Amyris, Inc.

Welcome to the Amory second quarter 2022 financial results conference call. This call is being webcast live on the events page of the investor section of the Amory's website at amory.com. As a reminder, today's call is being recorded. You may listen to webcast replay of this call by going to the investor section of Amory's website. I would now like to turn the call over to Amory. Chief Financial Officer of AMERIS. Please go ahead.

Thank you, Maria, and good morning, everyone. Thank you for joining us today. With me on today's call is John Mello, President and Chief Executive Officer, and also Eduardo Alvarez, Chief Operating Officer, to support our Q&A session today. We issued our results in a press release this morning. The current report on Form 8K furnished with respect to our press release is available on our website. amorous.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 were posted today for your convenience. Please turn to slide two. Please note that on this call, you will hear discussions of non-GAAP financial measures, including, but not limited to, underlying sales, revenue, gross margin, cash operating expense, and adjusted EBITDA. Reconciliations of these non-GAAP measures to the most directly comparable GAAP financial measures are contained in the financial summary section slides of the presentation or the press release distributed earlier today. 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 expectation and actual results and future events may differ materially due to risks and uncertainties, including those detailed from time and time in our findings with the Securities and Exchange Commission, including our 10Q for the second quarter of 2022. Amherst disclaims any obligation to update information containing these forward-looking statements, whether as a result of new information, future events, or otherwise. I'll now turn the call over to John. John?

Thank you, Han, and good morning, everyone. Thank you for joining us today. I'll provide an update on our business performance and our path forward over the next six quarters before asking Han to provide a detailed update on our financial performance, our cost reduction initiatives, and our funding outlook. I will summarize, and then we will turn to Q&A joined by Eduardo Alvarez today. Slide four. Our second quarter was another solid quarter of core revenue growth and operational execution. We delivered on our business objectives and completed our heavy investment phase as we previously communicated. Our revenue and gross margin were in line with our expectations. Our costs were higher than we originally anticipated as we decided to make the necessary investments to build inventory and accelerate the brand development of a much larger than anticipated expansion with Walmart in North America. Our consumer business delivered 108% growth in the second quarter over the same period in 2021, and has grown 113% during the first half compared to the same period last year. Our gross margin was in line at just under 60%, and we are very focused on moving the consumer brands to profitable operating contribution by the end of this year. Our technology access revenue has also continued strong growth, driven by our industry leadership in the production of clean, sustainable chemistry. Our ingredients demand has outpaced our capacity. We sold all that we could produce during the first half and are entering the second half with an estimated $15 million of backlog orders for ingredients, in addition to the contracted demand for the rest of the year. This backlog has started shipping in the third quarter as we benefit from the added capacity and the lower production cost of our new state-of-the-art biofermentation factory in Barra Bonita, Brazil, now producing and shipping product. Gross margins for the quarter continued in line with our expectations for the first half. In the second half of the year, we expect gross margin expansion underpinned by Barra Bonita production, the transition of approximately 70% of our consumer production from third-party contract manufacturers into our own production, and a reduction in packaging costs, and also much reducing China source components, which have resulted in significant air freight charges during the first half. We invested approximately $140 million in strategic and structural investments during the first half of this year. This included $55 million in CapEx for Barra Bonita, $25 million in cash for two consumer manufacturing plants and supply chain infrastructure, $45 million in working capital to build six months of extra inventory to avoid supply chain related out of stock issues for our retailers, and $15 million in expense to build and launch three new brands in the third and fourth quarter of this year. To sum up the second quarter, we delivered strong operational performance, We started our Baja Bonita biofermentation plant, as previously communicated. We closed two acquisitions, including a new consumer production facility in Brazil that's scheduled to start production this month. And we shipped consumer product from Reno. We started the process of transitioning to lower cost fulfillment and are also moving component sourcing for consumer products from China to Brazil, where we can deliver a lower cost and more resilient supply chain to support our growth. We also made significant progress with the setup of infrastructure for our expansion into Europe. Our heavy investment phase is complete. We are now executing significant cost reductions that are enabled from the investments we made along with the scale we've now achieved in our consumer business. We will start to see these benefits from these actions flow through our financials in the third quarter with a fuller impact during the fourth quarter. We understand that in addition to building a great business, we also need to do a much better job managing expectations with the financial community. We are delivering on our internal plans and need to also deliver on market expectations and analyst models. A year ago, our consumer business was 49 percent of our revenue. And now it is 66 percent. Our consumer business delivers over one-third of the year's revenue during the holiday season. This type of seasonality, along with the additions we are making to the portfolio and the changes to our cost structure, make our business very challenging to model accurately. We will add more explicit quarterly guidance in addition to our annual outlook to avoid some of the disconnects we experienced in recent quarters. We have no need to disappoint, and we will fix this. Han will cover in more detail our financial performance outlook and our specific cost reduction initiatives to enhance our financial performance. I'd like to transition to our plan and strategy for the next six quarters and our long-term outlook. Let me start with our consumer business. I'm now on slide five. We have built the fastest growing consumer business in health, beauty, and wellness with a strong portfolio of brands that each are leading in their respective categories. This business is expected to deliver $250 million in 2022 revenue. Based on our current performance and quarterly growth rate, we expect to deliver core revenue of around $250 million in the fourth quarter of 2023, or think of it as $1 billion in annualized revenue run rate by the fourth quarter of 2023. We expect this core revenue to operate with a gross margin in the 60 percent range, a more than 10 percent improvement versus 2022. This includes our core cost initiatives and current portfolio and channel mix. At this level of revenue, we would expect around a 20 percent operating profit margin in 2023. increasing to around 30% operating margin by the end of 2024. Our consumer business sells one product every two seconds. We added over 3 million customers in the first half alone and have some of the best performing SKUs in the categories and markets we participate in. For example, our BioScience serum was the best selling serum on Tmall in China during the month of April. And our Bioscience Vitamin C Rose Oil is one of the best-selling Vitamin C skincare products in North America. Our strategy with our consumer portfolio is simple. Create brands that can achieve a billion-dollar market valuation in categories like skincare, haircare, color cosmetics, and menopause, where we can deliver the best-performing products in the category. at an accessible price and select partners that have access to a unique community so that we can grow awareness and revenue most efficiently. We need to control our destiny to build a truly great company that delivers real products that consumers want and need and to make the full impact on our planet that synthetic biology is truly capable of. As an example of our leadership in building clean consumer brands, We have just completed an agreement with David Beckham to develop a leading men's clean skin, hair, and wellness brand. David is a great addition to our current portfolio with over 75 million Instagram followers globally and a real passion for sustainability. We expect to have this brand in the market at the end of 2023. Our current consumer portfolio is has an estimated market-based valuation of over $2.5 billion. Our homegrown brands like Biossance, Pipette, JVN, Rose Inc., and Pure Cane deliver over 75% of our consumer revenue. Our acquisitions have also done well. As an example, Costa Brazil is growing over 300% this year. And Menolabs is delivering over 200% growth this year at the highest gross margin of any brand in our portfolio. We are constantly making resource allocations, and we will not invest in brands that don't perform. Long term, we expect our portfolio to be about 12 brands in categories where we can win and sell through an omni-channel strategy with our direct-to-consumer leading in revenue contribution and our retail partners led by the leading retailers in the world in their respective geographies. Slide six. Building and operating the best performing consumer brands has enabled us access to the world's leading retailers. We are in process of significantly expanding our relationship with Walmart as an example. We now have Pipette in over 4,000 Walmart stores. We are expanding rapidly in Walmart with Pure Cane. and will launch 4U by Tiamari later this year. The 4U brand is a great example of collaboration. We are building a brand for Walmart to meet a critical need of delivering the best performing products that are sustainably sourced for their consumer. This is the start of a relationship that has the potential to be one third of our North American revenue in 2023 and beyond. Last week, Walmart was the leading retailer in our portfolio in terms of top units sold for a single brand. We sold 37,121 units of Olica across Walmart alone during last week. The best external comparison for our consumer business is the Unilever Prestige business. What we can conclude from public data is that we are executing on a consumer business that has a like financial profile to theirs. We are doing this one-third faster than they did and for 90% less capital. Our brands are delivering stronger growth. They perform cleaner and better products and are delivering better loyalty. They have about 12 brands in this portfolio and started building this business in 2014, and they reached $1 billion in revenue in 2021. We started in 2016 and expect to reach $1 billion in run rate for the fourth quarter of 2023. We are growing at a faster rate, spending significantly less for our growth, and delivering a similar financial profile. Faster, better, cheaper. This is what our lab-to-market technology has enabled us to achieve with the consumer. Slide seven, let me now turn to technology access in our ingredients business. In the first half, we did not have enough manufacturing capacity to meet demand. We have over $15 million of demand backlog that will start shipping during the third quarter because of the successful Barra Bonita startup. We are the world's lowest cost producer of sustainably sourced natural ingredients. Our ingredients are typically contracted for the next 10 years, and we will run Barra Bonita at full production capacity for the foreseeable future. Barra Bonita started with vanilla production in June and has delivered our best vanilla fermentation performance to date. We just recently started production of our second molecule at Barra Bonita. This is our 14th molecule to reach industrial scale. a confidential molecule that is another breakthrough for the fragrance industry. This production has also started well. Both of these are demonstrating the excellent performance of our team at Baja Bonita and the real breakthrough in manufacturing technology that we have designed, built, and are now operating. This year alone, we are scaling more new ingredients than any other company in our sector has scaled in their entire history. The competitive comparison is simple. We develop and produce molecules, while the rest of the sector is making organisms. Organisms are a catalyst on the path to making what consumers and customers really want and need. That's molecules. That's why we generate more revenue, industry-leading growth, and stronger margins than most in our sector. We are strategically advantaged with our business model and the value we capture from the value chain. You can see this in our core revenue in the second half as we start really meeting demand with Baja Bonita. You can also see this in the value we've demonstrated we can get from providing marketing rights to our molecules. Last year, we generated $50 to $100 million in value for each molecule we provided long-term marketing rights for with our strategic transactions. This year, you'll see this value significantly increase as we sell marketing rights to two more of our molecules. We are scaling and commercializing three to five molecules annually and have a pipeline of over 25 in active development. We are delivering what the world needs, sustainable chemistry for a healthier planet. In these transactions, we remain the manufacturer and continue to generate a long-term revenue and margin stream from these products and their underlying technology. This is the royalty built into our technology. This royalty alone is more value we see any competitor generating from their small slice of many programs for organisms business models. Let me now end with our second half financial actions and sources of capital. Slide eight. We are leaders in synthetic biology, delivering molecules that are making the world healthier for all. We have the best performing consumer brand portfolio in clean health, beauty, and wellness markets. We have a clear path to a business that delivers a billion dollars in run rate revenue by the fourth quarter of 2023 based on our continued successful execution of our strategy. We are committed and confident to non-equity funding to ensure we achieve the full value of our technology platform and realize the future of the business we have built. We are executing on and have visibility to over $700 million of non-equity funding and cash inflow. from earnouts to continue executing our growth strategy. We have term sheets for up to $250 million of term loan financing. We expect to close this before the end of this quarter. We have made very good progress on the strategic transaction to sell marketing rights to two of our molecules. We expect to close this transaction before the end of this year, and the transaction is expected to result in about $350 million of upfront cash and around $400 million of total value. In addition to these two sources of capital, we expect over $230 million in earnouts from the strategic transactions we completed in Q1 and Q2 of last year. We are working through advancing some of this earnout into this year, with the remainder becoming available annually over the three-year earnout period. We are fortunate to be performing on the high end of the earnout calculation based on the demand for our clean, sustainable molecules. In addition to non-equity funding for our continued execution, we are also executing on a significant cost and efficiency agenda. The successful startup of Baja Bonita and the investments we made in supply chain and manufacturing assets earlier this year have enabled us to execute on several actions that significantly reduce our cost base going forward. These are our fit to win actions. These actions are expected to deliver $50 million of adjusted EBITDA improvement in the second half of this year and $175 million of full year adjusted EBITDA improvements for next year. These include price increases, significant reduction to COGS, and significant reduction to our SG&A without impacting our consumer growth. Han will cover the fit to win agenda in more detail. Eduardo Alvarez is leading on a major part of our fit to win activities and is with us this morning for the Q&A session. Let me summarize and transition to Han. We are focused on three priorities, delivering industry leading growth and maintaining market leadership for our technology, delivering cost improvements to realize the full benefit of our scale and consumer brand leadership, and funding our business near term with non-equity sources of capital. Our guidance for the year remains unchanged. We expect to deliver over 150% growth year on year of our consumer business and around 40% growth in our technology access activity. The combination of our fit to win agenda and our continued business performance should result in a clear path to positive adjusted EBITDA in 2023. Our second half has started strong, with July delivering our best consumer sales performance to date this year. We have great traction on our cost actions and clear visibility on our funding. Han will now provide a review of our financial performance and additional detail around our transformation agenda and what you can expect. Han?