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spk07: 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.
spk06: 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?
spk08: 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?
spk01: Thank you, John. Please turn to slide eight. I am pleased to report a successful and safe fourth quarter. Today, I will focus my comments around four key points. First, I will provide a COVID-19 and safety update. Then I will cover operational results summarizing how we have supported the growth in Amherst's ingredient and consumer businesses. I will close with an update of our plant construction and describe our plan to deliver key operational priorities for 2021. Let me start by saying that we are all very pleased that we have had zero safety incidents in the fourth quarter and that we have sustained a very low incident record overall in 2020 without any major incidents despite a significant increase in the overall hours worked. Our strict safety protocols for COVID-19 allowed us to continue operations without interruption, and we have had zero cases of transmission among employees. Our ingredient revenue for the fourth quarter grew 29% versus the same quarter in 2019. From an operational standpoint, we manufactured at higher volumes of product and scaled to record levels of ingredients and products to support this growth. Let me highlight three examples of this. We produced 60% more hemisqualene in 2020 than the previous year. Many of the top global brands have reformulated their hair care and cosmetic products using our hemisqualene as a result of legislation passed in 2019 that banned a non-sustainable ingredient called cyclomethicone. Our hemisqualene just has higher efficacy and is better for our consumers and for our planet. Similarly, as John mentioned, our sugarcane squalene production volumes were up 40% compared to last year. We continue to see year-on-year increases in demand, including China, for our sustainable squaling that saves sharks. Finally, we successfully completed the natural flavor production campaign that was mentioned in our third quarter results announcement. And we sold out all the volume produced. Importantly, we produced 15 times more volume in this campaign than the first campaign last year. showing that we are gaining momentum and economies of scale. In 2020, we also made significant progress developing and scaling new products. For the year, we introduced six new ingredients, four of these in the fourth quarter. Let me share some of this progress. We launched our partnership with IDRI for a novel RNA vaccine. We have made significant progress, and our next step is to enter clinical phase one trials for it. We also demonstrated squalene production at 99% purity, which is the highest in the market. We scaled our first cannabinoid ingredient, CBG, and we sold out the entire fourth quarter production volume. We also set up the supply chain for our first shipments of clean ethanol for applications with leading clean beauty brands and with distributors. But in addition to scaling production for ingredients, we're also expanding our capability to support the growth of our consumer brands. We leveraged our new ERP solutions to support the tremendous growth in our direct-to-consumer operations in readiness for the holiday season. For example, for BioSense, compared to 2019 holiday season, we processed 130% more e-commerce orders during the holiday season. We expanded our customer service activities and deployed live video chats and other digital capabilities to significantly improve and differentiate the experience for our consumers. We remain focused on operational efficiencies that improve our margin. And we were able to drive down during the fourth quarter the costs of four ingredients to their lowest level yet. Squalene is one of these examples where we achieved better efficiency and delivered unit cost savings of 23% compared to the previous quarter. We also captured key savings across many of our key raw material costs And for example, our farnesine unit costs were 26% lower than the previous quarter. Farnesine is a key raw material to four of our products. We're also strengthening our commitment to sustainable production. In December, we received Bonsucro Chain of Custody certification. We are the first biotechnology company to be awarded this Bonsucra certification. The Bonsucra standard ensures that sustainability claims along this sugarcane supply chain are traceable from farmer to end consumers, providing clarity and credibility to our consumers and partners that we produce products using sustainable, ethical, and fair trade practices. As John mentioned, ESG is in the core of what we do. Finally, I am pleased to give you an update on the progress that we've made on our Brazil construction plant, Arbara Bonita. We have launched the civil phase of construction and the project is proceeding on target and on time while adhering to the strict safety protocols that COVID-19 requires. I will now close by reaffirming our three operational priorities to drive improved growth and efficiency in 2021. First, we remain on target to complete construction of our plant at Barra Bonita by the end of the year. Second, we will target the successful scaling of four of our newest products. Third, we will continue to improve our operations and supply chain management capabilities with particular attention to scaling our consumer fulfillment and production capabilities. With that, I will turn the call over to Han to review the financial results. Han?
spk06: Thank you, Eduardo. Please turn to slide nine. I'm pleased to report that we had a very successful quarter with record sales revenue, expanded gross margins, and positive adjusted EBITDA. We delivered record total sales revenue for the fourth quarter of $80 million. This was nearly double versus the prior year quarter. We delivered product revenue of $35 million, $5 million in collaboration and grants, and $40 million from the previously announced Jibadon-Farnesien strategic transaction. Product revenue of $35 million was a new record and increased 71% compared to the prior year quarter, driven by a record quarter for consumer, which... with $17 million in revenue and 161% year-over-year growth, delivered as much revenue in the fourth quarter as it did during the entire year 2019. Ingredients revenue of $18 million in the quarter grew 29%. Gross margin of 66% of revenue improved from 56% in the prior year quarter and increased margin contribution by $30 million year-over-year. Product-related gross margin grew $6 million first the prior year quarter, with the remaining $24 million primarily attributable to the year-over-year impact from strategic transaction. This is basically the difference between the aforementioned $40 million from the financing transaction minus combined proceeds of $15 million from Vitamin E and the Levant collaboration in Q4 of 2019. Cash operating expense of $50 million increased by 5 million or 10% versus the prior year quarter, primarily due to selling and marketing investments in our consumer brands and new R&D programs. G&A expense improved in finance, HR, and legal. Increased expenses in selling are related to the fulfillment and distribution due to much increased sales activity. Also, Q4 of last year benefited from a one-off credit to R&D lease expense. T&E expense continued to be down due to COVID-19 travel restrictions. Adjusted EBITDA was positive $1 million and improved $26 million year-over-year due to higher revenue, improved product growth margins, and income from the Q4 strategic transaction. Q4 GAAP net earnings of minus $109 million improved $31 million, and GAAP EPS of minus $0.44 improved $0.21. Adjusted net earnings of minus $7 million improved $34 million compared to the prior year quarter, and adjusted EPS of minus $0.03 improved $0.31 compared with Q4 of 2019. Throughout 2020, we did extensive work on improving the balance sheet by simplifying and reducing debt and diversifying our shareholder base. December 31st debt of $171 million was significantly reduced by $127 million from $297 million at the end of the prior year, resulting in much reduced debt servicing expense. Interest expense of $6 million was down $8 million, or 56%, compared to the prior year quarter. Let's turn to slide 10. For the full year, we also achieved new record sales revenues. Total revenue of $173 million grew 13% versus the prior year. Record product revenue of $112 million increased 72% versus the prior year, driven by record consumer revenue and record ingredients growth, up 197% and 26% respectively. Gross margin of 56% of revenue improved $11 million compared to the prior year. Product-related gross margin grew 37 million year-over-year, with a 23 million improvement from consumer and a 14 million increase in margin contribution from ingredients. In 2019, we recorded higher income from collaboration and transactions, resulting in a year-over-year variance of minus 26 million. This was mostly due to the vitamin E transaction and Lavant collaboration revenue in 2019. Cash operating expense of 181 million decreased by 1 million or 1% compared to the prior year, primarily due to decreases in G&A and R&D expenses, partly offset by investments redirected to marketing expense to support consumer brand growth. Adjusted EBITDA of minus 95 million improved 8 million compared to the prior year, primarily due to higher revenue and improved gross margins. Interest expense of 48 million was down 11 million or 18% compared to prior year due to lower average debt and improved interest rate. We made most improvements to debt in the second half of 2020. As a reference, second half interest expense was down 18 million or 58% versus the year prior. Lastly, as of December 31st, our cash position was 30 million. Let's move to slide 11. On the two previous pages, I already commented on the delivery of record revenue both in the quarter and for the full year from continued strong growth in both consumer and ingredients. Sequentially, each quarter of 2020 saw improved underlying total sales, building from 24 million in Q1 to 30 million in Q2 to 34 million in Q3 and finally to 40 million in Q4. Q4 was a very strong quarter for our consumer portfolio due to the holiday shopping season and continued strong consumer traffic on our e-commerce channels. For full year 2020, two-thirds of Biosciences' revenue came from online sales. We previously announced our partnership with Superordinary for Biosciences' entry into China. We shipped our first order in Q4. Perpet also continued to grow its core clean baby and mother care products and had its best quarter yet in Q4. Ingredients saw the first commercial production run of CBG from fermentation, which fully sold out during the fourth quarter. And sales of Rep-M were also strong, complemented by strong vanilla revenue. Please turn to slide 12. I have commented on the various key financial metrics already. The key takeaways from this page as it relates to our full year 2020 performance can be summed up with five simple points. First, we continue to significantly grow revenue. Second, we enhanced product margins from growth in consumer and efficiencies in ingredients. Third, operating expense was down from the reduced G&A expense redirected toward the growth of our brands. Fourth, as a result, adjusted EBITDA was up. And fifth, we much improved the balance sheet with debt down, significantly resulting in lower debt servicing expense. To this last point, we have continued to make progress, as John mentioned, during the first quarter of this year, and our debt as of March 1st is now below $150 million. Let me now turn to the outlook for full year 2021. We have a number of activities underway to continue to support the growth of our business and to ensure we execute effectively on the strategic transactions, the addition of new brands, and the continued development of our product development pipeline. Our current outlook for 2021 is that we expect underlying total revenue, this is consumer, ingredients, and collaboration and grants, to be in the 240 million range. When adding the potential of the 2021 strategic transactions, total reported revenue is expected around 400 million. We expect these transactions, strategic transactions, to be mostly accretive to revenue and earnings, resulting in positive full-year adjusted EBITDA. Obviously, a full assessment will be made upon consummation of the strategic transaction as a result of which we may update our full year 21 outlook. As it relates to phasing of revenue over the year, we expect the phasing of underlying total revenue to be 35% in the first half of 21 and 65% to be generated during the second half of 21, reflecting a continued quarter-on-quarter growth trajectory along with the impact from the addition of new brands. We expect to continue our work on the balance sheet and expect debt to reduce further to below $100 million by Q3 of 2021. With that, I'll turn the call back over to John. John?
spk08: Thanks, Hein. Consumers are demanding natural products that are clean and sustainably sourced. This is true for all consumer goods, including beauty, personal care, health, and nutrition markets. We deliver better performing molecules at a lower cost and are sustainably sourced. This is our no compromise promise for customers and consumers that is delivering industry leading growth and margins. To make the world sustainable, our company needs to be sustainable. The simplification and growth of our portfolio and our continued operational performance enables us to become one of the first companies in our sector to become financially self-sustaining. We're very excited about the year ahead. And I look forward to hearing your questions. Chad, can you please turn the call to questions now?
spk07: Certainly. Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using the speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. We ask that you please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. And the first question will be from Craig Irwin with Roth Capital Partners. Please go ahead.
spk02: Good morning and congratulations on the really impressive quarter.
spk05: Thanks, Craig.
spk02: I wanted to ask a little bit about the 2021 EBITDA guidance, positive EBITDA. There's been a lot of fundamental improvement in the core business. Your margins, again, were very strong. Can you maybe frame out for us the relative contribution of Costa and the other acquisitions to achieving EBITDA profitability on the platform? Is this really leverage of the combined entity that gets you to positive full-year EBITDA, or are we potentially looking at a very nicely accretive transaction when you consummate the Costa Brazil acquisition?
spk08: Craig, I'll start and then have Han make sure I'm correct and additive. Thank you for being on the call, Craig. The first thing I'd say is the brands we're acquiring are accretive from day one. Secondly, you know, these brands are not necessarily generating significant revenue, and that is why we're acquiring and then plugging them into our system. And if I think about Costa plus TerraSana just as two examples, and we can add the new ones we're creating, Rose Inc. and Jonathan Van Ness, The way we look at it is we start with the fact that our current return on ad spend is some of the industry's best, and our efficiency in acquiring customers and really converting those customers to revenue and then repeat purchase is really what's made our platform for consumer one that we believe we can be accretive from day one on any of the acquisitions that we're making. Then if I think about relative contribution, I think The biggest contribution we expect for the year will come from Terrasana and the acne product. We think the focus on that product and its efficacy and the ability to break through the consumer will be super strong, and we expect to have that product in market by June. The other thing we like about it is that it's a formula that will be exclusive to us. It will be us, two or three other brands, very controlled, and we think that will generate significant cash and will be a big contributor to our EBITDA for the year. I think Costa will fall right behind that. Then I think Rose Inc. and JVN will also contribute pretty significantly. And what that says is the combination of new brands in the mix this year, you know, will add over $30 million of revenue with significant benefits profitability because it's being added and leveraged through our existing platform. So I hope that helps, Craig. I think that's kind of one way to think about it is the brands are accretive. They're accretive from day one. And yes, they're going to add a significant improvement. But don't forget that our base business, Biossance, the Pipette brand, and the ingredients are now just really contributing and expanding margin and really every quarter, right? So don't underestimate the amount of contribution they make, what the growth brings, and then obviously the third part is what the one-time transactions bring and the impact to EBITDA this year. Han?
spk06: No, I think, John, that's a good summary. I was going to add that last point you made, number three, which is indeed the accretive nature of the strategic transaction to both revenue and earnings. But I think you summed it up well.
spk02: Thank you. My follow up question, I wanted to ask about the six molecules you launched in the fourth quarter. Can you maybe share with us what your revenue expectations are in the guidance you issued for 2021 revenue guidance? You know, how do you expect to qualify the success of these molecules over the course of the year? And then, you know, what should we think about the markets for the 8 to 10 that you mentioned that will probably be launched over the course of this year? Are we talking predominantly clean beauty, health and wellness, flavor and fragrance, or maybe a new market for some of these?
spk08: Yeah, two different parts, Craig. So I'll answer the first part, which is simply we're not breaking out revenue by molecules. What I can tell you is All the molecules we launched last year are actually sold out in 2021. So our big issue right now is not necessarily demand, growth, or even cash from those molecules. It's actually the capacity, which is why Eduardo's point on really keeping focused on our new plant, the Barra Bonita plant, as our key project for this year is really super critical. It is on track. It'll be completed by the end of this year, and that will really open up a significant opportunity for more expansion next year for the molecules we make. So we're not breaking out in the visual revenue, but we can confirm for you that the molecules we launched last year, we are obviously, like we have year on year, significantly increasing the production of those molecules, and all of that is currently lined up and sold out for 2021. I think when it comes to you know, the second part of your question, the eight to 10. In the eight to 10, you know, there are new molecules being added to the development pipeline. And the way to think about that, there's a pretty good mix of what I'll call flavor and flavor, health and nutrition and beauty. So there's a mix, almost a third, a third of the molecules going into the pipeline. in the 8 to 10. And out of the 8 to 10, look, I think there's some quick wins there that we'll see commercializing at the end of 2023, beginning of 2024, as we said during the call. We're now at a point where most of what we're adding to the pipeline, not all, but most, can really develop and go to scale within a year of entering the development pipeline.
spk02: Great. Thanks again for taking my questions. Congratulations on the progress. Thank you, Craig.
spk07: Thanks, Rick. And the next question will come from Colin Rush with Oppenheimer. Please go ahead.
spk04: Thanks so much, guys. You know, Han, can you take us through the cash walk from here to the $100 million of debt in the third quarter? Obviously, you guys ended the year with $30 million in cash, and you're going to have some cash coming in the door here. But I just want to understand the cadence of that here over the next few quarters.
spk06: Yeah, sure. No, not a problem at all. So we finished the year, as we said, at around 171. We also said that we have already made progress this current quarter by further reducing that. So we're actually now below 150 million. So to get to that, we have certain instruments come up as part of maturity this year, by the middle of the year. And then, you know, of course, as part of the strategic transactions, we will use proceeds to further reduce debt, which we've said all along as that being part of the objective. So that's why we see a clear path from where we are right now, which is already below where we finished the year, to, you know, to the third quarter being below $100 million.
spk08: Okay.
spk06: Hi, the only...
spk08: The only thing I would add, Colin, one second. I would just add that this was in the release, but just to emphasize, since December, we've generated a little more than $48 million in warrant conversions, in addition to the $30 million that we ended up the balance with at the end of the year. Plus, you know, we've got a pretty clear path and visibility to a significant amount of cash generation through the year, right? So not only are we moving... debt to equity for some of the outstanding debt. We're also generating significant cash, both from warrants and the transactions, and then obviously the operating cash from the continued revenue growth.
spk04: Okay, that's helpful, guys. And then as you bring up this new capacity, can you talk about the value of the flexibility of the facility in terms of producing different molecules and your ability to serve all of these different end markets? It seems to me that one of the challenges that you guys have is the diversity of revenue here and optimizing capacity for that. And then if you could just give us a sense of, you know, full revenue potential on the product side with this new capacity fully ramped.
spk08: Yeah, you know, there's two things going on, Colin. It is, you know, they're all fermentation. So the good news is the fermentation process is pretty consistent, but they are different molecules. And we do need to have separation by tank, which is one of the key benefits of this new factory. The other thing to keep in mind is the revenue potential of the factory varies significantly by the mix in the portfolio, i.e. the revenue each unit generates. And as you know, we've been significantly upgrading the average revenue generated per molecule in our portfolio. So a year ago, I would tell you, a $70 million investment, which is the total investment for our factory, could generate $200 million of revenue per year and obviously have a full payback in one year. The reality now is as the average selling price has gone up in the mix of molecules we have, and as obviously we have more exposure in these exclusive molecules for our own retail business, we're now at a point where from the ingredient side and the product side of our business, you know, we probably have three to 400 million of revenue generation potential from a $17 million investment. If I think about the mix of products, the volume and the end markets they go into. So it's a, it's a pretty potent plant. And again, think of the plant as different production lines that we can expand on and each tank, having the ability to be separated so we can run up to six or eight different molecules at the same time without having any cross-contamination or issues and really maximizing the utilization of the factory. So the other thing I would say is based on entering into this 15-year supply arrangement with the partners that we're establishing these new contracts with for a portion of our portfolio, the combination of those supply contracts And then the growth in our portfolio says, you know, by the end of 2022, or call it the beginning of 23, we'll need a new plant. So our focus will be once this plant is done, start construction on the third one. And we see that as really just continuing to provide the infrastructure to continue to make these clean, sustainable ingredients available. I hope that helps, Carl, in thinking about the mix, what the mix does to revenue per plant. and how we think about demand and capacity over the next few years.
spk04: Yep, it does. Thanks so much, guys.
spk07: And the next question will come from Amit Dale with H.C. Wainwright. Please go ahead.
spk05: Thank you. Good morning, and I appreciate you taking my questions. When we think about or when investors think about growth beyond 2021, John, you know, High 30% level of growth, is that sort of the base case from here?
spk08: Look, Amit, I think the way to think about it is it's clear that in 2020 with COVID, as much as there were a lot of benefits from that, especially in our consumer business, there were also a lot of barriers, right? And I think one of the biggest barriers was innovation in a lot of the brands, especially when it comes to food and nutrition. So I think 30 is a baseline. I would expect year-on-year top line of 50% or better as we go forward. And I think I said in a recent call that when you think about the mix, the acquisitions we're making, and the focus in our portfolio, both in, you know, the way to think about it is it's direct to consumer and everything that's health, beauty, and wellness, including ingredient supply to other brands. And it's partnerships for everything else. When you look at that mix, and when you look at what we're doing with the technology, I mean, like, I think, again, I said publicly, I expect, you know, $500 million with no issue as we end 2024. The reality is we've got quite a bit of growth built in that should exceed our expectations as we continue building out the business. But, yeah, think about 30% is definitely the bottom 10%. 50% annually or more as a target growth that you should see delivered this year without an issue.
spk05: Understood. Thank you for that. And these 18 ingredients that are in development, are these going to be part of your collaboration revenues or are some of these also organic company efforts?
spk08: All the ingredients I referenced, the 8 to 10, are all collaboration-based, meaning they will all be accretive to the collaboration revenue line. None of the ones I referenced are ingredients that we're developing ourselves and self-funding.
spk05: Understood. And then just from a high-level macro perspective, with agriculture-related costs and ingredients from the traditional agricultural side continuing to trend higher, how do you see fermentation coming in and replacing some of those higher cost ingredients that have traditionally been sourced from agriculture efforts.
spk08: Can you give me an example?
spk05: For example, on the squalene front, you made a big difference in terms of how it is replacing traditional sources. Are you seeing a demand pull for fermentation-based offerings relative to maybe what might have traditionally been sourced from agricultural sources, is that driving a lot of this traction that you're starting to see from the customer side?
spk08: It is. So I understand that. So you're basically saying, look, stuff that people traditionally got from agriculture, whether trees, plants, or for that matter, animal, is that driving the demand? And without question, I think people are looking at There's a lot of demand for certain products around the world, especially in personal care and beauty. And the constant pull from those ingredients, I think vanillin is a perfect example, really stresses the whole supply chain. So the idea is it's okay to source some vanillin from farms because, frankly, we have to keep communities also sustainable. But to meet the world's growing demand, We need to turn to fermentation because fermentation is really the only way to make natural in a sustainable way and deliver high purity, high performing ingredients. And that is at the heart of what's driving a lot of our growth.
spk05: Right. Understood. I have some follow-ups on that, but I'll take that offline. Thank you so much. Thanks, Amit.
spk07: Thanks, Amit. The next question will be from Lawrence Alexander of Jefferies. Please go ahead.
spk09: Good morning. Two questions. First, on the milestones and the commercial transaction, can you give a flavor for what the ongoing revenue stream should be for 2022 to 2025? Are we looking at, say, $20 million to $30 million a year in net sales being locked in with these transactions? And how much of that $500 million is just bartering for molecules being given back to Amherst? And secondly, on the fermenting protein, can you flesh out, are you at least pointing us towards thinking about you doing a fermented protein platform or are you venturing into lab cultured meat? And are you using carbohydrates as a feedstock or are you moving to methane?
spk08: Great, Lawrence. So, Lawrence, thanks for being on the call. I mean, first of all, on your first question, there is no bartering. for ingredients coming back. And the way to think about it is we are locking in 30 to 40 million of built-in revenue from the manufacturing deal annually for the next couple of years. And I'd expect that revenue base to grow year on year over the 15-year period. If we think about what the growth of that portfolio has been, you know, based on the production type relationship, you know, I would expect 30 to 40 million a year that grows at a steady 10 to 20% a year without fail. And that's the outcome of the production side of that deal, which I think is one of the greatest benefits for us in how we think about locking up baseload for our plants. Regarding the protein side, we're not going to go into the cultured meat business. We are focused on really molecules to help either the supply chain or fermentation-based protein molecules that can be used to formulations to deliver great protein for consumers, right? So those are the two areas we're focused on. And, you know, it's pretty broad-ranging. For instance, one of the issues with meat today is it's typically transported in bulk, big carcasses that are moved from the grower, the folks growing the meat, to where the end markets are. And actually, that's not the most efficient or effective way to do it. So breaking bulk at the source is enabled only by a natural preservative that can be applied to the meat. And so we have natural preservatives in our portfolio that are fermentation-based that we believe could make a huge difference to how the supply chain works and the amount of carbon emissions in the overall supply chain. So we're looking at it broadly, acknowledging that There's going to be meat consumption for a long time to come, and our mission should be to take the CO2 out of that supply chain. So I hope that helps, Lawrence. It does.
spk09: Yeah, actually, thanks.
spk07: And the next question will come from Graham Tanaka with Tanaka Capital Management. Please go ahead.
spk03: Thank you. Thank you all. A very nice year and great progress in all areas. I was wondering if I could ask if you could elaborate a little bit more on the vaccine and adjuvant efforts and particularly the prior references to government funding, maybe talk about timing, size, industry interest, and how serious is government support in the U.S. and overseas? Thanks.
spk08: Hey, Graham. Thanks for being on the call. So, I mean, two things on vaccines, right? As we said, first, we've now obtained vaccines. preclinical data on our RNA platform that demonstrates, from an efficacy perspective, it's as good as anything in the market, but more importantly, that the way the vaccine is assembled, the actual formulation, how we use the adjuvant, and then some other aspects, including freeze-drying, actually significantly change the supply chain complexity and the scale-up complexity of the vaccine and really enable us to have what I believe will be the key RNA technology for all future use of RNA. And so our focus is getting the technology developed, enabling it to get the scale. We're moving to human clinicals phase one very rapidly. And then again, with that data in our hands, really become the enabler and the axis of technology for other companies to be able to really make RNA as potent as it should be and as flexible as it should be to deal with pandemics and deal with other treatment issues that we believe RNA vaccines will be good for. In addition to that, we have the squalene, which is obviously a key component in the vaccine, as well as other vaccines' key adjuvants. So in both, the government has been very interested in enabling vaccines U.S. manufacturing of those two components, the RNA vaccine itself and then the subcomponent, the squalene, for the adjuvant. We have not disclosed the total number, so I'm not going to put it out there, but, you know, it's pretty significant. On the other hand, I think we've said publicly that the scale-up of our RNA vaccine is about 10x lower cost than what's currently in the market. So, and I'm putting that out there as a reference so that you don't think it's a billion dollar funding because our vaccine doesn't require a billion dollars to scale, right? And then regarding the interest of governments, look, I could tell you the Portuguese government, as an example, they are very, very focused on really having a sustainable solution, not only for their country, but the Portuguese, as an example, see the African continent as and the Latin American markets as two fantastic markets that don't have a great solution today, and that we see this platform being able to enable that. So, you know, it's a very interesting technology. We got lucky and locked in something that we had been working with for several years. We made a bet on RNA before RNA was proven to be the future of vaccines. And that bet seems to be playing out. I think we really want to advance the human clinicals. We want to get the next round of data. And then we want to focus on commercializing and scaling it up. And again, our focus is funding that through government sources, non-equity dilutive capital to ensure that we can be in that business and create a future in the health side of our business without taking significant exposure for our investors. I hope that helps.
spk03: Yeah, just if you could elaborate a little bit further on the timing of the various phases, phase one, phase two, phase three, for human clinicals and when you might come out with an approved vaccine. And secondly, does this enable Amherst to retain 100% of the intellectual property and ownership?
spk08: We currently have an exclusive license that enables us to keep ownership of the technology. So that is ours today. I think secondly, and we have that not only for what I'll call SARS-type treatments. I believe, and I've been talking to the medical community a lot, there is a need for a universal SARS vaccine, a platform that enables us to respond to the different SARS viruses over time. And that's really what we're doing on the SARS and current pandemic front, And then we have a license and rights to additional indications. And there are obviously more indications than SARS that a RNA vaccine can apply to. Regarding timing, look, we are going to be heavy into phase one human clinicals around mid-year. And then I'd expect by the end of this year to have enough data to be able to really make choices around regulatory and commercialization. How fast that goes through regulatory I think depends a lot on the moment. I think what we've seen over the last year is immediate support and advancement. If we can maintain that kind of focus on creating a real systemic and sustainable response system to pandemics and SARS diseases, I think we'll be through fast. If not, I can't predict it, but that's kind of the biggest variable we have as we go through the end of this year.
spk03: Great. So perhaps potential revenue by what, early 2022, is that the possibility?
spk08: Yeah, look, I think 22 is possible that we see positive financial impact from the RNA platform. And I'd almost say if everything goes well, that's what we're going to see. If there's some major disruption that changes the focus of world health organizations and governments, to having a real response system to pandemics, then the timing may change. But if what we see continues and the focus of governments and the support and the weight of those governments and agencies stays as is, I would expect to see some first material revenue as we go into 22, end of 22. Great.
spk03: Thanks. And just if I could throw another quick question on monoclonal antibodies. You did not mention that earlier. I'm just wondering if you're making progress on that front.
spk08: Look, our focus on the monoclonal antibodies has been identifying target antibodies and what I'll call discovery companies to partner with because having a great platform for antibodies without having a treatment or a therapy that is really impactful and has a clear road to market isn't super exciting, right? So that's where we're putting our energy. We are engaged in several discussions. And, you know, more to come this year. But our focus and what we want to share with you is once we've locked in a couple of therapies that we think will be meaningful and we actually have them in development in our platform, that's when we'll be making material announcements around the antibody platform.
spk03: So later, you expect news on that front, what, second, third quarter this year or later?
spk08: Yeah, I'd say second half of this year, right? We've got a lot going on in the first half, but... We've got active discussions that could move faster, but just to keep everything measured here, I'd say second half of the year is when I'd expect us to have something more material and a commercial path for the antibody technology. Great. Thank you. Good luck. Thanks. Thanks, Graham.
spk07: Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to John Mello for any closing remarks.
spk08: Thanks, Chad. Look, thanks to everyone for joining us today and for your continued interest and support. We've gone well over the time we expected, but I really appreciate the questions and engagement. If we didn't get to your question, please follow up with our investor relations team and we'll make sure to get back to you with a response. We really wish everyone best of luck and please stay safe and healthy and let's get through hopefully getting back to some life as we get through 2021 and let's make it a great year for all of us. We look forward to speaking with you during one of our upcoming investor conferences. Thank you and have a good day.
spk07: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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