Q1 2022 Amyris Inc Earnings Call
Welcome to the Amyris first quarter 2022 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 replay of this call by going to the investors.
By going to the investors section of the Amyris website I would now like to turn the call over to Hans keeps in Bell Chief Financial Officer of Amarin. Please go ahead.
Good morning, everyone and thank you for joining us today.
With me on today's call is John Melo, President and Chief Executive Officer.
We issued our results today in a press release. The current report on form 8-K furnished with respect to our press release is available on our website Atmos dot com in the investors section as well as on the SEC's website.
Slides accompanying this presentation can also be found on the website and were posted today for your convenience.
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 our financial summary section.
Slides of the presentation or the press release distributed today.
During this call we will make forward looking statements about future events and circumstances, including Atmos is outlook for 2022 and beyond.
Emerson's goals and strategic priorities anticipated transactions and other future milestones as well as market opportunities and growth prospects.
These statements are based on management's current extra expectations and actual results and future events may differ materially due to risks and uncertainties.
<unk> detailed from time to time in our filings with the Securities and Exchange Commission, including our 10-Q for the first quarter of 2022.
<unk> disclaims any obligation to update information contained in these forward looking statements whether as a result of new information future events or otherwise with that I'll turn the call over to John John .
Thank you Heide and good morning, everyone. Thank you for joining us today.
I'll provide an update on our business performance and our operating strategy before asking hard to provide a financial update and then we'll turn to Q&A.
On slide four now we are fully focused on eliminating the need to use crude oil destroy force or kill animals to make chemistry.
We are reducing the stress of harmful agricultural practices, preventing further disruption of animal supply chains and ecosystems around our planet.
We are delivering this transformation of the weight chemistry has made across many markets from the elimination of crude oil as the source of making vitamin E to Kelly Sharks as a source for making squalene to harvesting from force in Madagascar to make vanillin using extensive irrigation and farmland to produce.
Natural sweeteners as a few examples of the deep disruption we are delivering across the world. Our growth is accelerating significantly as crude oil prices soar and consumers are demanding clean sustainable chemistry, and the products. They consume every day.
The network effect caused by adoption of our industrial ingredients and consumer brands powered by Amyris is pioneering technology is expanding and helping all of us the agents for positive change and a more sustainable future.
We are in a fight for the future of our planet and we are leading this important fight and beauty health and wellness markets through the power of our no compromise ingredients and consumer brands.
We are already making an impact with as many as 300 million consumers around the world that use our ingredients and products and we have much more to do.
We delivered a solid first quarter, our core our core revenue increased 75% year over year.
Ported by a record $3 $35 million of revenue from our consumer brands.
Delivering 121% growth versus the prior year quarter I'm currently on slide five for those of you following along.
Brands launched in the past 12 months led by JV and hair care already compromised an important portion of our consumer revenue.
We have entered a period of exponential growth for our consumer brands that is further accelerating as we add new brands expand with new retail partners and grow globally.
90% of our current consumer revenue is from North America.
57% of our consumer revenue is from direct to consumer our own websites or new brands brands that we will operate this year for the first time, including mental labs.
Gave me in hair road, zinc and equal fab cosmetics are expected to generate over $100 million of revenue.
We are also in the middle of international expansion with a focus on the UK, Portugal and later this year and expansion across Brazil, and a major market entry into Germany.
In addition to the incredible performance of new brands.
<unk> expansion through our retail partners and significant opportunities in our international markets. We are also landed a significant strategic opportunity, where we are developing on a cross category brand a sustainable beauty and wellness products for Walmart. This.
This brand is expected to ship to Walmart in the fourth quarter and as another validation of the commitment of the world's leading retailers to deliver sustainable best performing products to consumers.
This is what consumers want and this is what we deliver in our brands and through our technology.
Consumer revenue in the first quarter.
It's over two times, our ingredient revenue and we expect by the fourth quarter for our consumer revenue to be around five times ingredient revenue.
Our consumer portfolio is now set to deliver well over 150% growth. This year, while our ingredient portfolio is also delivering better than expected growth that we would be in a position to recognize starting this quarter as we start shipping product from Banca Bonita.
We now expect ingredient revenue to be on the high end of the 30% to 40% annual growth rate, we have guided to at the start of the year.
In addition to the significant growth we are experiencing we are also focused on reducing our spend and focusing our investments where it generates strong returns we.
We have four brands that are expected to turn a positive operating.
Profit contribution this year.
Bioscience JV on her mental labs, and our new clean hair brand built for Walmart.
We also expect ingredients that we start producing at Bajo Bonita to deliver a positive profit contribution once they are produced at that site.
Technology access revenue grew 33% year over year to $23 million in the quarter, we experienced stronger demand for our consumer and ingredients products.
An estimated $7 million more than we had capacity to deliver this represents orders we see that we did not have product available to fully fill the order.
We ship all inventory all products produced and available for the ingredient business. During the quarter. This was a bigger challenge in ingredients due to reliance on third party manufacturing.
We began commissioning our strategic fermentation plant in Bahia Bonita early in the second quarter.
Keeping us on track to start commercial production during the second quarter.
This investment is critical to meet demand reduce our resilience on costly third party ingredient manufacturing and the delivery of substantial margin improvement starting later this year.
Both fermentation and consumer product manufacturing will be debottleneck in the second half as <unk> comes into full production and we scaled production at our consumer manufacturing facilities.
In addition to the facility we're constructing in Reno, We recently acquired a brand new consumer production facility in Brazil.
All three of our new manufacturing facilities are expected to be a full commercial production by the end of this year, we have already started producing consumer products at the Brazilian facility and the Reno consumer manufacturing facility.
We are continuing to experience strong demand through the start of the second quarter and we are also expanding our mix of sales from direct to consumer.
We are shipping pipette, almost 10000, you selling points this quarter and we are experiencing significant consumer traffic through most of our retail partner stores the.
The consumer is coming back very strong in Brazil, the U S through sephora stores European markets and the U K.
We are now at 3 million monthly visitors in our direct to consumer business and we expect to be at about 6 million monthly visitors by the time, we reach the fourth quarter.
We have built the fastest growing consumer health beauty and wellness brands in the World and we expect this business to also deliver strong cash generation as we transitioned to the second half of the year.
We've acquired and built the capability, we need we have the leading technology product and consumer brand portfolio in our industry and we have a business model that has the potential the potential to consistently deliver 30% or better operating margins at scale, we are within 12 to <unk>.
18 months of reaching a scale of revenue, where we can consistently deliver our expected margin structure.
We have what we need and have transitioned from building to executing we are done with our acquisition phase.
The JV on hair care brand is performing much better than we expected JV and is our most successful brand to date and is on target to reach profitability in 14 months or less since the start of commercial sales.
<unk> is also one of the lowest investment brands in our portfolio, our investment in developing and launching JV and it's about $2.7 million.
This is a brand that we estimate our current valuation of around $400 million based on the annualized revenue run rate, it's marketing channel structure and its gross margin.
We really appreciate our partnership with Jonathan and all the hard work he and the <unk> team are delivering to make this brand the leader in clean Air care.
We are very fortunate to have achieved our first in the prestige beauty market, we have the fastest growing brands in skincare hair care color cosmetics and baby care at the same time. This is unprecedented for a single company and demonstrates our deep commitment to science based <unk>.
Knowledge and formulations and the power of clean and sustainable chemistry.
Bioscience continues to deliver strong year on year growth and is the fastest growing skin care brand at its scale in North America.
Our pipette brand is also growing very quickly and in the middle of shipping to about 10000, New stores. This includes over 4000 Walmart stores in North America.
We have built incredible brands that are enabling consumers to use the best performing technology on themselves for their health, while making our planet healthier.
Bioscience and JV alone have a current estimate at asset value of around one $5 billion based on their current revenue run rates channel and margin structure. This is more than our current equity value and demonstrates the significant disconnect and current equity markets.
We are well positioned to benefit from this disconnect and we will take the appropriate steps to self fund our growth and continue leading in our core categories.
I'm now on slide six.
Our capital markets have recently not been kind to high growth technology driven sectors. This year to date, we have outperformed our immediate biotechnology peer group and trade it in closer correlation to the beauty and wellness index.
The steps we've taken to match our capital structure with the incredible growth powered by unique technology, IP and practical innovation appear to be recognized by the market more so where the consumer end markets, we target as opposed to the biotechnology companies, who are working on similar technologies as us but with <unk>.
Limited tangible product commercialization.
Underpinning all that we do is the tireless efforts of countless technical industrial and commercial professionals at Amyris, who have built an end to end platform that is scalable and will continue to foster new product development growth and ultimately profitability.
As we have grown and expanded we have also taken steps to reduce our reliance on costly third parties and vertically integrate critical components of our supply chain.
As our next generation precision fermentation manufacturing plant in Bahia, Puneet that comes online and our consumer fulfillment and distribution centers are scale and optimized we have substantial opportunity to reduce costs improve margins and reduce cash needed to run our business.
Combined with our new manufacturing and supply chain footprint, we are taking important actions to reduce our operating costs and all and unlock cash from our asset base.
As we stated at the start of the year, we expect that every heavier investment in the first half of the year with a reduced cash burn in the second half. This is what we continue to expect including positive cash from operations in the fourth quarter, when you exclude capex and investment in new brands.
We plan to further optimize our portfolio and are in active discussions for the licensing of marketing rights of two ingredients, which we expect to deliver over $250 million of proceeds by the end of this year.
Evidenced in the quality and depth of our technology driven asset base.
This is a transaction that will look similar to the DSM transaction from last year with limited impact to revenue as we will continue to be the manufacturer of these ingredients long term.
Slide seven.
Our platform is scalable with exceptional breadth, we are the number one builder of clean beauty brands in the world today, educating and connecting consumers with exceptional products with a purpose at reasonable prices. This isn't just our brands approximately 3500 brands around the world are using our proprietary ingredients.
<unk>.
Sending all of these opportunities is our core belief that okay is not good enough that we can't continue to harvest, our planet environment and atmosphere relentlessly with no consequence, we share the desire of our partners and customers to prioritize de carbonization and believe we are uniquely positioned to power.
And accelerate their efforts.
Slide eight the most important scorecard for clean beauty and the performance of our products is the consumer and as it turns out we're doing really well there as well our fastest growing brands bioscience, JV and ROE think are well recognized as category leaders and routinely receive exceptional.
Feedback from consumers.
Slide nine.
Capitalizing on this success and recognition we continue to invest in the future.
In Q3 of this year, we plan to launch a new menopause focus wellness brand named stripes in partnership with the gifted Naomi watts.
Around the same time, we expect to launch equal Fabulous a unique offering that will give gen Z consumers access to clean sustainable beauty products at a great price point what's.
What's different this time is the established relationships and opportunities for distribution. We have on day, one with these brands channel partners, such as a four and Walmart can accelerate the timeline from first sale to meaningful impact of these brands for Amyris as well as the access to most consumers possible.
That's the lowest cost.
We are also working hard on many fronts as it relates to operational excellence. We are in full commissioning mode at the backup we need the plant, which will be critical to much needed capacity and improved unit costs.
The commissioning process is going very well and we expect to start shipping product from <unk> this quarter as planned.
Slide 10.
During the quarter, we acquired a founder led brands.
Mental lapse that is delivering real solutions for women in menopause, and Paramount Apache not only offering products to consumers seeking relief. During this stage of their life mineral labs offers education and a sense of community through their online and App based resources.
With the benefit of Amyris has proven capabilities to develop brands enhanced formulation and expand distribution the opportunity for mental last to sharply grow revenue and serve more consumers in this underserved category is meaningful.
This is one of the fastest growing categories in health and wellness.
We expect to deliver over $30 million in the menopause category during 2022.
Did not participate in this category in 2021.
Over the past 12 months, we have been focused on incubating acquiring and investing in our consumer portfolio, which has paved the way for our current rate of consumer growth. We have built a leading portfolio of consumer brands in the categories. We serve.
And do not plan on further acquisitions in the near term. We are now transitioning our focused execution efficiency and portfolio management and building leading brands that are homegrown Jbs is a great example of value creation with our brand building model to commercialize our core technology.
Operationally, we've learned through blood sweat and tears that in order to control your destiny with this technology you must excel at manufacturing and process development. These are the biggest barriers to scaling synthetic biology, and making a tangible positive impact on the sustainability of our planet.
We began commissioning of our fermentation plant in <unk>, Brazil, the leading precision fermentation facility in the world for industrial markets. This plant will deliver much lower cost production and improve margins, while greatly increasing our manufacturing capacity.
We've posted a six minute video, providing an overview of the plant and its construction on our Amyris Youtube video <unk>.
I urge.
Anyone curious about our progress to view it.
Let me now turn to hunt for remarks, covering our financial results.
Thanks, John Let's turn to slide 12.
Consistent with our expectations, our core revenue increased 75% year over year, largely due to record consumer revenue of $34 $6 million.
Our consumer brands have built substantial momentum and further establish category leadership, each and every day.
Our investments in integration of our supply chain Couldnt have been made better.
Make it a better point in time, given the current industrial and macroeconomic backdrop given.
Given the volatility we are witnessing globally. It is extremely important to have control of the distribution of our technology and IP.
As our consumer fulfillment centers and fermentation plant expand their production, we will have control of our products from luck to market to a degree that we haven't had in the past.
Please turn to slide 13.
Core revenue, which includes consumer and technology access revenue and excludes strategic transactions and other one off items increased 75% to $57 7 million when compared to the first quarter of 2021.
Core revenue included record consumer revenue of $34 6 million, which increased 121% and technology access revenue of $23 2 million, which increased 33% versus prior year.
Our consumer revenue growth was balanced between our more established bioscience of the pet brands and are very well received new launches of JV and zinc the.
The momentum we are experiencing is not an accident, we are providing exceptional formulation to consumers who are seeking education and belief they have a responsibility to choose environmentally sustainable products that don't compromise on performance.
57% of first quarter consumer revenue originated from direct to consumer.
It is from e-commerce, and our brand platforms, while 43% originated from retail consisting of in store and online sales.
This channel mix was very similar to the prior year.
Approximately 90% of consumer revenue originated from North America.
We are expanding internationally and see significant opportunity as we build out our footprint in continental Europe , the UK and Brazil.
Technology acts as sales growth of 33% was due to growth in demand for flavors, and fragrances and sweetener ingredients and the $8 8 million earn out related to the strategic DSM FNF transaction, which we completed in the first quarter of 'twenty one this.
This was partly offset by third party contract manufacturing capacity constraints for the production of squalene and Hermes greatly.
Ingredients demand growth is driven by a shift to sustainably sourced ingredients away from crude oil supply sources.
Current third party capacity constraints are expected to be alleviated by our strategic investments in the large scale fermentation plant in Barra Bonita, which.
Which we began commissioning as John said this current quarter.
Let's move to slide 14.
Our first quarter non-GAAP core gross margin was $26 8 million or 46% of revenue.
This is an increase of 58% compared to the first quarter of 'twenty, one margin dollars, primarily resulting from the growth of our consumer brands.
Consumer gross margin was 60%, which compares to 70% in the prior year quarter due to new brand and channel mix.
We expect a margin improvement in the second half to approximately 65% of revenue as a result of production footprint simplification.
Technology access record of 27% gross margin of revenue versus 34% in the prior year.
Canadian product margins were impacted by the aforementioned capacity constraints contract and contract manufacturing, particularly affecting squalene and Hermes greatly.
We expect to margin improvement in the second half, 235% to 40% from Barra Bonita coming online.
As our brands grow so too has the selling expense associated investments in both our legacy and newly launched brands I will make a few more comments regarding expense on the next slide.
Q1, 2020 one adjusted EBITDA included a $143 8 million in one off strategic transaction revenue when.
When we exclude these one offs adjusted EBITDA of $107 5 million of this quarter was down $66 2 million.
Primarily due to higher operating expense in Q1 air shipping cost.
We have continued to invest in high return opportunities, which is reflected in our adjusted EBITDA.
We are committed to the growth of our business and during the first quarter the cost associated with ensuring our products arrive on time with new and existing third party relationships remained elevated.
We expect to see improved cost leverage in the second half on the back of increased revenue.
Please turn to slide 15.
We are operating 10 brands today compared to three <unk> a year ago, our cash operating expense of $117 1 million increased by $63 5 million.
Increase was primarily driven by a combination of increased head count both organic and from acquisitions for a total cost increase in people expense of $22 million.
Non people expense increased $41 million and include our brand investments and paid media and advertising.
Growth driven consumer order fulfillment and shipping expense and the pre commissioning activity about a bonita.
And lastly, comparatively low prior year travel expense due to COVID-19.
Although the cost of goods sold were mostly driven by increased air freight to the tune of $11 million. This was for inbound freight to get our components packaging and intermediate products in the right place at the right time to ensure continued to have supply to our customers.
As a result of our elevated expense our use of cash in the quarter was also elevated we used a total of $195 million of which a 107 million is related to adjusted EBITDA.
Additionally, we build working capital for a total of 29 million.
We also incurred capex predominantly for Barra Bonita and onetime M&A expense for a total of $47 million as well as temporary airfreight expense of $17 million for a combined total of $64 million.
But we do not consider to be part of ongoing cash outlay.
Let's move to slide 16.
Our brands to address the needs of millions of consumers, while reducing reliance on unsustainable and environmentally harmful ingredients spending on clean health and wellness skincare hair and baby care is not discretionary for consumers.
Unwilling to compromise in these categories.
Based on current consumer revenue performance, along with the Q3 launch of new brands and new in house ingredients capacity from Barra Bonita taken.
Taking full effect in the second half of the year, we are reiterating our full year 2022 financial outlook and expect to be on the higher end of the stated rates.
Thank you all for listening today, John has concluding remarks before we open the line for questions Joe.
Thank you Heine, we have been investing substantially in the future of our core business through capital expenditures and plant and production capacity as well as operationally through branch startups and leveraging the opportunity to educate and acquired consumers for sales and marketing growth.
The goal of these investments is to create a durable sustainable platform that will disrupt existing chemistry, and deliver better performance and sustainable options for consumers.
We are laser focused on our operating environment and we will continue to execute on our plan, but we will.
Revise our spending and operational plants to meet external business and economic environment change.
The human rights crisis created by the conflict in Ukraine, the knock on effects of China's zero Covid policies rapid inflation are all very real and we will manage the opportunities in front of us accordingly.
Danielle Please open the line for Q&A.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Youre using a speakerphone please pick up your handset before pressing the keys.
So let's try a question. Please press Star then two.
The first question comes from Colin Rusch from Oppenheimer. Please go ahead.
Thanks, so much guys.
The combined capacity that you now have could you give us a sense of what the.
The feeling is in terms of revenue capacity for the organization now obviously theres some mix.
The impacts of that but would love to just get a sense of where you guys are kras status at this point.
Thanks colleague great to have you on the call.
Look I think as it relates to consumer.
I think our.
Resilient capacity is about 35 million units a year and our renal capacity will be about 65 million units a year. When you think about all that.
And you think about what we expect to produce out of those assets.
Into the fourth quarter, we would expect about 70% to 80% of our consumer demand to be met by our own manufacturing capacity.
And we have very good.
Capacity to really run it.
Tumor business that can generate $4 million to $500 million a year of revenue and again. If you. If you look at how our year ramps I mean, we expect the fourth quarter to be well over $100 million in consumer revenue and we expect that our production assets for the products that it makes sense because there are some products some unique products.
It's not we're not investing the capital equipment to produce ourselves are unique enough that we will do them by third party, but I hope that gives you a sense of what we have capacity on the consumer side.
Ingredients side once the possible need to starts we expect backup we need to be a key enabler.
To meet our ingredient demand.
As we mentioned ingredients were a challenge for us because we're out of capacity. We just don't have the ability to access more precision fermentation to make the ingredients. We think we can more than double the current revenue of ingredients per quarter, and we expect to start realizing that level of ingredient performance in the fourth.
As a result of backup beneath it. So you can think about it as a couple of hundred million dollars a year of ingredient revenue enabled by Banco Bonita.
And somewhere around $4 million to $500 million a year of consumer revenue enabled by the 70% to 80% cover we get out of Reno and the Brazilian facility hope that has fallen.
Yes, that's super helpful and then.
Just in terms of the cash operating expense.
Slightly more elevated level here that we're talking about.
<unk> basis.
Curious about how much of that is you guys deem as temp oral how much of that is going to come out over time.
As the.
The global supply chain gets a little bit more balanced.
Normalized.
I think high note try to cover that I'll try to summarize that youll come back and I'm sure correct me Theres about $60 million to $70 million of what you saw in the first quarter that we don't expect to repeat and then in that they are.
About $30 million $20 million to $30 million I think it's actually around 2000 $17 million to $20 million, that's actually connected specifically to global supply chain and just complexities that we had to manage.
And our very costly and ensuring we have components, where they need to be.
Want to clarify that not all of those components have anything to do with first quarter shipments and a lot of that is really building inventory, especially as we go into the second half remember the fourth quarter is a seasonably high quarter and we have a significant number of new brands coming on that are really running.
Hard on the growth side, so a combination of our current <unk>.
New brands to market like JV, and ROE sink Menno labs, and then the new brands, we're launching plus the fourth quarter.
Seasonality really drive for significant build in inventory to ensure that we could meet market demand again, knowing that we expect to deliver well over $100 million in consumer revenue in.
In the fourth quarter. So that's how I don't know if you want to add any clarification to that.
Well I think Thats what John .
Great. Thanks, a lot guys.
Okay.
The next question comes from Steven <unk> from Cowen. Please go ahead.
Great. Thanks, operator, and thanks for taking the questions.
Good morning.
Hey, good morning, good morning.
Hey, good morning.
On the two ingredients.
You are in licensing discussions with that you mentioned are these existing molecules you've developed at Amyris, but haven't disclosed.
Is there any color you can give us.
Yes.
For competitive reasons, we would rather not disclose much but I will tell you they are existing molecules and they are in current production.
Okay.
Okay got it alright, that's helpful.
Then a couple of questions on the on the retail channel I wanted to ask you. What you guys are seeing.
Seeing any trends in retail.
You mentioned the channel mix.
In Q1 was similar to the prior year, but we'd expect the channel mix for the balance of the year to be in.
Update us on the experiential and pop up stores that you mentioned on a prior call and what impact you're seeing from those new stores.
Sure Stephen Let me, let me try to take those.
It looks like three questions embedded in there so the deal with the first one.
I'm just at a.
<unk> Co conference right now for the beauty industry and I was just with.
Sephora Global CEO last night, and I can tell you that what we're seeing across the beauty retail footprint is significant retail.
Retail traffic more than any of US expected. So first point is there's a very robust consumer right now buying beauty. It doesn't I mean, it has surprised us that has happened as fast coming out of Covid.
But when you look at history, especially in times of uncertainty.
In times of war, what we've seen is that the beauty market actually thrives, because it's sort of the simple luxury everybody goes to.
And again, we're seeing exactly that right now happen across the retail footprint I can tell you. We're seeing the same thing in Brazil, we're seeing the same thing in the U K. So again, a very robust consumer and retail I think the second point is regarding our mix.
Look we were well above the 50 50 mix that we'd ideally like to operate at.
Can tell you that we expect to come back around a 50 50 mix because of the significant increase in retail doors that we're adding in the second half I mean as I said during the during the call. We're adding just almost 10000 doors between Walgreens and Walmart for the pipette brand alone.
We have several other brands, we have pure cane going into Walmart as we speak this quarter, we have bioscience going into 140 doors across Germany with Douglas.
The leading retailer of beauty in Germany.
A significant expansion that took place in the first quarter with JV and in ROE zinc, adding about 250, or so sephora doors in North America. So because of the significant expansion in doors I would expect to come more in that 50 50 balanced as we go into the second half of the year.
<unk>, which doesn't mean less direct to consumer growth. It just means a much stronger store growth.
As we're going through the second quarter and then the rest of the year.
Look I think your question on pop ups the third the third question.
The most successful pop up we've done which has really taught us a lot versus the ROE think pop up in Soho a few weeks back right. We had a line out the door, we had significant demand for customers for money to have there.
Makeup done in our store and we see that as a trend. So we see that the whole movement to experiential retailing, we see that customers getting treatments both on their skin getting their here done with our products as well as their color makeover in our store is a significant.
Opportunity, we see conversion in those stores very high I can tell you in the roofing pop up conversion was over 90% so 90% of consumers who came in and bought.
Roofing product I can tell you that the experience for bioscience and the Miami design District was over 60% conversion, so very high conversion very high engagement and.
And we see the consumers that experience our store, becoming solid repeat consumers. So I think our strategy is spot on what we wanted to do.
But we don't see ourselves again, as we said before with major stores and a bunch of markets and becoming big retailers, we see it being all about experiential all about showcase stores very limited locations and really to drive more engagement in the brands and decrease our acquisition cost and increase our conversion rate.
For the consumer so I hope that helps Steven I think that addresses the three questions you had.
Yes, David very helpful. I appreciate it thank you so much.
Thank you.
The next question comes from Sameer Joshi of H C. Wainwright. Please go ahead.
Yeah, Thanks, Hey, John .
Just sort of following up on the previous question in terms of.
Customer outreach.
When are you more focused on.
How are you doing any media in store pop ups, social media word of mouth.
The influence of what is the focus of all of the above.
Hey, Sameer good having you on the call.
All the above but.
As I sit on the call. We are now with the amount of data, we have and the amount of consumer traffic we have.
We're actually getting much smarter about where to put the money and really focused on the highest return channels right and if I think about.
Where's the highest return the highest return it's really in.
Using email using affiliate marketing doing direct selling sessions, and then focusing on what I call.
<unk>, selling or social marketing, which is using micro influencers to effectively reach their audiences and make their audiences long term customers and that just requires engagement with the micro influencers, bringing them on our labs, helping them understand the technology.
Sharing the products and hopefully they love the products and when they love the product and it can be authentic they are really the best converting vehicles that we have in the most efficient way to grow the business I think Jonathan Van Ness is a great proof of that Jonathan is probably the best social performer that I've ever seen.
And you could see us doing more activity like we're doing with Jonathan across our brands. We now have a very very focused playbook for how we launched a brand we know how to drive a brand hard and fast I mean think about it that Jonathan Veneta brand.
Is like is it likely to do somewhere around $50 million this year.
It took us four years to get there with bioscience. So, let's just kind of gives you a sense of how effective we've become and even though we're not talking a lot about <unk> <unk> is also performing extremely well as the brands. So that's that's really the that's really the whole playbook approach here is go where the highest returns are.
Are the highest returns or email affiliates, and then social selling direct selling and to do that well, it's about micro influencers as well as some mega that have amazing metrics and are really passionate about the products.
Got it thanks, so that that is good color.
In terms of the two ingredients.
The $250 million opportunity.
Is that $250 million.
Our lifetime product lifetime revenue estimate or is it that you.
<unk> me get this money in 2022 itself.
Yes, no our expectation is that $250 million or proceeds this year not the long term value of the transaction, we expect that to be significantly more than the $250 million.
And.
If you're tracking what we've done every year now that we've done one of these types of transactions. The value has increased significantly and this is probably the most valuable transaction and it really gives us a mark to market value of the ingredients.
Of the molecules at all for 100 million per molecule I mean in this particular case, we're going to generate probably 120 $550 million in value per molecule and we have a significant portfolio of molecules to continue doing this.
For the foreseeable future and this is how we expect to self fund I don't I Didnt say it explicitly but I just want to repeat where we are we have no plans.
To do any future equity financing or financing of the company, mainly because of the robustness we have in the portfolio and the amount of demand we see today for ingredients that we have that we can that we can do marketing rights just like we're doing with the two that we're actively working through right now.
Got it makes sense and.
Just a clarification.
Related to the previous quarter press release.
I think the <unk> 9 million.
DSM.
As expected all during the fourth quarter of 2020.
Two.
But it seems so down $8 eight came in this quarter.
Did I read that right or.
Yes.
Yeah, Yeah, you did Samir here's how to think about that.
Based on the demand for the ingredients that are in that portfolio to the earn out portfolio, which is significantly greater than we expected at the beginning of the year, we now expect to generate quite a bit more than the $39 million. So what we're doing as a result is actually bringing some of that through on a quarterly.
And then a bigger chunk kind of whatever is left as we think about how demand ramps and how we add capacity will come in the fourth quarter. So again, you can expect ratable amount first second third.
And then a pretty significant jump in that number as we go into the fourth quarter.
Got it thanks John .
Okay.
Thanks Samir.
The next question comes from Laurence Alexander from Jefferies. Please go ahead good morning.
<unk>.
I've lost count of the number of crises Amyris is seeing you.
In the capital markets.
What do you see as the minimum cash balance you want to have on hand.
Sort of maintained the rhythm of operations.
Thanks, Lawrence and good to have you on board.
We like to target no less than 100 million.
To maintain our cash balance long term to feed our growth.
And again, we have a lot of unlocking to do and just the amount of working capital and receivables, we could manage but $100 million is what we would like as a minimum on hand.
And on the.
Technology access side.
Thank you for highlighting some of the brands you have.
The Oems you have partnerships with where youre selling to can.
Can you give any examples of where your ingredients already have significant market share and maybe give a little bit of a sense of how long it took to get that market share from the first validation.
Look I think maybe a couple of examples of vitamin E is a great win rate vitamin E with DSM I think right now we're about 25% of the vitamin D market produced using our technology.
And it took us.
I would say 36 months to go from.
Startup of supplying vitamin E to being.
25% of the vitamin D market comes from our foreign has seen derived ISO phytol, Lawrence, which youll understand.
Look the other example is.
It's quite a line, where we're currently about 70% market share.
<unk>.
It took us a lot longer right I think we're now probably eight years.
Eight nine years into <unk> to get to that market share.
A faster one probably vanillin right I think right now, we're probably the leading supplier of vanilla and assuming we can ship out everything we have demand for this year, we're probably the leading supplier in volume of natural vanilla in the world and Thats happened in 24 months right. So it varies quite a bit and a lot of it is.
Around.
How fast.
The market can switch how close our profile as to the current material and then the economic advantage how advantage. The economics are of our supply versus the alternative when you get all three of those right like in vanillin.
Like in vitamin E.
The market shift is significant and fast and inviting many we've had a lot of help because of the crude oil prices right.
I've disclosed in prior calls.
We are breakeven with crude oil at $30.
At $50. We're advantaged. So you can imagine that $100 crude the advantage in actually using foreign has seemed to make vitamin E versus crude oil to make isobutanol.
And then just the last one is with respect to the.
The valuation disconnect you flagged you flagged this a few on a few calls now.
With respect to the consumer brands.
Patient argue or what would it take for you to monetize one brand just to sort of prove the point.
I'm, probably less patient today than I was six months ago.
And the question is.
Is the board and shareholder base aligned with US and my guess is were.
We're probably pretty well aligned but we need to have those conversations.
Again, my personal position is a lot less patient today. This is getting to the point, where it's pretty ridiculous and a pretty big opportunity.
And obviously you know.
There is plenty of opportunity for us to execute on.
Proving this out right so.
A bit of in patient is what I would describe it as right now.
And then if I may is there any sort of structural kind of alignment like either a JV structure or something else with the <unk>.
Large brands.
Where you could basically pulled in and take advantage of the disconnect that way.
Look I mean, it's all possible I think the question is going to be what's most attractive for us based on.
The traction in our portfolio of the additional brands right. There there is an optimal point.
At where.
Our brand spend makes a lot of sense and the question is can we do something without actually costing ourselves significant value in the brands that are that have the greatest traction right. So really hard to say Laurence but.
Obviously, we're.
We're looking at each one of the possibilities and being thoughtful about it.
Thank you very much.
Thanks Laurence.
The next question comes from Michael Freeman from Raymond James. Please go ahead.
Hi, John Hi, Han Thanks, so much for taking my questions.
Firstly I'd like to touch on the sort of the tightening market in precision instrumentation that you that you are talking about and I recognize that you are sort of right at the beginning of your journey at <unk>.
As it relates to two production there.
To keep up the future and how and when this facility reaches full capacity production do you expect you to follow the same format put more steel in the ground or would you begin exploring.
For.
More third party relationships for two to facilitate that fermentation.
Michael Thanks for being onboard and thanks for the question look I.
I'm really not keen on third party relationships for precision fermentation at this time and I think the real question is how fast can the industry mature with precision fermentation my outlook is somewhere in the five to 10 year Horizon, which says we have a lot to do to win.
Table precision fermentation in the short to medium term.
So at Barca beneath as an example, we already have.
Well first of all the way the site's laid out it's like building blocks right. So every utility everything from the air compressors to the water treatment to the power generation site is modular where we can actually keep adding compressors.
Keep adding units at <unk> and enabled more than we already are bringing in.
I think.
For 600000 liter tanks, which are massive.
As a way to expand manufacturing with some of our bigger molecules a year ago I wasn't so keen on right. So this is all about just continuously expanding that footprint to really meet our demand in a world. That's shifting faster than we had planned for and I look at that footprint being able to do that it's got.
Access to plenty of cane and utilities, which were.
What makes it really interesting site for us going back to why not do it with somebody else because just about every plant we've looked at and we've looked at a lot of precision fermentation facilities first.
Aren't many great ones and then secondly, even when you find a great. One it requires capital modification and we have to operate with the owner as a way to ensure that our process is replicated and that's always difficult.
For us to do so rather than investing in that we'd rather invest in our own so I hope that helps Michael.
Yes, that's really helpful.
Chemical engineer.
I appreciate that.
Next question is on a lot of the attention has been on the Bioscience Pipettes JV and Rose Inc. Brands I Wonder if you could shine some light on the tariffs on our brands powered by CPG and squalene how does the.
<unk>.
Salesman going there what are your future plans for that brand in particular.
Look I.
I'm, probably a creature of habit right at plateau and highlight its probably because it's not going as well as I'd like right. So.
And what I would tell you is this.
CPG squalene formulation and performance the consumer ratings the repeat purchase has been outstanding the brand's efficiency in other words, the brand's ability to access new consumers and convert to purchase has not been.
Good performance in other words, it is taking us taken us more investment than I would like to get the traction with the brand and we understand why right Theres a couple of pieces in our playbook that we did not follow what that brand. We don't have a great launch partner, we didn't have a great retail channel lined up.
And I don't believe we got the marketing right around the positioning of the product right. We basically went after acne. It was not the best category to go after where that formulation I can tell you. We're in the process of completely resetting that using that formulation in our current brands and then actually partnering with somebody that I think will be.
<unk> and making that that that product offering maybe not that brand a significant offering in our portfolio. So that's really what I would say it hasn't gone the way, we'd like we're throwing it out.
And keeping keeping the baby the baby is actually the formulation, which is outstanding and then we're leveraging that formulation across our current brands and doing a reset on the brand with a partner that we think will be super interesting, but well announcements in the future.
Yeah.
Alright, you have to keep the baby John Thanks, Thanks, very much for indulging these questions I'll hop back in the queue.
Great. Thanks, Michael.
The next question question comes from Rachel.
<unk> from Jpmorgan. Please go ahead.
Hey, guys. Thanks for taking my question.
First off on your ingredients business. It sounds like demand is outpacing supply there as your customers are facing some supply sourcing constraints themselves. So can you just talk about the amount of pricing leverage that you have.
You've also talked about minimum order quantities that you have in place did you consider doing larger more long term contracts with customers. So that they can lock up supply.
Hi, Rachel Thanks for being on the great questions look I.
I don't think contract structures, there's something where we're spending a lot of time on I will tell you that pricing power is definitely something we're really focused on right now right.
Hesitant because of we've had stable pricing for so long it's at a point now where demand is I don't think we have a choice and.
And we should really take advantage of and I think there is an opportunity to reset some of our core ingredients. We're the only ones that supply them. So I think thats, where to watch ratio, but not necessarily big shifts in the structure of the contracts.
Great. That's helpful. And then last one for me is just on the DSM or not so nice to hear that that's going better than expected. It sounds like you guys can come in and I thought that $39 million that you had planned earlier in the year. So.
So how should we think about modeling that going forward and especially into next year and then can you just talk about what's driving that upside there. Thank you.
Yes, there's actually a couple of ingredients in our portfolio.
Scalare al and vanillin as too.
Big drivers of that earn out that are performing better than we expected and without getting into a lot of detail on what else in the portfolio I can tell you just about everything in the <unk> portfolio is actually doing very well right now and really on the back of if you really wanted a proxy to follow our performance there just looked at.
<unk> and <unk> right. There are there are main customers for those ingredients and how well their business does and how well flavors and fragrance performs as a category drives how we perform in the ingredient supply.
Again, we're fortunate that we put in that portfolio for the earn out a subset of the ingredients, where we thought had maximum upside that we didn't want to give up and it's and it's playing out that way. So I hope that helps Rachel think about like what drives that.
And then.
Go to the end market, what's driving that for.
The for the flavor and fragrance industry is on the flavor side much more innovation in the food space that kicked on.
Kind of post Covid.
And then secondly, a significant doubling down on the consumer side for personal care goods that are more sustainably sourced and a focus on good ingredients right. So theres fundamentals driving their business and their business is powered by our ingredients, which then comes to greater demand for us and we've been lucky that a.
Couple of those are the ingredients that are in our earn out portfolio.
Great. Thank you.
Yeah.
Our final question comes from Graham Tanaka of Tanaka Capital Management. Please go ahead.
Okay. Thank you guys. So there'll be squeezed some things in real quick.
On the monetization of the molecule marketing rights.
Be the model going forward now that you.
It looks like a more attractive and larger upfront what would be the expectation per molecule for recurring revenue from manufacturing and milestone payments.
Great and just a clarification are you referring to specifically the molecules were currently in the process of monetizing.
Yes, those but also in the future because you did allude to being able to.
Continue to do this every year I think you said for the next few years to this to monetize a couple of molecules. This would tend to make it more recurring revenue and in my mind more valuable. Thank you.
Yeah no. Thank you for that Okay. So look I think what we're seeing is the benefit of molecules that have greater traction right. So I think the model for US is just to ensure that we develop we scale in these particular molecules. They are molecules that we have.
Really.
<unk> control over so if you think about our model to maximize value as keep control yourself. That's what we've done ensure that the molecules have good market traction and number three ensure that the molecules are such that the only way to make these molecules and support the end markets is through our technology whenever though.
St components are present.
We could get.
Well over 100 million per molecule and then if you think about the revenue going forward from these molecules. Both of these molecules are in very high growth markets that we expect to continue growing at 30% to 40% going forward. So it's not a one and done.
Continue to grow the revenue underneath these molecules because we continue to produce them and maximize the value based on the strength of molecules have in the end markets I hope that helps.
Yes, sorry, what would the expectation be for manufacturing revenue as soon as you've as you've retained the manufacturing rights to keep improving the product. Thanks.
Look I think.
For these two molecules.
I would tell you that the annual manufacturing.
Would be somewhere around $30 million to $40 million growing at 30% to 40% a year.
And that would be added ingredients margin sort of 30%, 40% gross margin or something different.
No I think.
That's where once we do the deal we go to a manufacturing margin, which is more like in the 10% to 20% range.
Okay got it.
And then just if you could give us.
Sealing for the value of the brands you mentioned a couple of them.
But now Youre talking about JV in rows bioscience as having significant value and then I'm just wondering if you could.
Sort of sort of project, what you think stripes pipette and <unk>.
Mineral labs might be worse relative to their revenues and their margins.
Look I would say that.
Stripes is not selling yet, but I would expect stripes to perform somewhere between the rows Inc. Level in the JV and level kind of like think about those two as bookings and.
Stripes somewhere in the middle.
Think about <unk> as I said during the call JV and is currently valued at somewhere around $400 million, where we think is currently valued somewhere around the $200 million to $300 million range and I would see stripes somewhere in the middle of that.
Based on again their revenue performance gross margin structure and channel structure.
When you think about metal labs metal labs is more of a mass brand and pipette is more of a mass brand. So the multiples for those brands and the margin based on margin structure and channel structure is actually lower than the prestige markets and lower by what could be 50% to 60% right. So it's a pretty significant.
A difference in valuation so without giving you some specific numbers I hope that helps you think about why valuations are different across different segments, It's margin and channel and you think about margin in channel and a proxy would be simple to think of it as prestige versus mass.
Yeah, and if I could throw in a couple of questions real quick I think people are interested to know what your.
Youre talking about controlling costs, what's your SGA and R&D.
Per annum might tend to be in the next.
As we go into the second half and then per annum in next year.
Is there going to be a controller.
Of those costs.
Look I don't I don't expect our SG&A.
As we go into the second half and then into next year. So second half annualize into next year.
To be outside the realm of what I'll call $4 million to $450 million I think that's the range. We expect to operate in I think we have a ton of leverage and capability to be able to operate at that level and significantly drive revenue growth. So.
I think I think we're done with putting a lot more activity in and right now it's about really using the activity. We have the people we have the assets we have to really drive growth.
We're very confident we can do that we are doing that already and I expected just leverage that going forward.
Great and Alaska.
The three plants.
Put together the butter beneath the fermentation facility in the two finishing plants.
What do you want for the whole company in terms of.
Operating costs.
When you are fully operating which sounds like it might be in the fourth quarter of this year versus say the fourth quarter of last year.
I don't I don't know that.
I've got that specific a picture I don't know if you do.
Comparing fourth quarter of last year to fourth quarter of this year I mean look I think what we said in the call I'll reemphasize is really the margin impact the gross margin impact is.
Solid 65% on the consumer side.
With the current mix.
And then obviously a reduction in cost because of moving shipping costs up above line versus the operating expense line and on ingredients getting much closer to a 40%.
Margin on ingredients versus where we're currently at which is probably more around the 30% level. So significant expansion of margin on ingredients significant expansion of margin.
On consumer and then a significant reduction in cost which.
Fourth quarter based on volume.
A $15 million to $20 million impact and cost reduction in the fourth quarter, just by actually having a better cost of goods and a more efficient supply chain to reduce our shipping costs.
Right.
Actually.
Just actually one more I wanted to ask real quick any news or a change of expectations on the COVID-19.
Vaccine trials and net debt.
Is that an opportunity.
I think it's already been said publicly we've been careful not to be the leads and leaking things publicly around the vaccine, but I think somebody picks it up and it was on some social.
Tweaks around the fact that.
That immunity bio.
The trials approved has recruiting either underway or are complete and is about ready to start the trials, which is a little later than I would've expected, but good news is progressing and.
I would hope by the next call I could give you an update regarding some results.
This concludes our question and answer session I would like to turn the conference back over to John Melo for closing remarks.
Great. Thank you Danielle Thank you to everyone actually for joining us today and for your continued interest and support.
We did not get to your question. Please follow up with our Investor Relations team. It was great to have more time for questions. Today, I think we almost from 40 minutes with Q&A.
We're very excited about where our businesses, we're very focused on getting to operational efficiency significantly reducing our cash burn based on just not needing to invest what we have been investing knowing that what we've had to invest at planned.
And now really being at a point, we're starting to really optimize and benefit from the amazing assets. We built. Thank you all have a very good rest of the day.
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