Q1 2023 Amyris Inc Earnings Call
Our 10-K for fiscal year 2022.
<unk> disclaims any obligation to update further 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 .
Thanks, Todd and good afternoon, everyone. Thank you for joining us today.
I'll provide an update on our business performance and our key priorities for this year and we'll provide an update on our financial performance and I'll recap before we turn to Q&A, which is where I hope we spend most of our time during this call.
We delivered a solid first quarter with revenue of $56 million well ahead of our guidance of $50 million. We also delivered an $18 million or 29 percentage point improvement in gross profit and a $36 million or a 24% improvement in operating expenses versus the fourth.
<unk> of 2022.
Our return on marketing dollars invested was around $10 of revenue for one dollar of media spend this compared to our target of $3 of revenue for every media dollars invested in absolute terms media spend in the first quarter of 2023 was about 25% of media spend in the prior year quarter.
This was our best progress versus prior quarters, and our choices were in were driven.
With focus on efficiency and effectiveness of spend as well as by our liquidity constraints.
Our non-GAAP consumer gross margin as a percentage of revenue was 56%, which compared to 60% in the prior year quarter due to product and channel mix, our non-GAAP technology access gross margin as a percentage of revenue was 24%, which is compared to 27% in the first quarter of 2022.
It was a significant improvement sequentially of about 72 percentage points due to higher collaboration revenue.
We plan to turn the various lessons we've learned from operating with a tight budget and lower media services into much more efficient media spend opposite the consumer revenue generated besides media spend we also significantly reduced inbound freight expense, including airfreight to $2 4 million from <unk>.
$8 5 million in the first quarter of 2022.
We are focused on making our business fit to win which is really our path to operating profitability.
Fit to win includes a competitive cost base delivering the most efficient and effective marketing and ensuring we have the lowest cost to produce and serve across our consumer business fit to win also includes delivering the strongest revenue growth of our peers, having a focused and well performing portfolio of <unk>.
Assets, and having the right capability and culture to enable us to make the planet healthier while operating a sustainable company that is here for many generations to come.
We are making good progress and we are clear that we need to do more we are in the process of completing a strategic review of our cost base and liquidity, including the effectiveness of our operating model. We are focused on getting to the right balance of cost and growth performance, while at the same time, reducing our overhead and aligning our.
<unk> in technology, and consumer capability to execute on our advantaged offer and meet the critical needs of consumers and our partners.
On April <unk>, we closed the <unk> transaction and received $200 million in upfront proceeds. This is our fourth strategic transaction since the start of 2020. These transactions represent a strong track record of execution of our go to market strategy for our ingredients.
<unk> and core technology.
We are world leaders in developing scaling and producing clean sustainable chemistry through bio fermentation.
The molecules, we produce are the science inside thousands of consumer products impacting millions of consumers daily and making our planet healthier.
We are the science and production of this chemistry and our partners are the market leaders in formulating with and selling to companies that need our differentiated molecules and chemistry.
Our technology access business is focused on generating income from the development of molecules from the licensing of the marketing rights and from the long term manufacturing leveraging our Biopharma station capability.
From the start of 2020.
Our four transactions for nine molecules have generated in excess of $800 million of value from upfront cash and earn out payments not including margin contribution from long term manufacturing. This represents an average of nearly $19 million of licensing.
Value per molecule. The <unk> transaction is the most valuable molecule deal we have completed.
The strategic.
Transactions are focused marketing rights like.
Like the sale of squalene for use in the cosmetics and markets or pharmacies for the use of a specific molecule like vitamin E. However, each molecule conserve additional applications and end markets and we have retained the rights for all of the markets outside the specific license.
That was contracted we expect to continue to build on this business model and we continue to scale and.
And commercialize new molecules.
I have over 30 molecules in our current pipeline when including the various foreign has seen molecules and end markets. We are currently testing and developing.
<unk> and <unk> also known as hydrogenated dire foreign Athene are two great examples.
<unk> is an excellent molecule that has been around in very limited quantity and at high cost like many of our molecules. We are able to make this molecule abundantly available directly from fermentation. This is a molecule that delivers great performance in skincare. It helps the skin retain moisture. It is one of the here.
Aro ingredients in our stripes brand and is starting to get attention from consumers. We are starting to see European brands promote the use and performance of <unk> as a key ingredient even more interesting is our latest breakthrough innovation from our pharmacy building block HTS or.
Hydrogenated <unk> pharmacy.
<unk> is expected to be a game changer for skincare hair care color cosmetics and personal care markets.
Is almost three times the viscosity of squalene at about the same weight. It is the perfect combination of moisture retention gloss and cushion. It is a great replacement for some of the palm oil alternatives in the market initial feedback from formulated <unk> and some of the leading beauty companies is that it could potentially.
<unk> outperformed squalene seat, it's a molecule that makes formulas performed better and because of its weight. It can be it can deliver a formula for a lower cost than is currently being formulated. These are great. Examples of what's in our pipeline and good evidence of our focus on markets where we.
We can really win while delivering the best science and chemistry for a healthier planet.
Beyond our existing pipeline.
In process of commercialization, we are engaged with some of the world's leading companies in beauty and personal care that are committed to clean sustainable chemistry and their products. Many companies have public commitments to sustainable chemistry in sourcing and lab to market technology can help them achieve their goals, which we expect.
To manifest itself in growth in our collaboration programs and revenue.
We lap we leveraged our lap to market technology across three dimensions innovation, we developed scale and produce some of the worlds leading molecules sustainably SCA.
As said earlier <unk> is a perfect example of a molecule that we are in the process of commercializing within the next 12 months.
Then our consumer we market our brands to demonstrate efficacy and stimulate consumer demand through tangible product solutions and a superior consumer experience.
Thirdly, our technology access, where we partner with the worlds, leading suppliers to formulate with and sell our ingredients into thousands of products.
Our consumer brands, our technology access activity and our innovation and support infrastructure all play a role in <unk> business model, we are striving to optimize each of these activities in terms of operating and financial performance by way of benchmarking and to align our investments with the afforded.
Ability thresholds.
Our liquidity constraints are very much in focus and we have three key activities that are in process first we're establishing a bio manufacturing JV that would provide amyris, an estimated $50 million to $100 million in proceeds and support the working capital needs of ingredient manufacturing.
As well as provide the necessary capex to build our next fermentation plant. We are in active negotiation. The long term objective is to design the joint venture to provide a more scalable capital structure with access to working capital to sustain the demand for more bio manufacturing capacity.
Secondly, we're in the process of the sale of non core assets. This relates to certain consumer brands and is expected to generate up to $100 million in proceeds. This will result in a <unk>.
Focused consumer portfolio of five to six consumer brands that have an attractive growth and margin profile and are leaders in their respective categories.
Our third activity is advancing the proceeds of up to $350 million from future performance based earn outs and milestone payments related to our strategic transactions. These are these are the transactions that are already complete.
Each of these are in process and are critical components of our plan to self fund our business.
So in summary, the first quarter demonstrated our changed approach to balanced revenue delivery with a lower cost profile, resulting in sequentially improved gross profit operating expense and adjusted EBITDA. We clearly have much more to do to make this sustainable and ensure that our business model can successfully.
As a result of a much improved cash conversion cycle and lower operating costs.
Our consumer demand remains very strong as we transitioned to stable operations at Bajo Bonita, we have a very strong year of ingredients product supply and revenue ahead of us.
We basically are contracted to sell all that we have capacity to produce this year for our ingredients business.
We continue to create the world's leading sustainable chemistry from Biopharma station, our lab to market technology platform is leading in its ability to develop scale and produce clean sustainable chemistry, we have great commercial partners that are leaders in their sectors. They recognize the value Amyris springs.
Now and well into the future our fit to win agenda. The strategic review and our business plan are focused on setting a clear path to self funding our business while executing on our strategy of continued strong growth in our chosen end markets to do so we are working on a multifaceted agenda <unk>.
<unk> completing the manufacturing JV, the divestment of noncore assets and the realization of earn outs of our various completed strategic partnerships.
We are focused on delivering further cost reductions and aligning our overhead with the needs of our operating business to accelerate our path to positive adjusted EBITDA.
Our outlook and guidance for the year remains unchanged, let me now turn the call to Hi, hi. Thanks.
Thanks, John Let me proceed with discussing the quarter's financials starting with revenue.
Core revenue, which includes consumer and technology access revenue and excludes strategic transactions and other decreased 3% to $56 1 million when compared to the first quarter of 2022 revenue our consumer business declined 1% to $34 2 million.
The decrease in consumer revenue was primarily driven by lower <unk> revenue due to lower marketing and media spend and out of stock products offset in part by the launch of our four you buy Ti Brent at Walmart as well as increased mental apps direct to consumer revenue.
Our consumer business in Q1, 2023 was about 48% direct to consumer and 52% with retail partners. The split one year ago was 57% direct to consumer and 43% with retail partners. We believe the shift away from DTC was driven by lower Q1, 2023, marketing and media spend due to certain liquidity.
Constraints.
Technology access revenue of $2021 $9 million decreased 5%.
<unk> revenue include ingredient product revenue of $8 9 million, which decreased 18% compared to Q1 2022, reflecting continuing supply in working capital constraints as the business transitioned from higher cost toll manufacturing to lower cost internal sourcing from our new fermentation plant in <unk>, Brazil.
R&D collaboration revenue of $3 6 million increased relative to the prior year with growth driven by several new contract research programs.
Technology license revenue for <unk> totaled $9 5 million, which included a $3 4 million favorable true up related to 2022 activity.
This brings me to gross profit.
As I mentioned during our fourth quarter earnings call. We are introducing non-GAAP gross profit, which more completely presents our margin performance considering all aspects of cost of goods sold a.
A reconciliation of this non-GAAP measure is included in the tables to our earnings release.
non-GAAP gross profit was $11 6 million or 21% of revenue compared to $10 6 million or 18% of revenue in Q1 of 2022.
non-GAAP gross profit increased by $1 million, and where 300 basis points higher as a percent of revenue than in the prior year. This was primarily due to lower freight expense as well as favorable mix of higher margin revenue.
We experienced significantly higher freight spending in 2022, particularly due to increased inbound air freight rates and volume to support our growing consumer brand revenue as well as the importation of ingredients intermediate product.
We were very pleased with our progress to reduce costs in these areas, yielding a reduction in inbound freight from about $8 5 million in Q1, 'twenty two to $2 4 million in the first quarter of 2003.
We expect most of these freight and logistical expenses to operate at a lower level compared to 2022 due to the commissioning of the new Brazil fermentation plant and our plan to transition to Brazilian source components and manufacturing for our largest consumer brands.
Before I move to discussing operating expense I want to spend a moment on our consumer portfolio and the <unk>.
First quarter of 'twenty, three we entered into a JV and Brian collaboration agreement with TMO re launching for you by <unk> in January a new clean airline are.
Our new clean hair care and hair care brand.
The brand collaboration agreement with doctors and celebrity <unk> will market. This new hair care line to women of color using clean ingredients.
In connection with our fit to win strategy the company decided to exit the equal Fabulous brand and reorganize the beauty labs business during the first quarter of 2003.
Accordingly, we booked a 20 $28 5 million favorable noncash change in the fair value of acquisition related contingent consideration as well as asset impairments totaling $95 4 million. We also incurred a $4 2 million inventory write off related to the Utica Fabulous, Brad which was adjusted out when calculating gross profit.
Next I'd like to touch on operating expense.
non-GAAP cash operating expense of $112 8 million was 4% lower than Q1, 2022, and 24% lower than the fourth quarter of 2022. This was primarily due to lower marketing and media spend related to working capital constraints.
In Q1, 'twenty three more than $1 million of cost savings resulted from headcount reduction initiatives and approximately $14 million resulted from lower consumer marketing expenses versus the previous run rate.
This was mostly related to spend on paid media, such as Google emitter and related agencies.
We started the quarter with a cash balance of $71 million and raised $42 million, primarily through a bridge loan to fund the purchase of up renewable assets in April 2023.
We used $101 million during the quarter and operational adjusted EBITDA offset in part by favorable working capital leverage of $17 million driven by actions taken with suppliers to improve terms and our cash conversion cycle. We also.
We closed we closed out the quarter with $17 million of cash on hand.
Before I discuss our quarter on quarter progress in connection with our ongoing strategic review as previously communicated on April 24th we are focused on cost efficiency capital structure and liquidity required to fund the business. We updated our going concern disclosure you will see in our quarterly report on Form 10-Q, and we have signed.
<unk> agreements with the company's lenders Forest ventures, LLC, Ferrara ventures, LLC and DSM fund NPV related to the majority of an aggregate $92 5 million of debt principal.
Lenders have agreed to forbear from exercising any rights and remedies with respect to certain payment defaults until June 20, <unk> 2023.
As described in our 10-Q, our current cash position as well as short term debt payments do raise substantial doubt about our ability to continue as a going concern within the one year period.
Referenced earlier, we are actively working on plans that are intended to address this growing concern.
As it relates to our Q1 performance, we are sequentially reduced cash use for operating and investing activities beginning with $199 7 million in Q1 2022 through $94 8 million in the first quarter of 2003 as the result of a focused effort on cost containment and the need to navigate liquidity.
These constraints, we used a total of $90 million from operating activities, which includes all our cost of goods sold operating expense and working capital needs. We used a total of $5 million for investing activities all of which was related to capital expenditures for R&D facilities as well as the construction of a robot at Bonita fermentation plant.
We have worked hard on reducing our use of cash by taking various steps, including bringing in proceeds from a strategic transaction.
Let me summarize and John referenced this earlier the two transactions that we recently completed in early April given their importance to cash flow we completed.
The acquisition of an additional 49% of our JV in a pre Nova on April 3rd we paid $49 million to bring our ownership percentage in <unk> up to 99% also on April <unk>, we closed on our transaction with <unk> to license certain cosmetic ingredients business and received $200 million from cash.
And expect to receive up to $150 million and performance based earn out payments over the three year period.
We are delivering on our strategy to provide technology access in a meaningful way to partners that are sector leaders and to bring in meaningful cash.
Also John described three activities with a view to bring in funding. Each of these are in process and are critical components of our plan to fund the business with that let me turn the call back to Joe.
Thanks, John before we move to Q&A, let me confirm that our current outlook for the full year.
Including revenue guidance provided on March 15, 2023 remains unchanged.
We are focused on and committed to improving our cost structure, making strategic portfolio choices, improving our cash conversion cycle and delivering on the transactions that self fund our business.
With that Kate can you. Please help us go to Q&A.
We will now begin the question and answer with Barcelona last quick question you May call. One one on your Touchtone quality. If you are using.
The speaker phone please pick up your hand, corporate Parkway Mckee to withdraw from the question queue. Please press star one.
We ask that you please limit yourself to one question and one follow up.
At this time, we will pause momentarily to assemble our roster.
My first question is from Stephen Anderson with Canaccord Genuity. Please go ahead.
Hi, good evening, thanks for taking my questions.
I was wondering if you can maybe talk about fit to win savings I guess did you get any in the quarter and are you still expecting that Henry <unk> million annualized savings to flow through this year and if so how should we expect that to kind of flow through throughout the year.
Susan Thank you for being on this is John I'll start.
I'll start answering that we did see a few of the activities and fit to win flow through in the quarter. We saw some of the improvements.
In our cost of goods, especially as possible we need to continue to.
Continued to come on line, we saw a significant reduction in our shipping costs, specifically the inbound shipping costs.
Air Air shipping.
And we still expect that for the full year, we have realized $150 million of savings in our baseline of 2022, which was the basis of a $150 million and I'll, let <unk> add if he has anything else on this yes, two things one is what I said in my in my remarks, just a moment ago is the.
We saw the initial savings from <unk>.
Reducing some of the head count, particularly as releases simplified leadership structure I mentioned of $1 million there.
And then also.
As it relates to some of the media spend as we said.
Part of the driver was our liquidity constraints and part of the driver was certainly some of the choices, we made in terms of where to spend.
The investments opposite the revenue opportunity.
Thanks Jaime.
Great. Thanks, and then just on the top line for this year you talked about reiterating the guide I guess for the core top line I think that would imply sales growing in the low to mid 20% range. I guess can you talk about the difference between the consumer and tech access growth for the year.
And should we expect that to ramp back up to double digit for consumer.
I'll go through the year or should the quarter would be pretty equal.
Yes.
I'll start and then let him talk about the quarterly cadence.
I can tell you what we're seeing already.
In the second quarter, which is double digit growth in our biggest brands as we really learned a lot in the first quarter about which one of our media investments work best and how we got the best return for the media dollars spend at limited media dollars spend that we did in the first quarter so from those learnings.
We scaled and we have activated our most effective channels and I can tell you just on AR.
On a week to week basis as we've looked at May versus April versus March were up 17% across several of our channels.
Our two biggest brands and we're also seeing a significant impact in retail as we've increased.
Some of the channel investment.
For media, which is what we expected we expect as we invest marketing online we expect to see an impact in retail we've had several of our brands, including our biggest brands that have had some of their.
Second and third biggest weeks in history.
In the month of April and we're seeing pipette actually at retail, especially a target it's almost like every week.
We're setting a new record at target for pipette sales and it's also performing extremely well with Walmart as a retail partner so.
Back to the question, we see top line beat.
Between 95% to 100% on the full year, but obviously included the strategic transaction.
We know at the time was in progress we now have completed.
Obviously, we can confirm that that $200 million is revenue that will be recognized in the second quarter given that that is now complete.
The other thing I would say excluding that.
You you mentioned.
Somewhere low twenties.
For the core business, we have not specifically broken out in our guidance consumer access, but it's it's in that in that range that we that we previously talked about.
Okay, Great and then if I could just add one more follow up umpire from Utah.
I guess, where are you at risk, losing your protection there how many lines are up and running now and then how much of your production have you been able to shift at a third parties into the plant so far.
Thanks isn't look we have five lines in total about hope beneath the three of which are what I'd call large scale lines 200 cubic metre tanks. Those three lines represent for those of you who were around during brought there is the equivalent of brought this capacity.
And all three of those lines are up and running we have moved I.
I would say about 90% of our production with the exception of foreigners scene out of contracts sites into Bob Hope, we need to this year foreigners scene.
Still being produced at broad fish, and we're still purchasing quite a bit of foreigners scene.
Out of our DSM partnership. So if you think about where we are a very small footprint, one or two molecules at our Spain contract facility that we still will need some production. This year the majority of all of our other molecules.
At Bob Hope Anita and then some foreigners seen probably around.
50, 60% of our foreign is seen coming out of the.
Brought this facility with DSM I hope that helps answer the question about where our production is coming from this year.
Yeah, that's very helpful. Thanks, so much good luck the rest of the year.
Thanks. Thanks.
The next question is from Korea will admire Piper Sam. Please go ahead.
Hey, good afternoon I as in thanks for taking my question. So first I'd like to touch a little bit more on what went on the file science in the corner and I know you and last question can you talk about what you pulled back a little bit of marketing spend he just dive into what was the driver behind that was it just kind of a trial out and see.
You know how much you really were requiring them to keep the brand afloat.
Now as you go forward you know how long do you think about the marketing spend for all the other brands and then additionally on the bile signs I think you mentioned some out of stock product can you just expand on what was going on there as well. Thank you.
Sure and I think it would be an answering.
A couple of points.
The first regarding media spending you know the industry very well.
Regarding media spend we went almost completely dark with media spend four bioscience in the first quarter.
And that obviously had a significant impact on growth. The good news is even with that media spin turned off we actually really.
Really didn't delivered quite a bit of revenue.
From from a whole brand portfolio and that is across all the portfolio by the way. We I think in total we spent $3 million and I can tell you that that was spread and I can tell you that bioscience got a very small piece of that so again call. It almost completely dark for the quarter and media spent.
And it was a combination of things first we were not and we didn't have we didn't have the liquidity that we could actually allocate the investment across the brand. So we had to make some hard choices, but secondly, as we were making those choices were very focused on what what is the impact by channel and then we tested performance across various different channels.
And by channels, I mean marketing channels I mean, what we did in paid search what we didn't paid social what we did and affiliates what we did with email what we did with text and what we did with any other online media investment that we were making a during the quarter. So we now have a very good sense of the impact of one dollar spent by channel.
We again, we delivered $10 for every dollar spent in the quarter were now very confident that our target of $3 of revenue for every dollar of spend is absolutely in line for our portfolio knowing that a brand like bioscience actually has the potential for a lot more than that.
As much as five to $6 of revenue for every dollar invested I think the second factor, which.
Which we may have not talked about much was really out of stocks and auto stocks had a significant impact on revenue across our branch. The issue was really that quite a few of our brands.
Pipette cost of Brazil, Jpn <unk> just to name a few and then Rose Inc. Actually was out of stock in several of their top 10 sellers. So combination of out of stock and what we saw in paid media and we can verify that as we put product back in.
Stock during the beginning of the second quarter, we've seen the consumer come right back to the product and as we started activating the channels were actually I could tell you in the first couple of weeks or the first really call. It. The first 506 days of May we could see all the marketing channel starting to perform.
At levels that will be equivalent to when we shut them down during the first quarter. So I hope that helps give you some color as to what happened across the brands what happened in the channels and then what happened without a stocks.
Yeah. That's very helpful. And then just kind of a follow up on that what was the reasoning behind the honest stocks and then.
Just to quickly on gross margin he was such a little better.
On what caused that big decrease this corner and what kind of like the proper run right to think about going forward. Thank you.
Sure the majority of the out of stocks for again delayed payments or liquidity, where we had the product produced a boat the vendors we're waiting for payment. So that's why when we received our funding from the <unk> transaction at the beginning of the second quarter <unk>.
We were able to immediately get the product out in shifts. So there wasn't that the product was a maid in many cases, the product was actually made and waiting to be shipped from the supplier side on a lot of the cmo's that we operate.
So that's the product out of stock side.
I think regarding you're the second part of your of your question.
You want to repeat it for me cream.
Larger yes.
Yeah.
Yeah, I can tell you.
Part of the gross margin mixes how the branch performed several of our brands.
[noise] pipette being one of them actually had very strong performance during the quarter and is continuing very strong. So windpipe pet performs this way and several of our other brands that have a lower margin profile and our higher margin brands don't contribute at the level that we would expect we see that kind of shift in margin again I can tell.
Tell you, where we are in April and what I would expect for the rest of the year is for us to operate.
At the level, we expect for consumer gross margin, especially with a fit to win activities and what we see there was somewhere around the 63% to 65% gross margin four and this is your adjusted gross margin number we've tracked at the consumer operating level is what we would expect for the rest of the year and consumer So let me out.
A little bit Korean.
Channel.
Made a comment I think in the analysis that we have more on the retail side, then compare the year ago quarter on the on the DTC size so that plays into.
The margin profile too and then Jones said.
It's really the Brian mix will be up to pitch step up for an example relative to the rest of the portfolio, but also the new brand for you by then.
It is placed in Walmart.
There was a slightly different margin profile compared to some of the other brands.
Super helpful. Thank you.
Thank you create the next question I'm.
I'm sorry. Your next question with some calling <unk> Oppenheimer. Please go ahead.
Thanks, So much I appreciate the detail on the channel do.
Did you look at depression strategy is you have more product could you talk a little bit about the potential to be a little bit more aggressive around pricing as you have a little bit more parts available.
And thank you for being on and just just to clarify when you say would be a bit more aggressive on pricing.
Yeah pricing present to consumers on some of these products you know obviously it looks like there's a fairly resilient level of demand just wanted to see if there's a way for you guys to start raising prices and driving a little bit more cash flow through the channels.
Yeah no. Thank you for the question cause we have put through some price increases that I think have gone very well.
We are currently are.
Actually pretty consistently looking at elasticity.
And what kind of pricing opportunity, we have so I would say the answer is yes, we've already done some of that and you wouldn't be surprised if we would do more in the future and we see resilience in the brands as we've been able to push pricing increases through.
That's super helpful. And then just want US to end program you got some really bill you know the <unk>.
Best team in the space around synthetic biology, and certainly have the leading platform here.
I'm curious, how you think about ending the organization and how to optimize you know cash flow, while maintaining that the technology leadership.
Look at.
Think it's part of the review that we're doing where we're looking at costs, obviously across our entire business and.
Without question there are places in our business that aren't as competitive as we think they need to be so you can imagine we are going to be optimizing are continuously optimizing costs across the business.
But we're also very conscious that some of the innovation, especially our technology leadership and how we've organized how we do the bioengineering. We think is deeply strategic we think it's one of the most productive if not the most productive.
Bioengineering platform in the world.
And I would tell you some of the early information we're seeing in the assessments. We've done is indicating that so I think what you can expect is that where we go for continued cost improvement in cost cuts.
Will be very focused on where we're not competitive and where we have significant opportunity and I can tell you that on the R&D side.
I see is is very competitive, especially on productivity and we have significant demand that we're dealing with there, especially as we expand the number of collaborations we do as more and more global companies are approaching us to develop and scale molecules for them as they try to meet their objectives around sustainable chemistry. So.
I hope that helps kind of sure how we're looking at the cost base.
That is helpful. Thanks, so much guys.
Thank God.
The next question is from a nearby out of HD Wainwright. Please go ahead.
Mmm.
John .
Mmm.
Plus Hulu.
Do.
Hey, I made your line is not coming through very well can you can you.
Perhaps start to question again.
Okay.
No you're not coming through.
The next question and some Rachel Baton J P. Morgan. Please go ahead.
Hey, Thanks for taking my question. So many questions just to run some of this cash balance in cash burn guidance for the year you guys exited the corner with $17 million of cash and equivalents. So can you just walk us through what are the incremental puts and take her kashi for the rest of the year in terms of some of these upcoming month that you have also.
The commentary and that forbearance can you just walk I see what kind of what that means on a more granular level or you're just pushing out payment towards that June time frame that you apply and then what are your updated.
In terms of total a password for the year.
I'll give you a high level.
A high level answer.
I'll, let Han chip in I think in general we've got quite a bit of work going on and really planning out.
Our cash uses for the year. So it's probably something we're not prepared to go into a lot of detail on but at a high level think of it as again at the beginning of the quarter of the second quarter.
We brought in $200 million from the transaction haunt talk through in detail. Some of the uses of that which was really the.
The large or the buyout of Akron over the the 49% and then paying down some of the past <unk>, we had an operating and with all that we're very focused on continuing to support our operations and execute on our strategy and then as we look ahead, we've talked about some of the.
Big buckets that we see a sources of cash coming in the sale of the non core assets. The manufacturing JV that we said will generate $50 million to $100 million and proceeds to US and then we also talked about.
What we're doing in advancing earn outs from our three major transactions.
<unk> transaction, the DSM transaction at an ingredient <unk>.
Transaction, which is actually a milestone.
Payment or a milestone payments. So those are really where we're going for our sources of cash we talked about some of the big.
Infusion that came in at the beginning of the quarter.
And then we're obviously working very hard with fit to win and to review we're doing now to insure, we're really getting our cost base right and looking for <unk>.
Much improvement as we can out of our operations to really really minimize our cash outflow.
And that's really about the way I would think through the year at this point for cash you asked about the debt look I know, we announced the forbearance to forbearances with too.
Long term shareholders that have been very supportive of the company.
And our focus for the forbearance is to really provide provide adequate time to really negotiate that that for a longer term structure that works in line.
With our cash flow in our capital needs. So that's the way you should think about it where we're working through that in detail. We're working through it with partners that have been long term shareholders of the company and we expect to get that resolved during the forbearance period and in addition to that we're executing the transactions. We've we've said.
As a way to really support our liquidity needs and ensure that we could sell fund our business as we go forward on anything you want to throw a I think I think that's right. So it's the two parts really too how are we thinking about it.
Repeat for Jones said as it relates to the more strategic bigger initiatives, what shouldn't be overlooked is the other part which is the day to day tackling and blogging.
We do.
That's just managing liquidity on a daily basis, we're also continuing to make operational improvements.
We're talking about working capital for example, looking at inventory of course, how we engage with vendors also.
Good practices as it relates to collections on the receivable side. So there's a lot of the I wouldn't call them in the low hanging fruit because some of them are certainly hard work, but.
Things that we are focused on all around so a 360 degree and all the things that we do everyday and that's part of the review gentlemen referenced earlier, it's an extension of fits when I'm doing more of that and that's really what we're focused on both the date today as well as some of the biggest things that that will help us from the company.
And then as a follow up just on some of your clients are unlicensed sang in terms of pull forward that you're trying to do there. So it looks like licensing revenue with almost $10 million in a corner. He noted that about a third of that was related to a trap from the pirate prior period. So can you walk us through what you're assuming for licensing revenues heading into that later half of the year and then what.
Level of visibility you Hot and should we expect any more trips like you had that corner. Thank you.
Yeah, I'll give a high level of you and enhance can add we have not disclose the specific cadence of how the licensing revenue comes in what I can do is point to what to expect based on what's been announced right. So we know we have a quarterly revenue come.
Ing in from the DSM earn out and based on our production plan for the year, you can expect that to continue quarter on quarter.
Assuming keeping with our production plan I think secondly, there is an AD for the second quarter that will actually apply for the next three quarters for the rest of the year and for the next few years, which is effective the second quarter. We also have now the earn out for the Chiba Don transactions. So you could think about those.
To the DSM transaction, which is what's been driving that licensing revenue in its specifically around the earn out into DSM transaction and now starting this quarter in the second quarter, we're adding the <unk> earn out to that to that flow and then there are from time to time any milestone payments or any new transaction.
<unk> that are in process that we might that might actually contribute to licensing and those are really the three buckets, DSM, which you've been seeing <unk>, which is new starting in the second quarter and then the third bucket as any milestone payments or any new deals we might do for molecules that will contribute to licensing revenue as we go through the rest of the year.
<unk>.
Let me, let me just kind of perhaps one mechanical Coleman Coleman for the benefit of everybody.
I know you are thinking about modeling and whatnot.
The student said DSM, we've already had that for the full year 2022, it's three arrangements that means we have this current year 2003, and then next year 2004 in terms of generating.
Generating generating income.
The your reference to true of the two of US really nothing more than to say as we progress through a given year like we did last year, we do that based on sell through estimates.
We we share in this case with with DSM and Thats, one to the best of our abilities because his based on soul food. So we were a little bit on the conservative side, and we had a bit a bit of an adjustment on the year that we that we did and.
There'll be accounted for in Q1.
Desktop piece as it relates to new <unk>.
<unk> the transaction that we just completed that will start this quarter.
It's on a 12 months so it's not quite on the calendar year was from a 12 month cycle.
We get.
<unk> My first so basically we got two months and this girl and quarter and then every quarter a full quarter going forward.
The way that will work as as I said in a 12 month cycle instead of a calendar year.
So a little different cadence.
Quarter again, we will do our best estimates on the sell through and how we recognize that revenue.
Oh.
The next question is from tagline Chunky a television talent. Please go ahead.
Hi, everyone. Thanks for the question I'm <unk>.
Uhm Unenlightened manufacturing J Z, Yeah could you just maybe assign any <unk>.
Expected timeline around when you think those negotiations will be completed and what type of additional revenue capacity would that provides.
Chat thanks for being on I think we've learned our lesson from the edge EBITDA transaction I think it's good that we don't put any specific timeline.
I think we've said that we're in the middle of negotiation. That's the other lesson is it's not healthy, especially in a competitive process to.
To really put out specific timeline, so we won't do that.
What I will tell you is from a P&L impact.
The way the the the current discussions are going.
We would continue to we would consolidate and therefore continue to report.
The revenue in the financials from our Biomanufacturing as a result of the JV, so that I can share with you but.
Timing will leave off the table for now.
Got it thanks and on the just advanced proceeds with the three strategic transactions could you sort of speak to what gives you can addiction.
Being able to bring those payments for for the respective partners.
We are again in active discussions.
For multiple sources, one of them actually with a partner directly and the other.
Actually with two of them were the partners directly in the other.
Alternative sources that provide that kind of that kind of financial instrument.
Without getting into detail my.
My reason for confidence is that.
The the performance so far on our earn outs.
Have worked pretty well with our expectation I think is conscious reference regarding twenty-two we actually earned a bit more than what we thought based on chewing up the year. So we have a lot of confidence in the earnouts themselves and our performance against the Earnouts. There were three partners that are well respected companies and we understand the relationship.
And can talk to the contracts quite clearly.
And again based on where we are in discussions.
We have a good level of confidence that this is something we can pull forward and execute on that being said, it's not done until it's done. So we have work to do to.
To get it done but it is a it is a substantial amount of cash to bring forward in something that we think can be.
A good contribution to our years cash needs.
I appreciate the color thanks for the questions.
Thanks chat.
No time for one more question Uhm Graham Tanaka Tanaka Capital management. Please go ahead.
Hi, guys. Thank you just on the out of stock in the.
And the ability to ship what you wanted to in the first quarter could you just estimate how much revenue as you you lost from being out of stock or having shortages and if that how much of that might continue for the second quarter.
A gram nice to have you on the call.
And just to be clear that the.
The artist stocks were either pillows, we had received or demand from consumers for products that we didn't have available to sell.
I wanted to clarify what we mean by auto stocks and when we look across the brand portfolio I can tell you the brands have quantified somewhere in the magnitude of about $10 million Rev.
Revenue equivalent in the first quarter.
Again, we've we've brought back quite a few of those products. It is not all back in stock. There are still some brands that have some of their key products out of stock and I really don't want to provide a view or or guidance on that issue. Specifically I think we've given what we will on guidance, which is expected to deliver on what we.
Said for.
For the following quarters based on what we gave you back in March for guidance.
And we believe we can do that even in managing with some of the out of stock issues. We face just like we demonstrated in the first quarter.
Okay. So so changing the subject quickly on the the troops and the urn ounce.
You did you fully capture what you expected.
In the first quarter are there more to be swelling and to benefit the second quarter because in the queue for a conference call you suggested it might take a company.
So you get the true loves.
Yeah, two two different issues I think what we captured in the first quarter.
Chew up.
Around the DSM earn out and I think can't explain that quite well I think we've been conservative and what we taken for revenue and annually we look back.
Based on information from the partner and then if there is a true up it gets recognized and I think a harness capture that in the first quarter.
I think beyond that we did reference a milestone.
Was outstanding that milestone remains outstanding it is not part of the Earnouts structure that Highness talk too and it is not part of the DSM piece. So I just want to leave that aside and keep the earn out clean and the true up the way it occurs Graham.
Okay. So so feeling so people can there's a lot of confusion about how much the urn ounce might be.
Going forward, even longer term in there because you've you've got at least three contracts or agreements and it's hard for investors to understand what is kind of a range of expectations of or announce that you could achieve minimum maximum this year versus last year, maybe even next year. Thank you.
Yeah, I'm not going to speculate and break that down by year. What I'll tell you is contractually what is outstanding and earn outs and milestones for the period and that number is about $294 million.
Over the next.
All it two to three years that is outstanding and earn out payments and again.
The Max earn out as you know there's always risk on earnouts because they are performance based we've been very good so far and realizing what we expect but again there is always risk because it's based on how well we perform at $294 million is what is currently outstanding.
Earn outs and milestones over the next two to three years okay.
Great and sort of related to that.
Investors are and analysts are trying to understand or project, what your gross margin might be.
Targeted longer term for consumer and ingredients.
The ingredients, including Earnouts, Thank you and manufacturing margins. Thank you.
Yeah, I I'm going to.
Cause you asked me both questions ingredients and can.
Consumer I'll give you the consumer the fact that we're in the middle of the negotiation for manufacturing JV I'd, rather not put out numbers without that J V B and complete <unk>.
Cause obviously that JV has a big impact on our manufacturing footprint. How it operates we think positive but it needs to get done right. So from a consumer perspective.
We are I would say the midpoint of where we expect to be is right around 65%.
On the consumer gross profit side and I would expect.
Again that.
There is upside based on how well, we execute fit to win and our enterprises manufacturing and that is in process. So think about 65 is mid point it.
It could be better slightly less and we're focused on executing that by really implementing.
To win and moving Ah, what it'll be about 60% or so of our consumer goods to enter forces around middle of the year third quarter and by the end of the year hopefully be at about 80% of our consumer manufacturing down in Brazil, and that has a significant impact I think we've quoted before.
At least a 50% improvement just in bioscience cost of goods and we obviously expect to see gains across other products that we we moved to Brazil.
This concludes our question and answer session I would like to turn the conference back over to John Malone for closing remarks.
Thank you Kate and I didn't get to say thanks to Graham for his last question, So and I appreciate everybody being on and sorry admit that we did not get to hear your question. So hopefully in a one on one we can follow up with you I really appreciate everybody would be and I am really thank you for joining us today and for your continued interest and support if we didn't get to your question. Please fall.
To work with our Investor Relations team, which.
Han or one of us can make sure we get to you.
And we will get back to you with a response again, where we really are happy to see the traction in our business, but most importantly to see our costs get under control to be more disciplined with the investments, we make and to really see fit to wind come through and get complete with our strategic review to ensure that our cost basis.
Competitive and we really have a self funded business that can execute and achieve.
Our overall objectives with that I'll close out and thank everybody and wish everybody a good evening.
My confidence has now concluded. Thank you for attending today's presentation you may now disconnect.