Amyris, Inc.

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

Thank you, Andrea, and good afternoon, 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, our Chief Operating Officer, who will participate in the Q&A session. 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 sections, 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, core sales revenue, gross margin, cash operating expense, and adjusted EBITDA. Reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures are contained in the financial summary section slides of the presentation and the press release distributed today. During this call, we will make forward-looking statements about future events and circumstances, including Amaris' outlook for 2023 and beyond. Amherst's goals and strategic priorities, anticipated transactions and other future milestones, as well as market opportunities, growth prospects, and fit-to-win actions. 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 to time in our filings with the Securities and Exchange Commission, including our 10-K for the fourth quarter and full year 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. With that, I'll turn the call over to John. John?

Thanks, Han, and good afternoon, everyone. Thank you for joining us today. I'll provide an update on our business performance and our key priorities for this year. Han will provide an update on our financial performance and our 2023 outlook. And I'll recap before we turn to Q&A. I'll start with a note about Silicon Valley Bank and the recent turmoil involving other banks. This unfortunate situation has impacted many. Let me confirm that Amherst does not have direct exposure to either of the banks at issue. We do not bank with them. Our global banking platform is with JPMorgan as our principal commercial bank. We maintain backup banks in each of the regions we operate in should we need to urgently ship deposits. I'm also pleased to confirm that we have continued access to sufficient working capital. As you may have seen from the 8K disclosure we made yesterday, Amherst secured $50 million in debt to carry us through the point when we can capture the upfront cash payment from the recently signed transaction with Givadon, which should be within 30 to 45 days. Slide four. We delivered a solid fourth quarter with performance that marks our continued disciplined, efficient use of funds and robust growth. Our consumer business delivered its second consecutive quarter of record growth marked by 64% growth over the fourth quarter of 2021. Our total core revenue of 76 million is up 17% over the fourth quarter of 2021. This is also a new single quarter core revenue record for the company. Our consumer business is running about 50% direct-to-consumer and about half with retail partners. Our D2C business continues to deliver strong results with growth of about 60% year over year. We are making good progress with our marketing spend and our hit count. We operated the first half of 2022 with less than $1 of revenue for every marketing dollar invested. We are now at $2 of revenue for every marketing dollar invested, and I expect for us to end 2023 at $3 of revenue for every dollar of marketing invested. This has come from significant insights and innovation across our teams, including a much more efficient customer acquisition model that is being scaled across all of our brands with support of MGM Power, our world-class social commerce agency. On Headcount, We froze headcount during the fourth quarter and I can confirm that we have lowered our total headcount since then. I have eliminated 30% of my direct reports and we have simplified our leadership structure with a significant reduction of the executive team roles. During the fourth quarter, use of cash was our top priority. We operated in a working capital constrained environment and focused on best use of our very limited liquidity. This resulted in over $14 million of ingredient product revenue where we have orders that we were unable to support with working capital and did not ship. These are mostly Farneseen-related products and also our natural sweetener, Revet. These orders are being filled in the first half of 2023 and are critical for the end customers. Demand for our ingredients remains very robust. Our biggest challenge has been capacity, access to feedstock, and working capital. Both of these are improving and will be resolved through the first half of 2023. We are delivering on our commitment to be the growth leaders in the consumer categories we participate and to drive best core revenue growth of our biotech competitors. We are prioritizing our cash use over our revenue and are pleased with the third quarter which is the third consecutive quarter of material reduction in cash use. We consumed $95 million of cash in the fourth quarter versus our prior indication of $100 to $110 million. This is a reduction of $100 million in quarterly cash use from the first quarter of 2022. Our consumer growth is not happening at the expense of margins. Consumer direct gross margin for the quarter was our best of the year and an increase of 600 basis points over the fourth quarter of 2021. We continue to execute our broad fit to win agenda. We are aggressively transitioning to more efficient sourcing and proprietary manufacturing. We are already realizing better than expected production costs at our interfaces facility. in Brazil, where we expect around 60% of all our consumer volume manufactured there by the third quarter of 2023. For our Biossance best sellers alone, the Interfaces manufacturing improves cost of goods by an estimated 50%. These combined actions are expected to deliver 300 to 400 basis points of margin improvement for our consumer business through 2023. Slide five, our healthy top line and margins should be assessed in the broadly positive context of a thriving macro category prestige beauty environment, where we are leading in each category we participate in. Industry data tells us that consumer demand for prestige beauty in hair care, color cosmetics, skin care, and healthy aging was very strong in the fourth quarter. growing at over 15% year over year as a blended number across these categories. This trend has accelerated into the first quarter. It's often called the lipstick effect, which is to say that even when there is inflation and a degree of economic uncertainty, consumers will spend on affordable indulgences. You can see this reflected in the reported performance of L'Oreal, Ulta Beauty, and LVMH, as well as our retail partners. There is no doubt that the fundamentals of our business model, creating and building differentiated consumer brands and marketing our proprietary molecules through leading global companies that are market leaders are synergistically on trend. Clean, sustainable, science-backed beauty is what consumers are demanding and spending on. It's a market driver that enables us to build and operate some of the best performing consumer brands in these categories. We are focused on winning in markets where our technology is clearly the best path to replacing chemistry from non-sustainable sources and where we can accomplish that with superior products at lower costs. We are executing our lab-to-market strategy. This is where we own the underlying science and technology, we develop and scale as the long-term producer, and we partner with leaders in their respective end markets, those who have the skills and resources to market and grow share through new product development and leverageable distribution reach. Our partners are simply great at what they do, and we are the best at developing and making clean, sustainable chemistry that enables them great market opportunities with their market access and reach. Slide seven. As for our consumer brands, we will continue to support this pillar of our strategy while also making strategic adjustments, which I will get to in a few seconds. These brands are doing great with growing demand from the retailers we work with and solid direct-to-consumer performance. As mentioned, the categories we compete in have real tailwinds with continued strong growth in the first quarter. Here's what we've learned. And what we've heard from our retail partners like Sephora is that when we smartly invest in our direct-to-consumer brands, the impact of that is felt at the shelf level. A strong B2C business supported with healthy marketing investment drives a strong retail sales performance. Consumers are not just walking into stores to buy brands they have no awareness of. The success of our key strategic consumer brands drive more demand of our ingredients. When we get this right, it's an amazing and efficient flywheel for growth and market leadership, and we are getting better at it all the time. We are committed to continuing to deliver industry-leading growth for our consumer portfolio and will moderate or accelerate this growth based on investment. We have great assets and significant and growing demand for our brands and the ingredients and products we produce. Our available ingredient capacity is sold out for 2023. Slide eight, to fully leverage our assets to drive enterprise value requires a deeper focus on efficiency, lowering our costs, and also simplifying our portfolio. We are narrowing our investments to where we have and can extend market leadership and sustainable, predictable growth, which includes the gross margin increase I mentioned earlier. We are further focusing our consumer brand portfolio and expect to end with five to six brands that are market leaders, represent over 90% of our current revenue and growth, use a lot of our ingredients in their formulations, and have a clear path to profitability. This additional rationalization of non-core assets in our consumer portfolio is expected to generate around $150 million of cash proceeds this year. The brands that remain in our portfolio have a current market value of around $2 billion. We are in active discussions with potential buyers for these non-core assets that we're in the process of selling. In parallel, we will reduce and eliminate all other spend through further divestments and deep prioritization of where we invest our limited dollars. Let me now move to the strategic transaction we signed with Jivadon in February. This transaction has an expected value of over $500 million. This includes $200 million of upfront cash, $150 million of earn out to be paid over three years, and an expected over $150 million in gross margin dollars from the production of the products during the first 10 years of our long-term production agreement. This does not include any value from future molecules we add to the partnership or for joint development that are part of the strategic partnership we have created with Givadon for leading the beauty industry with clean, sustainable chemistry produced from fermentation. We expect that there will be less than $10 million revenue reduction on the basis of 2022's numbers as we continue to benefit from the production of these ingredients through the long-term manufacturing agreement. This transaction is for two molecules, squalane and hemisqualane, and one formulation that includes these two ingredients, ClearScreen, a sustainable solution for sun protection. This transaction represents more than three times the value versus our other strategic molecule transactions. And it's consistent in structure with both the DSM flavor and fragrance transaction and the ingredient partnership for Rev-M and other products in the human nutrition market. We already have an excellent relationship with Givadon where we develop Bissabala Life and their latest breakthrough, Bioretinol, from our technology and fermentation platform. When you combine our biotechnology stack with Givadon's market insights and product development resources, the result is a powerhouse capability that is uniquely positioned for global growth and becoming a clear leader in clean, sustainable chemistry into the global beauty industry. This transaction is great proof of the value of our molecules and the power of our technology platform to truly transform in markets the clean, sustainable chemistry that makes our planet healthy. As I previously communicated, the transaction is growing through the HSR waiting period, and we expect a 30 to 45-day closing and funding. Having discussed the Givadon transaction, let me step back and put this in the context of our go-to-market model. With fidelity to our fit-to-win rigor, we covered the beauty and personal care categories with Givadon. There are three other verticals where our biofermentation leadership creates sustained, long-term growth for our current ingredients portfolio, along with significant potential to expand through development of new ingredients. Flavor and fragrance revenue streams will come from our DSM relationship. This is also performing extremely well with our blockbuster ingredients and their access to market. Food, beverage, and nutrition opportunities will continue to emerge from Ingredion. They are doing an excellent job expanding the market for our Reven. This ingredient is expected to be in the top three ingredients for revenue in 2023 and is growing at a faster rate than we have planned. And we are engaged with a potential strategic partnership for commercialization opportunities in the human health and pharmaceutical markets that will include squamine for vaccine adjuvants. This is a competitive process, and we are really excited about the participants and the potential outcome. Slide 10. We have been approached and are in active discussions regarding a manufacturing joint venture. We are exploring this opportunity with one of the world's top four sugar producers, a mill about the size of Barra Bonita. The proposed JV structure would combine some of our bio manufacturing assets, would release a significant amount of cash from our current production assets, and the partner would fund the next bio manufacturing facility and downstream processing facilities. They have completed initial diligence and are impressed with what we have built. at Baja Bonita and the quality of our teams and overall capability. Biomanufacturing consumes the most significant amount of our working capital and has a long cash cycle time. We believe this type of partnership can be deeply strategic and significantly advance our market leadership in biomanufacturing with a capital life approach. We are very pleased with this opportunity and will update you on progress. In addition to fully funding our much needed next production facility, This opportunity can also help generate $50 to $100 million in new cash to our balance sheet in the short term and free up $50 million of current working capital that is used to support our ingredients business. If discussions continue as planned, then we expect this facility to be in construction by the end of this year and be 100% Farneseen dedicated biomanufacturing facility. The structure of this JV and the financial commitment from this partner is a great testimony to the best-in-class capability we have built for biofermentation and downstream biochemical processing. We believe we have the best in the world, and our partnerships continue to prove this. With the proceeds from the rationalization of non-core consumer brands and the opportunity to partner for manufacturing capacity, we see a clear path to self-sustaining tax generation. We now need 100% focus on efficiency and excellence across our operations. We intend to bring our operating cash use in 2023 to around $200 million run rate by the end of 2023 and from over $600 million in 2022. We are delivering this reduction in cash use through our fit to win agenda, portfolio rationalization of non-core assets, along with ensuring we have the right size organization for supporting our lean and focused future. We are also expanding our gross margin this year through the manufacturing cost savings in the Fit to Win agenda, but also through the Givadon earn-out and the underlying growth of our flavors and fragrance business and the impact this has on the DSM earn-out. Taken together, we expect these actions will enable us to meet our objective of ending 2023 as a growing, self-sufficient enterprise with the capacity to fund its growth. Let me close out by discussing our liquidity. Our liquidity has been extremely challenging. It has been a healthy forcing factor as we focused on what matters to ensure we invest where the growth and efficiency is and where we are the best. As the Givadon proceeds come in and cost savings I've detailed, we will be prepared to build enterprise value. To summarize, we are an investment model that combines proven and profitable biotechnology that sells to world-leading companies with the ability to develop and market products that consumers love. I don't know of any company in health, beauty, and wellness markets who have the lab-to-market capability and integration of Amherst and are delivering on what consumers are demanding today. We've never had as much inbound interest in developing partnerships for new molecules and with retailers and brand owners wanting to work with us and needing access to our capability to deliver new chemistry and great products. We have a disciplined 2023 operating plan that is ambitious but realistic, with visibility to self-sustaining operating cash flow by the end of this year. We will continue to streamline our portfolio leaning into the greatest opportunities while right-sizing our cost base. Last, but certainly not least, could not be more grateful to our teams who have delivered incredible performance without the full resources required to keep our customers supplied when many companies fail to do this in 2022. They are scrappy, talented, and passionate. Let me now turn the call to Han.