Q1 2022 Origin Materials Inc Earnings Call
[music].
Thank you for standing by this is the conference operator welcome to the origin materials first quarter 2022 earnings conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation there'll be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star and zero.
I'd now like to turn the conference over to Ashish Gupta Investor Relations. Please go ahead.
Thank you and welcome everyone to origin materials first quarter 2022 earnings conference call.
The call today from origin materials, our co CEO Rich Riley co CEO co founder John vessel and CFO Nate Wally.
This call origin issued its first quarter press release and presentation, which we will refer to today as can be found on the Investor Relations section of our website at origin materials dotcom.
Please note on this call we will be making forward looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our views as of today should not be relied upon as representative about views of any subsequent date and we undertake no obligation to revise or publicly release the results of any revision to these forward looking statements.
In light of new information or future events. These statements.
Subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.
For further discussion of the material risks and other important factors that could affect our financial results. Please refer to our filings with the SEC, including our annual report on Form 10-K filed on March <unk> 2022.
In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of orchard materials performance.
These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results.
You will find additional disclosures regarding the non-GAAP financial measures discussed on today's call in our press release issued this afternoon.
And our filings with the SEC each of which is posted on our website. The webcast of this call will also be available on the Investor Relations section of our company website with that I'll turn the call over to rich.
Thank you Ashish and thanks to everyone for joining us today for today's presentation, we will be referring to the slides that were posted to the Investor Relations section of our website earlier. This afternoon I will start by reviewing Q1 highlights then discuss important industry announcements and provide a commercial update I will then turn it over to John who will discuss construction progress on origin won an origin too.
Nate will wrap up with the financial overview.
We will begin on slide three.
We continue to execute on our plan and make progress on our mission to enable the world's transition sustainable materials.
We've seen a more than seven fold increase in our customer demand since our announcement to become a public company in February of last year with offtake capacity reservations, increasing by approximately $1 8 billion since the fourth quarter call in February to seven 4 billion today.
Second we remain well capitalized and on track for completion of origin, one by the end of 2022.
Due to rising inflation in a more challenging supply chain delivery environment, we've updated our capital budget for origin won and now expect a $15 million to $20 million increase from our prior outlook. The total capital budget for Oregon. One is now expected to be in the range of 125 million to 130 million up from $110 million. When we first announced our go public transaction.
In February 2021.
The additional capital budget will be fully funded from our cash on hand.
The origin to the previously disclosed capital budget construction timeline and financing assumptions are unchanged as reported previously the state of Louisiana, and then Finalization is expected to award a private activity bond volume cap allocation to origin in the amount of $400 million. We also expect to receive more than $100 million in pending state and local incentives.
As John will discuss in more detail front end design of origin to is underway with detailed engineering set to begin in 2023.
And third we remain well capitalized with approximately $427 $7 million in cash and cash equivalents on hand, we maintain our expectation that the capital projects for origin won an origin too can be fully funded from our existing cash on hand, and previously indicated traditional project financing sources.
Now as I have done on prior earnings calls I'd like to give a brief overview of origin for those who are new to the story.
Origin was started with the mission to help solve climate change by enabling the world's transition to sustainable materials, our patented drop in core technology unit economics, and carbon impact gain the support of a growing list of major global brands and investors, including Danone Nestle waters, Pepsico Ford Motor Company, Mitsubishi guys Chemical Columbia Industries Prime a lot.
Solvay Mitsui <unk> co in minutes.
Building on these successes, we were pleased to announce a new strategic partnerships with Lv MH and Mitsubishi Chemical Holdings group. These partnerships were further increased our exposure to consumer and industrial end markets, including perfumes, and cosmetics packaging and automotive and expand our international footprint in Asia and Europe .
Our CPG partners to publicly disclose their intent to migrate 100% of their current petroleum based PDT consumption to decarbonize and recycled materials after.
After extensively evaluating our technology and testing our products. These market leaders have made significant financial contributions to origin, both those investors and customers demonstrating their environmental commitment and confidence in our technology and products. They have signed multi year offtake contracts worth hundreds of millions of dollars.
We continue to see strong favorable tailwind for our technology and business model with some of the world's largest public companies committing to zero carbon mandates to help tackle climate change. We were encouraged by late March rule proposal by the SEC that would enhance the climate related disclosures required by companies in their public filings.
These disclosures will include information pertaining to climate related risks that are reasonably likely to have a material impact on their business, including information related to scope, one and two greenhouse gas ghd emissions all of which aligns with our view that the de carbonization momentum that we're seeing globally is only likely to accelerate from here.
The proposed rule would also require companies, which have set ghd goals that include scope three disclosed scope three emissions. According to one report cited by FCC Chairman, Gary Gensler recent prepared remarks, 70% of companies in the Russell 1000 index and approximately 90% of the 500 largest companies by market capitalization and that index published sustainability report.
In 2020, using various third party standards, which include information about climate risks.
The surge in energy prices that followed Russia's invasion of Ukraine provides another reminder of the world's need to migrate to more sustainable and less volatile solutions with more than 99% of plastics made from fossil fuels. The industry is under both considerable environmental and economic pressure to dramatically transform the way it produces and uses of plastic.
With our first product origin offers an entirely circuit or plastic solution, 100% zero carbon recyclable P T, which the world's plastic recycling infrastructure is already designed to collect sort and reuse with the critical added benefit over moving C O two from the atmosphere.
Beyond that well there's been some progress made from shifts to renewable energy sources and electric vehicles. It is clear that reducing emissions from energy use alone is insufficient to achieve the goals and commitments established by companies and governments.
As a result in the near term we believe that these companies will need to integrate decarbonize materials into their supply chains as such we expect demand to remain ahead of our projected supplies for the perceivable future.
Turning to slide four we continue to make steady progress commercializing the business and a growing customer demand by approximately $1 8 billion since our fourth quarter earnings call for a total of $7 4 billion today.
Of off take agreements and capacity reservations.
This represents a more than seven fold increase since we announced our intent to go public in February 2021.
We continue to expand the breadth of industries, we serve from global CPG brands like Pepsi Danone and test the waters to automotive leaders like Ford and specialty chemical innovators like Solvay, and Mitsubishi Chemical Holdings group to ultra luxury brands like L. B M H.
Moving to slide five and six we recently announced the strategic partnership with IBM H beauty, the perfume and cosmetics division of <unk> to bring sustainable low carbon footprint packaging to the perfumes and cosmetics industry as.
As part of the strategic partnership that will be in May.
<unk> signed a multiyear capacity reservation agreement to purchase sustainable carbon negative P. T for margin for use in packaging for perfumes and cosmetics.
<unk> is a great example of how our wood residue based carbon negative P. T can help our customers achieve their sustainability goals, while maintaining premium quality and making no compromise some performance.
In addition to being a new category expansion. This partnership will provide origin with further access to European and international markets. As we continue to collaborate with L. B M. H beauty on sustainable packaging solutions across its family of renowned brands, including Christian Dior, <unk> colon and others moving.
Moving to slide seven we were also pleased to announce a strategic partnership with Mitsubishi Chemical Holdings group to develop advanced carbon negative materials for tires by converting hydrothermal carbon into high performance analogs of specialty carbon black materials the.
The partnership will leverage Mitsubishi Chemical holdings group's technical innovation capabilities integrated global supply chain strength and access to Japanese and international markets.
It is also notable is our first announced carbon black partnership.
Representing a significant opportunity and a new product category for origin.
According to Grand view research the global market for carbon Black is projected to reach $26 billion by 2025, and approximately 70% of the world's carbon black is used as a reinforcing pillar in tires.
This is a great example of the sustainable materials that are patented technology platform can make beyond PETN plastics, including carbon black for tire stinks and tuners.
Finally, we are excited to tell you about a new strategic relationship with a major global toy company, we continue to see considerable opportunities to expand into new markets and applications and we look forward to providing more detail about this partnership as well as others when appropriate.
In addition to these partnership announcements origin was named a fast company's prestigious annual list of the world's most innovative companies for 2022 and manufacturing.
Recognizing our patented platform for turning the carbon tons and sustainable wood residue and useful materials, including clothing, textiles, plastics packaging car parts tires, carpeting toys and more while capturing carbon in the process. This.
This year's list honors businesses that SaaS companies determined are making the biggest impact on their industries and culture as a whole ultimately thriving in today's ever changing world.
Finally, I'm pleased to announce that we have further strengthened our leadership team Dr. <unk> ph D joined as origins VP of R&D with origins former VP of R&D micro masino, taking the role of Chief scientist. Dr. Gruber brings over 20 years of experience in academia, and the biochemical industry, including leadership positions at Dupont and <unk>.
Chris Williams Campbell joined as origins VP of human resources and brings over 25 years of leadership experience in positions with emerging technology based companies, both public and private in the biotech pharmaceutical and medical device industries at origin. We believe our team is a critical differentiating factor that will enable our success in the execution of our vision and we are thrilled to welcome Tanya and Cresta origin.
With that I would like to turn it over to John who will provide an update on origin won an origin too.
Thanks, Rich I'm going to begin on slide eight and provide an update on fortune one in Oregon.
For those interested in the origin, one construction process I'd like to point you to a new construction update video to be added today.
Our relations section of our website fortune one our first plant, which is under construction in Sarnia, Ontario, we remain on track for mechanical completion by the end of 2022 and plant commissioning. Shortly thereafter during 2021, our team achieved multiple construction milestones ahead of initial expectations, including the installation of key production microbes containing equipment used for the conversion of biomass.
In our high value chemicals, and the placing and bolting it on kind of operator module system, which for six and three months ahead of schedule and secondly, we've maintained this momentum in 2022 and continue to execute on our construction timeline.
As rich mentioned, we're updating our capital budget for Gen. One and now expect a $15 million to $20 million increase from our prior outlook, resulting from rising inflation in a more challenging supply chain delivery environment.
While we are able to absorb inflation this past year by using our origin of one type of contingency and finding alternative supply sources. We believe it is more important to maintain our overall construction schedule by taking the price increases we are seeing in the market today to avoid a delayed for auction schedule. This increase to origin of <unk> capital budget also includes an appropriate contingency reserve.
During the first quarter, we hired additional members of the origin. One operations leadership team began building the rest of the origin won the operations team.
Additional equipment has been delivered on site, including the Brian tanks associated kind of operator mitral system. We made substantial progress on the biomass building, which is where we are historically talk entering the plant prior to further processing bank of the reactor system.
And steel fabrication, which we're starting to only six months ahead of schedule are well underway and on track and we have started installing fabricated steel pipe racks and interconnecting the plants keep production modules.
To date the team has fabricated about 12000 feet of pipe and about 100 tons of steel not counting the components installed and keep production modules normally just kind of walk us down to the field. However, as we discussed on our fourth quarter call. We are utilizing a modular construction approach whereby our equipment can be fabricated offsite generally in the shop. This allows us to maximize our productivity during the cold winter months of starting up.
While maintaining better control over the quality of our work.
As pipe fabrication work is completed piping leaves the shopper installation piping modules, whereas that which are then fully assembled to be loaded onto trucks and take it to the origin. One site for installation in the field. The team has also begun installing the steel support elements of the ground. This deal will support the tank farm modules, where various chemicals will be start once the plant is operational.
With regards to ordering to our previously disclosed capital budgeting construction timeline are unchanged to be clear, we do see the inflationary environment and continue to closely monitor our costs, but we are proactively managing our cost base and adult in substantial contingencies into our initial projections. In addition, we are not currently placing any equipment and construction order for <unk> two and currently in place.
And supply chain conditions are likely to change in the next 12 to 24 months I would also note that materials companies generally benefit from higher product prices and margins in inflationary environment, which can mitigate the impact of inflation on our capital budget.
Two our first world scale manufacturing facility will produce carbon negative materials used in a ped plastic resin and fiber, which is used in packaging textiles apparel and other applications and hydro thermal carbon or HCC, which can be used in fuel powered activated carbon and as a replacement for carbon black.
Front end design of the plant is underway with detailed engineering set to begin in 2023.
On our last earnings call in February we announced that we had selected the paperwork and two in Geismar, Louisiana subject to Finalization of economic incentives. We expect the 150 acre facility will convert an estimated $1 million dry metric tonnes of sustainable wood revenues each year to products for a wide range of end markets. Some of the reasons that we believe the Geismar site is an ideal location for us.
Two it could be extremely skilled labor pool, and Louisiana access relevant infrastructure and access to sustainable feedstocks.
Before I conclude I'd like to give you some additional detail about what we're working on for origin to right now the team has completed a preliminary layout for our barge dock pipe rack and conveyor structure and completed the plant plan layout of the plant Spriggy model based on size equipment in utility list.
We continue to work closely with landowners and fiber suppliers in Louisiana, and Mississippi to finalize our feedstock strategy to summarize the team has continued to make significant progress and we continue to expect works in the one to be completed by the end of 2022 and the previously disclosed capital budget construction timeline of financing for working to are unchanged and with that I will turn it over to Nate to discuss some of the finance.
I'll detail.
Thanks, John .
I'll begin with some commentary on our first quarter results then our financing expectations for origin, one in Oregon to finish with an update on our 2022 outlook speaking to slide 16 first quarter operating expenses were $7 6 million compared to $5 4 million during the same period of the prior year.
Adjusted EBITDA loss of $6 5 million for the first quarter compared to a loss of $4 6 million in the same period of the prior year and finally net income was $7 3 million for the first quarter compared to a net loss of $53 6 million in the same period in the prior year.
Turning to our balance sheet origin into the first quarter, but $427 7 million in cash and cash equivalents in marketable securities.
We maintain our expectation of fully funding the construction of both plants using our existing balance sheet cash cash equivalents and previously indicated traditional financing sources.
<unk> to the financing of origin too as we reported previously the state of Louisiana pending Finalization is expected to award private activity bond tap.
Exempt bonds authorized by the state and local governments for financing qualified projects private capital.
William cap allocation to the company and the amount of $400 million. We also expect to receive more than $100 million in pending state and local incentives we maintained that our financing assumptions for origin to remain reasonable and achievable with origin to fully funded from its existing cash on hand at previously indicated traditional project financing sources for.
$400 million private activity bond allocation from the state of Louisiana provides a strong foundation for the <unk>.
It's important to and in combination with certain 2021 infrastructure investment and jobs acts provisions and other non volume cap tax exempt financing could enable debt financing of origin to using entirely tax exempt bonds origin. Also continues to work with leading financial institutions on other forms of traditional private financing and federal loan programs include.
Adding through the U S Department of Agriculture, and department of energy.
As we've highlighted in our previous earnings calls inflationary pressures remain a focal point, though as John mentioned at this point, we are not adjusting our overall capital budget for origin to we acknowledged the situation remains fluid we will look to update our cost estimates such that we can communicate any changes to the market at appropriate times as we progress through the project.
I will now wrap up with an update on our 2022 outlook.
We are maintaining our guidance for an adjusted EBITDA loss of up to $36 million capital expenditures are now expected to be up to $175 million versus the $155 million previously reported due to the increase in capital budget, a fortune one with that I will turn it back to rich for closing remarks.
Thank you Nate to close I'm incredibly proud of the team's execution and encouraged by the strong momentum that we continue to see for our industry, leading technology as the world moves aggressively towards zero carbon future.
I would like to thank all of our customers for their commitments to Oregon, our team in construction and engineering partners for their contributions to our company's success and our shareholders for their continuous support and with that I would like to ask the operator to open the line for questions.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request.
You are using a speakerphone please pick up your handset before pressing any keys to withdraw your question. Please press Star then two we will pause for a moment as callers join the queue.
Our first question comes from Frank Mitsch Fermium Research. Please go ahead.
Hey, good afternoon folks and.
And congrats on piercing the 7 billion barrier I was wondering if you might be able to put that into some perspective obviously.
Those contracts are multiyear contracts.
And so in.
In the sense that you have to avoid double counting and so on an annual basis. How does this how does that $7 billion plus.
Show up in terms of the number of <unk>.
Origin twos that you need to build so that is how many plants does the does this backlog really indicate.
Yeah, Hi, Frank this is rich ill answer that.
So the $7 4 billion is the cumulative value of our contracts most of which are five to 10 years in duration and we've been taking orders across origin, one two and three and we will intend to keep keep taking orders as we see.
Very strong demand for our products and in that seven 4 billion, we were especially excited to extend into the toy sector.
As well as the beauty cosmetics and high end luxury sector.
And then also to announce a partnership with Mitsubishi Chemical holdings to advance our efforts to produce carbon black.
Got you, okay. So theres three facilities.
Origin, one two and three could satisfy the seven four.
We're currently taking orders on those on those three plants.
Okay, Alright got you and then just.
I understand that.
Inflation environment.
Any change, but I'm just curious if.
If we if we said that the inflation environment that we're currently in right now it Didnt change.
Would that impact the origin to its capital budget.
Yes. So good question, obviously, we're definitely feeling inflationary pressure pretty got on one dimension.
We closely monitor costs, there, but we're also proactively managing our cost base for origin to and we built in quite a bit of contingency into our initial protection. So generally we think we're in a pretty good spot.
Macroeconomic pressures to date, but to your point.
Inflation is not something that's easily predicted right in either direction.
In addition, right now we are not placing any equipment or construction orders forward to we're still in the engineering phase.
And current inflation and supply chain conditions are pretty likely to change significantly in the next 12 to 24 months.
The final piece is.
Obviously.
Inflation isn't something that happens homogeneous thing across all different.
Inputs and so that's something that we're working pretty closely with our supply chain partners and frankly in our engineering phases.
To do what we can to address those sorts of things.
Understood I mean, it seems to me that the financing assumptions that you originally made on origin to it seems like youre kind of exceeding that in terms of this $400 million private activity bond and the state local incentives et cetera.
I'm asking the question in the.
In the context of.
Do you believe that you will be sufficiently funded with the cash on hand, and the project financing such that there would not be a need to come back to the equity markets to fund origin too.
Yes, that's what we think right now that's correct we currently.
The equity component of the plant for Argentina is well financed and it's not sufficient given what we see currently any inflationary environment.
Alright terrific. Thanks, so much.
Okay. Thanks Pam.
Our next question comes from Steve Byrne of Bank of America. Please go ahead.
Just drilling in a little more on this.
7 billion.
Worth of off take agreements.
What fraction of that would you say is related to TEP.
<unk>.
Of those customers that are interested in TEP.
Do any of them have awareness or interest in P. F.
Reasonable that you could produce P S at a lower cost than TEP.
Any updates from Cologne industries.
Yes, Thanks, Steve.
So.
We're not at this time not disclosing the composition of the $7 4 billion, but it is safe to say that our carbon negative drop in <unk> is our is our flagship product and is an incredibly popular.
P F four.
Those that aren't familiar with it is what we describe as the next generation <unk>, which has all of the positive benefits of <unk> in terms of Recyclability and barrier qualities.
But it is also degradable.
Some other functional benefits and we do see increasingly strong interest from from customer support for so.
So that is absolutely part of our.
Active dialogue with customers and potential customers and we think it's a very exciting material for the future.
And.
It's Colin industries have some CMS from your West Sacramento pilot plan to work with.
Yes.
Produce P S.
So all I can say is that.
We're very excited about our Columbia industries, a partnership they do have.
Substantial expertise in PDF and F TCA.
Weighted applications and we continue to work very closely with them.
And then maybe one more on the on the.
$7 billion loss pick the question.
Pricing in this inflationary environment.
Do you incorporate price.
So those offtake agreements.
Yes, it's a great question. So the first thing I can say is that our pricing.
Is at or above the assumptions and our financial projections that we put out back in our analyst day last year, and we do see prices continuing to evolve favorably.
As customers get more focused on their carbon footprint.
As you mentioned with inflationary pressures and then also with the scarcity of our materials.
Our pricing strategy continues to be charging a modest premium.
For the carbon negativity and the sustainable aspects of what we sell we're very conscious not to try to price gouge customers or be that way because we're trying to really become one of their core suppliers and build each customer into.
A very large lifetime value and long term relationship, but pricing does continue to evolve favorably.
Thank you.
Thanks for the question.
Our next question comes from Eric Stine of Craig Hallum. Please go ahead.
Yes, Hello, it's Aaron how long on for Eric Stine, Thanks for taking the question.
Okay.
Members for me Hmm.
Hello.
First maybe on carbon black good to see progress there with Mitsubishi can you just kind of talk about the overall interest level that you're seeing with customers and if this is kind of earlier than you maybe expected it to be and just kind of the outlook because as we think about origin two and beyond.
Yeah, It's a great question so.
We've always been excited and talks about our plans for our HTC intermediate to be used as carbon black, which we view as a very exciting.
Market.
We'll offer a substantial reduction in <unk>.
Emissions with our product versus the fossil alternatives and in our financial projections that I mentioned before we tried to be conservative in how long it would take to get there.
And assume that very little of that would be sold for margin too and it was more on the origin three timeframe that we would really have meaningful.
Orders for carbon black and so we're excited to announce our first partnership in carbon Black, which is certainly a milestone in terms of us making progress towards towards providing that material and were.
Moving as fast as we can.
Towards that that higher value application and we do see a lot of interest both from customers as well as existing carbon black producers, who were under pressure from their customers to offer lower carbon and sustainable alternatives to their to their traditional fossil offerings. So we're we're excited.
About the momentum, we're making in that market.
Alright, Thanks for that and then just any update on feedstock pricing raw materials chemicals anything else just as we think about the margin outlook with kind of everything going on.
Big picture.
Yeah generally speaking when it comes to feedstock and materials et cetera.
Raw materials, and we haven't seen a lot of them.
The impact of inflation, so far what we're looking at is pretty consistent with what we'd expected.
And our.
For protection from last year, So I think generally speaking we're seeing.
<unk> had pretty favorable pricing for our products and I think.
Sort of no news is good news.
Raw material and input cost changes.
Pricing cost changes.
I think we're generally feeling pretty good about that.
Okay. Good and then maybe last for me just on Labor you kind of talked about adding to the operation's leadership team and some other ops additions. There can you just kind of talk about your overall thoughts on the labor market.
Things that you look to build the plans out.
Yeah. So.
So that's correct, we built out the leadership team for Owen one quite substantially.
We're feeling great about the quality of the team that we've been able to attract for that so far and now we will be building out the rest of the on one operating team over the course of the year in preparation for starting it up.
I'd say broader comments around the labor market we've seen.
Incredible influx of talent.
Our business over the last sort of year and a half.
And I'd say, frankly speaking I think that.
We've been able to gather talent quality that pretty substantially exceeds what our expectations were at the beginning of last year and.
There is no signs of it slowing down I think there's really as a substantial driver for people in the chemicals and materials and frankly energy sectors.
So look to move to renewable.
Capable from high value technologically sophisticated companies.
And it's been it's been a major boom. So I think we understand it broadly it's sort of a tough labor market for a lot of companies, but for US right now it feels like.
It feels like we're living in the promised land.
Good that's good to hear thanks for taking the questions.
Our next question comes from Pavel <unk> of Raymond James. Please go ahead.
Yes.
Thanks for taking the question.
On your list.
Partners and.
Our customers I think close to half.
Of the businesses are based in Europe and in some way.
Given.
Yes.
First call we've had since the war started I wanted to ask if there is any.
Yes.
You're observing in the level of incoming.
Customer inquiries.
Four.
To engage in discussion in.
In the context of energy security and.
Triple digit oil prices.
We've seen in the last 90 days.
Yes, Thanks, Great question.
The demand we see continues to be very strong and to accelerate and a lot of thats driven by companies net zero pledge as stated sustainability goals that are driven by their shareholders employees customers et cetera.
It's hard to say, if we've seen any direct impact from oil prices or or geopolitical events, but.
I will say demand.
Continues to to accelerate and and you're right to point out that Europe is a is a very large market for us Japan is a very large market for it for us and a lot of companies look at our our products serving their third global business and not a particular geography and so I view all of those things is just additional tailwind on top of.
The strong demand we've been experiencing.
Yes.
Completely understood.
On the on the Capex side.
You one of the culprit for the.
The uptick in Oregon one.
Capex.
Yes steel is a component of it.
Jed I think materials more generally.
Ben.
Meaningful in terms of on tightness in the supply chain.
Yeah.
Honestly, it's a little bit.
I Wouldnt say Theres, one single overriding logic to it I think just generally.
Supply chains have been migrating into North America, and Western Europe and.
Asia on a lot of different items, it's never binary just through all of it or not.
No.
A little unpredictable not just in terms of what the item is that's going to be more expensive, but also how long that item will be more expensive, whether it's fabrication or materials or whatever else.
And so as I mentioned in the.
As her prior comments.
We've really been able to navigate a lot of that by having just a great.
Project management construction management team and our procurement team on Oman and named Steve.
Navigated through supply bottlenecks and cost increases all of this kind of stuff, but at a certain point you just need to make sure that youre getting all of the material on time from our perspective, it's more important for all of them wanted to start on time, then it is for us to.
Make it a little bit of headway on budget and so we.
We just said look we think we can probably navigate through some of this stuff, but it's just time to make it happen and then so I think overall I don't think there is a sort of single overwriting logic to it but yes, we've definitely seen cost increases on material, but you'll also see it in certain areas of fabrication and then I think that something that.
It seems to be subject every subject to us frankly, electrical equipment is something that sort of app.
Equipment is something that is sort of noticeable it's not a large proportion of our budget, but there are all these kinds of items.
That has made a difference it's not one single thing across the board.
And then lastly, the Lv Unmake partnership just to clarify is it only the packaging.
Cosmetics that you'll be participating in or the.
As medic.
Material itself.
Yes.
The initial.
Partnership that we've announced is around.
Using our carbon negative PDT for packaging of perfumes and cosmetics.
We're very excited to work with the <unk> team, because we think thats.
That's just where the starts and that there is a lot of things, we can do together across their various products and categories, but.
This initial partnership is for packaging.
Okay. Thank you very much.
Thanks for the questions.
Our next question comes from Jordan Levy of Truth Securities. Please go ahead.
Good afternoon.
<unk>.
Those teams.
You may have touched on this before but there is a few projects and that was kind of a general zip code or words to that.
That would be using biomass is there.
Just curious as you guys progressed in the initial planning.
Sure.
How are you thinking about the securities laws.
Or is that on the feedstock side of things or if that's really even.
Do you consider or.
It's not a concern.
Yeah, that's a great question.
So yes, we do.
There's a lot of.
Activity I think broadly across the across the industrial sectors in North America that includes areas like Geismar.
Wood basket, there is pretty deep.
Right robust so we're not at all concerned about.
See if raw materials or something along those lines. The other thing I'd say is depending on the projects that you are talking about one of those projects actually generate residuals, which are attractive to us. So it's not just pharma all the pulp mills that generate residuals that we can use for our process, but there are a variety of other kinds of processing that can do that as well so.
Some cases those additional projects really are competitive there actually something of a boon for us.
And broadly speaking I would say, we feel very comfortable about the feedstock environment not just for <unk>, but for three and four and plant beyond that.
And so and I don't think anything's changed about that from our perspective.
That's helpful. Thank you gentlemen.
Just a follow up maybe I know you outlined some of the slides schedules rewards and more than two but maybe just high level key points, we'll be looking towards on the construction cycle or the one over the next.
Months or so.
Engineering and planning phase two.
Two.
Yeah. So 401, I think the key milestones to look forward from here on out is that if mechanical completion, which will happen towards the end of the year.
Mechanical completion.
And then through to startup.
That's the stuff, we're sort of we're almost there.
So I don't think there is too much in terms of intermediary remarks, there are some but theres nothing thats. That's major in terms of intermediate milestones beyond what we've indicated on the slides themselves and then what we're going to we're in the front end engineering process right now.
We're looking to have that front of an extra that process complete next year at that point. We can once you have that you can sort of bid out there.
Engineering package for the feed package from from that process to get fixed.
Pricing for it from MPC and then we can pull together.
<unk> contracts that we've put together and then of course feedstocks by granite.
Altogether onto the project financing so I think that's really the big milestone coming up.
Of course, there are lots of an intermediary steps along the way between here and there some of which we generally as you mentioned on the slides.
Yeah.
Thanks, so much demand number looks great.
Yeah.
Yeah.
Yeah.
That concludes today's live Q&A segment with analysts I will now turn it over to Ashish Gupta Investor Relations to conduct the ask origin segment of our Q&A.
Yeah.
Thank you Ariel.
As part of a save the date release, we invite investors to submit questions for earnings call as part of our ask origin campaign. We were pleased to have had such high participation and want to thank everyone who has submitted a question in the interest of time today, we will be taking the most commonly asked question.
Questions. Our first question is for rich rich.
Rich how do you think about our licensing agreement what are the trade offs would you partner with other companies to further accelerate deployment of fee charge in plants.
Yes, so our current projections assume.
They don't assume licensee may assume we build own and operate our own plant and the economics that come from those.
But as you can tell from the incredible demand that we have and some customers, indicating that they would need.
Plants just to meet their own needs. We are very open to entering into licensing agreements and that could allow us to scale faster more capital efficiently and have a greater impact on the planet.
And serve this massive demand from our customers so.
We do get asked about it by by customers and other industry participants and.
Continue to think that Thats, a very exciting opportunity for us. That's not currently included in any of our financial projections.
Great. Thanks, so much for that rich.
I'll now turn to a few questions for John .
John what is the origins vision for helping to end the glut of a crisis of plastic waste in our global ecosystems does the origin team hold any concerns or solutions as to how they approach and proper disposal of the carbon negative P T products.
Yes, it's a great question I think it's particularly interesting because.
One I think that it's important.
First to differentiate between all the different kinds of plastics that are out there frequently what you see in public discourse is this idea that all plastic as University University equal.
Frankly, that's just not the case.
Different plastics have radically different performance, that's why they get used for different applications.
As you break all that down PDT in particular is somewhat unique.
It's it's unique in the progress that it's made in end of life solution. So as you look across all of the different plastics TEP is recycled at vastly higher rates than any other plastic out there and in fact, even speaking more broadly about materials for packaging and other applications and.
Really it's P T and aluminum from an impact perspective, and an actual recycling and end of life perspective, and then there's sort of ever Ed paper actually sorry Emily include paper.
There's everything else.
And so realistically, we chose pega as a target product in many ways because we saw it as the best answer for packaging.
And many of the plastic head applications broadly and <unk>.
Not just from a performance perspective also from an NOI perspective, and then we could come in and solve the beginning of like components right. So you could get sort of an all in one spot.
Chart, and we've seen a lot of our customers recognize that so over the last couple of years I would say the migration of different applications right into <unk> as the core material, rather than polystyrene or polyolefin or something like that.
It has been pretty dramatic and we see it all the time right customers looking to take something that used to be made out of a different material and get it into PPG.
And the reason for that is not just because it's better than all the other plastics, but as I said, it's actually from an environmental or climate perspective, it's better than just about any material. So it's better than glass, it's better than steel.
It's really really the most efficient highest performing best economics best for the climate answer but of course that doesn't mean it doesn't have any issues whatsoever. The recycling rates are very high with PDT.
From our perspective, we want to get some higher we want to make that better and so that's one of the reason why we're excited about polymers like yeah that we were discussing earlier.
<unk> brings a ton of the benefit and performance and recycling behavior that you see with <unk> that make it such a good material, but it also enables other outlets for both performance and end of life solutions that really aren't available to <unk>. So <unk> brings for example, hydro barrier, which means that you can get it into applications that you can't use straight to ETE and very effective.
<unk>.
And we see a great ability characteristics and so that means that even though you had preferentially recycling.
In the instance that there is sort of leakage from the end of like supply chain and you get platinum Sheryl in the environment of course, it is better for that material to biodegrade in the environment and then it is for it to just persist out there and so from that perspective, we see polyester broadly not just polyester OTT, but polyester as a class of polymers.
It include polymers like P. F. R. P M.
That.
We can really we can solve the climate and the plastics problems, particularly mycoplasma problems.
All with a one.
One single great material solution, that's sort of our view on plastics more broadly.
Fantastic. Thank you for the very thorough explanation.
Next can you explain the benefits, which you see in origin drive the HTC over a couple over excuse me over traditional petroleum source analogues such as carbon black.
Yeah. So the first.
And most immediately feeling is that.
Lower carbon footprint right. So when you're looking at a lot of again since you mentioned from Black I'll take carbon black as a specific example, that's a pretty highly emitting material right. So carbon black is essentially like like a condensed set from the combustion of parks combustion of of natural gas or heavy oil or something along those lines and so naturally that's going to admit not only a lot of carbon.
<unk> had a lot of other things as well during the process.
And we make our carbon black from HCC in a completely different way, which doesn't have you been.
Remotely that kind of admissions that you see especially with traditional car manufacturer. So thats a big driver for our customers, but there are other elements of HCC, which are characteristically different from normal carbon blacks as well.
So for example, our HTC actually starts with a lot of oxygen functionality on the surface. So lots of alcohol aldehydes anything bound up in that polymer structure.
And we can remove those in order to get to something that's much closer sort of turbo <unk> carbon black but.
Those can actually provide some release of clinical benefit.
Over sort of a traditional native carbon black. So for example, if you have all that auction functionality you have a you have a bunch of surface area that you can react substrates onto right, which can get different performance of the carmike. It also disperses better in in water and aqueous media, which can be relevant in certain applications. So it's really different from that.
But the big sort of anchor difference is the carbon footprint.
Wonderful now a little bit of a follow on.
On your question.
Just wanted to give you a chance if you wanted to expand at all on the feedstock sourcing strategy for <unk> two.
Perhaps you could also.
To provide some context go into the logistics of how like the Cellulosic materials bought and transported this origin intend to go into the origin and tend to go into offtake agreements with bio residue aggregators or targeted individual players in the industry.
Yes so.
Piggyback onto the answer that I had earlier.
I think yes, we do expect to have long term.
Agreements with specific materials filed with feedstocks players across the industry it depends on.
<unk>.
Player by player whether it makes sense to engage in what the length of off take agreement might be.
What the supply mechanisms are but generally speaking one of the benefits of walking in the forest products industry, which is why we selected that as sort of a feedstock basis for our first large scale plant.
Is that you have.
On a relative basis.
Fortunately products a much denser than what you see for a lot of other biomass types and that makes it much more straightforward to transport it makes it much more economic to handle.
We have a lot more flexibility with an origin to type plant running on forest products.
And that allows us to go after all sorts of different.
Different materials.
Different feedstock locations and when I say materials in this particular case, what actually is the residual products from either saw mills or pulp mills or whatever else is out there.
And so we do expect that we'll pull together.
Sort of a portfolio of different feedstocks that are.
But are all feeding into the origin to plant.
Great.
I appreciate that and for our last Investor question, It's in a similar vein as the last one.
Just maybe can you help us understand how flexible OLED to us regarding exactly the feedstock. It uses for example could it use gas during one quarter. The next quarter switched cardboard in response to a shortage or a low price opportunity.
Could it do a blend of one or more material similar to how oil refineries blend different crude oils.
Yes, so that's exactly the way that we think about it is really.
As you look at feedstocks for a given origin and plant.
Front end and in fact that the mass proportions at the plant are designed really for a particular feedstock blend. So if I have the mechanical handling equipment to deal with.
With wood chips.
It may not be very straightforward for me to handle the gas that doesn't mean that the plant where the technology itself wouldn't be able to have feedback often it's more a question of whether you have the mechanical infrastructure to move that kind of material around that particular plant. So I think it's unlikely that we would shift wholesale from one feedstock one quarter to a different feedstocks.
The next quarter, but I think it's quite likely that we will design our front end.
Feedstock infrastructure to handle a particular blend with sort of.
Operating envelope limits on how much can that Glenn move.
Move at any given time, so where are we going to try to incorporate because for example into general residuals feed.
Might have.
Ability to process between 10, and 20% Burgos is upbeat feed in and you might get 10, some quarters and then you might try to enrich to 20 other quarters, depending on what the rest of the feedstock environment looked like and of course, that's also going to affect that downstream feedstock distribution, our products, rather sorry distributions coming up the plant and that needs to be accounted for as well. So I think that the <unk>.
Allergy to refineries is good some refineries are really designed to run heavy sour crude others are designed to run.
Wheaton light or certain gasoline or something like that and so.
It's not that they couldn't run other feedstocks, but it's that they're not optimized for them and our plants will be similar I think in that sense.
Okay.
Great.
Really appreciate the added Q&A session here rich and John also wanted to thank the investors once again and who participated in the ASIC, Oregon campaign, we really appreciate your contributions to todays call.
That will conclude the Q&A portion of today's call and I'll now turn it back to rich for closing remarks.
Yes, Thanks, Ashish and I agree thanks, everyone for the really great questions and for joining US today, we really do appreciate your interest in origin. This concludes today's call.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Yeah.
[music].
Yeah.
[music].
Hum.
Yeah.