Q2 2022 Amyris Inc Earnings Call
Welcome to the second quarter of 'twenty 'twenty financial results Conference call. This call is being webcast live on the even state of the investors section of Mrv's website at Emory desktop.
As a reminder, today's call is being recorded you may listen to webcast replay of this call by going to the investors section of Mrv's website, I would now like to turn the call over to <unk>.
He sends out at this time Mr. Sir please.
Please go ahead.
Thank you Maria and good morning, everyone. Thank you for joining US today with me on today's call is John Melo, President and Chief Executive Officer, and also Eduardo Alvarez, Chief operating officer to support our Q&A session today.
We issued our results in a press release. This morning. The current report on form 8-K furnished with respect to our press release is available on our website <unk> dot com in the investors section as well as on the SEC's website. The slides accompanying this presentation can also be found on the website and were posted today.
For your convenience.
Please turn to slide two please.
Please note that on this call you were 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.
And the financial summary section slides of the presentation or the press release distributed earlier today. During this call. We will make forward looking statements about future events and circumstances, including Amyris is outlook for 2022 and beyond amyris as goals and strategic priorities anticipated transactions in other future milestones.
As well as market opportunities and growth prospects.
These statements are based on management's current expectations and actual results and future events may differ materially due to risks and uncertainties, including do as detailed from time to time in our filings with the Securities and Exchange Commission, including our 10-Q for the second quarter of 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 I'll now turn the call over to John John . Thank you Heidi and good morning, everyone. Thank you for joining us today I'll provide an update on our business performance and our path forward over the next six.
Quarters before asking hard to provide a detailed update on our financial performance, our cost reduction initiatives and our funding outlook I will summarize and then we will turn to Q&A joined by Eduardo Alvarez today.
Slide four.
Our second quarter was another solid quarter of core revenue growth and operational execution, we delivered on our business objectives and completed our heavy investment phase as we previously communicated.
Our revenue and gross margin were in line with our expectations our costs were higher than we originally anticipated as we decided to make the necessary investments to build inventory and accelerate the brand development of a much larger than anticipated expansion with Walmart in North America.
Our consumer business delivered 108% growth in the second quarter over the same period in 2021 and has grown 113% during the first half compared to the same period last year. Our gross margin was in line at just under 60% and we are very focused on moving to consumer brands.
<unk> operating contribution by the end of this year.
Our technology access revenue has also continued strong growth driven by our industry leadership in the production of clean sustainable chemistry or ingredients demand has outpaced our capacity we sold all of that we could produce during the first half and our interim in the second half with an estimated 15 million.
So backlog orders for ingredients. In addition to the contracted demand for the rest of the year.
This backlog has started shipping in the third quarter as we benefit from the added capacity and a lower production cost of our new state of the art bio of fermentation factory and bought up we need to Brazil, now producing and shipping product.
Gross margins for the quarter continued in line with our expectations for the first half and the second half of the year. We expect gross margin expansion underpinned by BARDA, who need to production the transition of approximately 70% of our consumer production from third party contract manufacturers into our own production.
And a reduction in packaging costs and also much reducing kind of source components, which have resulted in significant airfreight charges during the first half.
We invested approximately $140 million in strategic and structural investments during the first half of this year. This included $55 million in Capex for bio Bonita $25 million in cash for two consumer manufacturing plants and supply chain infrastructure $45 million.
In working capital to build six months of extra inventory to avoid supply chain related out of stock issues for our retailers and $15 million in expense to build and launch three new brands in the third and fourth quarter of this year.
To sum up the second quarter, we delivered strong operational performance, we started our BARDA, who need the bio fermentation plant as previously communicated we closed two acquisitions, including a new consumer production facility in Brazil, Thats scheduled to start production. This month and we ship consumer product from Reno, We started.
The process of transitioning to lower cost fulfillment and are also moving components sourcing for consumer products from China to Brazil, where we can deliver a lower cost and more resilient supply chain to support our growth. We also made significant progress with the setup of infrastructure for our expansion.
Into Europe .
Our heavy investment phase is complete we are now executing significant cost reductions that are enabled from the investments we made along with the scale. We've now achieved in our consumer business.
We will start to see these benefits.
From these actions flow through our financials in the third quarter with a fuller impact during the fourth quarter, we understand that that in addition to building a great business. We also need to do a much better job managing expectations with the financial community. We are delivering on our internal plans and need to also deliver on mark.
Expectations and analyst models, a year ago, our consumer business was 49% of our revenue and now it is 66% our consumer business delivers over one third of the year's revenue during the holiday season. This type of seasonality along with the additions we are making to the port.
Folio and the changes to our cost structure make our business very challenging to model accurately we will add more explicit quarterly guidance. In addition to our annual outlook to avoid some of the disconnects we experienced in recent quarters, we have no need to disappoint and we will fix this.
Time will cover in more detail, our financial performance outlook, and our specific cost reduction initiatives to enhance our financial performance.
I'd like to transition to our plan and strategy for the next six quarters and our long term outlook.
Let me start with our consumer business I'm now on slide five.
We have built the fastest growing consumer business in health beauty and wellness with a strong portfolio of brands that each are leading in their respective categories. This business is expected to deliver $250 million in 2022 revenue based on our current performance and quarterly growth rate, we expect to deliver core revenue.
<unk> of around $250 million in the fourth quarter of 2023 or think of it as 1 billion in annualized revenue run rate.
By the fourth quarter of 2023, we expect this core revenue to operate with a gross margin in the 60% range of more than 10% improvement versus 2022. This includes our core cost initiatives and current portfolio and channel mix at this level of revenue.
We would expect around a 20% operating profit margin in 2023, increasing to around 30% operating margin by the end of 'twenty 'twenty four.
Our consumer business sells one product every two seconds, we added over 3 million customers in the first half alone and have some of the best performing skus in the categories and markets. We participate in for example, our bioscience serum was the best selling CRM on Tmall in China.
During the month of April and our Bioscience Vitamin C. Rose oil is one of the best selling vitamin C skin care products in North America our.
Our strategy with our consumer portfolio as simple create brands that can achieve a billion dollar market valuation in categories like skin care hair care color cosmetics, and menopause, where we can deliver the best performing products in the category at an accessible price and select partners that have access to it.
Unique community. So that we can grow awareness and revenue most efficiently we need to control our destiny to build a truly great company that delivers real products that consumers want and need.
And to make the full impact on our planet that synthetic biology is truly capable of.
As an example of our leadership in building clean consumer brands. We have just completed an agreement with David Beckham to develop a leading men's clean skin hair and wellness Brad David is a great addition to our current portfolio with ever 70 with over 75 million Instagram followers globally Anna.
A real passion for sustainability, we expect to have this brand in the market at the end of 2023, our current consumer portfolio has an estimated market based valuation of over $2 5 billion.
Our homegrown brands like Bioscience, Pipette, J P N Roche sink in pure cane deliver over 75% of our consumer revenue. Our acquisitions have also done well as an example cost of Brazil is growing over 300% this year and metal labs is delivering over 200%.
Growth this year at the highest gross gross margin of any brand in our portfolio. We are constantly making resource allocations and we will not invest in brands that don't perform.
Long term, we expect our portfolio to be about 12 brands in categories, where we can win and sold through an omni channel strategy with our direct to consumer leading and revenue contribution and our retail partners led by the leading retailers in the world in their respective geographies Sly.
Six bill.
Building and operating the best performing consumer brands has enabled this access to the world's leading retailers. We are in process of significantly expanding our relationship with Walmart as an example, we now have pipette in over 4000, Walmart stores, we are expanding rapidly in Walmart with pure cane.
And we'll launch for you by T. Amari later this year. The four you brand is a great example of collaboration we are building a brand for Walmart to meet a critical need of delivering the best performing products that are sustainably sourced for their consumer this is the <unk>.
Start of a relationship that has the potential to be one third of our North American revenue in 2023 and beyond last week Walmart was the leading retailer in our portfolio in terms of top units sold for a single brand we sold 37120.
One units of all acre across Walmart alone during last week.
The best external comparison for our consumer business is the Unilever prestige business. What we can conclude from public data is that we are executing on our consumer business that has a like financial profile to theirs. We're doing this one third faster than they did and for 90% less cap.
Our brands are delivering stronger growth.
Perform cleaner and better products.
And delivering better loyalty they have about 12 brands in this portfolio and started building this business in 2014 and they reached 1 billion in revenue in 2021, we started in 2016 and expect to reach $1 billion run rate for the fourth quarter of 2023, we are grown.
At a faster rate spending significantly less for our growth and delivering a similar financial profile faster better cheaper. This is what our lab to market technology has enabled us to achieve with the consumer slide.
Slide seven let me now turn to technology access in our ingredients business.
In the first half we did not have enough manufacturing capacity to meet demand we have over $15 million of demand backlog that will start shipping during the third quarter because of the successful bajo beneath the startup we are the world's lowest cost producer of sustainably sourced natural.
Ingredients our ingredients are typically contracted for the next 10 years, and we will run <unk> at full production capacity for the foreseeable future.
Bob when he started with vanilla production in June and has delivered our best Vanilla and fermentation performance to date. We just recently started production of our second molecule at Bajo Bonita. This is our 14th molecule to reach industrial scale, a confidential molecule there's another break.
Through for the fragrance industry.
This production has also started well both of these are demonstrating the excellent performance of our team at Bajo Bonita and the real breakthrough in manufacturing technology that we have designed built and are now operating this year alone. We are scaling more new ingredients than any other company in <unk>.
Our sector has scaled and their entire history. The competitive comparison is simple we develop and produce molecules. While the rest of the sector is making organisms organisms are a catalyst on the path to making what consumers and customers really want and need that's molecules.
That's why we generate more revenue industry, leading growth and stronger margins than most in our sector. We are strategically advantaged with our business model and the value we captured from the value chain.
You can see this in our core revenue in the second half as we start really meeting demand with Baja Bonita you can also see this in the value. We've demonstrated we can get from providing marketing rights to our molecules last year, we generated $50 million to $100 million in value for each molecule, we provided long term.
Marketing rights for with our strategic transactions. This year Youll see this value significantly increase as we sell marketing rights to two molecules to two more of our molecules.
We are scaling and commercializing three to five molecules annually and have a pipeline of over 25 and active development. We are delivering what the world needs sustainable chemistry for a healthier planet in these transactions, we remain the manufacturer and continued to generate a long term revenue and.
<unk> stream from these products and their underlying technology. This is the royalty built into our technology. This royalty alone is more value, we see any competitor generating from their small slice of many programs for organisms business model.
Let me now and with our second half financial actions and sources of capital Slide eight.
We are leaders in synthetic biology, delivering molecules that are making the world healthier for all we have the best performing consumer brand portfolio and clean health beauty and wellness markets. We have a clear path to a business that delivers a $1 billion in run rate revenue by the fourth quarter of 2023 based.
On our continued successful successful execution of our strategy, we are committed and confident to non equity funding to ensure we achieve the full value of our technology platform and realize the future of the business we have built.
We are executing on and have visibility to over $700 million of non equity funding and cash inflow from earn outs to continue executing our growth strategy. We have term sheets for up to charter in $50 million of term loan financing, we expect to close this before the end of this quarter.
We have made very good progress on the strategic transaction to sell marketing rights to two of our molecules. We expect to close this transaction before the end of this year and the transaction is expected to result in about $350 million of upfront cash and around $400 million of total value.
In addition to these two sources of capital we expect over 230 million in earn outs from the strategic transactions. We completed in Q1 and Q2 of last year. We are working through advancing some of this earn out into this year with the remainder becoming available annually over the three year earn out period.
We are fortunate to be performing on the high end of the earn out calculation based on the demand for our clean sustainable molecules in.
In addition to non equity funding for our continued execution. We are also executing on a significant cost and efficiency agenda. The successful startup of bottled benita and the investments we made in supply chain and manufacturing assets earlier. This year have enabled us to execute on several actions.
Thats significantly reduce our cost base going forward. These are our fit to win actions. These actions are expected to deliver $50 million of adjusted EBITDA improvement in the second half of this year and $175 million of full year adjusted EBITDA improvements for.
Next year. These include price increases significant reduction to Cogs and significant reduction to our SG&A without impacting our consumer growth.
We will cover the fit to win agenda in more detail.
As you are to Alvarez is leading on a major part of our fit to win activities and is with US. This morning for the Q&A session let.
Let me summarize and transitioned to high we are focused on three priorities delivering industry, leading growth and maintaining market leadership for our technology delivering cost improvements to realize the full benefit of our scale and consumer brand leadership and funding our business near term with non equity sources of capital.
Our guidance for the year remains unchanged, we expect to deliver over 150% growth year on year.
Of our consumer business and around 40% growth in our technology access activity the combination of our fit to win agenda and our continued business performance should result in a clear path to positive adjusted EBITDA in 2023, our second half has started strong with July delivering.
Our best consumer sales performance to date. This year, we have great traction on our cost actions and clear visibility on our funding Han will now provide a review of our financial performance and additional detail around our transformation agenda and what you can expect high.
Thank you Jan please.
Please turn to slide nine.
This morning, I will be covering three topics as follows firstly I will discuss our Q2 financial results as it relates to revenue gross profit operating expense and cash.
Secondly, I will describe five new business actions that Joe mentioned that we are undertaking to much improved financial performance, we refer to these as fit to win and thirdly reiterate our outlook for the year.
Most of my time to focus on discussing and connecting items, one and two let.
Let me start with revenue. This is slide 10, as John described our second quarter was another solid quarter of core revenue growth and a new record and consumer growth.
Core revenue, which includes consumer and technology access revenue and excludes strategic transactions and other one off items increased 54% to $65 $2 million when compared to Q2 of 2021.
Core revenue included record consumer revenue of $43 million, which increased 108% and technology access revenue of $22 2 million, which increased 3% versus prior year we.
We have now completed 14 consecutive quarters of revenue growth with our consumer business principally from organic growth also we are significantly outperforming the beauty and personal care sector with the peer group growth anywhere between two and 26%.
In Q2 versus the same quarter of last year again, we grew other than 8% and 31% on a like for like basis.
Technology access revenue growth of 3% was due to technology license revenue from the FNF evernote, partially offset by lowest squalene and Hermes squalene revenue due to capacity constraints that we have previously discussed.
Major milestone in unlocking our ability to increase technology access growth rates was achieved during the quarter as our plant in Barra Bonita was commissioned.
I believe that will help to address the supply constraints, we have experienced and also address most of the negative margin impact we have seen from sourcing product from third party manufacturing.
The growth in consumer is meaningful and is now two thirds of our core revenue. This was just one third at the end of 2019, the creation of demand is coming from more brands, new formulation more stores and doors and finally international expansion.
We need to make sure we can meet that demand with the improvements we are making in our supply chain and also deliberate with much better unit cost economics, which brings me to my second item, which is gross margin. We're on slide 11 at Amyris. We have historically talked about non-GAAP gross margin measure, which includes direct product cogs, but not all of them.
Aspects of making and delivering the products such as certain freight charges.
It is also measure that you can more easily correlate to GAAP financials, we plan to move to gross profit in the new year. So we can align our disclosures or at the same time.
non-GAAP core gross margin of $28 4 million or 44% of revenue increased from 16, and a half million or 39% of revenue in Q2 of 2021.
Increased gross margin in the second quarter of this year reflects a year over year increase in technology license revenue, which was partially offset by lower average consumer gross margin due to brand portfolio and channel mix.
Also higher ingredient input cost due to unfavorable contract manufacturing economics, and lower R&D collaboration revenue.
Additional impacts not shown here, but of note given that the impact profitability is the significant increase in freight and logistics due to higher rates and increased air freight to support three new brands and to build a six months of safety stock to address external supply chain challenges those were the three important factors.
Direct cost of goods sold grew by about $11 million and freight by about $12 million of which $8 million was air freight.
A significant portion of the cost increase can be attributed to operating and growing at pace and also the challenge supply chains caused by Covid.
The takeaway regarding gross profit is that we made strategic investments in our manufacturing and supply chain footprint. Both on the consumer and ingredients side now is the time for us to recalibrate our cost base all quantified these opportunities when I address fit to win initiative.
This brings me to my next topic, which is operating expense we're on slide 12.
We're operating eight brands today, and then dissipate three launches in the second half of 2022 compared to four brands a year ago.
To support top line growth, we have significant investments as a result, as a result of which our cash operating expense has grown as well to about $136 million, an increase of $74 million versus the prior year quarter.
These increases were driven by a new by a few significant factors the increases were principally related to selling expense and driven by a combination of increased head count both organic and through acquisitions significant investments in both existing and developing brands for paid media and advertising expanded retail and e-commerce sales in the U S and international.
Actually and growth driven consumer order fulfillment and shipping expense and lastly, comparatively low prior year travel expense due to COVID-19.
Shipping and handling or pick pack and ship as John calls it increased by 6 million for the same quarter of last year due to significant growth in DTC orders.
The fourth and last item here I wanted to discuss is gosh as a result of our elevated expands our use of cash in the quarter was also elevated principally due to investments in brand marketing of both new and existing brands. Additionally, we deployed significant cash for the construction of Barra Bonita. This was $33 million in the quarter that we self fund.
Got it.
We used $186 million of which $125 million was related to EBITDA, we funded inventory for consumer goods. Both in terms of packaging and finished material, which was partly offset by a decrease in ingredients inventory and increased payables.
Capex continued to be a significant component because of construction of the Barra Bonita plant as I just mentioned.
We completed the interfaces, which is the Brazil consumer facility and on the beauty, which is retail and treatments acquisitions.
The combined total of Capex and M&A investment was $43 million in the quarter.
As John indicated the use of cash in the first half has been significant and we plan to address with clearly defined actions. So let me now turn to fit with slide 13.
We have taken a number of actions that logically correlate to the items I've highlighted as part of the quarterly financial results.
For wind consist of five initiatives that are positioned to provide focused execution and acceleration in areas most material to our cost base margins and EBITDA.
Because of our portfolio and our scale, we find ourselves at this important point in time to leverage what we have built for a much better cost structure and cash conversion cycle number one price increases.
We expect this to deliver $10 million in the second half and just over $30 million in the full year 2023, we have already increased prices on some of our ingredients and these will have full effect in Q3 and Q4. Additionally, we will raise prices in our consumer portfolio.
Number two marketing cost reductions.
We look to capture the benefits of our growth growing economies of scale in our subordinate.
Model $21 million in the second half and $65 million for the full year 'twenty three and beyond we have identified substantial opportunities to reduce overall marketing spend as a result of the rapidly changing digital media landscape and through portfolio leverage.
Number three Cogs reduction for our ingredients. This.
This means that we will leverage our barra bonita precision fermentation capability to reduce production and shipping cost by $10 million in the second half and $30 million for full year 'twenty three.
Number four Cogs reduction and consumer simplify and drive scale across our consumer brands and cost structure comes early day production of a large part of the portfolio at our two plants simplify components and packaging.
This will have an effect of $5 million in the second half and $30 million on an annualized basis basis in 2023.
First and last shipping and fulfillment optima.
Optimize our footprint for distribution lower cost for pick pack and ship.
We expect $4 million in the second half of this year and $15 million full year 2023 again. This is predominantly a cost for our consumer business and DTC direct to consumer in particular.
As Joel mentioned together these initiatives when compared to the first half run are expected to deliver $50 million of adjusted EBITDA to the second half.
In addition to the cost benefit. These changes will also result in a much more robust supply chain to avoid some of the costly issues. We have dealt with during the first half of this year.
During the first half we developed a strong foundation through significant investments in our manufacturing and supply chain footprint. The scale, we achieved with our consumer portfolio and the performance of our brands with consumers.
This is a foundation, which now allows us to accelerate these improvements that I just described.
Moving to slide 14 on the outlook regarding revenue we are reiterating our full year core revenue consumer revenue is expected to grow more than 150% year over year and technology access is estimated to grow around 40% versus the prior year.
Finally regarding capital funding.
As Joel mentioned, we have visibility on $700 million of which we expect to secured $200 million in non equity financing in Q3 $350 million from a strategic transaction expected by end of Q4 and the remainder from earn out no later than the early part of 2023. Thank.
Thank you all for listening today, Joe in his concluding remarks before we open the line for questions Jon Gray Han. Thank you we have built the leading consumer brand portfolio and are delivering the best growth in consumer health beauty and wellness markets.
We have the brands consumers and retailers want.
And the products the world needs for all of Us and our planet to be healthier we have the assets and are executing on a clear path to a billion dollar revenue business that delivers 20% or better operating margin by the end of 2023, we're achieving market leadership and we know we can do better and will do better.
And we appreciate your support with that let's turn to Q&A Maria can you help us move to Q&A.
Thank you well now begin the question and answer session to ask a question via telephone you May Press Star then one on your touch Samsung. If you are using a speakerphone. Please pick up your handset before pressing the keys.
<unk>. Your question. Please press Star then two to submit your question via the webcast. Please click on the ask a question button.
Bill will begin with questions by phone.
I ask that you please limit yourself to one question and one follow up.
At this time, well pause momentarily to assemble all work out Sir.
Our first question comes from Colin Rusch with Oppenheimer. Please go ahead.
Thanks, so much thanks, so much guys.
I haven't gone through it.
Just sort of cash cycles. Once you got a couple of times in the past and noting that you've had visibility to these sorts of transactions can you give us a little bit more detail on this $200 million and <unk> here in terms of the maturity of those conversations. Your you know your ability to close quickly and how much variability there is around the actual number.
Colin Thank you I'll I'll provide a quick update and then Han can jump in.
The conversation is well along we have term sheets, one of which is fully executed we are deep in the process.
And we've agreed a timeline to close and we don't see anything right now that would get in the way of that so our confidence level is very high and like you can imagine as a company.
We're not going to sit and and take risk and not having something happens. So we also have complete access to shareholder a key shareholder financing if necessary. So we're well positioned and again very focused on just executing on our plan and really delivering on the fit to win agenda, which we think is.
Our cost structure and one of the most advantaged places for the kind of assets. We are currently performing with.
Han would you like to anything else to that no I think thats right. We both said we have that visibility and we are pretty confident that we can execute on this in the in the third quarter. So.
Okay.
Paul.
On the product side, obviously, you guys have ramped into sugar and you've seen some substantial diversity of these end products, but I guess in terms of mix and channel.
Can you give us just a better sense of.
How the revenue is broken down by category within the consumer space and some of the leading channels. I know you offered some somebody sells on Walmart here, but just wanted to get a sense of the resiliency of that revenue growth across segments and so it doesn't go horn.
Let me.
First maybe start with a channel conversation Collyn I'd say.
Our number one channel in absolute revenue is obviously, our direct to consumer business and we see that continuing to be quite robust.
I think the second our single biggest channel. We have currently is a sephora as a retail partner and we see the two working very closely together consumers discover new brands at Sephora and then they build a long term relationship with the brand assuming the product works and we see that relationship continue with purchase.
Seeing and relationship management on our direct to consumer side as a matter of fact, a little factoid that we don't talk about much about half of our direct to consumer traffic is our customers will discover the brand at sephora to begin with we.
We see our channel structure, expanding and we see Walmart, becoming a third leg our D to C. Sephora in Walmart and really for our more mass brands as well as some of the specialty work that we're developing for Walmart.
In partnership with them. So that's kind of how we see the channel structure evolving and I think what you've seen this quarter really last couple of quarters, which is about a 50 50 mix.
From a revenue generation from our direct to consumer versus all other channels and the all other channels, whether they're online or offline or about the same margin structure. I think currently we're probably most challenged and margin structure.
Working in the China market, which is growing significant for us last year, we did about $2 5 million in China and this year, we're forecast for about 15 million out of the Chinese market. So significant growth there our Brazilian market is also growing significantly but really challenged in margins because of the fact that we in.
Poured into Brazil, most of the products, we sell that is changing as we speak we're actually moving to our plant in Brazil to make in Brazil, and ship out of Brazil, which will be a significant shift to our margin structure not only in Brazil, but outside because of the lower cost of production, we've been able to achieve in the Brazil.
<unk> market and then we see a lot of international expansion. If you think about the UK market is really taking off for us in a very big way I think we're just scratching the surface in the U K, we're going into Douglas in Germany 130 stores in.
In the month of August and September actually were.
The German launch of the Bioscience brand. So just in general a really robust across geography across retailers and the balanced mix are really driven by our omnichannel strategy. When you think about categories skincare today is obviously, our biggest category hair care.
It's growing very very rapidly I would not be surprised if by the end of next year hair care and skin care are equal and revenue contribution for us as a company and then [laughter].
Excuse me and then what I would say Colin is there some specialty areas like menopause.
We like the menopause category a lot. We think we have some unique insight. We think we have a great partner and we think we have some great science, especially with.
The new ingredient that we created specifically.
For women in menopause so.
As I think about menopause. This year like last year was a category that didn't exist. This year, we'll do about 25 million in menopause, and then I would expect next year for us to do somewhere between 50 and 75 million of menopause. So think about specialty categories third and then.
Kind of tied first and second skin and hair as we end next year I don't know if that helps or not calling yep yep, that's exactly what I needed. Thanks, so much guys.
Thank you.
Our next question comes from Steven Madden.
With Cowen and co. Please go ahead.
Oh, great Hey, thanks for taking the questions.
I've got a question on the consumer revenue guide given Q2 was only about 108% growth to hit the 150% plus growth in consumer for this year. So the second half assumes a pretty aggressive step up versus the first half.
Could you provide a little bit of color on how you're maintaining your confidence around this guide.
Yes.
And this is an important point Stephen Thank you for being on the call we could see in a lot of the analysts models that.
There isn't a lot of cadence on a quarterly.
Revenue.
Connected to what our actual business activity is so and I think it's all around exactly. The question you asked okay. So there are two significant factors going into the second half I mean first of all the fourth quarter on a like for like basis is about double what the third quarter is in consumer revenue and thats been the case.
Just looking at our history, and that's all driven by seasonality really around two or three days in the fourth quarter that drive the holiday season, I think the second factor, which is super important for US. This year, we have three new brands that launched late in the third beginning of the fourth quarter, including a major shift to trade.
With Walmart and our brand we've developed for Walmart called <unk>.
The three new brands alone generate over $20 million of revenue in the fourth quarter that did not exist at all and don't exist now in our portfolio. So think about it as three new brands 20 million or more from the new brands and then a 50% jump.
Third quarter to fourth quarter on the established base just based on holiday and seasonality. So when we think about the forecast we've given we actually think about what the third and fourth quarter do historically, what our current traction is in a layer of munis. The last point I'll say is something new this year.
As we have just finished significantly expanding our selling footprint inside of Sephora for the Jonathan Van Ness brand and for the Bioscience Brown. If any of you have visited sephora over the last week Youll see us front of store Youll see us was much bigger displays and all of that on the back of the pre.
<unk>, we're delivering for sephora in store because of demand for our brands, so significantly greater selling footprint and our number one market in the World North America, and then significant expansion geographically, we have Singles' day in China, which will be a huge day for us and.
And then we have the expansion going on in the U K, we have the expansion in Brazil that happens in the third and fourth quarter with several new brands going into Brazil, and then we have Douglas in Germany, which is 130 stores very good selling space with our top brands. So those are the those are the components Stephen that make.
The difference in layers going into the second half of the year from a revenue perspective in consumer.
Okay got it that's very helpful and maybe just a follow up question on the on the consumer can you talk about your impact of your your fit to win where you're gonna be raising the.
Prices.
Can you talk about the impact of those price increases given the inflationary environment and pressure on the consumer.
Thank you.
Yes, we are.
Great question, and all I hope that the.
The result is the same we've seen in our ingredients it which is we raised our prices on two of our top ingredients and demand has gone up in the second half based on orders placed.
So.
I'd expect the consumer to be quite robust and that we're being very strategic about where we are raising prices. So.
To make it simple we have skus that I'll call them entry level, Skus, 100% squalene and the Bioscience brand is a good example, it's a competitive product it's priced compared and it's something that we used to acquire customers on the other hand, we have specialty products like the vitamin C Rose oil.
<unk>, which is unique we're the only ones who make the performance and deliver the performance and vitamin C rose oil that our product delivers and it's a product that's in high demand everywhere that we're now launching into and then obviously continued to be number one across North America. So in that in that product. We believe there is more price elasticity.
City, and a bigger opportunity for us the other thing I'd say is just about all of our competitors have already put price increases through and we're seeing them hold pretty steady in their performance, especially in the prestige space. So I guess theres more to be seen Stephen but I would tell you that based on what we see so far we.
There is a solid position to maintain our growth, while putting a price increase through.
Okay, great. Thank you.
Our next question comes from Sameer Joshi.
H C. Wainwright. Please go ahead.
Hey, John Thanks for taking my question.
I just wanted to dig a little bit deeper.
On the gross margin improvement.
One of the factors you said impacted the gross margins was a brand portfolio mix and channel mix.
How are you overcoming that.
This.
Mix are baked in.
Forward expectation.
I mean, two things the mix.
Is baked in.
And if you think about what the mix really means you'll notice second our first quarter to second quarter, a shift in direct to consumer in the mix of total sales you.
You don't see this but ill highlighted there is also a pretty significant jump in China sales. So you think about the geographic mix you think about the channel mix D to C versus store and then thirdly, the portfolio mix, which is probably the lowest impact of the three on the total margin profile.
For the second quarter, but that that mix really talks to.
We added on the beauty and we added some other aspects to the portfolio that have a lower margin profile than say, a bioscience or a metal apps, which are you know metal labs north of 70% gross margin.
And Bioscience, you know in the mid sixties, our opportunity right now is with all the actions we've spoken about.
We have a significant opportunity to put the gross margin for consumer.
At or above the top of the range of the guidance, we had given at the beginning of the year and that's really what we're focused on and we've given you a couple of examples but I will just highlight.
Major one just in packaging.
For the Bioscience brand, which is our biggest revenue generator. We are in the process of implementing a change that will take out.
30% to 40% of packaging cost and to give you a sense of what that means packaging costs are about two thirds of the cost of goods for the bioscience product line. So some people will say to me like why am I worried about packaging well in the consumer business packaging matters, a lot packaging pick pack and ship or.
Actually the majority of the cost of goods were the ingredients themselves are less than a third of the total cost of goods for the products. We make so I hope that helps in giving you a sense of how mix plays out and then what we're doing about the margin structure, which is enabled by the investments. We made there is nothing hahn.
Talked about and the fit to win strategy or an agenda that is not already enabled by investments made and what we're really talking about is executing in those investments and pulling through the benefits of those into our financials in the second half.
No. This was helpful. Thanks for that.
And then my other question is about.
The slight impact on the technology access revenues.
That did buy the products and comp and timing of the FNF ingredient.
Going forward.
A part of the question is is this related to the Brazil facility.
And part two is going forward, how would you be managing these.
The impact from a timing perspective.
Yes, great question.
Ingredients enablement is all about the bajo, who need that facility and I'll give you. An example of how intense the pressure has been.
In our core molecule foreign is seen as a great example, we have not had the foreigners scene to support our major customers and if I just if I just give you a few examples I mean, hemi squalene, which partners seen derived since about the mid middle of the first quarter demand has just skyrocketed we've.
Actually sold every drop of Hermes squalene, and our entire channel. We've got a backlog of heavy skyline that I've never seen in my life, because when we launched Jonathan Van Ness, just about every body.
<unk> that mattered and every hair care brand that matter started enquiring with us about how they could access have any swelling and we're just out of out of supply. So that is one key driver. The second is squalene. We're we're seeing significant growth in skyline around the world that we've not been able to supply in the last few quarters.
We see coming through in the third example, which is also a pharmacy derived molecule is the polymer we supply Carrara, which is a critical polymer for several tire manufacturers and we've had we've had an order on the books for Carrabba's now since the beginning of the year that we finally will be able to fulfill so it is all about.
Bob Nida foreign is seen as a key driver of that but it's not just foreigners seen I mean, we have just last quarter like two to three X the demand for.
The Rab M sweetener that we've been able to deliver on we've got ingredient basically counting on our door, telling us we need double the read them that youre supplying us and we need it yesterday. So we have read them. We have foreigners scene, we have more demand for vanilla and that we've been able to produce just to give you. Some examples of what's.
In the cards that really will enable supply with bajo beneath it and that is why bajo Bonita is like working at full throttle.
As we could see for the foreseeable future as of about August 15th we will have the three biggest lines operating and delivering product at Bajo Bonita. Those three main lines are super flexible, they're super advanced engineering for fermentation and they are equal to the total.
<unk> capacity of our old brought the facility just to give you a sense of scale. We have two additional lines, which are smaller that we'll be bringing up between now and the end of the year and we're already starting the expansion project to bring in several large tanks into backup Anita that'll give backup Juanita about three X.
The capacity of our old brought this plan over the next 12 months to 18 months. So I hope that gives you a sense about what is actually been holding back our ingredient revenue, how we see it being unlocked and where we see the product going.
Got it.
And if I may just one last question.
The mid to longer term, how do you see revenues growing from 2020 onwards.
So just if you can just have a longer broader picture.
Look I don't I don't see a significant change to our growth rate between now and call. It 2020 for 2025.
I mean, obviously when you look at the absolute numbers I don't know that we'll be growing consumer of 150% a year for that entire period, but when you look at our absolute revenue growth being at 50% to 70% topline revenue growth for the company is something I expect and we have assets to be able to deliver on and more.
Importantly, we have strength and brand and channel partners and in technology to execute on that.
Great Thanks for that.
And good luck.
Thanks Samir.
Our next question comes from Rachel San style with JP Morgan. Please go ahead Sir.
Great Hey, guys. Thanks for taking the question.
First just a follow up on Steve's question about the consumer guide so you're reiterating the consumer revenue growth of greater than 150% for the year.
Let me state it during that May conference Circuit that you guys are going to be north of $250 million of consumer revenue this year, which really implies more like 170% growth.
Given some of the puts and takes in the macro environment. That's played out so far during the year is this still a viable number for consumer or should you really dial it back to about 115% growth.
What I would say right. So we have as you can imagine all of the same concerns everybody else does right. It would be crazy for us not to be thinking about some of the pressures on the consumer we've been very surprised at the robustness of our consumer and a lot of what we're seeing is trade down right, we're seeing consumer.
That we are buying luxury trade into prestige and we're seeing prestige, especially for our consumer brands, because they're new they have munis and theyre delivering on the customer promise on the consumer promise, we're seeing them hold up I am not seeing across our brand portfolio.
The change that would that would signal we would need to back off that guidance as we sit here today. We are monitoring it very carefully look a great example of that is Walmart where.
It's been public some of the challenges Walmart is spaced on its shelves and with its consumers. However, when it comes to beauty and personal care theyre, not seeing that slowdown theyre not seeing that impact and we see ourselves playing in to that performance at Walmart being an example of a retailer if I think about the UK Mark.
It is on fire right now for our beauty and personal care, if I think about the China market, it's had significant challenges and yet we've been able to deliver and really have a brand thats outperforming other prestige brands in China, So very conscious of the environment, we're playing into.
I'm observing a couple of interesting things, which as you know.
It appears that the inflationary pressure is either peaked or starting to back off a bit.
Im seeing a consumer that even though is concerned and uncertain about the financial future is still taken care of themselves Theyre, taking care of their skin, they're watching their here regularly and our products are becoming a bigger and bigger part of them doing that and one of the things Thats very clear women are not putting hot flashes on pause during.
The financial uncertainty and that is a key market. We havent, we havent share this widely but mental lapse or acquisition.
Actually has done super well for us it will deliver around near or just above $20 million. This year in revenue, but more importantly over 60% about 67% of its business is on a subscription that consumers are just continuing to grow and I don't see that slowing down so I.
I have the concerns that you've expressed but I'm not seeing an impact our revenue to date on consumer.
Got it thanks, and then on gross margin can you just walk us through what was the gross margin contribution.
For consumer versus technology assets this quarter, and then on that $1 billion run rate for core revenue by the end of 2023, you mentioned that that would come in at about a 60% gross margin. So how should we think about that gross margin contribution from consumer versus technology access at that point as well. Thanks.
Yes.
I'll, let Han quote.
Adjusted gross margin numbers for the quarter consumer versus ingredients, and then I'm happy to share with you what that looks like in 'twenty three.
Yes, so just.
Just a quick bit of color there.
On consumer in total we were just under 60% this quarter.
So that was consumer in the aggregate as Joe mentioned earlier, we had obviously channel mix portfolio mix in a number of things, but that's that's that.
Thats pretty much consistent actually with the first quarter, but that's the totality in terms of technology access.
Of course, the pieces you have India I'll repeat because it's important is.
Is the ingredient products portfolio, we have over.
Technology licenses that includes the earn out as well as the <unk>.
Collaboration revenue in that in that in that some game there.
Technology access was in because.
Because R&D revenue collaboration revenue in life and the license revenue is 100% kind of margin accretive you can get a little bit of flux form quarter to quarter more so than certainly we see with the with the consumer portfolio in Q2. It was just around 18.
Percent one eight.
So that those are the two numbers.
That that you should know.
And to cap that off I will just say that when.
When you look at.
The fourth quarter of 23, you can expect around 80% or so of that to be consumer.
And then the rest of it to be.
A technology access from a from a revenue perspective.
And from here to there based on our fit to win agenda.
You can expect to see margin expansion on consumer pretty significant I'd say, probably close to 1000 basis points and then also.
1000 basis points and expansion on the ingredient side for a different reason ingredient side, because about we need to and then consumer because of packaging supply chain.
And the move to our own manufacturing. So those are the drivers and the fit to win agenda again about 1000 basis point expansion in gross margin for each one of the categories and about an 80 20 mix consumer versus.
Versus technology access as we exit 2023 hope that helps.
Our next question comes from Randy Baron Ladies and Nicole. Please go ahead.
Hi, guys can you hear me.
Yes, we can Randy thank you.
I really appreciate all the granularity that.
Given today, but I don't want to Bury the lead so given that.
SG&A has been elevated but youre going to take out 50 minute costs.
Where do you see cash at year end 2022.
Look if I am.
Fine.
Aggressive I'd say north of $400 million, if I'm Super Conservative I'd say south of $300 million.
That's kind of where I see it going.
And.
That is based on the execution of the two items, we've we've highlighted.
Completing the term loan, which we are confident of and well on track for and then secondly, completing our strategic transaction.
We are also very confident we made a lot of progress and are now on attractive close.
As communicated earlier before end of year. So I think that's that's how we look at it Randy a low end of 300, a high end of 400, and obviously, if we're super successful in advance more of the earn out into this year it could be north of that but that at least gives you a range to work with.
Yeah, that's great and part of that obviously is the molecule monetization that you've mentioned previously you had said that was going to be $250 million. Today, you said north of 300 I'm wondering at a high level. If you can talk about just what changed and why do you think that value has gone up.
Look we were in a process I mean I'm using process loosely we didn't hire a bank, but we have several people in the process when I first communicated.
That strategic transaction for ingredients and then since then we've locked on to a specific buyer we've advanced the pricing of the deal and the valuation of the molecules. So I'm now able to give you a more confident range, where I think we'll come out first on what we where we are for upfront cash.
And then where we are for earn out and long term value.
Okay.
That's great have you given a range for what you think the upfront kind of cash number will be as part of that monetization.
Yeah.
Actually Han said it on the call, which is a $350 million is the upfront number.
Wow, that's great. Okay, and then last thing for me on Beckham is Super exciting I mean, that's thrilling to hear given his reach and obviously the Mallory and her brand is as well I'm. Just curious is the structure of those going to be more JV and 100% owned by Amyris or more Rosy, Inc. Were there some equity kind of owned by them how is that going to look.
Thanks, so much.
Both.
Our brands, where they have a share.
And then specifically with TMR it was really important.
And for all the right reasons, which I support wholeheartedly.
At Walmart have.
A black female own brand on their shelf, so we've actually structured TMR very different than our other deals. However, the way the economics work and the transfer pricing keeps us whole on economics and actually enables a very interesting business for both her us and Walmart.
Okay.
Thank you.
Thanks Randy.
Our next question comes from China.
Turning to capital management. Please go ahead.
Thank you. Thank you. Thank you for your answers so far.
Equal employment opportunity.
Employer.
It gives us a chance to.
To speak.
We're very excited about your startup a bar beneath it sounds like it's going ahead of expectations. If you could discuss.
What the.
Is there.
Okay.
And versus expectations.
Okay.
Production.
But yields and costs.
Okay.
Hey, good morning, Graham good good good to hear from you I think as John mentioned Barra Bonita has started really well.
We are producing two products between now and the end of the year we have it.
Total of six that we would be producing it'll it'll encompass.
As we look at it.
Around 60% of our total production for this year. So that gives you a sense for how quickly scaling up.
The the performance for the first two products has been as we expected.
<unk> on the yields are with a number and a really exciting thing that I can comment on is our resilience.
In terms of the turnaround times.
And the ramp up times that we have experienced.
We can.
Our cast everything that we that we will see but really has started very well John .
John mentioned for example, our Hermes waiting on squalene challenges in the first half we are on track to double their production.
In the second half for those two products as an example of the scale up and resilience that we expect to see Graham.
That's great how about the cost of goods sold what.
What kind of costs are you.
Being at Barra Bonita or expected bottom beneath.
Perhaps by the fourth quarter as you get to steady state.
Relative to the CMO is I don't know specific yet, but it looks like I think.
Yeah, if you think about the fit for win actions that debt.
Uh huh.
And talked about.
We expect a $30 million.
Run rate basis $10 million by the end of the year. The major benefits, we see in the cost of goods sold to have to do with start with the production costs.
We are seeing material improvements in the productivity and the scale of the plant.
See a lot lower energy costs that we have seen in our other facilities and frankly from a labor perspective also a great advantage also in the productivity. So we.
I can't disclose the specific unit costs, but I can tell you materially the $30 million that we're forecasting in on an annualized basis is a very doable number and we are going to definitely be there in at least half of the products that I mentioned I would just want to say up to six products that I that I talked about Graham two of them are brand new.
Two of them are brand new John already mentioned one.
Financial fragrance, and we will have one more by the end of the year that youll be hearing more about.
Yeah.
Really great.
Yes.
One of the things that I've been particularly curious about as you've talked about how you're adding a lot of company specific company does amyris designed processes and technologies that Barra Bonita and I assume you did not show to the CMO those how much of an advantage is that going to give you.
I almost would view that as almost a permanent cost advantage versus the other.
Yep.
One example of it in one of the lines that we have I think John mentioned, it's really.
Going to basically our turnaround time is so efficient.
And the design is a resilience that we're going to basically run three campaigns between now at the end of the year as an example, so yes, we do have a lot of knowhow that we put.
Into the plant the design is vertical so it allows you to also to have far more resilience in between the stages of production.
And frankly I think the most important thing is our people.
<unk>.
John mentioned the team on the ground is incredibly experienced and focused to Barra Bonita is not just a great asset for AMR is a great asset for the planet and a source of tremendous pride for Brazil.
We are hiring the best in the industry, because we have delivered and have a track record for.
Just doing great for business and for the planet. Thank you grant.
Yes, Brian the only thing the only thing I would add because.
The one thing I love about Eduardo you, so understated and he just execute right, but the one thing I wanted to add just to give you color I'll just pick one molecule because it's our highest volume molecule in our portfolio, it's harnessing not because we sell it as foreign as soon because we sell is the intermediate into many other markets, we sell into foreigners seen alone.
One <unk>.
The cost of foreign has seen out about who beneath this two thirds less than what our cost of foreign has seen has been the first half of the year. That's just one simple example of how that then flows through and impacts our business. This is a major game changer.
And that percent is not uncommon I think that's a very material.
And very significant and represent that they've changed across the portfolio.
Okay. So that's really that's really terrific and looking forward to do.
Actually could I ask what kind of roughly flat.
Plant utilization rates do you expect in the third and fourth quarters and when do you reach steady state.
Okay.
I have two.
I had to hit the steady state by the next couple of months.
It's hard to say what the final utilization is I can tell you. We have started really well and so I wouldn't be surprised if we are in the upper seventies.
But it'll be very interesting to see is as I mentioned two of them are new products and that often creates a little bit more of a variability. Our design is that really the turnaround as planned 80% plus 90% or close to it.
Yes, it's probably better to really break it down into two parts, which is for the tanks, we've brought on where operating high eighty's.
<unk> utilization in the total plant will be about actually how fast we can get everything else up and running which as <unk> highlighted in the next couple of months, we want that plant fully up and we want to see utilization across all tanks would really the downtime being the ability to put in new strange to make new.
<unk> exactly right.
Yes, I understand that that's a normal part of our part of batch processing then it would be doing switching and I assume that's why you have eight tanks and talking about five lines. So so offer clean in print, but but I.
A lot of investors are actually wondering.
When you put the new large 600000 liter tanks and that you have already sitting somewhere in mock ball I guess or maybe it pulled it out of mothball when do you when you install those because people are now worried about can you meet demand next year.
I think John mentioned, we are actively looking at.
Next year, if you asked me what water I really need to.
It won't be an issue of engineering and construction is really more around also making sure that we got the right production window because we.
You also we will be producing full blast. So we would have to balance it in the pecking order of our off our plan, but we would be we expect it to be fully in production by next year.
That's great Okay.
To switch subjects that I could ask one more question Jon is the molecule exclusivity sales.
A lot of people have a little confusion about how that fits into the long term business model in plants and it looks like if you could talk about what your plans are for how many molecules that you could sell.
That's one of the molecule I understand youre selling just the activity.
But that rate or that option, a particular lucky or.
Partner, we'll be able to we will have the option to pay up more for that molecule because they're the only ones that are going to get it off a spiral beneath the mines. So what does that do to the gross margin.
Targets for ingredients, which we used to think were 27% go into 35 to 40 and does that take it up prior to say, 50% gross margin. If you add back the implied margin that some need from the sale of exclusivity rights.
Yes, we have given guidance or direction on the margin for our technology access based on what we see the go forward portfolio looking like so I wouldn't I wouldn't give any more detail on that for now I think the important thing that we.
I don't think we've made very public is in the way these deals are structured.
Continuous cost improvement from strain improvements and process improvement actually are accretive to us and not the buyer. So we ended up actually having an opportunity for margin expansion built in to the deal structure in the way and the way they are and the way. They are set and you know for some molecules that's pretty meaningful.
Others were at a point, where there isn't really much more juice to get out other than just getting more and more efficient with the process in the plant, but I. Just wanted you to know that it's not that future margin potential has all gone and we've already better that into the near term outlook for margin structure based on the portfolio moves we see I think the last point.
I would add around that question Graham as you can imagine with the level of the portfolio. We have we're not done and I think the whole strategy of technology, specifically molecules fund consumer growth gifts consumer growth has a lot more margin and what we've demonstrated so far a lot of sustainability in our <unk>.
Both going forward. That's a strategy we see that has a lot of leg we've already been approached for another molecule in our portfolio that we expect to be what we ended up doing some time in 2023. So there is a lot more to go we are by no means done and it's all about a simple strategy, we use amazing technology to make and scale.
<unk>, we make and scale them long term and we monetize the marketing rights because we can't market to everybody everything all the time and we need to focus our own direct capability on the consumer and let our partners focus on the <unk> sales.
Great. Thank you very much lot of balls in the air Good luck. Thanks, great. Thanks Graham Thank you.
This concludes our question and answer session I would like to turn the conference back over to John Melo for any closing remarks. Please go ahead.
Thank you Maria I appreciate your help during this call and I'd like to thank everybody 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 will make sure we get back to you with a response and then we will be working with and I am sure.
And some of the near term conferences, we'll be making our quarter targets quite public so that our internal targets are hopefully match or very near what our modeling is on the outside and we can all win together and I really appreciate again your support and I'm looking forward to a great second half and having the big investor.
<unk> cycle behind us.
And really realize the full potential of what we built thank you so much great data everybody.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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