Q1 2021 Danimer Scientific Inc Earnings Call
[music].
Hello, and welcome to the Daniel My scientific first part of 2021 conference call.
All participants are in listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference.
The Star then zero on the telephone keypad as a reminder, this conference is being recorded.
I would now like to turn the call over to your host the rest of Koski Vice President of the corporate finance. Thank you and you may begin.
Thank you operator, and thank you everyone for joining us today for our first quarter 2021 earnings call.
During the call today are denim, our CEO of steep cross crate and CFO Judd dowdy.
The Trump our Chief Science and Technology Officer is also joining us for Q&A.
During our discussion today, we will be referring to our earnings presentation, which is available on the Investor Relations section of our website at the end of our scientific of Dot com.
On slide two please note that we may discuss forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 day.
These forward looking statements include among other things future results of operations capacity production and demand levels that could differ in a material way from those expressed or implied in the forward looking statements.
We assume no obligation to update any forward looking statements to reflect a bench or circumstances. After the date hereof, except as required by law.
Today's presentation also includes references to non-GAAP financial measures.
Conciliation to the most comparable GAAP financial measure can be found in the earnings presentation.
I will now turn the call over to Steve.
Thank you Ross good afternoon, everyone and thanks for joining us.
Today, we will of course provide an update on our first quarter results, but given it is the only been six weeks since our last earnings call. We also want to take this opportunity to take a step back and spend some time on the fundamentals of our business and the science behind our products and address questions and certain misconceptions about our company.
We understand we are a newly public company and have work to do to tell our story.
We are committed to helping investors understand what is driving our business why we are unique in how we will deliver long term value for shareholders by making a positive impact on the planet.
Simply put we have figured out how to effectively commercialize PHH meaningfully reduce plastic waste pollution.
Yes, others have tried but we are succeeding because we crack the code on how to develop distinct PHA applications that global consumer companies are clamoring for the meet their sustainability commitments.
We have the science represented by decades of research a portfolio of patents and recognized certifications to back this up and a host of customer contracts that validate the need for our approach.
Work with some of the world's largest consumer brands on our share goal of addressing the global plastics waste a crisis.
Not be more excited about our company's potential to do just that.
As you tune of hand to learn about and understand our story, we ask that you would not be distracted by those who are motivated to sew doubt and apply controversy for their financial game.
We ask that you not be distracted by an erroneous claim that mid process production figures for an emissions reported the one state are the basis for calculating any other metrics of our business.
I assure you they are not.
Other so called research points are equally absurd and factually incorrect.
We aim to be clear and transparent with our investors and appreciate your support as we continue this journey with you.
As most of you know PHA as a bio based biodegradable renewable bioplastic technology, we have been scaling this technology for 14 years and hope more than 150 granted patents and pending patent applications and more than 20 countries.
Our customers, who are sophisticated global consumer focused brands have expressed confidence in us because of our intellectual property because of the science behind our biodegradable node ex Biopolymers is proven and because of we are the only producer of PHA with the depth and expertise to provide commercialized and scalable solutions.
This creates a distinct competitive advantage for danaher and enables us to capitalize on this unique opportunity to support the shift to a sustainable economy.
Our core competence is application development.
We have set ourselves apart by figuring out how to make biopolymers work in a wide variety of product applications.
Others have attempted to commercialize PHA of scale, we use our expertise in biopolymer application development and closely collaborate with each of our customers to develop custom PHA formulations that meet their unique needs and drive our mutual success.
For over a decade, we have been developing proprietary of PHA polymers that are scalable across customer applications, and we're seeing growth as more customers start to adopt our solutions.
Now turning to the first quarter the.
<unk> continued to make significant business and operational progress during the first quarter of 2021 of we believe that we remain on track to achieve our goals in 2021 and beyond.
Our customer conversations and business development efforts continue to be extremely productive and our market leadership in research and development is fostering strong customer and partner relationships.
As a result, we are opening new product application of avenues for our breakthrough <unk> technology and the path to expand our capacity is tracking to plan.
During the first quarter, we entered into new partnerships, including our March announcement of the two year partnership with Mars Wrigley to develop biodegradable packaging as part of their supply chain.
Around the same time, we had an exciting win with another new customer who prefers to remain anonymous for competitive reasons.
As we expected the increased visibility of being a public company is helping to generate new customer interest. For example, just one week during may our sales development team conducted calls with 10 brand owners that we have not met before.
We're excited to continue to develop those and other potential customer relationships.
Just last week, we significantly expanded a supply agreement with one of our current partners and we are also in the process of negotiating five new supply agreements one for straws, one for cutlery to for films and one for a non plastic article.
In addition, I'm happy to tell you that one of our partners recently signed a multiyear contract to supply of PHA strives to of major <unk>.
One of our partners has also landed the strong business for the restaurants within the major global retailer.
Furthermore, we recently received new forecast from our customer in the foodservice space for the second half of the year. This customer had placed an order with us since Q1 of last year due to the pandemic where income.
To see signs that the foodservice industry is rebounding.
In our research and development efforts, we are working on several unique and exciting opportunities with our new node ex based aqueous coatings that are used to make paper products more sustainable.
We have been researching aqueous coatings as a potential application for a number of years and we're excited to say that we now have the coding that we believe is commercially viable.
Coating has received positive feedback in trials with customers and is going into the end of life testing now, which will assess how the material by the grades of different conditions.
No tax based English coatings wells will also help drive costs down by eliminating the need for cost of the extrusion cutting machines and can be applied at 50% cut weight of traditional polymers and similar applications.
With the help of our partners such as Humira. We believe there is strong potential to make this product available for sale at the commercial level by year end.
Our existing partnerships with blue chip customers remain an excellent standing.
This includes continued strong support and engagement from our committed long term partner Pepsico, where we are developing applications for reducing waste of single use plastic chip bags.
Other important partners to US include Eagle beverages, Columbia packaging group Genpact plastic suppliers Earth pack and wind Cup of services Dunkin' brands.
We are a key part of the overall sustainability strategy for numerous global CPG companies. We continue to work very closely together, which each of each of them to create innovative and customized solutions for their specific needs that reduce plastic waste.
We believe we have only scratched the surface of an immense potential opportunity and expect demand to continue to outpace production capacity and supply as more companies look to us for Biobased consumer packaging solutions.
The development agreements with our partners, our one of our revenue streams and the.
These agreements partners invest with Denver on the research and development to build the product application that fits their unique specifications.
You can think of these development agreements as it kind of down payment on future supply contracts.
We are excited about where we stand today with our many development agreements and the potential for a meaningful number of those commitments to transition into supply agreements.
Another example of our R&D collaboration efforts is our recently awarded innovation research Grant to explore Pennycress oil is another possible feedstock material for producing PHA.
In July of this year, we will begin of project with the University of Minnesota Forever Green initiative to research the potential for using Penny, Chris oil as a potential alternative to canola oil and producing know dax.
We've been working on a similar effort since 2020, when the United Soybean Board awarded a grant to Danaher to investigate the use of high oleic soybean oil in the production of PHA.
The goal of that project is to develop a practical model for using high oleic soybean oil to manufacturers sustainable the biopolymers a variety of applications.
We are confident in our canola supply of validating other renewable resources that can be used to produce PHA is important to diversifying and scaling the biopolymer supply chain in the future.
Demand remains extremely strong for our products due to our proven science and the urgent need for leading customer brands to deliver on their ESG commitments as plastic waste becomes of growing issue for our planet.
The environmental Protection agency.
Reported in 2018 that less than 9% of all plastic waste in the U S cash recycle.
According to the Ellen Macarthur Foundation, 32% of the world's plastic ends up in nature.
The foundation's new plastics economy global commitment is well aligned with our mission as it seeks to unite businesses governments and other organizations behind the common vision with 2025 targets to address plastic waste and pollution at its source starting with packaging.
PHA offers of reliable solution to this issue by significantly reducing environmental impact and facilitating the circular economy.
As we have discussed today, our core technologies, Polyhydroxy Alkhanov day or PHA.
Our proprietary brand for our unique version of this biopolymer biopolymer is no tax.
It is a biodegradable alternative to traditional petrochemical plastic and it represents a disruptive technology for a wide variety of consumer products and related industries.
As investors increase their focus on pollution and environmental impact we think it is important to share our scientific and technical knowledge. So they can better understand our technology and why is the primary driver behind our success.
Recently, a wall Street Journal article raised questions about the reliability and biodegrade ability of PHA technology that major consumer brands and material developers could the danaher are using and developing to mitigate the global plastic waste crisis building.
Building on our response to the Wall Street Journal article that was published on May 12, I'm going to spend a moment to day to give you a more complete and accurate understanding of this material. Our PHA has made the environmental conditions in which it will biodegrade in most importantly, why some of the most recognizable global brands are advancing their sustainable initiatives.
Using PHA the.
First thing to understand about PHA is that is it is a naturally occurring substance.
Unlike traditional plastics that are sourced from nonrenewable fossil fuels PHA is sourced from renewable natural ingredients the.
Process begins with feeding oils derived from plant seeds, such as can the lower soybean to soil bacteria and the fermentation process bacteria consumed the plant oil and transform it into PHA.
More specifically the bacteria turned the carbon and the oil into another form of carbon for their own metabolic processes. When they have had enough to eat it continue the process in store that PHA as energy reserve.
She has been extracted and turned into a resin that manufacturers using a variety of ways.
We have included slide nine in the earnings presentation to show you. How this is accomplished <unk> III step manufacturing process of fermentation.
<unk> stream processing and extrusion.
Because PHA is a naturally occurring substance it will return to nature of upon disposal of just like other naturally occurring substances, such as leaves cotton or wood.
Bacteria and fungi in the environment will breakdown PHA and leave behind carbon dioxide water and biomass.
The carbon dioxide is absorbed by plants and the circular process continues where feedstock such as canola or soybean oil or extractive from plants to from at a new batch of PHA.
It is nature's own elegant recycling process.
The decades of research have verified that PHA all of the great naturally in a robustly in this manner from bacteria present, such as within soil freshwater and marine environments.
DHA will also degrade in a variety of waste treatment facilities, including anaerobic Digesters industrial Composts yours and certain types of landfills designed for bio degradation, where PHA will breakdown of the presence of bacteria and become a renewable source of carbon.
Some land sales are sealed which means they are designed to prevent bio degradation of any material in most cases PHA sequestered into the ground.
Because of the infrastructure of processing waste on the industrial scale varies between different countries Danaher scientific developed our PHA to reliably degrade in a variety of environments at the end of its lifecycle.
All of the information that we provided about the by the great ability of node axes backed by rigorous research International testing standards and third party certifications.
As an example, the behavior of PHA and various scenarios has been certified by <unk> one of the most widely accepted the international standards about the great ability.
<unk> has certified Danaher scientifics node acts as the material that will reliably degraded conditions ranging from industrially composed to two marine environments today.
Today no tax possesses all six relevant certification is currently offered by TV Austria.
All of Danaher as Biopolymers, including no docs are also FTE of proof of food contact.
While the timeframe for complete degradation varies depending on the real world settings, including the dimensions form an application of the material all of the extensive testing conducted to date demonstrates that node ex by the grades into natural compounds carbon dioxide water and biomass.
Petrochemicals on the other hand do not by the great in any environment.
Danaher works with the number of University of groups in the independent test laboratories to validate its products in claims.
The studies by the University of Georgia, and the UGA, New materials Institute as well as certifications from can you be Austria, and the biodegradable products Institute further validate that PHA as a proven biodegradable alternative to traditional petroleum based plastic.
To further quantify <unk> impact on the environment. We are in the process of having the full lifecycle of assessment of our PHA to biodegrade ability conducted by an independent third party.
These assessments of our very extensive and taking a long time to complete but will further demonstrate the environmental impact and other benefits of node acts as the bioplastic alternative to traditional fossil fuel based plastics.
It goes without saying, but our customers also conduct their own rigorous testing head of and have expressed confidence that <unk> provides the scalable highly effective way to significantly reduce plastic pollution.
<unk> proven characteristics and our successful formulations of encourage customers to move beyond the exploratory projects and began transitioning entire product lines from petrochemical plastic to PHA.
Using PHA as a proven safeguard for ensuring single use items containers will biodegrade, even if the escape proper waste management screams and ended up in the environment.
Now I'll provide an update on our facility expansions.
We are currently producing PHA based resins out of our Kentucky facility as we've previously discussed in 2020, we completed the first of a two phased expansion for PHA production in Kentucky.
<unk> added 20 million pounds of finished product capacity with fermentation, Brian starting in January 2020, and downstream processing coming on line in March of 2020.
During the first quarter of 2021 are neat PHA production, which is an intermediate step in our finished product process was just over 50% of capacity in Kentucky, We continue to expect to be at 100% of nameplate capacity by the end of the year.
As mentioned on our prior earnings call in the latter part of the second quarter 2021 were scheduled to temporarily take the Kentucky plant offline to implement several debottlenecking initiatives the.
The purpose of the previously planned initiative is to accelerate the facilities continue to ramp up production to higher levels. After the second quarter.
We're making good progress on our announced expansion plans the.
Learnings from the scale up of phase one of providing us with helpful insights as we make progress with construction of additional capacity.
Phase two construction at our Kentucky facility commenced in December of 2020 phase.
Phase II is expected to come on line in the second quarter of 2022, ultimately, providing us with 45 million pounds of finished product capacity.
We have included an aerial view of our progress on phase two construction on slides 11 through 13 of our presentation.
The completion of both phases will bring our total capacity up to 65 million pounds of finished product per year at our Kentucky facility.
In March of 2021, we announced that we had selected the location in Bainbridge, Georgia to construct a new state of the art Greenfield facility to keep up with PHA demand.
The Greenfield is currently in the Preconstruction engineering stage.
It is expected to break ground in 2022 with the first half expected to come online in mid 2023 in the second half expected to be operational in 2024.
Upon completion of the Greenfield facility should provide us with an additional 250 million finish pounds of nameplate capacity for a grand total of 315 million finish pounds across our facilities.
These plants have evolved over time to meet forecasted demand from our customers.
We expect our Kentucky phase one of two capacity to be fully sold out based on signed and pending contracts.
Looking ahead, we expect to grow our long term capacity, including with our Greenfield facility in tandem with customer demand.
Finally last week, we announced our intention to redeem all of our outstanding public warrants as part of our long term capital planning through.
Through this transaction, we will simplify our capital structure and further strengthen our balance sheet to invest in our capacity expansion initiatives.
I hope the information that we shared with you today provides a better understanding of the proven capabilities of our PHA the favorable dynamics of the customer demand environment and the.
<unk> opportunity ahead of us.
We remain more optimistic than ever that <unk> represents a long term commercial scale solution to the billions of pounds of traditional plastic waste produced annually.
We believe we have a very important role to play in solving this global plastic waste crisis.
Now, let me turn the call over to Jeff for an update on our financial results.
Thank you Steve I'll speak the slide 14, we had a strong start of the year with PHA, representing a growing share of our revenue as we continue to ramp production out.
I will discuss our first quarter results followed by some color on the full year 2021 before I dive into results I'd like to provide you with an update on accounting developments related to warrants that many companies involved in snack at the as had been working through over the last month.
As discussed in our earnings release today, and 8-K filed earlier this month, we have restated our 2020 financials.
Last the private warrants as of liability instead of equity in light of of recently issued SEC staff statement.
This restatement had no impact on the Animas current or historical reported cash or cash equivalents.
Revenues results of operations or cash flows from operating investing or financing activities. However, since the private warrants are being accounted for as liabilities. The change in fair value of such liability is recognized as the noncash charge of gain in the income statement moving to our results.
Revenue for the first quarter 2021 grew 24% the $13 2 million compared to $10 6 million in the first quarter last year. This increase was primarily driven by higher sales of PHA based resins.
And the first quarter, we derived 29% of our revenues from sales of PHA based resins.
Compared to 19% of revenues in the fourth quarter 2020.
And 2% in the first quarter of 2020.
The increased mix of PHA reflects our expanded production capabilities to meet demand.
We calculate our average sales price based on actual sales of both PHA based in PLO based finished products to our customers.
Our average selling price was over $2 70 per pound.
In the full year 2020 over $2 75 per pound in the fourth quarter of 2020, an increase of over $2 85 per pound from the first quarter of 2021.
Our ASP in any given period is impacted by customer and product mix.
He sold can differ from quantities produced since volumes may also be added to or taken from inventory.
Also reiterate that production figures represented in filings made for environmental regulatory purposes represent the PHA material that is an input to the final products. We develop for customers and is not a proxy for finished product produced or quantity sold.
First quarter gross profit was $1 $5 million compared to $3 2 million in the first quarter of 2020, adjusted gross profit, which excludes depreciation and stock based compensation and the rent related to our manufacturing operations was $3 9 billion compared to $4 1 million in the first quarter of last year.
Sure.
Adjusted gross margin declined to 29, 2% from 38 six.
In the first quarter of last year, primarily attributable to product mix.
In both periods the average cost per pound of PHA based products sold was significantly higher than CLA based products sold as a result of commencing limited PHA manufacturing activities in early 2020 of the Kentucky facility and the incurrence of associated incremental costs as production scaled up.
We therefore solve the mix impact to gross margin given the PHA represented a higher proportion of revenues in the first quarter of 2021 compared to the first quarter of 2020.
We expect our average cost per unit sold to improve as our Debottlenecking project is completed and the plant scales up production.
R&D and SG&A expenses, excluding depreciation and amortization stock based compensation rent and one time items were $5 4 million in the first quarter of 2021 compared to $3 3 million in the first quarter of 2020, mainly due to an increase in headcount and salaries to support R&D efforts and our future expansion.
Plans as well as increases in costs associated with having a larger asset base, such as property taxes and property and liability insurance.
The company expenses added approximately $1 million for the first quarter of 2021.
Which we did not incur in the first quarter of last year and includes items, such as D&O insurance increased public company auditing and accounting costs and Sox readiness the.
The adjusted EBITDA loss in the first quarter was $2 3 million compared to breakeven at the same periods last year attributable to the factors I just discussed.
Adjusted EBITDA excludes stock based comp and other income and other add backs.
As reconciled in the appendix.
Adjusted EBITDA was a loss of $1 6 million in the first quarter 2021, compared to a $700000 gain in the first quarter of 2020.
We add back of our rent expense because of it is primarily related to our sale leaseback agreement associated with the Kentucky facility and the essentially of replacement of depreciation expense.
Turning to slide 15, I'll provide an update on our outlook for the full year 2021.
Increased availability from the completed the phase one capacity expansion will allow us to significantly scale of production from current levels. After our planned second quarter Debottlenecking initiatives are complete.
We expect growth in adjusted EBITDA and cash flow from operations in 2021 as the.
The Kentucky Phase one facility increases utilization levels from approximately 50% of at the beginning of the year to fully utilized at the end of the year.
Total operating costs are expected to be approximately $27 million for 2021, excluding DNA stock based compensation and one time items, we expect zero the cash taxes due to the significant Nols that the company has available for.
For the full year of 2021, we now expect capital expenditures to be in the range of $120 million to $145 million.
An increase from the prior range, primarily driven by inflation of construction.
We have the strong balance sheet in place with cash of 313 million total net PP&E of $130 million.
Total long term debt of 32 million at quarter end of <unk>.
Long term debt includes $21 million of the low interest new market tax credit loans that are.
The schedule to be forgiven in 2026, leaving the only $11 million of debt that is required to be repaid.
Our cash position already provides ample support to fund our planned capacity expansion in 2021. In addition earlier. This month, we disclosed that we entered into a $21 million credit facility with Swiss bank debt provides us with additional flexibility to invest in ongoing initiatives as denim of Roes.
Also we renegotiated our $10 million subordinate loans significantly relaxing the financial covenants as well as reducing the base rate from the prime rates of labor and lowered the applicable margin of 2% from 275%.
Now I will turn the call back to Steve.
Thanks Jed.
In conclusion with our progress to date Danaher scientific remains at the forefront of the Bioplastics industry as the premier supplier of PHA Biopolymers to Blue chip multinational corporations that are committed to reducing single use plastic waste.
The <unk> Board and executive team includes experienced Bioplastics scientists and business leaders with measurable contributions and achievements at Danaher and in this industry.
Accordingly, I would like to reiterate that I and the rest of the management team and board are significant owners of Danaher and we're aligned in driving value for all of our shareholders and stakeholders.
With our expertise our large portfolio of patents path to commercial scale and a long term customer contracts. We are well ahead of the competition.
Demand is expected to grow substantially over the next two decades with bioplastics, representing less than 1% of the addressable market today, we have only scratched the surface of what we believe to be the immense upside moving forward.
Collectively our continued expansion of production capacity contracted revenue streams and future efficiencies of scale should continue to few of our path forward to fulfilling our goal of transforming the bioplastics industry and solving the plastic waste price at a global level.
We will continue to build off of a record 2020 as we move through this year we.
We are still in the very early stages of an immense opportunity to grow our business and build long term shareholder value.
Thank you for your time today, we will now open up the line for questions.
Thank you.
We'll now begin the question and answer session and joined the question you May Press Star then one on your telephone keypad.
The returns acknowledging your request.
If you think of Speakerphone, please pick up your handset before pressing any key.
Of the Guy a question please.
And then too.
Please limit yourself to one initial question and one follow up question.
Many of each of the line.
Pause for a moment of question in queue.
The first question comes from Tom Tomlinson from CJS Securities. Please go ahead.
Yeah.
Good afternoon gentlemen, thank you for taking my question.
I wanted to just wanted to start and of note.
You've noticed this multiple times in your recent press releases in the prepared comments.
Just regarding the unfortunate of claims that have surfaced on line and just to be clear.
You've done a good job relatively in addressing all of them.
I was wondering have your customers come back to you and say.
Hey, we're concerned about the performance of your products your ability to deliver we want to renegotiate or maybe pause and be verified the.
And then the claims before we reengage with the U S has any of that has happened at all or are you still.
Committed to the contracts you have outstanding right now.
Thanks, John Thanks for the question no. We have not had a single customer call in to to express concern about that report our customers remain extremely excited about the potential of note ex and they are the ones I guess besides those of US here in the company that really know.
How well it works and they're Super excited so the customers have been very supportive. Thank you.
Okay, great. Thank you for that and then John I was wondering can you give us an update on the total Capex do you expect to spend between phase II and III today, given the rising material costs, you talked about and maybe what the latest is regarding your plans or options to finance them.
Yes, we've taken the.
The total capex.
Phase $2 million to $114 million and again thats due to inflation.
Construction materials.
However, with the phase III of the Greenfield plant, we still estimate that's going to be about 700 billion.
Hey, John.
Debt up from there.
We as far as of the financing of of the Greenfield facility.
We are of very strong cash position and the unlevered balance sheet, and we expect to be generating cash from operations going forward. So we have a lot of financing options, including potential partnerships and we'll make those financing decisions with our long term plan in mind, but we will be opportunistic along the way and focus on maximizing.
Rising results and I got it I got to say whenever we talk about this this plant just just to make the point.
This company has been working on this for 14 years. So I can't tell you. How excited we are about being so close to kind of realizing the dream and the goal here of building a greenfield facility the.
The engineering has been.
Under work underway for five months now and is on track and we're still on schedule to break ground in the first debt.
Beginning of next year.
Okay. Thank you for that I'll jump back in queue.
The next question comes from Laurence Alexander of Jefferies. Please go ahead.
Good afternoon could you characterize or give some detail on your average selling prices the trends this quarter.
How you expect them to evolve this year, and maybe sort of unpack that metric a little bit.
And separately can you speak to the feedstock costs and how you're managing.
Total costs for this year and heading into next year.
Sure Lawrence I'll handle that thank you for the questions on.
Average selling price, we calculate that based on the actual sales of PHA MPLA.
Last year, we averaged over $2.70 a pound, which included an average of $2 75 in Q4.
In Q1 as <unk>.
You had mentioned earlier, we averaged $2 85 a pound.
Now I wouldn't expect that necessarily to keep marching up like that because it is heavily influenced by customer and product mix, but it's a great trend.
And we of course will always be trying to push that higher as we go.
As far as the canola oil price.
Last year, we locked in our contract.
For 80% of our expected volume.
In Q1, our average our cost averaged about 45 cents per pound for canola oil.
And this year were contracted at 100% through the rest of the year.
Our cost will go up gradually through the year, but not much more than about 10 cents per pound by the end of the year.
When we calculate the percent of canola oil as a total cost of our average finished product and factor in our contracted escalators. The net negative effect per pound is about <unk>. This year and as we talked earlier as I mentioned earlier, we are working on alternatives.
Half.
Great flexibility here in the long run to be able to use just about any source of vegetable oil carbon as a feedstock in but it also sugars. So in the in the long run we want to maximize flexibility to do the right thing for our customers and our business.
But in the short run here, we do see inflation with.
With canola oil, but obviously, it's not a strategic threat to us at the moment.
Thank you.
The next question comes from Tom Tomlinson from CJS Securities. Please go ahead.
Thanks for taking the other one guidance Steve I was wondering if you could expand on the contract nature of your revenue maybe the best way to think about that ramping over the next few years either in terms of the delivery schedules that are in there or data or metrics of milestone.
How do you expect the play out especially versus the <unk>.
The original projections that you made last year.
Well.
First I'd like to say that day.
Demand is not really a question here, we will be able to sell everything that we can make.
And as far as comparing it to what was published last year the.
Major difference is that that the.
The debt that you are referring to last year had on October one.
The funding date in it and since we didn't fund till almost of the very end of the year that that created a minimum of of three months.
Difference between the what was forecasted there and what's actually happening.
Before I answer the question directly let me.
Just take a minute to talk about these take or pay contracts that we have take or pay contracts are unheard of in this industry typical contracts and I would say typically people don't have contracts.
Directly ive never had kind of.
Tracks.
On our base.
Base business, but.
The typical contracts our supply agreements that bind the supplier and not the customer and so that difference highlights the value that we're adding but it also points out that our customers are committed to helping us scale. So we really are in this together with our customers the.
The direct answer is that based on signed and pending contracts, we're sold out through 2025.
And we'll need to build the greenfield just to take care of existing customers.
As far as of the next two years, we are sold out contractually, but if you think about our.
Our capacity build as an upside down pyramid.
We're right at that triangle at the bottom of it that the Skinniest part of it right now and our goal is to try to squeeze as many customers as we can possibly get into there in the next year or two so that as they grow and as they ramp that base that would be at the top of the upside down pyramid.
Be even bigger so even though we are contractually.
Contractually sold out over the next two years, we arent going to try to shoehorn a couple of customers in there.
Somehow either by.
Of course trading with other customers or.
Seeing what we can do to accelerate the schedule on phase II.
Okay, great. Thank you I was wondering if just the on the.
Stock prices.
I know some of the adjusted a little bit but.
NOLA prices continue to rise have you seen any impact at all.
From demand the demand perspective, as you quote potential customers in the some falling out of the the bottom of the funnel.
Maybe even if you aren't seeing that or are you pulling forward any of these zone.
The R&D spending into the alternative feedstocks you mentioned the.
So as well as the.
I can't forget the I can't remember the other one you mentioned up in Minnesota, but.
Are you trying to validate as many of these as possible as you go forward.
Yes, so as far as the impact on customers I would say, it's a non event.
It.
Prices going backwards R. R.
Historically low.
And if we only get of Tencent increase this year. If you look at the impact on our finished product basis, that's about a nickel of cost so on the on a $2.50 pound item it isn't.
Huge make or break factor in terms of of pricing.
Purchasing decision.
And yes, we will.
Or not I would say, we're not driven by the cost of canola oil and trying to valid.
Validate other sources of of kind of.
Vegetable oil that's just a natural course of business that as we go forward, we will continue to validate more and more materials to give ourselves maximum flexibility.
And being able to optimize in the future and one thing to consider there is that after we build this first greenfield facility, we will be looking at site selections all around the world.
Retention for the next.
Plants two of two and three to follow the Greenfield being plant one and in other locations in the world. There are other sources of raw materials that are much cheaper.
Versus canola oil or.
The price of crude oil here.
Is attractive in the United States, but if we were to go to Brazil, we would surely be using sugar, if we go to Thailand, we'd be using the <unk>.
Sugar or palm oil so.
That's one of the reasons why we want to get as many of those products validated as we can.
Great. One last one from me if I could you mentioned, the new coating with aqueous coating.
The four four paper products that that sounds pretty exciting to me I was wondering one is that the new product development you were talking about on the last call and two of you could size of that market. If it's outside the time that you've been mentioning in your other calls as well.
I'm sorry, John what was the very last part of the question I didn't catch that.
The incremental to the time that you've been talking about that 501 billion pounds of plastic.
Did you think of the addressable market.
Yes first of all no it's not incremental to that Tam, it's part of that Tam.
And we.
We.
<unk> been working on this as an internal project for a long time.
Most of our products.
<unk> been initially.
Developed in conjunction with with a specific customer this one.
We kind of did it on our own until we partnered up with <unk> last year.
It's really exciting because we are at a point now where we're able to coat paperboard with PHA coding that's half as thick as the traditional polyethylene coding would be so that mitigates the cost of of that material to the <unk>.
Customer significantly and we've had a lot of success at this point.
With making coffee cups.
Using that paperboard and so we're super excited to get that out of the marketplace and start getting customers going through that validation process.
Later, this year and into next year.
Got it and catch everything that Sean I'm.
I'm not sure if I hit all your debt.
You did I appreciate it okay. Thanks.
Okay.
The next question comes from Laurence Alexander from Jefferies. Please go ahead.
Hi, Thanks, just a couple of others could you sort of give some guidance.
Can you give us some more detail on the savings from the Debottleneck.
How significant they are the I realize that you're reinvesting most of them, but just if you can give some context on that.
And also the reference to the non plastic article.
All of that your applications would be.
The product will be going in to replace can you give any detail on that because of the free it seems a bit curious.
Yeah. Unfortunately, no I can't give any detail on that particular article but we.
We pointed out because we find it exciting that we're finding applications for PHA outside of.
The single use plastic market that we are attacking so it's exciting because the.
The price points are very different and these are the other categories and the.
That's one of the reasons, we like mentioning of these wins.
As far as the Debottlenecking Laurence the.
The biggest aspect of that Debottlenecking in terms of cost reduction is that it's going to.
Free of the plant up to scale.
All the way to 100%.
And by scaling we're going to drive the average.
Cost per pound down significantly.
And ill give you a couple of examples of what we're doing there in the Debottlenecking the first one.
Yeah.
A lot of you may have heard of before it's a very simple example, but it's real.
It's a lot of the work that we're doing and by the way we haven't mentioned this yet but I'll mention it now we did start that the.
The turnaround on May the 14th and it's going well and we expect the projects to be completed on time by the end of this month. So a couple of examples in this first one sounds pretty simple, but it's real.
It's in material handling as you move the PHA from.
Fermentation two extrusion, you have to clean and dry it and so what happens along the way.
PHA in certain parts of that process is getting clogged and pipes like an abundant of pipe, it's getting clogged and maybe an operator has to shut down once the shift and spend an hour cleaning that pipe out. So that's a very simple example, but it's real and those but were fixing those kind of things.
And we're also.
Just as another example.
Our dryer turns and we are implementing ways to allow it to turn faster, which will allow us to drive the material more quickly. So the whole goal of this whole project is to get the material through the system faster and were very confident.
It will be successful.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to CEO, Steve Cross screen for any closing remarks.
Thank you Carl.
Thank you everyone for joining us today.
Like to say one thing in closing with all the noise around us it would be easy to lose focus and be distracted.
I assure you this will not happen.
We have over $300 million in cash on hand.
The announced the redemption of our public warrants, which will bring in over $100 million, we have no direct competition and demand will exceed capacity for many years, even as we accelerate our construction plans to keep up.
Thank you everyone and have a good evening.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant evening.
[music].
Yeah.
[music].