Amyris, Inc.

Welcome to the Amherst Second Quarter 2021 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 Han Kleefdenbald, Chief Financial Officer of Ameris. Please go ahead.

Thank you, Andrea, and good morning and good afternoon. Thank you all for joining us today. With me are John Mello, President and Chief Executive Officer at 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. 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 Amaris' outlook for 2021 and beyond, Amaris' 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 details 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, which 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.

Thank you, Hein. First of all, good morning to everyone, and thank you for joining us today. I'll provide a business overview as it relates to our lab-to-market science and technology, our ingredients pipeline, and our consumer brands. And we'll also speak to our expectations for 2021 and our five-year strategic ambition. With the second quarter, we completed a strong quarter of strategic and operational execution. We delivered another record of underlying revenue growth driven by another record of consumer revenue while significantly improving our margins year over year. The quarter was a great moment where we had more sales than we were able to ship before the close. We had orders for $2.4 million a product, $600,000 in consumer sales, and $1.8 million in ingredients that did not get shipped in time to make the quarter. This strong order momentum has continued into the third quarter. From an operational perspective, we had a record quarter in our consumer business. without the revenue contribution of any new brands. As such, this is a true like-for-like comparison to last year. We are experiencing very robust consumer spending in beauty and personal care products across most major markets. Biossance doubled revenue versus the prior year quarter. We witnessed a strong contribution from brick and mortar in the quarter as a result of easing pandemic restrictions in North America and the U.K., The performance of our brands is evidence of the rapidly growing consumer demand for high-performance, affordable, and sustainable clean beauty products. We delivered another solid quarter of growth for our ingredient business. This is the first quarter with our flavors and fragrance ingredient business performing post the DSM strategic transaction we completed in the first quarter of this year. The partnership is operating very well and delivering strong growth as we expected. We expect this growth to continue into the third quarter. We expect four-year ingredient growth around 30% and to continue in the 30 to 40% range over the next several years. The first half of 2021 demonstrated strong year-over-year growth on all aspects of revenue. The second half of this year looks very robust and we continue to see strong demand for our consumer brands and ingredient products with strong year-over-year and sequential growth. 2021 is on track to be another record year, with expected total revenue north of $400 million and positive adjusted EBITDA for the full year. Our first half was really about key strategic moves and setting up our second half. Our second half will be driven by operational revenue and consumer growth. At Amherst, we have integrated our business model from molecule to consumer product, which is driven by our lab to market science and technology. This is delivering the best revenue growth, margins, and the leading financial performance in our sector. We expect to continue this advantage level of performance over the next several years. We are experiencing the most growth ever in our product development pipeline and significant interest from current and potential new partnerships. At the heart of our ingredients pipeline is clean chemistry and sustainability. Since the start of the pandemic, there is a tremendous consumer pull toward clean, natural, and sustainably produced products. We are leading this transition to clean chemistry and believe that we deliver more biomanufactured products than the aggregate of our entire sector. We have been deliberate in our choice of clean beauty, personal care, health, and wellness markets. These markets are high growth, high margin, and capital light. The global beauty and personal care market is expected to be $716 billion by 2025. growing with 7% cumulative annual growth rate. North America and Asia Pacific represent 75% of the global market. We believe that clean beauty will become the beauty industry, a segment for which we are viewed as leaders and which is growing at double the rate of the regular personal care market. We added four new brands to our portfolio during the quarter. These brands are a great fit and plug into our platform. They have brought with them outstanding talent. This includes the CEO who built Method, one of the world's leading designers, amazing new marketers, and great brand builders. These new brands will all consume our ingredients and become an accelerator to our revenue growth. These have also been great financial transactions. In aggregate, we are paying less than two times revenue up front, and we are funding most of this with Amherst Equity. In total, we have used less than 1% of our outstanding share count for these acquisitions. We expect our consumer business to more than double this year and continue growing at this rate for the next several years. We are well prepared to invest and fund the full potential of our consumer brand portfolio from the proceeds of our future earnouts from the recent strategic ingredient transactions. We have estimated over $250 million in earn-out payments, and we are tracking to achieve our earn-out targets. We believe there are three stages in the journey from lab to market. Technology leadership, the platform has to work. Scale-up and manufacturing excellence. It is one thing to have technology, but it has to translate to making real products that are purchased by real people in real markets that are growing. And last but not least, adoption at scale. Great products that aren't adopted by the market don't matter. The science is hard, but scale-up in manufacturing is much harder to execute. At Amherst, we successfully develop, scale, and commercialize. We are a platform company that leads the sector with science that designs solutions with the end in mind. We work with partners to identify the market opportunity, drive adoption, and determine what attributes make a real difference in formulation. We have successfully commercialized over 13 molecules from idea to successful production and commercialization. Each of our molecules reached over $1 million in revenue in their first year of commercialization, And most of them are currently the world's leading source of the respective chemistry. We are successfully remaking the world one molecule at a time and healthier for all. We have expanded the number of ingredients in active development from 18 to 24 during the second quarter from both existing partnerships and ingredients for our own direct ingredient sales and consumer brands. In addition to the technology and development to scale, we have completed proof of concept on over 250 different molecules made sustainably from fermentation using our technology. Several of these molecules are under current contract by the U.S. government and on the path to scale up. By way of example, one of these ingredients that we are developing for our direct use is hyaluronic acid. a workhorse of the beauty industry, and a core product focused on helping us all look better. And you know, when we make it from our technology and through fermentation, it's a clean source of hyaluronic acid, which means it is likely to perform better, be lower cost, and be super impactful for the consumers that use it. We expect to commercialize four to six new core ingredients annually through 2025. Each of these ingredients are for addressable market sizes well in excess of $1 billion. We expect on average our ingredients and products in development to be worth $50 to $100 million within two to three years of initial commercialization. We base this on our success of licensing these technologies to DSM, Ingredion, and many other earlier technology licensing events. Another area of technology we made significant progress through the second quarter is our RNA vaccine technology. We are very pleased to partner with Dr. Patrick Soon-Shiong. He's a proven inventor and entrepreneur in biotech, and one of his companies is the first license for our RNA technology. We believe we have the most effective booster shot for COVID, along with the best delivery system for RNA vaccines. We are expecting to be in human trials in South Africa very soon, and if successful, helping patients by early next year. The first license covers our total investment in this technology with the upfront payments and the milestone payments, and also covers the costs of the human clinical trials. The partnership with Patrick also includes access to manufacturing capacity for our vaccines. We have not included any of that vaccine potential in our future forecasts and will not do that until we have complete visibility. Let's now talk about our ingredients. Our ingredients business is performing very well across the board. We had a very strong quarter for flavor and fragrance ingredients with record setting volume for some of the products and accelerated growth as many of these ingredients are used in the personal care market where we are continuing to experience very strong demand across most regions. We expect European demand to accelerate as we see many consumer companies in the personal care arena return to full production in the second half of this year. Our partnership with DSM is working very well in this space. We are expanding the number of molecules we are working on with our partners while volume for the established molecules continues to grow at a 30% or better rate annually. Our beauty and personal care ingredients sold directly by Amherst are also doing very well. We have another record quarter for squalane and hemisqualane combined. Hemisqualane is an incredible molecule that we invented and then scaled to our lab-to-market platforms. It's a replacement for silicones and is the perfect product to improve the performance of shampoos, body wash, soaps, and many other products that wash off your body. These silicones don't perform well in delivering real impact to the consumer. They are not healthy, and they pollute our water systems. They are outlawed for use in Europe and should be banned in the U.S. The global hair care market alone is around $75 billion. This ingredient generates millions in revenue for our ingredient business currently and soon will be a significant point of differentiation in our consumer business as we launch our Jonathan Van Ness brand, JVN. Our sweetener business also performed very well and delivered a record revenue quarter. We are very pleased with our new partnership with Ingredion and already have developed a list of molecule targets that we are both excited about developing and commercializing. We have successfully executed from the lab to market on all our commercialization efforts over the last 10 years. We learned some very hard lessons when we first entered manufacturing and scale-up in 2011. Those lessons have shaped us and have made us the best in the industry at targeting, developing, scaling, manufacturing, and commercializing amazing chemistry that's making our world better. Our newest ingredients are performing well. CBG and our breakthrough formulation are well set to deliver a superior treatment for the acne market, and we expect to quickly become a leader in this $11.5 billion global market. We will be hosting an investor event to provide a deep dive into the performance of this ingredient and the breakthrough formulation. We plan to include before and after stories in an interview with a leading dermatologist. We are on track to launch this product through our Terrasana brand over the next few weeks. Let's now dive deep into our consumer business. Our consumer business delivered another record quarter. We've developed and launched brands consumers love. We exceed consumer expectations and this has led to brands with a very high level of repeat purchase and brands that are super efficient at attracting and converting new customers. We expect our new to be launched brands to have a strong uptake in the second half. Remember, we had none of these brands in the first half. We have already realized much of this with the pre-launch orders and demand from retailers. The remainder of the year will add revenue from Rose Inc., JBN, Costa Brazil, Terrasana, and the Olica brand. We will also bring in two consumer businesses named MG Empower, one of the leading agencies and management services for influencers, and Beauty Labs, an amazing technology company delivering technology and applications that engage the consumer online. These will also contribute to our revenue in the second half. We executed and delivered great performance across all four key drivers of the consumer business in the second quarter. First, new brands. We'll be launching five new brands. We acquired several new brands. New brands are a key part of our growth strategy of using our ingredients and of leveraging our development platform, our marketing platform, our product platform, and our channel partners like Sephora. New doors. We added over 10,000 new retail doors for selling of our brands. This is well beyond all of our expectations. New products. We added significant new product launches across both Pipette and BioSigns. And this newness was very well received by consumers and contributed to the significant growth in new customers along with a strong repeat purchase for our existing customer base. And then lastly, new customers as the fourth driver of growth in our consumer business. We started the year with about 1 million consumers visiting our consumer websites monthly. I expect we will end the third quarter with nearly 2 million consumers per month. This is coming from the strong awareness our brands are building and the traction and success of our brands, along with the amazing performance of our products. We have a unique capability to identify unique opportunities and execute on these opportunities with brands' consumers' desire and products they love. This is all curated in detail. from identifying a market need for clean color cosmetics that delivers superior performance to selecting a very unique partner that has a unique understanding of cosmetics and a passion to deliver outstanding performance while setting an aspirational reach for the consumer and being super accessible in her voice. We then matched this perfect combination of a market white space with an amazing new ingredient that we discovered from our waste stream, in this case, biosilica. We then apply our world-leading formulation capability and brand-building skills, and this is the making of Rose Inc., one of our latest brands, a brand that is already loved by all that have met with it and have been introduced to the product, a brand that is likely to deliver over $20 million in revenue in its first full year of sales. We are repeating this with the JVN brand, a different market, a different partner and hero in Jonathan Van Ness, and a different ingredient that revolutionizes how a shampoo works and delivers the best performing hair care in the market. In this example, we are removing silicones from hair care, cleaning up our water systems, and delivering a revolution in how a shampoo works. We've just announced our partnership with Naomi Watts to focus on empowering the 1 billion women who are expected to be in menopause by 2025. These women deserve to be celebrated and not afraid to talk about the challenges they face and the needs they have at this amazing stage where they should be celebrating the stripes they've earned in their lives. This will come with amazing products for skin, hair, gut health, and intimacy. We will repeat our formula, a unique ingredient, an amazing brand, the best performing product in the category, an amazing partner in AOMI who has experienced many struggles with menopause and has a unique voice to engage and empower women throughout the world. Our consumer business is where we generate the greatest revenue from each unit of production. Think about it. Just 5% of our squalane production can generate $267 million in revenue if sold through our consumer business, but only $2.2 million if it's sold through our ingredient business. We have already started this revenue upgrade in volume from ingredients to consumer for several of our products, and you'll see more of this in the coming quarters as we accelerate our revenue growth from the same production footprint. Every kilo of squalane is worth 100 times more in revenue when used in one of our consumer products. Now, let me spend a few minutes on our five-year strategic horizon. Before I speak to our five-year strategic horizon, let me address the balance of this current year to provide you with a bridge to our full-year expectation. We are already experiencing and are expecting a robust second half. the consumer revenue is tracking towards an estimated 125 millions of revenue for the second half while ingredients collaborations and licensing revenue is expected to be in the 50 to 55 million dollar range the ingredient revenue is all about maintaining our current growth rate and benefiting from continued robust consumer demand for personal care products and a continued transition to sustainable and health-focused ingredients by consumer. Second half consumer revenue is driven by continuing the current growth trend from our existing consumer brands while benefiting from the seasonality of the fourth quarter with its holiday shopping season. We expect our new consumer brands and services to contribute about 30% of the $125 million of expected second-half consumer revenue. We expect full-year revenue to be north of $400 million and full-year adjusted EBITDA to be positive for the first time in the company's history. We set ambitious operational and financial goals, and we believe that our winning business model and advantage portfolio is well positioned to achieve an estimated $2 billion in revenue during 2025. We believe this is two times what our nearest competitors are capable of based on what's been disclosed publicly. Given the high growth expectation for the consumer portfolio and the end markets we have chosen to serve, The portfolio is expected to shift further towards consumer, from 40% of total revenue in 2020 to 72% of total revenue by 2025. Targeted 2025 consumer revenue is around $1.4 billion from our expanded family of brands. Meanwhile, we also expect to continue to grow our ingredients business to a total of about half a billion dollars. with a total of 30 molecules being scaled and actively being manufactured. We are very excited about the future and believe that we have the technology, the products, the brands, and the people to deliver against our five-year view. Expect us to comment more on our five-year trajectory in future investor calls. Our purpose is to accelerate the world's transition to sustainable consumption. Our ingredients are found in 20,000 products around the world and reach 300 million consumers a year. We promote diversity, equity, and inclusion and have established scholarships for minorities, to name a few. We believe that for our business to be financially sustainable, we have to create, manufacture, and sell sustainable products that consumers want and love. This is what motivates us, and we believe this will be core to our long-term success. We have a simple business model. We use our leading synthetic biology platform to make the world's leading chemistry from sustainable sources and provide access of these ingredients to all. We use our consumer brands to accelerate commercialization and access to these ingredients. These brands set the standards for consumer expectations. Once our brands set the standards, for consumer expectations and demand, they demand the same kind of performance from all brands around the world. This drives greater demand for clean ingredients and drives growth for our ingredient business. This drives our growth, makes our planet healthier through clean, sustainable chemistry. Who in their right mind would choose dirty chemistry made from non-sustainable sources when you can have better performance for less cost, and do no harm to our planet using Amherst brands and Amherst technology. With that, let me turn the call over to Eduardo.