Q1 2022 Danimer Scientific Inc Earnings Call
Greetings and welcome to the economists Scientifics first quarter 2022 conference calls.
At this time.
I have never seen.
A question and answer session will follow the formal guidance.
Yeah.
If any.
Operator since children. Please.
Please press.
Sure.
As a reminder, this conference is being recorded.
On the call.
Conference ever just rostenkowski. Please go ahead.
Thank you operator, and thank you everyone for joining us today for our first quarter.
2022 earnings call.
The call today are Denver, CEO steep Cross Creek, and CFO , Mike Hey, just starting.
During our discussion today, we will be referring to our earnings presentation, which is available on the Investor Relations section of our website at denim or scientific 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.
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 events or circumstances. After the date hereof, except as required by law.
Today's presentation also includes references to non-GAAP financial measures reconciliations to the most comparable GAAP financial measures can be found in the earnings presentation.
I will now turn the call over to Steve.
Thank you Ross.
Good afternoon, everyone. Thanks for joining.
During the first quarter, we progressed further on our journey to deliver leading biodegradable packaging solutions for a variety of in demand customer applications.
Today, I will discuss our first quarter performance recent business development update and the progress of our capacity expansion plans.
Every initiative, we have undertaken aligns with our key strategic priorities, we outlined last quarter shown on slide three.
These priorities are.
Number one.
Expand our capacity to achieve substantial economies of scale not only through increasing our organic production capacity in Kentucky, and Georgia, but also by leveraging strategic third party relationships such as our collaborations with Hyundai All bank and others.
Number two.
With innovation to address the broad range of customer needs as we continue to leverage our core competency of formulation and application development.
This will be done through our own proprietary technology and experienced team of researchers and scientists and also includes the pursuit pursuit of new R&D development and licensing agreements with partners such as our recently announced license and supply agreement with Premier.
Number three.
Grow customer partnerships and product volume commitments with global Blue chip customers to secure future demand for our increasing capacity.
Number four secure cost effective inputs examples of guests are our collaboration to evaluate attractive alternative feedstocks as well as securing long term input supply contracts such as our agreement with total Scorpios number five.
And favorable unit economics to enhance margins first through increased capacity utilization and then ramping up production number novo.
And number six enhanced team capabilities to support growth across manufacturing business development R&D information technology, human resources and finance drifting we have communicated to you and everything we are focused on going forward can be connected to one or more of these strategic priorities.
Turning to slide four.
PHA became an even larger portion of our revenue during the quarter nearly doubling year over year, driving total revenues up 12% to $14 $7 million. The Hh sales could have been even stronger in the quarter, but several stryker Burger customers are sold out and some have had supply chain issues with new equipment orders required to increase their capacity.
Our higher PHA sales more than offset a decrease in <unk> sales during the quarter.
Portion of P. A L. S sales were negatively impacted by the war in Ukraine, and given the uncertainties. There we do not expect this business to return in 2022.
At the same time, we have been asked to reformulate a piece of this business, which could further reduce expected future BLA rapidly.
This is one of the factors that Mike will discuss in his guidance section later in the call.
As we look ahead in this environment of heightened geopolitical uncertainty and market volatility we remain laser focused on delivering what is within our control, including excellence of execution across the six strategic priorities of our growth strategy.
We are focused on the immense long term opportunity to transform the bioplastics market. We are confident that we can continue working closely with our customers to overcome near term volatility.
We work with some of the world's largest consumer brands on our shared goal of addressing the global plastic waste crisis.
Could not be more thrilled about our company's potential to do just that as we progress further on our capacity expansion and contract negotiations.
In addition to expanding our own capacity. We are also looking to create value for shareholders through successful R&D collaborations with large corporate partners that are looking for sustainable solutions.
During the first quarter and into April we expanded our partnership with <unk> to commercialize biodegradable aqueous coatings, and we announced our collaboration with Hyundai All bank to drive global growth of PHA.
We also made some key strategic hires including our new CFO , Mike Hey, just as well as a new chief Human Resource officer, as we continue to focus on expanding <unk> capabilities to support growth.
We made further progress towards scaling production at phase one of our Kentucky facility, while ensuring phase II construction of our Kentucky operation Advanced in line with our plan to bring the facility online and began scaling up this quarter.
Please turn to slide five.
As you saw in our press release, a week ago, we were happy to announce an exclusive license and supply agreement with <unk> to commercialize biodegradable aqueous barrier coatings to be used on pulp and paper and food and beverage applications globally that.
That is an approximately $500 million market is expected to grow at a 10% rate annually.
This builds on the success of our existing partnership that we have been working on since 2022 develop a coding and surface treatment that ensure it's paper and board items suggestions that use coffee cups are biodegradable in soil and water environments.
In addition to its biodegradable and strong barrier properties, New coatings are also re <unk>, which enables paper recyclers to disintegrate the material for fiber recovery. This.
This capability further enhances the sustainability of the material and then enables brands to contribute to circular economies.
Furthermore, the PHA coatings can replace polyethylene provide a viable alternative to <unk> also known as forever chemicals, which are increasingly being phased out and food packaging around the world due to potential health risks associated with their use.
This expansion of our partnership with Humira represents several important milestones are downwards mission to reduce plastic waste.
First it represents the potential for PHA to serve as a sustainable alternative to traditional plastic across multiple product categories.
Second this new license and supply agreement lays the foundation for a new revenue stream, where danaher will be cash flow positive from day, one without significant capex investment while further supporting the global commercialization of this material.
The merit as an industry leader in the pulp and paper and aqueous coatings markets, where they have large sales force technical support staff and global production scale, making them the perfect partner to bring our solutions to market.
We are grateful for their continued partnership and look forward to helping them bring these coating food and beverage industries globally.
Now turning to our other customer and business development updates and I will speak to slide six as a reminder, our customers are mainly major blue chip multinational brands that are all made long term commitments to make their plastic packaging recyclable reusable or biodegradable intra.
Interest in our products from both new and existing customers says only continue to grow as these corporations evaluate solutions to maintain their ESG commitments, particularly as an increasing number of municipalities implement regulations and other legislation to reduce the environmental impact of plastic waste.
An example of this is the state of California's newly proposed legislation that would require all single use plastic packaging and food were used in the state to be recyclable reusable refillable or composted blow by 2030 and single use plastic production to be reduced by 25% by 2030.
As another example.
Governor Glenn Yakin signed an executive order in April that aims to increase biodegradable materials, and recycling and Lou or clean energy businesses to the state of Virginia.
Furthermore, California's attorney General announced on April 28 that he issued a subpoena edge exxonmobil for information on its role in causing the global plastic waste crisis.
These are just several recent examples of positive tailwind for our business that are driving new customer inquiries.
In fact, new customer inquiries were up nearly 20% in Q1 as compared to Q4 2021, another encouraging sign of the strong demand we're seeing for damaged biodegradable solutions.
Our converter partners are also seeing accelerated interest in PHA a great example of this is the success of our partner went up is achieved through their sales or biodegradable no tax base paid straws, which can now be found at Yankee Stadium first watch restaurants.
Big box retailers, and Sam's club cafes, adding to an ever growing list of restaurants and retailers across the country.
We also continued to make progress with our multinational developmental partners like Mars, Wrigley, Pepsico and numerous others.
Last month, Pepsico showcase their compostable laser chip bags using <unk> technology during their participation at the Coachella Music and Arts Festival in California.
Wildly nod for championing sustainability.
The event was a great place to showcase Pepsico and Dan <unk> partnership to produce sustainable solutions.
As Pepsico continues to work towards their goal of designing 100% of their packaging to be recyclable compostable biodegradable or reusable by 2025.
Additionally, as we continue to explore a broad range of applications for our customers. We are pleased to announce that last month, we signed a development agreement with yugo products to develop soft Lewis for the fishing industry in an effort to provide a biodegradable alternative for traditional plastic PBC luers.
We are encouraged about where we stand today with our many development agreements and a potential for a meaningful number of those commitments to transition into supply agreements.
Moving to slide seven.
Looking at our facility expansions at Phase one of our Kentucky facility in February and March we were very pleased with our production levels and were recently running above nameplate capacity in April .
We continue to be comfortable we can run this plant at full capacity on a go forward basis.
Looking at Kentucky Phase two we're excited to note that construction is concluding and we have already started the commissioning process of transitioning from construction to operations.
We expect to begin producing product at phase II starting in June .
As we have discussed in the past the completion of both phases will collectively bring our annual nameplate finished product capacity up to an expected 65 million pounds.
Which as a reminder, is PHA plus other compounded degradable materials.
We continue to expect the Kentucky facility to turn profitable on a standalone basis. This year as we increase capacity and focus on driving operational efficiencies at the expanded facility.
Turning to slide eight I will take a moment to discuss the latest updates on our plans for the construction of the Greenfield facility in Bainbridge, Georgia.
As we discussed with you last quarter, we still face uncertainty with respect to key equipment delivery delays and inflationary pressures we remain.
Committed to executing this critical capacity for growth, but we plan to remain nimble and flexible as to the pace of capital spending on this project for.
Where now we have deemed it prudent to slow further construction in the near term to preserve cash.
It can also provide us with the opportunity to capture and better up quite learnings from the Kentucky expansion and the pilot plant.
In addition, it can allow for further value engineering to maximize the efficiency of the plant and potentially reduce project cost.
Based on our current plan, we now expect the Greenfield plant startup to occur in 2024.
We're still confident in the long term opportunity to improve our cost profile to combining with novo acts at commercial scale.
Questions are progressing with several major ethylene oxide producers in the U S Gulf coast for uptake.
Location site co location and other ancillary agreements related to the manufacturing of renewable products.
Overall, while we are focused on all six of our strategic priorities outlined earlier in the call. Our primary focus in the near term achieving profitability at the plant in Kentucky.
Our negotiations with a major brand owner to sign up for a significant amount of volume as the anchor tenant for our planned Greenfield facility.
We expect our ability to accomplish these two key goals will help us secure the additional financing needed to advance our long term capacity expansion plans.
With that let me turn the call over to Mike for an update on our financial results.
Thank you, Steve I'll speak to slide nine we closed out the quarter with a record first quarter sales of $14 $7 million, which was an increase of 12% from the year ago first quarter.
PHA based resin sales nearly doubled over this timeframe and now represent 52% of our revenues. This is a significant increase compared to 29% of revenues in the prior year quarter.
The increase in sales of PHA base resins more than offset a decline in <unk> sales, which was due to the Ukraine factor that Steve described earlier impacting this non core part of our business.
We reported a first quarter gross loss of approximately $1 $3 million compared to gross profit of $1 $5 million in the prior year period.
On an adjusted basis gross profit was $2 $6 million, representing an adjusted gross profit margin of 17, 5% compared to $3 $9 million or 29, 2% in the prior year quarter.
The decrease in margin was driven by lower Pls volumes that led to a lower margin for that product in the current quarter combined with lower R&D tolling services revenue, partially offset by higher PHA volumes and improved margins.
As we have mentioned previously we expect our average cost per unit at our existing facilities to improve as production scales.
We're already seeing those unit costs go down.
For better understanding of our progress I'll provide a sequential quarter comparison.
PHA represented roughly half of our sales in both the first quarter of 2022.
And the fourth quarter of 2021.
During the first quarter adjusted gross margin increased sequentially to 17, 5%, which is up from two 3% in the fourth quarter.
This was largely attributable to higher cost PHA material getting worked out of our inventory and replaced by more efficiently produced and lower cost inventory associated with the higher capacity utilization from our phase one Kentucky operation.
We expect this trend to continue and to more than offset the incremental costs associated with the startup of our phase II, Kentucky operations.
Adjusted gross profit in the first quarter 2022 excludes a 1 million dollar Peel a additive inventory reserve associated with the anticipated decline in our base resin business due to conflict in Ukraine as well as the expected reformulation of certain pls product.
For the first quarter of 2022, R&D and SG&A expenses, excluding depreciation amortization stock based compensation rent and one time items were $12 million compared to $5 $4 million in the prior year quarter, mainly attributable to an increase.
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 and liability insurance.
In addition, we incurred approximately $1 $3 million of R&D and operating expenses as a result of consolidating danaher catalytic technologies in our first quarter financial results, which we did not incur in prior year quarter.
The adjusted EBIT loss for the first quarter was $10 $6 million compared to a loss of $2 $3 million in the prior year quarter, primarily primarily due to the factors I discussed in our gross profit SG&A and R&D results.
Adjusted EBITDA excludes stock comp other income and other add backs is reconciled in the appendix.
First quarter adjusted EBITDAR was a loss of $9 $7 million compared to a loss of $1 $6 million in the first quarter 2021.
We add back our rent expense because it is primarily related to a sale leaseback agreement associated with the Kentucky facility.
<unk> is essentially a replacement of depreciation and interest expenses.
Our total debt outstanding was approximately $261 $7 billion at quarter end.
Net of $10 1 million unamortized debt issuance costs and includes $21 million low interest new markets tax credit loans that we expect will be forgiven in 2026.
Our cash position at the end of the first quarter was $210 million.
As you know we do not provide forward looking guidance during our call back in March.
I had just assumed the position as CFO at that time I wanted to become more familiar with the business and spend more time with the team refining our forecast model.
I was able to accomplish that and based on that assessment I want to walk through my current view on the full year forecasted adjusted EBITDA Capex spend and expected and of your cash balance.
Looking at our outlook for the full year of 2022 on Slide 10, we remain excited about the profit potential of this business in coming years. We believe we are making disciplined investments that will allow us to capture a incredible opportunity for our products.
As we view full year 2022, we expect to see another year of sound investments with an intense focus on getting our PHA business profitability.
Steve mentioned earlier, we have several factors at play this year so to provide a clear view of our financial expectations. We are we are introducing guidance framework for 2022 and beyond.
For the full year 2022, we expect adjusted EBITDA to be in the range of negative $45 million to negative $35 million as a bright spot we reiterate our expectation that the Kentucky facility to turn profitable as we increase capacity and drive operational.
<unk> at the expanded facility.
As a solid step in the right direction and a stepping stone to our overall profit trajectory in the out years.
For 2022 positive year over year contribution from higher PHA resins volumes will be more than offset by several dynamics.
First a portion of Pls sales that were negatively impacted in Q1 by the warm Ukraine are not expected to return in 2022.
Combined with the anticipated re formulation of a portion of Pls business. This will further reduce <unk> volumes.
Next over the past year, we have invested heavily in our organization to support our future expansion plans.
In 2022, we will have a full year of expense associated with higher head count and other costs to support our asset base.
That compares to only a partial year of expense in 2021.
Finally.
November which we now referred to as Danaher catalytic technologies is a key part of our growth story.
We are making investments in R&D and other operating expenses. In addition, we're getting sample products from a pilot plant and taking the needed steps to strengthen our formulations for customers.
2020 to incur a full year of consolidated cost from the newly formed dannenberg catalytic technologies operations compared to a partial year in 2021.
Regarding cash flow, we expect capital expenditures in 2022 to be in the range of $190 million to $200 million inclusive of capitalized interest and internal labor.
As we discussed last quarter, we will.
Flexible with our spend so we can speed up or slow down the greenfield construction, given the rising cost environment and supply chain uncertainties or impacting the build out of that plant.
With the flexibility in our spend we expect to end the year of 2022 with cash in excess of $50 million.
We believe our adjusted EBITDA and Capex outlook, which provides a constructive framework or improved results for our PHA business combined with the investments, we're making elsewhere in our business have us on a path to profitability in coming years.
Looking beyond 2022 we expect our PHA revenue to derive a significant increase in our overall profitability.
L. A revenues will likely remain challenged.
We have already made significant investments in our SG&A and R&D that we can now leverage over time as revenues grow.
And our investments in our denim or catalytic technologies are progressing we expect this business to contribute meaningfully to our results in the coming years.
We are confident of our ability to execute against our objectives with a prudent focus on profitability and cash management.
Now I will turn the call back to Steve for closing remarks on slide 11.
Thanks, Mike.
In conclusion, our continued expansion of production capacity application development expertise contracted revenue streams and future efficiencies of scale should continue to shape our path forward as an increasing number of companies to evaluate solutions to maintain their ESG commitments using our superior biodegradable alternatives to traditional plastics.
We will.
To build off of a record 2021 as we move through this year and I would reiterate that we are still in the very early stages of a unique opportunity to create long term shareholder value.
Thank you for your time today, and we look forward to updating you on our progress next quarter.
We will now open up the line for questions.
Thank you.
We will be conducting a question and session.
Just if I could ask.
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Yeah.
Your first question comes from John Tunneling.
C. J S Securities. Please go ahead.
Hi, Good afternoon, guys. Thank you for taking my questions.
My first one is could you give a little bit more color on the reasons for the sequential decrease in both PHA N T. L. A I think we've got the.
High level reason behind both of them, but I was wondering if you could.
For P H eight specifically.
How.
Permanent is that as that situation is going to believe itself soon and then for P. L. A what was the size of that impact and kind of what is the ongoing.
Our expectation for the rest of the year for the Pls business.
John Thanks for the question as far as the PMA business.
<unk>.
Guidance is reflected in the EBITDA guidance EBITDA guidance that Mike gave reflects.
Our expectations related to that business going forward.
This point, which is pretty clear that.
A portion of it affected by the war won't come back this year, but.
The portion.
That's reflected by the reformulation is just an unknown at this point in time, but we're going to have an opportunity to.
We bid on that business and we may retain a piece of it as far as the PHA business.
The.
Supply I think you're referring to the supply chain issues that some of our converters had.
Procuring equipment.
We've got.
And equipment manufacturer out of Taiwan, that's been making us spectral strong machine to run our PHA that a lot of our customers have been purchasing and Theres just been delays there in the scale up with our customers.
Kind of compounded by some of the things going on with Covid in that it's been difficult for their.
Tax to come visit our customers and help them get get the equipment up and running.
I would expect us to still see some drag from that.
In this current quarter, even though.
We do see them, improving but I would still expect some drag from that in this quarter, but.
These are these are nice strategic problems, but.
Tactical execution things that we will get through with no problem.
Okay understood you've been pretty vocal in the past about Youre, Kentucky facilities being sold out.
At some future point I was wondering when do you expect to be there.
And just what does the ramp look like as we head towards there.
Well as you know we have over $200 million of.
Contracts in hand.
The only issue that we've had with those contracts is that.
As you know we start we first brought this plant online right in the middle right like two.
To date before Covid started.
So.
With respect to the timing of those contracts come online we've had to be very flexible with our customer we kind of had to make a choice between.
Forcing the contracts, we're working together to get through.
Certainly at an unprecedented experience so at this point in time we.
We see launches coming out into the future I would say kind of between Q3 and Q1 next year, we see several launches getting ready to happen, but since we don't typically can pull that it's hard for us to give guidance on that specifically.
Okay understood.
Could you talk a little bit more about the <unk> and dialogue bank agreements.
Are those are there any offtake contracts associated with that or are they.
More R&D contracts with off take options and if any of that has played for the greenfield at all.
Yeah.
The Comerica contract has a supply agreement with it.
And.
No we would expect that to get us.
By the time that we get towards the latter years of that contract we would be willing to the greenfield.
This contract is an expansion of our ongoing collaboration with Chimera, Our original agreement our plan to develop a biodegradable sodium and that project was a success.
The agreement really sets the stage to just follow up on that success by commercializing this product in Europe .
Middle East.
North and South America.
So our prior work validated the demand and we couldnt be happier with this partnership Camaro a great company.
This will be one of those things that helps us accelerate our speed to market.
Humira has 5000 employees versus <unk> like 284.
Multiple locations all over the world.
Di agreement is.
Yeah.
Really.
Random of understanding so theres no off take agreement associated with it at this time the idea there is that the first step which we're in the middle up is doing some market analysis.
Now assists.
And then turning to customer trials.
We'll work together with di.
To engage with with customers.
<unk> experimenting with PHA products.
And I'm sure if we probably will.
Start out in South Korea, but it's not limited to that it could be anywhere in Asia.
With the idea that Q2 progressed from there.
Two potential construction of a plant which could be.
Any possible combination of things of how that can be structured.
Either joint venture or a license or any other short investment on their part.
Thank you.
Next question comes from Laurence Alexander with Jefferies. Please go ahead.
Good afternoon, I guess, the first one just on the <unk>.
$500 million is that the.
The sale of the product or is that the potential market size for the animals ingredients in the product.
That would be at the market size for it but.
Coatings Laurence Thank you.
And can you does not include paper just to be clear.
Understood.
And can you give a sense for and so just to be clear danaher would be producing the coatings or are you just producing one ingredient that's used to make the coatings.
Ultimately, we would just be producing the PHA and.
Can mirror, we'd produce the actual aqueous coating.
And right.
Today as we sit here, we are making the coatings, but that will change.
Understood.
And can you give a sense for the.
How do you envisage the catalyst technologies business model playing out over say the next four or five years.
Just in terms of sort of potential either licensing or revenue like timelines for and what you hope to see and what you would be disappointed to not see from that business.
Yeah, Let me, let me just kind of talk about.
Where do we see that business growing like right now in Australia wrapped out to get to your specific question. So.
Since the acquisition we've been exploring.
Several options for site selection for the first plant.
This process has resulted in substantial conversations with several companies that have strategic interest in the technology.
We're also discussing.
Actual light straight licenses to.
Companies that are interested in building plants.
I'm Super excited about this particular piece of business because of the low cost of construction and production costs and I think it's going to play a very very important role in our future growth.
Not just in combination with note asking our formulations, but as a standalone.
Profit Center basically licensing this technology.
As you've heard me talk about in the past.
I think this.
Particular technology is just a fantastic fit.
With the kind of existing fossil fuel and big big chemical industry, because they already have the raw materials and the technology to make this product and you know how much pressure. They are all under to be green. So we get a tremendous amount of interest in that technology.
Technology and I don't think we're ready to give specific guidance Laurence on.
When we can expect the first licensing agreement to be done or anything like that but.
We are in serious negotiations with several parties on it.
Okay, great. Thank you.
Yes.
Thank you. Your next question comes from Thomas Boyes with Cowen and company. Please go ahead.
Thank you very much for taking my questions.
Nice to see obviously phase two in Kentucky is on track still given all the learnings that you have from phase one.
How quickly do you anticipate being able to reach 100% capacity or maybe as a follow on to that do you need 100% capacity is that EBITDA profitability number that is actually a much lower number or should I think about it more holistically kind of above the plant level.
Yes. It is.
A much lower number than full capacity Thomas.
So we certainly do not need a full capacity in fact, our models the way we've always modeled this.
Yeah.
I would think at this point is conservative, but we modeled these scale.
Scale ups to get to about 90% of nameplate in about two years now if you look back at what happened with phase one.
That's that's pretty much what we did we actually ran over 100% in April which would be two months two years and one month since we turn that thing on.
So we're very happy with that progress, especially given the circumstances in which we did in the first nine months that plant was running we didn't happen to cash. So we werent spending any money trying to wrap it up and then.
As that year 2020 progressed, Kobe got worse and worse and so we did that right in the middle of Covid.
And did it in that time span so that should encourage everybody that we would be able to scale.
Two more.
Quickly on that.
What we are budgeting it.
In addition, just to give a little color on I'll point out that.
All of the downstream equipment is the same equipment that we have in phase one.
There is maybe the only difference in kind of whole process is that the drivers are a little bigger but they are the same drivers they're just longer than the drivers that we have now so.
We ought to be able to scale back more quickly than that two year period.
Got it.
Actually I had mentioned in previous calls.
Downstream equipment is running significantly faster than it was kind of originally spec and then maybe longer term versus the nameplate capacity of the facility you could operate.
At a greater rate than that if you are over 100% now in phase one is that something that you could theoretically continue longer term or using some of the construction. That's in phase II. That's completed just to run more product through.
Yeah I would.
Expect that we could repeat that.
And just to clarify the way that we designed the plant.
We designed downstream to actually we said it absolutely that permutation, what's the bottleneck, we designed downstream to be greater Dan fermentation because.
You can always add another driver or add some other piece of equipment, but if you have to remember here. The real work is being done by the microorganism to polymer synthesis is taking place in fermentation, that's where the real work is taking place and if you achieve significant improvements.
And fermentation on yield.
You got nowhere to go with it if you cant run it through downstream processing. So we intentionally designed downstream processing to not be the choke points here.
Got it.
And then obviously I appreciate some of the timing changes as it relates to the Greenfield facility, but I was just wondering if you had maybe any update on the potential for a <unk> loan phase phase one of their process versus their phase two or even a sense of what that loan size could look like or is it predicated on an anchor tenant do you think to move forward or any insight there would be helpful.
Yeah. Thanks, Thomas it's a good question.
I've been saying that we are very confident in getting a phase one approval letter.
And I would say today that our confidence is even greater that's going to happen.
Very soon.
But the piece that I've always cautioned on is until we get that and get into phase III.
We won't have a good sense for.
What are the requirements might be to close.
The I guess the good news is we'll have plenty of time to work through any issues and so when we get the approval. We will quickly work to assess kind of what the what the weak points might be in terms of the contingencies and.
Start addressing those so.
We're pretty confident we're at least going to get that opportunity.
Great appreciate the answers if I could squeeze one more quick one in here just on canola pricing any insight there I know in the past.
Been able to pass along some of the kind of the increases along to customers is that still the case and how do you think that is.
Moving them through time.
Yeah, Mike what do you take that one yes sure great question, Yes, I think overall, we've been kind of been able to stay kind of below the curve here in terms of our pricing in terms of our futures have gone in there.
Spot prices in the market.
I think our average price in Q1 was 59.
I think that was.
Well below the prices seen us.
In the quarter as to warrant Ukraine started we locked in Q2 and an average of about 78 cents per pound, which was lower than the kind of the current market, where the futures price, which is now over $1.
Q3 was what we locked in at around 91 per pound just again looking at the futures is probably above 17 and and for Q4.
We're at a on average at about 86.
<unk> was lower than the futures of about about a dollar or not so I think you can see that.
We're doing a decent job of kind of staying ahead of all of that.
We are starting to evaluate.
Timing to start locking in actually Q1 of 'twenty, three and just talking to a broker about two to four weeks or so there are suppliers in other crop planted volumes.
If were locking now, they're saying Hey hold office will hi, its about a buck to Buck for and I think there's about a 10% premium in that current price. So.
One to two months ago that estimate was actually 85% to 89%. So I think theres a chance we're expecting that we cannot.
Probably sometime in mid mid May to mid June timeframe.
A better price point than what we have right now and start to take some of that risk off.
Having said all that we do have pass through mechanisms there sales contracts that provide price escalators. The escalators for the major cost components not under our control and I think we see evidence of those working our PHA asps are trending up into into Q2 compared to Q4.
As those prices are going up we're able to pass those along.
So I hope that answers your question.
Absolutely I appreciate the color I'll hop back in queue.
Alright. Thanks.
Yeah.
Thank you. Your next question is a follow.
A question from John Mccain.
<unk> Securities. Please go ahead.
Hey, guys. Thanks for the follow up and it's good to hear you're making progress on the on the theory.
The question I have is what kind of PHA volumes are implied in the guidance. It doesn't have to be exactly maybe a range.
Yes, we're not the only data point is really not the guide on sales or volumes. Obviously, the volumes are going to be higher as we bring out the capacity as you say, we're we're kind of running at capacity right now in phase one we're not we're not building up inventories at that plant and we're going.
Scale up phase two here as we go and we feel like the pace of that of that.
The scale up and the incremental cost associated with that will not be.
Destructive to our margin as a matter of fact, we continue to think that weekend.
Both the the volumes and the margins on that product as we kind of go through the rest of this year. So the ph a portion of the of the guidance is the positive spot.
And obviously as we talk about further down into 2023.
Huge driver.
In terms of the increased profitability of this company so.
That's really not to get too granular in terms of the breakout of those different pieces, there, but that's certainly.
A nice chunk there and.
Unfortunately for this year, we're seeing great promise, there, but as Steve outlined we are seeing some challenges, though on the pls business relates to the war in this potential change in the <unk>.
Formulation, but.
As I kind of talked about in my remarks, we do have a lot of other year over year things that are challenging this year that will start to mitigate as we get into next year.
We're not going to see.
The types of increases in the overhead we built a lot of that a lot of those costs get already to kind of be there bill.
Built in.
To be absorbed by a larger business and they become a much smaller percentage of the sales.
And again, it's the.
PHA, though kind of more or less a more fixed base, that's going to go grow the profitability of the business longer term.
Along with Great technology.
Technologies.
Got it.
Was also wondering when in 2004 do you expect the Greenfield to start and then maybe as a follow up to that is it possible to get renewable sales and revenue even before that if you are pursuing licensing agreements.
I think it would be likely that we would see some re.
<unk> revenue.
Not to my plan, but from licensing agreements.
By 2024.
We're not guiding right at this point about win in 'twenty for the plant will come on line just given the uncertainties in the current economy.
But.
We're paying close attention to that.
Cost of materials and.
And equipment, and obviously very closely monitoring our cash position to make sure that we're being prudent about that spend.
Okay, great. Thank you.
Alright. Thanks.
Okay.
We have reached the <unk> position.
I would like to turn the call back to Mr Cross screen for closing remarks.
Thanks, again for everyone for joining us today I'd like to thank you for your continued interest in denim or scientific and we look forward to updating you on our progress next quarter. Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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