Amyris, Inc.

Good morning and welcome to the Amherst fourth quarter and full year 2020 financial results conference call. This call is being webcast live on the events page of the investors section of the Amherst website at amherst.com. As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the investors section of Amherst's website. I would now like to turn the call over to Juan Kiefendelt, Chief Financial Officer of Amos. Please go ahead.

Good morning, and thank you for joining us today. With me are John Mello, President and Chief Executive Officer, and Eduardo Alvarez, Chief Operating Officer. This morning, John will provide a business update, Eduardo will share operational performance highlights, and I will review our financial results for the quarter and the full year. Please turn to slide two. Please note that on this call, you will hear discussions of non-GAAP financial measures, including but not limited to underlying sales revenue, gross margin, cash operating expense, and adjusted EBITDA. Reconciliations of these non-GAAP measures to the most directly comparable GAAP financial measures are contained in the financial summary section slides of the accompanying presentation or the press release distributed today, which is available on our website. The current report on Form 8K furnished with respect to our press release is also available on our website, as well as on the SEC's website. During this call, we will make forward-looking statements about future events and circumstances, including AMRES' 2021 outlook, goals and strategic priorities, anticipated transactions, and other future milestones, as well as market opportunities and growth prospects. These statements are based on management's current expectations, and actual results and future events may differ materially due to risks and uncertainties, including those detailed from time to time in our filings with the Securities and Exchange Commission, including our 10-K for full year 2020. AMRIS disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events, or otherwise. Before we begin today, I'd like to note that included in our webcast is a slide presentation we will refer to. The slides will also be posted on the investor relations sections of Ameris' website following the call. I'll now turn the call over to John. John?

Good morning, and thank you, Han. Thanks, everybody, for joining us this morning. I'll start by providing a business overview, an update regarding our strategic transactions, an update on our consumer business and its key growth drivers, and lastly, a few comments regarding the expansion of our strategic partnership technology pipeline. Let me start with an overview of 2020. Almost to the day, it has been a full year since the World Health Organization declared COVID-19 a pandemic, which led to a widespread health and economic crisis. As a result, 2020 has been a year of extreme uncertainty. We are pleased that it has also been one of the most productive years in our company's history, where we have transformed our business, accelerated our industry leadership, and advanced our strategic position with our technology, consumer and ingredients portfolio, and also a much improved financial position. I'm thankful for the continued support of our investors and the resilience collaboration, and innovation of our teams and partners working jointly to meet the needs of consumers and respond to the world's need for natural, clean, and sustainably sourced ingredients. We delivered $80 million in total sales revenue in the fourth quarter and $173 million for the full year of 2020. In the fourth quarter, we delivered the third consecutive quarter of record product sales revenue while also expanding product gross margins. We continued to see strong growth in our consumer brands and delivered $17 million in fourth quarter consumer revenue that was equivalent to the total year of 2019. For the full year of 2020, we delivered $52 million in consumer revenue, nearly three times 2019 revenue. Our ingredient portfolio also did very well, both in the quarter and full year. For 2020 full year, we delivered $60 million in ingredient revenue, demonstrating growth of over 26% versus 2019. The strong revenue growth, expanding product gross margins, combined with the completion of the first strategic transaction resulted in positive adjusted EBITDA in the fourth quarter, consistent with the expectation we had set. During 2020, we delivered six new ingredients at scale, completed a successful $200 million equity financing and benefited from significant reductions in debt and debt servicing costs. Regarding debt, we have made further improvements during the current quarter, and we are now at less than $150 million in debt and expect to be below $100 million by the third quarter. We expect a momentum in our product revenue, along with a successful completion of strategic transactions, to set us up for continued momentum in 2021. We achieved positive adjusted EBITDA in the fourth quarter of 2020 with an expectation to be positive EBITDA for the full year 2021, reflecting potential income from the strategic transactions that I will discuss now. We previously mentioned that we were actively working on three strategic transactions. We closed the first transaction, which was valued at 50 million, with 30 million of that received in December and 10 million to be received in the first quarter of 2021 and the remainder in milestone payments thereafter. We recognize $40 million in revenue as part of our four quarter results. We would like to update you on the progress of the remaining two strategic transactions. The larger of the two is done with our focus turn to meeting the closing conditions We are in process with HSR antitrust clearance and are moving toward closing by the end of March as previously communicated. I can confirm the larger of the two transactions has an estimated total value of over $500 million. This total value includes four components, a significant upfront cash payment, an earn out through 2024 based on the earnings from this portfolio, new molecules that will be added to our development pipeline from this partner, the operating earnings from a 15-year production agreement where Amherst will continue to produce and supply these ingredients. The value of the final structure of this transaction is significantly higher than we had communicated previously. The total value attributable to the aggregate of the three transactions is now expected to be well over $500 million. up from the previously disclosed $450 million. This total value represents a combination of $200 million in upfront payments and the remainder in milestone payments and royalty payments, new molecules, and the financial benefit of us entering into a 15-year production agreement to supply these products to the partner, where we remain the manufacturer of these ingredients. This does not include the future value of the commercialization of new molecules that we will be entering into development with these partners. During the December 15th investor mini-series event, we discussed our science and technology platform and the power of our proprietary lab-to-market process to scale and commercialize new ingredients. At the heart of what we do is clean, sustainably sourced chemistry. We are cleaning up the world by making all chemistry clean and sustainable. And we are leading this effort in beauty, personal care, and health markets, where we believe there's the clearest demand drivers and the fastest time to value creation for consumers, investors, and our planet. By engineering the genetics of yeast strains and fermenting them in sugarcane syrup, Amherst has pioneered the ability to convert basic plant sugars to hydrocarbon molecules. to be used as clean, sustainable ingredients for consumer products. That is how we use what's renewable to recreate what's finite in a sustainable way that costs less. That is the Amherst technology platform. With more than 15 years of research, investment in technology, commercial development, and scientific breakthroughs, We have mastered the lab-to-market capability to create unique natural ingredients for consumer products. We currently have 13 ingredients in the market and another 18 in active development. As a result of current transactions and commercial activity, we expect to add 8 to 10 new ingredients to our active development pipeline this year. We are now adding ingredients at a faster rate to accelerate our long-term growth. We continue to be focused on target end markets, including clean beauty, health and wellness, and flavor and fragrances. We also have ingredients in the pipeline that we expect to be applicable to more than one end market. We have classified those in the various end markets category. Our first commercial ingredient took about 40 months from strain to pilot plant run, and today we average less than a year. Our cost of product development has dropped by 90%. Our time to market has reduced by 80%. Our R&D and process development functions have been very productive this past year, delivering six new ingredients versus a target of two to three. And they have continued to expand our product development pipeline. The 18 ingredients in the development pipeline are expected to come to market in the next few years, all of them commercial and in market by 2025 at the latest. while new opportunities are being added from our strategic partners and collaborators. We believe that we are three to five years ahead of other companies in the sector as it relates to number of ingredients commercialized, number of ingredients in development with a proven pathway to scale, the recurring revenue and recurring revenue growth from our portfolio, and the gross margin profile. The power of our lab to market process is more evident than ever before with the insights we've gained from the recent processes around the strategic transactions. Our technology platform presents tremendous value as synthetic biology increasingly gains momentum as the clearest path, almost the only path for addressing modern day societal problems. We strongly believe that we have an engine for continuous value creation. The more molecules we scale, the more efficient we become and the more value we generate from our technology. It's a great example of the impact of the network effect in biological engineering. We are truly enabling the ESG agenda for our partners. During the February 9th Investor Miniseries event, we discussed our clean beauty consumer portfolio. The molecules or ingredients that we develop through our science are the foundation of our consumer brands. A hero ingredient, such as Squalane from Sugarcane, is a building block for the product formulations in our brands. This is the unique connection we have at Amherst between the science, our ingredients, and our consumer product portfolio. These synergies and value add are oftentimes misunderstood and undervalued. We are well positioned with Bioscience as our clean beauty skincare brand, as well as with Pipette, our clean baby and family care brand. Skincare is the largest portion of the global beauty market and also the fastest-growing beauty segment. We are adding four new brands this year that will address other fast-growing large segments, including Haircare with JVN and Clean Color Cosmetics with Rose Inc. We are also adding two specialty skincare brands, including Terrasana for acne and and other skin treatments and Costa Brazil, a clean luxury skincare brand. Yesterday morning, we announced the acquisition of Costa Brazil. This is a brand that is in the luxury skincare market with amazing formulations that involve very unique natural ingredients from the Amazon region in Brazil. Our objective with this brand will be to improve the formulations using squalane as the foundation and to eventually make some of the Amazon source ingredients using our science and fermentation while creating give back mechanisms to support the communities where these ingredients originate from. This is ESG in reality, not just the story or another publication. In 2020, we delivered excellent performance across our consumer business with much stronger than planned direct-to-consumer growth. Overall, our consumer business tripled in 2020, exceeding our target of doubling our consumer business annually. We expect the consumer business to once again much more than double in 2021. We are executing on four key drivers to deliver this year's growth. First, new brands. We are expanding our portfolio by at least four new brands this year, with each of them well-positioned to become category leaders and eventually billion-dollar brands from a valuation standpoint. I can tell you the formulations for each of our new brands are outstanding and much better performing than what's in the market today. They also have the benefit of being the cleanest and most sustainable in their respective categories. The prestige hair market is experiencing significant growth. fueled by consumers demanding clean, sustainable hair care products like shampoos, conditioner, and scalp health care. We expect the color cosmetics market to experience a real revival later this year as we move into the roaring 20s, and we expect Rose Ink to be perfectly timed and positioned with clean, best-performing color cosmetics to benefit from this consumer momentum. Secondly, exclusive formulations and ingredients we are very excited about the breakthrough with our acne formulation this is a product that is expected to eliminate over 90 of all acne in four weeks or less it's a single product and not a treatment regimen for several different products the single product removes acne and nourishes your skin leaving you looking healthier and more confident than ever We really like the idea of a single focus on a clear problem like acne where the before and afters and the clinical data is so compelling for selling through social media channels. We are limiting this formulation to the Terrasana brand and two to three other brands that we will work with on a private label basis to ensure maximum reach as we focus on quick market share gains in the $11 billion acne market. We have several of these opportunities for exclusive breakthrough formulations in the pipeline, including a collagen production enhancer that we believe has the potential to be the best in the market. We will be focusing the Terrasana brand as our treatments brand, focused on the four skin conditions we all want to make better in a sustainable way. Acne, brown spots like melanoma, red irritations like eczema, and aging. Thirdly, Significant expansion of selling doors and selling square footage space in retail. Our primary source of consumer revenue is our direct-to-consumer business, and we do this well. We believe consumers will go back in stores when they feel it's safe to do so. Our focus is reaching the consumer where they are. We are significantly expanding our store count by over 2,000 locations this year and more than tripling our total selling space in retail. This includes significant expansion in the number of Sephora stores for Biossance and expansion in Target stores and CVS for Pipette. Fourthly, international. China has an incredible appetite for luxury and beauty. The Chinese consumer is shifting to clean beauty at a faster pace than any of us could have imagined. We are focused on capturing this consumer and ensuring they have the best skin care while making our planet healthier. We are already experiencing this in our ingredients business. China is one of the fastest growing markets for squalane in the world. We expect it to take the lead from Japan, our current biggest squalane market, and this will happen over the next two to three years. We want our consumer brands to benefit from this transition and lead the Chinese consumer to clean. In addition to China, we are launching our direct-to-consumer business in several European countries. Let me summarize. Our future is clear. Firstly, we are the first company in our sector to become fully self-funding through our strategic transactions, an innovative way to monetize molecules without giving up the manufacturing value. This is the golden goose. We have the most effective synthetic biology platform in the world, and we control the industry bottleneck, which is scaling up and manufacturing of highly engineered chemistry. Secondly, we are adding 8 to 10 new ingredients to our development pipeline this year. This includes a significant new partnership with one of the world's leading meat producers to focus on zero carbon protein production from fermentation. We are the contracting face of this new partnership and will expect to announce when we close during the second quarter. This partnership will look very familiar to you. Our partner is funding the development of molecules. We have four early targets. We will do the development, scale up, and produce long term. Our partner will fund the development and is responsible for the commercialization. They themselves will be big consumers of the technology. This is very much how we became leaders in flavors and fragrances and how we expect to continue growing in clean chemistry in markets where we do not participate downstream. Our mission here is simple. We believe there's a need for plant-based protein fermentation-based protein as the most sustainable source, we also believe consumers will continue to eat meat, and we need to make meat production zero carbon. And that is exactly what we can do by bringing synthetic biology and partnering with one of the world's leading meat producers that understands the market, the supply chain, and how to take carbon out of the system. Thirdly, we are commercializing three to five new ingredients annually. Last year, we delivered six. Fourthly, we are continuing to lead the sector in revenue growth. We expect to deliver underlying revenue in the $240 million range and total revenue of around $400 million this year. We have built one of the best performing brand portfolios with a focus on becoming the leader in clean beauty. Our fifth point is we are delivering top tier performance on the key brand metrics where we are well on our way to growing our traffic by over 1 million consumers monthly through our direct-to-consumer properties. And we believe this is a platform that can scale as we add brands and fill specific consumer needs through each of our key growth categories in health, beauty, and wellness markets. We have a clear path, we're focused on execution, and we're delivering results to the bottom line. With that, I will turn the call over to Eduardo. Eduardo?