Amyris, Inc.

Welcome to the Amherst fourth quarter 2021 financial results conference call. This call is being webcast live on the events page of the investor 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 investor section of the Amherst website. I would now like to turn the call over to Han Kiefenbeld, Chief Financial Officer of Amherst. Please go ahead.

Good morning, and thank you for joining us today. With me is John Mallow, President and Chief Executive Officer. This morning, John will provide a business update, and I will review our financial results for the quarter and full year. Please note that on this call, you will hear discussions of non-GAAP financial measures, including, but not limited to, core consumer and technology access 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 2022 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 detailed from time to time in our filings with the Securities and Exchange Commission, including our 10-K for full year 2021, which will be filed this afternoon, March 1, 2022. 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 AMRIS' website following the call. I'll now turn the call over to John. John?

Thank you, Han, and good morning, everyone. Thank you for joining us today. During our call, I'll provide an update on our business performance, our operating strategy, and our outlook. Then I'll pass back to Han for a financial update. I'm now on slide four. 2021 was a transformative year for Amherst and the fourth quarter is a strong demonstration of our capacity to grow and the potential of our lab to market technology platform, our consumer business, both via e-commerce and retail and providing access to our technology through new and existing partnerships. Interest in our business and technical capabilities has never been stronger. And the commercial success of our homegrown brands continues to confirm that we are just scratching the surface of end markets that will benefit from sustainable products derived from clean chemistry with no compromise to performance. The business integration of our lab-to-market platform, consumer brands, and technology access via collaborations and partnerships is clearly advantaged and puts Amherst at the forefront of the acceleration of sustainable consumption. Slide five. In 2021, we significantly simplified our business. We provided technology access by licensing the global distribution rates of our flavor and fragrance ingredients while maintaining the fermentation manufacturing capability for most molecules developed in our portfolio. This enabled us to focus our growth on health, beauty, and wellness in markets where we have built the fastest growing consumer brands. The fourth quarter was our fourth consecutive quarter of double-digit growth in our core business, which is the total of consumer and technology access and excludes revenue from strategic transactions and one-off items. I can confirm that We are now in the fifth consecutive quarter of strong growth and this growth is accelerating significantly in our consumer business. Slide six. Our fourth quarter core revenue increased 68% over the fourth quarter of 2020 with our consumer business delivering 86% growth year on year. For the full year, we delivered 97% total revenue growth versus 2020 and our consumer business delivered 78% year-over-year growth. Our gross margin dollars grew 135% year-over-year, and we managed our operating expenses to 67% growth year-over-year. Our existing brands continue to perform very well, with the combined revenue of Biossance, Pipette, and Pure Cane setting a new record. Biossance is accelerating in the first quarter, and we expect another very strong year from this group of category-leading brands. Our new brands that include Costa Brazil, JVN Hair, and Rose Ink delivered excellent performance in the quarter, with JVN and Rose Ink performing well beyond our expectations. This group of brands is on track for an incredible first quarter in a better-than-anticipated year. For most of our brands, we are experiencing very strong physical store sales through our partners well beyond pre-COVID levels, and we are maintaining a very healthy mix of around 50% of our revenue from our own direct-to-consumer websites. About 20% of our consumer revenue in the fourth quarter was from international markets, and we expect this to significantly grow in 2022. Our international expansion is focused on the UK, Europe, Brazil, and the Chinese markets. These markets are delivering very strong sales growth in the first quarter. We opened two retail pop-up stores in Miami, one for the JVN brand and the other for BioSans. The BioSans store has remained open and will eventually become a brand showcase and experiential permanent retail store. We are currently seeing over 60% conversion to purchase for consumers coming into the store. In addition to the strong in-store performance, we also experienced a very strong improvement in Miami traffic to our bioscience.com site. As part of an omni-channel approach, we believe that an experiential store in key markets improves our growth online and accelerates our market share gains in these markets. Our goal is to limit our experiential retail presence to three to four key markets over the next year and focus on flagship stores that provide a deep consumer experience with our brands. These stores will be opening in New York, London, and eventually in L.A. Slide seven. Our new ingredients plant construction in Barra Bonita, Brazil, has made great progress and we are on track for the start of production early in the second quarter. We have 600 contractors and employees on the construction site focused on delivering the most advanced fermentation factory in the world and the leading production site in the world for making natural ingredients in a sustainable way. We completed our joint venture partnership with Minerva, one of the world's largest exporters of beef, and a partner focused on lowering the carbon footprint of supplying the world with protein. We are focused on delivering our first product for commercial sales for this partnership in 2022 and are very excited about the expansion of our technology platform into proteins. We also completed our joint venture with Immunity Bio for the advancement and commercialization of our SSRNA vaccine technology. The first technology application of our platform for SSRNA is COVID-19 and the protection and rapid response to future respiratory viruses and potential pandemics. Our short-term focus is the successful completion of human clinical trials. The JV is focused on commercialization and has very limited capital needs from Amherst. Immunity Bio has invested in manufacturing assets for one billion vaccines a year and is leading the clinical trial work for the vaccines. we will add commercialization capability to the JV once trials have proven successful. We successfully scaled squalene for vaccine adjuvant production direct from fermentation in the fourth quarter and expect this business to deliver strong revenue growth in 2022. Since the close of the quarter, we agreed to terms with a very, and are very near, closing on the acquisition of Menolabs, a leading brand in the menopause market with a portfolio of probiotics to address hot flashes and other common symptoms women can experience during menopause. We view this as a significant addition to our portfolio and complementary to Stripes, the menopause brand we are building with Naomi Watts. We expect a combination of both brands to deliver more than $30 million in 2022 revenue, with significant growth into 2023 and beyond. This underserved market valued at over $15 billion in 2020 with double-digit annual growth is ideal for Amherst's science-backed approach to wellness and sustainability. During the fourth quarter, we made important changes to align our company leadership structure and operating model with our business strategy. Consumer became our single biggest business in 2021. We organized our business around two key revenue components, consumer and technology access. In technology access, we combine R&D collaborations, technology licenses, and ingredient product revenue. In consumer, we include all of our activity that sells, product, or enables the execution of our consumer brands. In the fourth quarter, And for full year 2021, each of these contributed about the same revenue to our company. As part of simplifying and focusing our business, we recruited two experienced leaders to lead revenue and operations. Ann Myung has been appointed president of our consumer business to partner with me and our brand leaders to support our accelerated growth. Ann is a transformative leader, She helped lead the turnaround of Walmart in China and also led the transformation of the Walmart.com business. For technology access, we appointed Mike Rutkowski, a very experienced leader who recently led the China business for Goodyear and has experience leading innovation in large business-to-business sales and marketing teams, including at Unilever and Clorox. We also expanded the responsibilities of Catherine Gore, who will continue to run Bioscience and also support the growth of the JVN brand. Additionally, we expanded the responsibilities of Caroline Hadfield. She'll continue as the leader of Rose Inc. and also partner with me in the development and creation of new brands and our consumer product innovation. Of course, Eduardo Alvarez will continue in his role as Chief Operating Officer and is doing an excellent job leading the startup, development and startup of the construction at Baja Bonita, as well as our expansion into manufacturing our own consumer products and building a robust supply chain that enables us to meet the strong demand we're currently addressing. This focused business structure and operating model, along with our new leadership, is expected to bring better performance management and execution to our business. Slide 8. We have become a leading house of brands for the health, beauty, and wellness markets. We have built incredible brands with category leadership in clean skin care, clean hair care, clean cosmetics, clean skin care for baby and families, zero-calorie natural sweetener, and we are set to also lead with new launches this year in clean Gen Z beauty and the Benapas category. So What differentiates us and has led to exponential growth in these markets? First, science. We have the only lab-to-market platform in the health, beauty, and wellness in markets, and we are applying our technology to make platform molecules that enable us to deliver the best performing products that are also sustainably made. Second, sustainability. Consumers are demanding sustainable products without compromise to performance. and we are the leading enablers of developing, scaling, and producing the purest, cleanest, and most sustainably sourced natural ingredients in the world. We are the only company in the industry that has built a lab-to-market platform that enables us to quickly scale and manufacture products with the lowest cost and that are also the most sustainably sourced. Third, marketing. We have built incredible brands repeatedly These are brands that consumers love and are outperforming other brands in their respective category. Next, business model. We are digital first with deep relationships with the leading specialty and mass retailers in the world, enabling us to scale and access consumers in the most efficient way. This year, you can expect us to partner closely with some of the world's largest retailers to transform their health, beauty and wellness categories into fermentation-based, sustainably sourced products. And then lastly, no compromise. Our no compromise promise enables us to lead the transition to a clean and sustainable future in health, beauty, and wellness markets. We formulate the best products in each of our categories and are the owners of the science that makes the most sustainably sourced platform molecules in the health, beauty, and wellness markets. So why does our leadership in consumer brands matter? We deliver the most leverage of capital investment to revenue dollars of any company in our sector. It's very challenging to grow efficiently or to any real scale of revenue when you are three to four steps removed from the consumer in the value chain. We generate 10 times or more revenue from every kilo of product we produce. when we sell to the consumer versus selling the molecule as an ingredient to industry, or much worse, licensed with a royalty for developing an organism for others. We've done this and know the economics well. This is why we invested in the best scale-up and manufacturing capability in our industry and then experimented to develop the best capability at building great consumer brands with a business model we could grow with. We control our destiny. Developing organisms for others or selling ingredients to other places, your growth rate, margin, and future in the hands of others. We are committed to having significant impact in the sustainability and health of our planet. This has been true since the start of our company. It's our mission. It's impossible to have real impact and to deliver real solutions if you can't scale, manufacture, or deliver real products to consumers that enable them to live better lives without harm to our planet. We have invested in a transformative technology for our planet. Biotechnology-based fermentation is the future of most chemistry. We are the best at it and we have a responsibility to clean up the chemistry of the world in the fastest way possible. Imagine where we would be with electric cars if Elon Musk had to convince traditional car manufacturers to transition to electric. It would take 20 to 30 years longer at best, and it would be too late to give our planet a real shot. That is not acceptable, and our scientists and I feel the responsibility and need to clean up the way chemistry is made now. Our latest scale-up of squalene for vaccine adjuvants is an incredible example of what we are capable of, a complex molecule that many said was impossible to produce via biotechnology and fermentation. We developed from concept to full industrial-scale fermentation in less than nine months. We are just starting to really thrive with our science and manufacturing. Let me now share some our financial framework for what you should expect from us. First, accelerating consumer revenue growth, delivering much more than 150% growth versus last year in 2022, with a very strong pipeline of new brands, new products, new markets to support this growth for well into the future. Secondly, technology access revenue growth continuing at a 30% to 40% annual rate for the next few years, including 2022. And then thirdly, delivering positive cash from operations in the fourth quarter. This excludes capital expenditures and new brand expenses. In addition to this financial framework, we have several key deliverables to track our progress. First, consumer product manufacturing to be at least 70% in controlled factories, factories that we own or control by the fourth quarter of 2022. The combination of this deliverable and moving to our own fulfillment will add an estimated 500 basis points of gross margin improvement to our consumer business in the second half of 2022. As of the end of the first quarter, we already have 10% of our highest volume products produced in Reno. This is one quarter ahead of schedule. Secondly, we will be achieving 6 million monthly consumer visits to our direct-to-consumer websites by the fourth quarter, doubling the current number of consumer visits to our websites. Thirdly, Miami, New York City, and London branded experiential retail sites open and delivering operational profitability. Fourth, start up Barra Bonita early in the second quarter and have most of our ingredients produced in Barra Bonita in the second half of the year. This is over $20 million of improvement to gross profit dollars from ingredient sales alone. And then lastly, expect us to scale three to five new ingredients this year. This is a track record we're proud of. Most companies in our sector have been lucky to scale one ingredient in their life, and we are now at a rate of three to five new ingredients a year. We are leading the world with a technology that's critical to making our planet healthy and sustainable. We are delivering what consumers are demanding, and it's showing through our revenue growth. We are evolving our company from one of the leading growth companies in our sector and the owner of the fastest-growing consumer brands in health, beauty, and wellness markets to also being a company that delivers operational excellence. Our goal is to end this year with the best growth we've ever delivered in our core business and doing it profitably. We have no current plans for additional capital raises. We are adding much needed manufacturing capacity and deep leadership capability. This is all in service of accelerating the world's transition to clean and sustainable health, beauty, and wellness markets. Let me now turn to Han.