Amyris Inc (AMRS) 2021 Q4 法說會逐字稿

Welcome to the Amyris Fourth Quarter 2021 Financial Results Conference Call. This call is being webcast live on the Events page of the Investors section of the Amyris website at amyris.com. As a reminder, today's call is being recorded. You may listen to a webcast replay of this call by going to the Investors section of the Amyris website. I would now like to turn the call over to Han Kieftenbeld, Chief Financial Officer of Amyris. Please go ahead.

Good morning, and thank you for joining us today. With me is John Melo, President and Chief Executive Officer. This morning, John will provide a business update, and I will review our financial results for the quarter and full year. Please note that on this call, you will hear discussions of non-GAAP financial measures, including but not limited to, core consumer and technology access, sales revenue, gross margin, cash operating expense and adjusted EBITDA. Reconciliations of these non-GAAP measures to the most directly comparable GAAP financial measures are contained in the financial summary section slides of the accompanying presentation or the press release distributed today, which is available on our website. 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.

During this call, we will make forward-looking statements about future events and circumstances, including Amyris' outlook for 2022 and beyond, Amyris' goals and strategic priorities, anticipated transactions and other future milestones as well as market opportunities and growth prospects. These statements are based on management's current expectations, and actual results and future events may differ materially due to risks and uncertainties, including those detailed from time to time in our filings with the Securities and Exchange Commission, including our 10-K for full year 2021, which will be filed this afternoon, March 1, 2022.

Amyris disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise. Before we begin today, I'd like to note that included in our webcast is a slide presentation we will refer to. The slides will also be posted on the Investor Relations section of Amyris' website following the call.

I'll now turn the call over to John. John?

Thank you, Han, and good morning, everyone. Thank you for joining us today. During our call, I'll provide an update on our business performance, our operating strategy and our outlook. Then I'll pass back to Han for a financial update.

I'm now on Slide 4. 2021 was a transformative year for Amyris and the fourth quarter is a strong demonstration of our capacity to grow and the potential of our Lab-to-Market technology platform, our consumer business, both via e-commerce and retail and providing access to our technology through new and existing partnerships. Interest in our business and technical capabilities has never been stronger and the commercial success of our homegrown brands continues to confirm that we are just scratching the surface of end markets that will benefit from sustainable products derived from clean chemistry with no compromise to performance.

The business integration of our Lab-to-Market platform, consumer brands and technology access via collaborations and partnerships is clearly advantaged and puts Amyris at the forefront of the acceleration of sustainable consumption.

Slide 5. In 2021, we significantly simplified our business. We provided technology access by licensing the global distribution rights of our flavor and fragrance ingredients while maintaining the fermentation manufacturing capability for most molecules developed in our portfolio. This enabled us to focus our growth on health, beauty and wellness in markets where we have built the fastest-growing consumer brands.

The fourth quarter was our fourth consecutive quarter of double-digit growth in our core business, which is the total of consumer and technology access and excludes revenue from strategic transactions and one-off items. I can confirm that we are now in the fifth consecutive quarter of strong growth, and this growth is accelerating significantly in our consumer business.

Slide 6. Our fourth quarter core revenue increased 68% over the fourth quarter of 2020 with our consumer business delivering 86% growth year-on-year. For the full year, we delivered 97% total revenue growth versus 2020, and our consumer business delivered 78% year-over-year growth. Our gross margin dollars grew 135% year-over-year and we managed our operating expenses to 67% growth year-over-year. Our existing brands continue to perform very well with the combined revenue of Biossance, Pipette and Purecane setting a new record. Biossance is accelerating in the first quarter, and we expect another very strong year from this group of category-leading brands.

Our new brands that include Costa Brazil, JVN Hair and Rose Inc. delivered excellent performance in the quarter with JVN and Rose Inc. performing well beyond our expectations. This group of brands is on track for an incredible first quarter in a better-than-anticipated year. For most of our brands, we are experiencing very strong physical store sales through our partners well beyond pre-COVID levels, and we are maintaining a very healthy mix of around 50% of our revenue from our own direct-to-consumer websites.

About 20% of our consumer revenue in the fourth quarter was from international markets, and we expect this to significantly grow in 2022. Our international expansion is focused on the U.K., Europe, Brazil and the Chinese markets. These markets are delivering very strong sales growth in the first quarter. We opened 2 retail pop-up stores in Miami, one for the JVN brand and the other for Biossance. The Biossance store has remained open and will eventually become a brand showcase and experiential permanent retail store. We are currently seeing over 60% conversion to purchase for consumers coming into the store. In addition to the strong in-store performance, we also experienced a very strong improvement in Miami traffic to our biossance.com site. As part of an omnichannel approach, we believe that an experiential store in key markets improves our growth online and accelerates our market share gains in these markets.

Our goal is to limit our experiential retail presence to 3 to 4 key markets over the next year and focus on flagship stores that provide a deep consumer experience with our brands. These stores will be opening in New York, London and eventually in L.A.

Slide 7. Our new ingredients plant construction in Barra Bonita, Brazil has made great progress, and we are on track for the start of production early in the second quarter. We have 600 contractors and employees on the construction site focused on delivering the most advanced fermentation factory in the world and the leading production site in the world for making natural ingredients in a sustainable way. We completed our joint venture partnership with Minerva, one of the world's largest exporters of beef and a partner focused on lowering the carbon footprint of supplying the world with protein.

We are focused on delivering our first product for commercial sales for this partnership in 2022 and are very excited about the expansion of our technology platform into proteins. We also completed our joint venture with ImmunityBio for the advancement and commercialization of our ssRNA vaccine technology. The first technology application of our platform for ssRNA is COVID-19 and the protection and rapid response to future respiratory viruses and potential pandemics. Our short-term focus is the successful completion of human clinical trials. The JV is focused on commercialization and has very limited capital needs from Amyris.

ImmunityBio has invested in manufacturing assets for 1 billion vaccines a year and is leading the clinical trial work for the vaccines. We will add commercialization capability to the JV once trials have proven successful. We successfully scaled squalene for vaccine adjuvant production, direct from fermentation in the fourth quarter and expect this business to deliver strong revenue growth in 2022. Since the close of the quarter, we agreed to terms with a very -- and are very near closing on the acquisition of MenoLabs, a leading brand in the menopause market with a portfolio of probiotics to address hot flashes and other common symptoms women can experience during menopause. We view this as a significant addition to our portfolio and complementary to [stripes] the menopause brand we are building with Naomi Watts.

We expect the combination of both brands to deliver more than $30 million in 2022 revenue, with significant growth into 2023 and beyond. This underserved market valued at over $15 billion in 2020 with double-digit annual growth is ideal for Amyris' science-backed approach to wellness and sustainability. During the fourth quarter, we made important changes to align our company leadership structure and operating model with our business strategy. Consumer became our single biggest business in 2021. We organized our business around 2 key revenue components: consumer and technology access.

In technology access, we combine R&D collaborations, technology licenses and ingredient product revenue. In consumer, we include all of our activity that sells product or enables the execution of our consumer brands. In the fourth quarter and for full year 2021, each of these contributed about the same revenue to our company. As part of simplifying and focusing our business, we recruited 2 experienced leaders to lead revenue and operations. Annie Tsong has been appointed President of our consumer business to partner with me and our brand leaders to support our accelerated growth. And as a transformative leader, she helped lead the turnaround of Walmart in China and also led the transformation of the walmart.com business.

For technology access, we appointed Mike Rytokoski, a very experienced leader who recently led the China business for Goodyear and has experience leading innovation in large business-to-business sales and marketing teams, including at Unilever and Clorox. We also expanded the responsibilities of Catherine Gore, who will continue to run Biossance and also support the growth of the JVN brand. Additionally, we expanded the responsibilities of Caroline Hadfield. She'll continue as the leader of Rose Inc. and also partner with me in the development and creation of new brands and our consumer product innovation. Of course, Eduardo Alvarez will continue in his role as Chief Operating Officer, and is doing an excellent job leading a startup -- development and startup of the construction at Barra Bonita as well as our expansion into manufacturing our own consumer products and building a robust supply chain that enables us to meet the strong demand we're currently addressing.

This focused business structure and operating model, along with our new leadership is expected to bring better performance management and execution to our business.

Slide 8. We have become a leading house of brands for the health, beauty and wellness markets. We have built incredible brands with category leadership in clean skin care, clean hair care, clean cosmetics, clean skincare for baby and families, 0-calorie natural sweetener, and we are set to also lead with new launches this year in clean Gen Z beauty and the menopause category.

So what differentiates us and has led to exponential growth in these markets? First, science. We have the only Lab-to-Market platform in the health, beauty and wellness in markets, and we are applying our technology to make platform molecules that enable us to deliver the best-performing products that are also sustainably made. Second, sustainability. Consumers are demanding sustainable products without compromise with the performance, and we are the leading enablers of developing, scaling and producing the purest, cleanest and most sustainably sourced natural ingredients in the world. We are the only company in the industry that has built a Lab-to-Market platform that enables us to quickly scale and manufacture products with the lowest cost and that are also the most sustainably sourced.

Third, marketing. We have built incredible brands repeatedly. These are brands that consumers love and are outperforming other brands in their respective category.

Next, business model. We are digital-first with deep relationships with the leading specialty and mass retailers in the world, enabling us to scale and access consumers in the most efficient way. This year, you can expect us to partner closely with some of the world's largest retailers to transform their health, beauty and wellness categories into fermentation-based sustainably sourced products. And then lastly, No Compromise. Our No Compromise promise enables us to lead the transition to a clean and sustainable future in health, beauty and wellness markets. We formulate the best products in each of our categories and are the owners of the science that makes the most sustainably sourced platform molecules in the health, beauty and wellness markets.

So why does our leadership in consumer brands matter? We deliver the most leverage of capital investment to revenue dollars of any company in our sector. It's very challenging to grow efficiently or to any real scale of revenue when you are 3 to 4 steps removed from the consumer in the value chain. We generate 10x or more revenue from every kilo of product we produce, when we sell to the consumer versus selling the molecule as an ingredient to industry or much worse license with a royalty for developing an organism for others. We've done this and know the economics well. This is why we invested in the best scale-up and manufacturing capability in our industry and then experimented to develop the best capability at building great consumer brands with a business model we could grow with.

We control our destiny, developing organisms for others or selling ingredients to other places, your growth rate, margin and future in the hands of others. We are committed to having significant impact in the sustainability and health of our planet. This has been true since the start of our company. It's our mission. It's impossible to have real impact and to deliver real solutions if you can't scale, manufacture or deliver real products to consumers that enable them to live better lives without harm to our planet. We have invested in a transformative technology for our planet. Biotechnology-based fermentation is the future of most chemistry. We are the best at it, and we have a responsibility to clean up the chemistry of the world in the fastest way possible. Imagine where we would be with electric cars if Elon Musk have to convince traditional car manufacturers to transition to electric. It would take 20 to 30 years longer at best, and it would be too late to give our planet a real shot. That is not acceptable. And our scientists and I feel the responsibility and need to clean up the way chemistry is made now.

Our latest scale-up of squalene for vaccine adjuvant is an incredible example of what we are capable of, a complex molecule that many said was impossible to produce via biotechnology and fermentation. We developed from concept to full industrial scale fermentation in less than 9 months. We are just starting to really thrive with our science and manufacturing.

Let me now share our financial framework for what you should expect from us. First, accelerating consumer revenue growth, delivering much more than 150% growth versus last year -- in 2022 with a very strong pipeline of new brands, new products, new markets to support this growth for well into the future. Secondly, technology access revenue growth continuing at a 30% to 40% annual rate for the next few years, including 2022. And then thirdly, delivering positive cash from operations in the fourth quarter. This excludes capital expenditures and new brand expenses. In addition to this financial framework, we have several key deliverables to track our progress.

First, consumer product manufacturing to be at least 70% in controlled factories, factories that we own or control by the fourth quarter of 2022. The combination of this deliverable and moving to our own fulfillment will add an estimated 500 basis points of gross margin improvement to our consumer business in the second half of 2022. As of the end of the first quarter, we already have 10% of our highest volume products produced in Reno. This is one quarter ahead of schedule.

Secondly, we will be achieving 6 million monthly consumer visits to our direct-to-consumer website by the fourth quarter, doubling the current number of consumer visits to our websites.

Thirdly, Miami, New York City and London, branded experiential retail sites open and delivering operational profitability.

Fourth, start up Barra Bonita early in the second quarter and have most of our ingredients produced in Barra Bonita in the second half of the year. This is over $20 million of improvement to gross profit dollars from ingredient sales alone.

And then lastly, expect us to scale 3 to 5 new ingredients this year. This is a track record we're proud of. Most companies in our sector have been lucky to scale 1 ingredient in their life, and we are now at a rate of 3 to 5 new ingredients a year. We are leading the world with a technology that's critical to making our planet healthy and sustainable. We are delivering what consumers are demanding, and it's showing to our revenue growth. We are evolving our company from one of the leading growth companies in our sector and the owner of the fastest-growing consumer brands in health, beauty and wellness markets to also be in a company that delivers operational excellence. Our goal is to end this year with the best growth we've ever delivered in our core business and doing it profitably. We have no current plans for additional capital raises. We are adding much needed manufacturing capacity and deep leadership capability. This is all in service of accelerating the world's transition to clean and sustainable health, beauty and wellness markets.

Let me now turn to Han.

Thank you, John. Please turn to Slide 9. Once again, a very active quarter and year, resulted in new sales revenue records for Amyris. Record consumer revenue reflects the concerted effort of the organization to focus on high revenue and high return opportunities available to us in Clean Beauty and wellness. We concluded 2021 with 8 consumer brands, up from 3 at the beginning of the year and are well underway to add 3 more brands this calendar year. Increasingly, our financial performance will be determined by the growth and success of these investments that have positioned us as a provider of choice for clean and sustainably oriented consumers. It is for that reason that we have brought further clarity to the presentation of the business with consumer and technology access representing equal parts of revenue in Q4 and for full year 2021. We refer to the sum of the 2 as our core business going forward. Growth requires funding.

During the fourth quarter, we issued $690 million of new convertible notes. The proceeds from this offering allowed us to retire restricted and costly legacy debt and secure cash that will fund the accelerated growth of our consumer business and the infrastructure to support a much larger business. Net proceeds after fees, debt servicing and purchasing a capped call were $525 million. Cash at the end of the quarter was $483 million. This compares to $115 million at the end of Q3 and $30 million at the end of 2020. We are a rapidly growing business and in the interim, will require cash as we grow to a self-sustaining scale.

Please turn to Slide 10. Core revenue, which includes consumer and technology access revenue and excludes strategic transactions and other one-off items, increased 68% to $64.8 million when compared to the fourth quarter of 2020. We believe that presenting revenue in this fashion is a good reflection and best reflects how we manage the business today. Core revenue included record consumer revenue of $32.2 million, which increased 86% and technology access revenue of $32.6 million, which increased 54% versus prior year. For the entire year, total revenue of $341.8 million, improved 97% when compared to 2020 and included $153.8 million of proceeds resulting from strategic transactions completed in Q1 and Q2 of 2021.

Core revenue increased 55% to $188 million compared to $121.1 million in 2020. Core revenue includes record consumer revenue of $92 million, which increased 78% and technology access revenue of $96 million, an increase of 38%. Consumer revenue increased to a number of factors. Our flagship skincare brand, Biossance, had another record year and carries a lot of momentum into 2022. Our new brands also gained significant traction during the fourth quarter, particularly 2 high-profile brands such as Rose Inc. and JVN Hair Care. Early performance of these 2 brands further validates our belief that shared values, community and quality ingredients can intersect and empower consumers interested in socially responsible consumption who don't want to sacrifice performance.

Fourth quarter technology access revenue increased when compared to fourth quarter 2020 primarily due to increased technology licensing, offset by slightly lower collaboration revenue. External demand for squalane and hemisqualane, two of our platform ingredients produced through fermentation generated record combined revenue during Q4 of 2021, demonstrating 50% year-over-year growth.

Our fourth quarter non-GAAP core gross margin was $22 million or 34% of revenue. This is an increase of 31% compared to Q4 2020 margin dollars. For the full year, non-GAAP core gross margin was $73.2 million or 39% of revenue, which grew from $44.4 million or 37% of revenue in 2020. As we noted, we have been investing substantially in the future of our core businesses. We expect the Barra Bonita ingredients plant and the Reno consumer production facility to be important drivers for gross margin improvement in the second half of this year.

Please turn to Slide 11. Looking at a scorecard of key metrics, we've already touched on our record core revenue and gross margins. As I mentioned earlier, we have continued to invest in higher return opportunities, which is reflected in our adjusted EBITDA, primarily due to higher operating expense. Due to global shipping delays, the quarter included additional investment in air freight expense of $4.1 million to ensure timely availability of materials. For the year, adjusted EBITDA of minus $107.1 million, decreased from minus $95.2 million, primarily due to increased operating expense. Subsequent to the previously mentioned convertible offering, we reduced our legacy debt position to $51 million at year-end. We previously communicated to focus our efforts on reducing this debt to below $100 million by the end of 2021, which we successfully did. The final $51 million is expected to convert in the coming quarters.

Let's move to Slide 12. As always, we have a lot of work to do to achieve our goals. However, the path forward for Amyris has never been clearer. Despite a number of factors in the macro environment, including inflation and geopolitical instability, we expect to have another exceptional year as it relates to growth. As more of our brands achieve critical mass, we expect consumer revenue to increase by at least 150% from 2021 base of $92 million. Continued demand growth for our manufactured ingredients, which will be served by our new plant, access to our Lab-to-Market technology platform and the first earn-out of $39 million from our 2021 strategic transactions is expected to result in 30% to 40% revenue growth from our technology access revenue of $96 million in 2021.

Thank you all for listening today. John has concluding remarks before we open the line for questions. John?

Great. Thank you, Han. 2021 was a solid year for Amyris and 2022 is off to a great start. We are really looking forward to what comes next, and I want to thank you all for being part of what we do.

Operator, can you please turn the lines for Q&A, please?

(Operator Instructions) The first question comes from Colin Rusch with Oppenheimer.

John, I wanted to just get a little bit more information about your comments around the licensing model. You talked about the pipeline of molecules and development in the past. And it sounds like the tone is changing a little bit around your interest and willingness to engage in the sort of development agreement. So just curious if you guys are thinking about moving away from that licensing model? Or is it still the hybrid model and a little bit more focused around some of the products that you guys are thinking about bringing to market?

Good, Colin, and thank you for being on the call. I think our expectation is really to continue more of the same, right? It's just more focused. Our pipeline has grown much bigger than it's been. We've gotten a much more focused pipeline, and we're really deepening our relationship with global leaders, right? We don't work with start-ups and we don't go fund start-ups to target molecules. We basically find world leaders. Typically, they find us. We identify great molecules that we can get to market quickly. Our portfolio with these partners typically has what we like to call quick wins, molecules we can get to market in a year or less, medium-term molecules that take a year or more to develop. And in long term, real breakthrough molecules that might take 3 or more years to get to market. And we do that in a balanced portfolio with partners.

The model -- I guess the only evolution in the model that's somewhat new is we're now seeing more licensing revenue come from these deep partnerships, but from a product standpoint, collaboration standpoint and then the monetization of the molecule long term where we make or scale, we make and then we capture value long term from the partners, that's what we expect to continue, Colin. So I don't -- other than a little more licensing revenue as we grow our portfolio, I don't see a huge difference in where we've been with the model.

That's super helpful. And then I appreciate you guys highlighting the adjuvant capacity for squalane. And I guess I'm curious how mature some of the formulation is happening for some of these things you talked about CBD? In the past, obviously, you've got the vaccine opportunity. But I assume that there's a lot of activity in and around that sort of functionality for the molecule. And I'm just curious like what the pipeline looks like for that and how mature those formulation processing are at this point?

Yes. Let's take the 2 examples, Colin, the CBG. And now obviously, as you can imagine, we have more cannabinoids in development than CBG. But the CBG, we've developed several different formulations. We actually have a few more in the pipeline. The ones we have in the market have been performing very well, and we expect now to go both across category and across brands with our CBG formulations. And you can imagine us doing partnerships with several retailers -- potential retailers to really deepen the penetration we have with our CBG in some of the formulas that we've developed. So mature in formulas, learning a lot and really expanding across brands with our CBG and the additional minor cannabinoids that we have in our pipeline.

When it comes to squalene, I'd say a little different, right? We've just finished scaling in the fourth quarter. We've got in mind several applications in the wellness space for squalene as an ingestible that people can use for health of the gut microbiome, and we think of that as a significant opportunity as we go into 2022. And then when it comes to the vaccine adjuvant, we obviously have it in the vaccines that we're developing with ImmunityBio and with our friends up in Seattle, folks at IDRI. But beyond that, we haven't really entered into major relationships beyond our own use. We have been in significant discussions. We have proposals on the table and term sheets, but have not yet gone that far. So I hope that helps in giving you a sense. And when you think about the rest of our portfolio, most of what we have coming out in 2022 as new molecules from fermentation already have either formulations or are platform molecules for brands that we have or brands that we're launching. So that's where we are and where we're going with molecules that we're scaling.

The next question comes from Dan Brennan with Cowen.

Great. Maybe first one, you gave us a couple of cuts on the 2022 guidance with the core growth doubling and then the consumer and the tech. But can you just give us a kind of a revenue range -- dollar range just so we can level set and just make sure we kind of know what you're pointing to?

Yes. I mean, Han will take that.

Sure. So if you think about -- so -- well, it's actually not that complicated, Dan. Thanks for asking the question. Consumer, we're keying off the $92 million of 2021 full year actual, so that will get us somewhere in that $225 million to $230 million range. And then on technology access, if you key off the 30% to 40% range, you get in kind of the $130 million range and then the 2 combined is your core and your total number, right? Now again, let me remind you that technology access does include the earn-out that we described. And we quantified at an estimated $39 million for the year. That will be booked. So if you think about phasing, that will be booked in its entirety in the fourth quarter. So that's another one to just keep in mind as you think about how the numbers fit together. Does that make sense?

Yes. No, it does. And then maybe for you guys on a consumer growth of 150% plus. Could you just give us a sense of kind of the key drivers there? Obviously, you've got the legacy brands and the new launches, the experiential stores. Just give us a sense of how we think about the buildup to that 150-plus percent growth?

Sure. And I'll take that on, Dan. And again, just to summarize Han's point, think about it as $370 million to $380 million as the range when you look at the combination and where we're going for 2022. When you look at the drivers in consumer, our legacy brands are doing extremely well, Pipette, Biossance and Purecane, and Biossance obviously being the majority of that from a mass perspective, revenue perspective.

So -- and then the brands we launched and added to the portfolio in 2021, think about that as Costa, Brazil, JVN and Rose Inc. And the combination of those brands you could think of as adding $60 million to $70 million in brands that came in last year for full year revenue in '22, think about the legacy brands being north of $180 million. And then think about everything else being the new stuff that we're doing, of which the menopause category is really the biggest, right? The menopause category will be north of $30 million of the combined new brands. So I hope that kind of gives you a sense of magnitude.

And then the drivers underneath that are really #1, the North American market. The North American market is actually our strongest market and where we're seeing significant growth acceleration. The second biggest growth driver is international expansion, really led by the U.K. first; Brazil, second; China third; and Europe fourth, the European continent. And then last but not least, think about the growth driver being brand new brands and products, new products added to each one of the current brands. So I hope that helps, Dan, in thinking about the layers.

Yes. No, for sure. And then maybe just one other, if you don't mind, just in terms of the guidance philosophy. The growth is strong. And in the past there's been volatility, which has caused some undue pressure on the stock. So I'm just wondering, as we look ahead for '22, the business seems like it's firing on a lot of cylinders here. You got the supply chain, looks like it's been fixed, manufacturing looks like there's a lot of opportunity ahead. But when we think about the guidance, is this guidance like -- is there a sense of cushion baked in here? Is this aspirational guidance? Just give us a sense of how we think about the kind of target growth goals for '22 and kind of the past experiences that you guys have had?

Yes, 2 big differences coming into 2022. The first is the guidance and the growth is driven by core, not transactions that actually sometimes hit in the quarter, sometimes don't. So you could see as we go through 2022, expect just consistent growth quarter-on-quarter, underpinned by underlying activity that is solid. Our brands and our ingredients, ingredients fully contracted based on the transactions we've done and brands really underpinned by a lot that's in the market already. So that's kind of point one. It's a different kind of guidance based on our portfolio, changing dramatically as a result of what we did during 2021.

I think the second thing is, if you burn a few times, you learn quickly. So you can imagine, we have quite a bit of cushion in our guidance. Our simple math was take out everything that can go wrong and then focus that as the number and growth we talk about in the market, which is why we talk about it as 150% or much more, 150% growth because the actual consumer number we're currently running at as you'll start to see coming out of the first quarter and the progressive growth and the new things we're doing in consumer and then the new ingredients we're launching actually get us to significantly better than 150% growth. And then on the 30% to 40%, on the technology access, that's pretty solid, right? We could go above that and the ingredients we control ourselves, but that's a range we've been consistent at delivering on and we expect to do again. So I hope that helps give you some color as to how we thought about where we are currently for the year.

The next question comes from Laurence Alexander with Jefferies.

Two questions. Can you give a little bit more detail on how Purecane is doing? And secondly, can you give an update on your thinking about the SG&A and CapEx needs over the next, say, 2, 3 years?

Great, Laurence. I'll take the first part of that, and Han, I'll pass the second part to you on the OpEx question. And good to hear your voice, Laurence. On the Purecane, I think we -- a solid year in 2021, well over 200% growth. And I think going into 2022, I'd expect again another 200% or better growth in Purecane. It's actually doing very well. But I also want to be cautious here. It's not a brand that we're putting significant investment relative to some of the other categories, right? So it's a brand that's now, I think, 3 years old. And with that level of maturity, of the kind of growth we have now, it's a brand that this year we'll do $5 million to $7 million in revenue and a brand that we are significantly expanding into mass retail, which is where people actually buy 0-calorie natural sweetener. So changing or adding a lot to the channel mix and then significant growth. But from a materiality standpoint, it's not where we're putting a lot of our investment margin. Han, you want to take the OpEx question?

Sure, I do. So as it relates to the investments, Laurence, we had -- I think we had a good visual on that in the -- actually, when we discussed the convertible note. So just wondering about -- talk about CapEx first here, where we said that as we looked ahead, and of course, we have some important projects running as we speak with Barra Bonita, the Reno facility, but also our investments in the -- in our R&D capability. So we said that we would lay out around $100 million in manufacturing and supply chain. The majority of that was related to Barra Bonita, smaller amount to the Reno facility, the consumer facility that is, then around $60 million in R&D capability, that's infrastructure, technology and other upgrades, also including some ERP upgrades.

And then we had a bucket that we kind of ring-fenced of around $60 million to do with discretionary or complementary kind of M&A opportunities. And that's kind of how we thought about at the time, and that's still how we think about it, because certainly, some of those major projects are well underway, of course.

As it relates to SG&A, I think John alluded somewhat to it in his financial structure comment in his prepared remarks. What we're thinking is we have another 3 brands coming into the fall this year. We'll have some, certainly in the first half, commitments from an OpEx perspective. And when I say that because a lot of the increases, as you may have seen in the release that we put out and also some of the notes that we had in the deck are related to selling and marketing expense to support the growth of our brands and the investments we've made recently in the launches and of course, with some of the upcoming launches. So that will be more concentrated still in the first half and then we certainly expect for some of that to lighten up in the second half.

And the other reason is not just selling and marketing expense per se, but inside that is also fulfillment and shipping activity. And we certainly expect to take advantage of a more concentrated effort with Reno and support to reduce cost there, too. So that's kind of from an overall framework perspective how we're thinking about CapEx and then OpEx.

The next question comes from Harsha Pappu with HSBC.

Just a couple of quick ones, if I may. One, could you provide a little bit more detail on the ramp-up environment, you say you start commercial production in Q2, when do you expect to hit optimal operating rates by? And then is there a certain operating rate number, I think, before you start to see gross margin improvements come through? And is there a certain revenue number that bakes in your guidance (inaudible) on Barra Bonita growing as per plan? And I have a second one on technology access guidance, but I'll come to that later.

Very good. So I think I'll take that on Barra Bonita. So 2 key milestones, right? First is the plant start-up and commissioning, which should be complete early in the second quarter. We'll actually start making and shipping product out of the plant during the second quarter, and we expect that by the third quarter to be fully up and running with the plant supplying most of our ingredients with the exception of farnesene, which will continue to come out of the Brotas plant from DSM. So that's what we expect, again, commissioning, beginning of second full-scale production, shipping product out for most of our ingredients around the third quarter.

We said there's about a $20 million benefit, that obviously assumes that not everything goes perfect, and we could do better than that as it relates to ingredient gross margin coming from the plant impact, right? But those are the 2 major pieces. I'm not sure if that helps. And then I want to make sure I get the other part of your question, which I didn't pick up.

No, that's very helpful. I was just wondering if there is a revenue assumption embedded in the guidance that's dependent on Barra Bonita going as planned or is it all just margin?

It's all -- great clarification. It is all margin and mainly because we've been obviously working very hard with third-party plants partnered very closely with DSM and then running our Spanish plant all out. And as you can imagine, the Spanish plant, especially with energy rates -- energy costs in Europe going up, it's not a very efficient plant for us. So we are -- the whole focus is to get out of third party, get out of Spain as quickly as possible, and that is all about Barra Bonita startup which is really about margin impact, not revenue impact.

That's very helpful. And just a very quick one on technology access guidance. You're saying plus 30% to 40% for the year, and that includes the $39 million earn-out number. So if you strip the earn-out number, are you guiding for flat revenue year-over-year? Or am I not thinking about this correctly?

It's actually -- I mean there are moving parts, right? Because we're not actually adjusting back for the licensing arrangements we made and the change in the earnings that we had, the revenue we had for the ingredients that we licensed in this deal with DSM. So because we have an adjusted -- there's actually a piece of growth that we transferred over to DSM, the actual volumes are growing at exactly the same rate we expected. We're actually seeing very strong growth beyond what we expected in Vanillin. We're seeing very strong growth in patchouli. We're seeing very strong growth in Ambrox and sclareol. So the underlying volumes are growing at a high rate. But the growth rate we're expressing publicly is revenue, not volume and the revenue has an adjustment based on the deal that we did with DSM last year.

If you think about the ingredients that we control ourselves, so squalane, hemisqualane and the stuff we sell through Aprinnova, that revenue is increasing more than 50% this year. So I just wanted to give you color, like the stuff we control and sell ourselves growing more than 50%. We obviously have new ingredients coming out that will add to that. We have a takedown year-on-year based on the transaction with DSM. And then we have volumes that are actually giving us pretty robust growth, which is all about utilization and then total cost of goods that the factory will deliver for us.

Yes. Perhaps, John, if I can add one comment to just give a little bit more color because I think where you were headed sits with the -- is really to do with the underlying or the intrinsic growth around the ingredients product portfolio. And John described it well, there is continued growth in the technology access number. And actually, if I -- if you reference back to Slide 10, you'll see it, for 2021 is -- we had a number of licenses included, right? So that was $13 million in the quarter, $20 million for the year to do what we did with ImmunityBio, what we did with Minerva, what we did with DSM. And so that gets you to the underlying product -- ingredient product flow, so to speak, and there was intrinsic growth, as John described, year-over-year, assumed.

(Operator Instructions) The next question comes from Sameer Joshi with H.C. Wainwright.

The first question is about the gross margin. The actual GAAP gross margins are roughly around 5% whereas the non-GAAP core gross margins were at 34%. Can you help us understand the gap between these two? And then on a longer-term basis, should we still be looking at 60% gross margins from the core business? Or should we be using some other targeted number?

I'll let Han take the first part. And then I'll take the second part what you should be thinking about, especially as we get to the second half of the year. So Han, if you want to take the first part on what's reported on the GAAP basis?

Yes. Hey, Sameer, you just quickly remind me, you said 34% on the core business, right? What was the other number you quoted?

The 5% roughly because I think your revenues were $64.8 million, and the cost of product sold was $61.8 million. I calculated that as roughly 5% gross margin.

All right. So I think, look, there's a couple of things here to think about. The -- and I mentioned it in at least some of the comments I made too just a moment ago in the prepared remarks. The core business was performing around 34% in the quarter. So that's the sum of consumer and technology access combined. So that excludes any kind of impact one-off, if you will, from transactions or other one-off items. That compares to actually 31% the year ago quarter. So it was a 3 percentage point improvement year-over-year in that. So -- and there's a lot going on, of course, that we have.

We have new mix, if you will, we've got channel mix. In consumer, we've got brand mix. We've got new brands coming into it. And then also, if you look at the technology access piece, we have product mix there in terms of what ingredients get sold in a given quarter based on capacities available and whatnot. So there's quite a bit of that. And then lastly -- so I would point you to, without kind of quantifying it exactly because as I said, there's a number of moving parts here. But again, on the core business, there is a 3 percentage point improvement year-over-year. That's the key point to take away here.

And lastly, if you look at the GAAP statements and particularly as the financial statements come out as part of the 10-K, you'll also see some of the other cost of goods sold, which we don't include here in the direct product margin. Those are some of the freight expenses that I alluded to earlier, for example, to do with (inaudible) and what have you that will certainly, given some of the logistical delays. We'll suppress those margins from a pure GAAP kind of perspective. But that's just for you to know and to reference perhaps as you look at the 10-K analysis. But again, the product margin performance is improved year-over-year.

And then the second part of the question, Sameer. If you think about 2022, I'd expect around the 60% level in gross margin. And the way to think about that is on the tech access side, there's about $60 million when you think about the collaborations, licenses and the earn-out, $60 million of direct gross margin dollars coming in from the revenue. There's $20 million of improvement coming from Barra Bonita that hit the second half. And then, there's about $20 million of gross margin that comes in from the ingredients and the Aprinnova business that we control versus what's been licensed out. So in total, there's an opportunity for around $100 million in gross margin coming from tech access. And then there's obviously the consumer side, which we continue to see very robust gross margins, 60% to 65% and then expanding by about 500 basis points in the second half as we get our own manufacturing and the supply chain up and running for the consumer side. So that's how the numbers look going into 2022. And again, significant improvement coming out of Barra Bonita and our own expansion into the manufacturing on the consumer side.

Got it. Just a clarification on the Brazil facility. The 500 basis point improvement, is that for second half only? Or is it going to be higher in subsequent years?

Yes. I would say you'd expect it to be higher in subsequent years, and the 500 basis points is in the second half as we really move a lot of the products from the 34 or so contract manufacturing sites that we currently have. But again, the 500 basis points is specifically on consumer and it's about Reno. And it's also about another expansion site that we're building out in Brazil for Brazilian consumer manufacturing as well as European shipments of consumer products. So we haven't actually put that out public yet, but we actually are not only in Reno, but a second large-scale manufacturing.

The way to think about it is Reno will have a capacity of 50 million units a year on one shift, and then the Brazilian site will have the capacity of 30 million units a year on -- actually 36 million units a year on one shift. So we are significantly expanding our footprint to be able to support our own consumer manufacturing and make sure we can be quick and lowest cost at producing consumer products, and that will lead to a little better than 500 basis points as we go beyond 2022.

Got it. And then you mentioned new appointment in leadership roles. Both the leaders you pointed out have exposure to China or have been in China, whereas your international expansion lists China as the third after U.K. and Brazil. Can you just comment on that?

It's really where we are. I mean we're well established in Brazil. We have great channel structure and are growing rapidly there. The U.K, the same thing. We've got Space NK, we've got Selfridges, we've got Harrods. We've got our own direct-to-consumer site going up. We have our own store in London. So there's a lot happening where the structure and the channels are already in place in those other markets.

In China, we have been doing cross-border selling with our partner, SuperOrdinary. We're just moving into retail with Sephora, but because of the change in policy in China around animal testing, it's enabled us to really think about a much more direct business in China, and we're currently really looking at expanding the channel structure and being much deeper in the Chinese market. So that's why it's not number one. I mean I'll tell you, in the fourth quarter alone, I think we shipped well over 2.5 million for Biossance alone into China. So it's not a small part of our business, but it is growing rapidly. And I think it has the potential to be the biggest part of our international business and we see it with our ingredients. Squalane's fastest-growing market is actually the Chinese market, right? So a lot to do there. I didn't want to put it as #1 going into 2022 just because we have more work to do in getting the channel structure set up and giving us the kind of market advantage that we have in the U.K. as well as the Brazilian market.

The next question comes from Rachel Vatnsdal with JPMorgan.

So first off, on the joint venture with ImmunityBio, can you just give us the latest time line for when you expect to complete human trials? And then when you could be on market? And then also you mentioned during the prepared remarks that this is the first RNA project that you're working on. So could you talk about potential applications outside of COVID and opportunity there?

Sure. And I'll probably a little more on the first part of that Rachel and then probably not as much on the second part. So on the first part, we have the clinical trials approved. We are moving into trials and we'd expect to have trials completed based on all the data we have. We expect to be successful, but obviously not done until it's done. And I know everybody is doing a good job to do thorough and safe trials.

And then if it all goes well, we'd expect to be commercially providing the vaccine, supplying the vaccines in the second half of the year. That's what we expect on the current progress.

Regarding other applications, look, we're very, very focused on therapies, specifically for Oncology and there's several applications that we think are super interesting that we've in-licensed from IDRI and are focused on benefiting from the trials on COVID to give us an advance in some of those other therapies, again, specifically in Oncology. And I'll leave it there for now. My expectation is that sometime during the second quarter, we'll actually have an Investor Day that really focuses on both the CEO of ImmunityBio and I and the Chairman doing a much deeper dive on the technology and helping our investors better understand where we are with all that relates to the ssRNA technology we have in the portfolio. Hope that helps, Rachel.

Yes, that's great. And then last one for me. Could you just spend a minute talking about your capital deployment and M&A strategy? You've done a great job of balancing growing brands in-house and then also partnering with existing players in the market. So can you just talk about how you're thinking about that and complementing the consumer portfolio with M&A? And then really what size of deals would you be targeting as well?

Sure. Look, I -- a lot of what we've done in M&A has been acqui-hire, right, really acquiring talent as we've been growing rapidly and want to ensure that we have a deep bench to be able to support that growth. If you really look about -- think about capital deployment, what I would tell you is our homegrown brands have performed significantly better than our acquisitions. I think the exception would be Costa Brazil that's actually performing very well, and it was an acquisition even though it was an acqui-hire, it's an amazing brand that's loved by people. So what you can expect is more of our homegrown brands. I think you'll see this year us announce what will be 2 to 3 new homegrown opportunities.

And I think the other thing you'll see, Rachel, is us partnering with major global retailers as they want to go deeper down the value chain, right? Retailers in the past have loved the beauty category, but did not participate. And I think you'll see some major retailers stepping in to partnering with us in building amazing brands that actually bring sustainability to their shelves and their consumers directly. So that's what I would guide. I don't see us doing major brand acquisitions.

I think we have a significant pipeline of homegrown. You'll see 2 to 3 more announcements of homegrown for categories we'd like to play in, and then you'll see some addition of us partnering with retailers to actually get these brands to market faster and make our capital more efficient as we acquire consumers.

Our final question today comes from Amit Dayal with H.C. Wainwright.

John, could you talk about the competitive environment, the new players coming in? How is sort of your opportunity set, either increasing or getting more competitive given some of these new entrants? Any color on that would be helpful.

Amit, maybe you could help me with -- who are the new entrants since we actually don't have competitors in our sector. There's nobody with a Lab-to-Market technology. We're not competing with anybody for doing big development programs. Again, we deal with major market leaders, and these market leaders are mostly coming to us. And on the consumer space, there are brands being launched all the time, but I'll tell you the big focus that we have is partnering with major retailers, deepening relationships with them, and they're seeking brands like ours that deliver sustainability and performance and lead in the clean category where they're seeing the best growth that they have in their portfolio. So when you think about competitors, who are you referring to so that I could respond to them specifically?

You have DNA, et cetera, who are entering this space. You have other players who are today may be focused on the renewable fuel side, but they have fermentation technology and are starting to look into the ingredient space as you guys are starting to prove out this market. So there are things brewing, maybe they haven't hit the commercial scale yet, but it looks like competition is increasing given the margin profile of this opportunity set. Just wondering what you are seeing and how you continue to differentiate those?

Got it, Amit. That helps, thank you. Look, I think we differentiate by executing. We have the most advanced factory in the world. It's got a lot of flexibility. I think I announced in December in a call that we are already designing and kicking off the second project to expand that factory. And you'll see that project start construction around middle of this year. And we're growing as fast as we can on our production footprint so that we could actually really have a stable supply chain and support our growth, right? So execution is how we differentiate.

I think secondly, really building out the next generation, like I always tell people, if you visit our labs 18 months after your first visit, and the way we're doing the science has not changed, something is wrong. So you can imagine right now, we are investing in the next generation of bioengineering, the new tools and new processes. And so while everyone is trying to catch up with how bioengineering has been done, we're already on to the next platform. We're already actually evolving. And you can see it in our results, like there's nobody that I know that's doing 3 to 5 new molecules a year, and that's actually molecules from engineering, process development, scale-up, large-scale production and then commercial success.

So I -- all I could say is we're not running into competitors right now. And our focus is just barrel down on execution and then invest in the next generation of technology so that we're always ahead of our competition. And my best assessment is right now, I'd say we're probably 10 years ahead of DNA from an engineering and scale up and being able to really deliver real products to market.

This concludes our question-and-answer session. I would like to turn the conference back over to John Melo for any closing remarks.

Great. Betsy, thank you for being our operator on this call. I'd like to thank everyone for joining us today and for your continued interest and support. If we did not get to your question, please follow up with our Investor Relations team and we'll make sure we get back to you with a response. Our prayers are obviously with all that's happening in Europe right now and staying really focused on executing and having a great quarter as we start off what is looking like one of our best years to date. Thanks, everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.