Amyris, Inc. (NASDAQ:AMRS) Q4 2022 Earnings Call Transcript

Amyris, Inc. (NASDAQ:AMRS) Q4 2022 Earnings Call Transcript March 16, 2023

Operator: Welcome to the Amyris Fourth Quarter 2022 Financial Results Conference Call. This call is being webcast live on the Events page of the Investors section of the Amyris website at amyris.com. As a reminder, today’s call is being recorded. You may listen to our webcast replay of this call by going to the Investors section of Amyris’ website. I would now like to turn the call over to Han Kieftenbeld, Chief Financial Officer. Please go ahead.

Han Kieftenbeld: Thank you, Andrea and good afternoon everyone. Thank you for joining us today. With me on today’s call is John Melo, President and Chief Executive Officer, and also Eduardo Alvarez, our Chief Operating Officer, who will participate in the Q&A session. We issued our results today in a press release. The current report on Form 8-K furnished with respect to our press release is available on our website, amyris.com in the Investors sections as well as on the SEC’s website. The slides accompanying this presentation can also be found on the website and were posted today for your convenience. Please turn to Slide 2. Please note that on this call, you will hear discussions of non-GAAP financial measures including but not limited to core sales revenue, gross margin, cash operating expense, and adjusted EBITDA.

Reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures are contained in the financial summary section slides of the presentation and the press release distributed today. During this call, we will make forward-looking statements about future events and circumstances, including Amyris’ outlook for 2023 and beyond, Amyris’ goals and strategic priorities, anticipated transactions and other future milestones, as well as market opportunities, growth prospects and Fit to Win actions. These statements are based on management’s current expectation and actual results and future events may differ materially due to risks and uncertainties including those detailed from time-to-time in our filings with the Securities and Exchange Commission, including our 10-K for the fourth quarter and full year 2022.

Amyris disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise. With that, I will turn the call over to John. John?

John Melo: Thanks, Han and good afternoon, everyone. Thank you for joining us today. I will provide an update on our business performance and our key priorities for this year. Han will provide an update on our financial performance and our 2023 outlook. And I will recap before we turn to Q&A. I will start with a note about Silicon Valley Bank and the recent turmoil involving other banks. This unfortunate situation has impacted many. Let me confirm that Amyris does not have direct exposure to either of the banks that issue. We do not bank with them. Our global banking platform is with JPMorgan as our principal commercial bank. We maintain backup banks in each of the regions we operate in should we need to urgently ship deposits.

I am also pleased to confirm that we have continued access to sufficient working capital. As you may have seen from the 8-K disclosure we made yesterday, Amyris secured $50 million in debt to carry us through the point, when we can capture the upfront cash payment from the recently signed transaction with Givaudan, which should be within 30 to 45 days. Slide 4 we delivered a solid fourth quarter with performance that marks our continued, disciplined, efficient use of funds and robust growth. Our consumer business delivered second consecutive quarter of record growth, marked by 64% growth over the fourth quarter of 2021. Our total core revenue of $76 million is up 17% over the fourth quarter of 2021. This is also a new single quarter core revenue record for the company.

Our consumer business is running about 50% direct-to-consumer and about half with retail partners. Our D2C business continues to deliver strong results with growth of about 60% year-over-year. We are making good progress with our marketing spend and our headcount. We operated the first half of 2022, with less than $1 of revenue for every marketing dollar invested. We are now at $2 of revenue for every marketing dollar invested and I expect for us to end 2023 at $3 of revenue for every dollar of marketing invested. This has come from significant insights and innovation across our teams, including a much more efficient customer acquisition model that is being scaled across all of our brands with support of MG Empower, our world-class social commerce agency.

On headcount, we froze headcount during the fourth quarter and I can confirm that we have lowered our total headcount since then. I have eliminated 30% of my direct reports and we have simplified our leadership structure with a significant reduction of the executive team roles. During the fourth quarter, use of cash was our top priority. We operated in a working capital constrained environment and focused on best use of our very limited liquidity. This resulted in over $14 million of ingredient product revenue, where we have orders that we were unable to support with working capital and did not shift. These are mostly farnesene-related products and also our natural sweetener, Reb M. These orders are being filled in the first half of 2023 and are critical for the end customers.

Demand for our ingredients remains very robust. Our biggest challenge has been capacity, access to feedstock and working capital. Both of these are improving and will be resolved through the first half of 2023. We are delivering on our commitment to be the growth leaders in the consumer categories we participate and to drive core revenue growth of our biotech competitors. We are prioritizing our cash use over our revenue and are pleased with the third quarter, which is the third consecutive quarter of material reduction in cash use. We consumed $95 million of cash in the fourth quarter versus our prior indication of $100 million to $110 million. This is a reduction of $100 million in quarterly cash use from the first quarter of 2022. Our consumer growth is not happening at the expense of margin.

Consumer direct gross margin for the quarter was our best of the year and an increase of 600 basis points over the fourth quarter of 2021. We continue to execute our broad fit to win agenda. We are aggressively transitioning to more efficient sourcing and proprietary manufacturing. We are already realizing better than expected production costs at our interfaces facility in Brazil, where we expect around 60% of all our consumer volume manufactured there by the third quarter of 2023. For our Biossance bestsellers alone, the interfaces manufacturing improved cost of goods by an estimated 50%. These combined actions are expected to deliver 300 to 400 basis points of margin improvement for our consumer business through 2023. Slide 5 our healthy top line and margins should be assessed in the broadly positive context of a thriving macro category, prestige beauty environment, where we are leading in each category we participate in.

Industry data tells us that consumer demand for prestige beauty and hair care, color cosmetics, skincare and healthy aging was very strong in the fourth quarter, growing at over 15% year-over-year as the blended number across these categories. This trend has accelerated into the first quarter. It’s often called the lipstick effect, which is to say that even when there is inflation and a degree of economic uncertainty, consumers will spend on affordable indulgences. You can see this reflected in the reported performance of L’Oréal, Ulta Beauty and LVMH as well as our retail partners. There is no doubt that the fundamentals of our business model creating and building differentiated consumer brands and marketing our proprietary molecules through leading global companies that are market leaders are synergistically on trend.

Clean, sustainable, science-backed beauty is what consumers are demanding and spending on. It’s a market driver that enables us to build and operate some of the best performing consumer brands in these categories. We are focused on winning in end markets, where our technology is clearly the best path to replacing chemistry from non-sustainable sources and where we can accomplish that with superior products at lower costs. We are executing our Lab-to-Market strategy. This is where we own the underlying science and technology, we develop and scale as the long-term producer, and we partner with leaders in their respective end markets, those who have the skills and resources to market and grow share through new product development and leverageable distribution reach.

Our partners are simply great at what they do and we are the best at developing and making clean, sustainable chemistry that enables them great market opportunities with their market access and reach. Slide 7, as for our consumer brands, we will continue to support this pillar of our strategy, while also making strategic adjustments, which I will get to in a few seconds. These brands are doing great with growing demand from the retailers we work with and solid direct-to-consumer performance. As mentioned, the categories we compete in have real tailwinds with continued strong growth in the first quarter. Here is what we have learned. And what we have heard from our retail partners like Sephora is that when we smartly invest in our direct-to-consumer brands, the impact of that is felt at the shelf level.

A strong B2C business supported with healthy marketing investment drives a strong retail sales performance. Consumers are not just walking into stores to buy brands they have no awareness of. The success of our key strategic consumer brands drives more demand of our ingredients. When we get this right, it’s an amazing and efficient flywheel for growth and market leadership. And we are getting better at it all the time. We are committed to continuing to deliver industry-leading growth for our consumer portfolio and we will moderate or accelerate this growth based on investment. We have great assets and significant and growing demand for our brands and the ingredients and products we produce. Our available ingredient capacity is sold out for 2023.

Slide 8, to fully leverage our assets to drive enterprise value requires a deeper focus on efficiency, lowering our costs and also simplifying our portfolio. We are narrowing our investments to where we have and can’t extend market leadership and sustainable predictable growth, which includes the gross margin increase I mentioned earlier. We are further focusing our consumer brand portfolio and expect to end with 5 to 6 brands that our market leaders represent over 90% of our current revenue and growth, use a lot of our ingredients and their formulations and have a clear path to profitability. This additional rationalization of non-core assets in our consumer portfolio is expected to generate around $150 million of cash proceeds this year. The brands that remain in our portfolio have a current market value of around $2 billion.

We are in active discussions with potential buyers for these non-core assets that we are in the process of selling. In parallel, we will reduce and eliminate all other spend through further divestments and deep prioritization of where we invest our limited dollars. Let me now move to the strategic transaction we signed with Givaudan in February. This transaction has an expected value of over $500 million. This includes $200 million of upfront cash, $150 million of earn-out to be paid over 3 years and an expected over $150 million in gross margin dollars from the production of the products during the first 10 years of our long-term production agreement. This does not include any value from future molecules we add to the partnership or for joint development that are part of the strategic partnership we have created with Givaudan for leading the beauty industry with clean sustainable chemistry produced from fermentation.

We expect that there will be less than $10 million revenue reduction on the basis of 2022’s numbers as we continue to benefit from the production of these ingredients through the long-term manufacturing agreement. This transaction is for two molecules, Squalane and Hemisqualane and one formulation that includes these two ingredients, clear screen, a sustainable solution for sun protection. This transaction represents more than 3x the value versus our other strategic molecule transactions and is consistent in structure with both the DSM Flavor & Fragrance transaction and the Ingredion partnership for Reb M and other products in the human nutrition market. We already have an excellent relationship with Givaudan, where we develop BisaboLife and their linguist breakthrough, Bio-Retinol from our technology and fermentation platform.

When you combine our biotechnology stack with Givaudan’s market insights and product development resources, the result is a powerhouse capability that is uniquely positioned for global growth and becoming a clear leader in clean sustainable chemistry into the global beauty industry. This transaction is great proof of the value of our molecules and the power of our technology platform to truly transform in markets to clean, sustainable chemistry that makes our planet healthy. As I previously communicated, the transaction is growing through the HSR waiting period and we expect that 30 to 45-day closing and funding. Having discussed the Givaudan transaction, let me step back and put this in the context of our go-to-market model. With Fidelity to our Fit to Win rigor, we covered the beauty and personal care categories with Givaudan.

There are three other verticals where our biofermentation leadership creates sustained long-term growth for our current ingredients portfolio, along with significant potential to expand through development of new ingredients. Flavor & Fragrance revenue streams will come from our DSM relationship. This is also performing extremely well with our blockbuster ingredients and their access to market. Food, beverage and nutrition opportunities will continue to emerge from Ingredion. They are doing an excellent job expanding the market for our Reb M. This ingredient is expected to be in the top three ingredients for revenue in 2023 and is growing at a faster rate than we have planned. And we are engaged with a potential strategic partnership for commercialization opportunities in the human health and pharmaceutical markets that will include squalene for vaccine adjuvants.

This is a competitive process and we are really excited about the participants and the potential outcome. Slide 10, we have been approached and are in active discussions regarding a manufacturing joint venture. We are exploring this opportunity with one of the world’s top four sugar producers, a mill about the size of Barra Bonita. The proposed JV structure would combine some of our biomanufacturing assets would we lease a significant amount of cash from our current production assets and the partner would fund the next biomanufacturing facility and downstream processing facilities. They have completed initial diligence and are impressed with what we have built at Barra Bonita and the quality of our teams and overall capability. Biomanufacturing consumes the most significant amount of our working capital and has a long cash cycle time.

We believe this type of partnership can be deeply strategic and significantly advance our market leadership in biomanufacturing with a capital-light approach. We are very pleased with this opportunity and we will update you on progress. In addition to fully funding our much needed next production facility, this opportunity can also help generate $50 million to $100 million in new cash to our balance sheet in the short-term and free up $50 million of current working capital that is used to support our ingredients business. If discussions continue as planned, then we expect this facility to be in construction by the end of this year and be the 100% farnesene dedicated biomanufacturing facility. The structure of this JV and the financial commitment from this partner is a great testimony to the best-in-class capability we have built for biofermentation and downstream biochemical processing.

We believe we have the best in the world and our partnerships continue to prove this. With the proceeds from the rationalization of non-core consumer brands and the opportunity to partner for manufacturing capacity, we see a clear path to self-sustaining cash generation. We now need 100% focus on efficiency and excellence across our operations. We intend to bring our operating cash use in 2023 to around $200 million run-rate by the end of 2023 and over €“ and from over $600 million in 2022. We are delivering this reduction in cash use through our Fit to Win agenda, portfolio rationalization of non-core assets along with ensuring we have the right size organization for supporting our lean and focused future. We are also expanding our gross margin this year through the manufacturing cost savings in the Fit to Win agenda, but also through the Givaudan earn-out and the underlying growth of our Flavors & Fragrance business and the impact this has on the DSM earn-out.

Taken together, we expect these actions will enable us to meet our objective of ending 2023 as a growing self-sufficient enterprise with a capacity to fund its growth. Let me close out by discussing our liquidity. Our liquidity has been extremely challenging. It has been a healthy forcing factor as we focused on what matters to ensure we invest with the growth and efficiency is and where we are the best. As the Givaudan proceeds come in and cost savings I detailed, we will be prepared to build enterprise value. To summarize, we are an investment model that combines proven and profitable biotechnology that sells to world leading companies with the ability to develop and market products that consumers love. I don’t know of any company health, beauty and wellness markets who have the Lab-to-Market capability and integration of Amyris and are delivering on what consumers are demanding today.

We have never had as much inbound interest in developing partnerships for new molecules and would retailers and brand owners wanting to work with us and needing access to our capability to deliver new chemistry and great products. We have a disciplined 2023 operating plan that is ambitious, but realistic, with visibility to self-sustaining operating cash flow by the end of this year. We will continue to streamline our portfolio leaning into the greatest opportunities while rightsizing our cost base. Last but certainly not least could not be more grateful to our teams who have delivered incredible performance without the full resources required to keep our customer supplied, when many companies fail to do this in 2022. They are scrappy, talented and passionate.

Let me now turn the call to Han.

Han Kieftenbeld: Thank you, John. Please turn to Slide 11. Before I start my remarks regarding the quarter and full year, let me note that as a housekeeping matter, you will find that we are filing a prospectus supplement today to register the shares and warrants issued at the end of last year to force ventures in connection with our private placement. And tomorrow, we will be filing an S-3 amendment to reflect our change in status from a WKSI to a non-WKSI. WKSI is a well-known seasoned issuer. This conversion will maintain the effectiveness of our existing S-3 registration. Let me now proceed with discussing the quarter’s financials and I will close out with an outlook for €˜23 before handing the call back to John. As I said, we are on Slide 11.

Our fourth quarter was another strong quarter of core revenue growth and a new record in consumer growth. Core revenue, which includes consumer and technology access and excludes strategic transactions, increased 17% to $75.8 million when compared to the fourth quarter of last year. Core revenue included record consumer revenue of $52.8 million, which increased to 64% for the quarter and 92% for the full year. The fourth quarter, as John said, is the second quarter €“ the second consecutive quarter of record consumer revenue. Amyris’ consumer brands outperformed the sector, with prestige beauty industry growth of 15% as recently reported by the NPD Group. Their year-end report confirmed that every category in prestige beauty posted double-digit gains in €˜22 with skin, hair care and color cosmetics growing 12%, 22% and 18% respectively.

Amyris’ brands in these categories delivered about 5x industry growth and specifically in these categories, we delivered 44% in skin, 744% in hair, and 145% growth in color cosmetics. Technology access revenue of $23 million declined 30%. This was primarily due to a $30 million of joint venture revenue in the human health and food and beverage industries in Q4 of €˜21 that did not repeat in €˜22. Ingredion’s product revenue decreased 12% to $14 million, reflecting temporary supply constraint as the business transitioned from higher cost total manufacturing to lower cost internal sourcing from our new fermentation plant in Brazil. R&D collaboration revenue was down $2 million due to increased focus on the development of molecules for our own marketing and formulation.

Our state-of-the-art fermentation plant in Brazil is now operational with simultaneous production of multiple ingredients up and running allowing us to address the supply constraints we have experienced in the past and providing us a path to make progress on turning around the unfavorable margin economics we have to bear in the past due to sourcing product from third-party contract manufacturers. As it relates to revenue, despite macroeconomic concerns, we continue to experience strong demand from the market, both for our consumer and ingredients products. Growth in consumer revenue continues to be best-in-class across publicly traded beauty companies and is now two-third of our core revenue doubling since the end of €˜19. The creation of demand for Amyris clean beauty products is driven by four factors: first, more brands; secondly, new formulations that we have introduced; third, more stores endorsed; and finally, our international expansion most notably into Europe.

We are focusing on ensuring that we can meet this increased demand with the improvements we are making in our supply chain and the cost savings measures that will deliver lower unit cost and ultimately a positive bottom line. This brings me to the next slide on gross margin, Slide 13. Non-GAAP gross margin was $21.4 million or 28% of revenue compared to $22 million or 34% of revenue in Q4 2021. Excluding the impact of technology license revenue in both periods, non-GAAP gross margin increased by nearly $6 million and was 400 basis points higher as a percent of revenue than in the prior year. This was primarily due to consumer revenue growth and improved consumer margins. Key cost that reduced profitability of freight and logistic expense. We experienced significantly higher spending in the first three quarters of 2022 as compared to the prior year, particularly due to increased inbound airfreights and volume to support our growing consumer brand revenue as well as the importation of ingredients intermediate products.

We were pleased with our progress to reduce costs in these areas using the reduction in inbound air shipping from $12.7 million in Q3 to just $3.5 million in Q4. We expect most of these freight and logistic expenses to continue to decline due to the full commissioning of our Brazil plant and the transition to Brazilian source components and manufacturing for our largest consumer brands. The takeaway regarding gross margins is that we have made strategic investments in our manufacturing and supply chain footprint both on the consumer and ingredients side. We intend to take advantage of our scale with cost of goods sold and are revisiting all input cost as part of our Fit to Win actions. Next, I would like to touch on operating expense, Slide 14.

We are actively operating 10 brands today, following the recent launch of Stripes in October and 4U by Tia in December. To support brand development and top line growth, we have significant investments resulting in cash operating expenses that have grown to $148.3 million in the fourth quarter of 2022, an increase of $44.9 million versus the prior year quarter. The fourth quarter is historically seasonally our large revenue and was heavier spend quarter of the year. And the year-over-year growth was driven by increased headcount both organic and from acquisitions, consumer brands, freight and fulfillment activities and investments in consumer brands. Shipping and handling of our consumer goods increased by $5.5 million or 68% versus the same quarter last year due to continued growth in DTC orders that John also referenced.

We have slowed the pace of these investments in new brands to balance cash management and expense control. As part of our Fit to Win actions, we have recently negotiated a new parcel shipping agreement with a large global provider, which is expected to save us $15 million to $20 million over the 3-year life of the agreement. As a result of our elevated expense, our use of cash in the quarter was also elevated, principally due to continued investment in brand marketing of both the new and existing brands and also the deployment of cash for the construction of the Brazil fermentation plant that has been entirely self funded to-date. We started the quarter with a cash balance of $25 million and raised net about $147 million through a term loan and a pipe.

We used $157 million during the quarter on operational adjusted EBITDA offset and in part by favorable working capital leverage of $60 million driven by actions taken with suppliers to improve terms and also improve the cash conversion cycle. We very closely managed inventories resulting in a $17 million sequential decrease in inventory holdings. We closed out the quarter as a result with $71 million of cash. Slide 15. As you can see, we sequentially reduced cash use for operating and investing activities as the year progressed. Q4 of 2022 was down $102 million as compared to the first quarter of last year. We used a total of $526 million for operating activities during the year, which included all our cost of goods sold, operating expense and working capital needs.

We used a total of $124 million in 2022 for investing, of which $106 million was related to capital expenditures, mostly related to the construction of our Barra Bonita fermentation plant. We have worked extremely hard on reducing our use of cash by taking various steps. We did substantially reduce the cost involved within inbound air shipping from Q3 to Q4 by just over $9 million or 72%. And we also, as John mentioned, delayed our leadership structure effecting a $1.2 million initial restructuring charge. The combination of staff reductions we effected and workforce attrition is expected to deliver $9 million to $10 million in annualized savings in 2023. We clearly have more to do on our Fit-to-Win agenda and are committed to delivering quarter-by-quarter improvements in profitability and cash generation from operations.

We, therefore, expect this trend of reduced use of cash to continue in 2023. The year-end total cash balance of $71 million, combined with our Fit-to-Win actions, along with the $200 million of upfront cash we expect to receive from the Givaudan deal, along with the monetization of non-core assets and potential funding our core investors €“ investments from strategic partners are expected to provide us with the funding required to get to self-sufficiency. Before I address full year 2023 guidance, let me first summarize the 2 transactions that are in front of us. We expect to soon complete the acquisition of an additional 49% of our joint venture in Aprinnova. We have agreed to pay $49 billion to bring €“ $49 million to bring our ownership percentage in Aprinnova up to 99%.

This will close at the same time as the Givaudan transaction. We announced our agreement with Givaudan to license certain cosmetic ingredients in exchange for $200 million upfront and up to $150 million in earn-out payments. John already described this detail. We are excited to close this deal and it will bring in meaningful cash to start addressing our liquidity constraints. Let me now move to comment on the outlook for €˜23. Consumer revenue is expected to continue growing at the current rate, and ingredients revenues are expected to regain momentum based on increased access to intermediate products and production output from our Brazil fermentation plant. Total revenue is expected to grow 95% to 100% for full year 2023 compared to the full year 2022.

The strategic transaction with Givaudan is expected to generate $200 million of license revenue in the second quarter. Core revenue, which is the sum of consumer and technology access revenue is expected to follow approximate quarterly phasing of 15% of full year core revenue in Q1, 25% in Q2, 27% is expected in Q3, and 33% is expected in Q4. Consumer brands are expected to continue to deliver industry-leading growth in skin, hair, color cosmetics and baby care as well as healthy aging. We are prioritizing delivering on our cash use targets from sequential quarterly improvements in our cost base, both cost of goods sold and operating expense. Our Fit-to-Win program is expected to deliver over $150 million of annualized cash and cost improvements and working capital efficiencies.

Capital expenditure is estimated at $55 million, 50% lower than 2022. We are contemplating no M&A activities for the time being. With that, let me hand the call back to John. John?

John Melo: Han discussed the opportunities to reduce cost, improve efficiency and improve workflows across our company. We completed the necessary short-term funding and the strategic transaction is on track to close and fund in the next 30 days to 45 days. We are very focused on creating a path to self-sustaining profitability and cash generation. The priorities are clear. First, deliver the best growth of our public peers in beauty and synthetic biology. Secondly, only invest in what matters and is delivering on our financial and strategic agenda stop or sell the rest. And thirdly, a radical focus on efficiency and productivity. These priorities combined with our people and our assets are expected to deliver positive operating cash by the end of this year.

We have a clear path ahead for liquidity with the funding from Givaudan proceeds, from the sale of our non-strategic assets and the proceeds from the new partnerships we are engaged in. Based on our current plans and what we know today we have no current plans for a further equity offering. Let me turn to Andrea now, our operator, can you please open the line for Q&A?

See also 15 Countries that Produce the Most Wind Energy and 21 Biggest Airports in the World.

Q&A Session

Operator: And our first question will come from Colin Rusch of Oppenheimer. Please go ahead.

Colin Rusch: Thanks so much, guys, and appreciate all the detail here. I guess the first thing for me really is around understanding the maturity of the planning process here as well as the discussions for the divestitures. Just I want to understand if you’ve gotten all the way to a complete plan that the Board has approved around the strategic initiatives and how far into the discussions around the divestitures you are with potential buyers?

John Melo: Colin, I’ll start and then have Han share any other commentary he’d like. We’ve had discussions with the Board about our strategy and portfolio. We will actually be doing a formal review of that at a upcoming Board meeting that we have in the next couple of weeks. And then secondly, we have engaged buyers that are actively discussing the assets we’re in the process of selling right now. So that’s the status. I hope that helps. Han, I don’t know if you want to add anything else to that?

Han Kieftenbeld: No, I think that reflects the situation in terms of where we are.

Colin Rusch: That’s incredibly helpful. And then I guess in terms of the potential to move towards an asset-light model, it looks like that’s something that is repeatable. And I guess, are there multiple opportunities for that? If you’re able to get this first one done? Is it something that you would plan to repeat on an accelerated basis that potentially could just help drive revenue and limit some of the capital needs that the organization has?

John Melo: Colin, you’ve been around us for quite some time. And this has always been our objective and dream is to have a capital-light model for manufacturing. The overall maturity of manufacturing and highly engineered organisms and capability has been a significant challenge. That’s really the only reason we ended up doing it ourselves really as a matter of need. I think the fact that we’ve proven out now building two factories, first, Brotas and monetizing that and now Barra Bonita. And the operating performance and what people are observing about Barra Bonita, that’s actually opened up several conversations. We have at least two or three that have approached us about a potential partnership for manufacturing. So I expect it is repeatable.

It’s early days, so we’d like to get the first one done. Of the two or three that have approached us, we’ve engaged in more detail and a deeper process, obviously, with one, and we’re looking to advance for that one. But I think in light of what we’ve experienced, I see this now being a model that we could use to build more factories. But again, I’d like to get the first one done.

Colin Rusch: Fantastic. Super helpful. I’ll take the rest of it offline. Thanks so much, guys.

John Melo: Thanks, Colin.

Operator: The next question comes from Rachel Vatnsdal of JPMorgan. Please go ahead.

Rachel Vatnsdal: Perfect. Hi, guys. Thanks for taking the question. I guess just first up here on the strategic transaction. You previously noted that was going to be roughly $350 million of upfront cash. Now you’re kind of pointing us towards the $200 million to pencil in for 2Q. So if you just talk about, is that all that you’re assuming for the strategic transaction throughout 2023? And then maybe just stepping back, can you walk us through what the negotiations are looking like there? Has this really changed your confidence in terms of ability to get a higher dollar value on strategic transactions going forward, just given you’ve seen the step in so much? And then what’s left from a negotiation standpoint for the specific transaction as well, just given it’s still been signed here? So is that $200 million set in stone or could it go down even further?