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Since the publication of my Initiating Coverage article "Amyris: The Perfect Storm" ("IC") on 2/3/22 (which I highly encourage you to read as background for this update), Amyris released its Q4'21 Earnings Release which beat Analyst revenue estimates by ~20% and guided to accelerating Consumer Revenue growth: Dimethylmethoxy Chromanol Suppliers
The headline statement was clear:
This proved to be a welcome respite from the Q3'21 revenue miss resulting from global Supply Chain issues and a Perfect Storm of events.
The Analysts in attendance (despite macro-economic forces ranging from Covid shutdowns, inflation, rising interest rates, recession, supply chain constraints, and escalating global conflicts) have since responded in kind by maintaining favorable price targets, relative to current share prices, reflecting triple-digit return opportunities:
On the earnings call, Management provided 2022 guidance stating:
Based on verbal commentary during the call, we can triangulate on a range of scenarios for Management's 2022 forecasted revenues buckets:
Author Analysis of Management Commentary
Sensing that Management may be overly cautions, Analysts questioned the likelihood of "sandbagging":
Is this guidance like the – is there a sense of cushion baked here
- Dan Brennan, Cowen Research Analyst
Management was quick to temper Analyst expectations in order to start the journey towards "under-promising" and "over-delivering" and responding:
If you get burned a few times, you learn quickly, so you can imagine we have quite a bit of cushion in our guidance
As a result, Equity Research Analysts have since revised their estimates reflecting the lower end of Management guidance for both Q1'2022, 2022 and through 2025:
Author Compilation of FactSet Data
You will note, even with the revised estimates, the prior price targets remained strong as the performance of Amyris is showing signs of accelerating improvement with the CEO providing further assurance in a recent conference call with Jefferies' Equity Research Analyst that there is a "30% cushion" baked in should headwinds arise.
On the geopolitical front, Amyris has no direct exposure (e.g., labor, supply chain elements, or customers) to events in Russia and Ukraine.
Interestingly enough, consumer products in the beauty care markets have often shown surprising resiliency during recessionary periods as evidenced in the "Lipstick Effect":
Global Research on Beauty Care, shows that the Global Beauty and Personal Care Markets have proven resilient and expansive:
Even now, the Prestige Beauty segment continues to grow by 19% in Q1'22, per NPD Group.
Amyris is mitigating supply chain risk by building up significant safety stock (six-months' worth of critical path/long lead-time items such as: pumps, bottles, and containers) which, by the end of Q2, will cover forecasted sales needs for all of 2022.
This "just-in-case" inventory management philosophy will deplete cash reserves temporarily throughout Q1'22 and Q2'22; however, this is not "cash burn" (just conversion) and Amyris should see relief in Q3'22 and Q4'22 as the prior buildup will slow down and seasonal growth in sales will convert inventory back into significantly more cash. It is important to note though, that the earlier cost of consumer production inventory from Contract Manufacturers ("CM"s) vs. Amyris-manufactured product may weigh down margins throughout 2022 until older inventory is cleared out depending on the form of GAAP accounting treatment applied (e.g., FIFO).
In light of the November-22 convertible debt offering and our analysis of both our own and Equity Analyst' financial projections; it is unlikely that Amyris will need to raise additional debt or dilutive capital for the standard course of operations (unless there is a strategic purpose involved).
It is my opinion that Management was opportunistic in its read of the 'tea leaves' in anticipation of rising interest rates and the need to deploy working capital to build up safety stock in the face of tightening supply chains. I believe history, in time, will look back and laud the decision (if not the timing and messaging) to raise a sizeable $690MM cash-cushion at an effective 1.5% interest rate.
In trying to estimate Q1'22 Consumer Revenues, we can analyze the Direct-to-Consumer ("D2C") Shopify order data by Brand as a proxy for estimating revenue (note: there is a margin of error, which does not reflect seasonal or annual changes in average daily order sizs, which I estimate to be +/-10% based on historical results).
Revisiting the Q4'2021 order dataset we discussed in our prior article, we can see that the flagship brand, "Biossance", performed well with notable new 2021 entries ("JVN" and "Rose Inc.") close behind:
Author Analysis of Shopify Data
It is important to note that Q4 historically is the seasonal peak quarter for the beauty-care sector for the calendar year (with increased demand upwards of between 50% to 70% relative to Q1, which is seasonally the weakest quarter).
Given Management's recent February statement:
We continue to execute well across our business and expect the first quarter to be our strongest consumer revenue quarter yet.
I thought it wise to examine the web traffic history for the core D2C brands to see if directionally they matched the claim:
In all cases, the trend throughout Q1'21 confirmed the CEO's statements. The next step is to see if we can further validate the orders themselves to triangulate on a revenue estimate.
We updated the prior D2C monthly analysis for January'22:
Author Analysis of Shopify Data
We noted two key standouts: JVN and MenoLabs have both 'taken-off' in Q1'22, performing well-ahead of expectations.
JVN has benefited from the success of the brand's influencer and namesake, Jonathan Van Ness, leveraging his shows, "Queer Eye" and "Getting Curious", to catalyze growth.
Jonathan Van Ness is continuing to make headway domestically and internationally and recently expanded his slate of representation with UTA last month which will further expose the JVN brand to films, TV, comedy touring, and podcasting in addition to his just launched memoir: "Love That Story: Observations from a Gorgeously Queer Life". Additionally, Queer Eye Season 6 is set to launch towards the end of the year, with the run up to the season premier likely to generate a sales buzz going into the seasonal peak.
Based on our estimates, JVN's order volumes may reach Biossance 2021 equivalent order volumes by 2023.
This is a home-run and far beyond management's expectations, having set the record as the fastest-growing hair brand according to Sephora.
JVN launched in March/April'22 into multiple retail prestige branded stores (i.e., expanding into an additional 300+ Sephora stores in the United States and Australia and ~74 Space NK stores in the United Kingdom and Ireland).
The Space NK launch is interesting in that it parallels a recent partnership announcement between two strategic Amyris partners: Walmart and Space NK who recently joined together in a Prestige Beauty venture called BeautySpaceNK which will focus on skincare, makeup, haircare and bath & body (including plant-powered products). The initial launch was on March 15th on Walmart.com with >600 products from 15 brands with more to come throughout the year as the launch extends into over 250 Walmart (WMT) stores in the summer.
While Amyris has not been cited as a participant (yet), I suspect, given the strategic relationships with both parties, that Amyris will be joining the party soon enough. Walmart is not wasting any time in plowing ahead into the category with specialized efforts such as the promotion of female black-entrepreneurship with the recent announcement of the iconic hair brand of Madam C.J. Walker.
It would not surprise me if another JVN-derivative "mass market" sibling product, with a new Amyris brand marketer/face, would find itself on the shelves of a Target or Walmart-type chain later this year (there are already a growing number of "hints" of something in the works).
Looking outside the North American and UK borders, we may expect additional JVN launches (as well as Rose Inc and Costa Brazil) this year into Brazil, Europe (e.g., Portugal) and, possibly China, as the retail expansion of the brands continues to fuel brand awareness, consumer retention and product suite development.
Melo, previously has since indicated a reinvigorated interest in China as a result of an accelerated appetite for all-things-clean beauty oriented such as Squalene and Hemisqualene and recent changes in restrictions/rules governing animal testing as well as .
It is no surprise that two recent executive hires, Anne Myong and Mike Rytokoski, both have significant Chinese backgrounds and connections. Amyris will pursue a similar three-pronged "go-to-market" strategy with identifying a D2C strategy, the right strategic retail and cross-border transaction partner(s). I expect more details to come later this year on the China expansion (which is still early stage relative to the Americas and Europe) of Biossance, Rose Inc., JVN and possibly other brands in the months to come.
It is important to note that Amyris is rapidly evolving its relationship with retail "brick and mortar" global partners such as Walmart and Sephora from simply a "vendor" asking for acceptance of Amyris' product, to a strategic relationship where both parties are collaborating on how mutually best to help each other drive sales on a global basis and an ever-expanding product suite.
This "fly wheel" is leading to levels of growth on par with peer comps such as "Olaplex", which saw ~112% growth in sales YoY in 2021 and is already a ~$10Bn brand with ~$600MM in sales.
Using our figures from Q1'22 and the known BaM rollout plans, I estimate that the JVN brand, for 2022, is on target to achieve >$30MM and >$20MM in sales through D2C and BaM channels, respectively.
Newcomer to Amyris' portfolio is MenoLabs.
In my prior article, I expressed concern about Management's guidance towards $30MM in revenues for 2022 for the Menopause vertical. The lack of information led me to severely discount the ability of the firm to achieve this target.
Subsequent research and adjusting for seasonality, indicates that MenoLabs is experiencing a rapid pick-up in order volumes and customer adoption and awareness and remains on-track with a current annualized run-rate of over $10MM in recurring revenues (accounting for seasonality in both D2C and Amazon (AMZN) revenues: the two primary distribution channels in conjunction with its mobile community application).
The D2C order volumes (above) and web-traffic data (below) further lend credence to the trajectory of this recent growth upon the closing of the acquisition:
On the most recent earnings call we also learned that the previously announced Naomi Watts partnership has settled on a menopause brand name, "Stripes". which is expected to launch in August/September catering to skin, hair and intimacy needs.
On the retail side, we expect that the Stripes brand will lend itself to Amyris' existing prestige-oriented retail relationships such as Sephora or Space NK as menopause treatment awareness accelerates across the more sophisticated adult female demographic.
This new brand will serve as the "prestige" menopause brand category comprising of variants of the MenoFit product lines (which are part of the MenoLabs brand).
Amyris may leverage a broad variety of molecular structures found in its portfolio library such as Ectoin (e.g., addressing hot flashes and vulvovaginal conditions: vaginal atrophy/dryness/itching), Sclareol (e.g., mimicking the effects of estrogen and effective at reducing symptoms of menopause such as hot flashes), and/or Squalene/Hemisqualene (e.g., skincare).
On the retail side, this product will be distributed through Sephora, Space NK and a D2C branded website. If it performs as well as the 2021 product launches, we may see mid-single digit millions in sales in the latter part of the year.
On the other hand, the MenoLabs brand will likely target the mass consumer market for their products (e.g., the MenoFit flagship product, focused on probiotic nurtured wellness, will incorporate Squalene for gut health). On the retail side, it would make strategic sense for MenoLabs to target a national retail drugstore/pharmacy chain (e.g., Walgreens, CVS) which can open potential access to thousands of new doors (i.e., 8,904 and 9,854, respectively) nationwide generating several million dollars in BaM sales in the first year alone.
My "gut" feeling is that the MenoFit product line will likely be AMRS' initial entrée into the Wellness portion of the "Health & Wellness" through 'ingestibles' (e.g., Probiotics/Squalene).
"Gut" Research from a Portugal collaboration last year supports that effort:
We expect to see near-term progress over the coming year on both the D2C and Retail fronts as the official launch will likely occur in a similar timeframe as last year's "brand launches" (i.e., August or September).
We estimate that these new menopause brands can add an additional ~$5MM (+/- $2MM) in the 2nd half of the year (in line with prior brand performance efforts and accounting from an existing customer platform base).
The Menopause vertical will be AMRS' lead effort of the brand launches this year and the $30MM target has transitioned from being a far-fetched idea to being well within the realm of possibility.
Joining the all-star line-up, February has seen a resurgence in Biossance order volumes taking off by >35% MoM:
This has been, in large part, due to promotional efforts with regards to Biossance's celebration of its 5-year anniversary (similar to their 4-year anniversary efforts).
While these promotions are short-lived, they have a lasting effect by introducing the brand to new customers who oftentimes become a valuable annuity and referral channel.
While we expect to see Biossance's webtraffic, like many of the brands, to level off in Q2 and Q3, we expect this to be balanced by ongoing Brick-and-Mortar ("BaM") expansion both:
March concluded the quarter with a strong finish for Biossance and continuous steady growth in average daily orders from Pipette, Rose, Inc. and MenoLabs.
Pipette is rapidly penetrating major retail chains in the US and Canada with launches in Q1'22 into Walgreens (WBA), Bed Bath & Beyond (BBBY), Target (TGT), and is now rolling out into Walmart in 2022:
Rose, Inc. is also gaining ground having launched in the U.S., Canada and the UK into Sephora (Q4'21) and Space NK (Q1'22) with further plans to expand into Brazil, Europe (e.g., Portugal) and potentially Asia this year:
Now that we have produced an estimate for the D2C side, we can apply estimates based on anecdotes from Management to estimate the BaM portion of the revenues ranging from $12MM to $16MM for 2022:
This results in a total range estimate for Consumer Revenues of $33MM to $37MM.
For the Ingredients segment of the business, we do not see any significant changes during Q1'22 and anticipate that volumes will remain fairly consistent with prior year results throughout the first half of 2022.
As a catalyst for Ingredients' growth in the 2nd half of 2022, Barra Bonita ("BB1"), a Brazilian fermentation-based ingredient manufacturing plant located in Sao Paolo, has completed construction and is in the process of commissioning (e.g., testing instruments and automation protocols), which was the heart of the celebration on 4/11/22 with the Nasdaq Opening Bell Ringing Ceremony.
Amyris NASDAQ Video on Barra Bonita: World's Largest Fermentation Plant (Amyris Celebration Video)
BB1 is now the largest and most advanced fermentation plant in the world with capacity for up to five independent production lines/mini-factories that, in aggregate, are expected to generate >$200MM/year and will be brought online in phases for risk mitigation. Two of the planned lines will comprise 200K liter tanks, while the remaining lines will be smaller tank configurations optimized for molecules such as Patchouli or Sandalwood. The fermentation tanks leverage a special gravity fed direct-flow configuration capable of handling multiple feedstocks and producing fourteen ingredients.
BB1 is co-located next to its strategic partner, Raizen, which is the world's largest sugar cane producer and has the second largest sugar mill globally. Raizen's contracts with Amyris are long-term and prices are set on an indexed basis which takes advantage of currency fluctuations to help offset inflationary concerns.
Amyris expects to begin shipping commercial production of Flavor & Fragrance ingredients by the end of Q2'22 and to continue ramping up production throughout the remainder of the year (i.e., trans-β-Farnesene and Vanillin in Q3 and by Q4, and all remaining ingredients with the exception of Reb M which will be produced in 2023) having reached full production by Q4'22.
In conjunction with this ramp-up, Amyris will ramp-down utilization of ~3 to 4 high-cost fermentation CMs by the end of 2022. This will improve margins significantly. As an example, the ADL Bionatur Solutions in Leon, Spain, incurs production costs that are between 50% to 100% higher than BB1.
Amyris has also announced plans for expanding the productive plant capacity at the Barra Bonita project site through a new project development ("BB2"). The addition and integration of two 600K liter fermentation tank lines (transported from the terminated SMA Industria Quimica Sao Martinho joint venture where they were ordered in 2010) will begin after the start of production of BB1 (i.e., sometime in Q2'22 or Q3'22).
These specialty Farnesene production tanks were held in storage for several years. This will set the stage to more than double the existing capacity of BB1 in preparation for increased production of Farnesene in 2023.
Management has indicated that capital expenditures for BB2 will be significantly less than BB1 (i.e., estimated to be <$80MM vs. the prior outlay of ~$115MM for BB1) as a result of leveraging the existing utility infrastructure which is modular in design. Most of the capital will be used for tank transportation, modular integrations, and utility line extensions. Additionally, unlike BB1 (which Ingredion (INGR) has a 31% economic interest in the production of Reb M), Ingredion will have no participation, interest, or obligations associated with BB2.
Likewise, downstream processing assets will be migrated and co-located with BB1, which will further improve logistics efficiency, provide greater operational control, and reduce production cycle times.
While Amyris will only begin to realize the benefits of these projects in the latter half of 2022, upon stabilization, they will likely have a net benefit on Ingredients' gross profit margins of ~15% (+/- 5%) resulting from vertical integration and operational efficiencies as we progress into the 2nd half of 2022.
Taking all of this information in hand, we can summarize our own Q1'22 Revenue estimate:
We previously noted $39MM in earnouts expected for 2022. However, we now note recent commentary by Management:
This leads to Adjusted 2022 guidance as follows:
Consumer revenues are growing into the largest revenue segment for Amyris. As a result of the higher gross margin profile for Consumer Brands (i.e., ranging from 60% to as high as 70%+ for larger more-seasoned brands such as Biossance) vs. Ingredients (i.e., ~40% to 50%), Amyris' margins should continue to escalate with the change in revenue mix as Consumer revenue growth outpaces Ingredients revenues. However, as increased capacity for Ingredients come on-line from BB1 and BB2, the associated lower margins will somewhat offset that margin improvement.
It is important though to understand how Amyris will scale Consumer production to meet the lofty revenue goals noted above by examining the recent launches of the new Consumer production facilities in Reno and Brazil ("CPR" and "CPB", respectively):
These facilities will unlock multiple benefits:
It's also important to understand that CPB, strategically, provides a significant benefit by reducing tariffs on Brazilian exports to Europe (e.g., from Brazil to Portugal) as a result of the EU-Mercosur Trade Agreement which can reduce tariffs/costs by an estimated 15% or more in comparison to CPR exports.
The theme for 2022 is about laying "bricks" in multiple forms:
Below are additional anecdotal updates on JVs, Brands, and Ingredients:
The chart below is meant to identify what I believe are core milestones (both "expected" and "possible, but not expected") and timing that shareholders should be watching for:
While we expect the first half of 2022 to maintain an elevated quarterly cash burn rate in line with Q4'21 (e.g., due to items such as utilizing high-cost CMs, safety stock buildup, and other factors noted in the chart below), we anticipate Amyris will rapidly progress towards profitability as a number of negative factors are transitioned toward positive opportunities over the next four quarters.
The chart below, arguably the most important takeaway of this entire article, is intended to serve as a visual guide to help understand the magnitude, timing, and directional impact of various factors related to distinct aspects of the core operating business.
The shades of green and red reflect the level of positive or negative impacts, respectively, over the next two years. By understanding these factors, it is possible to appreciate the path to achieving recurring EBITDA and Cash Flow profitability:
AMRS is subject to other near-term risks (i.e., 12-months):
One of my greatest concerns relates to supply chain disruptions as we saw in Q3'21.
Because Amyris relies on a cadre of ~39 contract manufacturers ("CM"s) (34-35 of which are for Consumer product production and ~3-4 of which are for fermentation), its fate is controlled by third parties.
One, ADL Bionatur Solutions in Leon/Spain, a temporary ingredient producer for Amyris, has been impacted by the war as a result of rising energy prices and union-driver strikes. Amyris is engaging non-union workers to manage through this, and it will not likely affect Q1 results. Ultimately, management is working hard to de-risk this by building safety stock and transitioning third-party manufacturing and production to in-house operations as fast as possible (as evidenced by the surprise announcement of the CPB). I believe this risk is short-lived and will be de-risked in large part by the 2nd half of the year.
Another risk is the lack of visibility on the earnouts. While earnouts are "one-time" in nature, both the earnouts associated with the DSM (OTCQX:RDSMY) and Ingredion relationships are three to four years in length and, combined, account for up to $280MM in value. Management has fluctuated on the nature and structure of the earnouts (with 2022 guidance pointing towards a DSM earnout of $39MM when it had been noted as $50MM a few months earlier, and there remains no mention or clarification on the status of the Ingredion earnout). The annual earnouts from both these entities will play a key part in driving the ongoing growth of Amyris for 2023 and should be clarified.
As Amyris continues to develop a growing portfolio of beauty care and health & wellness products alongside strategic relationships domestically and internationally, it is quickly transforming itself into one of the leading and fastest growing Consumer Product Group ("CPG") companies in its category.
The duality of being both a Synthetic Biotech and a leading CPG company will present a quandary to investors on how to value the firm.
As time goes on, we anticipate Amyris will be valued as a "Sum of Parts" but heavily weighted towards CPG valuation metrics as the bulk of its business stems from that area. As such, I expect the company to start reporting on traditional CPG metrics (same-store-sales, customer retention, LTV, new doors, customer acquisition costs, etc.).
Today, Amyris trades well below the fair value of its three core brands (i.e., Biossance, JVN, and Rose, Inc.). This implies that the value of its technology, partnerships and other products are "icing on the cake".
As such, Amyris remains one of my top five stocks, and I fundamentally believe that the potential for triple-digit returns noted by the Analysts earlier can be realized in the year to come.
This article was written by
Disclosure: I/we have a beneficial long position in the shares of AMRS either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Hydroxypinacolone Retinoate Additional disclosure: We truly pride ourselves on conducting extensive primary & secondary research, analyses, and/or interviews with Senior Management, Partners, and/or Customers in order to identify and vet undervalued investment opportunities. That said, we aren't always right and these are just our humble opinions. We always encourage everyone to do their own homework and research and as the saying goes... BUYER BEWARE. In the meantime, Happy investing!