AMYRIS, INC. - Quarter Report: 2023 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended March 31, 2023
-OR-
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Commission File Number: 001-34885
AMYRIS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 55-0856151 | |||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
Amyris, Inc.
5885 Hollis Street, Suite 100
Emeryville, CA 94608
(510) 450-0761
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, $0.0001 par value per share | AMRS | The Nasdaq Stock Market LLC | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☒ | ||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
| Emerging growth company | ☐ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Shares outstanding of the Registrant's common stock:
| Class | Outstanding as of May 5, 2023 | ||||
| Common Stock, $0.0001 par value per share | 369,385,614 | ||||
AMYRIS, INC.
TABLE OF CONTENTS
| Page | ||||||||
| PART I | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
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PART I
3
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
AMYRIS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (In thousands, except shares and per share amounts) | March 31, 2023 | December 31, 2022 | ||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 11,245 | $ | 64,437 | ||||
| Restricted cash | 71 | 71 | ||||||
Accounts receivable, net of allowance of $997 and $995 | 36,842 | 45,775 | ||||||
Accounts receivable - related party, net of allowance of $0 and $0 | 10,836 | 6,608 | ||||||
| Contract assets | 3,872 | 806 | ||||||
| Contract assets - related party | 33,679 | 36,638 | ||||||
| Inventories | 109,021 | 111,880 | ||||||
| Prepaid expenses and other current assets | 38,095 | 40,146 | ||||||
| Total current assets | 243,661 | 306,361 | ||||||
| Property, plant and equipment, net | 189,645 | 182,224 | ||||||
| Restricted cash, noncurrent | 6,135 | 6,090 | ||||||
| Recoverable taxes from Brazilian government entities | 30,189 | 29,472 | ||||||
| Right-of-use assets under financing leases, net | 147 | 152 | ||||||
| Right-of-use assets under operating leases, net | 100,721 | 97,216 | ||||||
| Goodwill | 50,456 | 142,575 | ||||||
| Intangible assets, net | 45,063 | 46,938 | ||||||
| Other assets | 13,662 | 13,904 | ||||||
| Total assets | $ | 679,679 | $ | 824,932 | ||||
| Liabilities, Mezzanine Equity and Stockholders' (Deficit) Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 200,067 | $ | 190,486 | ||||
| Accrued and other current liabilities | 81,068 | 73,565 | ||||||
| Financing lease liabilities | 14 | 13 | ||||||
| Operating lease liabilities | 2,484 | 2,255 | ||||||
| Contract liabilities | 33 | 26 | ||||||
| Debt, current portion | 1,968 | 1,916 | ||||||
| Related party debt, current portion | 185,160 | 118,886 | ||||||
| Total current liabilities | 470,794 | 387,147 | ||||||
| Long-term debt, net of current portion | 675,855 | 674,891 | ||||||
| Related party debt, net of current portion | 77,962 | 97,350 | ||||||
| Financing lease liabilities, net of current portion | 44 | 48 | ||||||
| Operating lease liabilities, net of current portion | 90,986 | 86,195 | ||||||
| Derivative liabilities | 4,140 | 5,403 | ||||||
| Acquisition-related contingent consideration | 2,241 | 34,555 | ||||||
| Other noncurrent liabilities | 5,725 | 7,053 | ||||||
| Total liabilities | 1,327,747 | 1,292,642 | ||||||
| Commitments and contingencies | ||||||||
| Mezzanine equity: | ||||||||
| Contingently redeemable common stock | — | 5,000 | ||||||
| Contingently redeemable noncontrolling interest | 26,058 | 28,892 | ||||||
Stockholders’ (deficit) equity: | ||||||||
Common stock - $0.0001 par value, 550,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 368,524,240 and 364,745,266 shares issued and outstanding as of March 31, 2023 and December 31, 2022 | 37 | 36 | ||||||
| Additional paid-in capital | 2,465,802 | 2,455,567 | ||||||
| Accumulated other comprehensive loss | (56,682) | (64,114) | ||||||
| Accumulated deficit | (3,073,520) | (2,880,178) | ||||||
| Total Amyris, Inc. stockholders’ (deficit) equity | (664,363) | (488,689) | ||||||
| Noncontrolling interest | (9,763) | (12,913) | ||||||
| Total stockholders' (deficit) equity | (674,126) | (501,602) | ||||||
| Total liabilities, mezzanine equity and stockholders' (deficit) equity | $ | 679,679 | $ | 824,932 | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
4
AMYRIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| (In thousands, except shares and per share amounts) | 2023 | 2022 | ||||||
| Revenue: | ||||||||
Renewable products (includes related party revenue of $232 and $4,412) | $ | 40,224 | $ | 43,465 | ||||
Licenses and royalties (includes related party revenue of $9,479, $8,816) | 9,482 | 9,313 | ||||||
Collaborations, grants and other (includes related party revenue of $0 and $2,000) | 6,377 | 4,931 | ||||||
Total revenue (includes related party revenue of $9,711 and $15,228) | 56,083 | 57,709 | ||||||
| Cost and operating expenses: | ||||||||
| Cost of products sold | 51,081 | 48,995 | ||||||
| Research and development | 26,765 | 26,358 | ||||||
| Sales, general and administrative | 95,870 | 106,916 | ||||||
| Change in fair value of acquisition-related contingent consideration | (28,503) | — | ||||||
| Restructuring | 1,013 | — | ||||||
| Impairment | 95,386 | — | ||||||
| Total cost and operating expenses | 241,612 | 182,269 | ||||||
| Loss from operations | (185,529) | (124,560) | ||||||
| Other income (expense): | ||||||||
| Interest expense | (12,983) | (5,263) | ||||||
| Gain from change in fair value of derivative instruments | 1,263 | 1,815 | ||||||
| (Loss) gain from change in fair value of debt | (4,854) | 20,796 | ||||||
| Other expense, net | (533) | (3,052) | ||||||
| Total other (expense) income, net | (17,107) | 14,296 | ||||||
| Loss before income taxes and loss from investment in affiliate | (202,636) | (110,264) | ||||||
| Benefit from income taxes | 860 | 820 | ||||||
| Loss from investment in affiliate | — | (789) | ||||||
| Net loss | (201,776) | (110,233) | ||||||
| Loss attributable to noncontrolling interest | 8,434 | 2,928 | ||||||
| Net loss attributable to Amyris, Inc. common stockholders | $ | (193,342) | $ | (107,305) | ||||
| Net loss per share attributable to common stockholders, basic | $ | (0.53) | $ | (0.34) | ||||
| Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic | 365,603,738 | 312,896,452 | ||||||
| Net loss per share attributable to common stockholders, diluted | $ | (0.53) | $ | (0.37) | ||||
| Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, diluted | 365,603,738 | 323,711,682 | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
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AMYRIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| (In thousands) | 2023 | 2022 | ||||||
| Comprehensive loss: | ||||||||
| Net loss | $ | (201,776) | $ | (110,233) | ||||
| Foreign currency translation adjustment | 7,431 | 15,286 | ||||||
| Total comprehensive loss | (194,345) | (94,947) | ||||||
| Loss attributable to noncontrolling interest | 8,434 | 2,928 | ||||||
| Comprehensive loss attributable to Amyris, Inc. | $ | (185,911) | $ | (92,019) | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
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AMYRIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
AND MEZZANINE EQUITY
(Unaudited)
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||||
| (In thousands, except number of shares) | Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Noncontrolling Interest | Total Stockholders' Deficit | Mezzanine Equity - Contingently Redeemable Common Stock | Mezzanine Equity - Contingently Redeemable Noncontrolling Interest | |||||||||||||||||||||||||||
| Balances as of December 31, 2022 | — | $ | — | 364,745,266 | $ | 36 | $ | 2,455,567 | $ | (64,114) | $ | (2,880,178) | $ | (12,913) | (501,602) | $ | 5,000 | $ | 28,892 | |||||||||||||||||||
| Reclassification from Mezzanine equity-contingently redeemable common stock to Additional paid-in capital upon completion of Gates Foundation project | — | — | — | — | 5,000 | — | — | — | 5,000 | (5,000) | — | |||||||||||||||||||||||||||
| Contribution from noncontrolling interest | — | — | — | — | — | — | — | 4,650 | 4,650 | — | — | |||||||||||||||||||||||||||
| Issuance of common stock and payment of minimum employee taxes withheld upon net share settlement of restricted stock | — | — | 1,506,348 | — | (5) | — | — | — | (5) | — | — | |||||||||||||||||||||||||||
| Issuance of common stock for payment of acquisition-related contingent consideration | — | — | 2,272,626 | 1 | 3,084 | — | — | — | 3,085 | — | — | |||||||||||||||||||||||||||
| Modification of Foris senior note warrants in connection with Perrara bridge loan | — | — | — | — | 471 | — | — | — | 471 | — | — | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 5,785 | — | — | — | 5,785 | — | — | |||||||||||||||||||||||||||
| Write-off of EcoFabulous noncontrolling interest upon business exit | — | — | — | — | (4,100) | — | — | — | (4,100) | — | 4,100 | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | 7,432 | — | — | 7,432 | — | — | |||||||||||||||||||||||||||
| Net loss attributable to Amyris, Inc. | — | — | — | — | — | — | (193,342) | (1,500) | (194,842) | — | (6,934) | |||||||||||||||||||||||||||
| Balances as of March 31, 2023 | — | — | 368,524,240 | 37 | $ | 2,465,802 | $ | (56,682) | $ | (3,073,520) | $ | (9,763) | $ | (674,126) | $ | — | $ | 26,058 | ||||||||||||||||||||
| Balances as of December 31, 2021 | — | $ | — | 308,899,906 | $ | 31 | $ | 2,656,838 | $ | (52,769) | $ | (2,357,661) | $ | (751) | $ | 245,688 | $ | 5,000 | $ | 28,520 | ||||||||||||||||||
| — | — | — | — | (367,974) | — | 5,993 | — | (361,981) | — | — | ||||||||||||||||||||||||||||
| Acquisitions | — | — | — | — | — | — | — | 155 | 155 | — | 2,917 | |||||||||||||||||||||||||||
| Issuance of common stock and payment of minimum employee taxes withheld upon net share settlement of restricted stock | — | — | 528,704 | — | (3) | — | — | — | (3) | — | — | |||||||||||||||||||||||||||
| Issuance of common stock as purchase consideration in business combinations | — | — | 7,121,806 | 1 | 33,093 | — | — | — | 33,094 | — | — | |||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | 33,250 | — | 98 | — | — | — | 98 | — | — | |||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | — | — | 1,391,603 | — | 3,994 | — | — | — | 3,994 | — | — | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 11,588 | — | — | — | 11,588 | — | — | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | 15,286 | — | — | 15,286 | — | — | |||||||||||||||||||||||||||
| Net loss attributable to Amyris, Inc. | — | — | — | — | — | — | (107,305) | (2,928) | (110,233) | — | — | |||||||||||||||||||||||||||
| Balances as of March 31, 2022 | — | $ | — | 317,975,269 | $ | 32 | $ | 2,337,634 | $ | (37,483) | $ | (2,458,973) | $ | (3,524) | $ | (162,314) | $ | 5,000 | $ | 31,437 | ||||||||||||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
7
AMYRIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| (In thousands) | 2023 | 2022 | ||||||
| Operating activities | ||||||||
| Net loss | $ | (201,776) | $ | (110,233) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Accretion of debt discount | 5,068 | 962 | ||||||
| Amortization of intangible assets | 1,325 | 892 | ||||||
| Amortization of right-of-use assets under operating leases | 6,855 | 754 | ||||||
| Depreciation and amortization | 4,527 | 2,400 | ||||||
| (Gain) loss from change in fair value of debt | 4,854 | (20,796) | ||||||
| (Gain) loss from change in fair value of derivative instruments | (1,263) | (1,815) | ||||||
| (Gain) loss on foreign currency exchange rates | 661 | 1,519 | ||||||
| Gain from change in fair value of acquisition-related contingent consideration | (28,503) | — | ||||||
| Loss from investment in affiliate | — | 789 | ||||||
| Impairment of goodwill and intangible assets | 95,386 | — | ||||||
| Loss on disposal of property, plant and equipment | 8 | — | ||||||
| Stock-based compensation | 5,785 | 11,588 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | 5,288 | (1,554) | ||||||
| Contract assets | (102) | (8,472) | ||||||
| Inventories | 2,904 | (5,001) | ||||||
| Prepaid expenses and other assets | 2,156 | (23,881) | ||||||
| Accounts payable | 9,112 | 5,007 | ||||||
| Accrued and other liabilities | 3,081 | 6,026 | ||||||
| Lease liabilities | (5,375) | (9,658) | ||||||
| Contract liabilities | 8 | (969) | ||||||
| Net cash used in operating activities | (90,001) | (152,442) | ||||||
| Investing activities | ||||||||
| Purchases of property, plant and equipment | (4,815) | (33,751) | ||||||
| Acquisitions, net of cash acquired | — | (13,535) | ||||||
| Net cash used in investing activities | (4,815) | (47,286) | ||||||
| Financing activities | ||||||||
| Proceeds from capital contribution by noncontrolling interest | 4,650 | — | ||||||
| Payment of minimum employee taxes withheld upon net share settlement of restricted stock units | (5) | (3) | ||||||
| Principal payments on financing leases | (3) | (131) | ||||||
| Proceeds from exercises of common stock options | — | 98 | ||||||
| Proceeds from exercises of warrants | — | 3,994 | ||||||
| Proceeds from issuance of debt, net of issuance costs | 36,972 | — | ||||||
| Net cash provided by financing activities | 41,614 | 3,958 | ||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 55 | 169 | ||||||
| Net decrease in cash, cash equivalents and restricted cash | (53,147) | (195,601) | ||||||
| Cash, cash equivalents and restricted cash at beginning of period | 70,598 | 488,312 | ||||||
| Cash, cash equivalents and restricted cash at end of the period | $ | 17,451 | $ | 292,711 | ||||
| Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets | ||||||||
| Cash and cash equivalents | $ | 11,245 | $ | 287,886 | ||||
| Restricted cash, current | 71 | 174 | ||||||
| Restricted cash, noncurrent | 6,135 | 4,651 | ||||||
| Total cash, cash equivalents and restricted cash | $ | 17,451 | $ | 292,711 | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
8
AMYRIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
| (In thousands) | 2023 | 2022 | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | 1,567 | $ | 52 | ||||
| Cash paid for income taxes | $ | 262 | $ | 100 | ||||
| Supplemental disclosures of non-cash investing and financing activities: | ||||||||
| Accrued interest added to debt principal | $ | 1,427 | $ | — | ||||
| Acquisition of intangible assets in connection with business combinations | $ | — | $ | 18,417 | ||||
| Acquisition of right-of-use assets under operating leases | $ | — | $ | 27,165 | ||||
| Common stock issued as purchase consideration in business combinations | $ | — | $ | 33,094 | ||||
| Common stock issued for payment of acquisition-related contingent consideration | $ | 3,084 | $ | — | ||||
| Goodwill recorded in connection with business combinations | $ | — | $ | 7,666 | ||||
| Measurement adjustment of contingently redeemable noncontrolling interest | $ | 4,100 | $ | — | ||||
| Noncontrolling interest recorded in connection with business combinations | $ | — | $ | 3,072 | ||||
| Remeasurement of operating lease right-of-use asset and operating lease liability | $ | 1,062 | $ | — | ||||
| Unpaid property, plant and equipment balances in accounts payable and accrued liabilities at end of period | $ | 5,234 | $ | 4,995 | ||||
| Warrants modified in connection with Perrara Bridge Loan issuance | $ | 471 | $ | — | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
9
AMYRIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Summary of Significant Accounting Policies
Amyris, Inc. (together with subsidiaries, Amyris or the Company) is a biotechnology company delivering sustainable, science-based ingredients and consumer products that are better than incumbent options for people and the planet. The Company creates, manufactures, and commercializes consumer products and ingredients. The largest component of the Company's revenue is derived from marketing and selling Clean Beauty, Personal Care, and Health & Wellness consumer products through our direct-to-consumer e-commerce platforms and a growing network of retail partners. Our proprietary sustainable ingredients are sold in bulk to industrial leaders who serve Flavor & Fragrance (F&F), Nutrition, Food & Beverage, and Clean Beauty & Personal Care end markets.
The ingredients and consumer products we produce are powered by our Lab-to-MarketTM technology platform. This technology platform creates a portfolio connection between our proprietary science and formulation expertise, manufacturing capability at industrial scale, and expertise in commercializing high performance, sustainable products that give consumers the power to choose products that benefit the planet. Our technology platform offers advantages to traditional methods of sourcing similar ingredients (such as petrochemistry, unsustainable agricultural practices, and extraction from organisms). These advantages include, but are not limited to, renewable and ethical sourcing of raw materials, less resource-intensive production, minimal impact on sensitive ecosystems, enhanced purity and safety profiles, less vulnerability to climate disruption, and improved supply chain resilience. We combine molecular biology and genetic engineering to produce sustainable materials that are scarce or endangered resources in nature. We leverage state-of-the-art machine learning, robotics, and artificial intelligence, which enable our technology platform to rapidly bring new innovation to market.
We began 2022 with eight consumer brands, Biossance® clean beauty skincare, JVNTM haircare, Rose Inc.TM clean color cosmetics, Pipette® clean baby skincare, Costa Brazil® luxury skincare, OLIKATM clean wellness, PurecaneTM zero-calorie sweetener, and Terasana® clean skincare. During 2022, we added MenoLabsTM, a brand focused on healthy living and menopause wellness, EcoFabulousTM clean beauty for Gen-Z consumers, and StripesTM (peri)menopausal wellness; and prepared to discontinue the Terasana business. In the first quarter of 2023, the Company decided to exit the EcoFabulous brand and reorganize the Beauty Labs business.
In the first quarter of 2023, the Company entered into a joint venture and brand collaboration agreement with Tia Mowry, launching 4U by TiaTM, a new clean haircare line. The commercial launch of the new product line to the general public occurred in January 2023. In exchange for 49% equity ownership in the newly formed business, Clean Beauty 4U LLC ("CB4U"), the Company contributed $1.0 million and certain intellectual property. The Company also entered into a brand collaboration agreement with Tia Mowry to develop, manufacture and sell a line of haircare products marketed towards women of color using clean ingredients. CB4U was formed and is accounted for on a consolidation basis, as it is considered a variable-interest entity.
The Company's state-of-the-art infrastructure includes industry-leading strain engineering and lab automation located in Emeryville, California; pilot-scale production facilities in Emeryville and Campinas, Brazil; a demonstration-scale facility in
10
Campinas; a commercial scale production facility in Leland, North Carolina; and a commercial scale fermentation production facility in Barra Bonita and a consumer production facility, referred to as Interfaces in the State of Sao Paolo, Brazil. A wide variety of feedstocks for precision fermentation exists but we source Brazilian sugarcane for our large-scale production because of its supply resilience, renewability, low cost, and relative price stability. As of March 31, 2023, we have commissioned three lines out of five lines of our new purpose-built, large-scale precision fermentation facility in Brazil, which we anticipate will accommodate the manufacturing of up to five products concurrently. Pending full commissioning of the new facility, we continue to manufacture our products at manufacturing sites, some of which are third party, in Brazil, the United States, and Europe.
The accompanying unaudited condensed consolidated financial statements of Amyris, Inc. should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, from which the condensed consolidated balance sheet as of December 31, 2022 is derived. The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the accompanying unaudited interim condensed consolidated financial statements do not include all the information and notes required by U.S. GAAP for complete financial statements; accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited annual consolidated financial statements included in its Annual Report on Form 10-K filed with the SEC on March 16, 2023. The accompanying condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
The Company has incurred operating losses since inception, and expects to continue to incur losses and negative cash flows from operations through at least the next 12 months following the issuance of this Form 10-Q. As of March 31, 2023, the Company had negative working capital of $227.1 million, an accumulated deficit of $3.1 billion, and unrestricted cash and cash equivalents of $11.2 million. As of March 31, 2023, the principal amounts due under debt instruments (including related party debt) totaled $962.0 million, of which $188.8 million is current. Current debt increased by $60.1 million from December 31, 2022 to March 31, 2023 due to the timing of existing debt payments and first quarter 2023 borrowings of $37.5 million under the Perrara bridge loan which matures April 3, 2023.
Debt agreements contain various covenants, including certain restrictions on the business and additional indebtedness as well as material adverse effect and cross default provisions that could cause risk of default. A failure to comply with the covenants and other provisions of our debt instruments, including any failure to make payments when required, would generally result in events of default which could result in the acceleration of a substantial portion of indebtedness. In April 2023 the Company failed to meet certain covenants under several credit arrangements, including those associated with missed payments.
On May 9, 2023, the Company entered into forbearance agreements with each of its senior lenders, DSM Finance B.V., Foris Ventures, LLC, and Perrara Ventures, LLC, pursuant to which the Lenders agreed to forbear from exercising their respective rights and remedies related to certain payment defaults under the respective loan agreements until June 23, 2023.
Unrestricted cash and cash equivalents of $11.2 million as of March 31, 2023, compared to $64.4 million as of December 31, 2022, are not sufficient to fund expected future negative cash flows from operations, cash debt service obligations, and cash lease obligations for the next 12 months. These factors raise substantial doubt about the Company's ability to continue as a going concern within one year after the date the financial statements in this Form 10-Q are issued. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The ability to continue as a going concern will depend, in large part, on the Company's ability to minimize the anticipated negative cash flows from operations during the 12 months from the date of this filing and to raise additional proceeds through strategic transactions and/or financings, and refinance or extend other existing debt maturities, all of which are uncertain and outside of the Company's control.
Significant Accounting Policies
Note 1, "Basis of Presentation and Summary of Significant Accounting Policies", to the audited consolidated financial statements in the 2022 Form 10-K includes a discussion of the significant accounting policies and estimates used in the preparation of the Company’s condensed consolidated financial statements.
The following policy represents the only change to the Company's significant accounting policies and estimates during the three months ended March 31, 2023:
Accounts Receivable
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Accounts receivable represents trade receivables, which are stated at their net realizable value. The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the trade receivables portfolio determined on the basis of historical experience, the economic environment, specific allowances for known troubled accounts and other currently available information.
Use of Estimates and Judgements
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences may be material to the condensed consolidated financial statements. Significant estimates and judgements used in these consolidated financial statements are discussed in the relevant accounting policies below or specifically discussed in the Notes to Consolidated Financial Statements where such transactions are disclosed.
Accounting Updates Recently Adopted
In the three months ended March 31, 2023, the Company adopted these accounting standard updates:
Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. The Company adopted this standard in the first quarter of 2023 using the modified retrospective adoption method. The adoption of this standard did not have a material impact on the condensed consolidated financial statements. The Company evaluates the creditworthiness of customers when negotiating contracts and, as trade receivables are short term in nature, the timing between recognition of a credit loss under existing guidance and the new guidance is not expected to differ materially.
Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This update requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The Company adopted this standard in the first quarter of 2023. This adoption of this standard did not have an impact on the condensed consolidated financial statements, as the standard applies prospectively to business combinations occurring on or after January 1, 2023, and the Company did not enter into any business combinations during the first quarter of 2023.
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2. Balance Sheet Details
Allowance for Doubtful Accounts
| (In thousands) | Balance at Beginning of Period | Provisions | Write-offs, Net | Balance at End of Period | ||||||||||
| Three months ended March 31, 2023 | $ | 995 | $ | 2 | $ | — | $ | 997 | ||||||
| Three months ended March 31, 2022 | $ | 945 | $ | 20 | $ | — | $ | 965 | ||||||
Inventories
| (In thousands) | March 31, 2023 | December 31, 2022 | ||||||
| Raw materials | $ | 41,211 | $ | 43,043 | ||||
| Work-in-process | 14,749 | 8,028 | ||||||
| Finished goods | 53,061 | 60,809 | ||||||
| Inventories | $ | 109,021 | $ | 111,880 | ||||
Prepaid Expenses and Other Current Assets
| (In thousands) | March 31, 2023 | December 31, 2022 | ||||||
| Prepayments, advances and deposits | $ | 17,233 | $ | 18,849 | ||||
| Non-inventory production supplies | 8,588 | 8,138 | ||||||
Note receivable(1) | 4,183 | 6,871 | ||||||
| Recoverable taxes from Brazilian government entities | 3,079 | 870 | ||||||
| Other | 5,012 | 5,418 | ||||||
| Total prepaid expenses and other current assets | $ | 38,095 | $ | 40,146 | ||||
_______________________
(1) In March 2022, the Company loaned a privately-held company $10 million in exchange for a senior secured convertible promissory note which unless earlier redeemed or converted into equity of the privately-held company, shall be repaid in tranches according to the terms of the Note by June 2023. The Note bears interest at 10% per annum and is convertible, at the Company's option, into equity of the privately-held company upon maturity of the Note or in the event of an initial public offering, equity financing, or corporate transaction (such as a sale or merger), in each case, at a conversion price that is dependent on a variety of factors. In addition, the Note is redeemable prior to maturity, at the issuer's option, in the event of one or more equity or debt financings, one or more asset sales, or an initial public offering, in each case equal to or greater than $65 million. The arrangement is accounted for as a loan. The Company will periodically evaluate the collectability of the loan, and an allowance for credit losses will be recorded if the Company concludes that all or a portion of the loan balance is no longer collectible.
Property, Plant and Equipment, Net
| (In thousands) | March 31, 2023 | December 31, 2022 | ||||||
| Machinery and equipment | $ | 151,964 | $ | 149,413 | ||||
| Leasehold improvements | 51,744 | 51,426 | ||||||
| Building | 29,389 | 29,389 | ||||||
| Computers and software | 10,441 | 10,356 | ||||||
| Furniture and office equipment, vehicles and land | 4,111 | 3,979 | ||||||
| Construction in progress | 50,310 | 41,012 | ||||||
| 297,959 | 285,575 | |||||||
| Less: accumulated depreciation and amortization | (108,314) | (103,351) | ||||||
| Property, plant and equipment, net | $ | 189,645 | $ | 182,224 | ||||
During the three months ended March 31, 2023 and 2022, depreciation and amortization expense, including amortization of right-of-use assets under financing leases, but without amortization of intangible assets, was as follows:
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| Three Months Ended March 31, | ||||||||
| (In thousands) | 2023 | 2022 | ||||||
| Depreciation and amortization expense, without amortization of intangible assets | $ | 4,527 | $ | 2,400 | ||||
Goodwill
| (In thousands) | March 31, 2023 | December 31, 2022 | ||||||
| Beginning balance | $ | 142,575 | $ | 131,259 | ||||
| Acquisitions | — | 22,231 | ||||||
| Impairment | (94,351) | — | ||||||
| Effect of currency translation adjustment | 2,232 | (10,915) | ||||||
| Ending balance | $ | 50,456 | $ | 142,575 | ||||
The Company performed an interim impairment analysis using financial information through March 31, 2023 as well as forecasts for cash flows developed using the Company's three-year strategic plan. The Company’s annual impairment test is performed on October 1. All of the Company's goodwill resides within the Consumer reporting unit. The interim impairment analysis was performed due to the identification of a triggering event resulting from the Company's decision during the three months ended March 31, 2023 to exit the EcoFabulous brand and reorganize the Beauty Labs business. Due to the isolated nature of the identified triggering event, the interim impairment review was limited to the Beauty Labs business and the EcoFabulous brand. The analysis indicated that the carrying amount of the goodwill for the Consumer reporting unit was greater than its fair value. The impairment was calculated as the difference between the fair value, determined in the interim impairment review, and the carrying value. The results of the impairment analysis indicated that $94.4 million of goodwill related to the Beauty Labs business and the EcoFabulous brand was impaired as of March 31, 2023. The Company will continue to evaluate the fair value of goodwill and intangible assets through the fourth quarter of fiscal 2023 for potential impairment.
Intangible Assets, Net
During the twelve months ended December 31, 2022, the Company acquired $14.6 million of intangible assets related to trademarks and trade names, customer relationships, developed technology, and patents as a result of the acquisitions completed during the year.
| March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||
| (In thousands) | Estimated Useful Life (in Years) | Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | |||||||||||||||||||
| Trademarks and trade names, and branded products | 10 | $ | 20,023 | $ | 2,442 | $ | 17,581 | $ | 21,042 | $ | 1,948 | $ | 19,094 | |||||||||||||
| Customer relationships | 5 - 16 | 8,233 | 1,327 | 6,906 | 8,182 | 1,045 | 7,137 | |||||||||||||||||||
| Developed technology and software applications | 5 - 12 | 21,872 | 1,837 | 20,035 | 21,472 | 1,315 | 20,157 | |||||||||||||||||||
| Patents | 17 | 600 | 59 | 541 | 600 | 50 | 550 | |||||||||||||||||||
| Total intangible assets | $ | 50,728 | $ | 5,665 | $ | 45,063 | $ | 51,296 | $ | 4,358 | $ | 46,938 | ||||||||||||||
The Intangible assets, net balance as of March 31, 2023 includes impairment charges of $1.0 million related to the Beauty Labs trademark. Amortization expense for intangible assets was $1.3 million and $0.9 million for the three months ended March 31, 2023 and 2022, and is included in general and administrative expenses.
Total future amortization of intangible assets as of March 31, 2023 is as follows (in thousands):
| (In thousands) | |||||
| 2023 (remainder) | $ | 3,939 | |||
| 2024 | 6,323 | ||||
| 2025 | 6,433 | ||||
| 2026 | 6,161 | ||||
| 2027 | 5,262 | ||||
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| Thereafter | 16,945 | ||||
| Total future amortization | $ | 45,063 | |||
Leases
Operating Leases
The Company has operating leases primarily for administrative offices, laboratory equipment and other facilities. The operating leases have remaining terms that range from 1 to 17 years, and often include one or more options to renew. These renewal terms can extend the lease term for an additional 1 to 5 years and are included in the lease term when it is reasonably certain that the Company will exercise the option. The operating leases are classified as right-of-use (ROU) assets under operating leases on the Company's condensed consolidated balance sheets and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make operating lease payments is included in "Lease liabilities" and "Lease liabilities, net of current portion" on the Company's condensed consolidated balance sheets. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company had $100.7 million and $97.2 million of operating lease ROU assets as of March 31, 2023 and December 31, 2022. Operating lease liabilities were $93.5 million and $88.5 million as of March 31, 2023 and December 31, 2022. During the three months ended March 31, 2023 and 2022, the Company recorded $6.9 million and $3.7 million, respectively, of operating lease amortization that was charged to expense, of which $0.6 million and $0.3 million, respectively, was recorded to cost of products sold.
Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. The Company has certain contracts for real estate and marketing which may contain lease and non-lease components, which it has elected to treat as a single lease component.
Information related to the Company's ROU assets and related lease liabilities were as follows:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for operating lease liabilities, in thousands | $4,620 | $3,045 | ||||||
| Right-of-use assets obtained in exchange for new operating lease obligations, in thousands | $— | $18,759 | ||||||
| Weighted-average remaining lease term (in years) | 11.2 | 8.7 | ||||||
| Weighted-average discount rate | 22.6% | 19.0% | ||||||
Financing Leases
The Company has financing leases primarily for laboratory equipment. Assets purchased under financing leases are included in "Right-of-use assets under financing leases, net" on the condensed consolidated balance sheets. For financing leases, the associated assets are depreciated or amortized over the shorter of the relevant useful life of each asset or the lease term. Accumulated amortization of assets under financing leases totaled $1.6 million and $1.6 million as of March 31, 2023 and December 31, 2022, respectively.
Maturities of Financing and Operating Leases
Maturities of lease liabilities as of March 31, 2023 were as follows:
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Years ending December 31: (In thousands) | Financing Leases | Operating Leases | Total Leases | ||||||||
| 2023 (Remaining Nine Months) | $ | 16 | $ | 14,989 | $ | 15,005 | |||||
| 2024 | 21 | 23,808 | 23,829 | ||||||||
| 2025 | 21 | 23,361 | 23,382 | ||||||||
| 2026 | 16 | 24,649 | 24,665 | ||||||||
| 2027 | — | 25,888 | 25,888 | ||||||||
| Thereafter | — | 222,233 | 222,233 | ||||||||
| Total lease payments | 74 | 334,928 | 335,002 | ||||||||
| Less: amount representing interest | (16) | (241,458) | (241,474) | ||||||||
| Total lease liability | $ | 58 | $ | 93,470 | $ | 93,528 | |||||
| Current lease liability | $ | 14 | $ | 2,484 | $ | 2,498 | |||||
| Noncurrent lease liability | 44 | 90,986 | 91,030 | ||||||||
| Total lease liability | $ | 58 | $ | 93,470 | $ | 93,528 | |||||
Other Assets
| (In thousands) | March 31, 2023 | December 31, 2022 | ||||||
| Investments in equity securities | $ | 7,892 | $ | 7,892 | ||||
| Equity-method investments in affiliates | 3,000 | $ | 3,000 | |||||
| Deposits | 531 | 530 | ||||||
| Notes receivable, net of current portion | — | 671 | ||||||
| Other | 2,239 | 1,811 | ||||||
| Total other assets | $ | 13,662 | $ | 13,904 | ||||
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Accrued and Other Current Liabilities
| (In thousands) | March 31, 2023 | December 31, 2022 | ||||||
| Payroll and related expenses | $ | 23,308 | $ | 18,795 | ||||
| Accrued interest | 19,212 | 14,639 | ||||||
| Liability in connection with acquisition of equity-method investment | 10,800 | 11,275 | ||||||
Deferred consideration payable(1) | 6,200 | 7,883 | ||||||
| Professional services | 4,216 | 4,826 | ||||||
Asset retirement obligation(2) | 3,872 | 3,763 | ||||||
| Contract termination fees | 1,379 | 1,369 | ||||||
| License fee payable | 1,050 | 1,050 | ||||||
| Tax-related liabilities | — | 829 | ||||||
| Other | 11,031 | 9,136 | ||||||
| Total accrued and other current liabilities | $ | 81,068 | $ | 73,565 | ||||
______________
(1) Deferred consideration payable is the current portion of total acquisition-related contingent consideration.
(2) The asset retirement obligation represents liabilities incurred but not yet discharged in connection with the Company's 2013 abandonment of a partially constructed facility in Pradópolis, Brazil.
3. Fair Value Measurement
Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The following tables summarize liabilities measured at fair value, and the respective fair value by input classification level within the fair value hierarchy:
| (In thousands) | March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||
| Foris Convertible Note | $ | — | $ | — | $ | 58,880 | $ | 58,880 | $ | — | $ | — | $ | 54,026 | $ | 54,026 | |||||||||||||
| Embedded derivatives bifurcated from debt instruments | — | — | 4,140 | 4,140 | — | — | 5,403 | 5,403 | |||||||||||||||||||||
| Acquisition-related contingent consideration | — | — | 6,052 | 6,052 | — | — | 37,574 | 37,574 | |||||||||||||||||||||
| Total liabilities measured and recorded at fair value | $ | — | $ | — | $ | 69,072 | $ | 69,072 | $ | — | $ | — | $ | 97,003 | $ | 97,003 | |||||||||||||
The Company did not hold any financial assets to be measured and recorded at fair value on a recurring basis as of March 31, 2023 or December 31, 2022, and there were no transfers between the levels during the three months ended March 31, 2023 or the year ended December 31, 2022.
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgements and consider factors specific to the asset or liability. The method of determining the fair value of embedded derivative liabilities is described subsequently in this note. Market risk associated with embedded derivative liabilities relates to the potential reduction in fair value and negative impact to future earnings from a decrease in interest rates.
Changes in fair value of derivative liabilities are presented as gains or losses in the condensed consolidated statements of operations in the line captioned "Gain (loss) from change in fair value of derivative instruments". Changes in the fair value of debt that is accounted for at fair value are presented as gains or losses in the condensed consolidated statements of operations in the line captioned "Gain (loss) from change in fair value of debt".
Fair Value of Debt — Foris Convertible Note
At March 31, 2023, the contractual outstanding principal of the Foris Convertible Note was $50.0 million, and fair value was $58.9 million. The Company remeasured the fair value of the Foris Convertible Note under a binomial lattice model using the following inputs: (i) $1.36 stock price, (ii) 25% discount yield, (iii) 4.9% risk free interest rate (iv) 45% equity volatility and (v) 0% probability of change in control. The most sensitive input to the valuation model is the Company’s stock price in relation to the $3.00 conversion price. For the three months ended March 31, 2023, the Company recorded a loss of $4.9 million related to change in fair value of the Foris Convertible Note.
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Binomial Lattice Model
A binomial lattice model was used to determine whether the Foris Convertible Note would be converted, called or held at each decision point. Within the lattice model, the following assumptions are made: (i) the convertible note will be converted early if the conversion value is greater than the holding value and (ii) the convertible note will be called if the holding value is greater than both (a) redemption price and (b) the conversion value at the time. If the convertible note is called, the holder will maximize their value by finding the optimal decision between (1) redeeming at the redemption price and (2) converting the convertible note. Using this lattice method, the Company valued the Foris Convertible Note using the "with-and-without method", where the fair value of the Foris Convertible Note including the embedded features is defined as the "with," and the fair value of the Foris Convertible Note excluding the embedded features is defined as the "without." This method estimates the fair value of the Foris Convertible Note by considering the incremental value of the Foris Convertible Note with the embedded features. The lattice model uses the stock price, conversion price, maturity date, risk-free interest rate, estimated stock volatility, estimated credit spread and other instrument-specific assumptions. The Company remeasures the fair value of the Foris Convertible Note and records the change as a gain or loss from change in fair value of debt in the statement of operations for each reporting period.
Derivative Liabilities Recognized in Connection with the Issuance of Debt Instruments
The following table provides a reconciliation of the beginning and ending balances for the Company's derivative liabilities recognized in connection with the issuance of debt instruments, either freestanding or embedded, measured at fair value using significant unobservable inputs (Level 3):
| (In thousands) | Derivative Liability | ||||
| Balance at December 31, 2022 | $ | 5,403 | |||
| Change in fair value of derivative instruments | (1,263) | ||||
| Balance at March 31, 2023 | $ | 4,140 | |||
Valuation Methodology and Approach to Measuring Derivative Liability
The Company's outstanding derivative liability at March 31, 2023 and December 31, 2022 represents the fair value of an embedded prepayment feature in the DSM Note. There is no current observable market for this type of derivative and, as such, the Company determined the fair value of the embedded instrument using a discounted cash flow model at March 31, 2023 and December 31, 2022. Input assumptions for the embedded instrument are as follows:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Discount yield | 25% | 32% | ||||||
Changes in assumptions can have a significant impact on the valuation of the derivative liability.
Bifurcated Embedded Feature in Debt Instrument
During 2022, the Company issued a $100 million promissory note to DSM (DSM Note). The note provides that for $50 million of the DSM Note's principal, on the date the Company receives any earn-out payment from DSM, Amyris must prepay debt principal in the same amount, plus accrued and unpaid interest. This prepayment feature is considered an embedded feature in the DSM Note to be bifurcated from and separately accounted for as a derivative liability. Changes in fair value of the liability are recorded to Gain (loss) from change in fair value of derivative instruments.
Acquisition-related contingent consideration
The fair value of acquisition related contingent consideration ("Earnout Payments") was determined at acquisition using a Monte Carlo simulation to estimate the probability of the acquired business units achieving the relevant financial and operational milestones. The model results reflect the time value of money, non-performance risk within the required time frame and the risk due to uncertainty in the estimated cash flows. Key inputs to the Monte Carlo simulation for the Costa Brazil acquisition were: Revenue Risk Adjustment of 27%, Annual Revenue Volatility of 68%, EBITDA Risk Adjustment of 32%, and Annual EBITDA Volatility of 85%. Key inputs to the Monte Carlo simulations for the Olika, MG Empower, and Beauty Labs acquisitions were: Revenue Risk Adjustment of 1.5% to 2.3% and Annual Revenue Volatility of 12.5% to 15%. A
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significant change in an acquired business unit’s financial performance and the timing of such changes could materially change the fair value of contingent consideration. Contingent consideration is recorded in other liabilities in the accompanying consolidated balance sheets.
The fair value of contingent consideration is classified as Level 3. The change in fair value totaled $28.5 million in the three months ended March 31, 2023 and $24.9 million in the twelve months ended December 31, 2022, and was recognized in Change in fair value of acquisition-related contingent consideration. The change in the fair value of contingent consideration reflects the changes in the business’s expected performance over the remaining earnout period and the Company’s estimate of the likelihood of achieving the applicable operational milestones.
The following table provides a reconciliation of the beginning and ending balances for the Company's acquisition-related contingent consideration:
| (In thousands) | Acquisition-related Contingent Consideration | ||||
| Balance at January 1, 2022 | $ | 64,762 | |||
| Additions | 440 | ||||
| Purchase accounting adjustment | (2,754) | ||||
| Change in fair value of acquisition-related contingent consideration | (24,874) | ||||
| Balance at December 31, 2022 | 37,574 | ||||
Less: Current portion (1) | (3,019) | ||||
| Acquisition-related contingent consideration, net of current portion at December 31, 2022 | $ | 34,555 | |||
| Balance January 1, 2023 | $ | 37,574 | |||
| Settlements of contingent consideration liabilities | (3,019) | ||||
| Change in fair value of contingent consideration | (28,503) | ||||
| Balance at March 31, 2023 | 6,052 | ||||
Less: Current portion (1) | (3,811) | ||||
| Acquisition-related contingent consideration, net of current portion at March 31, 2023 | $ | 2,241 | |||
______________
(1) Current portion is included within Accrued and other current liabilities on the Condensed Consolidated Balance Sheets.
Assets and Liabilities Recorded at Carrying Value
Financial Assets and Liabilities
The carrying amounts of certain financial instruments, such as cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and other current accrued liabilities, approximate fair value due to their relatively short maturities and low market interest rates, if applicable. Loans payable and credit facilities are recorded at carrying value, which is representative of fair value at the date of acquisition. The Company estimates the fair value of these instruments using observable market-based inputs (Level 2). The carrying amount (the total amount of net debt presented on the balance sheet) of the Company's debt at March 31, 2023 and December 31, 2022, excluding the debt instruments recorded at fair value, was $882.1 million and $839.0 million. The fair value of such debt at March 31, 2023 and December 31, 2022 was $469.8 million and $331.6 million, and was determined by (i) discounting expected cash flows using current market discount rates estimated for certain of the debt instruments and (ii) using third-party fair value estimates for the remaining debt instruments. The increase in fair value from December 31, 2022 to March 31, 2023 was primarily due to a decrease in interest rates used to measure fair value for disclosure purposes, along with a higher principal balance owed at March 31, 2023 due to the Company's issuance of the $37.5 million Perrara Bridge Loan in March 2023, described below in Note 4.
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4. Debt
Net carrying amounts of debt are as follows:
| March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||
| (In thousands) | Principal | Unaccreted Debt Discount | Change in Fair Value | Net | Principal | Unaccreted Debt Discount | Change in Fair Value | Net | |||||||||||||||||||||
| Convertible notes | |||||||||||||||||||||||||||||
| 2026 convertible senior notes | $ | 690,000 | $ | (14,145) | $ | — | $ | 675,855 | $ | 690,000 | $ | (15,109) | $ | — | $ | 674,891 | |||||||||||||
| Related party convertible notes | |||||||||||||||||||||||||||||
| Foris convertible note | 50,041 | — | 8,839 | 58,880 | 50,041 | — | 3,985 | 54,026 | |||||||||||||||||||||
| Loans payable | |||||||||||||||||||||||||||||
| Other loans payable (revolving) | 1,968 | — | — | 1,968 | 1,917 | — | — | 1,917 | |||||||||||||||||||||
| Related party loans payable | |||||||||||||||||||||||||||||
| DSM note | 100,000 | (11,346) | — | 88,654 | 100,000 | (14,108) | — | 85,892 | |||||||||||||||||||||
| Foris senior note | 82,517 | (3,513) | — | 79,004 | 81,089 | (4,772) | — | 76,317 | |||||||||||||||||||||
| Perrara bridge loan | 37,500 | (916) | — | 36,584 | — | — | — | — | |||||||||||||||||||||
| Total related party loans payable | 220,017 | (15,775) | — | 204,242 | 181,089 | (18,880) | — | 162,209 | |||||||||||||||||||||
| Total debt | 962,026 | (29,920) | 8,839 | 940,945 | 923,047 | (33,989) | 3,985 | 893,043 | |||||||||||||||||||||
| Less: current portion | (188,811) | 10,522 | (8,839) | (187,128) | (128,708) | 11,891 | (3,985) | (120,802) | |||||||||||||||||||||
| Long-term debt, net of current portion | $ | 773,215 | $ | (19,398) | $ | — | $ | 753,817 | $ | 794,339 | (22,098) | — | 772,241 | ||||||||||||||||
Interest expense was as follows:
| Three Months Ended March 31, | ||||||||
| (In thousands) | 2023 | 2022 | ||||||
| Contractual interest expense in connection with debt | $ | 7,586 | $ | 3,415 | ||||
| Debt discount accretion | 5,068 | 962 | ||||||
| Interest expense in connection with debt | 12,654 | 4,377 | ||||||
| Discount accretion on liability in connection with acquisition of equity-method investment and with partnership liability, and other | 329 | 886 | ||||||
| Total interest expense | $ | 12,983 | $ | 5,263 | ||||
Perrara Bridge Loan
On March 10, 2023, the Company and Perrara Ventures, LLC (an affiliate of Foris Ventures, LLC, a related party), as lender, entered into a loan and security agreement for a secured term loan facility of up to $50 million. The Company completed borrowings totaling $37.5 million in March 2023, which were used for working capital and general corporate purposes. The secured term loan facility has an interest rate of 12% per annum and matures on the earlier of June 8, 2023 and the closing of the transaction with Givaudan SA, which closed on April 3, 2023.
In connection with the issuance of the Perrara Bridge Loan, the Company repriced Foris senior note warrants from $3.91 to $1.30 in March 2023. The fair value of the repricing adjustment was $0.5 million, which was recorded as a debt discount on the Perrara Bridge Loan.
Forbearance Agreements
On May 9, 2023, the Company entered into forbearance agreements with each of its senior lenders, DSM Finance B.V., Foris Ventures, LLC, and Perrara Ventures, LLC, pursuant to which the Lenders agreed to forbear from exercising their respective rights and remedies related to certain payment defaults under the respective loan agreements until June 23, 2023.
Future Minimum Payments
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Future minimum payments under the Company's debt agreements as of March 31, 2023 are as follows:
| (In thousands) | Convertible Notes | Related Party Convertible Notes | Loans Payable and Credit Facilities | Related Party Loans Payable | Total | ||||||||||||
| 2023 (Remaining Nine Months) | $ | 10,350 | $ | 62,622 | $ | 2,160 | $ | 130,691 | $ | 205,823 | |||||||
| 2024 | 10,350 | — | — | 91,116 | 101,466 | ||||||||||||
| 2025 | 10,350 | — | — | 30,347 | 40,697 | ||||||||||||
| 2026 | 700,379 | — | — | — | 700,379 | ||||||||||||
| 2027 | — | — | — | — | — | ||||||||||||
| Thereafter | — | — | — | — | — | ||||||||||||
| Total future minimum payments | 731,429 | 62,622 | 2,160 | 252,154 | 1,048,365 | ||||||||||||
| Less: amount representing interest | (41,429) | (12,581) | (192) | (27,566) | (81,768) | ||||||||||||
| Less: future conversion of accrued interest to principal | — | — | — | (4,571) | (4,571) | ||||||||||||
| Present value of minimum debt payments | 690,000 | 50,041 | 1,968 | 220,017 | 962,026 | ||||||||||||
| Less: current portion of debt principal | — | (50,041) | (1,968) | (136,802) | (188,811) | ||||||||||||
| Noncurrent portion of debt principal | $ | 690,000 | $ | — | $ | — | $ | 83,215 | $ | 773,215 | |||||||
5. Mezzanine Equity
Gates Foundation
Contingently redeemable common stock is comprised of proceeds from shares of common stock sold on May 10, 2016 to the Bill & Melinda Gates Foundation (the Gates Foundation). In connection with the stock sale, the Company and the Gates Foundation entered into an agreement under which the Company agreed to expend an aggregate amount not less than the proceeds from the stock sale to develop a yeast strain that produces artemisinic acid and/or amorphadiene at a low cost and to supply it to companies qualified to convert it to artemisinin for inclusion in artemisinin combination therapies used to treat malaria. If the Company were to default on its obligation to use the proceeds from the stock sale as set forth above or defaults under certain other commitments in the agreement, the Gates Foundation would have the right to request that the Company redeem, or facilitate the purchase by a third party, the shares then held by the Gates Foundation. The Company has completed the Gates Foundation project; accordingly, at March 31, 2023, the Company reclassified $5.0 million from Contingently redeemable common stock to Additional paid-in capital.
Ingredion Contingently Redeemable Noncontrolling Interest in Subsidiary
On June 1, 2021, the Company sold 31% of the member units in RealSweet LLC (RealSweet), a 100% owned Amyris subsidiary, to Ingredion Corporation (Ingredion). Total consideration was $28.5 million, including $10 million cash, the exchange of a $4 million payable previously due to Ingredion, and $14.5 million of manufacturing intellectual property rights. The terms of the agreement provide both parties with put/call rights under certain circumstances, including the occurrence of either or both of the following: (i) a change in ownership of 50% or more of the voting shares of such Member; or (ii) a change in the right to appoint or remove a majority of the board of directors of such Member. The Company concluded this change in control provision was not solely within its control and Ingredion’s contingently redeemable noncontrolling interest should be reflected outside of permanent equity.
The redemption price of this common-share noncontrolling interest is considered to be at fair value on the redemption date. Ingredion’s noncontrolling interest is not currently redeemable and Amyris concluded a contingent redemption event is not probable to occur. The primary redemption contingency relates to a decrease in Ingredion’s ownership percentage below 8.4%, which is not likely to occur given that capital transactions require the unanimous consent of each member. Consequently, the noncontrolling interest will not be subsequently remeasured to its redemption amount until such contingency event and the related redemption are probable to occur; however, Amyris will continue to reflect the attribution of any losses and distribution of dividends to the noncontrolling interest each quarter. At the transaction date, the Company recorded the $28.5 million noncontrolling interest in RealSweet as Mezzanine equity - contingently redeemable noncontrolling interest, which represented the value of Ingredion’s 31% ownership interest in the net assets of the RealSweet subsidiary. Under the terms of the agreement, Amyris is funding the construction costs of the project, which are estimated to be approximately $155 million. As of March 31, 2023, the Company has funded approximately $128 million towards the project and has $7 million of contractual purchase commitments for construction related costs.
EcoFabulous Contingently Redeemable Noncontrolling Interest in Subsidiary
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On January 26, 2022, Amyris acquired 70% of No Planet B LLC (d/b/a EcoFabulous) from No Planet B Investments, LLC. The name of No Planet B LLC has been changed to EcoFab, LLC ("EcoFab"). Concurrently, the Company and No Planet B Investments, LLC entered into an agreement to provide No Planet B Investments, LLC a right to require EcoFab to purchase its remaining 30% noncontrolling interest after (i) EcoFab achieves Net Revenues in excess of $100 million on an annualized basis or, if earlier, (ii) December 31, 2026. Amyris concluded this provision was not solely within its control and EcoFab’s contingently redeemable noncontrolling interest should be reflected outside of permanent equity.
EcoFab’s noncontrolling interest is no longer currently redeemable due to the Company's decision to exit the EcoFabulous brand, making the contingent redemption event no longer probable to occur and the redemption value nil. The Company recorded a measurement adjustment of $4.1 million to match the value of the contingently redeemable noncontrolling interest to nil.
6. Stockholders' (Deficit) Equity
Warrants and Rights Activity Summary
In connection with various debt and equity transactions, the Company has issued warrants exercisable for shares of common stock. The following table summarizes warrants outstanding at March 31, 2023:
| Transaction | Year Issued | Expiration Date | Number Outstanding as of December 31, 2022 | Additional Warrants Issued | Exercises | Expired | Exercise Price per Share of Warrants Exercised | Number Outstanding as of March 31, 2023 | Exercise Price per Share as of March 31, 2023 | ||||||||||||||||||||
| 2022 registered direct offering warrants | 2022 | December 30, 2027 | 15,000,000 | — | — | — | $ | — | 15,000,000 | $ | 1.80 | ||||||||||||||||||
| 2022 PIPE warrants | 2022 | December 30, 2027 | 10,000,000 | — | — | — | $ | — | 10,000,000 | $ | 1.80 | ||||||||||||||||||
| Foris senior note warrants | 2022 | September 13, 2025 | 2,046,036 | — | — | — | $ | — | 2,046,036 | $ | 1.30 | ||||||||||||||||||
| Blackwell / Silverback warrants | 2020 | July 10, 2023 | 1,000,000 | — | — | — | $ | — | 1,000,000 | $ | 3.25 | ||||||||||||||||||
| May 2017 cash warrants | 2017 | July 10, 2023 | 587,920 | — | — | — | $ | — | 587,920 | $ | 2.87 | ||||||||||||||||||
| July 2015 related party debt exchange | 2015 | July 29, 2025 | 58,690 | — | — | — | $ | — | 58,690 | $ | 0.15 | ||||||||||||||||||
| 28,692,646 | — | — | — | nm | 28,692,646 | ||||||||||||||||||||||||
The Foris senior note warrants were repriced from $3.91 to $1.30 in March 2023 in connection with the Company's issuance of the Perrara Bridge Loan. The fair value of the repricing adjustment was $0.5 million, which was recorded as a debt discount on the Perrara Bridge Loan.
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7. Acquisitions
The purchase accounting for the net assets acquired, including goodwill, and the fair value of contingent consideration for the following acquisitions is preliminarily recorded based on available information, incorporates management's best estimates, and is subject to change as additional information is obtained about the facts and circumstances that existed at the valuation date. For acquisitions that occurred subsequent to March 31, 2022, the Company expects to finalize the fair values of the assets acquired and liabilities assumed during the one-year measurement period from the date of acquisition, if any new information is obtained about facts and circumstances that existed as of the acquisition date. The net assets acquired in each transaction are generally recorded at their estimated acquisition-date fair values, while transaction costs associated with the acquisition are expensed as incurred. These transactions were accounted for by the acquisition method, and accordingly, the results of operations were included in the Company’s consolidated financial statements from their respective acquisition dates.
Interfaces Indústria E Comércio De Cosméticos Ltda.
On May 16, 2022, Amyris acquired Interfaces Indústria e Comércio de Cosméticos Ltda. ("Interfaces"). Interfaces is headquartered in São Paulo, Brazil and specializes in producing cosmetics for skin care, hair care, and makeup. The acquisition is deemed critical to sustain the Company’s growth, add operational resilience to its supply chain, reduce its dependency on third-party manufacturing, and increase the ability to source strategic components. Interfaces was acquired for $6.7 million, consisting of $3.4 million cash at closing and $3.3 million cash to be paid over two years.
The following table summarizes the purchase price allocation:
(In thousands) | |||||
Net tangible assets | $ | 1,474 | |||
Goodwill | 5,219 | ||||
Total consideration | $ | 6,693 | |||
Goodwill associated with this acquisition is not deductible for tax purposes.
Onda Beauty Inc.
On April 11, 2022, Amyris acquired Onda Beauty Inc. ("Onda"). Founded in 2014, Onda offers a curated matrix of brands as well as services, such as facials. Onda provides Amyris with a venue to test products, host events, and produce content in a luxury retail setting. Onda was acquired for $4.9 million, consisting of $1.0 million cash at closing, Amyris stock valued at $3.5 million, net working capital adjustment of $(0.1) million, and holdback consideration of $0.5 million to be paid in Amyris stock within 12 months after the closing date.
The following table summarizes the purchase price allocation:
(In thousands) | |||||
Net tangible liabilities | $ | (630) | |||
Trademarks, trade names and other intellectual property | 4,275 | ||||
Customer relationships | 251 | ||||
Goodwill | 1,019 | ||||
Total consideration | $ | 4,915 | |||
The allocated purchase price also included deferred tax liabilities attributable to the intangible assets, excluding goodwill. Goodwill associated with this acquisition is not deductible for tax purposes.
MenoLabs, LLC.
On March 10, 2022, Amyris acquired MenoLabs, LLC, ("MenoLabs"), which was founded to fundamentally change how menopause is addressed by offering research-backed all-natural treatments of menopause symptoms. Amyris believes that the acquisition of MenoLabs will serve as a catalyst to accelerate growth and establish a leadership position in the fast-growing menopause market. MenoLabs was acquired for $16.2 million, consisting of $11.3 million in cash, a bridge loan of $0.5 million provided by Amyris in January 2022, 852,234 shares of Amyris stock with a fair value of $3.9 million, and contingent consideration with a fair value of $0.4 million. The contingent consideration consists of two potential payments of up to
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$10 million each during the 12-month period after the closing date and the fourth quarter of 2024, if both MenoLabs’s product revenues and profit margin meet certain targets.
The following table summarizes the purchase price allocation:
(In thousands) | |||||
Net tangible assets | $ | 311 | |||
Branded products | 5,600 | ||||
Application | 3,600 | ||||
Goodwill | 6,642 | ||||
Total consideration | $ | 16,153 | |||
Goodwill associated with this acquisition is expected to be deductible for tax purposes.
EcoFab LLC.
On January 26, 2022, Amyris acquired 70% of EcoFab, LLC ("EcoFab"). EcoFab is focused on delivering high performance, makeup artist-quality clean beauty products in ecofriendly packaging, and priced for Gen Z consumers. The purchase consideration consisted of $1.7 million in cash and 1,292,776 shares of Amyris stock with a fair value of $5.5 million. The Mezzanine equity—contingently redeemable noncontrolling interest had a fair value of $3.1 million as of the acquisition date. Amyris has determined that EcoFab is a variable-interest entity and is accounted for in consolidation.
The following table summarizes the purchase price allocation:
(In thousands) | |||||
Goodwill (1) | 10,240 | ||||
| Less: noncontrolling interest | $ | (3,072) | |||
Total consideration | $ | 7,168 | |||
_______________________
(1) Includes a purchase price adjustment during the fourth quarter 2022 to reclassify definite-lived intangibles to goodwill. The related accumulated amortization of intangibles was insignificant.
Goodwill associated with this acquisition is not deductible for tax purposes.
The Company exited this business in the first quarter of 2023, resulting in a $4.2 million write-down of inventory and impairment charge of $9.3 million, representing the remaining carrying value of the goodwill.
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8. Net Loss per Share Attributable to Common Stockholders
Basic net loss per share of common stock is computed by dividing the Company’s net loss attributable to Amyris, Inc. common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock is computed by giving effect to all potentially dilutive securities, including stock options, restricted stock units, convertible preferred stock, convertible promissory notes, common stock warrants, and contingently issuable common stock, using the treasury stock method or the as-converted method, as applicable.
The Company’s convertible preferred stock are participating securities as they contractually entitle the holders of such shares to participate in dividends and contractually require the holders of such shares to participate in the Company’s losses.
The following table presents the calculation of basic and diluted loss per share:
| Three Months Ended March 31, | ||||||||
| (In thousands, except shares and per share amounts) | 2023 | 2022 | ||||||
| Numerator: | ||||||||
| Net loss attributable to Amyris, Inc. common stockholders | $ | (193,342) | $ | (107,305) | ||||
| Interest on convertible debt | — | 457 | ||||||
| Gain from change in fair value of debt | — | (12,650) | ||||||
| Gain from change in fair value of derivative instruments | — | (1,815) | ||||||
| Net loss attributable to Amyris, Inc. common stockholders, diluted | $ | (193,342) | $ | (121,313) | ||||
| Denominator: | ||||||||
| Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic | 365,603,738 | 312,896,452 | ||||||
| Net loss per share, basic | $ | (0.53) | $ | (0.34) | ||||
| Weighted-average shares of common stock outstanding | 365,603,738 | 312,896,452 | ||||||
| Effect of dilutive convertible debt | — | 10,146,017 | ||||||
| Effect of dilutive common stock warrants | — | 669,213 | ||||||
| Weighted-average shares of common stock equivalents used in computing net loss per share of common stock, diluted | 365,603,738 | 323,711,682 | ||||||
| Net loss per share, diluted | $ | (0.53) | $ | (0.37) | ||||
For the three months ended March 31, 2023, basic loss per share equaled diluted loss per share, because the inclusion of all potentially dilutive securities outstanding was antidilutive. For the three months ended March 31, 2022, basic net loss per share differed from diluted net loss per share, because the inclusion of all potentially dilutive securities outstanding was dilutive. The following table presents outstanding shares of potentially dilutive securities:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Period-end common stock warrants | 28,633,956 | 2,492,652 | ||||||
Convertible promissory notes(1) | 107,304,540 | 86,683,389 | ||||||
| Period-end stock options to purchase common stock | 4,102,708 | 3,800,314 | ||||||
| Period-end restricted stock units | 15,660,128 | 17,305,337 | ||||||
| Contingently issuable common shares | — | 1,718,475 | ||||||
| Total potentially dilutive securities excluded from computation of diluted loss per share | 155,701,332 | 112,000,167 | ||||||
______________
(1) The potentially dilutive effect of convertible promissory notes was computed based on conversion ratios in effect as of the respective period-end dates. A portion of the convertible promissory notes issued carries a provision for a reduction in conversion price under certain circumstances, which could potentially increase the dilutive shares outstanding. Another portion of the convertible promissory notes issued carries a provision for an increase in the conversion rate under certain circumstances, which could also potentially increase the dilutive shares outstanding.
9. Commitments and Contingencies
Guarantor Arrangements
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The Company has agreements whereby it indemnifies its executive officers and directors for certain events or occurrences while the executive officer or director is serving in his or her official capacity. The indemnification period remains enforceable for the executive officer's or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that limits its exposure and enables the Company to recover a portion of any future payments. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal and had no liabilities recorded for these agreements as of March 31, 2023 and December 31, 2022.
The Foris Convertible Note and the Perrara Bridge Loan are collateralized by first-priority liens on substantially all of the Company's assets, including Company intellectual property, other than certain Company intellectual property licensed to DSM, the Company's international subsidiaries, and the Company's ownership interests in joint ventures. Certain of the Company’s subsidiaries have guaranteed the Company’s obligations under the Foris Convertible Note.
The obligations under the DSM Term Loan are guaranteed by certain of the Company's subsidiaries, and secured by a perfected security interest in certain payment obligations due to the Company from DSM Nutritional Products Ltd., as well as a pledge of the Company’s equity interest in RealSweet LLC.
In October 2021, the Company entered into a 10-year manufacturing partnership agreement with Renfield Manufacturing, LLC (Renfield) to provide manufacturing services and third-party logistics processes, including inventory management, warehousing, and fulfillment for certain of the Company’s consumer product lines. On September 22, 2022, Renfield notified the Company that it was terminating the Manufacturing and Fulfillment Agreement and the Right of First Refusal Agreement due to failure to pay certain amounts due to Renfield. The Company disputes Renfield's allegations and the purported termination of the two agreements. The Company also provided a $0.5 million letter of credit and guarantee to the lessor of the Renfield manufacturing facility, which extends through August 2032. If Renfield fails to perform under the facility lease, the Company can terminate the manufacturing agreement. The Company expects that its potential future performance under the guarantee is not probable of occurrence. Accordingly, the Company had no liabilities recorded for the guarantee as of March 31, 2023 and December 31, 2022.
Other Matters
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but will only be recorded when one or more future events occur or fail to occur. The Company's management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgement. In assessing loss contingencies related to legal proceedings that are pending against and by the Company or unasserted claims that may result in such proceedings, the Company's management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company's financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be reasonably estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
Subsequent to the filing of the securities class action complaint described above, on June 21, 2019 and October 1, 2019, respectively, two separate purported shareholder derivative complaints were filed in the U.S. District Court for the Northern District of California (Bonner v. Doerr, et al., and Carlson v. Doerr, et al.) based on similar allegations to those made in the securities class action complaint and naming the Company, and certain of the Company’s current and former officers and directors, as defendants. The derivative lawsuits sought to recover, on the Company’s behalf, unspecified damages purportedly sustained by the Company in connection with allegedly misleading statements and omissions made in connection with the Company’s securities filings. An additional shareholder derivative complaint (Kimbrough v. Melo, et al.), substantially identical to the Bonner complaint, was filed on December 18, 2020 in the U.S. District Court for the Northern District of California. By agreement, the Kimbrough and Bonner complaints were consolidated for all purposes on April 9, 2021. On June 20, 2022, the Court granted the Company's motion to dismiss Bonner's amended complaint without prejudice. Subsequently, Bonner informed the Court that it did not intend to file a second amended complaint. On August 18, 2022, the Court issued the judgment in favor of the Company and awarded the Company an immaterial amount in costs. On September 9, 2022, Bonner filed a notice of appeal of the Court's decision.
On August 23, 2020, Lavvan, Inc. (Lavvan) brought claims in arbitration against the Company under that certain Research, Collaboration, and License Agreement dated March 18, 2019, as amended (RCLA), and on September 10, 2020, Lavvan filed a
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suit against the Company in the U.S. District Court for the Southern District of New York (SDNY). The evidentiary hearing took place in arbitration from October 24 through 28, 2022. Both the arbitration and SDNY proceedings are currently pending, and it is not yet possible to reliably determine any potential liability that could result therefrom. The Company believes Lavvan's claims lack merit and intends to continue to defend itself vigorously.
On October 11, 2022, AO Representative Expense Fund LLC (AO), on behalf of former shareholders of Olika Inc. (Olika), a company acquired by the Company on August 9, 2021 through a merger, filed a complaint against the Company in New York State court. AO alleged that, in breach of the merger agreement, the Company undertook certain actions with the intent of avoiding payment of earnouts to the former shareholders of Olika. On January 26, 2022, the Company filed its motion to dismiss the complaint, which was amended by AO on March 22, 2023. The Company filed its motion to dismiss the amended complaint on April 26, 2023. The Company believes AO’s claims lack merit and intends to continue to defend itself vigorously.
On February 22, 2023, Disruptional Ltd. and & Vest Beauty Labs LP, sellers of Beauty Labs International Ltd., a business acquired by the Company on August 31, 2021, filed a complaint against the Company in New York State court, alleging, among other things, a breach of contract related to earnout payments. The Company believes the Sellers’ claims lack merit and intends to defend itself vigorously.
On March 24, 2023, Park Wynwood LLC (Wynwood), the landlord for one of the Company’s leasehold properties in Miami, Florida, filed a complaint in the Superior Court of the State of California for the County of San Francisco, alleging a breach of the terms of the lease relating to tenant improvements. Wynwood is seeking damages, including acceleration of rent payments.
The Company is subject to disputes and claims that arise or have arisen in the ordinary course of business and that have not resulted in legal proceedings or have not been fully adjudicated. Such matters that may arise in the ordinary course of business are subject to many uncertainties and outcomes, and are not predictable with reasonable assurance and therefore an estimate of all the reasonably possible losses cannot be determined at this time. Therefore, if one or more of these legal disputes or claims resulted in settlements or legal proceedings that were resolved against the Company for amounts in excess of management’s expectations, the Company’s consolidated financial statements for the relevant reporting period could be materially adversely affected.
10. Revenue Recognition, and Contract Assets and Liabilities
Disaggregation of Revenue
The following table presents revenue by major product and service, as well as by primary geographical market, based on the location of the customer:
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| (In thousands) | 2023 | 2022 | |||||||||||||||||||||||||||
| Renewable Products | Licenses and Royalties | Collaborations, Grants and Other | Total | Renewable Products | Licenses and Royalties | Collaborations, Grants and Other | Total | ||||||||||||||||||||||
| North America | $ | 32,095 | $ | 9,482 | $ | 5,925 | $ | 47,502 | $ | 32,956 | $ | 433 | $ | 1,476 | $ | 34,865 | |||||||||||||
| Europe | 3,248 | 452 | 3,700 | 7,289 | 8,880 | 3,263 | 19,432 | ||||||||||||||||||||||
| Asia | 2,527 | — | 2,527 | 1,488 | — | 192 | 1,680 | ||||||||||||||||||||||
| South America | 1,878 | — | 1,878 | 1,019 | — | — | 1,019 | ||||||||||||||||||||||
| Other | 476 | — | 476 | 713 | — | — | 713 | ||||||||||||||||||||||
| $ | 40,224 | $ | 9,482 | $ | 6,377 | $ | 56,083 | $ | 43,465 | $ | 9,313 | $ | 4,931 | $ | 57,709 | ||||||||||||||
The following table presents revenue by major product and service, as well as by management classification:
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| (In thousands) | 2023 | 2022 | |||||||||||||||||||||||||||
| Renewable Products | Licenses and Royalties | Grants, Collaborations and Other | Total | Renewable Products | Licenses and Royalties | Grants, Collaborations and Other | Total | ||||||||||||||||||||||
| Consumer | $ | 31,355 | $ | — | $ | 2,835 | $ | 34,190 | $ | 32,642 | $ | 433 | $ | 1,476 | $ | 34,551 | |||||||||||||
| Technology access | 8,869 | 9,482 | 3,542 | 21,893 | 10,823 | 8,880 | 3,455 | 23,158 | |||||||||||||||||||||
| $ | 40,224 | $ | 9,482 | $ | 6,377 | $ | 56,083 | $ | 43,465 | $ | 9,313 | $ | 4,931 | $ | 57,709 | ||||||||||||||
Significant Revenue Agreements and Customers
In connection with the significant revenue agreements discussed below and others previously disclosed, the Company
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recognized the following revenue:
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| (In thousands) | 2023 | 2022 | |||||||||||||||||||||||||||
| Renewable Products | Licenses and Royalties | Collaborations, Grants and Other | Total | Renewable Products | Licenses and Royalties | Collaborations, Grants and Other | Total | ||||||||||||||||||||||
| Sephora | $ | 7,260 | $ | — | $ | — | $ | 7,260 | $ | 7,633 | $ | — | $ | — | $ | 7,633 | |||||||||||||
| DSM - related party | 232 | 9,479 | — | 9,711 | 4,412 | 8,816 | 2,000 | 15,228 | |||||||||||||||||||||
| Ingredion / PureCircle | 2,987 | — | — | 2,987 | 1,551 | — | — | 1,551 | |||||||||||||||||||||
| Subtotal revenue from significant revenue agreements | 10,479 | 9,479 | — | 19,958 | 13,596 | 8,816 | 2,000 | 24,412 | |||||||||||||||||||||
| Revenue from all other customers | 29,745 | 3 | 6,377 | 36,125 | 29,869 | 497 | 2,931 | 33,297 | |||||||||||||||||||||
| Total revenue from all customers | $ | 40,224 | $ | 9,482 | $ | 6,377 | $ | 56,083 | $ | 43,465 | $ | 9,313 | $ | 4,931 | $ | 57,709 | |||||||||||||
DSM License Agreement and Contract Assignment
In March 2021 the Company and DSM entered into a license agreement and asset purchase agreement pursuant to which DSM acquired exclusive rights to the Company’s Flavor and Fragrance (F&F) product portfolio. The Company granted DSM exclusive licenses covering specific intellectual property of the Company and assigned the Company’s rights and obligations under certain F&F ingredients supply agreements to DSM, in exchange for non-refundable upfront consideration totaling $150 million, and up to $235 million of contingent consideration if and when certain commercial milestones are achieved in each of the calendar years 2022 through 2024. The Company determined the licenses to be functional intellectual property and allocated $143.6 million of the transaction price to the licenses and recorded $143.6 million of licenses and royalties revenues in the three months ended March 31, 2021. The Company also concluded the additional contingent consideration represents variable consideration that is subject to a sales/usage-based threshold and is dependent upon the IP License. The Company will recognize revenue at the later of (1) when the underlying sales or usage has occurred and (2) the related performance obligation has been satisfied (or partially satisfied). During the three months ended March 31, 2023 and 2022, the Company recorded $9.5 million and $8.8 million, respectively, of license and royalties revenue and a corresponding contract asset under the contingent consideration provisions of the agreements.
Contract Assets and Liabilities
When a contract results in revenue being recognized in excess of the amount the Company has invoiced or has the right to invoice to the customer, a contract asset is recognized. Contract assets are transferred to accounts receivable, net when the rights to the consideration become unconditional.
Contract liabilities consist of payments received from customers, or such consideration that is contractually due, in advance of providing the product or performing services such that control has not passed to the customer.
Trade receivables related to revenue from contracts with customers are included in accounts receivable on the condensed consolidated balance sheets, net of the allowance for doubtful accounts. Trade receivables are recorded for the sale of goods or the performance of services at the point of renewable product sale or in accordance with the contractual payment terms for licenses and royalties, and grants and collaborative research and development services for the amount payable by the customer to the Company.
Contract Balances
The following table provides information about accounts receivable, contract assets and contract liabilities from contracts with customers:
| (In thousands) | March 31, 2023 | December 31, 2022 | ||||||
| Accounts receivable, net | $ | 36,842 | $ | 45,775 | ||||
| Accounts receivable - related party, net | $ | 10,836 | $ | 6,608 | ||||
| Contract assets | $ | 3,872 | $ | 806 | ||||
| Contract assets - related party | $ | 33,679 | $ | 36,638 | ||||
| Contract liabilities | $ | 33 | $ | 26 | ||||
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Remaining Performance Obligations
As of March 31, 2023, there were no unsatisfied performance obligations in connection with existing customer agreements.
11. Related Party Transactions
Related Party Debt
Related party debt was as follows:
| March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||
| In thousands | Principal | Unaccreted Debt Discount | Change in Fair Value | Net | Principal | Unaccreted Debt Discount | Change in Fair Value | Net | |||||||||||||||||||||
| DSM note | $ | 100,000 | $ | (11,346) | $ | — | $ | 88,654 | $ | 100,000 | $ | (14,108) | $ | — | $ | 85,892 | |||||||||||||
| Foris | |||||||||||||||||||||||||||||
| Foris convertible note | 50,041 | — | 8,839 | 58,880 | 50,041 | — | 3,985 | 54,026 | |||||||||||||||||||||
| Foris senior note | 82,517 | (3,513) | — | 79,004 | 81,089 | (4,772) | — | 76,317 | |||||||||||||||||||||
| Perrara bridge loan | 37,500 | (916) | — | 36,584 | — | — | — | — | |||||||||||||||||||||
| Total related party debt | $ | 270,058 | $ | (15,775) | $ | 8,839 | $ | 263,122 | $ | 231,130 | $ | (18,880) | $ | 3,985 | $ | 216,235 | |||||||||||||
Related Party Equity
Foris holds common stock warrants issued by the Company. See Note 6, "Stockholders' (Deficit) Equity".
Related Party Revenue
See Note 10, "Revenue Recognition, and Contract Assets and Liabilities", for information about related party revenue transactions with DSM.
Related Party Accounts Receivable, Contract Assets and Accounts Payable
Related party accounts receivable, contract assets, and accounts payable were as follows:
| (In thousands) | March 31, 2023 | December 31, 2022 | ||||||
| Accounts receivable - related party | $ | 10,836 | $ | 6,608 | ||||
| Contract assets - related party | $ | 33,679 | $ | 36,638 | ||||
| Accounts payable - related party | $ | 3,348 | $ | 5,011 | ||||
12. Stock-based Compensation
The Company’s stock option activity and related information for the three months ended March 31, 2023 was as follows:
| Quantity of Stock Options | Weighted- average Exercise Price | Weighted-average Remaining Contractual Life, in Years | Aggregate Intrinsic Value, in Thousands | |||||||||||
| Outstanding - December 31, 2022 | 4,504,430 | $ | 6.72 | 7.4 | $ | 0 | ||||||||
| Granted | 48,488 | $ | 1.62 | |||||||||||
| Exercised | — | $ | — | |||||||||||
| Forfeited or expired | (450,210) | $ | 5.09 | |||||||||||
| Outstanding - March 31, 2023 | 4,102,708 | $ | 6.84 | 7.2 | $ | 22 | ||||||||
| Vested or expected to vest after March 31, 2023 | 3,905,495 | $ | 6.99 | 7.1 | $ | 2 | ||||||||
| Exercisable at March 31, 2023 | 2,032,792 | $ | 9.60 | 5.6 | $ | — | ||||||||
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Activity related to the Company’s restricted stock units (RSUs), including performance-based restricted stock units (PSUs) for the three months ended March 31, 2023 was as follows:
| Quantity of Restricted Stock Units | Weighted-average Grant-date Fair Value | Weighted-average Remaining Contractual Life, in Years | |||||||||
| Outstanding - December 31, 2022 | 16,897,826 | $ | 7.75 | 2.2 | |||||||
| Awarded | 931,289 | $ | 1.51 | ||||||||
| Released | (1,423,880) | $ | 3.22 | ||||||||
| Forfeited | (745,107) | $ | 4.79 | ||||||||
| Outstanding - March 31, 2023 | 15,660,128 | $ | 7.93 | 2.0 | |||||||
| Vested or expected to vest after March 31, 2023 | 13,438,337 | $ | 7.76 | 1.9 | |||||||
Stock-based compensation expense during the three months ended March 31, 2023 and 2022 is reflected in the condensed consolidated statements of operations as follows:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cost of products sold | $ | 66 | $ | 78 | ||||
| Research and development | 1,314 | 1,617 | ||||||
| Sales, general and administrative | 4,405 | 9,893 | ||||||
| Total stock-based compensation expense | $ | 5,785 | $ | 11,588 | ||||
As of March 31, 2023, $89.7 million of unrecognized compensation expense related to stock options and RSUs is expected to be recognized over a weighted-average period of 2.6 years.
13. Subsequent Events
Sale, Assignment and License of Certain Assets of Cosmetic Ingredients Business to Givaudan
On April 3, 2023, the Company closed its Asset Purchase Agreement, dated as of February 21, 2023 (the Asset Purchase Agreement), by and among the Company and Givaudan SA (Givaudan). Pursuant to the Asset Purchase Agreement, the Company sold, assigned, or licensed certain Aprinnova, LLC (Aprinnova) assets of its cosmetic ingredients businesses, including an assignment of certain distribution agreements, a sale of certain trademarks, and a grant of an exclusive, worldwide, irrevocable license to distribute, market and sell Neossance® Squalane emollient, Neossance® Hemisqualane silicone alternative and CleanScreen™ sun protector in cosmetics actives, to Givaudan for $200 million upfront cash consideration and up to $150 million in performance-based earnout payments over three years. In addition, the parties entered into a long-term partnership agreement for the manufacturing of cosmetic ingredients by the Company for Givaudan.
Purchase of Noncontrolling Interest in Aprinnova
On April 3, 2023, the Company closed its Share Purchase Agreement related to Aprinnova, dated as of December 15, 2022, by and among the Company, Nikko Chemicals Co. (Nikko), Ltd. and Nippon Surfactant Industries, Co., Ltd. (Nissa). Pursuant to the Share Purchase Agreement, the Company purchased 39 shares of Aprinnova from Nikko and 10 shares of Aprinnova from Nissa, constituting 49% of the outstanding membership interests in Aprinnova for aggregate cash consideration of $49 million, less applicable deductions and withholdings required by law. Following closing of the transaction, the Company holds 99% of the outstanding membership interests in Aprinnova.
Forbearance Agreements
On May 9, 2023, the Company entered into forbearance agreements with each of DSM Finance, B.V., Foris Ventures, LLC, and Perrara Ventures, LLC.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q. These discussions contain forward-looking statements reflecting our current expectations that involve risks and uncertainties which are subject to safe harbors under the Securities Act of 1933, as amended (the Securities Act), and the Securities Exchange Act of 1934 (the Exchange Act). These forward-looking statements include, but are not limited to, statements concerning any projections of financing needs, revenue, expenses, earnings or losses from operations, or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning product research, development and commercialization plans and timelines; any statements regarding expected production capacities, volumes and costs; any statements regarding anticipated benefits of our products and expectations for commercial relationships; any other statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q, in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the 2022 Form 10-K), and as applicable, in our other filings with the Securities and Exchange Commission. We do not assume any obligation to update any forward-looking statements.
Overview
We are a biotechnology company delivering sustainable, science-based ingredients and consumer products that are better than incumbent options for people and the planet. To accelerate the world’s transition to sustainable consumption, we create, manufacture, and commercialize consumer products and ingredients that reach more than 300 million consumers. The largest component of our revenue is derived from marketing and selling Clean Beauty, Personal Care, and Health & Wellness consumer products through our direct-to-consumer e-commerce platforms and a growing network of retail partners. Our proprietary sustainable ingredients are sold in bulk to industrial leaders who serve Flavor & Fragrance (F&F), Nutrition, Food & Beverage, and Clean Beauty & Personal Care end markets.
We began 2022 with eight consumer brands, Biossance® clean beauty skincare, JVNTM haircare, Rose Inc.TM clean color cosmetics, Pipette® clean baby skincare, Costa Brazil® luxury skincare, OLIKATM clean wellness, PurecaneTM zero-calorie sweetener, and Terasana® clean skincare. During 2022, we added MenoLabsTM, a brand focused on healthy living and menopause wellness, EcoFabulousTM clean beauty for Gen-Z consumers, and StripesTM (peri)menopausal wellness; and prepared to discontinue the Terasana business. In the first quarter of 2023, we launched 4U by TiaTM, a new clean haircare line. In the first quarter of 2023, we decided to exit the EcoFabulous brand and reorganize the Beauty Labs business.
The ingredients and consumer products we produce are powered by our unique, fermentation-based Lab-to-MarketTM technology platform. This technology platform creates a portfolio connection between our proprietary science and formulation expertise, our manufacturing capability at industrial scale, and our ability to commercialize sustainable products that give consumers the power to choose products that benefit the planet. Our technology platform offers advantages to traditional methods of sourcing similar ingredients (such as petrochemistry, unsustainable agricultural practices, and extraction from organisms). These advantages include but are not limited to renewable and ethical sourcing of raw materials, less resource-intensive production, minimal impact on sensitive ecosystems, enhanced purity and safety profile, less vulnerability to climate disruption, and improved supply chain resilience. We bring together biology and engineering to produce sustainable materials that are scarce or endangered in nature. We leverage state-of-the-art machine learning, robotics, and artificial intelligence, which enable our technology platform to rapidly bring new innovation to market. Our revenue is generated from consumer product sales, ingredient product sales, research and development collaboration programs and grants, and consumer marketing services.
Our state-of-the-art infrastructure includes industry-leading strain engineering and lab automation located in Emeryville, California; pilot-scale production facilities in Emeryville and Campinas, Brazil; a demonstration-scale facility in Campinas; commercial scale production facility in Leland, North Carolina; and a consumer production facility, referred to as Interfaces, in the State of Sao Paolo, Brazil. A wide variety of feedstocks for production exists, but we source Brazilian sugarcane for our large-scale production because of its supply resilience, renewability, low cost, and relative price stability. As of March 31, 2023, we have commissioned three out of five lines of our new purpose-built, large-scale precision fermentation facility in
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Brazil, which we anticipate will accommodate the manufacturing of up to five products concurrently. Pending full commissioning of the new facility, we continue to manufacture our products at manufacturing sites, some of which are third party, in Brazil, the United States, and Europe.
The results of operations for the years ended December 31, 2022, 2021, and 2020 reflected impacts of the COVID-19 pandemic, as well as the ongoing conflict in Ukraine. At the onset of the pandemic, we saw a shift in consumer behavior from purchasing in brick and mortar retail stores to online shopping. These events have also caused delays and increased costs within our supply chain, particularly related to inbound freight, packaging and componentry and other input costs. Inflationary pressures, rising interest rates, and risk of recession inherently result in uncertainty in business trends and consumer behavior. Although we are not currently seeing meaningful signs of a slowdown in consumer demand for our products, we are closely monitoring economic conditions.
Sales and Revenue
We recognize revenue from consumer and ingredient product sales, license fees and royalties, and collaborations and grants.
Consumer products are being sold in-store and online through retail partners such as, but not limited to, Sephora, Target, and Walmart. We also sell to consumers via our direct-to-consumer ecommerce platforms. Our ingredients are sold business-to-business directly to customers such as DSM, Ingredion, and other flavor, fragrance, and cosmetic companies or through our distribution partners.
We have research and development collaboration arrangements for which we receive payments from our collaboration partners, which include Koninklijke DSM N.V. (DSM), Givaudan, Firmenich SA (Firmenich), Yifan Pharmaceutical Co. Ltd. (Yifan), and others. Some of our collaboration arrangements provide for advance payments to us in consideration for grants of exclusivity or research efforts that we will perform. Our collaboration agreements, which may require us to achieve milestones prior to receiving payments, are expected to contribute revenues from product sales and royalties if and when they are commercialized. See Note 10, “Revenue Recognition” in Part II, Item 8 of our 2022 Form 10-K for additional information.
We have several collaboration molecules in our development pipeline with partners including DSM, Givaudan, Firmenich, and Yifan that we expect will contribute revenues from product sales and royalties if and when they are commercialized.
Critical Accounting Policies and Estimates
Management's discussion and analysis of results of operations and financial condition are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP). We believe that the critical accounting policies described in this section are those that significantly impact our financial condition and results of operations and require the most difficult, subjective or complex judgements, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. Because of this uncertainty, actual results may vary from these estimates.
Our most critical accounting estimates include:
•Recognition of revenue including arrangements with multiple performance obligations;
•Valuation and allocation of fair value to various elements of complex related party transactions;
•The valuation of freestanding and embedded derivatives, which impacts gains or losses on such derivatives, the carrying value of debt, interest expense and deemed dividends;
•The valuation of debt for which we have elected fair value accounting; and
•The valuation of goodwill, intangible assets and contingent consideration payables, which are generated through business acquisitions.
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Results of Operations
Three Months Ended March 31, 2023
Revenue
| Three Months Ended March 31, | ||||||||
| (In thousands) | 2023 | 2022 | ||||||
| Revenue | ||||||||
| Renewable products | $ | 40,224 | $ | 43,465 | ||||
| Licenses and royalties | 9,482 | 9,313 | ||||||
| Collaborations, grants and other | 6,377 | 4,931 | ||||||
| Total revenue | $ | 56,083 | $ | 57,709 | ||||
Total revenue decreased by 3% to $56.1 million compared to the same period in 2022. Renewable products revenue decreased by 7% to $40.2 million compared to the same period in 2022 primarily due to lower ingredients product revenue. The decrease in ingredients product revenue reflects temporary supply and working capital constraints as the business transitioned from higher cost toll manufacturing to lower cost internal sourcing from the new fermentation plant in Brazil. The decrease in renewable products revenue also reflects lower consumer product revenue, driven by lower Biossance® brand revenue due to lower marketing and media spend, offset in part by the launch of our 4U by TiaTM brand at Walmart in the first quarter of 2023, as well as increased MenoLabs® direct-to-consumer revenue. Licenses and royalties revenue increased 2% to $9.5 million. Collaborations, grants, and other revenue increased 29% to $6.4 million, with growth driven by multiple new contract research programs.
Costs and Operating Expenses
Costs and operating expenses were as follows:
| Three Months Ended March 31, | ||||||||
| (In thousands) | 2023 | 2022 | ||||||
| Cost of products sold | $ | 51,081 | $ | 48,995 | ||||
| Research and development | 26,765 | 26,358 | ||||||
| Sales, general and administrative | 95,870 | 106,916 | ||||||
| Change in fair value of acquisition-related contingent consideration | $ | (28,503) | $ | — | ||||
| Restructuring | $ | 1,013 | $ | — | ||||
| Impairment | $ | 95,386 | $ | — | ||||
| Total cost and operating expenses | $ | 241,612 | $ | 182,269 | ||||
Included in costs and operating expenses were the following amounts of non-cash stock-based compensation expense:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cost of products sold | $ | 66 | $ | 78 | ||||
| Research and development | 1,314 | 1,617 | ||||||
| Sales, general and administrative | 4,405 | 9,893 | ||||||
| Total stock-based compensation expense | $ | 5,785 | $ | 11,588 | ||||
Cost of Products Sold
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Cost of products sold represents the direct cost to produce our products and includes the costs of raw materials and related transportation costs, labor and overhead, amounts paid to contract manufacturers, inventory write-downs resulting from applying lower of cost or net realizable value inventory adjustments, and costs related to production scale-up. Due to our product mix of higher-margin, higher-volume consumer products and lower-margin, large-batch fermentation ingredients products, our cost of products sold may not change proportionately with changes in renewable product revenue in any given period.
Cost of products sold increased 4% to $51.1 million compared to the same period in 2022, primarily driven by a $4.2 million write-down of EcoFabulous inventory in connection with our decision to exit that business in the first quarter of 2023, offset in part by lower inbound freight compared to the prior year quarter.
Research and Development Expenses
Research and development expenses increased 2% to $26.8 million compared to the same period in 2022, primarily due to increased employee compensation and benefit costs.
Sales, General, and Administrative Expenses
Sales, general, and administrative expenses decreased by 10% to $95.9 million compared to the same period in 2022. The decrease was driven by spending reductions in paid media, freight and fulfillment, as well as reduced incentive compensation expense.
Change in Fair Value of Acquisition-Related Contingent Consideration
The Company established earnout liabilities for certain of its acquisitions that are contingent upon the achievement of certain financial and other metrics over multiple years. These liabilities are remeasured quarterly based upon actual results to date and projections for future periods. The Company reduced the related liabilities by $31.5 million in the first quarter of 2023.
Restructuring
In the fourth quarter of 2022, the Company committed to its "Fit-to-Win" strategy, which is a company-wide initiative with a goal of delivering $150.0 million of benefit in fiscal year 2023. This program will include price increases on selective ingredients and consumer products, production and shipping cost reductions, and reductions within SG&A related to shipping and fulfillment, marketing expenses, and workforce right-sizing. The Company recognized restructuring expense of $1.0 million related to employee severance in the first quarter of 2023.
Impairment
In the first quarter of 2023, the Company reviewed its portfolio of consumer brands and decided to exit the EcoFabulous brand and reorganize the Beauty Labs business, resulting in $95.4 million of impairment expense related to the write-off of goodwill and intangible assets. The Company does not expect to incur additional charges related to these exits.
Other Income (Expense), Net
| Three Months Ended March 31, | ||||||||
| (In thousands) | 2023 | 2022 | ||||||
| Interest expense | $ | (12,983) | $ | (5,263) | ||||
| Gain from change in fair value of derivative instruments | 1,263 | 1,815 | ||||||
| (Loss) gain from change in fair value of debt | (4,854) | 20,796 | ||||||
| Other expense, net | (533) | (3,052) | ||||||
| Total other (expense) income, net | $ | (17,107) | $ | 14,296 | ||||
Total other income (expense), net was $17.1 million of expense for the three months ended March 31, 2023, compared to $14.3 million of income for the same period in 2022. Interest expense increased $7.7 million to $13.0 million due to a higher average principal balance outstanding on our debt, and increased debt discount accretion. In addition, change in fair value of debt swung
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from a $20.8 million gain in 2022 to a $4.9 million loss in 2023, driven by discount rates and changes in our stock price during the three-month periods ended March 31, 2023 and 2022.
Provision for Income Taxes
For the three months ended March 31, 2023, we recorded a benefit from income taxes of $0.9 million related to an international tax benefit. For the three months ended March 31, 2022, we recorded a benefit from income taxes of $0.8 million related to an international tax benefit.
Liquidity and Capital Resources
| Three Months Ended March 31, | ||||||||
| (In thousands) | 2023 | 2022 | ||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (90,001) | $ | (152,442) | ||||
| Investing activities | $ | (4,815) | $ | (47,286) | ||||
| Financing activities | $ | 41,614 | $ | 3,958 | ||||
Liquidity
We have incurred operating losses since our inception, and we expect to continue to incur losses and negative cash flows from operations through at least the next 12 months following the issuance of this Form 10-Q. As of March 31, 2023, we had negative working capital of $227.1 million, an accumulated deficit of $3.1 billion, and unrestricted cash and cash equivalents of $11.2 million. As of March 31, 2023, the principal amounts due under our debt instruments (including related party debt) totaled $962.0 million, of which $188.8 million is current. Current debt increased by $60.1 million from December 31, 2022 to March 31, 2023 due to the timing of existing debt payments and first quarter 2023 borrowings of $37.5 million under the Perrara bridge loan which matures April 3, 2023.
Our debt agreements contain various covenants, including certain restrictions on our business and additional indebtedness as well as material adverse effect and cross default provisions that could cause us to be at risk of default. A failure to comply with the covenants and other provisions of our debt instruments, including any failure to make payments when required, would generally result in events of default which could result in the acceleration of a substantial portion of indebtedness. In April 2023 we failed to meet certain covenants under several credit arrangements, including those associated with missed payments.
On May 9, 2023, the Company entered into forbearance agreements with each of its senior lenders, DSM Finance B.V., Foris Ventures, LLC, and Perrara Ventures, LLC, pursuant to which the Lenders agreed to forbear from exercising their respective rights and remedies related to certain payment defaults under the respective loan agreements until June 23, 2023.
Unrestricted cash and cash equivalents of $11.2 million as of March 31, 2023, are not sufficient to fund expected future negative cash flows from operations, cash debt service obligations, and cash lease obligations for the next 12 months. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements in this Form 10-Q are issued. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our ability to continue as a going concern will depend, in large part, on our ability to minimize the anticipated negative cash flows from operations during the 12 months from the date of this filing and to raise additional proceeds through strategic transactions and/or financings, and refinance or extend other existing debt maturities, all of which are uncertain and outside of our control.
Our operating plan for 2023 contemplates a significant reduction in net operating cash outflows as compared to the year ended December 31, 2022, resulting from:
•an increase in cash inflows from collaborations, grants, licenses, and royalties, in particular, $200 million received in April 2023 in connection with the Givaudan transaction;
•the monetization of certain assets;
•a reduction in our workforce including consultants, professional advisors, and other vendors;
•a reduction or delay in uncommitted capital expenditures, including nonessential facilities and lab equipment, and information technology projects;
•the exit of certain businesses, including the first quarter exit of the EcoFabulous brand and the reorganization of the Beauty Labs business;
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•reduced supply chain costs, including, among other things, lower freight costs as a result of negotiating terms;
•revenue growth from sales of existing products with positive gross margins, including international expansion in the UK and Germany;
•significantly reduced investment in new product and commercial development efforts;
•reduced production costs as a result of manufacturing and technical developments; and,
•the close monitoring of our working capital position with customers, suppliers and product inventories.
We will need to fund operations for the foreseeable future with cash currently on hand, cash inflows from product sales, licenses, royalties, grants, collaborations, and equity and debt financings, to the extent necessary. Funding from new equity or debt financings may not occur timely or on reasonable terms, if at all, and may contain burdensome covenants, grant further security interests in our assets, or require us to enter into collaboration and licensing arrangements that relinquish commercial rights or grant licenses on terms that are not favorable. Some of our research and development collaborations are subject to the risk that we may not meet milestones.
Cash Flows during the Three Months Ended March 31, 2023 and 2022
Cash Flows from Operating Activities
Our primary uses of cash in operating activities are costs related to the production and sale of our products and personnel-related expenditures, offset by cash received from renewable product sales, licenses and royalties, and collaborations.
For the three months ended March 31, 2023, net cash used in operating activities was $90.0 million, consisting primarily of a $201.8 million net loss, partly offset by $94.7 million of favorable non-cash adjustments and a $17.1 million decrease in working capital. The non-cash adjustments were driven by $95.4 million of impairment of goodwill and intangible assets.
For the three months ended March 31, 2022, net cash used in operating activities was $152.4 million, consisting primarily of a $110.2 million net loss, a $38.5 million increase in working capital, and $3.7 million of unfavorable non-cash adjustments. The non-cash adjustments were primarily comprised of a $20.8 million gain from change in fair value of debt, partly offset by $11.6 million of stock-based compensation expense.
Cash Flows from Investing Activities
For the three months ended March 31, 2023, net cash used in investing activities was $4.8 million, related to purchases of property, plant, and equipment.
For the three months ended March 31, 2022, net cash used in investing activities was $47.3 million, comprised of $33.8 million of property, plant, and equipment purchases and $13.5 million of cash paid in business combinations.
Cash Flows from Financing Activities
For the three months ended March 31, 2023, net cash provided by financing activities was $41.6 million, primarily comprised of $37.0 million of proceeds from debt issuance.
For the three months ended March 31, 2022, net cash provided by financing activities was $4.0 million, primarily comprised of $4.0 million of proceeds from warrant exercises.
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Contractual Obligations
The following is a summary of our contractual obligations as of March 31, 2023:
Payable by year ending December 31, (In thousands) | Total | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | ||||||||||||||||
| Principal payments on debt | $ | 957,118 | $ | 161,307 | $ | 80,811 | $ | 25,000 | $ | 690,000 | $ | — | $ | — | |||||||||
Interest payments on debt | 81,768 | 35,037 | 20,655 | 15,697 | 10,379 | — | — | ||||||||||||||||
| Operating leases | 334,928 | 14,989 | 23,808 | 23,361 | 24,649 | 25,888 | 222,233 | ||||||||||||||||
| Liability in connection with acquisition of equity-method investment | 10,800 | 10,800 | — | — | — | — | — | ||||||||||||||||
| Construction costs in connection with new production facility | 6,751 | 6,751 | — | — | — | — | — | ||||||||||||||||
| Contract termination fees | 1,379 | 1,379 | — | — | — | — | — | ||||||||||||||||
| Financing leases | 74 | 16 | 21 | 21 | 16 | — | — | ||||||||||||||||
| Total | $ | 1,392,818 | $ | 230,279 | $ | 125,295 | $ | 64,079 | $ | 725,044 | $ | 25,888 | $ | 222,233 | |||||||||
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in our market risk sensitive instruments and positions is the potential loss arising from adverse changes in the price of our common stock, foreign currency exchange rates, interest rates and commodity prices.
Amyris Common Stock Price Risk
We are exposed to potential losses related to the price of our common stock. At each balance sheet date, the fair value of our derivative liabilities and certain of our outstanding debt instruments for which we have elected fair value accounting, is remeasured using current fair value inputs, one of which is the price of our common stock.
During any particular period, if the price of our common stock increases, there will likely be increases in the fair value of our derivative liabilities and our debt instruments for which we have elected fair value accounting. Such increases in fair value will result in losses in our condensed consolidated statements of operations from change in fair value of derivative instruments and from change in fair value of debt. Conversely, a decrease in the price of our stock during any particular period will likely result in gains in relation to these derivative and debt instruments. Given the current and historical volatility of our common stock price, any changes period-over-period have and could in the future result in a significant change in the fair value of our derivative liabilities and convertible debt instruments and significantly impact our net income during the period of change.
Foreign Currency Exchange Risk
Most of our sales contracts are denominated in U.S. dollars, and therefore our revenues are not currently subject to significant foreign currency risk.
The functional currency of our consolidated Brazilian subsidiary is the local currency (Brazilian Real), in which recurring business transactions occur. We do not use currency exchange contracts as hedges against our investment in that subsidiary.
Our permanent investment in Brazil was $250.5 million as of March 31, 2023 and $232.7 million as of December 31, 2022, using the exchange rate at each date. A hypothetical 10% adverse change in Brazilian Real exchange rates would have had an adverse impact to Other Comprehensive Loss of $25.0 million as of March 31, 2023 and $23.3 million as of December 31, 2022.
We have also evaluated foreign currency exposure in relation to our other non-U.S. Dollar denominated assets and liabilities and determined that there would be an immaterial effect on our results of operations from 10% exchange rate fluctuations between those currencies and the U.S. Dollar.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our outstanding debt obligations, including embedded derivatives therein. We generally invest our cash in investments with short maturities or with frequent interest reset terms. Accordingly, our interest income fluctuates with short-term market conditions. As of March 31, 2023, our investment portfolio consisted of money market funds and certificates of deposit, both of which are highly liquid. Due to the short-term nature of our investment portfolio, we do not believe that an immediate 10% increase in interest rates would have a material effect on the fair value of our portfolio. Since we believe we have the ability to liquidate our investment portfolio, we expect that our operating results or cash flows would not be materially affected by a sudden change in market interest rates on the portfolio.
In addition, changes in interest rates could significantly change the fair value of our embedded derivative liabilities.
As of March 31, 2023, all of our outstanding debt was in fixed rate instruments. As a result, changes in interest rates would not affect interest expense and payments in relation to our debt.
Commodity Price Risk
Our primary exposure to market risk for changes in commodity prices relates to our procurement of products from contract manufacturers, freight, packaging materials and other suppliers whose prices are primarily affected by the price of sugar feedstocks and energy.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer (CEO) and chief financial officer (CFO), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of March 31, 2023, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (SEC), and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II
ITEM 1. LEGAL PROCEEDINGS
For a description of our significant pending legal proceedings, please see Note 9, "Commitments and Contingencies" in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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ITEM 1A. RISK FACTORS
The risks described in Part I, Item 1A, "Risk Factors" in our 2022 Form 10-K could materially and adversely affect our business, financial condition and results of operations, and the trading price of our common stock could decline. These risk factors do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. The “Risk Factors” section of the 2022 Form 10-K remains current in all material respects.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
We are reporting the following information in lieu of reporting on a Current Report on Form 8-K under:
Item 1.01 Entry into a Material Definitive Agreement
On May 9, 2023, the Company entered into forbearance agreements (Forbearance Agreements) with each of DSM Finance B.V. (DSM), Foris Ventures, LLC (Foris), and Perrara Ventures, LLC (Perrara) (collectively the Lenders), pursuant to which the Lenders agreed to forbear from exercising their respective rights and remedies related to certain payment defaults under the following agreements until June 23, 2023: (i) the Amended and Restated Loan and Security Agreement (DSM LSA), dated December 12, 2022 (as amended, restated, supplemented or otherwise modified from time to time), by and among the Company, certain subsidiaries of the Company party thereto, and DSM, (ii) the Amended and Restated Loan and Security Agreement (the Foris 2019 LSA), dated October 28, 2019 (as amended, restated, supplemented or otherwise modified from time to time), by and among the Company, certain subsidiaries of the Company party thereto, and Foris, (iii) the Loan and Security Agreement (the Foris 2022 LSA), dated September 13, 2022 (as amended, restated, supplemented or otherwise modified from time to time), by and among the Company, certain subsidiaries of the Company party thereto, and Foris, and (iv) the Loan and Security Agreement (the Perrara LSA), dated March 10, 2023 (as amended, restated, supplemented or otherwise modified from time to time), by and among the Company, certain subsidiaries of the Company party thereto, and Perrara.
In exchange for each of the Lenders entering into a Forbearance Agreement, the Company agreed to certain conditions and covenants, including, among other things, (1) with respect to the DSM LSA, the ongoing payment of 20.0% interest per annum on outstanding principal amounts under the DSM LSA, and (2) with respect to each of the DSM LSA, Foris 2019 LSA, Foris 2022 LSA, and Perrara LSA, the ongoing payment of default interest to each Lender during the forbearance period. Except as set forth above, all other terms, conditions and rights of the DSM LSA, Foris 2019 LSA, Foris 2022 LSA, and Perrara LSA and the related transaction documents remain in full force and effect, which were described in the Company's prior disclosures.
The foregoing description of each Forbearance Agreements does not purport to be complete and is subject to, and qualified by, the full text of such documents, copies of each which will be filed as exhibits to the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2023.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On May 3, 2023, Elizabeth Dreyer notified the Company of her decision to resign from her position as the Company’s Chief Accounting Officer and Corporate Controller effective as of May 3, 2023 (Resignation Date). Ms. Dreyer will continue to serve as an employee of the Company in a non-executive capacity, reporting to the Company’s Chief Financial Officer, and will assist the Company with the transition of her duties and responsibilities. Ms. Dreyer’s resignation is not due to any disagreements on the Company’s financial statement disclosures, internal controls or accounting policies or practices.
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Effective as of the Resignation Date, Han Kieftenbeld, the Company’s Chief Financial Officer, will assume the duties and responsibilities of the Company’s principal accounting officer and directly lead the accounting and financial reporting functions while the Company conducts a search for a Chief Accounting Officer and Corporate Controller.
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ITEM 6. EXHIBITS
| Exhibit No. | Description | Incorporation by Reference | ||||||||||||||||||
| Form | File No. | Exhibit | Filing Date | Filed Herewith | ||||||||||||||||
| 4.01 | 8-K | 001-34885 | 4.1 | 03.14.2023 | ||||||||||||||||
| 10.01 | 8-K | 001-34885 | 10.1 | 03.14.2023 | ||||||||||||||||
10.02a | x | |||||||||||||||||||
| 10.03 | x | |||||||||||||||||||
| 10.04 | x | |||||||||||||||||||
| 31.01 | x | |||||||||||||||||||
| 31.02 | x | |||||||||||||||||||
32.01b | x | |||||||||||||||||||
32.02b | x | |||||||||||||||||||
| 101.INS | XBRL Instance Document | |||||||||||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||||||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||||||||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||||||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||||||||||||||
| a | Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K promulgated under the Exchange Act. | ||||
| b | This certification shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
AMYRIS, INC. | |||||
By: | /s/ John G. Melo | ||||
John G. Melo | |||||
President and Chief Executive Officer (Principal Executive Officer) | |||||
| May 9, 2023 | |||||
By: | /s/ Han Kieftenbeld | ||||
Han Kieftenbeld | |||||
Chief Financial Officer (Principal Financial Officer) | |||||
| May 9, 2023 | |||||
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