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spk07: Welcome to the Amherst First Quarter 2022 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 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.
spk13: Good morning, everyone, and thank you for joining us today. With me on today's call is John Mello, President and Chief Executive Officer. We issued our results today in a press release. The current report on Form 8K, furnished with respect to our press release, is available on our website, amris.com, in the investor section, as well as on the SEC's website. The slides accompanying this presentation can also be found on the website And we're posted today for your convenience.
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spk13: 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 presentation or the press release distributed today. During this call, we will make forward-looking statements about future events and circumstances, including Ameris' outlook for 2022 and beyond, Ameris' 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. Includes those detailed from time to time in our filings with the Securities and Exchange Commission, including our 10Q for the first quarter of 2022. AMIS disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events, or otherwise. With that, I'll turn the call over to John. John?
spk17: Thank you, Hyde, and good morning, everyone. Thank you for joining us today. I'll provide an update on our business performance and our operating strategy before asking Han to provide a financial update, and then we'll turn to Q&A. On slide four now, we are fully focused on eliminating the need to use crude oil, destroy forests, or kill animals to make chemistry. We are reducing the stress of harmful agricultural practices, preventing further destruction of animal supply chains and ecosystems around our planet. We are delivering this transformation of the way chemistry is made across many markets, from the elimination of crude oil as the source of making vitamin E, to killing sharks as a source for making squalane, to harvesting from forest in Madagascar to make vanillin, to using extensive irrigation and farmland to produce natural sweeteners as a few examples of the deep disruption we are delivering across the world. Our growth is accelerating significantly as crude oil prices soar and consumers are demanding clean, sustainable chemistry in the products they consume every day. The network effect caused by adoption of our industrial ingredients and consumer brands powered by Amherst's pioneering technology is expanding and helping all of us be agents for positive change and a more sustainable future. We are in a fight for the future of our planet and we are leading this important fight in beauty, health, and wellness markets through the power of our low compromise ingredients and consumer brands. We are already making an impact with as many as 300 million consumers around the world that use our ingredients and products, and we have much more to do. We delivered a solid first quarter. Our core revenue increased 75% year over year, supported by a record $35 million of revenue from our consumer brands, delivering 121% growth versus the prior year quarter. I'm currently on slide five for those of you following along. Brands launched in the past 12 months led by JVN Haircare already compromised an important portion of our consumer revenue. We have entered a period of exponential growth for our consumer brands that is further accelerating as we add new brands, expand with new retail partners, and grow globally. 90% of our current consumer revenue is from North America. 57% of our consumer revenue is from direct-to-consumer, our own websites. Our new brands, brands that will operate this year for the first time, including Menolabs, Gavien Hair, Rose Inc., and EcoFab Cosmetics are expected to generate over $100 million of revenue. We are also in the middle of international expansion, with a focus on the UK, Portugal, and later this year, an expansion across Brazil and a major market entry into Germany. In addition to the incredible performance of new brands, Significant expansion through retail partners and significant opportunities in international markets, we have also landed a significant strategic opportunity where we are developing an across category brand of sustainable beauty and wellness products for Walmart. This brand is expected to ship to Walmart in the fourth quarter and is another validation of the commitment of the world's leading retailers to deliver sustainable, best performing products to consumers.
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spk11: Hello, I'm Greg Harmer, Global Leader of Payroll for Amazon. We began our relationship with ADP back in 1999 when Amazon had around 7,600 employees. Now, more than 20 years later, we're over 1.3 million employees, and we still rely on ADP to pay more than 75% of the worldwide. ADP is also a customer technology partner of Amazon Web Services. Amazon is a large and complex business. and our workforce is constantly evolving. ADP has delivered at the scale and timing we have needed, and they have done so consistently and well. We've relied on their data and analytics to make confident decisions. When Amazon acquired Souq in 2017, we suddenly needed to support employees at scale in countries where we had very little history, including Saudi Arabia, Egypt, Jordan, and Kuwait. Integrating a new country at scale is one of the more difficult challenges our payroll platoons face. and ADP's global tech and in-country experts helped us get each step right. ADP's systems have always evolved with us, but especially so in 2020, when Amazon became a lifeline to so many during the pandemic. We began 2020 with 800,000 employees worldwide and finished the year with nearly 1.3 million. And on top of having to meet the challenges of that growth, Amazon decided to convert our U.S. hourly employees from fine weekly to weekly pay. On short notice, and with ADP's help, Amazon moved hundreds of thousands of U.S. employees to weekly pay, and it was all done on ADP technology. There was no room for error and no time to waste, and with ADP's help, we delivered it accurately and on time. Amazon is committed to being Earth's best employer. Our relationship with ADP helps us do so by offering our employees an intuitive user experience, greater pay flexibility, and financial wellness tools. ADP's new mobile web-based user experience is excellent. It's user-friendly, simple, and straightforward. ADP helps Amazon provide transparency and functionality to help our workforce focus on what's most important. And now, with ADP, we can pay employees quickly but wisely. Given our scale, we can be pretty demanding on our partners. Worldwide, we run a combination of monthly, bi-weekly, weekly payrolls, and also anytime pay by the wisely card. ADP has helped us make this happen. Anytime you select a partner, you're looking for two things. Great technology and a great team to work with. With ADP, we have both. Our ADP team is knowledgeable and there to advise us and answer our questions. And that combined with ADP's robust and adaptable mobile technology gives us confidence that our employees are taken care of. We've challenged ADP with some crazy, unprecedented things. Managing food disruption is now an ordinary course of business. We've come to them with some unusual and extraordinary tasks, and ADP has delivered to us.
spk17: Consumer revenue in the first quarter was over two times our ingredient revenue, and we expect by the fourth quarter for our consumer revenue to be around five times ingredient revenue. Our consumer portfolio is now set to deliver well over 150% growth this year, while our ingredient portfolio is also delivering better than expected growth that we will be in a position to recognize starting this quarter as we start shipping product from Barra Bonita. We now expect ingredient revenue to be on the high end of the 30 to 40% annual growth rate we have guided to at the start of the year. In addition to the significant growth we are experiencing, we are also focused on reducing our spend and focusing our investment where it generates strong returns. We have four brands that are expected to turn a positive operating or profit contribution this year. Biossance, JVN Hair, Mental Labs, and our new Clean Hair brand built for Walmart. We also expect ingredients that we start producing at Barra Bonita to deliver a positive profit contribution once they are produced at that site. Technology access revenue grew 33% year over year to $23 million in the quarter. We experienced stronger demand for our consumer and ingredients products. An estimated $7 million more than we had capacity to deliver, this represents orders received that we did not have products available to fully fill the order. We shipped all inventory, all products produced and available for the ingredient business during the quarter. This was a bigger challenge in ingredients due to reliance on third-party manufacturing. We began commissioning our strategic fermentation plant in Barra Bonita early in the second quarter. keeping us on track to start commercial production during the second quarter. This investment is critical to meet demand, reduce our resilience on costly third-party ingredient manufacturing, and the delivery of substantial margin improvements starting later this year. Both fermentation and consumer product manufacturing will be de-bottlenecked in the second half as Baja Bonita comes into full production and we scale production at our consumer manufacturing facilities. In addition to the facility we're constructing in Reno, we recently acquired a brand-new consumer production facility in Brazil. All three of our new manufacturing facilities are expected to be at full commercial production by the end of this year. We have already started producing consumer products at the Brazilian facility and the Reno consumer manufacturing facility. We are continuing to experience strong demand through the start of the second quarter, and we are also expanding our mix of sales from direct-to-consumer. We are shipping pipettes to almost 10,000 new selling points this quarter, and we are experiencing significant consumer traffic through most of our retail partner stores. The consumer is coming back very strong in Brazil, the U.S. through Sephora stores, European markets, and the UK. We are now at 3 million monthly visitors in our direct-to-consumer business, and we expect to be at about 6 million monthly visitors by the time we reach the fourth quarter. We have built the fastest-growing consumer health, beauty, and wellness brands in the world, and we expect this business to also deliver strong cash generation as we transition to the second half of the year.
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spk17: We have acquired and built the capability we need. We have the leading technology, product, and consumer brand portfolio in our industry. And we have a business model that has the potential to consistently deliver 30% or better operating margins at scale. We are within 12 to 18 months of reaching a scale of revenue of where we can consistently deliver our expected margin structure. We have what we need and have transitioned from building to executing. We are done with our acquisition phase. The JVN hair care brand is performing much better than we expected. JVN is our most successful brand to date and is on target to reach profitability in 14 months or less since the start of commercial sales. JVN is also one of the lowest investment brands in our portfolio. Our investment in developing and launching JVN is about $2.7 million. This is a brand that we estimate a current valuation of around $400 million based on the annualized revenue run rate, its marketing channel structure, and its gross margin. We really appreciate our partnership with Jonathan and all the hard work he and the JVM team are delivering to make this brand the leader in clean hair care. We are very fortunate to have achieved a first in the prestige beauty market. We have the fastest growing brands in skin care, hair care, color cosmetics, and baby care at the same time. This is unprecedented for a single company and demonstrates our deep commitment to science-based technology and formulations and the power of clean and sustainable chemistry. BioScience continues to deliver strong year-on-year growth and is the fastest growing skincare brand at its scale in North America. Our Pipec brand is also growing very quickly and in the middle of shipping to about 10,000 new stores. This includes over 4,000 Walmart stores in North America. We have built incredible brands that are enabling consumers to use the best performing technology on themselves for their health while making our planet healthier. Bioscience and JVN alone have a current estimated asset value of around $1.5 billion based on their current revenue run rates, channel, and margin structure. This is more than our current equity value and demonstrates the significant disconnect in current equity markets. We are well positioned to benefit from this disconnect and will take the appropriate steps to self fund our growth and continue leading in our core categories. I'm now on slide six. The capital markets have recently not been kind to high growth technology driven sectors. This year to date, we have outperformed our immediate biotechnology peer group and traded in closer correlation to the Beauty and Wellness Index. The steps we've taken to match our capital structure with the incredible growth powered by unique technology, IP, and practical innovation appear to be recognized by the market, more so with the consumer in markets we target, as opposed to the biotechnology companies who are working on similar technologies as us but with limited tangible product commercialization. Underpinning all that we do is the tireless efforts of countless technical, industrial, and commercial professionals at Amherst who have built an end-to-end platform that is scalable and will continue to foster new product development growth and ultimately profitability. As we have grown and expanded, we have also taken steps to reduce our reliance on costly third parties and vertically integrate critical components of our supply chain. As our next generation precision fermentation manufacturing plant in Baja Bonita comes online and our consumer fulfillment and distribution centers are scaled and optimized, we have substantial opportunity to reduce costs, improve margins, and reduce cash needed to run our business. Combined with our new manufacturing and supply chain footprint, we are taking important actions to reduce our operating costs and unlock cash from our asset base. As we stated at the start of the year, we expected heavier investment in the first half of the year with a reduced cash burn in the second half. This is what we continue to expect, including positive cash from operations in the fourth quarter when you exclude capex and investment in new brands we plan to further optimize our portfolio and are in active discussions for the licensing of marketing rights of two ingredients which we expect to deliver over 250 million dollars of proceeds by the end of this year evidencing the quality and depth of our technology-driven asset base This is a transaction that will look similar to the DSM transaction from last year, with limited impact to revenue, as we will continue to be the manufacturer of these ingredients long-term. Slide 7. Our platform is scalable with exceptional breadth. We are the number one builder of clean beauty brands in the world today, educating and connecting consumers with exceptional products with a purpose at reasonable prices. This isn't just our brands. Approximately 3,500 brands around the world are using our proprietary ingredients. Underpinning all of these opportunities is our core belief that okay is not good enough, that we can't continue to harvest our planet, environment, and atmosphere relentlessly with no consequence. We share the desire of our partners and customers to prioritize decarbonization and believe we are uniquely positioned to power and accelerate their efforts. Slide eight, the most important scorecard for clean beauty and the performance of our products is the consumer. And as it turns out, we're doing really well there as well. Our fastest growing brands, Biossance, JVN and Rose Inc are well recognized as category leaders and routinely receive exceptional feedback from consumers. Slide nine, capitalizing on this success and recognition, we continue to invest in the future
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spk17: In Q3 of this year, we plan to launch a new menopause-focused wellness brand named Stripes in partnership with the gifted Naomi Watts. Around the same time, we expect to launch EcoFabulous, a unique offering that will give Gen Z consumers access to clean, sustainable beauty products at a great price point. What's different this time is the established relationships and opportunities for distribution we have on day one with these brands. Channel partners such as Sephora and Walmart can accelerate the timeline from first sale to meaningful impact of these brands for Amherst, as well as the access to most consumers possible at the lowest cost. We are also working hard on many fronts as it relates to operational excellence. We are in full commissioning mode at the Baja Bonita plant, which will be critical to much needed capacity and improved unit costs. The commissioning process is going very well, and we expect to start shipping product from Baja Bonita this quarter as planned. Slide 10. During the quarter, we acquired a founder-led brand named Mena Labs that is delivering real solutions for women, in menopause and perimenopause. Not only offering products to consumers seeking relief during this stage of their life, Mennolabs offers education and a sense of community through their online and app-based resources. With the benefit of Amherst's proven capabilities to develop brands, enhance formulation, and expand distribution, the opportunity for Mennolabs to sharply grow revenue and serve more consumers in this underserved category is meaningful. This is one of the fastest growing categories in health and wellness. We expect to deliver over $30 million in the menopause category during 2022. We did not participate in this category in 2021. Over the past 12 months, we have been focused on incubating, acquiring, and investing in our consumer portfolio, which has paved the way for our current rate of consumer growth. We have built a leading portfolio of consumer brands in the categories we serve and do not plan on further acquisitions in the near term. We are now transitioning our focus to execution, efficiency, and portfolio management and building leading brands that are homegrown. JBN is a great example of value creation with our brand building model to commercialize our core technology. Operationally, we've learned through blood, sweat, and tears that in order to control your destiny, With this technology, you must excel at manufacturing and process development. These are the biggest barriers to scaling synthetic biology and making a tangible, positive impact on the sustainability of our planet. Recently, we began commissioning of our fermentation plant in Barra Bonita, Brazil, the leading precision fermentation facility in the world for industrial markets. This plant will deliver much lower cost production and improve margins while greatly increasing our manufacturing capacity. We've posted a six-minute video providing an overview of the plant and its construction on our Amherst YouTube video. I urge anyone curious about our progress to view it. Let me now turn to Han for remarks covering our financial results. Han?
spk13: Thanks, John. Let's turn to slide 12. Consistent with our expectations, our core revenue increased 75% year over year, largely due to record consumer revenue of $34.6 million. Our consumer brands have built substantial momentum and further established category leadership each and every day. Our investments in integration of our supply chain couldn't have been made at a better point in time given the current industrial and macroeconomic backdrop. Given the volatility we are witnessing globally, it is extremely important to have control of the distribution of our technology and IP. As our consumer fulfillment centers and fermentation plant expand their production, we will have control of our products from lab to market to a degree that we haven't had in the past. Please turn to slide 13. Core revenue, which includes consumer and technology access revenue and excludes strategic transactions and other runoff items, increased 75% to $57.7 million when compared to the first quarter of 2021. Core revenue included record consumer revenue of $34.6 million, which increased 121%, and technology access revenue of $23.2 million, which increased 33% versus prior year. Our consumer revenue growth was balanced between our more established BioSuns and Pipette brands and our very well-received new launches of JVN and Rose Inc. The momentum we are experiencing is not an accident. We are providing exceptional formulation to consumers who are seeking education and believe they have a responsibility to choose environmentally sustainable products that don't compromise on performance. 57% of first-quarter consumer revenue originated from direct-to-consumer. It is from e-commerce and our brand platforms. While 43% originated from retail, consisting of in-store and online sales.
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spk13: This channel mix was very similar to the prior year. Approximately 90% of consumer revenue originated from North America. We are expanding internationally and see significant opportunity as we build out our footprint in continental Europe, the UK, and Brazil. Technology access sales growth of 33% was due to growth in demand for flavors and fragrances and sweetener ingredients. and an $8.8 million earn out related to the strategic DSM FNF transaction, which we completed in the first quarter of 21. This was partly offset by third party contract manufacturing capacity constraints for the production of squalane and hemisqualane. Ingredients demand growth is driven by a shift to sustainably sourced ingredients away from crude oil supply sources. Current third-party capacity constraints are expected to be alleviated by our strategic investment in the large-scale fermentation plant in Barra Bonita, which we began commissioning, as John said, this current quarter. Let's move to slide 14. Our first quarter non-GAAP core gross margin was $26.8 million, or 46% of revenue. This is an increase of 58% compared to the first quarter of 21, Margin dollars are primarily resulting from the growth of our consumer brands. Consumer growth margin was 60%, which compares to 70% in the prior year quarter, due to new brand and channel mix. We expect a margin improvement in the second half to approximately 65% of revenue as a result of production footprint simplification. Technology access recorded 27% growth margin of revenue versus 34% in the prior year. Ingredient product margins were impacted by the aforementioned capacity constraints in contract manufacturing, particularly affecting square-lane and hemi-square-lane. We expect a margin improvement in the second half to 35% to 40% from Barra Bonita coming online. As our brands grow, so too has the selling expense associated investments in both our legacy and newly launched brands. I will make a few more comments regarding expense on the next slide. Q1 2021 adjusted EBITDA included $143.8 million in one-off strategic transaction revenue. When we exclude these one-offs, adjusted EBITDA of $107.5 million of this quarter was down $66.2 million, primarily due to higher operating expense and Q1 air shipping costs. We have continued to invest in high return opportunities, which is reflected in our adjusted EBITDA. We are committed to the growth of our business, and during the first quarter, the cost associated with ensuring our products arrive on time with new and existing third-party relationships remained elevated. We expect to see improved cost leverage in the second half on the back of increased revenue. Please turn to slide 15. We are operating 10 brands today compared to three brands a year ago. Our cash operating expense of $117.1 million increased by $63.5 million. Increase is primarily driven by a combination of increased headcount, both organic and from acquisitions, for a total cost increase in people expense of $22 million. Non-people expense increased $41 million and include a brand investment in paid media and advertising. growth-driven consumer order fulfillment and shipping expense, and the pre-commissioning activity at Barra Bonita. And lastly, comparatively low prior year travel expense due to COVID-19. Other costs of goods sold were mostly driven by increased air freight to the tune of $11 million. This was for inbound freight to get our components, packaging, and intermediate products in the right place at the right time to ensure continuity of supply to our customers. As a result of our elevated expense, our use of cash in the quarter was also elevated. We used a total of $195 million, of which $107 million is related to adjusted EBITDA. Additionally, we built working capital for a total of $29 million. We also incurred capex, predominantly for Barabunita, and one-time M&A expense for a total of $47 million. as well as temporary air freight expense of 17 million for a combined total of 64 million dollars that we do not consider to be part of ongoing cash outlay. Let's move to slide 16. Our brands address the needs of millions of consumers while reducing reliance on unsustainable and environmentally harmful ingredients. Spending on clean health and wellness, skin care, hair and baby care is not discretionary for consumers who are unwilling to compromise in these categories. Based on current consumer revenue performance, along with the Q3 launch of new brands and new in-house ingredients capacity from Bada Bonita taking full effect in the second half of the year, we are reiterating our full year 2022 financial outlook and expect to be on the higher end of the stated range. Thank you all for listening today. John has concluding remarks before we open the line for questions. John?
spk17: Thank you, Han. We have been investing substantially in the future of our core business through capital expenditures and plant and production capacity, as well as operationally through brand startups and leveraging the opportunity to educate and acquire consumers through sales and marketing growth. The goal of these investments is to create a durable, sustainable platform that will disrupt existing chemistry and deliver better performance and sustainable options for consumers. We are laser focused on our operating environment and we'll continue to execute on our plan. But we will revise our spending and operational plans to meet external business and our economic environment change. The human rights crisis created by the conflict in Ukraine, the knock-on effects of China's zero COVID policies, rampant inflation are all very real, and we will manage the opportunities in front of us accordingly. Danielle, please open the line for Q&A.
spk07: 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're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. The first question comes from Colin Rush from Oppenheimer. Please go ahead.
spk03: Thanks so much, guys. With the combined capacity that you now have, can you give us a sense of what the Um, the ceiling is in terms of revenue capacity for the organization. Now, obviously there's some mix that, that, you know, impacts that, but we'd love to just get a sense of, you know, where you guys are.
spk17: Uh, thanks Colin. Great to have you on the call. Um, look, I, I think as it relates to consumer, uh, I think our. Resilient capacity is about 35 million units a year. And our renal capacity will be about 65 million units a year. When you think about all that, and you think about what we expect to produce out of those assets, you know, into the fourth quarter, we'd expect about 70 to 80% of our consumer demand to be met by our own manufacturing capacity. And we have, you know, very good capacity to really run consumer business that can generate four to five hundred million a year of revenue and again if you if you look at how our year ramps I mean we expect the fourth quarter to be well over a hundred million in consumer revenue and we expect that our production assets for the products that it makes sense because there are some products some unique products that you know it's not we're not investing the capital equipment to produce ourselves they're unique enough that we'll do them by third party and But I hope that gives you a sense of what we have capacity on the consumer side. And on the ingredient side, once Baja Bonita starts, we expect Baja Bonita to be a key enabler to meet our ingredient demand. As we mentioned, ingredients were a challenge for us because we're out of capacity. We just don't have the ability to access more precision fermentation to make the ingredients. We think we can more than double the the current revenue of ingredients per quarter. And we expect to start realizing that level of ingredient performance in the fourth quarter as a result of Barra Bonita. So you can think about it as a couple hundred million a year of ingredient revenue enabled by Barra Bonita and somewhere around four to 500 million a year of consumer revenue enabled by the 70 to 80% cover we get out of Reno and the Brazilian facility. Hope that helps Colin.
spk03: Yeah, that's super helpful. And then just in terms of the cash operating expense, some of the slightly more elevated level here that we're talking about on an ongoing basis, I'm just curious about how much of that you guys deem as temporal and how much of that is going to come out over time as the global supply chain gets a little bit more balanced and normalized.
spk17: I think Hannah tried to cover that. I'll try to summarize and then you'll come back and I'm sure correct me. There's about 60 to 70 million of what you saw in the first quarter that we don't expect to repeat. And then in that, there's about 30 million, 20 to 30 million, I think it's actually around 20, 17 to 20 million that's actually connected specifically to global supply chain and just complexities that we've had to manage and are very costly in ensuring we have components where they need to be. I want to clarify that not all of those components have anything to do with first quarter shipments. And a lot of that is really building inventory, especially as we go into the second half. Remember, the fourth quarter is a seasonably high quarter, and we have a significant number of new brands coming on that are really running hard on the growth side. So a combination of our current new brands to market like JVN, Rose Inc, Metal Labs, and then the new brands we're launching plus the fourth quarter seasonality really drive for significant build and inventory to ensure that we could meet market demand. Again, knowing that we expect to deliver well over 100 million in consumer revenue in the fourth quarter. So that's, Han, I don't know if you want to add any clarification to that.
spk13: No, I think that's right, John. Great. Thanks a lot, guys.
spk07: The next question comes from Steven Ma from Collins. Please go ahead.
spk04: Great. Thanks, operator, and thanks for taking the questions. Good morning. Hey, good morning. Good morning. Hey, good morning. On the two ingredients you are in licensing discussions with that you mentioned, are these existing molecules you've developed at Amherst but haven't disclosed? Is there any color you can give us?
spk17: For competitive reasons, we'd rather not disclose much, but I will tell you they are existing molecules and they are in current production.
spk04: Okay, got it. All right, that's helpful. Then a couple questions on the retail channel. I wanted to ask you what you guys are seeing. Are you seeing any trends in retail? Han, you mentioned the channel mix in Q1 was similar to the prior year, but would you expect the channel mix for the balance of the year to be? And could you update us on the experiential and pop-up stores? that you mentioned on a prior call and what impact you're seeing from those new stores? Sure, Steve.
spk17: And let me try to take those three questions embedded in there. So let's deal with the first one. I'm just at a CEO conference right now for the beauty industry, and I was just with Sephora's global CEO last night. And I can tell you that what we're seeing across the beauty retail footprint is significantly retail traffic more than any of us expected. So first point is there's a very robust consumer right now buying beauty. It doesn't, I mean, it surprises that it's happened this fast coming out of COVID. Um, but when you look at history, especially in times of uncertainty, uh, or in times of war, what we've seen is that the beauty market actually thrives because it's sort of the simple luxury everybody goes to. And again, we're seeing exactly that right now happen across the retail footprint. I can tell you we're seeing the same thing in Brazil. We're seeing the same thing in the UK. So again, a very robust consumer in retail. I think the second point is regarding our mix. Look, we're well above the 50-50 mix that we'd ideally like to operate at. And I can tell you that we expect to come back around the 50-50 mix because of the significant increase in retail doors that we're adding in the second half. I mean, as I said during the call, we're adding just almost 10,000 doors between Walgreens and Walmart for the pipette brand alone. We have several other brands. We have Pure Cane going into Walmart as we speak this quarter. We have Bioscience going into 140 doors across Germany with Douglas. the leading retailer of beauty in Germany. We have a significant expansion that took place in the first quarter with JVN and Rose Inc. adding about 250 or so Sephora doors in North America. So because of the significant expansion in doors, I would expect to come more in that 50-50 balance as we go to the second half of the year, which doesn't mean less direct-to-consumer growth, It just means a much stronger store growth as we're going through the second quarter and then the rest of the year. Look, I think your question on pop-ups, the third question, the most successful pop-up we've done, which has really taught us a lot, was the Rose Inc. pop-up in Soho a few weeks back, right? We had a line out the door. We had significant demand for customers wanting to have their makeup done in our store, and we see that as a trend. So we see that the whole movement to experiential retailing, we see that customers getting treatments both on their skin, getting their hair done with our products, as well as their color makeovers in our store is a significant engagement opportunity. We see conversion in those stores very high. I can tell you in the roasting pop-up, conversion was over 90%. So 90% of consumers who came in bought roasting product. I can tell you that the experience for bioscience in the Miami Design District was over 60% conversion. So very high conversion, very high engagement. And we see the consumers that experience our store becoming solid repeat consumers. So I think our strategy is spot on what we wanted to do. But we don't see ourselves, again, as we said before, with major stores and a bunch of markets and becoming big retailers. We see it being all about experiential, all about showcase stores, very limited locations, and really to drive more engagement in the brands and decrease our acquisition costs and increase our conversion rates for the consumer. So I hope that helps, Stephen. I think that addresses the three questions you had.
spk04: Yeah, it did. Very helpful. Appreciate it. Thank you so much. Thank you.
spk07: The next question comes from Sameer Joshi of HC Wainwright. Please go ahead.
spk12: Yeah, thanks. Hey, John. Just sort of following up on the previous question, in terms of customer outreach, Where are you more focused on? Are you doing any media ads, in-store pop-ups, social media, word of mouth, influencers? Where is the focus or all of the above?
spk17: Hey, Samir, good having you on the call. You know, it's all the above, but as I said on the call, we are now, with the amount of data we have and the amount of consumer traffic we have, we're we're actually getting much smarter about where to put the money and really focused on the highest return channels. And if I think about where's the highest return, the highest return is really in using email, using affiliate marketing, doing direct selling sessions, and then focusing on what I call social selling or social marketing, which is using micro-influencers, to effectively reach their audiences and make their audiences long-term customers. And that just requires engagement with the micro-influencers, bringing them in our labs, helping them understand the technology, sharing the products, and hopefully they love the products. And when they love the products and they can be authentic, they are really the best converting vehicles that we have and the most efficient way to grow the business. I think Jonathan Van Ness is a great proof of that. Jonathan is probably the best social performer that I've ever seen. And you could see us doing more activity like we're doing with Jonathan across our brands. We now have a very, very focused playbook for how we launch a brand. We know how to drive a brand hard and fast. I mean, think about it. The Jonathan Van Ness brand is likely to do somewhere around 50 million this year. It took us, you know, four years to get there with Biosan. So that just kind of gives you a sense of how effective we've become. And even though we're not talking a lot about Rose Inc., you know, Rose Inc. is also performing extremely well as a brand. So that's really the whole playbook approach here is go where the highest returns are. The highest returns are email affiliates and then social selling, direct selling. And to do that well, it's about micro-influencers as well as some mega that have amazing metrics and are really passionate about the products.
spk12: Got it. Thanks for that. That was good color. Uh, in terms of the two ingredients, uh, and the $250 million opportunity, uh, is that $250 million, uh, uh, or a lifetime product lifetime, uh, revenue estimate, or is it that you, uh, you, you may get this money in 2022 itself?
spk17: Yeah, no, our expectation is the 250 million are proceeds this year. not the long-term value of the transaction. We expect that to be significantly more than the $250 million. And, you know, if you're tracking what we've done, every year now that we've done one of these types of transactions, the value has increased significantly. And this is probably the most valuable transaction. And it really gives us a mark-to-market value of the ingredients now of the molecules at over $100 million per molecule. I mean, in this particular case, We're going to generate probably 125 to 150 million in value per molecule. And, you know, we have a significant portfolio of molecules to continue doing this for the foreseeable future. And this is how we expect to sell fund. I don't I didn't say it explicitly, but I just want to repeat where we are. We have no plans to do any future equity financing or financing of the company, mainly because of the robustness we have in the portfolio. and the amount of demand we see today for ingredients that we have that we can do marketing rights just like we're doing with the two that we're actively working through right now.
spk12: Got it. Makes sense. And just a clarification related to the previous quarter, Presley. I think the 39 million from DSM was expected all during the fourth quarter of 2022. but it seems around 8.8 came in this quarter. Did I read that right?
spk17: Yeah, you did, Samir. Here's how to think about that. Based on the demand for the ingredients that are in that portfolio, the earn-out portfolio, which is significantly greater than we expected at the beginning of the year, we now expect to generate quite a bit more than the $39 million. So, What we're doing as a result is actually bringing some of that through on a quarterly basis and then a bigger chunk, kind of whatever is left as we think about how demand ramps and how we add capacity will come in the fourth quarter. So, again, you can expect rateable amount first, second, third, and then a pretty significant jump in that number as we go into the fourth quarter.
spk12: Got it. Thanks, John. Thanks for the clarification. Thanks, Samir.
spk07: The next question comes from Lawrence Alexander from Jefferies. Please go ahead.
spk16: Good morning. I've lost count of the number of crises Amaris has seen, you know, in the capital markets. What do you see as the minimum cash balance you want to have on hand to sort of maintain the rhythm of operations?
spk17: Thanks, Lawrence, and good to have you on board. Look, we like to target no less than $100 million to maintain a cash balance long-term to feed our growth. And again, we have a lot of unlocking to do in just the amount of working capital and receivables we can manage, but $100 million is what we'd like as a minimum on hand.
spk16: And on the technology access side, thank you for highlighting the brands you have or the OEMs you have partnerships with where you're selling to. Can you give any examples of where your ingredients already have significant market share and maybe give a little bit of a sense of how long it took to get that market share from the first validation?
spk17: Look, I think maybe a couple of examples. Vitamin E is a great one, right? Vitamin E with DSM. I think right now we're about 25% of the vitamin E market produced using our technology. And it took us, I would say, 36 months to go from startup of supplying vitamin E to being 25% of the vitamin E market comes from a farnesine-derived isophytol at Lawrence, which you'll understand. Look, the other example is Squalane, where we're currently about 70% market share. Squalane took us a lot longer, right? I think we're now probably eight years, eight, nine years into Squalane to get to that market share. A faster one is probably vanillin, right? I think right now we're probably the leading supplier of vanillin. Assuming we can ship out everything we have demand for this year, we're probably the leading supplier and volume of natural vanillin in the world, and that's happened in 24 months, right? So it varies quite a bit, and a lot of it is around how fast the market can switch from how close our profile is to the current material, and then the economic advantage, how advantaged the economics are of our supply versus the alternative. When you get all three of those right, like in vanillin, or like in vitamin E, you know, the market shift is significant and fast. And in vitamin E, we've had a lot of help because of the crude oil prices, right? I think I've disclosed in prior calls, we're breaking even with crude oil at $30, At $50, we're advantaged. So you can imagine at $100 crude, the advantage in actually using farnesine to make vitamin E versus crude oil to make isophytol.
spk16: And then just the last one is with respect to the valuation disconnect you flagged. You flagged us on a few calls now with respect to the consumer brands. How patient are you? or what would it take for you to monetize one brand just to sort of prove the point?
spk17: I'm probably less patient today than I was six months ago. And the question is, you know, is the board and shareholder base aligned with us? And my guess is we're probably pretty well aligned, but we need to have those conversations. And again, my personal position is, A lot less patient today. This is getting to the point where it's pretty ridiculous and a pretty big opportunity. And obviously, you know, there's plenty of opportunity for us to execute on proving this out, right? So a bit of impatient is what I would describe it as right now.
spk16: And then if I may, is there any sort of structural kind of alignment, like either a JV structure or something else with a large brand that where you could basically fold in and take advantage of the disconnect that way?
spk17: Look, I mean, it's all possible. I think the question is going to be what's most attractive for us based on the traction in our portfolio of the additional brands, right? There is an optimal point at where a brand spin makes a lot of sense. And the question is, can we do something without actually costing ourselves significant value in the brands that are that have the greatest traction, right? So really hard to say, Lawrence, but obviously we're looking at each one of the possibilities and being thoughtful about it.
spk16: Yeah. Thank you very much.
spk17: Thanks, Lawrence.
spk07: The next question comes from Michael Freeman from Raymond James. Please go ahead.
spk05: Hi, John. Hi, Han. Thanks so much for taking my questions. First, I'd like to touch on the tightening market in precision fermentation that you're talking about. I recognize that you are right at the beginning of your journey at Barra Bonita as it relates to production there. Thinking about the future and when this facility reaches full capacity production, do you expect you to follow in the same format, put more steel on the ground, or would you begin exploring for... more third-party relationships to facilitate that fermentation?
spk17: Michael, thanks for being on board and thanks for the question. Look, I'm really not keen on third-party relationships for precision fermentation at this time. And I think the real question is, how fast can the industry mature with precision fermentation? And my outlook is somewhere in the five to 10-year horizon, which says we have a lot to do to enable precision fermentation in the short to medium term. And so at Barra Bonita, as an example, we already have, well, first of all, the way the site's laid out, it's like building blocks, right? So every utility, everything from the air compressors to the water treatment to the power generation site is modular where we can actually keep adding compressors, keep adding units to add tanks and enable more. And we already are bringing in i think uh four six hundred thousand liter tanks which are massive uh as a way to expand uh manufacturing some of our bigger molecules that you know a year ago i wasn't so keen on right so this is all about just continuously expanding that footprint to really meet our demand in a world that's shifting faster than we had planned for and i look at that footprint being able to do that it's got access to plenty of cane and utilities which is what makes it a really interesting site for us. Going back to why not do it with somebody else, because just about every plant we've looked at, and we've looked at a lot of precision fermentation facilities. First, there aren't many great ones. And then secondly, even when you find a great one, it requires capital modification, and we have to operate with the owner as a way to ensure that our process is replicated. And that's always difficult. uh, for us to do. So rather than investing in that, we'd rather invest in our own. So I hope that helps Michael.
spk05: Yep. That's really helpful. And as a, as a chemical engineer, I, I certainly appreciate that. Um, I, uh, my next question is on, uh, you know, a lot of the attention has been on the, uh, bioscience pipettes, JVN, Rose Inc brands. Uh, I wonder if you could shine some light on the, on the Terra sauna brands powered by CBG and squalene. How, how has the, um, How has sales been going there? What are your future plans for that brand in particular?
spk17: Look, you know, I'm probably a creature of habit, right? If I don't highlight, it's probably because it's not going as well as I'd like, right? And what I will tell you is this. The CBG Sway Lane formulation and performance, the consumer ratings, the repeat purchase has been outstanding. The brand's efficiency, in other words, the brand's ability to access new consumer's and convert to purchase has not been good performing. In other words, it's taking us more investment than I'd like to get the traction with the brand. And we understand why, right? There's a couple of pieces in our playbook that we did not follow with that brand. We don't have a great launch partner. We didn't have a great retail channel lined up. And I don't believe we got the marketing right around the positioning of the product, right? We basically went after Acme. It was not the best category to go after with that formulation. I can tell you we're in the process of completely resetting that, using that formulation in our current brands, and then actually partnering with somebody that I think will be significant in making that product offering, maybe not that brand, a significant offering in our portfolio. So that's really what I would say. It hasn't gone the way we'd like. We're throwing it out and keeping the baby. The baby is actually the formulation, which is outstanding. And then we're leveraging that formulation across our current brands and doing a reset on the brand with a partner that we think will be super interesting that we'll announce in the near future.
spk05: All right. Yep. Keep the baby, John. Thanks very much for indulging these questions. I'll hop back in the queue. Great. Thanks, Michael.
spk07: The next question comes from Rachel Van Stahl from J.P. Morgan. Please go ahead. Hey, guys. Thanks for taking the questions.
spk06: So first off, on your ingredients business, it sounds like demand is outpacing supply there as your customers are facing some supply and sourcing constraints themselves. So can you just talk about the amount of pricing leverage that you have? In the past, you've also talked about minimum order quantities that you have in place. So have you considered doing larger, more long-term contracts with customers so that they can lock up supply?
spk17: Hi, Rachel. Thanks for being on. Great questions. Look, I I don't think contract structures is something we're spending a lot of time on. I will tell you that pricing power is definitely something we're really focused on right now. I've been hesitant because we've had stable pricing for so long. It's at a point now where demand is, I don't think we have a choice, and we should really take advantage of it. I think there's an opportunity to reset some of our core ingredients. We're the only ones that supply them. So I think that's where to watch, Rachel, but not necessarily big shifts in the structure of the contracts.
spk06: Great. That's helpful. And then last one for me is just on the DSM earnouts. So nice to hear that that's going better than expected. Sounds like you guys could come in above that $39 million that you had penned earlier in the year. So how should we think about modeling DSM going forward, especially into next year? And then can you just talk about what's driving that upside there? Thank you.
spk17: Yeah, there's actually a couple of ingredients in our portfolio, scleriol and vanillin, as two big drivers of that earn out that are performing better than we expected. And without getting into a lot of detail on what else in the portfolio, I could tell you just about everything in the F&F portfolio is actually doing very well right now. And really on the back of, if you really wanted a proxy to follow Our performance there, just look at Firminiche and Givadon, right? They're our main customers for those ingredients. And how well their business does and how well flavors and fragrances performs as a category drives how we perform in the ingredient supply. Again, we're fortunate that we put in that portfolio for the earn out a subset of the ingredients where we thought had maximum upside that we didn't want to give up. And it's playing out that way. So I hope that helps Rachel think about what drives that. And then if you go to the end market, what's driving that for the flavor and fragrance industry is on the flavor side, much more innovation in the food space that kicked on kind of post-COVID. And then secondly, a significant doubling down on the consumer side for personal care goods. that are more sustainably sourced and a focus on good ingredients, right? So there's fundamentals driving their business, and their business is powered by our ingredients, which then comes to greater demand for us. And we've been lucky that a couple of those are the ingredients that are in our earn-out portfolio.
spk15: Great. Thank you.
spk07: Our final question comes from Graham Tanaka of Tanaka Capital Management. Please go ahead.
spk02: Thank you, guys. I'll squeeze some things in real quick. On the monetization of the molecule marketing rights, what would be the model going forward now that you have what looks like more attractive and larger upfronts? What would be the expectation per molecule for recurring revenue for manufacturing and milestone payments. Thanks.
spk17: Graham, just a clarification. Are you referring to specifically the molecules we're currently in the process of monetizing?
spk02: Yes, those, but also in the future, because you did allude to being able to continue to do this every year. I think you said for the next few years to monetize a couple of molecules. This would tend to make it more recurring revenue and, in my mind, more valuable. Thank you.
spk17: Yeah, no, thank you for that. Okay. So look, I think what we're seeing is the benefit of molecules that have greater traction, right? So I think the model for us is just ensure that we develop, we scale. In these particular molecules, they're molecules that we have really complete control over. So if you think about a model to maximize value is keep control yourself. That's what we've done. Ensure that the molecules have good market traction. And number three, ensure that the molecules are such that the only way to make these molecules and support the end markets is through our technology. Whenever those three components are present, I think we could get well over a hundred million per molecule. Then if you think about the revenue going forward from these molecules, both of these molecules are in very high growth markets that we expect to continue growing at 30 to 40% going forward. So it's not a one and done. It's continue to grow the revenue underneath these molecules because we continue to produce them and maximize the value based on the strength the molecules have in the end markets. I hope that helps.
spk02: Yeah, sorry. What would the expectation be for manufacturing revenues as you retain the manufacturing rights and keep improving the product? Thanks.
spk17: Look, I think for these two molecules, I would tell you that the annual manufacturing rate would be somewhere around 30 to 40 million, growing at 30 to 40% a year.
spk02: And that would be at an ingredients margin, sort of 30 to 40% gross margin, or something different?
spk17: No, I think that's where, once we do the deal, we go to a manufacturing margin, which is more like in the 10 to 20% range.
spk02: Okay, got it. And then just if you could give us a feeling of for the value of the brands, uh, you mentioned a couple of them, uh, but now you're, you're talking about JVN Rose Biosense as having significant value. And then I'm just wondering if you could, uh, sort of, sort of project what you think stripes pipette and, uh, mental labs might be worth relative to their revenues and their margins. Thanks.
spk17: Look, I would say that, uh, You know, Stripes is not selling yet, but I would expect Stripes to perform somewhere between the Rose Inc. level and the JVN level. I kind of like think about those two as bookends and Stripes somewhere in the middle. Think about Rose Inc. You know, as I said during the call, JVN is currently valued at somewhere around $400 million. Rose Inc. is currently valued somewhere around $200 to $300 million range. And I would see, uh, stripes somewhere in the middle of that, uh, based on again, their revenue performance growth, margin structure, and channel structure. Uh, when you think about mental labs, mental labs is more of a mass brand and pipette is more of a mass brand. Uh, so the multiples for those brands and the margin based on margin structure and channel structure is actually lower than the prestige markets. and lower by what could be 50% to 60%, right? So it's a pretty significant difference in valuation. So without giving you some specific numbers, I hope that helps you think about why valuations are different across different segments. It's margin and channel. And you think about margin and channel in a proxy would be simple to think of it as prestige versus mass.
spk02: Yeah, and if I could throw in a couple of questions real quick. I think people are interested to know what your You're talking about controlling costs, what your SG&A and R&D per annum might tend to be as we go into the second half and then per annum next year. Is there going to be a control of those costs? Thanks.
spk17: Look, I don't expect our SG&A as we go into the second half and then into next year, so second half annualized into next year, to be outside the realm of what I'll call $4 to $450 million. I think that's the range we expect to operate in. I think we have a ton of leverage and capability to be able to operate at that level and significantly drive revenue growth. So I think we're done with putting a lot more activity in, and right now it's about really using the activity we have, the people we have, the assets we have to really drive growth and We're very confident we can do that. We're doing that already, and I expect to just leverage that going forward.
spk02: Great. And the last was the three plants put together, the barra bonita fermentation facility and the two finishing plants, would do what for the whole company in terms of operating costs when you're fully operating, which sounds like might be in the fourth quarter this year versus, say, the fourth quarter last year. Thanks.
spk17: I don't know that I've got that specific a picture. I don't know if you do, comparing fourth quarter of last year to fourth quarter of this year. I think what we sit on the call, and I'll reemphasize, is really the margin impact. The gross margin impact is a solid 65% on the consumer side with the current mix, and then obviously a reduction in cost because of moving shipping costs up above line versus the operating expense line and on ingredients getting much closer to a 40 percent margin on ingredients versus where we're currently at which is probably more around the 30 percent level so significant expansion of margin on ingredients significant expansion of margin uh on consumer and then a significant reduction in cost which you know fourth quarter based on volume that's probably a 15 to 20 million dollar impact and cost reduction in the fourth quarter just by actually having a better cost of goods and a more efficient supply chain to reduce our shipping costs.
spk02: Great. Actually, there is actually one more I wanted to ask you real quick. Any news or change of expectations on the COVID vaccine trials and that opportunity? Thanks.
spk17: I think it's already been said publicly. We've been careful not to be the leads in leaking things publicly around the vaccine, but I think somebody picked it up and it was on some social tweets around the fact that Immunity Bio has the trials approved, has recruiting either underway or complete, and is about ready to start the trials, which is a little later than I would have expected, but Good news is progressing and I would hope by the next call I could give you an update regarding some results.
spk07: This concludes our question and answer session. I would like to turn the conference back over to John Mello for closing remarks.
spk17: Great. Thank you, Danielle. Thank you to everyone actually for joining us today and for your continued interest and support. If we did not get to your question, please follow up with our investor relations team. It was great to have more time for questions today. I think we almost went 40 minutes with Q&A. We're very excited about where our business is. We're very focused on getting to operational efficiency, significantly reducing our cash burn based on just not needing to invest what we have been investing, knowing that what we've had to invest had been planned. And now really being at a point, we're starting to really optimize and benefit from the amazing assets we built. Thank you all. Have a very good rest of the day.
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