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The Good
Although Q4 results weren't officially pre-released, there were a number of hints on the call that allow us to reach some conclusions.
John Melo Quotes
1.preliminary numbers indicate once again we've just about doubled our consumer revenue year-on-year
2.consumer is not slowing down actually our quarter on quarter growth for the fourth quarter was the highest quarter on quarter growth we've delivered in six quarters
3.I can tell you a few things about the quarter our core business grew 40 a little more than 40% quarter on quarter that's the highest quarter over quarter growth that we've seen in over six quarters
4.the total business year on year when we look at the fourth quarter is up 55%
5. category leaders the brands in the category leadership bucket today based on market input market feedback market inquiries is worth about $1.9 billion on a on an asset basis that's the value of that of that portfolio today that portfolio today coming out of the fourth quarter has an annualized revenue of about 230 million it is an amazing portfolio of consumer brands
Quote #1 implies: 64.4M Consumer is a "double" from the 32.2M in 4Q2021
Quote #2 implies: 64.7M+ Consumer revenue is QoQ growth of 39% (which matches the highest QoQ growth rate (38.8%) in the last 6 Q's)
Quote #3 implies: 99.5M+ Core revenue is QoQ growth of 40% from 71.1M in Q3.
Quote #4 Implies: 291.5M+ FY2022 total revenue (55% over 188M FY2021), which implies Q4 Core revenue of ~98M
Quote #5 Implies: 58M Q4 Revenue (230M/4Qs) for the "Billion Dollar Club" brands (Biossance, JVN, 4UbyTia, Stripes, Menolabs, Rose, Pipette). Now add all the "Not So Billion Dollar Club" brands of Purecane, Costa, Eco, Onda Beauty, and you start getting near that 65M consumer rev. mark.
When you consider these numbers against the backdrop of being extremely cash constrained in the quarter and having had the lowest cash burn (e.g., marketing spend) of the year I consider this a big win.
When you also consider cash burn vs revenue growth each Q in 2022, it's a further indication of the strength of the Q4 numbers (even if they may fall just short of guidance).
Q1: 195M burn delivered 121% YOY Growth
Q2: 186M burn delivered 108% YOY Growth
Q3: 162M burn delivered 98% YOY Growth
Q4: 125M(max?) burn will deliver ~100% YOY Growth
Additional Good :
Strategic Transaction #2 and #3
John Melo
we are in the process of establishing an exclusive molecule marketing partnership for another category we're in and we have another one we have two new ones that are going to market this year one in health and one in a space that we're well respected for
ST#2 will almost certainly be Squalene ("one in health"), and ST#3 will be for a molecule we're likely already producing otherwise I don't think he'd use the expression "we're well respected for" (Bisabolol maybe? He did praise it on the call as a key ingredient JVN).
The Bad
Barra Bonita "Lines"
For over a year, the company's been telling us we're capacity constrained. They sell every last drop of molecules they can make. For 9 months they've been telling us all 5 lines (3 large, 2 small) would be operational by the end of the year. Today:
John Melo
..other two lines are completely built and ready to go but they're very small lines they are 40,000 liter tanks and because they're small lines we actually did not have molecules that make sense to making those lines during the fourth quarter so we didn't operate in those lines
I just wanna make sure that's clear the lines are set built ready to go. Did we operate in the fourth quarter? No, why, we didn't need to we actually need to focus on one thing keep the three blinds six big tanks working all out
Say what?! Either we're capacity constrained or we have excess capacity we don't need. Which is it? And why tell us all year (and very recently) they were going to be operational by year-end if there was no immediate need for them?
IMO, this is likely a cash conservation action since we're obviously operating on cash fumes. It takes $$ and manpower ($$) to bring more capacity online and likely the reason why, for now, they've had a change of heart wrt the 2 small lines.
Job Cuts
Job Cuts savings of 10M is a start, but it's not deep enough. When you consider that every quarter this year, the biggest contribution to the SGA increase YOY was "head count expense" you realize why 10M in cuts isn't deep enough.
Q1 - 22M of the YOY increase in SGA was headcount expense
Q2 - 20-25M of the YOY increase in SGA was headcount expense
Q3 - 13 M of the YOY increase in SGA was headcount expense
It's clear our headcount expense/hiring got out of wack. The job cuts announced today are a good start, but I think there is more room here to align our headcount expense growth with our revenue.
The Ugly
Strategic Transaction #1
Worse than still not knowing whether the deal is under HSR review, or submitted for review, or whether they're still at the negotiating table, we get a terrible hint of the value of the deal possibly not being $500M (350/150).
I find it ironic that for 9 months the ST is all Melo wanted to talk about, yet now after everyone has pegged the 2 molecules, the licensee, and the Apprinova buyout, he now doesn't want to put the transaction at risk by talking about it. EL OH EL!
John Melo
I think we put out a PR end of the year I think right last week of the year and in that PR we talked about where we were with the transaction which is we landed all the economic terms we had some conditions to work through including HSR all of that we're in process of working through and I think we indicated we'd have the transaction closed in early Q1 and that's where we are I think there's no new news to share we're excited we really like the partner on the other end but one of my lessons is when you're live in closing a transaction you don't go and talk a lot about the transaction and I think that just introduces more risk for us and the partner and we're not prepared to do that so I appreciate the question
I would say the near term cash component versus the total value of the deal has remained fairly intact even though there's been a lot of negotiation back and forth right so but I don't have anything new to share at this point
ST#1 Silver lining:
Though I'm now preparing myself for something less than 350M and 150M for ST#1, Melo still contends that the proceeds of ST#1 (plus the cash we're ending Q4 with) funds all of our capital needs through 2023.... so if there is a reduction in the value of ST#1, it's unlikely to be significant.
with the combination of both what we finished and our strategic transaction funds all of our needs through 2023 based on where we are today so we're excited about that we've got a clear path cash use is coming down and our business is performing super well so what are we focused on delivering a path to profitability