Amyris, Inc.

Q1 2023 Earnings Conference Call

5/9/2023

spk01: considering all aspects of cost of goods sold. A reconciliation of this non-GAAP measure is included in the tables to our earnings release. Non-GAAP gross profit was 11.6 million or 21% of revenue, compared to 10.6 million or 18% of revenue in Q1 of 2022. Non-GAAP gross profit increased by $1 million and was 300 basis points higher as a percent of revenue than in the prior year. This was primarily due to lower freight expense, as well as favorable mix of higher margin revenue. We experienced significantly higher freight spending in 2022, particularly due to increased inbound air freight rates and volume to support our growing consumer brand revenue, as well as the importation of ingredients into immediate product. We were very pleased with our progress to reduce costs in these areas, yielding a reduction in inbound freight from 8.5 million in Q1 2022 to 2.4 million in the first quarter of 23. We expect most of these freight and logistic expanders to operate at a lower level compared to 2022 due to the commissioning of the new Brazil fermentation plant and our plan to transition to Brazilian source components and manufacturing for our largest consumer brands. Before I move to discussing operating expense, I want to spend a moment on our consumer portfolio. In the first quarter of 23, we entered into a JV and brand collaboration agreement with Tia Mowry, launching for you by Tia in January, a new clean hairline, a new clean hair care brand. The brand collaboration agreement with actress and celebrity Tia Mowry will market this new hair care line to women of color using clean ingredients. In connection with our fit-to-win strategy, the company decided to exit the EcoFabulous brand and reorganize the Beauty Labs business. during the first quarter of 23. Accordingly, we booked a $28.5 million favorable non-cash change in the fair value of acquisition-related contingent consideration, as well as asset impairments totaling $95.4 million. We also incurred a $4.2 million inventory write-off related to the EcoFabulous brand, which was adjusted out when calculating gross profit. Next, I'd like to touch on operating expense. Non-GAAP cash operating expense of $112.8 million was 4% lower than Q1 2022 and 24% lower than the fourth quarter of 2022. This was primarily due to lower marketing and media spend related to working capital constraints. In Q1 2023, more than $1 million of cost savings resulted from headcount reduction initiatives and approximately $14 million resulted from lower consumer marketing expenses versus the previous run rate. This was mostly related to spend on paid media such as Google and Meta and related agencies. We started the quarter with a cash balance of $71 million and raised $42 million primarily through a bridge loan to fund the purchase of our Pranova assets in April 2023. We used $101 million during the quarter on operational adjusted EBITDA offset in part by favorable working capital leverage of $17 million driven by action taken with supplies to improve terms and our cash conversion cycle. We also, we closed out the quarter with $17 million of cash on hand. Before I discuss our quarter-on-quarter progress, in connection with our ongoing strategic review as previously communicated on April 24th, we are focused on cost efficiency, capital structure, and liquidity required to fund the business. We updated our going concern disclosure, as you will see in our quarterly report on Fund 10Q, and we have signed forbearance agreements with the company's lenders. Forrest Ventures LLC, Parara Ventures LLC, and DSM Finance BV related to the maturity of an aggregate $92.5 million of debt principal. The lenders have agreed to forbear from exercising any rights and remedies with respect to certain payment defaults until June 23, 2023. As described in our 10Q, our current cash position, as well as short-term debt payments due, raises substantial doubt about our ability to continue as a going concern within the one-year period. As referenced earlier, we are actively working on plans that are intended to address this going concern. As it relates to our Q1 performance, we have sequentially reduced cash use for operating and investing activities, beginning with 199.7 million in Q1 2022 through 94.8 million in the first quarter of 23, as the result of a focused effort on cost containment and the need to navigate liquidity constraints. We used a total of $90 million for operating activities, which includes all our costs of goods sold, operating expense, and working capital needs. We used a total of $5 million for investing activities, all of which was related to capital expenditures for R&D facilities, as well as the construction of our Abada Bonita fermentation plant. We have worked hard on reducing our use of cash by taking various steps, including bringing in proceeds from a strategic transaction. Let me summarize. And John referenced this earlier, the two transactions that we recently completed in early April, given their importance to cash flow. We completed the acquisition of an additional 49% of our JV in Apronova on April 3rd. We paid $49 million to bring our ownership percentage in Apronova up to 99%. Also on April 3rd, we closed on our transaction with Jivadan to license certain cosmetic ingredients business and received $200 million and up from cash and expect to receive up to $150 million in performance-based burnout payments over the three-year period. We are delivering on our strategy to provide technology access in a meaningful way to partners that are sector leaders and to bring in meaningful cash. Also, John described three activities with a view to bring in funding. Each of these are in process and are critical components of our plan to fund the business. With that, let me turn the call back to John.
spk03: Thanks, Anne. Before we move to Q&A, let me confirm that our current outlook for the full year, including revenue guidance provided on March 15, 2023, remains unchanged. We are focused on and committed to improving our cost structure, making strategic portfolio choices, improving our cash conversion cycle, and delivering on the transactions that self-fund our business. With that, Kate, can you please help us go to Q&A?
spk10: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw from the question queue, please press star then 2. We ask that you please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster.
spk08: The first question is from Susan Anderson of Canada Corps Genuity. Please go ahead.
spk04: Hi, good evening. Thanks for taking my questions. I was wondering if you can maybe talk about fit to win savings. I guess did you get any in the quarter and are you still expecting the $150 million annualized savings to flow through this year? And if so, how should we expect that to kind of flow through throughout the year?
spk03: Susan, thank you for being on. This is John. I'll start answering that. We did see a few of the activities in fit to win flow through in the quarter. We saw some of the improvements in our cost of goods, especially as Baja Bonita continued to come on line. We saw a significant reduction in our shipping costs, specifically the inbound shipping costs and air shipping. And we still expect that for the full year, we'll realize $150 million of savings in our baseline of 2022, which was the basis of the $150 million. And I'll let Han add if he has anything else on this.
spk01: Yeah, two things. One is what I said in my remarks just a moment ago is we saw the initial savings from reducing some of the headcount, particularly as it relates to the simplified leadership structure. I mentioned $1 million there. And then also, as it relates to some of the media spend, as we said, part of the driver was our liquidity constraints, and part of the driver was certainly some of the choices we made in terms of where to spend the investments opposite the revenue opportunity.
spk03: Thanks, John.
spk04: Great, thanks. And then just on the top line for this year, you talked about reiterating the guide. I guess For the core top line, I think that that would imply sales growing in the low to mid 20% range, I guess. Can you talk about the difference between the consumer and tech access growth for the year, and should we expect that to ramp back up to double-digit for consumer as we go through the year, or should the quarters be pretty equal?
spk03: Thanks. I'll start and then let Han talk about the quarterly cadence. I can tell you what we're seeing already in the second quarter, which is double-digit growth in our biggest brands as we really learned a lot in the first quarter about which one of our media investments worked best and how we got the best return for the media dollar spend, the limited media dollar spend that we did in the first quarter. So from those learnings, we scaled and we've activated our most effective channels. And I can tell you just on a on a week-to-week basis as we've looked at May versus April versus March. We're up 17% across several of our channels for our two biggest brands. And we're also seeing a significant impact in retail as we've increased some of the channel investment for media, which is what we expected. We expect as we invest marketing online, we expect to see an impact in retail. We've had several of our brands, including our biggest brand, that have had some of their second and third biggest weeks in history during the month of April. And we're seeing Pipette actually at retail, especially at Target. It's almost like every week we're setting a new record at Target for Pipette sales. And it's also performing extremely well with Walmart as a retail partner. So back to the question here. We see top line being in the double-digit growth back to where we'd expect and really in line with the guidance we've given. I think our focus this year is doing what we did in the first quarter and hitting or beating our guidance as we go through the year. So in a good place on consumer. As it relates to the ingredient side, the ingredient side is all about the uptime and the effectiveness of Baja Bonita. I can tell you since the beginning of this quarter, Barra Bonita has been operating very well, been stable, and we expect to hit our guidance. And, you know, that really is based on selling out all that we make out of Barra Bonita this year. So on track for both on the top line, consumer definitely on the double-digit growth track and hitting the numbers that we'd expect, and the same thing on the ingredient side. Han, anything about the cadence that you'd like to talk about?
spk01: First off, on the magnitude, I think you asked about the year, and that's kind of what we said last time was between 95% to 100% on the full year. That obviously included the strategic transaction that we now, at the time, was in progress. We now have completed, obviously, and we can confirm that 200 million is revenue that will be recognized in the second quarter, given that that is now complete. The other thing I would say, excluding that, You mentioned somewhat low 20s as a percent for the core business. We have not specifically broken out in our guidance consumer versus tech access, but it's in that range that we previously talked about.
spk04: Okay, great. And then if I could just add one more follow-up on Barra Bonita. I guess where are you at with moving your projection there? How many lines are up and running now? And then how much of your production have you been able to shift out of third parties into the plant so far?
spk03: Thanks, Susan. Look, we have five lines in total of Baja Bonita, three of which are what I'd call large-scale lines, 200-cubic-meter tanks. Those three lines represent, for those of you who were around during Brot, there's the equivalent of Brot's capacity. And all three of those lines are up and running. We have moved... I would say about 90% of our production, with the exception of farnesine, out of contract sites into Barra Bonita this year. Farnesine is still being produced at Bratis and we're still purchasing quite a bit of farnesine out of our DSM partnership. So if you think about where we are, a very small footprint, one or two molecules at our Spain contract facility that we still will need some production this year. the majority of all of our other molecules at Barra Bonita and then some farnesine, probably around 50, 60% of our farnesine coming out of the Brotish facility with DSM. I hope that helps answer the question about where our production is coming from this year.
spk04: Yeah, that's very helpful. Thanks so much. Good luck the rest of the year.
spk03: Thanks, Susan. Thanks, Susan.
spk10: The next question is from Corrine Wolfmeyer of Piper Sandler. Please go ahead.
spk02: Hey, good afternoon, guys, and thanks for taking the question. So, first, I'd like to touch a little bit more on what went on with BioSense in the quarter, and I know you, in the last question, you talked about, well, you pulled back a little bit of marketing spend. Can you just dive into what was the driver behind that? Was it just kind of to trial out and see, you know, how much you really were requiring to keep the brand afloat, and Now, as you go forward, you know, how are you thinking about the marketing spend for all the other brands? And then additionally on the biotons, I think you mentioned some out-of-stock product. Can you just expand on what was going on there as well? Thank you.
spk03: Sure. And thank you for being on, Corrine. A couple of points. I mean, first, regarding media spend, and you know the industry very well, regarding media spend, we went almost completely dark on with media spend for BioSense in the first quarter. And that obviously had a significant impact on growth. The good news is, even with that media spend turned off, we actually really delivered quite a bit of revenue from our whole brand portfolio. And that is across all the portfolio, by the way. I think in total, we spent $3 million. And I can tell you that that was spread and I can tell you that BioSense got a very small piece of that. So again, call it almost completely dark for the quarter in media spend. And it was a combination of things. First, we didn't have the liquidity that we could actually allocate the investment across the brand. So we had to make some hard choices. But secondly, as we were making those choices, we were very focused on what is the impact by channeled? And then we tested performance across various different channels. And by channels, I mean marketing channels. I mean what we did in paid search, what we did in paid social, what we did in affiliates, what we did with email, what we did with text, and what we did with any other online media investment that we were making during the quarter. So we now have a very good sense of the impact of dollars spent by channel. Again, we delivered... $10 for every dollar spent in the quarter, we're now very confident that our target of $3 of revenue for every dollar of spend is absolutely in line for our portfolio, knowing that a brand like Biossance actually has the potential for a lot more than that, as much as $5 to $6 of revenue for every dollar invested. I think the second factor, which we may have not talked about much, was really out of stocks. And out of stocks had a significant impact on revenue across our brands. The issue was really that quite a few of our brands, Pipette, Costa Brazil, JVN, Biosan, just to name a few, and then Rose Inc. actually was out of stock in several of their top 10 sellers. So combination of out of stock and what we saw in paid media. And we can verify that as we put product back in stock during the beginning of the second quarter, we've seen the consumer come right back to the product. And as we started activating the channels, we're actually, I could tell you, in the first couple of weeks or the first, really call it the first five, six days of May, we could see all the marketing channels starting to perform at levels that were equivalent to when we shut them down during the first quarter. So I hope that helps give you some color as to what happened across the brands, what happened in the channels and then what happened with out-of-stocks.
spk02: Yeah, that's very helpful. And then just to follow up on that, what was the reasoning behind the out-of-stocks? And then just quickly on gross margin, can you just touch a little bit on what caused that big decrease this quarter and what's kind of like the proper run rate to think about going forward? Thank you.
spk03: Sure. The majority of the out-of-stocks were, again, delayed payments or liquidity, where we had the product produced, but the vendors were waiting for payment. So that's why when we received our funding from the Givadon transaction at the beginning of the second quarter, we were able to immediately get the product out and ship. So it wasn't that the product wasn't made. In many cases, the product was actually made and waiting to be shipped from the supplier side on a lot of the CMOs that we operate. So that's the product out of stock side. I think regarding the second part of your question, you want to repeat it for me, Corrine?
spk02: Margin, yeah.
spk03: Yeah, I could tell you, you know, part of the gross margin mix is how the brands performed. Several of our brands, Pipette being one of them, actually had very strong performance during the quarter and is continuing very strong. So when Pipette performs this way and several of our other brands that have a lower margin profile and our higher margin brands don't contribute at the level that we'd expect, we see that kind of shift in margin. Again, I can tell you where we are in April and what I'd expect for the rest of the year is for us to operate at the level we expect for consumer gross margin, especially with the fit-to-win activities. And what we see there is somewhere around the 63% to 65% gross margin for, and this is the adjusted gross margin number we've tracked at the consumer operating level, is what we'd expect for the rest of the year in consumer.
spk01: Let me add to that a little bit, Corrine. So channel, I made a comment, I think, in the analysis that we had more on the retail side than compared the year-ago quarter on the DTC side. So that plays into the margin profile too. And then as John said, you know, it's really the brand mix where we have the pet step up for an example relative to the rest of the portfolio, but also the new brand for you by TIA that is placed in Walmart. You know, there's a slightly different margin profile compared to some of the other brands.
spk08: Super helpful. Thank you.
spk06: Thank you, Corrine.
spk08: The next question.
spk10: I'm sorry, the next question is from Colin Rush of Oppenheimer. Please go ahead.
spk07: Thanks so much, guys, and I appreciate the detail on the channel. As you look at the pricing strategy as you have more product, could you talk a little bit about the potential to be a little bit more aggressive around pricing as you have a little bit more product available?
spk03: Colin, thank you for being on. Just to clarify, when you say be a bit more aggressive on pricing, you mean…
spk07: Yeah, pricing to consumers on some of these products. Obviously, it looks like there's a fairly resilient level of demand. Just want to see if there's a way for you guys to start raising prices and driving a little bit more cash flow through the channel.
spk03: Yeah, no, thank you for the question, Colin. We have put through some price increases that I think have gone very well. And we are currently and actually pretty consistently looking at elasticity and what kind of pricing techniques opportunity we have. So I would say the answer is yes, we've already done some of that. And you wouldn't be surprised if we would do more in the future. And we see resilience in the brands as we've been able to push pricing increases through.
spk07: That's super helpful. And then just with the Fit to Win program, you know, you guys have really built, you know, the best team in the space around synthetic biology and certainly have the leading platform here. You know, I'm curious, How do you think about editing the organization and how to optimize cash flow while maintaining the technology leadership?
spk03: Look, I think as part of the review that we're doing, we're looking at costs, obviously, across our entire business. And without question, there are places in our business that aren't as competitive as we think they need to be. So you can imagine we are going to be optimizing or continuously optimizing costs across the business. But we're also very conscious that some of the innovation, especially our technology leadership and how we've organized how we do the bioengineering, we think is deeply strategic. We think it's one of the most productive, if not the most productive, bioengineering platform in the world. And I would tell you some of the early information we're seeing in the assessments we've done is indicating that. So I think what you can expect is that Where we go for continued cost improvement and cost cuts will be very focused on where we're not competitive and where we have significant opportunity. And I can tell you that on the R&D side, I see this as very competitive, especially on productivity. And we have significant demand that we're dealing with there, especially as we expand the number of collaborations we do as more and more global companies are approaching us to develop and scale molecules for them as they try to meet their objectives around sustainable chemistry. So I hope that helps kind of share how we're looking at the cost base.
spk07: That is helpful. Thanks so much, guys.
spk03: Thanks, Colin.
spk10: The next question is from Amit Dayal of H.C. Wainwright. Please go ahead.
spk09: Join me.
spk01: Hey Amit, your line is not coming through very well. Can you perhaps start your question again?
spk09: No, you're not coming through.
spk10: The next question is from Rachel Battenstall of JP Morgan. Please go ahead.
spk02: Great. Thanks for taking the question. So my main question is just around some of this cash balance and cash burn guidance for the year. You guys exited the quarter with $17 million of cash. An equivalent, so can you just walk us through what are the incremental puts and takes for cash use for the rest of the year in terms of some of these upcoming loans that you have? Also the commentary and the forbearance, can you just walk us through kind of what that means on a more granular level? Are you just pushing out payments towards that June timeframe that you flagged? And then what are your updated expectations in terms of total cash burns for the year?
spk03: I'll give you a high level answer. And then I'll let Han chip in. I think in general, we've got quite a bit of work going on in really planning out our cash uses for the year. So it's probably something we're not prepared to go into a lot of detail on. But at a high level, think of it as, again, at the beginning of the quarter, of the second quarter, we brought in $200 million from the transaction. Han talked through in detail some of the uses of that, which was really the... the large or the buyout of Apronova, the 49%, and then paying down some of the past dues we had and then operating. And with all that, we're very focused on continuing to support our operations and execute on our strategy. And then as we look ahead, we've talked about some of the big buckets that we see as sources of cash coming in. The sale of the non-core assets, the manufacturing JV that we said would generate $50 to $100 million in proceeds to us. And then we also talked about what we're doing in advancing earnouts from our three major transactions, the Givadon transaction, the DSM transaction, and the Ingredion transaction, which is actually a milestone payment or milestone payment. So those are really where we're going for our sources of cash. We talked about some of the big infusion that came in at the beginning of the quarter. And then we're obviously working very hard with Fit2Win and the review we're doing now to ensure we're really getting our cost base right and looking for as much improvement as we can out of our operations to really minimize our cash outflow. And that's really about the way I would think through the year at this point for cash. You asked about the debt. Look, I know we announced the forbearance. The forbearance is with two long-term shareholders that have been very supportive of the company. And our focus for the forbearance is to really provide adequate time to really negotiate that debt for a longer-term structure that works in line with our cash flow and our capital needs. So that's the way you should think about it. We're working through that in detail. We're working through it with partners that have been long-term shareholders of the company, and we expect to get that resolved during the forbearance period. And in addition to that, we're executing the transactions we've said. as a way to really support our liquidity needs and ensure that we could self-fund our business as we go forward. Han, anything you want to throw?
spk01: No, I think that's right. So it's the two parts really to how we're thinking about it. I won't repeat what John said as relates to the more strategic, bigger initiatives. What shouldn't be overlooked is the other part, which is the day-to-day tackling and blocking that we do, you know, that's just managing liquidity on a daily basis. We're also Continuing to make operational improvements. You know, we're talking about working capital, for example, looking at inventory. Of course, how we engage with vendors. Also, you know, just good practices as relates to collections on the receivable side. So there's a lot of the, I wouldn't call them low-hanging fruit because some of them are certainly hard work. But, you know, things that we are focused on all around. So 360 degree on all the things that we do every day. And that's part of the review that Jonah referenced earlier. It's an extension of Fit2Win and doing more of that. And that's really what we're focused on. So both the day-to-day as well as some of the bigger things that will help us fund the company.
spk02: Great. And then as a follow-up, just on some of your comments around licensing and some of the pull forward that you're trying to do there. So it looks like licensing revenue was almost $10 million in the quarter. You noted that about a third of that was related to a true-up from the prior period. So can you walk us through what you're assuming for licensing revenues heading into the later half of the year? And then what level of visibility do you have? And should we expect any more true-ups like you had this quarter? Thank you.
spk03: Again, I'll give a high-level view, and Hanh can add. We have not disclosed the specific cadence of how the licensing revenue comes in. What I can do is point to what to expect based on what's been announced, right? So we know we have quarterly revenue coming in from the DSM earn out, and based on our production plan for the year, you can expect that to continue quarter on quarter. assuming keeping with our production plan. I think, secondly, there is an ad for the second quarter that will actually apply for the next three quarters, for the rest of the year and for the next few years, which is effective the second quarter. We also have now the earn out for the Jibadon transaction. So you could think about those two. The DSM transaction, which is what's been driving that licensing revenue, and it's specifically around the earn out in the DSM transaction. and now starting this quarter, in the second quarter, we're adding the Givadon earn-out to that flow. And then there are, from time to time, any milestone payments or any new transactions that are in process that might actually contribute to licensing. And those are really the three buckets. It's DSM, which you've been seeing, Givadon, which is new, starting in the second quarter, and then the third bucket is any milestone payments or any new deals we might do for molecules that will contribute to licensing revenue as we go through the rest of the year.
spk01: Let me add just kind of perhaps one mechanical comment for the benefit of everybody. As I know, you're thinking about modeling and whatnot. As John said, DSM, we've obviously had that for the full year 2022. It's a three-year arrangement. That means we have this current year, 23, and then next year, 24, in terms of generating that earn-out income. You referenced the true-up. The true-up is really nothing more than to say as we progress through a given year like we did last year, we do that based on sell-through estimates that we share in this case with DSM, and that's to the best of our abilities because it's based on sell-through. So we were a little bit on the conservative side, and we had a bit of an adjustment on the year that we did in or that we accounted for in Q1. That's that piece. As it relates to NEO, Jivadan, the transaction that we just completed, that will start this quarter. It's on a 12-month, so it's not quite on the calendar year. It's on a 12-month cycle. We get start May 1st. So basically, we get two months in this current quarter and then every quarter, a full quarter going forward. The way that will work is, as I said, on a 12-month cycle instead of a calendar year. So a little different cadence. But quarter to quarter, again, we will do our best estimates on the sell-through and how we recognize the revenue.
spk08: The next question is from Chad Wyatrowski of TD Collins. Please go ahead.
spk06: Hey, everyone. Thanks for the question. I'm Chad Wyatrowski. I'm for Stephen Ma. I'm in biomanufacturing, J.V., Yeah, could you just maybe assign any expected timeline around when you think those negotiations would be completed, and what type of additional revenue capacity would that provide?
spk03: Chad, thanks for being on. I think we've learned our lesson from the Givadon transaction, and I think it's good that we don't put any specific timeline. I think we've said that we're in the middle of negotiation. That's the other lesson is it's not healthy, especially in a competitive process. to really put out specific timelines. So we won't do that. But what I will tell you is from a P&L impact, the way the current discussions are going, we would continue to, we would consolidate and therefore continue to report the revenue and the financials from our biomanufacturing as a result of the JV. So that I can share with you, but timing we'll leave off the table for now.
spk06: Got it. Thanks. And on the just advanced proceeds with the three strategic transactions, could you sort of speak to what gives you conviction of being able to bring those payments forward for the respective partners?
spk03: We are, again, in active discussions for multiple sources, one of them actually with a partner directly and the other actually with two of them with the partners directly and the other alternative sources that provide that kind of financial instrument. And without getting into detail, my reason for confidence is that, you know, the performance so far on our earnouts have worked pretty well with our expectation. I think as Han just referenced regarding 22, we actually earned a bit more than what we thought. based on truing up the year. So we have a lot of confidence in the earn-outs themselves and our performance against the earn-outs. There were three partners that are well-respected companies, and we understand the relationship and can talk to the contracts quite clearly. And again, based on where we are in discussions, we have a good level of confidence that this is something we can pull forward and execute on. That being said, it's not done until it's done. So we have work to do to get it done, but it is a... It is a substantial amount of cash to bring forward and something that we think can be quite a good contribution to our year's cash needs.
spk06: I appreciate the color. Thanks for the questions. Thanks, Chad.
spk10: We have time for one more question from Graham Tanaka of Tanaka Capital Management. Please go ahead.
spk05: Hi, guys. Thank you. Just on the out-of-stock and the inability to ship what you wanted to in the first quarter. Could you just estimate how much revenues you lost from being out of stock or having shortages? And if that, how much of that might continue for the second quarter?
spk03: Hey, Graham, nice to have you on the call. And just to be clear that the out of stocks were either POs we had received or demand from consumers for products that we didn't have available to sell. So I wanted to clarify what we mean by out of stocks. And when we look across the brand portfolio, I can tell you the brands have quantified somewhere in the magnitude of about $10 million revenue equivalent in the first quarter. Again, we've brought back quite a few of those products. It is not all back in stock. There are still some brands that have some of their key products out of stock. And I really don't want to provide a view or guidance on that issue specifically. I think we've given what we will on guidance, which is expect us to deliver on what we've said for the following quarters based on what we gave you back in March for guidance. And we believe we can do that even in managing with some of the out of stock issues we have faced, just like we demonstrated in the first quarter.
spk05: Okay. So changing subject real quickly on the The true-ups and the earn-outs, did you fully capture what you expected from last year in the first quarter, or are there more to be falling in to benefit the second quarter? Because in the Q4 conference call, you suggested it might take a couple to get the true-ups.
spk03: Yeah, two different issues. I think what we captured in the first quarter was true-ups. around the DSM earn out and I think Han explained that quite well. I think we've been conservative in what we take in for revenue and annually we look back based on information from the partner and then if there is a true up, it gets recognized and I think Han has captured that in the first quarter. I think beyond that, we did reference a milestone that was outstanding. That milestone remains outstanding. It is not part of the earn-out structure that Han has talked to, and it is not part of the DSMP. So I just want to leave that aside and keep the earn-out clean and true up the way it occurred, Graham.
spk05: Okay. So just a feeling so people can – there's a lot of confusion about how much the earn-outs might be going forward, even longer term, because you've got at least three contracts – agreements, and it's hard for investors to understand. What is kind of a range of expectations of earnouts that you could achieve minimum, maximum this year versus last year and maybe even next year? Thank you.
spk03: Yeah, I'm not going to speculate and break that down by year. What I'll tell you is contractually what is outstanding in earnouts and milestones for the period, and that number is about $294 million. over the next, call it, two to three years that is outstanding in earn-out payments. And again, that's the max earn-out. As you know, there's always risk on earn-outs because they're performance-based. We've been very good so far at realizing what we expect, but again, there's always risk because it's based on how well we perform. But $294 million is what is currently outstanding in earn-outs and milestones over the next two to three years. Okay, great.
spk05: And sort of related to that, investors or analysts are trying to understand or project what your gross margin might be targeted longer term for consumer and ingredients, including earnouts. Thank you. And manufacturing margins. Thank you.
spk03: Yeah, I'm going to – because you asked me both questions, ingredients and consumer – I'll give you the consumer. The fact that we're in the middle of a negotiation for manufacturing JV, I'd rather not put out numbers without that JV being complete, because obviously that JV has a big impact on our manufacturing footprint and how it operates. We think positive, but it needs to get done, right? So from a consumer perspective, I would say the midpoint of where we expect to be is right around 65%. on the consumer gross profit side. And I'd expect, again, that there's upside based on how well we execute fit to win and our inter-process manufacturing. And that is in process. So think about 65 as midpoint. It could be better, slightly less. And we're focused on executing that by really implementing fit to win and moving What will be about 60% or so of our consumer goods to interfaces around middle of the year, third quarter, and by the end of the year hopefully be at about 80% of our consumer manufacturing down in Brazil. And that has a significant impact. I think we've quoted before at least a 50% improvement just in Biossance cost of goods. And then we obviously expect to see gains across other products that we move to Brazil.
spk10: This concludes our question and answer session. I would like to turn the conference back over to John Mello for closing remarks.
spk03: Thank you, Kate, and I didn't get to say thanks to Graham for his last question. I appreciate everybody being on, and sorry, Amit, that we did not get to hear your questions, so hopefully in a one-on-one we can follow up with you. I really appreciate everybody being on. Really thank you for joining us today and for your continued interest and support. If we didn't get to your question, please follow up with our investor relations team, which is Han or one of us can make sure we get to you, and we'll get back to you with a response. Again, we really are happy to see the traction in our business, but most importantly to see our costs get under control, to be more disciplined with the investments we make, and to really see fit to win come through and get complete with our strategic review to ensure that our cost base is competitive and we really have a self-funded business that can execute and achieve our overall objectives. With that, I'll close out and thank everybody and wish everybody a good evening.
spk10: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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