary packaging to improve our resilience pace and scale.
Finally, we work with our partners to double the order processing and fulfillment capacity needed to grow with our breads and have plans to scale up even more prior to the holiday season.
Construction for the new for Mentation planning by rub on eat that remains on schedule.
As mentioned in the past this plan will have 5 lines with a total of 10 production for mentors. This unique configuration balance is scale with flexibility allow.
Allowing us to produce different products for each line concurrently.
We have already installed.
6 large 200000 leader for mentors.
And we are on track to complete construction this year and begin production in early 2022 Q1.2022.
Beyond this for meditation plant this new from Mentation plan. We have also began designing a second fermentation and Peter vacation plans of similar size to the current 1 we expect construction of the second plans to begin after completing commissioning of the first planet.
In the first quarter, we are confident that our production roadmap will support our continued proto growth on our excited to share more details of this project in the future.
I want to recognize our Brazil, and engineering and production teams, who are vigilant and focused on completing a large construction project while dealing with a pandemic. We have at present over 350 workers at a bar underneath the site and have strict testing and separation protocols in place.
As a result, we have had a great continually and with the project and have had very limited number of cases.
They'd be finalized by starting by stating out our 3 priorities for the second half of 2021.
Our major focus is on competing the critical path face of our plan construction during the next 2 quarters.
Second launch on your brands in August and delivered the best holiday season for all our lake assisting new brands.
Our third and final priority is to deliver 5 new ingredients I mentioned at 3 in Scaleup and a 2 day have already been fast tracked into product development.
We are ready to stay focused on more motivated to deliver the best second half, yet and with that I'm going to turn the call over to hand to review financial results and.
Thank you ate a auto you starting to slide 12.
I'm pleased to reported we had a very successful quarter with record sales revenue both on an underlying basis and for our consumer brands and we also reported expanded gross margins.
Since the closest coupon we completed the third strategic ingredients transaction for our zero calorie Rep I'm sweetener with ingredients, we record of $10 million in revenue in the second quarter for this transaction.
We for the reduced our debt position to $105 million. This compares to $171 million at the start of the year and we have clear line of sight 2 deaths being below 100 million by the end of this year.
He also completed a successful equity raised with proceeds of 131 million early in the quarter cash at the end of the quarter was 250 million compared to 100 million at the end of Q1.
Q2.2020.
All these factors combined significantly improved our capital structure solidified on liquidity and provides financial flexibility to support an accelerated growth.
On slide 13, total revenue or 52.3 million included records on the line and consumer revenue and include the $10 million off the proceeds from the strategic transaction that I just referenced total underlying revenue increased 41% to $42.3 million compared to Q2.2020 revenue.
Driven by a 59% increase in consumer sales and a 25% increase an ingredient sales.
2.2 consumer revenue achieved the new record with biosolids doubling its revenue compared to the prior year quarter.
Non-GAAP gross margin of 27 million or 51% of revenue improved from 11 million for 36% of revenue and Q2.2020.
Excluding a $10 million contribution from the strategic Rep M. Sweden transaction gross margin of 17 million represented the 6 million dollar improvement compared to Q2.2020 due to consumer related margin growth.
Cash operating expense in the quarter of $63 million increased by 20 million or 46, 46%, primarily due to a 30 million increase and selling expense of which 5 million related to pre launch investments in new consumer brands with no revenue in the quarter and 5 million.
2 additional R&D spent for.
Yeah benefited from reduce business activity due to COVID-19.
Adjusted EBITDA of minus $42 million decreased 6 million year over year due to higher operating expense, partially offset by higher revenue improved gross margin and proceeds from the strategic transaction.
GAAP net income was 50 million compared to a loss of 104 million in Q2, 2020, due to lower interest expense and favorable non-cash mark to market adjustments related to changes in the fair value of debt and derivatives GAAP.
<unk> was 5 cents compared to -56 cents and Q2.2020, Ah 61 improvement adjusted net loss of $49 million or 15 cents for sure improved $9 million or 16 cents for sure compared to an adjusted net loss of 58 million or a 30.
<unk> loss for sure for the price of your quarter.
Interest expense for Q2.2021 was 5 million. This compares to 20 million in Q2 of last year due to reduce debt and a lower average interest rate.
That's going to slide 14.
Consumer revenue increased 32% sequentially and 59% compared to the second quarter of last year higher revenue was driven by improved bread awareness consumer demand and increased levels of brick and mortar retail activity, resulting from an easing of <unk>.
David restrictions in certain areas.
Biosolids generated the largest quarterly revenue and the bryans history direct to consumer sales through by ourselves Dot com remains strong.
Internationally biosolids experience strong growth, particularly in Saudi East Asia and Australia.
The pet them they have a strong quarterly revenue brand performance and talk of stores was exceptional with the pet being recognized as a leading you Brandon baby and homecare categories for.
Past recently finalized agreements to launch his best selling items through multiple retail channels channels, including Rite aid wait for wetlands.
<unk> and Kroger Dot com in 2021, and another 7000 Walgreens stores during the first half of 2022.
Direct to consumer sales through for pet Baby Dot Com and Amazon continued to grow during the second quarter.
Second quarter ingredients revenue increased 30% sequentially and 25% for us as a prior year quarter evidence, saying I'm on this is development scale up and manufacturing capabilities Q2 saw record sales revenue for squealing..1 of EMS is leading ingredients that is marketed through business to business channels and there's also a diff.
On shading ingredient for formulation in our clean beauty and personal care products.
Please turn to slide 15, let me make a few comments regarding the first half of 2021 financial performance.
Total each 1 revenue of 229 million improved 288% versus the prior year period total revenue included 154 million of proceeds resulting from strategic transactions.
Total underlying revenue increased 39% to $76 million compared to $54 million in the first half of 2022 of 2020.
Product revenue of 66 million increased 20 million or 44% compared to H 120, 20, driven by a $14 million or 65% increase in consumer sales predominantly from bioscience, and a 6 million or 25% increase an ingredient sales with growth seen from all Inc.
<unk>.
Non-GAAP gross margin of 187 million or 82% of revenue improved from 29 million or 50% of revenue in the first half of last year.
Excluding the contribution from the strategic transactions gross margin of 34 million represented a $10 million improvement compared to H, 1.2020 due to consumer related margin growth.
Adjusted EBITDA 61 million improved 124 million year over year due to revenue in margin growth and proceeds from strategic transactions.
Lastly, we much improved the balance sheet with debt down significantly, resulting in lower debt servicing expense and we finished a quarter with total cash of $250 million, resulting a negative net debt of $110 million.
Capital expenditure for the quarter was $9 million up from probably a year due to the investments we are making in the Brazil ingredient plant.
Let me now briefly cover the outlook for the for here.
We have a number of activities on the way to continue to support the growth of our business and to ensure we execute effectively on the addition of the new rugs and the continued development of our product development pipeline.
We expected reported total revenue for the full year inclusive on strategic transaction to be nor to $400 million John provided a bridge as part of his comments <unk>.
Continued growth combined with strategic transactions is expected to result in positive for Ya adjusted EBITDA.
We expect that to be below 100 million by you and 50 million of which is convertible to equity.
With that I'll turn the call back over to John John.
Thanks on we believe that we have a truly winning business model an advantage portfolio due to the synergy between our planetary lab for market operating system are ingredients pipeline and track record in Biomanufacturing along.
On with our portfolio of clean consumer brands to.
To make the world's sustainable our company needs to be sustainable the simplification and growth of our portfolio and our continued operational performance enables us to become 1 of the first companies on our sector to become financially self-sustaining.
We're very excited about the year ahead, and I look forward to hear on your questions. Adria can you please turn to questions.
We will now begin the question and answer session to ask a question on the telephone he may pass star and 1 on your Touchtone phone.
If you are using a speaker phone please pick up your handset before pressing the key.
[noise] to withdraw your question. Please press Star then too he said.
Net a question via the webcast. Please click on the ask question button, we will begin with questions via phone. We ask that you. Please limit yourself to 1 question and 1 follow up.
At this time, we will pass momentarily into a simple I roster.
And on our first question will come from Doug Schenkel of Callan. Please go ahead.
Good morning, guys. Thanks for taking the questions as always you do a great job outlining why you're so enthused about the long term outlook on that.
That said I'm actually going to focus and a bit more on the quarter in the full year 2021 outlook and then I'm gonna try to sneak on the third crushed on on the long term targets for.
Starting on the near term within core revenue.
You know it it it for the year in terms of your guidance. It seems like you adjusted the mix of expected revenue within core specifically it looks like your increased what you expect for consumer revenue and reduce the ingredient revenue expectations. So I I want to make sure we have that right and if so you know it would be good to hear a little.
[noise] bit more detail on what gives you confidence in this outlook in the mix and and you know specifically on ingredients you came up 2 and a half million below what we were looking for in queue too you know why isn't ingredients progressing quite as planned and then on the consumer side.
How much of the increase for the year as a function of your belief that economic improvements will drive on more pronounced improvement as we move it's a holiday sales season it cute for.
Dark first of all thank you for being on the call and I'll give you a part of the answer then Passover to hang on for the rest of it on I'll deal with.
The specific question regarding the ingredients revenue in the second quarter, and then talked about the consumer for the second half and then all the time to talk about the mix.
Andrew on expectations.
Regarding the ingredients in the second quarter.
From a unit level, we actually are above what we expected and plan for from a revenue level..1 thing that occurred and we highlighted this and the last call is as a result of moving the ingredients portfolio to DSM. There is a chunk of ingredient revenue on I think we send in the last call about a third debt.
We actually no longer have in the portfolio, mainly because of some revenue associated with how value sure works on our contract. So I just wanted to hit that direct on head on we actually are seeing greater volume the unexpected but there is a component of ingredients that's value share net.
Got passed on to Dsm's part of the transaction and that value sure no longer comes in as revenue to us for for that matter margin and I think that's probably the only difference we have on ingredients, but I'll, let all that Han talk to that I think the second part is on and by the way. We now have a good baseline because we are finished on.
First quarter full quarter with the DSM partnership we've got a very good view about what the future of that ingredient portfolio looks like and as I said during the call. We now feel more confident than we had before and the underlying performance of that portfolio and.
And how well it's growing I mean remember we have 2000 salespeople between fermentations EBITDA on that are actually selling these ingredients every day to industry I think on the consumer for the second half.
Okay, I think what we're seeing right now and we're already into the third quarter right. What we're seeing right now is very robust demand for our new brands and the existing brands really picking up steam going in for the second half. So we're seeing the demand we see that in some of our markets.
The brick and mortar business is picking up getting very close to not quite yet, but very close to pre COVID-19 levels of demand.
And the combination of that plus not losing a beat in our direct to consumer online business, which now represents about half if not slightly more than half of our of our revenue really gives us very good confidence in that second half revenue. So again rope on direct to consumer brick and mortar coming back on like a series.
<unk> of new brands that have had great traction would retailers predominantly so for up for some of the new brands.
And then new.
Introductions that we expect to perform well as we go on to the second half. So I hope that helps with your question about consumer and our confidence on the second half and then the ingredient piece in the second quarter on.
On anything you want to add regarding the expectation difference regarding ingredient performance in the second quarter the mix change.
Uhm No. Let me, let me just add though I would echo what John said and the only thing I would add is just to put a number on the value share. So value sure was part of the revenue stream deadly.
That we had prior to pass them on the FNF portfolio 2.2 DSM on.
On an annual basis, we have we had around.
627 million on that number. So if you were to see a little bit of a shift so at the start of the year before that transaction was fully executed.
That would be that would be bob's the difference between.
Ingredients and the consumer portfolio other than that for the full year on.
Don't think there is a there is a particular shift between the 2 pieces.
Alright, so I think the only <unk>.
Uh Huh. It's it is it is clear dog that we now have more confidence in more momentum going into the second half and consumer then we saw coming into the year. So there is a bit of.
Greater emphasis in revenue source from consumer than we might have thought earlier on so I'll just end with that.
Okay. No. That's all that's all help on the quarter and on on the mix in terms of what's embedded into guidance.
Listen you guys sound, great and clearly there's a lot of momentum here.
I think that the biggest pushback, we get from investors at least on the near term outlook, you know and and by extension from folks who aren't as enthused about the story is you know how back end loaded the year is and I think you guys did a good job trying to address that.
By talking about where you have momentum in N Y you have so much confidence in the core revenue rap you know.
That being said you know John or on it if if you don't get there is it you know if if something were to go wrong relative to your targets is the most but you know what what's the most likely thing that would've gone wrong is it is it something like you know as you just talk about John brick and mortar doesn't come back as strong you know because of delta very on or something.
Like that like what where where is the biggest risks to your second half outlook.
Okay I I would tell you. It's 2.2 thanks, Doug and I think you hit 1 of them right. We we are seeing a very strong recovery in brick and mortar.
We're expecting that to stay I mean, we're not we're not assuming it all stage because we think there was a bit of.
Ah reaction or kind of a big bump as consumers are able to get back in store. So we are we are we are being conservative but that is a risk. We have go on to the second half look I think here's the other 1.
Events are a big part of our of our business activity getting Influencers engaged we've just been the last for weeks probably had 2 or 3 groups.
Of Influencers and key.
Key marketers of the brand back in our facilities engaged face to face right. So if for some reason delta variant becomes a much bigger issue, especially in the North American market and we have to shutdown events as we go into the fourth quarter and stop the physical engagement again that could.
B, the negative or a negative impact on revenue. The last time that occurred we actually bounce back very strong and did not see a big a big negative impact. However, those are risks right side I would focus on those too because mostly everything else like the the brick and mortar orders for the new brands.
The traction for the new brands the product response, the before and after as the Clinical's. The Influencer engagement, which are all the key drivers of our of our consumer growth are all in place and we're seeing the traction on those already I think I think it's the unexpected and it's really around what the delta very on our.
Other variants could affect regarding people getting together and the brick and mortar for the second half.
Okay Super helpful that last 1 and then I'll, let others jump in longer term as we think about the 2025 targets I I just I'm curious can you get there with squalene derived products you know it it is or or to do those targets require expansion into.
For other other areas other engineered organism lines or anything like that or or is it you know it is essentially do you believe you can get to those numbers with you know what what what you already have in place today.
Yeah on the consumer part because I think there's 2 parts of those numbers right. There is the 1 for billing on consumer.
And then there is the ingredient and technology part on the consumer part.
All of that is based on the current brand portfolio. So not any new brands that any expansion and you ingredients and it's really focused on our core platform ingredients stripes skyline, Henry Squalene bio silica and CPG. So all technology. That's currently scaled on producing.
And all brands that are currently in the portfolio.
It includes the current channel partners and a gradual expansion into the European market, which we already have a clear line of sight on really working with our partners for for as well as the direct to consumer platform in Europe. So that's really what underpins the 1.4 billion there's all.
Y'see opportunity for continue bolt on acquisitions that will will look at but that is all upside in different than what we put in that 2 billion number of what you're getting 1 for or so is consumer.
Okay. Thanks again guys.
Thanks, Doug.
The next question comes from calling Rush of Oppenheimer. Please go ahead.
Thanks, So much guys could you just to highlight the key gating items for the the Protas commissioning and ramp that you're watching for on just really be able to attract that process and the potential impact on gross margin does he go for it.
Yeah. That's that's the need to widen question I think he spends his life go on to sleep on waking up dreaming about the backup unique for plants and I'm, assuming you're talking about.
We need to call it not yeah, Yep Yep Yep, you're at and stuff. Thank you Marty.
Yeah that call on good morning, Pierre up we.
We are really focused on the commissioning to basically very 5 a everyone of the operating systems. It for mentors there for mentoring processing support equip.
Equipment, and then finally, all the infrastructure, including power and water and everyone on those systems.
We have all the permits needed and basically what we need to do is.
In the beginning of the year, we're going to go very systematically standing up everyone on the systems to make sure we can.
Execute our processes and a full and basically do the sterilization holds necessary to for our ascetic fermentation production was there something specific call in that you wanted to hear about those checks or it's a very very structured ed.
And systematic process that you're getting imagine.
And then you got on alluded to this going from the the lab International production crew.
Crucial right and it's very very difficult.
What.
We're trying to get after is just the the the progress that you're making it and be able to attract that progress and the maturity of the system day you guys are from place to ensure that you have is for my Grandpa.
Yeah, that's what I mentioned earlier is the critical path on the next 2 quarters were going to standard and 1 at a time and test debt stress debt them for full scale.
Okay.
The only thing I would add colonies.
From a from a design perspective and hardware perspective, you know the plan is a bit cookie cutter, because we've taken all the learnings from the brought this facility on a replicated on the team that's designing and doing the engineering is was part of the team that was involved in the process design. So I don't think the hard.
Where is where we see kind of the critical path I think its people its recruiting the people it's training them on our process and it's ensuring that they operate the plant well and that's the critical path issue. We're actually in process of recruiting right now we expect to have most of the operators hired early.
And shadowing our team and we have an agreement with DSM that a lot of the hires will actually shallow the operators of brought those so when we start operating it boggled Bonita, we're running with a talented team that's already experience operating our process.
Perfect. That's Super helpful. And then just in terms of the scallop on the on the operating side on the organizational capacity as you guys think about those 2025 target.
And having brought in isn't a Brian how should we be thinking about opex dust from it R&D perspective, but also.
You know from that from an overhead perspective on sales and artificial capacity.
Yeah, I'm going to leave that 1 too high on calling and the only thing I'll say is.
A lot of people think of the new brands is all added to cost actually they provide a lot of efficiency, because we're able to like and formulations. We've built a world class formulation organization, where we're making that even more robust and that formulation organization gifts.
B a single platform for all consumer brands for every brand new AD actually gets leverage off of the platform same thing and how we manage our influencers.
Same thing and how we do creative and same thing how we do channel management for direct to consumer and then how we manage some are brick and mortar partner. So those are all platforms that cut across all brands and we get significant benefit when we add a brand to do that and it's really the marketing spend that's unique by Brandon.
Han will reference how we're thinking about that and as I referenced on the call.
We understand what the investment required is to get a brand for profitability, we've crossed the profitability Mark with Bioscience Biosciences profitable on the fourth quarter and again, we expect to be very profit profitable for full year. This year.
And then we know what it takes to get a brand for that level and we've got that already figured and we're we're gonna resource that based on the milestone payments, we have coming in from the big transactions on.
Yeah, absolutely John said as well I think there's a couple of things today. So 1 is certainly if we look at the consumer side, which we project to be obviously around 1.4 billion by and over the next 5 years.
There is a significant leverage of talents tell them that we brought in as part of the acquisitions, but also that we have in the business across those brands scaling. The organization is very much top of mind for us at the leadership level.
Thinking about it look just on the blood level will take about another D will also thinking about it and the G&A functions. So there's a there's a number of plans that we have on the way to make sure. We have the right structure into like talented way to do in place to to deal with that not just this year, but heading into the future given on fast growth as we think about it from a <unk>.
Cost base.
Last year, our SG&A was.
This year I'll SG&A is around 180 million also projected.
The thing to think about is.
And that has 2 aspects right. It is the underpinnings of the organization so that his head count and other operating costs, but also in debt.
And this is important in the context of old fast growing consumer.
Consumer business is all our fulfillment and shipping expense.
So there's a valuable that's kind of somewhat proportionate proportional to to the growth of the consumer business, but but fast forward. The way we thinking about it is that certainly leveraging the organization R&D G&A and so forth. If you look at the marketing and sales side also from a <unk>.
Perspective, but then those are valuable component and we see.
That debt SG&A grow to around $400 million by 2025, so that gives you a bit of shape around it and also some of the underpinning thinking.
Perfect. Thanks, so much guys.
Any interest of time, we would like to ask all participants to limit themselves to 1 question moving forward.
And our next question will come from Lawrence Alexander of Jeffrey. Please go ahead.
Good morning, so on can.
Can you flesh out your thinking on home or on a cast that some of the other players and synthetic biology have entered and exited that market. So what does amorous doing differently.
Hey, Lauren said good hearing from you I think a few things number 1 we've got a built in need across our brand portfolios number 2 as you know several of our partners are significant players in supplying.
These products to the industry and we wouldn't target if we didn't have a clear view in significant channel opportunity to drive this product to market and then last but not least look a big part of making clean holler on a gas at a real market.
Is all about the cost played cost has to be reduced the chemistry has to be clean the formulations have to be great and we have to have a clear set of channel partners and clear demand on our own brands for it. So I think that's what I would say I don't believe that others in our sector have been able to get to a cost of production that makes.
And we are.
Okay. Thanks.
The next question comes from on that day out of H C. Wainwright. Please go ahead.
Thank you good morning is.
Can you give us some sense.
Contributions from Bioscience on.
For the second half on the you know I think the guidance range for the second half was 150 to 155 million revenues.
How much of this is bioscience and.
Hey, I made good having you on the call I think we had provided some view about.
Bioscience on pipette full year I think we said net bioscience was heading for about $105 million of revenue and about $160 million a retail sales this year and I can confirm that that's on track and looking very robust.
And then I think we sit on the call in my part of the script.
We had about 130, a Han what was the total about 3 million or so let me just humor.
Yeah, let me help a little bit it's it's actually not a difficult for him. It's so tillman gave the outline in terms of full year consumer you, obviously know that we did to $36 million in the first half.
Off of that full year $35 million is linked to the new brands. So by deduction promo next from an existing brand perspective.
Biosolids simple pet predominantly here's the balance on obviously Joan gave the bias on his number. So you kind of have put that there. So that's kind of hold on math works.
Mm that's on thank you so much.
Thank you.
The next question comes from Craig Irwin of Roth Capital Partners. Please go ahead.
Good morning, and thanks for taking my question.
I'd, just like for a clarification and the guidance.
Can you say, whether or not the $400 million revenue expectations for the year does or does not include any potential further portfolio management transactions.
Craig This is John it does not include any assumption of any portfolio transaction and the second half my portfolio meeting us selling something.
Yes, like the licensing agreements and.
Correct, Yeah, Okay excellent. Thank you so much for that clarification.
Okay, operator, yeah, what it is any any final questions from any of the analyst otherwise I think passed a couple of yellow.
Yes, there are no further questions at this time, so I will turn the conference back for it to John Melo for closing remarks.
Great. Thanks to everyone for joining us today and for your continued interest and support if we did not get to your questions. Please follow up with our Investor Relations team and we will make sure to get back to you with a response, we wish everyone best of luck for a healthy and successful rest of 2021, and we look forward to speaking with you during 1 of our upcoming investor events.
For some of our deep dives into our specific ingredients as we share more about what's differentiating our company. Thank you and have a good rest of the day.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
[music].