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Welcome to the Amyris Fourth Quarter 2019 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 conference over to Peter DeNardo, Senior Director of Investor Relations and Corporate Communications.
Good afternoon. Thank you for joining us today. With me today are John Melo, our Chief Executive Officer; Eduardo Alvarez, Chief Operating Officer; and Jonathan Wolter, our Chief Financial Officer.
Please note that 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 for as 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 ROTH Conference that we are scheduled to present on Monday has been canceled for all companies due to global circumstances pertaining to COVID-19. Amyris will hold scheduled one-on-one meetings with investors by a teleconference. Before we begin today, 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?
Thank you, Peter. Good afternoon and thank you for joining us today. Joining me today are Eduardo Alvarez, our Chief Operating Officer, who will share operational performance highlights and key steps we have taken to reduce our cost of goods sold and operating expenses towards achieving cash flow positive operating results. Also, Jonathan Wolter, our Interim CFO, who will review our financial results.
Before I continue, I’d like to take a moment to sincerely thank Jonathan for his tireless efforts in returning the company to SEC filing compliance this past fall and putting us in a place where we will file our 10-K for 2019 on time. His expertise and his stewardship in his role has been highly appreciated and puts Amyris on the path for keeping belt to start in the CFO role next week with a financial reporting controls and procedures in place to take the company to the next level of growth. We wish Jonathan much luck in his endeavor and I sincerely appreciate his partnership, his mentoring and his time in making our company better.
I’d also like to acknowledge the reality and uncertainty we all face with a global fight against the coronavirus. I know this is impacting all of our lives and I greatly appreciate the attention and interest of our shareholders during this challenging time. During this time, our priority has been the health and safety of our teams, the customers we serve and the collaborators and partners who make up our supply chain. We have been very fortunate to not have experienced a direct business impact to date. We are monitoring the situation very carefully and it is changing daily. Our thoughts, prayers and well wishes are with those directly impacted for a speedy recovery.
Our business is experiencing a very good start for 2020, particularly, our Clean Beauty activity. We deliver a strong fourth quarter and met our critical targets for 2019. We expect another year of doubling recurring revenue with very strong gross margin performance and a significant positive swing to our adjusted EBITDA, which we consider our proxy for operating cash flow.
I’ll briefly review fourth quarter and 2019 results and then focus my comments on our Clean Beauty performance, Health & Ingredients activity and then summarize our road ahead before casting call to Eduardo.
Now let me review our business highlights for the fourth quarter. Total revenue for the fourth quarter was $40.5 million; product and product related royalty/value share revenue was $29.2 million. We delivered on our key targets for 2019. We guided to $150 million of revenue and exceeded this target. We delivered full year sales of around $163 million. That resulted in a GAAP revenue number of $152.6 million. We guided at 55% to 60% gross margin at the start of the year and delivered at 56% on the basis of our reported GAAP revenue.
On a gross sales basis, we were near 59% gross margin. We guided to doubling recurring revenue and we more than doubled for the third consecutive year and are on track to repeat this in 2020. We guided to $50 million to $60 million of Clean Beauty sales and delivered about $55 million. We guided to scaling two to three new molecules and deliver three new molecules at commercial scale.
Our performance is driven by our role as the number one producer of clean ingredients. Our partnerships with market leaders serving high growth consumer markets and are uniquely differentiated Amyris brands that are delivering what consumers are demanding. The result is that for 2020, we are entering our third consecutive year of doubling recurring revenue, which includes all revenue that has a multi-year contract and revenue from our consumer brands.
Now I’ll focus my commentary on our two focus business activities of Clean Beauty and Health & Ingredients. Biossance delivered a record quarter and more than doubled year-over-year sales in the fourth quarter. Our return on advertising dollar invested was at $5.43 for the fourth quarter, our best quarter-to-date. Our Clean Academy initiative has become a source of leadership within the beauty industry, as the standard for defining Clean Beauty and educating consumers. Consumers in Sephora Love Biossance. The brand received multiple awards during the year, including Digital Innovator of the Year at WWD, Women’s Wear Daily, which is the bible of trendsetting in beauty and fashion.
This is one of many accolades Biossance received that along with consumer and influence love has put the brand on fast track growth. We added 50,000 new consumers in the fourth quarter and are currently receiving 10,000 new visitors a day at biossance.com. During the year Biossance expanded to multiple countries.
The Biossance brand now serves consumers in 14 countries. Consumers outside North America have been seeking our Biossance products based on the efficacy shared by word of mouth, media impressions and hits and influencer activity. This includes the UK, where we recently launched Biossance on Cult Beauty, the destination beauty platform in the UK for beauty must have, and where some of our Biossance products immediately sold out.
In the Sephora bricks and mortar channel Biossance continues to exhibit solid growth. At year end, we were in 240 stores within caps out of a total of 495 stores for Sephora North America. These stores that showcase the full offering of our Biossance products generate 2 to 2.5 times more sales per store than stores with just a wall display with a few of our products.
Our productivity at Sephora, which is a measure of how Biossance performs in sales per square foot compared to its peers. We hit 135% in December of 2019 compared to 104% for December of 2018. Our current sales per store are about doubled the rate of a year ago. We are also significantly increasing the available space to sell and the number of stores with our full offer.
Normally, within the cosmetic and skincare markets, sales dropped following the fourth quarter and they are substantially elevated due to holiday gifting. Our first quarter to date has been outstanding. We are now generating $9.0.2 of revenue for every advertising dollar invested and have reached the store productivity inside Sephora of 205%.
Biossance revenue is currently running at 254% to the first quarter of 2019. And biossance.com is at over 300% growth to last year. Biossance’s performance is garnering support for the brand from Sephora. Sephora has begun its biggest store expansion to date with 100 stores planned to open for 2020 alone. These stores will be smaller and outside traditional malls and in each of them and those plan beyond this year Biossance will be prominently displayed driving even greater sales growth.
With Pipette, our baby skincare brand strategy is distributed across a range of channels is winning. I’m pleased to report that we recently launched Pipette on target.com to broaden our online channel. Pipette is on track for around $6 million of revenue this year making its first full year about 50% better than our first full year of revenue with Biossance.
Also in Clean Beauty, our hero ingredient Squalane had record volume in 2019. Brands are finding that our Squalane is the highest purity at the best value, but also that it’s improving the efficacy of active ingredients in their formulas. The result is that we have captured a majority position of about 60% of the global Squalane market. We are successfully expanding the global market in size for Squalane, while continuing to grow our share. Squalane alone as a single ingredient is approaching $30 million in annual sales.
Clean Beauty delivered around $55 million in 2009 sales and is tracking for about $130 million of gross sales in 2020. This 2020 gross sales number represents about $90 million of 2020 expected GAAP revenue. The difference between the GAAP revenue and the gross sales is the discount to our wholesale channel. Most of that is really to Sephora.
Let me take a few minutes to cover our Health & Ingredients business. Our ingredients are mostly supplied to the flavor and fragrance industry. We have a strong year in 2019 and we expect a more than double ingredient sales in 2020 to over $50 million in revenue. The 2020 growth to the flavors and fragrance industry is half from continued growth of existing ingredients and the other half from new ingredients that are experiencing their first full year of sales.
We continue to have a strong pipeline of new ingredients in the flavor and fragrance industry and enjoy a deep and strategic relationship with Firmenich and Givaudan, the two leaders in that industry. And the health and wellness part of our business, we are focused on our zero calorie natural sweetener from sugar cane, pure cane and the launch of our Cannabinoid activity with our partner LAVVAN. We have also advanced with a breakthrough solution to address the need to significantly increase the supply of flu vaccines. I will cover this in a few minutes.
Since we launched our sweetener, we have sampled about 180 customers with 48% of this group actively engaged in formulations or purchasing the product. Our best performance to date has been Latin America, where 96% of the sample product specs have decided to formulate or start purchasing the product. We are scoring major wins across the Latin American marketsm, including Brazil and expect to remain sold out until late 2021. We are continuing to work with new brands as it takes time for adoption and we are focused on selling out our new factory before it’s built.
The new factory I’m referring to is the sweetener factory, not our specialty ingredients factory, which we expect to open in the first half of 2021. Our other significant market for health and wellness is our cannabinoids development and relationship with LAVVAN. This continues to go very well. We are expecting to scale our first two molecules this year working through our partner LAVVAN.
We are very excited about our discovery of Squalane as the leading chassis for CBD formulations. We believe this has the opportunity to become the leading oil for topical CBD applications and had been responding to a significant number of inquiries from the market since making this information public. We view our natural sustainable Squalane as becoming the leading platform molecule for the beauty industry and view the CBD opportunity as another example of how powerful this ingredient is to making all formulations better for the consumer.
In addition to our Squalane breakthrough, we’ve also had some initial insights on CBG as a breakthrough Cannabinoid. And are currently in active clinical testing with one of the leading skin labs in the world, stay tuned for learnings that could be transformative for our use of CBG and skincare and topical applications, of CPG and for the success of our partnership with LAVVAN as they commercialize these ingredients.
In 2019, I was invited to the White House along with other industry leaders to discuss the strategic role of synthetic biology for the United States. One of the major focus areas from several of the government agencies was the significant concern in the White House at the time to the risk of a major flu pandemic and the need to make available significant volumes of flu vaccines in case of this pandemic.
After this briefing, I came back and explored with our team what we could do to help solve and support the needs of our government. Outside of the beauty market, shark liver based Squalene, not Squalane, but Squalene is used in the pharmaceutical industry for adjuvants. Adjuvants are used with vaccines and they help to essentially turbocharge the human body’s effective response to the medication within the vaccine being administered.
Almost think of it like a carrier. It’s almost the same example that we discovered that Squalane is the best carrier oil for CBD. Think of Squalene as the best carrier for vaccines to the human body. We have been working on a program with the Infectious Disease Research Institute or IDRI to evaluate the use of our sugarcane Squalene for adjuvants. IDRI in prior years as received funding from the Bill & Melinda Gates Foundation with a focus on increasing the availability of vaccines to save lives.
This is usually important in light of the current pandemic and we are engaging the relevant stakeholders to help support our acceleration of scaling and achieving regulatory approval so that we could meet the short term needs for significant availability of flu vaccines. We would like to be ready to support the deployment of a new coronavirus vaccine if and when it becomes available. Squalene has been used in over 200 million doses of flu vaccines since 1997. it is one of the best performing adjuvants you can use in delivering a vaccine and is limited in its use due to its limited availability and limitations of being animal source; shark source Squalene is also very expensive. Sugarcane-based Squalene can be 80% lower costs and can be made available than unlimited quantities when needed.
The initial test data from IDRI has demonstrated our sugarcane-based Squalene as an adjuvant delivers equal to or better performance than shark-based Squalene without the potential harmful impurities of the shark-based material. We think our Squalene could have a vital role in saving lives just as we did with our anti-material – anti-malarial application with artemisinin. This is a very similar approach to the role synthetic biology can play in global health as it did with our anti-malarial treatment and we are focused on making this a reality.
from a regulatory approval perspective, we believe this would be treated by the FDA as a biosimilar and our approach would be to fast track regulatory approval to ensure we can be part of a solution to deploy very fast deploy A vaccine when it’s available for the current pandemic.
Let me transition. We started the year with very strong operational performance and have taken another step to improving our balance sheet. Since the start of the year, we have successfully raised $57 million, mostly from the long-term investors. We continue and most of that was equity with a portion of that being warrants converted to equity. We continue to have very strong support from our long-term holders. Some of these long-term holders are on our board and are aware of the traction and transformative performance we are delivering across our core markets.
We also reduced our debt by about $70 million during this period. We are doubling down on clean beauty, and sustainable health and ingredients. These are markets, where we have significantly advantaged technology platform molecules and some of the world’s leading brands. These are markets that are resilient from periods of market recession. We are improving our adjusted EBITDA by over $100 million between 2019 and 2020.
We expect half of this from cost improvements and reductions, and the other half from market growth or sales growth. The cost reductions and improvements are about 60% from improvement in cost of goods, mostly from our increasing production that brought us with our partner and major shareholder, DSM. Eduardo will cover this in more detail. The other 40% from reduction to opex, we are already realizing traction on both of these. We are experiencing about an $18 million swing in first quarter gross margin to the positive from last year and our OpEx is slightly better than our plan for the year.
So, what are our key targets for 2020? First, we expect $220 million or better in total revenue for the year. We have $20 million to $40 million of upside that is not included in our minimum guidance as we have focused on removing uncertainty from our 2020 targets. We expect our gross margin to be between 60% and 70%. We expect a commercialized two to three new molecules. We have not experienced any material direct impact from the coronavirus pandemic. We did have a key supplier in China that was shut down for a period and is now mostly back to normal. We had enough inventory at our CMO for the product from the supplier and it did not impact our business. We are monitoring this carefully as the situation continues to evolve daily. We are excited about a solid year of operating performance combined with a better balance sheet and the accounting issues that we faced in 2019 are behind us now.
Let me turn to Eduardo. Eduardo?
Thank you, John and good afternoon everyone. Let me start with a review of our fourth quarter results. We delivered end products for our total production of 1,878 tons versus a plan of 1,400 tons. This was a new quarterly record. Now, let me share three examples of how we did this. We said a new Squalene production record during the second quarter when we reach 300 tons of production. We continued our process improvements and broke the wreck on again during the fourth quarter when we reach 400 tons of production.
for the year, we made 1,345 tons of Squalene, which was 68% improvement over our 2018 volume. Our Hemisqualane, we transferred production from the U.S. to a lower cost plant in Brazil and we also improve how we reprocessed a waste stream and both of these factors helped us reduce our manufacturing unit costs for these products by 25%. finally, we launched our 10th product.
It is a new flavor product delivering the best purity in the market and which is now well-positioned for a scale-up campaign of 90 tons, which we will do in 2020. in total, we produce 3,700 tons in 2019. this represents a 90% increase over our 2018 results. It’s resulting – resulted in a recurring product revenue for our existing products of 60 million and 19% margin. These figures include value share royalties. 2019 is the second year in a row with record year-over-year growth ahead of our targets. If we compare these results to our 2017 production in the last two years, we have delivered over 250% volume growth on the like-for-like basis. In addition, this growth is resilient and recurring, because it comes from existing products with long-term contracts for existing clients and partners.
Let me now spend some time to discussing our cost performance. We improved unit cost for a product in every quarter during 2019. as a result, our product gross margin for existing products increased from 3% in the first quarter to 36% in the last. you may recall, as we said in the third quarter, we focused a lot on unit cost improvements and we can confirm we delivered those results. We doubled our product margin from the third quarter to the fourth quarter.
I would like to take a few minutes to explain how we deliver these improvements. As John mentioned, we first focused on improving our production footprint, finished the year with over 95% of our production deployed to our lowest cost location, including Brotas. In the first quarter of 2019, only 70% of our production was spaced at those locations. We also implemented significant process improvements. Let me share an example of that. If you look at the improvements in Hemisqualane, HP Fene and RebM, our sweetener, if you were able to reduce unit costs for these products by an average of 30% throughout the year.
As I mentioned, we delivered a 90% volume growth, which has meant like larger, longer, bigger campaigns for most of our products. As a result, we are seeing synergies and economies of scale typical of a growing production business. Most importantly, we know all three of these improvements will serve as a foundation that will continue in 2020 and beyond. For the next year, we plan to run 11 production campaigns, which will deliver 4,200 tons and product revenue of about four $144 million with a 40% product gross margin. Again, these figures do include value share royalties. We have secured the capacity at these lowest cost facilities for the year and expect that over 95% of the production for 2020 will be at those facilities.
By the end of the 2019 production year, we were also able to build about 800 pounds of inventory, building this inventory did cost us about $26 million in cash, but it also allowed us to get a real fast start to 2020 as John mentioned, and we are in a pace to sell the rest of these inventory by the second quarter. We’re also accelerating our production scale-up. For example, if you look at the new flavor and fragrance products that we introduced in 2019, we expect large production campaigns for both products. These campaigns will be about 50 times larger than our initial production campaigns for each three in 2019.
in addition, as John mentioned, we’re continuing our growth over purecane sweetener and in 2020, we are planning a four-fold production increase of those volumes and looking into our clean beauty business, Squalene production in our first quarter of 2020 is going to exceed 500 metrics done during the quarter and as I just told you, this will be another record and 25% more than what we just reported for the fourth quarter.
Beyond this great start on growth, we’re also building on the unit cost progress as we did in 2019. our themes have concrete plans for cost improvements for four additional products already in place and the results of these actions will help us deliver positive EBITDA by the second half of 2020.
Finally, let me close by looking ahead and summarizing our priorities for 2020. First, is competing our plant due to our permitting and funding activity. construction was delayed by about four months. Progress in 2020 has gone well and we are doing the civil work at present for the project. We are targeting startup during the second quarter of 2021. second, we will focus on executing 11 production campaigns to deliver our 2020 production volume.
This will deliver both high growth and the continued performance at unit costs and margin improvement as I just reported. as I mentioned, we have secured the production capacity we need and these campaigns are based on proven and existing products. Our teams have high confidence that we will continue to execute against those campaigns with excellence. Third and finally, we will also focus on delivering three new products. We are on track to execute on the plan to work with LAVVAN and produced two cannabinoid molecules in the year and we also planned to introduce the new cosmetic ingredients.
Let me close by saying that with 2019 now behind us, we are very excited to deliver an even better and more successful 2020.
now, let me turn the call over to Jon.
Thank you, Eduardo. As I begin, I’d like to observe that since achieving SEC filing and NASDAQ compliance last fall, we expect to file our 10-K timely and by the required deadline of no later than March 16. now, for the sake of simplicity, during my review of our fourth quarter results, I will refer mostly to rounded millions of dollars.
Let’s start our review. GAAP revenue for the fourth quarter of 2019 was almost $41 million compared with approximately $16 million for the fourth quarter of 2018. product sales were approximately $19 million versus $12 million in the quarter a year ago. License and royalty revenue of approximately $11 million are directly related to these product sales and the $11 million is substantially higher than the $74,000 reported for the fourth quarter of 2018.
Grants and collaboration revenue of $11 million was also significantly higher than the $4 million for the same period of 2018. non-GAAP gross profit of $23 million or a 55% of total revenue for the fourth quarter was certainly higher than the $4 million or 25% of total revenue for the year-ago period. This was due largely to higher product sales and overall revenue and product mix, as well as improved manufacturing and cost efficiencies that were realized. We had noted earlier that these factors would lead to improvement in Q4 and the commercial teams together with Eduardo when his team succeeded.
Sales, general and administrative expenses were $34 million compared with $26 million for the fourth quarter of 2018. the increase reflects higher headcount to support growth, investment in our Biossance and certain one-time expenses for professional fees to assist in resolving the company’s non-compliance status during the year. The non-compliance expenditures comprised several million in expense and are now behind us. We are very focused on budgeting and managing overall operating expenses as a key part of our goal to attain cash flow positive results for 2020.
research and development expense of $15 million for the quarter, declined from $19 million for the fourth quarter of 2018 resulting primarily from reduced consulting expenditures and reduced equipment rental related expenses.
In closing, I’d like to say thank you to Amyris’ investors, partners, and suppliers for their support during 2019. I’d also like to thank the Amyris team for their hard work and professionalism during what was certainly a challenging year and a year in which we brought the company back into SEC filing compliance while navigating debt and financing hurdles. I’ve greatly enjoyed working with this team and I’m honored to have the opportunity and I again, thank you.
John. I’ll turn it back to you.
Thanks, Jonathan. It’s taken us a lot of work and time to rationalize our portfolio for profitable growth after some painful years for exiting the biofuel space. today, we’ve got the best performing portfolio in synthetic biology, and we are delivering what we believe to be the leading revenue growth and gross margins in our sector. With this portfolio and product mix, we believe our business is capable of producing adjusted EBITDA margins of around 30% or better and we expect to reach this level around the end of 2022.
to get there during 2020, we are focused on two key things, executing on delivering our recurring product revenue and keeping our focus on product and operating cost reduction. We expect to generate positive operating cash during the second half of 2020. Thank you for your continued support of our mission to deliver the best performing sustainable products and ingredients to the masses and our quest to enable a healthier planet.
Keith, can we now open the line for questions?
Yes, certainly. [Operator Instructions] And the first question comes from Colin Rusch with Oppenheimer.
Thanks so much guys. One, could you talk about your visibility to actually collecting payments from LAVVAN at this point in your process with them for identifying their cash on hand for those payments?
Yes. All the work we’ve done to verify their ability to pay and their commitment to pay has been confirmatory. We don’t expect an issue with receiving payment from them. And we expect that to happen over the next, I’d say, four to six weeks as we work through the validation process that they have for accepting the milestones related to those payments.
Perfect. And then – and looking at the flu vaccine, obviously, that’s an exciting development that’s incremented to our understanding of what you guys are up to, but certainly, a part of the DNA of the organization. Do you have any visibility to revenue at this point or is it just a – at this point, a capability to facilitate the solutions on that front?
Look, I think it it’s all based on our ability to get regulatory completed during the period and that’s somewhat out of our hands, right? I think if in fact it’s a solution that could enable why do you have – of a flu vaccine, whether new or existing hopefully, we can get the support to an accelerated path to regulatory. if that occurs, I think this could be $20 million to $30 million of upside in our revenue plan, but it’s not something, again, we’re – we’ve put in there, nor is it an expectation we’ve set until we really get to regulatory.
That’s very helpful. Thanks so much guys.
Thank you. And the next question comes from Amit Dayal with H.C. Wainwright.
Thank you, guys. Good afternoon everywhere. On the flu vaccine topic, John, is this an organic effort or are you partnering with anybody outside of the firm to bring this to market?
It’s organic at this point. We own it.
I’ve missed it. And what kind of investments do we need to make over here to keep this moving forward?
We – and I want to clarify that last answer. It’s, we own it as far as the adjuvant part, you’ve got to think about the adjuvant as anywhere from one third to two thirds of a vaccine and think about it as the vaccine itself is the active and then the adjuvant is the chassis. And typically, in these flu vaccines, there are two components to the chassis. There’s Squalene and there’s vitamin E. It’s actually a form of vitamin E that’s used in vaccines. That’s how to think about what this is. And the swing volume, the one third to two thirds is all based on availability and what the efficacy level slash what is the actual active and how do you package it for delivery. So that’s – when I say we own it, we own the adjuvant part.
So, we would be supplying our component to somebody, who is the vaccine owner or developer and then they would be delivering the vaccine. So, we would be an ingredient just like we are in lots of our other businesses and just like we are in the anti-malarials. So, the anti-malarial is the best proxy for what this – what this actually looks like. as far as investment, we don’t see this as a significant investment, I mean it’s technology we have now, there is some additional purification work that needs to be done is chemistry. And then really, the work is the regulatory part. And that part, when I say, engaging the community, it’s really about discussing with a few folks, who was best suited to help partner with us to take on the regulatory challenge. We have the initial test data back, the initial test data is actually quite positive. So, for us, this is really about fast tracking regulatory and not about a major investment as much as playing in a key role with whoever develops or is ready to go to market with the actual vaccine.
That’s good. And then moving onto Biossance, you’re hitting targets that are pretty strong year-over-year in terms of the growth you’re achieving. Is this going to continue being sort of a core part of the Amyris story or are you looking at other ways to maybe monetize this from a strategic optionality perspective. I’m just trying to get at this, given that this is not becoming such a big business line for you and it has the needs of marketing, branding, et cetera, which are also growing along with the revenue growth. What are your plans to continue keeping it for the next few years? Or are you looking at ways to maybe exit this and monitor it?
Yes. As you can tell from the results, actually from a return on advertising spend and a productivity at Sephora, it would indicate we’re one of the industry’s best at marketing to the consumer. I don’t think there are many brands that achieve the level of performance we are and the growth rate is phenomenal. I mean, we’ll actually be – when I think about our consumer business over $90 million in consumer sales this year in our – really our fourth year of doing this. So, this is a real core activity for us that we see building around. So, I don’t see this not being on the portfolio or monetize, if anything, I see is becoming clear leader in Clean Beauty in the real traction to clean up the beauty industry and doing it by continuing to engage and deliver on the consumer need.
We do have other assets in our portfolio that are monetized with that and we are in discussion. So, you can expect our portfolio to continue to get focused and continue to get focused on what we do best. And in stuff that is interesting, the technology does well, but we don’t have full route to market or we don’t have a way to fully build a business around we are likely going to monetize and we are in those discussions now. So, we didn’t guide to that, but that is that are – those are our conversations we are actively involved in.
Understood. And with respect to the two to three new molecules you highlighted, you’re targeting for 2020, are these associated with LAVVAN or are these some other molecules you’ve been working with other partners?
And these are three fermentation molecules. We actually have several non-fermentation molecules. We’re actually commercializing this year also. I think our total portfolio of commercialized molecules this year, we’ll end up in the four to five level and this is not about new investment. There are about things that are now ready for us to take to market. in the fermentation molecules to or for LAVVAN. And one of them is a new – a really, really interesting and very significant skincare ingredient that’s actually done for our partner, Givaudan.
Got it. Just one last one from me. Can you give us the more current cash and debt level though?
Yes. I think there’s a table in the deck that reflects the debt level as of January 31, I believe. Is that right, Peter?
Right.
And then regarding the cash position, I think you’ll see in the K with the end cash flows, which was not a lot for the year, but we’ve added $57 million. Is that what’s the number?
Yes. $57 million so far this quarter.
$57 million so far this quarter. So, I think at this point, I would say we have cash on hand to get us through hopefully, the positive operating cash that we expect from the business including our receivables, obviously.
Okay, good. That’s all I have guys, thanks and I’ll follow up offline. Thank you.
Great. Thank you.
Thank you. [Operator Instructions] And the next question comes from Randy Baron with pinnacle.
Hi guys. Good afternoon.
Hi Randy.
I just have a couple of administrative questions. I wasn’t able to open any slides, so can you just let me know what that debt number basically, what is cash, debt and shares today? And the reason also the corollary, which is if Biossance is growing as well as it is, which is great. What is the cash burn per month currently? Because I assume that went up.
Well, cash burn for Biossance in the first quarter will be very minimal. Again, the brand in the quarter is just about generating positive cash. The cash for the quarter is not expected, the cash burn for the quarter is not expected to be up from the fourth quarter. And then the debt number, Jonathan, you want to cover the questions on that.
I believe, Randy, the question is what is the debt today; the total debt today is approximately $120 million – $122 million, and that reflects conversions and/or pay downs during the quarter to date, net of discount of approximately $65 million or so.
And how many shares are outstanding today?
Randy, today, the company’s outstanding shares are approximately 169 million shares on a fully diluted basis.
Sorry. Yes, fully diluted.
Fully diluted is $250 million. And that’s comprising the additional shares reserves for the stock lands, the employee stock purchase plan, which is a nominal amount and shares reserved for conversion in the future of warrants, convertible securities and preferred shares.
Okay. And I understand the cash burn for Biossance is minimal, but what is the cash burn for Amyris as an entity per month today like the month of March is how much?
It should be very close to even in the month of March and for the quarter, we will be slightly better on burn than we were in the fourth quarter.
Okay. And then let me ask one more before I go back in queue. I thought the guidance come in you said was interesting, $220 million or better, but there’s $20 million to $40 million of upside that you’re not including. I just want to understand more about that $20 million to $40 million. Is that the flu stuff you’re talking, is that the monetizing non-core assets to the previous question, what is that $20 million to $40 million, it’s not in the $220 million guides, which would bring it up to $260 million, which would be pretty…
Yes. There’s actually three components and I only counted one when I put that in there. The three components are actually one – there is, I’ll call some elasticity in the amount of cash and revenue we would book for collaborations based on a couple of collaborations that have some stretch in their milestones for this year. So that’s one bucket and that bucket represents the full $20 million to $40 million. The second bucket is the adjuvant, if in fact; we were successful this year, that would represent that amount. And the third bucket is actually the one-time, if we were to monetize one of the assets we’re currently in discussions with. And that could be somewhere in the $50 million to $100 million level. So, we actually have three shots on goal for that stretch and they’re all work in progress. So, I wanted to make sure that we didn’t overstretch when we put out what our guidance looks like for the year.
And my memory of the BARDA 2015 transaction was it was just a few million dollars for the adjuvant. What gives you the confidence that now, size-wise it could be 4X that or 5X that. Is it just because kind of ours is the big thing or how are you coming to that number?
It’s really the number of vaccines that are currently in demand. I think that’s the difference. When the initial number was shown, it was basically keeping Squalene as a small share of the total adjuvant that’s currently used in market. And as you know, there hasn’t been a significant need to increase the use of that number. What we’re talking about now is actually a much greater use of Squalene based on a much lower price and availability in the market.
Okay. I’ll go back in queue, thank you.
Thanks, Randy.
Thank you. [Operator Instructions] And the next question comes from Graham Tanaka with Tanaka Capital Management.
Yes. Hi. Thank you, guys. I wanted to clarify a few things that you’ve been talking about already. The adjuvant – what would be the price of the adjuvant and I’m trying to understand, is this squalene – squalane version of the adjuvant or Amyris version of squalene produced by fermentation?
Yes. it is a squalene version. So, it is exactly what comes from shark except produced from sugarcane.
Okay.
and it would be qualified as a biosimilar.
Okay. is it the same as squalane? I’m just trying to understand that.
Well, there’s two different things. Squalane, and squalene and this is Squalene we’re talking about, not squalane.
Okay. Okay, great. And so you can produce this at the same kind of margins that you’re getting for squalane just roughly?
Double the margins that we’re getting for squalane.
I mean, those are percent margins or dollar per pound.
Well, price points are significantly different, right? These are in the hundreds of dollars per kilo versus in the tens of dollars per kilo for Squalane.
Okay. Okay. So higher – much higher price and therefore a higher dollar margins in the percent margins to be a reasonably high too.
Yes. double the percentage margins and significantly greater dollars, because we’re talking about hundreds of dollars price point, not…
That’s one reason you get to such a large number that could be $20 million plus.
Exactly. And again, $20 million plus assumes a significant penetration and use, right. What it means is that in effect, the industry says we want to use Squalene, because it’s a better adjutant and we want to use it across more of the vaccines going forward rather than only the urgent cases right now, because Squalene is such a good adjuvant. It’s used predominantly in a vaccine that was developed by Novartis; and that particular vaccine is used for high-risk cases, where the vaccine has to be very high efficacy.
And so what are you delivering this. Would you be able to deliver the Squalene at roughly relative to the current shark liver produce Squalene.
It would be the same or better quality for what is about an 80% reduced price point. And at the 80% reduced price point, which still make doubled the margin we make on selling current Squalane at a much higher dollar amount.
Got it. Okay, thank you. Getting away from that particular opportunity, I did want to understand a little bit more about last year and your opportunity for cost reductions. So last year, you had some very significant unusual one time, one shot expenditures for the accounting, the legal and all kinds of other things that related to the SEC filings. Have you estimated roughly what that is? So that we can understand how much of your cost reduction is just the elimination of that particular episode. Thanks.
Yes, I mean the way to think about it is that particular episode is somewhere around the $10 million to $12 million. And then the cost reduction above that, which is another $6 million to $7 million or $6 million to $8 million is all incremental to just the one-time benefit.
So in other words, you have those two together, $20 million just this year versus last year because of the elimination of one-time events.
No, about 18 of which about 10 is one time and about eight is productivity or cost improvement.
So, okay, okay. Okay, thank you. And that’s going to carry over to benefits this year. What kinds of total cost reduction do you plan for this year then, anything beyond that $18 million overhead costs.
No. As we said, there’s a $50 million of cost improvement, which about $30 million of that, a little more than $30 million of that is coming from production cost improvement and about $18 million to $20 million from operating cost improvement, OpEx.
And the $18 million to $20 million includes that elimination of the one time.
Correct.
Okay, great. That’s very clear. Thank you very much for that. Another opportunity that we felt here was potentially very significant is your use of the – that you’ve found that – a study found that Squalane could be used as an accelerator. I’m not sure what the appropriate term is, but for use with CBD. And I’m wondering what that market opportunity is and how quickly you can produce and deliver for that market.
We’re ready to deliver now. We are ready to deliver now. We’re engaged with the demand side customers for that. And we’re working on sizing it now. So I don’t want to put out any numbers until we’ve got a good handle on size. We think we can be a pretty significant share of the oils that are used in CBD. So you can imagine any CBD product in the market would benefit from using our Squalane as the carrier, as the chassis for formulating. So we think we can have a large market share. We think the market’s pretty significant, but we’re trying to size now, the dollar size of that market based on what we’re seeing for response and how broad it can be. I would guess over the next quarter or so, we’ll have a better sense of total market size.
Just as a feeling, what is the end market? Are we value of that? I know you cited a $66 billion total CBD market in a few years. But what portion of it is applicable? This would be just for in lotions or what?
It’s for anything that’s applied on the skin. So, it could be for the things that are used to deal with pain, chronic pain, chronic muscle pain or anything else that’s applied on the skin, not necessarily things that are just for skincare applications.
Okay. And so what proportion that…
What I mean by that is beauty versus over-the-counter treatments that people might get for chronic pain or other muscle pain.
Right. And I’m also wondering if this use of Squalane could be applicable to pharmaceutical and other methods as a way to improve deliverability.
We think it can. That’s part of the – again, I don’t want to disclose the specifics around the testing, but the testing was fairly thorough. This was not just a bench test about what our Squalane could do. And I think we do see broader application. Our focus right now is in the current situation and a current pandemic, seeing if there’s a way to accelerate the regulatory to ensure we could have some impact.
Onto financial, I’m sorry. I’ll turn this over after my asking questions about financials. You’re talking about getting, reaching positive EBITDA in the second half. How long would it take, do you think to go to positive earnings? And I’m not sure if you’ve done that calculation yet.
Look, I think based on maintaining the current growth rate and not messing with our portfolio, I would say that we’re net income positive in 2021.
2021, okay. And then in terms of helping us to develop our models for this year. Do you have rough estimates for revenues by product as a part of your guidance for this year versus last year? Thank you.
We’re really not doing that. I think – if anything, I think I’ve said publicly, Clean Beauty in sales, gross sales would represent about $130 million or so. And that translates to something north of $90 million in GAAP revenue. I think that’s about all I’ve said and we’re really not breaking it down any further than that for this year.
Okay, great. Thank you very much. Good luck, thanks.
Thanks, Graham.
Thank you. And the next question comes from Phillip Schaeffer with Scott’s Cove Management.
Yes. I just have one question. I believe you said that shares outstanding today are $169 million and that fully diluted shares would be to $250 million. Is that correct?
It’s $250 million what Jonathan put out there. Keeping in mind that the majority of that are warrants, matter of fact, yes. All of that except for $15 million are warrants and their warrants predominantly owned by insiders, just about all of them actually.
So that was my question. If the $250 million are outstanding, that would require, of course, the warrants to be exercised. How much cash with the company receive upon the exercise of the warrants to get to $250 million outstanding.
Well, here’s what I would tell you. As of yesterday – this is a moving target, right. As of yesterday, in the money warrants would have represented about $100 million worth of proceeds to the company, slightly more than that. And that’s a moving target, right. So where the market goes as any of our guesses. And then there is a – there are a chunk of these that actually expire over the next few months.
And if the – using that calculation of the $100 million for the warrants would bring in $100 million of proceeds to the company under that situation, how many shares would be outstanding? It would be something less than the $250 million.
Yes, it’s – it would be – and this is again from memory we’re looking at somewhere around or less than $200 million.
Like $190 million or you mean like…
Yes, more like $195 million, $197 million, very close to the $200 million mark.
Okay. So – sorry, go ahead John.
Go ahead, Phillip.
Well I wouldn’t say, so then if 100 – if basically 200 million shares are outstanding, the company would receive $100 million cash. And if you’d get to $250 million, is there like another if the stock was up like another $2 or would it have to go up a lot more in order for that additional $15 million of warrants to be exercised?
Yes, they go in two slices. There’s a slice that I’d say around $5-ish and there’s a slice that I’d say around $7. And they’re pretty much divided evenly, how much come in at $5-ish and how much come in around $7. And it’s not exactly $5 and there were some that are in the $4 range.
Okay. So then the proceeds to the company, if the stock got to be $5, you said it would be about half. So, so half of 50 would be the 25. So the proceeds to the company would be something like 25 million times $5, which would be 125 and $7 times 25 would be would be 175 is that sort of…
Yes, if you take a look at the slices, if all of it converted and if all of it were in the money, it would be more like $240 million, $240 million worth of cash.
And does that include the first $100 million that you had mentioned that gets you to $200 million?
That is correct. When I said the total, it’s taken all of it. If it was all in the money versus the 100 or so, it’s actually like 120, 130 for the – for what’s in the money now.
Okay. So 250 million…
By the way, what’s in the money as of yesterday, sorry, I keep forgetting, what’s in the money as of yesterday.
Yes. So then 250 million shares outstanding would result in the company receiving $240 million of cash, but that wouldn’t happen until the stock gets to be something like seven or a bit more, of course.
Exactly. A chunk of the ones that expire in the next couple of months are the ones that are further out of the money just to give you the full picture.
Okay. Okay. Okay. That’s very helpful. Thank you.
Thank you.
So, Keith. Before we take the next question, this Jonathan. I want to clarify and add some additional information, when Randy asked the question, I provided him actually a subset. Our total debt net of discount at the end of December is 200, I’m rounding now to the nearest $260 million. At the end of this month, it’s $195 million. What I had provided was insider a significant shareholder debt. So the total debt is $261 million at the end of December and today is $196 million net of discount. So you’ve got a full portfolio, both the total debt and what it is held by insiders.
Thank you. And we have a follow-up question from Randy Baron with Pinnacle.
Yes. Jonathan, I appreciate that clarification. But to piggyback on Phil’s question, it begs the question of what are the company’s thoughts with the next phase of the capital raise? What are you thinking given where the stock is currently in? And John, like you’re saying today being not a great day, given the strength of Biossance and how – I think at Cowen, you said it’s going to be worth $1 billion next year. If the current run rate continues, is that – is selling a piece of that back on the table given that it doesn’t seem like you can use your equity at these prices?
No. no, right. We’re not giving up that much value and we agree with you that selling equity at this price, it doesn’t make any sense. Again, we do have quite a bit of support and we are looking at another asset that we think could be interesting to solve some of the cash picture. But again, it’s a – I want to put it in, it’s in the looking stage. I don’t want to leave anybody thinking that that’s definitely the way we’re going to go. But it is our optimal solution. Our optimal solution is there is an asset that is very interesting that’s come up with a strategic partner. We are in discussions and if we can move that forward, that would be part of the answer. And then the other part is, we’ve got a lot of outstanding warrants that if we could get a little bit of help could actually help solve the funding needs of the company.
Do you think that other asset would be resolved one way or the other by call it mid-year? I mean, not to put too tight a number. I’m just curious, are we getting later…
Yes, I think mid-year would be what we’re working towards. So that is exactly what we’re solving for.
All right. And let me just ask a broad question. In the release, you talked about how you’re providing a secure supply of sustainably sourced products. One of the things in this coronavirus moments in time that’s jumped out at me is Coca-Cola talking about how their supply chain from Asia has been directly impacted. Where is Amyris with the Cola players, the generally speaking, when is it possible that we’re going to see you in a soda at some point sooner rather than later.
We are in active discussions. I think I’ve indicated that before and obviously the need is helping that discussion, but we’ve no other guidance at this point.
Okay. And then last question for me on LAVVAN, should we expect this kind of four-month delay between delivery and payment going forward and apparently they may be in a fundraise, where is that fundraising? Thanks.
I couldn’t speak for them and where is the fundraising process. So I’m not going to talk to that. And that’s been independent of their ability and their commitment to pay. I think the timing is not inconsistent, right. I think from us achieving something in the lab to providing the data to the data being validated to them then meeting their payment terms is not overnight. So whether it always takes a long period or not will vary a lot by what the deliverable is. But I think thinking of it the way you just framed is not unusual – will not be unusual.
Thank you.
Thank you. [Operator Instructions] All right. Is there is nothing else at the present time. I would like to turn the floor to John Melo for any closing comments.
Great, Keith. Thank you. Thanks everybody for joining us. I’d like to thank all of you for being on the call and also to – and really helping us as we got through 2019. I think we’re excited about 2020. We’re also very conscious of a quickly moving world and a situation that’s not perfectly predictable. We’re pleased with how our business has been holding up. And we’re excited to get to a point of generating some positive cash from the business and really liked the direction that we’ve been going so far and hope to finish the year where we expect. Thank you and good afternoon to everyone.
Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.