Edited Transcript of AMRS earnings conference call or presentation 8-May-20 1:00pm GMT

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EMERYVILLE May 30, 2020 (Thomson StreetEvents) — Edited Transcript of Amyris Inc earnings conference call or presentation Friday, May 8, 2020 at 1:00:00pm GMT Amyris, Inc. – COO Amyris, Inc. – CFO * John G. Melo Amyris, Inc. – President, CEO & Director Amyris, Inc. – Senior Director of IR […]

EMERYVILLE May 30, 2020 (Thomson StreetEvents) — Edited Transcript of Amyris Inc earnings conference call or presentation Friday, May 8, 2020 at 1:00:00pm GMT

Amyris, Inc. – COO

Amyris, Inc. – CFO

* John G. Melo

Amyris, Inc. – President, CEO & Director

Amyris, Inc. – Senior Director of IR & Corporate Communications

H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research & Senior Technology Analyst

Oppenheimer & Co. Inc., Research Division – MD and Senior Analyst

Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director

Welcome to the Amyris First Quarter 2020 Financial Results Conference Call. This call is being webcast live on the Events page of the Investors section of Amyris’ website at amyris.com. This call is the property of Amyris, and any recording, reproduction or transmission of this call without the express written consent of Amyris is strictly prohibited. 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 Amyris’ website. I would now like to turn the call over to Peter DeNardo, Senior Director of Investor Relations and Corporate Communications. Please go ahead.

Peter DeNardo, Amyris, Inc. – Senior Director of IR & Corporate Communications [2]

Thank you, Christie. Good morning, and thank you for joining us today. With me today are John Melo, President and Chief Executive Officer; Han Kieftenbeld, Chief Financial Officer; and Eduardo Alvarez, Chief Operating Officer. Please note that I would like to now turn to Slide 2 in our webcast. And please note on this call, you will hear discussions of non-GAAP financial measures, including gross margin figures. Reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures is contained in the summary financial information slides of the accompanying presentation or the news release distributed today, which is available at investors.amyris.com. The current report on Form 8-K, furnished with respect to our press release, is also available on our website as well as on the SEC’s website at sec.gov. During this call, we will make forward-looking statements about events and circumstances that have not yet occurred, including projections of Amyris’ operating activities and their anticipated financial impact on our business and financial results for 2020 and beyond. These statements are based on management’s current expectations and actual results and future events may differ materially due to risks and uncertainties, including those detailed from time to time in filings Amyris makes with the Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Amyris disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the Amyris SEC filings for detailed discussion of the relevant risks and uncertainties. I’d like to note that the Oppenheimer Fifth Annual Emerging Growth one-on-one Conference previously to be held in New York next week on May 12 has been changed to a virtual event on the same day due to COVID-19 considerations. Amyris will hold scheduled one-on-one meetings with investors via individual phone calls throughout the day. Before we begin today, again, I’d like to note that included in our webcast is a slide presentation we will refer to in today’s presentation. I’ll now turn the call over to John Melo. John?

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John G. Melo, Amyris, Inc. – President, CEO & Director [3]

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Thank you, Peter. Good morning, everyone, and thank you for joining us today. I’m going to give you some indication as to the slides I’m turning to, to help you follow the slides through the presentation. So I’m on Slide 3 now. With me today are Eduardo Alvarez, our Chief Operating Officer, who will share operational performance highlights and the key steps we’ve taken to reduce our cost of goods sold. And then Han Kieftenbeld, our new CFO, who’s been with us since March, Han will review our financial results as well as our outlook for the full year of 2020. Welcome aboard, Han. Great to have you with us today.

I’m going to move to slide — please turn to Slide 4 for me. Before I continue, I’d like to take a moment to thank our employees, customers and suppliers for their strong commitment toward keeping everyone safe during the COVID crisis. Through our and that of our supply chain partners’ extraordinary efforts, we’ve been able to maintain our mission of providing safe and clean products while continuing to meet elevated demand. Our thoughts are with all of you, and we hope the health and economic hardships of COVID will quickly pass and bring relief through financial and scientific support to help the economy and to help therapies — to find therapies and a cure for this virus. We’ve supported many first-line workers by supplying over 20,000 units of our hand sanitizer. We’re working hard to scale and make available our Squalane vaccine — the squalene vaccine adjuvant with several leading candidate vaccines, and we are working through early trials of therapies for COVID-19. The vaccine adjuvant has now been validated by one of the leading pharma companies in the world and could be a solution to help scale certain vaccines. Our aim here is to partner with pharma companies who have vaccines in trial and play a role in helping them rapidly scale these vaccines once they have been successful through trial. These are a few of the activities we’re working on to play our role in applying our synthetic biology platform and product portfolio to making a difference and helping us through this pandemic. I think this is where our platform and the real science is really at its best. Our true core skill is being able to, better than anyone in the world, develop and scale complex chemistry fast and deliver it in an unlimited volume so we could meet the needs of a global marketplace for these kind of treatments and vaccines.

Let me move on to Slide 5. Near the end of March, we realized there was a very strong need for a healthy sanitizer in the market. We saw many hand sanitizers sold with formulations focused on clean but not focused on keeping our hands healthy. We decided to help meet the need of frontline workers and keep them healthy and safe and developed a unique formula based on pharmaceutical-grade alcohol and our award-winning Squalane moisturizer. This Pipette branded product has seen significant uptake with consumers. We sold over 1 million units and are working hard to increase production capacity to deliver on these sales and to meet the strong demand and the critical needs for a healthy sanitizer as the world starts to reopen. We think this is a great testament to the innovation and collaboration amongst our teams and partners and the power of the technology platform we have built. We developed and launched a winning product through the Pipette Baby brand in less than 2 weeks from idea to first production. We are in process of increasing production capacity to meet 1.5 million units of monthly sales and expect to reach this level by the end of June. At this sales rate, we could generate about $10 million in monthly revenue from our consumer brands starting in June, and we have the opportunity to maintain and grow our monthly revenue from this level. This is also important to note, it’s a good margin product, a strong cash generator with a cash cycle that is less than 30 days due to the fact that a significant portion of sales are online. And I’ll remind you that since we started with this particular product, we’ve already tripled our ability to produce volume every week, and we’ve doubled our warehouse capacity and are really working very hard with our partners to increase throughput as they have to social distance and manage shelter-in-place orders throughout our supply chain.

We started the year with more than doubling our revenue from the first quarter of 2019. We are seeing this growth, both from our product sales and our collaboration revenue from our development programs with our long-term partners, which is really the foundation of our business, strong partnerships, strong relationships that invest and deliver disruptive products to market. We are pleased with our earnings growth, which was driven by year-over-year sales growth, improved sales mix due to consumer brands and lower unit costs. We also made significant progress during the quarter to reduce and simplify our debt, and we are actively working to further improve our balance sheet throughout the year. We expect to end the year with about half the debt — half the level of debt that we started the year with.

Let’s move on to Slide 7. Our revenue for the quarter was 76% from product sales and 24% from collaborations. We expect this mix to continue and are experiencing significant acceleration in demand for our ingredients and our consumer-branded products. Based on what we are experiencing since the start of the second quarter, we believe the consumer business has the potential to reach over $90 million in revenue for 2020 compared to around $17 million in 2019. Our ingredients business delivered around $47 million in revenue for 2019, and the current performance can result in about $90 million in revenue for 2020. We’re very pleased with our consistent growth rate from our ingredients business and with the significant acceleration of growth from our consumer activity, especially as we have entered a phase where most consumers are now working and shopping from home.

The other positive movement is that the mix of revenue from the consumer business is fairly well split between our Biossance brand and our Pipette brand, which are both having an excellent year. For ingredient sales, Squalane was the largest revenue contributor in the first quarter. And is expected to be about 1/3 of our ingredient revenue for the year. Our biggest revenue contributor for the year is expected to be — our second biggest — sorry about that, our second biggest revenue contributor for the year is expected to be our zero-calorie natural sweetener from sugarcane, the Reb M molecule made from cane. And then farnesene and Clearwood with about the same level of contribution and the rest of the ingredients following with fairly equal contribution to revenue. A way to think about this, we have 2 new ingredients in the portfolio where 2020 is their first full year of commercialization. Each one of those will generate $10 million or around $10 million of revenue. And that gives you a sense of the power we’ve now built into the ingredient portfolio and the scale that that’s generating for us.

Our ingredient business has also delivered very strong unit margin improvements in the first quarter, and we expect full year for the ingredient business to deliver an estimated 20% adjusted EBITDA when you consider the direct selling and support costs to take those products to market. About 96% of our product sales are in clean skin care, sustainable health, flavors and personal care and household cleaning. Each of these segments are benefiting from the current COVID-19 environment. The remaining 4% of our business is in aroma ingredients for use in perfumes, and this activity has seen a significant drop in demand during this period.

The consumer side of our business delivered a very strong first quarter and finished April with a record month by a factor of more than 2x historical levels. Consumers are shifting their buying online and our direct-to-consumer business is benefiting through our biossance.com, pipettebaby.com, biossance.com.br and sephora.com business. We are also experiencing very strong sales performance for the Pipette brand through amazon.com, target.com and walmart.com. A couple of points there. In Amazon, Target and Walmart, we’ve not yet started selling the hand sanitizer. We expect to start in Amazon over the next week or so and then following on with Target very quickly thereafter. And we’re seeing, again, very strong demand in those channels for online purchasing. Not including the third-party sites that we sell-through, we had over 1 million consumers visit our directly owned web stores in the month of April alone. That compares to 160,000 consumers visiting April of last year. This momentum has continued in May. We had over $1 million of sales from our consumer brands in the first 4 days of May.

Let me now turn to Slide 8. It’s been the most intense period in our history. We have had many of our teams sheltering at home. We are an essential business and have kept our critical operations working while implementing social distancing and all other practices to ensure the safety and health of our people and partners. That remains our #1 priority. We are doing this at a time where demand for our products is well beyond our expectations. We’ve been able to deliver this performance while managing our costs and keeping our unit margins within expectations. I have a huge amount of appreciation for each of our teams and our partners for all that they are doing.

At the start of 2020, we set out 4 strategic priorities to focus our execution on accelerated growth and a clear path to profitability and sustained cash generation. These include 4 — or a strong alignment around these items: High-growth consumer brands, scientific and commercial collaborations that are capable of delivering 3 to 4 new molecules a year, supply chain optimization that continues to contribute to expanding unit — expanding gross margin and lower unit costs, and an improved balance sheet that is delivering growth in earnings and positive operating cash flow. Let me close out my remarks with a few key points before turning to Eduardo, who will provide an operations update for us this morning.

First, we delivered a strong first quarter, where we more than doubled revenue while improving our costs and have significant traction to maintain a 76% product revenue to 24% collaboration revenue mix for our business. In other words, products are now starting to underpin the business and collaborations are becoming a lower part of our overall portfolio. This is a sustainable shift and a great way to underpin our business for sustainable cash flow into the future. At the current level of performance and with this sales mix, we could deliver a 30% positive adjusted EBITDA as we exit the year, and we can do that consistently based on the mix, the portfolio and the momentum in our business.

Secondly, 96% of our products are sold to end markets that are experiencing strong consumer demand during the COVID-19 crisis. We believe this can deliver upside to our revenue guidance for the year. It’s early, and there are many uncertainties ahead of us, making it very hard to predict the future at this point. Our consumer brands are experiencing much stronger demand than we expected, and we are benefiting from a very strong consumer shift to shopping and buying online.

We have launched a category-leading hand sanitizer and are expanding our product line for hand and body wash and hand moisturizing products to keep the hands and body safe and healthy at a point in time where consumers have shifted. We expect this consumer shift to health and safety and buying online from brands they trust to deliver clean and sustainable ingredients is here for at least the next 12 to 18 months or until we have a working vaccine for COVID-19. Consumers have shifted fast away from makeup and fast fashion and are focused on keeping their skin healthy, and we are beneficiaries of this shift with the world’s leading moisturizer in our sugarcane Squalane. Our first quarter is a very good start to the year, and our second quarter is accelerating to deliver our best consumer sales quarter in our history.

Let me now turn over to Eduardo.

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Eduardo Alvarez, Amyris, Inc. – COO [4]

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Thank you, John, and good morning, everyone. Please turn to Slide 9. Let me start with an update to our operations since COVID-19 started. On March 9, we launched the task force that helped us enact appropriate procedures at all our sites to protect the safety and health of our employees and to prevent the virus from spreading. Thankfully, all of our employees are safe and healthy. And our production activities in Brazil, Europe and North America have continued as we are an essential business in all of these jurisdictions. We did experience a small slowdown in a couple of production activities, but we thank our partners and employees for their efforts. Our activities have largely remained unaffected.

During the first quarter, we shipped 637 metric tons of product, which corresponds to a product revenue of $23 million of the $29 million total revenue that Han and John will report. This $23 million in product revenue is 92% higher than the revenue for the first quarter of 2019. As we reported in our fourth quarter review, we continue to see the benefits of shifting production to our lower cost locations in Brazil and also from continued process and technical improvements. For the first quarter, we achieved lower unit cost in 5 out of the 7 — sorry, out of the 8 products that we delivered. As a result, we have completed 5 quarters in a row with improvements in production volume, unit cost and margin.

Let me offer now some color and detail of how we have delivered these results. First, let me talk about improvements in scale. I will use S

Squalane as an example. We have continued to debottleneck our Squalane production plant in North Carolina. And for the first quarter, we produced 475 metric tons of Squalane, delivering another quarter-on-quarter improvement. We expect that improvements in production and scale will continue into the second quarter and for the rest of the year. We remain on track to produce around 2,000 metric tons of Squalane in 2020. In addition, we have seen a recent 10% to 15% decrease in the purchase price of one of the highest cost raw materials for Squalane, palladium. We are taking necessary steps to ensure we continue to benefit from this type of sourcing opportunities in the future.

Second, our production campaigns remain on target. Remember, for example, we are in the middle of our next production campaign for our sweetener product and our fermentation results, both for yield and productivity, are better than planned. We’re also deploying a new purification process for this product that is delivering 3x the higher throughput than the campaigns we ran in 2019. And from a quality perspective, our pure cane products have been doing very well. For example, our cup for cup culinary product, which is used for baking and cooking applications, have been on the top spot for the natural sugar reduction product category on Amazon for 8 straight weeks. The great feedback from consumers reaffirms that our sweetener from fermented sugarcane is the best-tasting natural sweetener in the market.

Third, we have continued to expand our production capabilities to sustain our growth and performance. As John mentioned, we launched the hand sanitizer product in 2 weeks. Let me offer some examples about what that took. By the end of the first week, we were already producing 40,000 units per week. Right now, we are operating at 700,000 units a month. And as John mentioned, we’ll be at 1.5 million units a month in just another few weeks. Thanks to the extraordinary efforts from our Clean Beauty teams and our supply chain efforts, we are delivering a tenfold production increase for this new product in less than 2 months. We have also secured production capacity for our first 2 cannabinoid products for 2020.

Finally, let me expand on our progress for our new specialty product plan in Brazil. Our current work is focused on civil construction, the detailed engineering design and specifying and ordering equipment with long lead times. It is important to note that COVID-19 related permits and longer logistics from vendors have cost us a 1- to a 2-month delay in the schedule. We are on track to start operations early in the third quarter of 2021. One additional point is that we have taken this time to optimize our budget and to reflect advantages in reduced material costs as well as improvements in exchange rate of the dollar to the Brazil real. As a result, we believe that our capital expense budget can be about 15% longer — lower than we originally expected. I am very proud of our teams, very thankful for the great support from our suppliers and partners and remain very hopeful about what we will do next for the rest of this year. Now let me turn the call over to Han. Han?

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Hermanus Kieftenbeld, Amyris, Inc. – CFO [5]

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Thank you, Eduardo, and good morning, everyone. Let me start by saying that I’m very pleased to be part of the team here at Amyris, joined the team 7 weeks ago, and I’m looking forward to partnering with John, Eduardo and the broader team to deliver on Amyris’ promising growth trajectory and set out a path to profitability and cash generation. Before I review the details of our Q1 financial performance, I would like to note key financial highlights for the quarter. First, Q1 revenue of $29 million was in line with expectations and doubled versus the same quarter last year. Gross margin was 63% of sales, a significant improvement year-over-year due to a combination of sales mix from growing consumer sales and supply chain efficiencies, resulting in lower cost of goods. This compares to minus 33% for Q1 2019 and 56% for the full year 2019. Adjusted EBITDA, also in line with expectations, was up 41% year-over-year and improved by $19 million to minus $27 million. This improvement was mostly driven by favorable sales volume growth and lower unit cost. We improved our balance sheet by reducing our overall debt by 30% during the quarter. These actions, along with actions taken during the early part of the second quarter, will reduce our cash debt servicing obligations from $95 million to $45 million for full year 2020.

Now let’s turn to Slide 10 to take a closer look at the quarter details. We are providing a somewhat different presentation to our sales revenue to provide more meaningful insight into the markets we serve. As you’re well aware with our products, we serve our direct-to-consumer brands, Biossance, Pipette and Purecane as well as our business-to-business ingredients business with our strategic partners into health and wellness and flavors and fragrance end markets. Our revenue is, therefore, broken down between consumer and ingredients and collaboration and grants. The latter represents revenue from our R&D partnership programs. As you will see from the doughnut, 76% of our revenue comes from consumer and ingredients, broken down in 40% from consumer and 36% from ingredients, respectively. The remaining 24% of total sales comes from collaboration and grants. Consumers and ingredients revenue of $23 million was up 90%, and collaboration and grants of $6 million was up 158%.

Now turning to Slide 11. Total revenue of $29 million was up $15 million or 103% year-over-year. See the table for an analysis on the variances. Key drivers for the improvement in sales were volume and mix for a total of $11 million or 75%. Of this improvement, $6 million or 43% was related to growth in consumer brands, most notably our Clean Beauty Biossance brand. Selling prices were principally flat year-over-year and collaboration and grants contributed $4 million to the quarter’s growth. Consumer and ingredient sales of $23 million were up 92% year-over-year, of which price was plus 3% and volume/mix contributed a plus 89%.

Moving on to key financials on Slide 12. I already discussed revenue and gross margin on previous slides and will focus my comments here on the adjusted EBITDA bridge. Before doing so, let me comment that improvements in net income, adjusted net income and adjusted diluted EPS were all principally driven by a combination of sales growth and operational improvements. Q1 2020 adjusted EBITDA of minus $27 million represented an improvement of $19 million or 41% versus the same quarter last year. Significant progress was made operationally at the gross margin level, with $11 million from volume and mix, $3 million from consumer and grants revenue and a $5 million improvement in cost of goods sold, resulting in lower average unit cost. These improvements were offset to a small extent by a $2 million increase in operating expense due to investments in marketing and sales to support growth for our consumer brands, partly offset by lower R&D expense.

Let’s now turn to Slide 13 to review a more detailed bridge for key earnings metrics. Net income of minus $87 million was adversely impacted by noncash accounting for changes to debt and derivative instruments for a total of $37 million in the quarter. Adjusted net income of minus $44 million, which excludes these debt-related accounting entries as well as stock-based compensation, improved $15 million or 25% year-over-year, which is a closer reflection of the improvements we’ve seen in the business. Adjusted EPS of minus $0.28 per share improved $0.47 versus the year prior. Again, these improvements were driven by margin enhancement for a total of $0.12 per share and the year-over-year change in share count contributing $0.35 per share. I previously discussed the key items contributing to the $19 million or 41% improvement of adjusted EBITDA.

Now turning to Slide 14. In the first quarter, we reduced our overall debt by 30% from $297 million to $209 million. This was a result of scheduled amortization payments as well as specific actions taken by management to reduce and simplify debt. $60 million of principal reduction was previously reported in the current report on Form 8-K filed on February 6, 2020. Further actions have been taken since the end of the quarter, and the company published an 8-K on Monday, May 4, to announce an important amendment to the 2022 convertible notes. The company’s senior convertible notes with an outstanding principal amount of approximately $45 million as of April 30, 2020, were amended to provide for an amortization payment in May 2020, to reduce the outstanding principal by $15 million to $30 million. Also, no further scheduled amortization payments will be due prior to the maturity date. Interest payments accruing at 5% per annum have been changed from monthly to quarterly with the first payment due on August 1, 2020. And importantly, all equity triggers have been removed.

Net interest expense of $15 million was up by $2 million due to a higher average debt position compared to the same quarter last year. And finally, capital expenditures of $4 million in the quarter were $1 million higher than prior year. This increase was mostly due to investments in our new flavors and fragrance plant in Brazil.

Now turning to our outlook on Slide 15. We are affirming the year-over-year growth sales revenue guidance we have provided previously. That said, let me point out that the current COVID-19 situation does present uncertainties to which we do not have full visibility. Our guidance and comments should be seen with that important context in mind. Full year sales revenue are expected to grow around 44% versus 2019 GAAP revenue of $153 million. 2019 full year sales included $49 million of nonrecurring items. We expect full year 2020 revenue to include an estimated $35 million of nonrecurring items. With that in mind, we expect 2020 revenue on a recurring basis to grow approximately 80% on recurring 2019 sales of $104 million. We expect gross margin to operate at a rate greater than 60% of sales. Let me also explain our expectation regarding revenue phasing as set out in the bottom right-hand table on this slide. This is critical as we continue to scale our sales and thus, improve our operational leverage on our journey to being EBITDA and cash generative. We expect H1 sales to be 30% of total annual revenue and the second half to represent 70% of 2020 sales. This expected growth trajectory skews sales and thus earnings and cash flow from operations toward the second half of 2020. With that in mind, we expect adjusted EBITDA to turn positive during the fourth quarter of this year, which will be historically important for Amyris. With that, I’ll turn the call back over to John. John?

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John G. Melo, Amyris, Inc. – President, CEO & Director [6]

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Thanks, Han. Before we open the call up for questions, please turn to Slide 16, as I highlight a few key points. We have built the leading synthetic biology platform, and we are realizing the real power of the platform through our distinctive product portfolio and business model. We are in the process of a breakout year in revenue growth, significantly improved product gross margin, lower overall operating costs, and we are crossing into consistent positive EBITDA territory in the fourth quarter. Our leadership in Clean Beauty and in natural sustainable ingredients could not be better positioned for the current time. Consumers are moving aggressively to clean and safe products from the brands they trust. We supply many of these brands, and we have 2 of the leading brands to help consumers in this time of need and beyond.

Han and the team have made great progress on our balance sheet, and I expect more as we go through the year and continue to improve our liquidity. The combination of our operating performance, improved mix to high-margin consumer products and the support of our long-term shareholders provides us confidence in building on the momentum we are gaining through COVID-19.

A few investors have asked me, so what’s different going forward? And I’d highlight 4 key points. First, a portfolio that is now scaled and is reaching a performance level that can cover our fixed base and deliver some of the strongest adjusted EBITDA in our industry. Secondly, we are deleveraging at a fast rate to ensure that we’ve got a stable balance sheet to support our future. Thirdly, with Han coming into the company and having deep experience at scale, both as a public company CFO and as an operating leader, we now believe we have all the leadership components in place to really scale with us and execute on our business. And this really includes Eduardo’s role as Chief Operating Officer; and Catherine and Caroline, which each are leading our brands and doing an amazing job with a leadership position in their respective market spaces for those brands. And last but not least, a significant reduction in the fixed cost base and more movement towards a lower base as we go through this year. When you combine those 4 things, we are really in a place to sustain significant growth and do it profitably as we go forward. We’ve had a very intense 8 weeks with many uncertainties ahead of us. I know all of you are in the same place as we all work hard to keep our people safe and healthy. I really want to thank you all for the continued support, and I look forward to the second quarter being a fantastic quarter for us, building on a great start to the year and what we are expecting to be a solid year for us. Let me now turn to questions.

Christie, can you help us with questions?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we’ll go first to Colin Rusch with Oppenheimer.

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Colin William Rusch, Oppenheimer & Co. Inc., Research Division – MD and Senior Analyst [2]

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So I just want to make sure I understand some of the product dynamics correctly because you guys actually sold about 30% more on the product side than we expected for the first quarter. Can you talk a little bit about the seasonal dynamics as we go through this first quarter and into the second quarter on both the ingredients and consumer side? And then how we should think about mix between those 2 categories as we get through the rest of this year?

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John G. Melo, Amyris, Inc. – President, CEO & Director [3]

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Yes. I’ll give it a stab, and then Han, you can back up with what I’ve missed. Okay, Han?

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Hermanus Kieftenbeld, Amyris, Inc. – CFO [4]

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Sure.

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John G. Melo, Amyris, Inc. – President, CEO & Director [5]

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So by the way, Colin, thanks for being on board with us today. And I appreciate you taking all the time to ensure that you had a good sense of where our business was. Look, the business is changing dramatically and happening very fast. I would tell you that almost on a weekly basis, we’re looking at the portfolio, and we’re assessing what’s actually moving. You saw already a move in the consumer piece now being equal to, if not slightly bigger than the ingredients piece. And I would tell you, as we go into the second quarter, that the consumer business will become significantly bigger than the ingredients piece. I think for the year, it will be well balanced. I think we said about $90 million each for the brands, meaning $90 million in total for the brand revenue and $90 million for the ingredient revenue.

One clarification I’ll make is in the past, we’ve used Clean Beauty as the way we’ve described our activity in beauty, which included the Squalane supply business to the cosmetics industry. Now when we actually say brands, it is really purely brand revenue, and that’s really a result of scale. Our brands now are delivering enough scale that we really want to — we want to illustrate the revenue of the brands separately from the ingredients. So when we say ingredients, it’s all of our ingredients. When we say brands, it’s pure brand sales through all of our channels. So I think, again, back to answering your question, Colin, I expect in the second quarter, the brands to do quite a bit more than ingredients. I expect for the full year for it to be fairly well balanced, about $90 million each or about $180 million in total as we approach the end of the year in product revenue, which is really a significant shift. It’s significantly more than we expected to start the year. And again, that’s just been a result of great progress on the brands. And a lot of luck in having the right portfolio at the right time on the ingredient side, to have 96% of our ingredients go into personal care and cleaning products has really been a blessing at this point in time.

And again, in both cases, because of the significant contribution from the brands, where we are, we do realize a higher gross margin. And then obviously, with the ingredients, where we do realize a higher EBITDA contribution. In balance, the portfolio really gives us very strong earnings power as we go through the year. I think the last thing I’ll say is the fact that a lot of our growth this year on the brands is happening online has also significantly improved our cash cycle. The great thing about online is, in many cases, we’ll get a customer payment before we’re actually paying for the cost of goods and the inputs to make the products we sell to the consumers. Our biggest challenge in making all this happen is really getting supply up fast enough to meet demand. I’ll tell you, that’s where we are scrambling and spending a lot of time, bringing on additional supply chain capacity as we deal with the demand that we’re working on. Han, would you — is there anything you’d like to add?

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Hermanus Kieftenbeld, Amyris, Inc. – CFO [6]

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No. I think, John, you covered it well. Maybe 2 data points, Colin, for your benefit, is if we think about the consumer and ingredients category and looking at the 2 components, you saw they’re relatively evenly spread in terms of making up 3/4 of our business. If you look at the consumer brands, that growth year-over-year in the first quarter was actually north of 200%, 230%. And then on the ingredients side, that equally grew nicely. That growth was 50% in the quarter, again, year-over-year. So we saw growth on both sides of the equation within that category, if you will. But clearly, more accelerated growth on the consumer brand side, as John just described.

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Colin William Rusch, Oppenheimer & Co. Inc., Research Division – MD and Senior Analyst [7]

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Perfect, guys. So looking at the molecule development, we acknowledge you guys as delivering 2 molecules this year. It sounds like you’re already just about done with delivering those molecules. Can you talk about your ability to collect on delivering those molecules and what we can expect in terms of that development business through the balance of the year?

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John G. Melo, Amyris, Inc. – President, CEO & Director [8]

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Well, I mean, it really depends on the partners, right? The 2 that I referenced this year were actually delivered last year but really scaling up this year from a commercialization perspective, right? So they really don’t count, although I’d love to take the credit towards the 3 to 4. The 3 to 4 are on track. We actually expect 3 to be scaled this year. And the way I would describe it, regarding the other part of your question, Colin, is our ability to get paid, the ones that are scaled and commercially successful are with significant long-term partners who are market leaders, and we have no question about the market leaders and our relationship and quality of relationship with those partners delivering and paying. As I said, those 2 products this year will each result in about $10 million of revenue for us. And that’s exactly the kind of partnerships we like, and we’re big believers in it. I think in the 3 new products we’re launching this year, again, we expect to scale them successfully, manufacture.

And then like this year, where the 2 products that are generating $10 million each of new growth to the ingredient portfolio, I think that, that kind of profile is what you should expect, which is the year we introduce and scale a product, I can tell you, we don’t actually have any revenue in our plan from those products. And then the following year, after we actually have them in the market, we’ve seen the adoption. We then start to actually layer in what we think the growth and revenue contribution from those products will be. So again, I just want to emphasize, the 2 that we spoke about were products we actually scaled last year and are having great commercial success this year. The 3 to 4 that we’ve guided are about new molecules that we’re scaling this year. We don’t have revenue in the plan from the production of those molecules this year. We don’t have anything in our outlook. As we scale them this year, and we’re on track to scale them, we will then look at how we think about adding that and guiding for that revenue as we go into next year.

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Colin William Rusch, Oppenheimer & Co. Inc., Research Division – MD and Senior Analyst [9]

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That’s incredibly helpful. And then turning to the balance sheet. Appreciate that you guys are simplifying and — the balance sheet and giving yourself a bit more flexibility. Han, now that you’re — you’ve been in the seat, you’ve had a chance to evaluate what’s going on, do you have thoughts on the cadence for continuing to optimize your cost of capital and provide the company with the appropriate flexibility and stability for the growth that you’re looking at?

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Hermanus Kieftenbeld, Amyris, Inc. – CFO [10]

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Yes. No, absolutely, Colin. And that’s why we highlighted this specific point that where we were at the start of the quarter, where we are at the end of the quarter, which is an $89 million improvement. And as kind of John alluded to, this will be an ongoing effort. We have obviously made the announcement regarding the significant reduction and simplification of the convertible note, which is an important milestone for the company, and that we had announced in an 8-K this past Monday. So that is already a further reduction to what you’re seeing on the page here. And then we have a number of other actions that we’re contemplating and discussing to further reduce debt probably by one more step, probably by the end of this quarter. And then definitely, as we look to 12/31, so towards the end of this year, further steps to be expected. So our overall goal is — and again, think about this, that we started the year at around $300 million, to bring this down to low $100s. And we want to obviously do it in a very deliberate fashion that makes sense for the company, makes sense for the holders. And — but that’s clearly an objective we have because it’s been important to lower our debt servicing needs going forward.

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John G. Melo, Amyris, Inc. – President, CEO & Director [11]

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Thanks, Han. And I just want to emphasize Han’s point, we wouldn’t be indicating further reduction in debt if we have not — if we had not been active in discussions and had visibility as to how we’re going to get there. And again, we’ve been very fortunate with the support of long-term shareholders. We’re — our focus is not will we be here or not, it’s actually how do we take advantage of this growth. We think this is a moment in time. And we think there’s going to be — and there is — we’re living this real time, a significant bifurcation of brands and businesses. The people who could make it through this period are going to be stronger on the other end. And there’s no question, we’re seeing it with brands, we’re seeing it with product supply, we’re seeing it with partners, right? There is a flight for those who can deliver. There is a flight for those who have product available, and that is all occurring at a time when supply chains are breaking all over the place.

We are — again, we are in a (expletive)storm to kind of make it really simple. And I’m very, very clear that a bifurcation is taking place. And our focus and the focus of our shareholders is to ensure that we’re on the other end, and we’re actually benefiting from this dramatic shift that’s taking place across industries and with consumers. And I don’t think we get back to normal. I think there will be a new normal especially in retailing and consumer behavior. And I think that new normal will be with us for some time. Hard to predict how long, hard to predict what it looks like in the future. But we are definitely not going to be into — or back to what we were.

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Operator [12]

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And next we’ll move to Amit Dayal with H.C. Wainwright.

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research & Senior Technology Analyst [13]

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Great to see the execution come through in this turbulent time. So you’re maintaining your base revenue guidance, John, for 2020. Any color on the $20 million to $40 million upside you had talked about on the previous call? Is that still in play for us?

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John G. Melo, Amyris, Inc. – President, CEO & Director [14]

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Look — and by the way, Amit, thank you for being on. And we probably — we will spend time with you because I think you’ve got your full year with us probably around where it needs to be, but the phasing over quarter and the mix in our business, obviously, is different and has been choppy as always, but we’d love to work with you in aligning that. And I know the team will work with you on that.

Look, I think the upside, if you take our comments, what you could take away is just, on the product side, we’re already delivering based on current track, a significant upside that more than covers what we had guided. The reason why we’re sort of staying focused on the $220 million is, as much as today, we could see that upside coming through, we see it playing through, I think Han is spot-on, like, with the world changing dramatically every day, and we don’t want to sit here in light of further changes ahead, uncertainties as to what things look like on the other end of a reopening of the economy and what consumer behavior is and then be stuck with that message.

So we’re very clear that the $220 million is attainable based on where we are. We’re very clear that we’re already realizing the track to the upside we’ve indicated. We’re also very clear that what happens a month from now is completely unpredictable. So I think it’s prudent that we stay here and reinforce that we’re already well on our way to what we thought the upside could be. But it’s the perfect example. We didn’t think the upside was in product. And here we are headed for a year where product, based on the current track, is capable of delivering about $190 million, right? So that kind of tells you how fast things are changing in the business. Han, anything you want to add to that?

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Hermanus Kieftenbeld, Amyris, Inc. – CFO [15]

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Yes. What I would add is a little bit of color. I spent the last 2 decades plus in the specialty ingredients industry and with a number of end markets into food, beverage, nutrition, personal care and so forth. And to be honest, one of the reasons I’m at Amyris is clearly for the tremendous portfolio and the growth opportunity. What I would say is, looking at this in context, I mean we’ve obviously guided on, call it, a 44% kind of year-over-year growth and, on a recurring basis, 80%. I mean these are very significant numbers by any measure, I would say. And therefore, with John — what John just said, in the context of COVID-19, which is a truly unprecedented situation, we are working hard towards achieving what we guide on, and we will continue to do so throughout the year. But I think these are already percentages that are very significant by any industry standard.

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research & Senior Technology Analyst [16]

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That’s helpful. And then as you are seeing some of this migration towards online sales, can you talk about any initiatives you are undertaking to fortify your digital sales channels in the face of the current environment?

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John G. Melo, Amyris, Inc. – President, CEO & Director [17]

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Absolutely. I mean I’ll give you a few examples. I could probably spend the rest of our call with the examples of how the teams have pivoted. But a few examples are our field sales force — because we had a field sales force that supported Sephora physical stores and, as you all are probably aware of, Sephora stores have been closed since about the third week in March. And that team has pivoted to providing online live chat and advice to consumers. They pivoted to doing online classes on Instagram Live. We’re doing YouTube content. And we are aggressively online, too social, focused on really engaging and getting our influencers to work with us in supporting the consumer. I mean this is a point in time, it’s a really interesting point in time where the consumer has gone digital, and the thing that’s missing most in the consumers’ life is a human touch.

So our focus has been let’s bring human to the digital world, and let’s bring human to the digital world by redeploying all of our talent as they work from home in a way where we can give the consumer what they need. And you can imagine, in this point in time, a consumer at home, especially with what happens inside of the house, is experiencing dry skin. Add to that the anxiety and stress they’re feeling, and you’ve got the most unhealthy mix of what occurs in the skin that any of us could imagine, and so being able to counsel, help, advice and guide. And then last but not least, we’ve done quite a bit in making sure the supply chain is able to deliver because one of the things we’re seeing with the consumer is, as much as they’re looking for products to keep them healthy, they’re not able to get them in many places today.

So we are — that’s really where we’re focused on: human touch through digital by redeploying all of our talent and whether that means more people on service lines, more people on live chat, more people answering comments on Instagram, our teams doing Instagram Live classes and really making education a bigger and bigger part of the brand and/or fulfillment, being able to really deliver orders when they’re placed through our Biossance brand and catching up on the supply side with the Pipette brand. I mean I’ll tell you, we had several weeks where we couldn’t get enough wipes, baby wipes, in stock at either our amazon.com fulfillment or our own website, right? So it’s those things we’ve had to redeploy and focus to make sure we can give the consumer a positive experience during this time.

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research & Senior Technology Analyst [18]

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Understood, John. And then this hand sanitizer business that you have been opportunistic around, do you think this is here to stay? Or will this be sort of a short-term benefit and then maybe taper away?

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John G. Melo, Amyris, Inc. – President, CEO & Director [19]

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I think the short-term aspect of it, we definitely see staying for a while. How long that while is and what happens with behaviors long term, again, I really don’t want to guess that, right? The data is pretty interesting. Hand sanitizer sales are up about 800%. What I didn’t give you is color as to how big of a footprint and where we expect to be. As I said, up 800%. I expect the long-term impact is for the industry to remain up about 400% from what it was prior to entering this period. And I see that because where things are opening up, everybody is required to have sanitizer available for the consumer. So we’re dealing with 50,000, 100,000, in some cases, 1 million unit orders from wholesale partners all over the place, whether it’s the folks at grocery outlet, whether it’s convenience store chains across the country. And as I said during the call, we haven’t even started on Amazon, right? We start on Amazon in about a week or so selling the hand sanitizers. So I see today just a broad a range of demand from our online to wholesale to retail that, again, easily supports kind of the volume that we’re ramping up to.

And then we’re also doing it across continent. We’re obviously in the U.S. My expectation in the U.S. is we end up with about a 10% market share of the hand sanitizer market in the U.S. long term. We’re launching production and sales in Brazil, and we have already sold somewhere near 80,000 units in Portugal. So this is not a — and the Portuguese business is expected to support the European market. In Europe, although U.K. is no longer part of Europe, the U.K. is sitting there with amazing constraints in getting hand sanitizers. So I always think of this as the moment where us being able to scale up and deliver and do it with a very differentiated product that has the opportunity to be a market winner enables us to win the consumer at a point where they’re going to be using sanitizer for quite some time in their life.

I mean my personal experience, as I’m sure many of you have also had, is a great example. I didn’t use hand sanitizer before the last month. Now I have one in my car, I have one in my office here. And I have one in the house as I enter the house. And I’m basically wiping my hands with sanitizer 8 to 10 times a day. And I see that with my neighbors. I mean I just see that everywhere today. And I think we can be a big part of that solution. And again, how big the business remains and how long it stays with this kind of demand, I think, is to be seen. And this is part of why Han and I have taken a very conservative view in how we think about the year and how we think about guidance.

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research & Senior Technology Analyst [20]

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Understood. Maybe one last one for Han. With respect to the balance sheet and the debt levels, do you have an opportunity to potentially refinance the debt at the lower interest rates given the current environment?

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Hermanus Kieftenbeld, Amyris, Inc. – CFO [21]

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Well, we will be looking at — go ahead, John.

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John G. Melo, Amyris, Inc. – President, CEO & Director [22]

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No, no, Han. All yours. You’re on this.

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Hermanus Kieftenbeld, Amyris, Inc. – CFO [23]

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We’ll obviously be looking at every opportunity we have. As I said in one of my opening comments, I’ve been with the company 7 weeks. We’ve already made some very good steps forward, I think, in terms of simplifying the debt schedule. But surely, we look — we will look at the market dynamics and see that — with some of the comments that I made, but also John with a follow-up, that we are working, we are looking at this actively. And simplifying and improving the economics is clearly a priority and will continue to be a priority. And so you should expect to see a reduction as well as a simplification and a reduction in the cost of debt — to service the debt.

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Operator [24]

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And next, we’ll move to Randy Baron with Pinnacle Associates.

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Randy Baron, Pinnacle Associates Ltd – Lead Portfolio Manager [25]

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I think it’s great that you’re shifting to a breakout of the branded kind of versus ingredient per segment. It certainly makes it easier for modeling. Along those lines, can we just break out the segment for consumers? How much of the $11.5 million in the quarter was Pipette? How much was Biossance? How much was Purecane?

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John G. Melo, Amyris, Inc. – President, CEO & Director [26]

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Very good. Randy, I will tell you that the majority of the first quarter was Biossance. I can tell you that Purecane and Pipette in the first quarter were probably less than $0.5 million. Han, you probably have that number top of mind.

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Hermanus Kieftenbeld, Amyris, Inc. – CFO [27]

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That is correct.

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John G. Melo, Amyris, Inc. – President, CEO & Director [28]

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Yes. So it’s — and again, in the second quarter, that is becoming much more balanced. I’ll tell you, the month of April was almost 50-50 between Pipette sales and Biossance sales.

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Randy Baron, Pinnacle Associates Ltd – Lead Portfolio Manager [29]

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Okay. And then given that hand sanitizer seems to be an increasing part of the conversation, what are the gross margins in hand sanitizer?

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John G. Melo, Amyris, Inc. – President, CEO & Director [30]

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We — the first production was around the 40% level, and we now have visibility to get close to 60% as we start implementing much more efficient supply chain approaches to the hand sanitizer.

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Randy Baron, Pinnacle Associates Ltd – Lead Portfolio Manager [31]

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And is that kind of the same with the biossance.com that when someone orders it directly through pipette.com versus — and Amazon when that comes online, the margins are — I mean I just remember Biossance is, what, 93% if they order there versus others? Like is that the same kind of direction?

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John G. Melo, Amyris, Inc. – President, CEO & Director [32]

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It is. It’s not that big of a variable because of the demand profile of the sanitizer, but it is. There is more margin in the online sale.

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Hermanus Kieftenbeld, Amyris, Inc. – CFO [33]

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Yes. And the other thing maybe to add to that thought is — and obviously important to the company is kind of thinking about the cash cycle, right? So the adjacent benefit from the increased online purchases is a shorter cash cycle and actually, in some instances, a negative cash cycle because we collect monies from the consumer pretty much up on purchase whereas, working with our supply chain side, typically 30 days kind of net. So all in all, it’s a margin play as well as a cash flow play.

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Randy Baron, Pinnacle Associates Ltd – Lead Portfolio Manager [34]

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No, that makes sense. And then I want to follow up on the outlook question that the first 2 callers mentioned. In a world of uncertainties when many companies are pulling guidance, you all are to be commended for reiterating yours. I also think it’s great that you’re going to work with Amit to help him tighten his quarterly numbers since according to what I model, according to Colin, you guys had a quarterly beat. I think that really should be stressed. And while it’s prudent in a world when you’re kind of waiting to what coronavirus brings, my question is, in any other normal year, right, ex COVID, would we be able to say today that revenue for 2020 would be in excess of $250 million?

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John G. Melo, Amyris, Inc. – President, CEO & Director [35]

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Very simple, yes.

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Randy Baron, Pinnacle Associates Ltd – Lead Portfolio Manager [36]

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Excellent. And then my last question relates to the 8-K, Han, that you mentioned that was filed on Monday. One thing that jumped out of me regards to language of raising at least $50 million by the end of May. Can you — I know you kind of touched around it. Can you elaborate on what you guys have planned and then the degree of confidence that your team has in getting it done, whatever it’s going to be, by May 31?

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Hermanus Kieftenbeld, Amyris, Inc. – CFO [37]

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Sure, I can make a few comments. I mean we’re obviously — and I think we said this previously, even before I arrived, we’re always looking opportunistically and also looking at the financing needs, the funding needs of the company. And that’s what we will continue to do, right? And looking at the overall markets, as much as the question that was just asked around debt how do you guys think about that, well, the same for the funding of the company, we’ll look at that in that context. So that’s what I would say.

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Randy Baron, Pinnacle Associates Ltd – Lead Portfolio Manager [38]

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Okay. Understanding that. But whatever it is you’re doing, is it going to be enough to get the company to that fourth quarter EBITDA breakeven? And then related, is that — is this the last kind of potential raise of magnitude?

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Hermanus Kieftenbeld, Amyris, Inc. – CFO [39]

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I think what I will say is that we’re strategically — and since I’ve come onboard, which, again, has only just been 7 short weeks, I’ve been working closely with John and others on the team to strategically think about our needs going forward, and that’s what we’re doing. That’s what we’re evaluating, and that’s what we’re pursuing.

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Operator [40]

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And our final questions will come from Graham Tanaka with Tanaka Capital.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [41]

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Congratulations, and welcome aboard, Han.

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Hermanus Kieftenbeld, Amyris, Inc. – CFO [42]

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Thank you.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [43]

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I just wanted to kind of maybe start off with trying to understand how much the mix is changing to online. So what percentage of your revenues might be online in the second quarter versus the first quarter and then maybe for the year?

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John G. Melo, Amyris, Inc. – President, CEO & Director [44]

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Graham, thank you for being on the call with us. Look, this is again, another part of the uncertainty that creates a lot of variability. Right now, all of our consumer sales are online, right? So — and the assumption we’re making is that’s going to be the case through the second quarter. Now I will tell you that the Sephora stores have been looking at a restart through the month of June. How that goes, how it happens by geography, how consumers respond to that is all uncertain. So I think our best assumption is really what we’re working towards right now, which is that everything happens online through the quarter. And then at the end of the quarter, we’ll look and see where is consumer behavior and what’s happening in physical retail.

And by the way, I’d like to clarify, when I say online, it’s not all through our online properties, right? We have 3 online properties — 4 actually, 3 that are very material: Biossance Brazil, Biossance U.S., sephora.com. And then we have quite a few third-party online assets through Amazon, through Target and through Walmart for the Pipette brand. So I just want to make sure, when I say online, it’s not just our online, it’s online across both us and our partners that the business has moved completely to.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [45]

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And then in terms of margins and profitability, is it similar gross margins for the third-party online versus the company online?

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John G. Melo, Amyris, Inc. – President, CEO & Director [46]

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No. The company online, obviously, we realized very strong gross margins, as Randy highlighted earlier. But in the third-party online, it’s actually more of a wholesale margin structure and not the same kind of structure we have in our direct online sales. All of that said, I want to emphasize that our own online has realized a significant shift in growth, right? So — and we’re seeing that in our overall weighted gross margin for the brands, right, really going up. In all, probably somewhere around 300 to 500 basis points as the shift — or the mix has shifted to our online, but it’s not like going from 60, 65 to 90 because it’s not all our online. It’s actually a mix of our online and our partners’ online sales.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [47]

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One of the other things that is interesting is your cost reduction program and what Eduardo is doing. I’m just wondering, in this environment, if you can anticipate further improvement in cost, the unit cost that you referred to, which has really also helped margins. And I’m wondering if you can maybe try to quantify what that improvement might be in the course of the next 12 months.

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Eduardo Alvarez, Amyris, Inc. – COO [48]

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Graham, let me emphasize, right, we have shifted our production and expect the continued benefit from scale and from technical and process improvements. Those are already being sort of part of what we expect and what Han has mentioned, and we will continue to look additional — to additional improvements, as I mentioned, when I did a little bit of a deep dive on the Squalane, there are some market activities and improvements that we have noticed will continue, and we will continue to capitalize on those. But by and large, we have already — given this is a fifth quarter in a row where we’ve seen these improvements, we already have a good set of expectations around where the scale and operational improvements will be for the rest of the year. As I mentioned — John mentioned, all of the products we’re making we’ve made before, so we really feel very confident on where we are going from a product gross margin and volume perspective.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [49]

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Right. So what I’m just trying to understand is there further improvement in, say, the third and fourth quarter coming up? Or are you reaching a higher plateau already?

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Eduardo Alvarez, Amyris, Inc. – COO [50]

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No, we are going to see further improvement, that it’s already baked into some of the expectations that we discussed.

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Hermanus Kieftenbeld, Amyris, Inc. – CFO [51]

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Yes, I think just that last point, Graham, is important because as you think about how I mentioned the phasing of the year with an important part of the revenue skewed to the second half but also emphasizing, and John mentioned it, too, that we’re going to be EBITDA positive in the fourth quarter, those considerations of continued improvement on the operations side have been considered into that assumption and that expectation.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [52]

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That’s terrific. So improvements on the cost side, improvements in mix and scale. This is maybe a bit of a trickier question, but if you do have upside in terms of products, whether it’s Pipette hand sanitizer or the sweetener, Reb M sweetener, or other products that seem to be growing rapidly, what kind of incremental margins might you expect either in terms of incremental — incrementally higher gross margin or operating margin, if, say, you were to have $10 million more revenues than you expected?

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John G. Melo, Amyris, Inc. – President, CEO & Director [53]

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Let me maybe give you a couple of key points on that one, Graham, right? Look, the biggest swing that we’re cautiously optimistic on is what’s happening in the consumer business. And if the momentum continues, we’ll actually be at a point where we’re going to be quite a bit better than we’ve guided to, and we’ll have a strong gross margin profile. I think on the ingredients side, and I’ll pick the sweetener as an example, I mean I think Eduardo was spot-on. We know the sweetener production. There’s quite a bit of expansion in margin happening in sweetener because of improved cost of goods through each of our campaigns. We know how much volume we’re going to make. We’re on track to doing that. And the volume we can make this year at the cost we know we could make it has the sweetener that we can produce this year sold out. And that’s the way we kind of think about it.

So we know sitting here, there isn’t a dramatic upside on some of our core ingredients. We do see some swing volume on Squalane. We’re seeing the demand come through because we’re not the only skincare brand that’s doing well during this period, others are, and we’re seeing the demand for Squalane come through as a result of that, right? So it depends where in the mix. We’ve got a good handle on the ingredients side, and we know what the elasticity is, and the big driver of really upside in the product side is what’s happening with consumer. And I would say that, again, if everything we’re seeing now is realized — and there’s a lot here that has to happen. For instance, we said earlier, we really need to get to about 1.5 million units a month run rate production of the sanitizer during the month of June. We’ve got we’ve got the opportunity set up to do that, if we can execute on that and maintain that.

And the thing I didn’t highlight is, as a result of the sanitizer, all the other products inside the Pipette brand are up about 400% this year, right? So it’s a customer acquisition strategy that’s sticky. Consumers love it, and it’s driving demand for all the other products in the portfolio as consumers come and visit our site. If we can retain that and we can get the production up and maintain the cost of goods profile that we have, then the upside is we actually deliver a 30% EBITDA in the fourth quarter. But that’s the kind of range we’re dealing with, right? So we want to be careful that we keep guidance where it is. We’ll give you transparency on what the upsides are and what we’re managing to. And we focus on really executing, right? That to me is the #1 priority right now, is execute, execute, execute and ensure that we actually win coming out of this so that we do, in fact, have a transformed business because we’re there for the consumer when others aren’t able to be.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [54]

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Right. Now this is also I find rather interesting, the Pipette brand was introduced, and you said earlier, last quarter that it was launching faster than expected, then COVID hit. And it looks like all of a sudden, this is a brand, an almost new category killer in a way, because you’re taking shares that you’re talking about possibly having even 10%, which is amazing in that market. How big could this whole product line be, the Pipette line be? Because I think you referred to a body wash or something, which I’ve not known about, so what — of your sales estimates for Pipette expectations for this year, what percent would be the hand sanitizer? And what percent might be additional products?

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John G. Melo, Amyris, Inc. – President, CEO & Director [55]

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Look, here’s the way to think about it. We came into the year thinking from a revenue perspective, Pipette could do somewhere around $6 million. Where we are now says Pipette and the product pipeline — or the product mix in Pipette that was there, like-for-like, is now looking more like $10 million or more. And then you look at what’s happening in the wash, the clean and the sanitizer kind of market, which are all new SKUs for us, that group of new SKUs is likely to generate north of $30 million in revenue this year. So that kind of gives you a scale of what’s happening here. And it’s all happening very, very fast. And again, I would give you a same kind of profile for Biossance, except Biossance is much more mature, and therefore, the growth we’re seeing there is just around the base portfolio of products in Biossance also doing better than we expected for the year in this shift to online.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [56]

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That’s great. Now sorry to shift, but the adjuvant that you were speaking about on the ingredients side for possibly for vaccines, could you explain a little bit more about that because I don’t think there’s an appreciation for what actually — whether it’s just a carrier or an active ingredient for the pharmaceutical companies that are usually looking at it?

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John G. Melo, Amyris, Inc. – President, CEO & Director [57]

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I’ll do that, and then we’ll have to end with this question, Graham, because I’m getting told to cut it. So — but let me describe it in a very simple way. Think about the adjuvant as the thing — as the turbocharger that could increase the efficacy of a vaccine. Today, it’s predominantly used in children’s vaccine for the flu and elderly people’s vaccines for the flu. That’s where squalene as an adjuvant is used mostly around the world. So it varies in its impact by type of vaccine. That’s the other point to keep in mind. And the other way to think about it is that the adjuvant itself is about 1/3 of the volume for a vaccine. So you can think of a vaccine as 1/3 the active molecule, 1/3 the adjuvant and 1/3 a derivative of vitamin E as the way to think about a traditional flu vaccine.

And again, there’s a lot happening with vaccines for COVID-19, everything from RNA vaccines to DNA vaccines, traditional protein vaccines. And today, we are currently using our adjuvant in one of the RNA potentials and then in another alternative potential vaccine. And our focus here, and we need to actually not disclose much, but our focus here is we’ve got a few pharmaceutical partners that we’re in discussions with. And I’d expect, in the short term, to be in a place to have a pharmaceutical partner, which actually enables us to play into the vaccine space, because that’s not our expertise. We’re not doing discovery or development of the vaccine. We are one of the components, one of the ingredients in the vaccine that represents about 1/3 of the volume and a critical part of scaling it and making it or increasing the efficacy. I hope that helps.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. – President, CIO, Chief Economist & Director [58]

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Yes. I just want to understand if you’re just going to be aligned with 1 or 2 or 3 partners, and that if there’s — their vaccine doesn’t work, you’re not involved? Or could you be involved in whoever has a vaccine?

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John G. Melo, Amyris, Inc. – President, CEO & Director [59]

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It’s hard to say at this point, right? Again, we’re in the middle of discussions. I can tell you the global health community is collaborating very strongly together. So what I would expect is if we have the leading adjuvant, which we believe we do, and the leading vaccine needs an adjuvant, then I think we’re going to end up playing. That’s the way I would look at it. But there’s no — it’s hard to sit here today and say whether or not an adjuvant is going to be part of the winning vaccine. It’s hard enough to know what is going to be the winning vaccine, but we’re trying to understand that landscape, and we’re really leaning on pharmaceutical partners as a way to understand and play that role. Thank you very much, Graham.

Look, I’d like to thank everybody for your time today. In closing, I want to really thank the Amyris team and our partners for keeping everyone safe and healthy. We’ve been very fortunate across the Amyris family not to have any COVID-19 cases, and that’s really through the help of a tremendous amount of work happening around our task forces to ensure that we keep our people safe and our environment safe.

I’d like to wish all of you a good rest of the day and a good weekend, and please keep your families safe and healthy. And if you do want a very different experience for a hand sanitizer for you and the whole family, one of the things we’ve seen with our hand sanitizer is that it’s safe for children, it’s safe for expecting mothers, it’s safe for the whole family and you can do what many other consumers are doing, which are buying 5 to 8 units at a time at pipettebaby.com. And if you like to buy from Amazon, in the next 5 to 10 days you’ll be able to buy and get it from Amazon, and that excites us because that will be another channel that we could leverage capacity for delivery. Thanks again. Have a good rest of the day.

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Operator [60]

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And that does conclude today’s conference call. You may now disconnect your lines, and have a wonderful day. Thank you.

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