Q4 2021 Amyris Inc Earnings Call
Welcome to the Edwards fourth quarter, 2021 financial results conference call.
This call is being webcast live on the intense page of the investors section of the Amyris website at Emirates Dotcom.
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 the Amyris website.
I would now like to turn the call over the horn kicked them out Chief Financial Officer of Amarin. Please go ahead.
Good morning, and thank you for joining US today with me is Joe Melo, President and Chief Executive Officer.
This morning, John will provide a business update and I will review, our financial results for the quarter and full year.
Please note that on this call you will hear discussions of non-GAAP financial measures, including but not limited to core consumer and technology access 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 our financial summary section slides, probably a companion 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 analysts this outlook for 2022 and beyond amyris as goals and strategic priorities and anticipate a transactions and other future milestones as well as market opportunities and growth prospects.
These statements are based on management's current expectations and actual results and future events may differ materially due to risks and uncertainties.
Including those detailed from time to time in our filings with the Securities and Exchange Commission, including our 10-K for full year 2021, which will be felt this afternoon March one 2022 .
Amyris 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. 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 John .
Thank you Heidi and good morning, everyone. Thank you for joining us today during.
During our call I'll provide an update on our business performance, our operating strategy and our outlook then I'll pass back to haunt for a financial update.
Now on slide four.
2021 was a transformative year for Amyris in the fourth quarter is a strong demonstration of our capacity to grow and the potential of our lab to market technology platform, our consumer business, both by e-commerce , and retail and providing access to our technology through new and existing.
<unk> partnerships intra.
Interest in our business and technical capabilities has never been stronger.
And the commercial success of our homegrown brands continues to confirm that we are just scratching the surface of end markets that will benefit from sustainable products derived from clean chemistry with no compromise to performance.
The business integration of our lab to market platform consumer brands and technology access via collaborations and partnerships is clearly advantaged and puts amyris at the forefront of the acceleration of sustainable consumption.
Slide five and.
2021, we significantly simplified our business will provide a technology access by licensing the global distribution rates of our flavor and fragrance ingredients, while maintaining the fermentation manufacturing capability for most molecules developed in our portfolio. This enabled us to focus our growth on health.
Beauty and wellness in markets, where we have built the fastest growing consumer brands.
The fourth quarter was our fourth consecutive quarter of double digit growth in our core business, which is the total of consumer and technology access and excludes revenue from strategic transactions and one off items.
I can confirm that we are now in the fifth consecutive quarter of strong growth and this growth is accelerating significantly in our consumer business.
Slide six.
Our fourth quarter core revenue increased 68% over the fourth quarter of 2020, with our consumer business delivering 86% growth year on year.
For the full year, we delivered 97% total revenue growth versus 2020, and our consumer business delivered 78% year over year growth. Our gross margin dollars grew 135% year over year, and we managed our operating expenses to 67% growth year.
Over a year.
Our existing brands continued to perform very well with combined revenue of bioscience, pipette, and pure cane setting a new record.
Bioscience is accelerating in the first quarter and we expect another very strong year from this group of category leading brands.
Our new brands that include cluster, Brazil.
J P N hair and Roses, Inc. Delivered excellent performance in the quarter with J P N and Roses, Inc, performing well beyond our expectations. This group of brands is on track for an incredible first quarter and a better than anticipated year.
For most of our brands, we are experiencing very strong physical store sales through our partners well beyond pre COVID-19 levels, and we are maintaining a very healthy mix of around 50% of our revenue from our own direct to consumer websites.
About 20% of our consumer revenue in the fourth quarter was from international markets and we expect this to significantly grow in 2022, our international expansion is focused on the U K Europe , Brazil, and the Chinese markets. These markets are delivering very strong sales growth in the first quarter.
Yeah.
We opened two retail pop up stores in Miami, one for the JV and brand and the other for Bioscience.
The Bioscience store has remained open and will eventually become a brand showcase and experiential permanent retail store.
We are currently seeing over 60% conversion to purchase for consumers coming into the store.
In addition to the strong in store performance. We also experienced a very strong improvement in Miami traffic to our bioscience Dot com site.
As part of an Omnichannel approach, we believe that an experiential store in key markets improves our growth online and accelerates our market share gains in these markets.
Our goal is to limit our experiential retail presence to three to four key markets over the next year and focus on flagship stores that provide a deep consumer experience with our brands.
These stores will be opening in New York, London, and eventually in L. A.
Slide seven.
Our new ingredients plant construction in Barra Bonita, Brazil has made great progress and we are on track for the start up production early in the second quarter.
We have said, we have 600 contractors and employees on the construction site focused on delivering the most advanced fermentation factory in the world and the leading production site in the world for making natural ingredients in a sustainable way.
We completed our joint venture partnership with Minerva one of the world's largest exporter of beef and a partner focused on lowering the carbon footprint of supply in the world with protein. We are focused on delivering our first product for commercial sales for this partnership in 2022 and are very excited.
About the expansion of our technology platform into proteins.
We also completed our joint venture with immunity bio for the advancement and commercialization of our S. S RNA vaccine technology.
The first technology application of our platform for S. S. RNA is COVID-19, and the protection and rapid response to future respiratory viruses and potential pandemics.
Our short term focus is the successful completion of human clinical trials.
<unk> is focused on commercialization and has a very limited capital needs from Amyris immunity by who has invested in manufacturing assets for 1 billion vaccines, a year and is leading the clinical trial work for the vaccines, we will add commercialization capability to the JV once trials have.
Successful.
We successfully scaled squalene for vaccine adjuvant production direct from fermentation in the fourth quarter and expect this business to deliver strong revenue growth in 2022.
Since the close of the quarter, we agreed to terms with a very with and are very near closing on the acquisition of mental labs, a leading brand in the meadow Pos market with a portfolio of probiotics to address hot flashes and other common symptoms women can experience during menopause, we view this as a cigna.
In addition to our portfolio and complementary to stripes. The menopause brand, we are building with Naomi watts.
We expect the combination of both brands to deliver more than $30 million in 2022 revenue with significant growth into 2023 and beyond.
This underserved market valued at over $15 billion in 2020 with double digit annual growth is ideal for Amyris as science backed approach to wellness and sustainability.
During the fourth quarter, we made important changes to align our company leadership structure and operating model with our business strategy consumer became our single biggest business in 2021, we organized our business around two key revenue components consumer and <unk>.
Technology axis in technology Axis, we combine R&D collaborations technology licenses and ingredient product revenue and consumer will include all of our activity that sells product or enables the execution of our consumer brands in the fourth quarter.
And for full year 2021, each of these contributed about the same revenue to our company.
As part of simplifying and focusing our business. We've recruited two experienced leaders to lead revenue and operations.
<unk> has been appointed president of our consumer business the partner with me and our brand leaders to support our accelerated growth and as a transformative leader. She helped lead the turnaround of Wal Mart in China and also led the transformation of the Walmart Dot com business.
For technology access, we appointed Mike Rykowski, a very experienced leader, who recently led the China business for Goodyear and has experienced leading innovation and large business to business sales and marketing teams, including at Unilever and Clorox.
We also expanded the responsibilities of Catherine Gore, who will continue to run Bioscience and also support the growth of the JV and brand. Additionally, we expanded the responsibilities of Carolina Hatfield She'll continue as the leader of Rosa, Inc. And also partner with me in the development and creation of new brands in our consumer product <unk>.
<unk>.
Of course, Eduardo Alvarez will continue in his role as Chief operating officer and is doing an excellent job, leading the startup development startup of the construction at Bajo Bonita as well as our expansion into manufacturing our own consumer products and building a robust supply chain that enables us to meet the strong demand. We're currently.
Addressing.
This focused business structure and operating model along with our new leadership is expected to bring better performance management and execution to our business.
Slide eight.
We have become a leading house of brands for the health beauty and wellness markets. We have built incredible brands with category leadership in clean skincare clean hair care clean cosmetics clean skincare for babies and families zero calorie natural sweetener and we are set to also lead with new.
Launches this year in clean Gen Z beauty, and but then pass category.
So what differentiates us and has led to exponential growth in these markets.
First science, we have the only lab to market platform and the health beauty and wellness and markets and we are applying our technology to make platform molecules that enabled us to deliver the best performing products that are also sustainably made.
Second sustainability consumers are demanding sustainable products without compromising performance and we are the leading enablers of developing scaling and producing the purest cleanest and most sustainably sourced natural ingredients in the world. We are the only company in the industry that has built a lab to market platform that enables us to.
<unk> scale and manufacture products were the lowest cost and that are also the most sustainably sourced.
Third marketing we have built incredible brands repeatedly these are brands that consumers love and are outperforming other brands in their respective category.
Next business model, we are digital first with deep relationships with the leading specialty and mass retailers in the world, enabling us to scale and access to consumers and the most efficient way. This year you can expect us to partner closely with some of the world's largest retailers to transform their health.
Beauty and wellness categories into fermentation based sustainably sourced products.
And then lastly, no compromise our no compromise promise enables us to lead the transition to a clean and sustainable future and health beauty and wellness markets. We formulate the best products in each of our categories and are the owners of the science that makes the most sustainably sourced platform molecules and to help you.
Judy and wellness markets.
So why does our leadership in consumer brands matter.
We delivered the most leverage of capital investment to revenue dollars of any company in our sector, it's very challenging to grow efficiently or to any real scale of revenue. When you are three to four steps removed from the consumer and the value chain, we generate 10 times or more revenue from every kilo of.
We produce when we sell to the consumer versus selling the molecule as an ingredient to industry or much worse license with a royalty for developing an organism for others.
We've done this and know the economics well. This is why we invested in the best Scaleup and menu vaccine manufacturing capability in our industry and then experiment to develop the best capability at building great consumer brands with a business model, we could grow with.
We control our destiny developing organisms for others are selling ingredients to other places.
Your growth rate margin in future in the hands of others. We are committed to having significant impact in the sustainability and health of our planet. This has been true since the start of our company. It's our mission, it's impossible to have real impact and to deliver real solutions, if you can't scale manufacturer or deliver real.
Products to consumers that enabled them to live better lives without harm to our planet.
We have invested in a transformative technology for our planet Biotechnology based fermentation is the future of most chemistry, we are the best at it and we have a responsibility to clean up the chemistry of the world and the fastest way possible.
Imagine, where we would be with electric cars you feel on musk has to convince traditional car manufacturers to transition to electric it.
It would take 20 or 30 years longer at best and it would be too late to give our planet a real shot that is not acceptable and our scientists and I feel the responsibility of need to clean up the weight chemistry is made now.
Our latest scale up of Squalamine for vaccine adjuvant is an incredible example of what we are capable of a complex molecule that many said was impossible to produce via biotechnology in fermentation, we develop from concept to full industrial scale fermentation in less than nine months, we are just.
It's starting to really thrive with our science and manufacturing.
Let me now share our financial framework for what you should expect from us.
First accelerating consumer revenue growth.
Delivering much more than 150% growth versus last year.
In 2022, with a very strong pipeline of new brands, new products, new markets to support this growth for well into the future.
Secondly, technology axis revenue growth continuing at a 30% to 40% annual rate for the next few years, including 2022.
And then thirdly, delivering positive cash from operations in the fourth quarter. This this excludes capital expenditures expenditures and new brand expenses.
In addition to this financial framework, we have several key deliverables to track our progress first consumer product manufacturing to be at least 70% and controls factories factories that we own or control by the fourth quarter of 2022, the combination of this deliverable and moving to our own fulfillment.
Well add an estimated 500 basis points of gross margin improvement to our consumer business in the second half of 2022 .
As of the end of the first quarter, we already have 10% of our highest volume products produced in Reno. This is one quarter ahead of schedule.
Secondly, we will be achieving 6 million monthly consumer visits to our direct to consumer websites by the fourth quarter doubling the current number of consumer visits to our websites.
Thirdly, Miami, New York City in London, Brandon branded experiential retail sites open and delivering operational profitability.
Fourth startup Bob will need to early in the second quarter and have most of our ingredients produced and Bakugan data in the second half of the year. This is over $20 million of improvement to gross profit dollars from ingredient sales alone and then lastly, I expect us to scale three to five new ingredients.
This year. This is a track record we're proud of our most companies in our sector have been lucky to scale one ingredient in their life and we are now at a rate of three to five new ingredients a year.
We are leading the world with a technology, that's critical to making our planet healthy and sustainable we are delivering what consumers are demanding and it's showing to our revenue growth. We are evolving our company from one of the leading growth companies in our sector and the owner of the fastest growing consumer brands in health beauty and wellness markets to also be in a company that.
Delivers operational excellence our goal is to end this year with the best growth we've ever delivered.
Core business and doing it profitably we have no current plans for additional capital raises we are adding much needed manufacturing capacity and deep leadership capability. This is all in service of accelerating the world's transition to clean and sustainable health beauty and wellness markets. Let me now turn to heart.
Thank you Joe.
Please turn to slide nine once again, a very active quarter and year resulted in new sales revenue records for Amyris.
Record consumer revenue reflects the concerted effort of the organization to focus on high revenue and high return opportunities available to us in clean beauty and wellness.
We completed 2021 with eight consumer brands up from three at the beginning of the year and are well on the way to our premium brands this calendar year.
Increasingly our financial performance will be determined by the growth and success of these investments that have positioned us as a provider of choice for clean and sustainably oriented consumers.
It is for that reason that we have brought further clarity to the presentation of the business with consumer and technology access representing equal equal parts of revenue in Q4 and for full year 2021.
We refer to the sum of the two as our core business going forward.
Growth requires funding.
During the fourth quarter, we issued $690 million of new convertible notes. The proceeds from this offering allowed us to retire restrictive and costly legacy debt and secure cash that will fund the accelerated growth of our consumer business and the infrastructure to support a much larger business.
Net proceeds after fees debt servicing and purchasing a car coal were $525 million.
Cash at the end of the quarter was 483 million. This compares to 115 million at the end of Q3 and $30 million at the end of 2020.
We have a rapidly growing business in India trend will require cash as we grow to a self sustaining scale.
Please turn to slide 10.
Core revenue, which includes consumer and technology access revenue and excludes strategic transactions and all the one off items increased 68% to $64 8 million when compared to the fourth quarter of 2020.
We believe that presented presenting revenue in this fashion is a good reflection and best reflects how we manage the business to date.
Core revenue included records consumer revenue of $32 2 million, which increased 86% and technology access revenue of $32 6 million, which increased 54% versus prior year.
For the entire year of total revenue of 341.8 million improved 97% when compared to 2020 and included $153 8 million of proceeds resulting from strategic transactions completed in Q1 and Q2 of 2021.
Core revenue increased 55% to $188 million compared to $121 1 million in 2020.
Core revenue includes record consumer revenue of 92 million, which increased 78% and technology access revenue of $96 million an increase of 38%.
Consumer revenue increased to a number of factors our flagship skincare brand Bioscience had another record year and carries a lot of momentum into 2022.
Our new brands also gained significant traction during the fourth quarter, particularly two high profile brands, such as Rose, Inc, and J P and hair care.
Early performance of these two brands further validates our belief that shared values community and quality ingredients can intersect and empower consumers interested in socially responsible consumption, who don't want to sacrifice performance.
Fourth quarter technology access revenue increased when compared to fourth quarter 2020, primarily due to increased technology licensing offset by slightly lower collaboration revenue.
External demand for squalene, and Hemi squalene two of our platform ingredients produced through fermentation generated record combined revenue during Q4 of 2021, demonstrating 50% year over year growth.
Our fourth quarter non-GAAP core gross margin was $22 million.
Our 30% to 34% of revenue.
This is an increase of 31% compared to Q4 2020 margin dollars.
For the full year non-GAAP core gross margin was $73 2 million or 39% of revenue, which grew from $44 4 million or 37% of revenue in 2020.
As we noted we have been investing substantially in the future of our core businesses. We expect the Barra Bonita ingredients plant in the Reno consumer production facility to be important drivers for gross margin improvement in the second half of this year.
Please turn to slide 11.
Looking at a scorecard of key metrics, we've already touched on our record core revenue and gross margins.
As I mentioned earlier, we have continued to invest in high return opportunities, which is reflected in our adjusted EBITDA, primarily due to a higher operating expense.
Due to global shipping delays the quarter included additional investments in air freight expense of $4 1 million to ensure timely availability of materials.
For the year adjusted EBITDA of minus $107 1 million decreased from minus $95 2 million, primarily due to increased operating expense.
Subsequent to the previously mentioned convertible offering we reduced our legacy debt position to $51 million at year end.
We previously communicated to focus our efforts on reducing this this debt to below $100 million by the end of 2021, which we successfully did.
The final 51 million is expected to convert in the coming quarters.
Let's move to slide 12.
As always we have a lot of work to do to achieve our goals. However, the path forwards for Atlas has never been clearer. Despite a number of factors in the macro environment, including inflation and geopolitical instability, we expect to have another exceptional year as it relates to growth.
More of our brands achieved critical mass, we expect consumer revenue to increase by at least 150% from 2021 base of $92 million.
Continued demand growth for our manufactured ingredients, which will be served by our new plant access to our left to market technology platform and the first earn out of $39 million from our 2021 strategic transactions is expected to revert to result in 30% to 40% revenue growth from our technology.
<unk> revenue of $96 million in 2021.
Thank you all for listening today, Jonas concluding remarks before we open the line for questions John .
Great. Thank you hi.
2021 was a solid year for Amyris in 'twenty and 2022 is off to a great start we are really looking forward to what comes next and want to thank you all for being part of what we do operator can you. Please turn the lines for Q&A. Please.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
We ask that you please limit yourself to one question and one follow up.
At this time, we'll pause momentarily to assemble our roster.
The first question comes from Colin Rusch with Oppenheimer. Please go ahead.
Thanks, so much guys.
I wanted to just get a little bit more information about your comments around the licensing model you know you talked about the.
The pipeline of molecules in development.
In the past and it sounds like the tone is changing a little bit around your interest and the willingness to engage in those sorts of development agreements. So just curious if you guys are thinking about moving away from that licensing model or is it still just the hybrid model and more focus around some of the products that you guys are bringing to market.
Good Colin and thank you for being on the call.
I think our expectation is really to continue more of the same right. It's just more focus our pipeline has grown much bigger than it's been we've gotten much more focused pipeline and were really deepening our relationship with global leaders right. We don't we don't work with startups and we don't go funds.
Start ups the target molecules, we basically find world leaders typically they find us.
Identify great molecules that we can get to market quickly our.
So with these partners typically has.
While we like to call quick wins molecules, we can get to market in a year or less medium term molecules that take a year or more to developing and long term real breakthrough molecules that might take three or more years to get to market and we do that in a balanced portfolio with partners.
Model I guess, the only evolution in the model. That's that's somewhat new is we're now seeing more licensing revenue come from these deep partnerships, but from a product standpoint collaboration standpoint, and then the monetization of the molecule long term, where we make where scale we make and then we kept.
True value long term from the partners that that's what we expect to continue calling so I don't other than a little more licensing revenue as we grow our portfolio I don't see a huge difference and where we've done with the model.
That's super helpful. And then you know I appreciate you guys highlighting the adjuvant.
You know capacity for squalene, and I guess I'm I'm curious are you know how much her some of the formulation that's happening for some of these things you've talked about CBD.
You know in the past you've.
You've got the vaccine opportunity, but assume that there's there's a lot of activity in and around that sort of functionality for molecule on it I'm just curious like.
You know what the pipeline looks like for that and how mature those formulations and processes are at this point.
Yeah, let's take the two examples calling the CPG and now obviously as you can imagine we have more cannabinoid development been CPG, but the CPG. We've developed several different formulations, we actually have a few more in the pipeline. The once we have in the market have been performing very well.
And we expect we expect now to go both a cross category in a cross brand our brands with our CPG formulations and you can imagine us doing partnerships with several retailers potential retailers to really deepen the.
The penetration we have with our CPG in some of the formulas that we developed so.
Mature and formulas learning a lot and really expanding across our brands with our CPG and the additional minor cannabinoid. So that we have in our in our pipeline when it comes to squalene.
I'd say a little different right. We've just finished scaling it in the fourth quarter.
We've got in mind several applications in the wellness space.
Squalene as an ingestible that people can use for health of the gut microbiome and we think of that as a significant opportunity as we go into 2022 and then when it comes to the vaccine adjuvant. We obviously have it in the vaccines that we're developing with immunity bio and with the with our friend.
Up in Seattle.
The folks at eatery.
But beyond that we haven't really.
<unk> entered into a major relationships beyond our own use we have been insignificant discussions we have proposals on the table and term sheets, but have not yet gone that far so hope that helps and giving you a sense and when you think about the rest of our portfolio most of what we have coming out in 2022.
New molecules from fermentation already have either formulations or our platform molecules for brands that we have a branch that we're watching so that's that's where we are and where we're going with molecules that we're scaling.
Thanks, so much.
The next question comes from Dan Brennan with Cowen. Please go ahead.
Great. Thanks for thanks for taking the questions guys.
Maybe first one it gave us a couple of cuts on the 'twenty to 'twenty two guidance with the core growth doubling and then the consumer.
And the tech, but could you just give us a kind of a revenue range dollar range. Just so we can level set just to make sure we kind of know what you're pointing to.
Yeah, I mean, hun Han will take that.
Sure. So if you think about so well, it's actually not that complicated Dan. Thanks for asking the question consumer we're keying off the $92 million of 2021 full year actual.
So that will get us somewhere in that 20.
225 to 230 range and then it'll technology access if you key off the 30% to 40% range you get into.
Kind of the the 130 range and then the two combined is your core and your total number but right now again, let me let me remind you that our technology access does include the earn outs that we described we we quantified at an estimated $39 million for the year.
That'll be booked so if you think about phasing that'll be booked in its entirety in the fourth quarter. So that's another one to just keep in mind as you think about how the numbers are fit together.
Does that does that make sense.
Yeah, No that does and then and then maybe for.
For you guys on the consumer growth of 150% plus could you just give us a sense of kind of the key drivers. There obviously, you've got the the legacy brands and the new launches the experiential stores.
Just give us a sense of how.
How do we think about the buildup to that 150 plus percent growth.
Sure.
I'll take that on Dan and again just to.
Summarize han's point think about it as $370 million to $380 million as the range. When you look at the combination and where were going for a 2000.
22, when you look at the drivers in consumer you know are our legacy brands are doing extremely well pipette, bioscience and pure cane and bioscience, obviously being the majority of that from a from a mass perspective.
Revenue perspective, so and then the brands we launched.
And added to the portfolio in 2021 think about that as a cost the Brazil JV and <unk>.
And Roche sink and the combination of those brands.
You could think of as adding you know $60 million to $70 million.
And brands that came in last year.
For full year revenue in 'twenty.
And 'twenty two think about the legacy brands.
Being north of.
180, and then think about everything else being the new stuff that we're doing.
Of which the menopause category, it's really the biggest stride the menopause category will be north of $30 million and the combined new branch. So I hope that kind of gives you a sense of magnitude and then the drivers underneath that are really number one the north American market. The North American market is actually our strongest market and where we're seeing.
Significant growth acceleration.
The second biggest growth driver is international expansion are really led by the U K first Brazil second China third in Europe for Europe .
P in continent.
And then last but not least.
About the growth driver being brand new brands and products new products added to each one of the current brands. So I hope that helps Dan and thinking about the layers.
Yeah, No for sure and then and then maybe just one other if you don't mind just in terms of.
In terms of the guidance philosophy the growth is strong and you know in the past.
There's been volatility which has caused some undue pressure on the stock I'm just wondering as we look ahead for 'twenty two the business seems like it's firing on a lot of cylinders here you've got the supply chain looks like it's been fixed manufacturing it looks like there's a lot of opportunity ahead, but when you think about the guidance is this is this guidance like the is there.
A sense of Cushing baked in here is this aspirational guy and just give us a sense of how we think about you know the kind of target growth goes for 'twenty two.
And you know kind of the past experiences that you guys have had thank you.
Yeah 222 big differ.
The difference is coming into 2022, the first is <unk>.
On the guidance.
The growth is driven by core not transactions that actually sometimes hit in the quarter, sometimes don't.
So you could see as we go through 2020 to expect just.
Consistent growth quarter on quarter underpinned by underlying activity.
That is solid our brands and our ingredients ingredients fully contracted based on the transactions, we've done and brands.
Really underpinned by a lot, but it's in the market already and so that's kind of 0.1, it's a different kind of guidance based on our portfolio changing dramatically as a result of what we did during 2021.
The second thing is you know if you burn a few times you you learn quickly. So you can imagine we have.
A bit of cushion in our guidance that our simple math was take out everything that can go wrong, and then focus that as the number and growth we talk about in the market.
This is why we talk about it as you know a 150%.
Or or much more of 150% growth because the actual consumer number. We're currently running at as you'll start to see coming out of the first quarter.
And the progressive growth and the new things, we're doing in consumer and then the new ingredients, we're launching actually get us to a.
The better than 150% growth and then on the 30% to 40% on the technology access that's pretty solid right. We could go above that in the ingredients, we control ourselves, but that's the range we've been consistent at delivering on and we expect to do again. So I hope that helps give you some color as to how we thought about where we are currently for the year.
Yeah, that's great Jon Thank you guys.
Yeah.
The next question comes from Laurence Alexander with Jefferies. Please go ahead.
Good morning, two questions can you give a little bit more detail on how pure clean is doing.
And secondly can you.
To give an update on your thinking about the SG&A and capex needs over the next say two three years.
Great Laurence I'll take the first part of that and Han I'll pass the second part to you on the Opex question and good to hear your voice Laurence.
On the pure cane, I think we solid year in 'twenty, 'twenty, one well over 200% growth and I think going into 2022.
I would expect again, another 200% or better growth in pure cane, it's actually doing very well, but I also want to be cautious here, it's not a brand that we're putting significant investment relative to some of the other categories right. So.
It's a brand that's now I think three years old.
And with that level of maturity of the kind of growth. We have now it's a brand that this year, we'll do you know $5 million to $7 million.
In revenue and a brand that we are significantly expanding into mass retail, which is where people actually buy a zero calorie natural sweetener, so changing or adding a lot to the channel mix and then significant growth, but from a materiality standpoint, it's not where we're putting a lot of our investment March.
Hans you want to take the Opex question.
Sure I do so as it relates to the investments Laurence we had.
I think we had a good we had a good.
A good visual on that in the actually when we discussed the convertible note.
So just wondering about talking about Capex first here.
Where we said that as we looked ahead and of course, we have some.
Some important projects running as we speak with Barra Bonita, the Reno facility, but also our investments in the in the in our R&D capability. So we said that we would lay out around $100 million.
In.
In manufacturing and supply chain.
GA of that was related to Barra Bonita smaller amounts of the Reno facility.
The consumer a facility that is then around $60 million in R&D capability, that's infrastructure technology and other upgrades also including some ERP upgrades.
And then we had a bucket that we kind of kind of ring fenced the oh of around $60 million to do with.
Discretionary or complementary.
Kind of M&A opportunities.
And that's kind of how we thought about.
You know at the time and that's still how we think about it because certainly some of these major projects are well.
Well on the way of course.
As it relates to our S.
S D N a.
I think John alluded somewhat to it.
And as a financial structure comment in his prepared remarks.
What we're thinking is we have another three brands coming into the fold this year.
We'll we'll have some certainly the first half with commitments from an opex perspective, and when I say that because a lot of the increases that you may have seen in the release that we put out and also some of the notes that we had in the deck are related to selling and marketing expense to support the growth of our brands and the investments we've made recently.
Me and the launches and of course with some of the upcoming launches so that'll be a more concentrated it's still in the first half and then we are we certainly expect to cause some of that to lighten up in the second half and the other reason is not just selling and marketing expense per se, but inside that is also.
Fulfillment and shipping activity.
And we certainly expect to take advantage of a more concentrated effort with renal and support to our to reduce costs. There too. So that's kind of you know from an overall.
Framework perspective, how we're thinking about Capex and Opex.
Thank you.
Okay.
The next question comes from hardship Haku with HSBC. Please go ahead.
Yeah. Thank you for taking my question just a couple quick ones if I may.
One could you give us.
Little bit more detail on that.
So you can start commercial production in Q2, when do you expect to hit optimum operating reach by then.
And then there's not a great number for you.
Got a.
Good margin improvements come through.
Uh huh.
Got it.
In New York, I think that contingent on Barbie.
Uh huh.
And I have a second one on the.
Thank you.
Very good so I think I'll take that on bajo beneath the so.
Two key milestones right first as the plant startup and commissioning, which should be complete early in the second quarter will actually start making and shipping products out of the plant during the second quarter and we expect that by the third quarter to be fully up and running.
With the plant supplying most.
Most of our ingredients with the exception of foreign Athene, which will continue to come out of the brought this plant from D. S. M. So.
That's what we expect again commissioning.
Beginning of second.
Full scale production shipping product out for most of our ingredients are around.
Around the third quarter, we said, there's about a 20 million dollar.
Benefit.
That obviously assumes that not everything goes perfect and we could do better than that as it relates to ingredient gross margin coming from the plant impact right, but those are the two.
Major pieces I'm not sure if that helps and then want to make sure I get the other part of your question, which I didn't pick up.
Okay. That's very helpful. Yeah, I was just wondering as we go.
He was Washington embedded in the guidance.
And then the environment.
Or is it all just margin.
It's all in a great great clarification. It is all margin and mainly because we've been obviously working very hard with third party plants partnered very closely with DSM and then running our Spanish plants, all out and as you can imagine.
The Spanish plant, especially with energy rates energy costs in Europe going up it's not a very efficient plant for us. So we are <unk>. The whole focus is get out of third party get out of Spain as quickly as possible and that is all about bajo beneath the startup.
Which is really about margin impact not revenue impact.
Oh, no actually it's very.
Helpful.
Really quick one on technology access.
You think the credit Department.
And that includes the 39 million number.
If you strip number are you fighting for lost revenues year over year.
Thinking about this correctly.
Thanks.
It's actually I mean it.
There are moving parts right, because we're not actually adjusting back for the.
The licensing arrangements, we made and the change in the AR in the AR.
Earnings that we had the revenue we had for the ingredients that we licensed in this deal with DSM. So because we have an adjusted Theres actually a piece of growth.
We transferred over to DSM. The actual volumes are growing at exactly the same rate. We expected, we're actually seeing very strong growth beyond what we expected in vanillin, we're seeing very strong growth in Chile, we're seeing very strong growth and Amber, Oxford square rial, so the underlying volumes.
Our growing at a high rate, but the growth rate, where we're where we're expressing publicly is revenue not volume and the revenue has an adjustment based on the deal that we did with DSM last year.
Think about the ingredients that we control ourselves so squalene, Henry squalene and the stuff we sell through App renova that that revenue is increasing more than 50%. This year. So I just wanted to give you color like the stuff, we control and sell ourselves growing more than 50%, we obviously have new.
Ingredients coming out that will add to that we have a take down year on year based on the transaction with DSM and then we have volumes that are actually giving us a pretty robust growth, which is all about utilization and then total cost of goods that the factory will deliver for us.
Yes, perhaps.
One comment to just give a little bit more color because I think where you were headed.
Our ships with the is really to do with the underlying or the intrinsic growth around ingredients product portfolio and John described it well there is continued growth.
Indeed technology access number and actually if I, if you reference back to slide 10, you see it.
For 'twenty 'twenty. One is we had a number of licensees included right sort of about $13 million in the quarter $20 million for the year to do what we did with <unk>.
Immunity by or what we did with the nerve out what we could do.
With the S M.
And so that gets you to the underlying product.
Radiant product flow so to speak and there was intrinsic growth as John described year over year assumed.
Okay.
That's great.
As a reminder, if you have a question. Please press Star then one can be joined into the question queue.
The next question comes from Sameer Joshi with H C. Wainwright. Please go ahead.
Yes, Thanks, John Thanks for taking my question.
Question. The first question is about the gross margin.
Sure.
Margins are roughly around 5% of it is a non-GAAP or core gross margins went up 34% can.
Can you help us understand the gap between these two and then on a longer term basis should.
Should we still be looking at 60% gross margins from our core business or should we be using some of their targeted number.
Yeah.
I'll, let our hot take the first part and then I'll take the second part what you should be thinking about especially as we get through the second half of the year. So high and if you want to take the first part on what's reported on the GAAP basis.
Yeah, So let me hey, Samir just quickly.
Remind me you said, 34% on the core business right what.
What was the number you quoted.
The 5% roughly because I think your revenues.
Revenues were $64 eight and cost of sales was 61.8 Ah I calculated that there's roughly 5%.
Gross margins.
Alright, So I think look there's a couple of things here too to think about.
The and I mentioned it in the at least some of the comments I made to just a moment ago.
In the prepared remarks.
The core the core business was what's performing around 34% in the quarter. So that's the sum of consumer and technology access combined so that excludes any kind of impact one off if you will from from transactions or or or other one off items.
That compares to 31% the year ago quarter. So it was a a.
Three percentage point improvement year over year.
And in that so and Theres a lot going on and of course that we have we have you know we have a new mix. If you will we go channel mix and consumer.
Brent mix, we got new brands are coming into it.
And then also if you look at the the technology access piece, we have product mix. There in terms of what ingredients get sold in a given quarter based on capacity is available and whatnot.
So there's quite a bit of that and then lastly, so.
So I would I would point you to without kind of quantified it exactly because as I said, there's a number of moving parts here, but again on the core business. There was a three percentage point improvement year over year. That's that's a key point to take away here.
The last thing if you look at.
The GAAP statements and particularly as the financial statements come out as part of the 10-K Youll also see some of the other cost of goods sold which we don't include Hilton into direct product margin. Due is that some of the you know the freight expenses that I alluded to earlier for example to do it.
Afraid and what have you that will certainly.
Given some of the logistical beliefs.
We'll suppress news margins from a from a pure GAAP kind of perspective, but that's that's just for you to know.
To reference perhaps as you as you look at our at the 10-K analysis.
But again the product margin performance has improved year over year.
And then the second part of the question Samir If you think about 2022 .
I would expect around the 60% level and gross margin and the way to think about that is on.
On the tech Axis side, there was about $60 million. When you think about the collaborations licenses and the earn out 60 million of you know.
Direct gross margin dollars coming in from the revenue, there's $20 million of improvement coming from Baha beneath that they hit the second half and then there's about $20 million of gross margin that comes in from the ingredients and the opera and over a business that we are that we control versus what's been a licensed out so in total there's an odd.
<unk> for around $100 million and gross margin coming from Tech Axis and then there's obviously the consumer side, which you know we continue to see very robust gross margins you know, 60% to 65% and then expanding by about 500 basis points in the second half as we get our own manufacturing and the supply.
Chain up and running for the consumer side. So that that's how the numbers look going into 2022, and again significant improvement coming out of back up we need to and our own expansion into the manufacturing on the consumer side.
Got it and just a clarification on a barbell.
Brazil facility.
100 basis point improvement.
Is that for the second half when we are.
Is it going to be higher in subsequent years.
Yeah, I would say you you'd expect it to be higher in subsequent years.
The 500 basis points us in the second half as we really move a lot of the products from the 34 or so contract manufacturing sites that we currently have but again, the 500 basis points, specifically on consumer and its about Reno and it's also about another expansion site that we're building out.
In Brazil for Brazilian consumer manufacturing as well as European shipments of consumer products. So we hadn't actually put that out publicly yet, but we actually are not only in Reno, but a second large scale manufacturing the way to think about it as rina will have a capacity of 50 million units a year on one shift.
And then the Brazilian site will have the capacity of 30 million units a year on actually 36 million units a year on one shift. So we are significantly expanding our footprint to be able to support our own consumer manufacturing and make sure we can be quick and lowest cost producer.
Consumer products and that will lead to a little better than 500 basis points as we go beyond 2022.
Got it.
And then.
You mentioned, a new appointments are in leadership roles both the leaders.
You pointed out have exposure to China or have been in China.
Where does your international exposure.
Expansion lift China is the third off the U K and Brazil.
Can you just comment on that.
It's really where we are I mean, we're well established in Brazil, we have great channel structure and are growing rapidly there. The U K the same thing where we've got our spacing K. We've got Selfridges, we've got here it's.
We've got our own direct to consumer side going up we have our own store in London. So there's a lot happening where the structure and the channels already in place in those other markets in China.
We have been doing cross border selling with our partner Super ordinary.
We're just moving into retail with sephora, but because of a change in policy in China around animal testing.
It's enabled us to really think about a much more direct business in China and we're currently are really looking at expanding the channel structure and being much deeper in the Chinese market. So that's why it's not number one I mean I'll tell you in the fourth quarter alone.
I think we shipped well over two and a half million.
For bioscience alone into China, So it's not a small.
Part of our business, but it is growing.
Rapidly and I think it has the potential to be the biggest part of our international business and we see it with our ingredients squalene as fastest growing market is actually the Chinese market right. So a lot to do there.
I didn't want to put it is number one going into 2022, just because we have more work to do in getting the channel structure set up and giving us the kind of market advantage that we have in the U K as well as the Brazilian market.
Got it thanks, Thanks, John Thanks, Tom.
Thanks Amir.
The next question comes from Rachel Batten down with Jpmorgan. Please go ahead.
Hey, guys. Thanks for taking my questions. So first up on the joint venture with immunity by Al can you just give us the latest timeline for when you expect to complete human trials and then when you can be on market and then also you mentioned during the prepared remarks, but that's just the first RNA project that you're working on so could you talk about potential applications outside of Quebec and opportunity.
Are you there.
Sure now probably a little more on the first part of that Rachel and then probably not as much in the second part on the first part.
We have the clinical trials approved are.
We are moving into trials.
And we'd expect to have trials completed based on all the data we have we expect to be successful obviously not done until it's done and I know everybody is doing a good job to do thorough and safe trials and then if it all goes well, we would expect to be commercially providing the VAT.
<unk> seen supply in the vaccines in the second half of the year. That's our that's what we expect on current progress regarding other applications look we're very very focused on therapies, specifically for oncology and there's several applications that we think are super interesting that we've in licensed from <unk>.
And are focused on benefiting from the trials on Covid to give us an advance in some of those other therapies against specifically in oncology and I'll leave it there for now my expectation is that sometime during the second quarter will actually have an investor day that really focus.
Is on both the CEO of immunity by you and I are.
And the chairman doing a much deeper dive on the technology and helping our investors better understand where we are with all of that relates to the S. S. RNA technology, we have in the portfolio hope that helps Rachel.
Yeah, that's great and then last one for me could you just spend a minute talking about your capital deployment M&A strategy and you've done a great job of balancing growing brands in house and then also partnering with existing players in the market. So can you just talk about how you're thinking about that and complementing the consumer portfolio with M&A and then really what what size.
Would you be targeting as well.
Sure look I Uh huh.
A lot of what we've done in M&A has been Aqua hire right really acquiring talent as we've been growing rapidly and want to ensure that we have a deep bench to be able to support that growth. If you really look about I think about capital deployment, what I would tell you is our homegrown brands have performed significantly.
Better.
Then our acquisitions I think the exception would be cluster, Brazil, that's actually performing very well and it wasn't an acquisition even though it was an aqua hire it's an amazing brand that's loved by people. So what you can expect as more of our homegrown brands I think you'll see this year.
As an ounce you know what it'll be two to three new homegrown opportunities and I think the other thing you'll see Rachel is us partnering with major global retailers as they want to go deeper down the value chain right retailers in the past.
I have loved the beauty category, but did not participate and I think you'll see some major retailers stepping in to partnering with us in building amazing brands that actually bring sustainability to their shelves and their consumers directly so.
That's what I would guide I I don't I don't see us doing major brand acquisitions, I think we have a significant pipeline of homegrown, you'll see two to three more announcements of homegrown for categories, we'd like to play in and then you'll see some addition of us partnering with our retailers to actually get these brands to me.
Markets faster and make our capital more efficient as we acquire consumers.
Great that's really helpful. Thank you.
Thanks Rachel.
Yes.
Our final question today comes from Amit Dayal with H C. Wainwright. Please go ahead.
Hey, good morning, everyone. Thank you for taking my questions. John could you talk about the competitive environment. The new players coming in you know how is some of your opportunities to either increasing or getting more competitive given sort of these new entrants.
Any color on that would be on something here.
Hey.
Maybe you can help me with who are the new entrants since we actually don't have competitors in our sector. There is nobody with a lap the market technology.
Not competing with anybody for doing big development programs again, we deal with major market leaders in these market leaders are mostly coming to us and on the consumer space. There are brands being launched all the time, but I will tell you know the big focus that we have is partnering with major retailers deepening relationships with them.
They're seeking brands like ours that deliver sustainability and performance and lead in the cleaning category, where they are seeing the best growth that they have in their portfolio.
So when you when you think about competitors, who are you referring to so that I could respond to them specifically.
And you know you have a DNA et cetera, who are entering the space you have other players who are you know.
Today, and maybe focused on the renewable fuel side, but they have fermentation technology and are starting to look into the ingredient space. As you guys are starting to prove out this market.
So there are things brewing, maybe that wouldn't hit the commercial scale, yet, but it looks like you know competition is increasing given the margin profile of this opportunity set.
I'm just wondering what you are seeing and how you continue to differentiate yourselves.
Got it that helps thank you look I think we differentiate by executing.
We have the most advanced factory in the World. It's got a lot of flexibility I think I announced in December .
Call that we are already designing and kicking off the second project expand that factory.
And you'll see that project start construction around middle of this year and you know we're growing as fast as we can on our production footprint. So that we could actually really have a stable supply chain and support our growth right. So execution is how we differentiate.
I think secondly.
Really building out the next generation like I always tell people if you visit our labs.
18 months after your first visit and the way we're doing the science has not changed some things wrong. So you can imagine right now we are investing in the next generation of bio engineering, the new tools and new processes, and so while everyone's trying to catch up with how bioengineering.
Been done we're already on to the next.
Platform already actually evolving and you could see it in our results like there's nobody that I know that's doing three to five new molecules a year and that's actually molecules from engineering process development scale up large scale production and then commercial success. So that's all I can say is we're not.
We're not running into competitors right now and our focus is just barrel down on execution and then invest in the next generation of technology said that were always ahead of our competition and my Best assessment is right now I'd say, we're probably 10 years ahead of DNA from an engineering and scale up and being able to really deliver.
<unk> wheel products to market.
Understood John Thank you I appreciate it.
This concludes our question and answer session I would like to turn the conference back over to John Melo for any closing remarks.
Great Betsy Hey, Thank you for a b and our operator on this call I'd like to thank everyone for joining us today and for your continued interest and support if we did not get to your question. Please follow up with our Investor Relations team and we'll make sure we back get back to you with a response our prayers are obviously with all that's happening in Europe right now.
And staying really focused on executing and having a great quarter as we start off what is looking like one of our best years to date. Thanks, everyone.
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