Q2 2024 Danimer Scientific Inc Earnings Call

Greetings. Welcome to the Danimer Scientific 2024 Second Quarter Earnings Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session.

Operator: At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, August 8th, 2024. I would now like to turn the presentation over to Mr. Blake Chambley, the company's Vice President of Percentage.

If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, August 8, 2024.

Speaker Change: I would now like to turn the presentation over to Mr. Blake Shambly, the company's Investor Relations Representative.

Unknown Executive: Thank you, operator, good afternoon everyone, and thank you for joining us today for Danimer Scientifix 2024 second quarter earnings call. We've got on the call today are Steve Croskrey, Chief Executive Officer, and Mike Hajost, Chief Financial Officer.

Speaker Change: Thank you, Operator. Good afternoon, everyone, and thank you for joining us today for Danimer Scientific's 2024 Second Quarter Earnings Call. Leading the call today are Steve Croskrey, Chief Executive Officer, and Mike Hajost, Chief Financial Officer.

Speaker Change: I'd like to note the slide deck that accompanies today's discussion, which is available on the investor relations section of our website at DanimerScientific.com.

Unknown Executive: I'd like to know the slide that a couple of these slides today's discussion, which is available on the investor relations section of our website at DanimerScientific.com. As we begin, I'll call your attention to the company's safe harbor language, which is published in our SEC filings and on slide two of the presentation I just wrote. On today's call, we may discuss forward-looking statements within the meaning of the safe Forward-looking statements include, among other things, statements regarding future results of operations, including margins, profitability, capacity, production, customer programs, and market demand levels.

Speaker Change: As we begin, I'll call your attention to the company's Safe Harbor language, which is published in our SEC filings and on slide 2 of the presentation I just referenced.

Unknown Executive: Actual results could differ materially from what is expressed or implied in our forward-looking statements. The company assumes 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 within the meaning of SEC Regulation G. We believe these non-GATT measures have analytical value, but note that they should be taken as supplementary measures of performance and not as alternatives to GATT results.

Speaker Change: On today's call, we may discuss forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended.

Speaker Change: Forward-looking statements include, among other things, statements regarding future results of operations, including margins, profitability, capacity, production, customer programs, and market demand levels. Actual results could differ materially from what is expressed or implied in our forward-looking statements.

Speaker Change: The company assumes no obligation to update any forward-looking statements to reflect events or circumstances after the date hereof, except as required by law.

Speaker Change: Today's presentation also includes references to non-GAAP financial measures within the meaning of SEC Regulation G.

Speaker Change: We believe these non-GAAP measures have analytical value, but note that they should be taken as supplementary measures of performance and not as alternatives to GAAP results. We have provided reconciliations for non-GAAP financial measures to the most comparable GAAP financial measures in our earnings release and our presentation.

Unknown Executive: We have provided reconciliation of non-gap financial measures to the most comparable gap financial measures in our earnings release and our presentation. Thank you, and it's now my pleasure to turn the call over to Stephen Croskrey, Chief Executive Officer of Danimer Scientific.

Steve Croskrey: Thank you and it's now my pleasure to turn the call over to Steve Croskrey, Chief Executive Officer of Danimer Scientific.

Stephen Croskrey: Good afternoon, and thank you for joining us. Before I get into the second quarter results, I'd like to step back and take a moment to discuss what we originally set out to do many years ago, where we are today, and how we see our business shaping up in the near future. Our mission began 20 years ago to provide sustainable biodegradable plastic solutions to combat petroleum-based plastic waste that is plaguing our planet.

Steve Croskrey: Good afternoon and thank you for joining us. Before I get into the second quarter results, I'd like to step back and take a moment to discuss what we originally set out to do many years ago, where we are today, and how we see our business shaping up in the near future.

Steve Croskrey: Our mission began 20 years ago to provide sustainable biodegradable plastic solutions to combat petroleum-based plastic waste that is plaguing our planet.

Stephen Croskrey: We begin by purchasing polylactic acid, or PLA, and functionalizing it for use in various difficult applications, such as liners for coffee cups, which is how we develop our core competencies around formulating biopolymers and developing end-use applications. We always knew PLA had limitations, so we expanded our search into other solutions, ultimately landing on what we believe to be the holy grail of biopolymers, Ph. A.

Steve Croskrey: We begin by purchasing polylactic acid or PLA and functionalizing it for use in various difficult applications such as liners for copycups, which is how we developed our core competencies around formulating biopolymers and developing end-use applications.

Steve Croskrey: We always knew PLA had limitations, so we expanded our search into other solutions, ultimately landing on what we believe to be the holy grail of biopolymer's Ph.A.

Stephen Croskrey: We purchased the PHA technology from Procter and Gamble and quickly discovered that the performance of their organism was not sufficient to reach commercial scale. We spent the next four years optimizing for a more scalable, functional polymer based on a different bacteria. We built our original PHA pilot plant in 2014 in Bayenbridge, purchased a used fermentation plant in Kentucky in 2018, and successfully sold our first commercial load of PHA resin for stage straws to wind cup in March of 2020. However, several days later, progress was disrupted by the implementation of shutdown orders from governmental agencies around the world to combat the COVID pandemic.

Steve Croskrey: We purchased the PHA technology from Procter and Gamble and quickly discovered that the performance of the organism was not sufficient to reach commercial scale. We spent the next four years optimizing for a more scalable, functional polymer based on a different bacteria.

Steve Croskrey: We built our original Ph.A. pilot plant in 2014 in Bayenbridge, purchased a used permutation plant in Kentucky in 2018, and successfully sold our first commercial load of Ph.A. resin for stage straws to wind cup in March of 2020.

Steve Croskrey: However, several days later, our progress was disrupted by the implementation of shutdown orders from governmental agencies around the world to combat the COVID pandemic.

Stephen Croskrey: The COVID shutdown hit us particularly hard because we had several key research and development projects in the process, requiring in-person meetings and tests, some of which never recovered to reach commercialization. Additionally, we were burdened with the high fixed cost of our production facility without the ability to produce and ship products. This led to the decision to seek additional capital and take Danimer Scientific public in December of 2020. Now, nearly four years later, after navigating various challenges, including a longer epidemic than expected, the conflict in Ukraine, hyperinflation, short reports, and various lawsuits, we are still here. Not unscathed but still intact.

Steve Croskrey: The COVID shutdown hit us particularly hard because we had several key research and development projects in process requiring in-person meetings and testing. Some of which never recovered to reach commercialization.

Steve Croskrey: Additionally, we were burdened with the high fixed costs of our production facility without the ability to produce and ship product.

Steve Croskrey: This led to the decision to seek additional capital and take Danimer Scientific Public in December of 2020.

Steve Croskrey: Now, nearly four years later, after navigating various challenges, including a longer epidemic than expected, the conflict in Ukraine, hyperinflation, short reports, and various lawsuits, we are still here, not unscathed, but intact.

Stephen Croskrey: Today we stand as the only producer of Ph. A. at Commercial Scale with independently validated biodegradable residents capable of producing a variety of single-use plastic products. We have produced more PHA than has ever been produced by anyone else in the world, on a combined basis and by a large multiple. And we have conducted commercial trials and research-based sampling with hundreds of potential customers covering a vast array of products from coffee pods to snack packaging to aqueous coats.

Speaker Change: Today we stand as the only producer of PHA at commercial scale with independently validated biodegradable resins capable of producing a variety of single-use plastic products.

Speaker Change: We have produced more PHA than has ever been produced by anyone else in the world on a combined basis and by large multiples.

Speaker Change: And we have conducted commercial trials and research-based sampling with hundreds of potential customers covering a vast array of products from coffee pods to snack packaging to aqueous coatings.

Stephen Croskrey: Every day we learn more, and our lead over our competitors increases. We are now in the process of beginning a significant scale-up of our... We have passed many tests, achieved all required certifications, and have four-plus years of real-world experience and feedback through shipment of our resins to customers including Starbucks and WinCup for their faded straws. Based on existing customer demand and new awards, including the decision of a very large QSR to begin using cutlery made with our PHA, we are confident in achieving full capacity utilization of our Kentucky facility over the next several quarters and then further scaling up additional product capacity from there, including potential tolling partnerships and licensing agreements.

Speaker Change: Every day we learn more and our lead over our competitors increases.

Speaker Change: We are now in the process of beginning a significant scale-up of our business.

Speaker Change: We have passed many tests, achieved all required certifications, and have four-plus years of real-world experience and feedback through shipment of our resins to customers including Starbucks and WinCup for their fade straws.

Speaker Change: Based on existing customer demand and new awards, including the decision of a very large QSR to begin using cutlery made with our PHA, we are confident in achieving full capacity utilization.

Speaker Change: of our Kentucky facility over the next several quarters and then further scaling up additional product capacity from there, including potential tolling partnerships and licensing agreements.

Stephen Croskrey: In addition, we expect to cross over to positive EBITDA in the second quarter of 2025 and also expect to exit 2025 at a run rate approaching $15 million of EBITDA annually, to drive these higher volumes. Our primary commercial focus continues to be on the food service market and, in particular, Quick Service restaurants or QSRs. Just the Markets for Drinking Straws and Plastic Cutlery, where we are fully commercial and our residents have achieved end-of-life certification, provide more than enough demand to fill our Kentucky facility and will allow us to continue to grow from that.

Speaker Change: Further, we expect to cross over to positive EBITDA in the second quarter of 2025 and also expect to exit 2025 at a run rate approaching $15 million of EBITDA annually.

Speaker Change: to drive these higher volumes.

Speaker Change: Our primary commercial focus continues to be on the food service market and, in particular, quick service restaurants or QSRs

Speaker Change: Just the markets for drinking straws and plastic cutlery where we are fully commercial and our residents have achieved end-of-life certifications provide more than enough demand to fill our Kentucky facility and will allow us to continue to grow from there.

Stephen Croskrey: We are currently working with six of the top eight QSRs in terms of annual volume of single-use plastic products. These QSRs are leading the charge to be able to provide their customers with 100% biodegradable solutions. We are greatly encouraged by these partnerships and the commitment these companies are making towards solving the global petroleum-based plastic pollution epidemic. As I mentioned, we have conducted development efforts on literally dozens of applications that will at some point be commercialized using PHA.

Speaker Change: We are currently working with six of the top eight QSRs in terms of annual volume of single-use plastic products.

Speaker Change: These QSRs are leading the charge to be able to provide their customers with 100% biogatable solutions.

Speaker Change: We are greatly encouraged by these partnerships and the commitment these companies are making towards solving the global petroleum-based plastic pollution epidemic.

Speaker Change: As I mentioned, we have conducted development efforts on literally dozens of applications that will at some point be commercialized using PHA.

Stephen Croskrey: In many cases, we know the resin performs and is ready to be deployed commercially. However, some of our potential customers have been slow to deploy this new technology as they grapple with rising costs and focus on priorities other than sustainability.

Speaker Change: In many cases, we know the resin performs and is ready to be deployed commercially. However, some of our potential customers have been slow to deploy this new technology as they grapple with rising costs and focus on priorities other than sustainability.

Stephen Croskrey: But, because the market opportunity is so vast, our near-term focus on existing applications, which also include injection molding of products, such as coffee pods, and single layer films, positions us to grow the business at a high rate in the next several years. Our deep research and development experience and historical customer relationships will provide us with decades of further opportunities as our customers choose to move forward with reducing their use of petroleum-based forever class.

Speaker Change: But because the market opportunity is so vast, our near-term focus on existing applications, which also include injection-molded products such as coffee pods and single-layer films, positions us to grow the business at a high rate in the next several years.

Speaker Change: Our deep research and development experience and historical customer relationships will provide us with decades of further opportunities as our customers choose to move forward with reducing their use of petroleum-based forever plastics.

Stephen Croskrey: So, with that reminder of our mission and game plan, I also want to provide some color related to my decision to retire from Danimer and the current CEO's search process. I was asked to come out of retirement almost nine years ago to lead and amplify the company's growth initiative. I had been and still maintain a firm belief in the company's mission, and I have worked tirelessly to help us achieve those goals.

Speaker Change: So, with that reminder of our mission and game plan, I also want to provide some color related to my decision to retire from Danimer and the current CEO's search process.

Speaker Change: I was asked to come out of retirement almost nine years ago to lead and amplify the company's growth initiatives.

Speaker Change: I had been and still maintain a firm belief in the company's mission.

Stephen Croskrey: As I mentioned above, we faced countless challenges, and I'm proud of how our team has persevered throughout. However, there is still work to be done to fill and expand our manufacturing capacity in order to fulfill the promise and expectations we all have for the company. We have started a search for the next leader who has the necessary skill set and aptitude to lead Danimer to success.

Speaker Change: And I have worked tirelessly to help us achieve those goals.

Speaker Change: As I mentioned above, we faced countless challenges, and I am proud of how our team has persisted throughout. However, there is still work to be done to fill and expand our manufacturing capacity in order to fulfill the promise and expectations we all have for the company.

Speaker Change: We have started a search for the next leader who has the necessary skill set and aptitude to lead Danimer to success. I will continue to remain involved with the company in a role on the Board of Directors and will be available to provide guidance and support to the new CEO as needed.

Stephen Croskrey: We continued to remain involved with the company and a role on the Board of Directors and will be available to provide guidance and support to the new CEO, Ed. Now I will turn more specifically to our second quarter results and near-term development. Our second quarter results were consistent with our expectations, factoring in the headwinds noted last quarter related to the shift in converters for the Starbucks straw resin business. This was the primary cause for an overall decline of $2.5 million, or 30%, in PHA revenues on a year-over-year basis. I'll talk more about this in a bit.

Speaker Change: Now, I will turn more specifically to our second quarter results and near-term developments. Our second quarter results were consistent with our expectations, factoring in the headwinds noted last quarter related to the shift in converters for the Starbucks straw resin business.

Speaker Change: This was the primary cause for an overall decline of $2.5 million, or 30%, in PHA revenues on a year-over-year basis. I'll talk more about this in a bit. PHA revenues during the second quarter made up 81% of product revenue and 69% of product revenue in the prior year quarter.

Stephen Croskrey: PHA revenues during the second quarter made up 81% of product revenue and 69% of product revenue in the prior. Our work to supply 20 million pounds annually of resin for cutlery and 3 million pounds of cutlery wrappers to a large global QSR chain continues to progress. The first commercial orders have been received, with planned deliveries of property to at least one customer distribution center in the next couple of months. Our converter partners have received delivery of initial sets of cutlery molds, and some have purchased new injection molding equipment. We expect this award to reach full run rate in mid 2025. Another large QSR is trailing our no-dex-based biodegradable screws and servals.

Speaker Change: Our work to supply 20 million pounds annually of resin for colorie and 3 million pounds for colorie rappers to a large global QSR chain continues to progress.

Speaker Change: The first commercial orders have been received with planned deliveries of cutlery to at least one customer distribution center in the next couple of months. Our converter partners have received delivery of initial sets of cutlery molds and some have purchased new injection molding equipment.

Speaker Change: We expect this award to reach full run rate in mid 2025.

Speaker Change: Another large QSR is trailing our no-dex-based biodegradable strides in several states.

Stephen Croskrey: We expect a larger commercial launch in late 2024 or early 2025. With this and QSAR, we are also making progress on lids and coated paper containers under joint development. We continue to advance in the commercialization process of compostable cups using our PHA resins for both aqueous and extrusion coating. The top paper producers and coders in North America and Asia remain highly engaged in the success of this project. This represents a substantial market opportunity with over 250 million pounds of petroleum-based plastics used annually as liner material in the production of cups.

Speaker Change: We expect a larger commercial launch in late 2024 or early 2025.

Speaker Change: With this same QSR, we are also making progress on lids and coated paper containers under a joint development agreement.

Speaker Change: We continue to advance in the commercialization process of compostable cups using our PHA resins for both aqueous and extrusion coatings.

Speaker Change: The top paper producers and coders in North America and Asia remain highly engaged in the success of this project.

Speaker Change: This represents a substantial market opportunity with over 250 million pounds of petroleum-based plastics used annually as liner material in the production of cups.

Stephen Croskrey: Coming back to a topic I mentioned briefly just a moment ago, we alerted you last quarter to a development with our in-customer Starbucks who reallocated a portion of its NoDax-based straw resin business to WinCup from their previous sole source provider. This re-apportionment led to excess inventory in the channel with our converter partners, which had a negative impact on results in the second quarter. We expect this same dynamic to carry over to our third quarter and impact results by approximately $1 million. We would expect this issue to be largely behind us by the fourth quarter.

Speaker Change: Coming back to a topic I mentioned briefly just a moment ago, we alerted you last quarter to a development with our in-customer Starbucks who reallocated a portion of its NODAC space straw resin business to WinCup from their previous sole source provider.

Speaker Change: This reapportionment led to excess inventory in the channel with our converter partners, which had a negative impact on our results in the second quarter.

Speaker Change: We expect this same dynamic to carry over to our third quarter and impact results by approximately $1 million.

Speaker Change: We would expect this issue to be largely behind us by the fourth quarter.

Stephen Croskrey: It is also important to reiterate that we partner closely with both converters and continue to retain 100% of the Nodex-based straw resin business with Starbucks. As we look to grow our top line, we remain focused on managing our liquidity. Part of that objective, at the end of the second quarter, we implemented operational cost reductions, resulting in approximately $7 million in annual life savings on a go forward. This encompassed a reduction in hate count and other operating costs through several fun shows.

Speaker Change: It is also important to reiterate that we partner closely with both converters and continue to retain 100% of the Nodex-based straw resin business with Starbucks.

Speaker Change: As we look to grow our top line, we remain focused on managing our liquidity runway.

Speaker Change: In support of that objective at the end of the second quarter, we implemented operational cost reductions resulting in approximately $7 million in annual life savings on a go-forward basis.

Speaker Change: This encompassed a reduction of headcount and other operating costs through several functional areas.

Stephen Croskrey: This also included the decision to pause operations at our dam or use catalytic technology. We were able to make this decision based on the success we had in a complete expansion of our pilot plan during the first quarter of 2024, which demonstrated our ability to produce this unique polymer at higher volumes and validated key material properties such as moisture and oxygen barrier and biodegradation levels as well as formulations that combine renewable with promising levels.

Speaker Change: This also included the decision to pause operations at our Dan Mercadile Technologies business.

Speaker Change: We were able to make this decision based on the success we had in completing the expansion of our pilot plant during the first quarter of 2024, which demonstrated our ability to produce this unique polymer at higher volumes.

Speaker Change: and validated key material properties such as moisture and oxygen barrier and biodegradation levels as well as formulations that combine RENOVO with NODACs at promising levels.

Stephen Croskrey: Through this expansion and proof of concept, we were able to produce enough inventory to continue progress with key development partners on the Renoval R&D initiative. We remain confident that our novel, renewable polymer will ultimately be a large driver of revenue for the company in the future. Including the $7 million in annualized cost reductions implemented at the end of the second quarter of 2024, our total annualized cost reduction since early 2022 now exceeds $20 million.

Speaker Change: Through this expansion and proof of concept, we were able to produce enough inventory to continue progress with key development partners on renewable R&D initiatives.

Speaker Change: We remain confident that our novel, renewable polymer will ultimately be a large driver of revenue for the company in the future.

Speaker Change: Including the $7 million in annualized cost reductions implemented at the end of the second quarter of 2024, our total annualized cost reduction since early 2022, now exceed $20 million.

Stephen Croskrey: Another important topic for today's call is the successful launch of our Warrant Dividend Program. Our shareholders and certain other recipients recently received one dividend warrant for each three shares of common stock held as of the record date. These warrants trade over the counter under the symbol dnmrw, and there has been a very active market for them today.

Speaker Change: Another important topic for today's call is the successful launch of our warrant dividend program.

Speaker Change: Our shareholders and certain other recipients recently received one dividend warrant for each three shares of common stock held as of the record date.

Speaker Change: These warrants trade over-the-counter under the symbol DNMRW.

Stephen Croskrey: While the warrants can be exercised for our common shares with cash, the critical feature of this program is that the warrants may also be exercised with our three and a quarter percent convertible note. We expect this will allow our note holders to exchange notes for common stock at values greater than where they could sell the notes previously and allow us to reduce debt without using cash. It also rewards shareholders with a valuable asset as convertible note holders purchase warrants to facilitate the conversion of their depositions to equity.

Speaker Change: and there has been a very active market for them to date. While the warrants can be exercised for our common shares with cash, the critical feature of this program is that the warrants may also be exercised with our three and a quarter percent convertible notes.

Speaker Change: We expect this will allow our note holders to exchange notes for common stock at values greater than where they could sell the notes previously and allow us to reduce debt without using cash.

Speaker Change: It also rewards shareholders with a valuable asset as convertible note holders purchase warrants to facilitate the conversion of their depositions to equity.

Stephen Croskrey: We expect this activity will contribute to the delivery of our balance sheet and reduce cash interest expense. We have had one noholder at Stranger and Rural Notes for equity today, and we expect this process to continue. Today we have permanently tired $6.1 million of our outstanding three and a quarter percent convertible. Lastly, I want to mention that we continue to make great progress in regard to the DOE loans program and are in the final stages of the process. I will now turn the call over to my kajost, our chief financial officer, to update you on the financial results for the second quarter of 2024.

Speaker Change: We expect this activity will contribute to the deleveraging of our balance sheet and reduce cash interest expense.

Speaker Change: We have had one note holder exchange their convertible notes for equity to date and we expect this process to continue.

Speaker Change: To date, we have permanently retired $6.1 million of our outstanding 3.25% convertible nodes.

Speaker Change: Lastly, I want to mention that we continue to make great progress in regard to the DOE Loans Program and our final stages of the process.

Speaker Change: I will now turn the call over to Mike Hajost, our Chief Financial Officer, to update you on the financial results for the second quarter of 2024.

Michael Hajost: PLA-based resin sales of $1.4 million decreased $2.4 million compared to the prior year due to lost customer orders due to the impact of the Ukraine conflict. This will be the last quarter of comparative impact from this conflict on our PLA sales. In the Second Quarter, 2024 PHA sales represented 81% of product sales, and we expect this percentage of increase throughout the remainder of the year as we continue to ramp up PHA volumes.

Mike Hajost: Thank you, Steve, and good afternoon, everyone. I'll start with our financial results on slide 7 of our presentation for those of you following along.

Mike Hajost: Total revenue was $7.6 million in the second quarter, which was down from $12.9 million in the prior year quarter.

Speaker Change: PHA-based residence sales of $5.9 million decreased by 30% or $2.5 million in the second quarter of 2024 compared to the prior year.

Speaker Change: which was primarily driven by Starbucks Reallocation of his strong resin business that Steve spoke about earlier. PLA-based resin sales of 1.4 million decreased 2.4 million compared to prior year due to lost customer orders from the impact of the Ukraine conflict.

Mike Hajost: This will be the last quarter of comparative impact from this conflict on our PLA sales.

Mike Hajost: Second Quarter, 2024 PHA sales represented 81% of product sales, and we expect this percentage of increase throughout the remainder of the year as we continue to ramp up PHA volumes.

Michael Hajost: We reported a second quarter 2024 gross loss of 6.9 million, which is in line with a prior-year quarter gross loss of 6.6 million. After adjusting for depreciation and stock-based compensation, we reported an adjusted gross loss of 1.8 million this quarter, compared to an adjusted gross loss of 1.6 million in a prior-year quarter. R&D and SGA expenses, excluding depreciation, amortization, stock-based compensation, and certain non-recurring items, totaled 8.1 million in the second quarter of 2024 and were 8.6 million in the second quarter of last year. The year of re-reduction in these operating costs was a result of continued cost control initiatives across many areas of the business.

Speaker Change: We reported a second quarter 2024 gross loss of $6.9 million, which was in line with the prior year quarter's gross loss of $6.6 million.

Speaker Change: After adjusting for depreciation and stock-based compensation, we reported an adjusted gross loss of 1.8 million this quarter compared to an adjusted gross loss of 1.6 million in a prior-year quarter.

Speaker Change: R&D and SGA expenses, excluding depreciation, amortization, stock base compensation, and certain non-recurring items total 8.1 million in the second quarter of 2024 and was 8.6 million in the second quarter of last year.

Speaker Change: The year of your reduction in these operating costs was a result of continued cost control initiatives across many areas of the business.

Michael Hajost: Adjusted EBITDA was $9.9 million in the second quarter of 2024, and was an improvement over a loss of 10.2 million in the second quarter of 2023. Adjusted EBITDA excludes stock-based compensation, depreciation, amortization, interest, and other non-recurring items as reconciled in the appendix. Unrestricted cash and cash equivalents was $40.3 million at the end of the second quarter and $59.2 million at the end of 2023. Research at Cash as of June 30th, 2024 was 14.2 million, and it's mainly held for future interest payments under our senior security term loan. Capital expenditures were 1.8 million in the current second quarter and 6.6 million in the prior year's second quarter. The prior year includes required Greenfield Project Equipment Payments, which have substantially diminished in the current year.

Speaker Change: Adjusted Eva to Lost was 9.9 million in the second quarter of 2024.

Speaker Change: and was the improvement over a loss of 10.2 million in the second quarter of 2023.

Speaker Change: Adjusted EBITDA excludes stock-based compensation, depreciation, amortization, interest, and other nonrecurring items as reconciled in the appendix.

Speaker Change: Unrestricted cash and cash equivalents was $40.3 million at the end of the second quarter and $59.2 million at the end of 2023.

Speaker Change: Restricted cash as of June 30, 2024 was $14.2 million and is mainly held for future interest payments under our Senior Security Term Loan.

Speaker Change: Capital expenditures were $1.8 million in the current second quarter and $6.6 million in the prior year second quarter. The prior year included required Greenfield Project equipment payments, which have substantially diminished in the current year.

Michael Hajost: We ended the second quarter with a total death balance of 394 million, comprised mainly of our convertible senior notes, our senior secured term loan, our revolving acid-based credit agreement, and 46 million of our new market tax credit loans, which we expect will be forgiven starting in 2020. Liquidity remains a significant focus for us as we seek to manage cash while we ramp up our sales. In addition to our unrestricted cash balance, we have $5.2 million in excess availability on our revolving asset-based lending credit agreement as of the end of the second quarter.

Speaker Change: We ended the second quarter with a total debt balance of $394 million, comprised mainly of our convertible senior notes, our senior secure term loan, our revolving asset-based credit agreement, and $46 million of our new market tax credit loans, which we expect will be forgiven starting in 2026.

Speaker Change: Liquidity remains a significant focus for us as we seek to manage cash while we ramp up our sales.

Speaker Change: In addition to our unrestricted cash balance, we have $5.2 million in excess availability on our revolving asset-based lending credit agreement as of the end of the second quarter.

Michael Hajost: I will remind you that this agreement also contains an option to expand the facility by an additional $5 million, which we will plan to do once our collateral supports the larger size. However, availability under the credit agreement at any given time is subject to a borrowing-based formula based on our controversy of how little the inventory balance is.

Speaker Change: I will remind you that this agreement also contains an option to expand the facility by an additional $5 million, which we will plan to do once our collateral supports the larger size.

Speaker Change: Availability under the credit agreement at any given time is subject to a borrowing-based formula based on our accounts receivable and inventory balances.

Michael Hajost: Let me now provide an update to our full-year guidance expectation. With respect to our 2024 adjusted EBITDA, we expect there will be a full year negative impact from the changes that Steve described earlier relating to the Starbucks straw resin business. We now expect that just an ebeta will be within the range of minus 30 million to minus 35 million. Our cat access to patients remains unchanged, and we reiterate our prior guidance for capital expenditures in the range of 8 million to 10 million.

Speaker Change: Let me now provide an update to our full year guidance expectations.

Speaker Change: With respect to our 2024 Adjusted Eva Tape, we expect there will be a full-year negative impact from the changes that Steve described earlier relates to the Starbucks-trail-resign business.

Speaker Change: We now expect adjusted EBITDA will be within the range of minus $30 million to minus $35 million.

Speaker Change: Our CAPX expectations remain unchanged and we reiterate our prior guidance for capital expenditures in the range of 8 million to 10 million.

Michael Hajost: We estimate that our end-of-year liquidity, comprising unrestricted cash and availability under a revolver, will now be in the range of 15 to 20 million. Looking a little further out, we are now forecasting annualized PHA revenues to triple by the end of the second quarter of 2025, which is solely based on demand from existing customers where we are currently selling products. I'll now hand the call back to Steve for his closing remarks. Thanks, Mike!

Speaker Change: We estimate that our end-of-year liquidity, comprising unrestricted cash and availability under our revolver, will now be in the range of $15 to $20 million.

Speaker Change: Looking a little further out, we are now forecasting annualized PHA revenues to triple by the end of the second quarter of 2025, which is solely based on demand from existing customers where we are currently selling products.

Speaker Change: I'll now hand the call back to Steve for his closing remarks.

Stephen Croskrey: We remain confident that recent progress in our commercialization efforts and R&D trials will generate increased revenue during 2024 and beyond. As shown in our investor presentation, we continue to grow our sales pipeline with 104 customers in the material selection phase, compared to 89 at the end of the first quarter. We often say that with just our customers and our sales pipeline, we could still up several plans. As Mike just noted, considering just our customers that have already launched, forecasted PHA sales remain on track to triple by this time next year.

Speaker Change: Thanks, Mike.

Steve Croskrey: We remain confident that recent progress in our commercialization efforts and R&D trials will generate increased revenues during 2024 and beyond.

Speaker Change: As shown in our investor presentation, we continue to drill our sales pipeline with 104 customers in the material selection phase compared to 89 at the end of the first quarter.

Speaker Change: We often say that with just the customers in our sales pipeline, we could fill up several plants.

Speaker Change: As Mike just noted considering just our customers that have already launched forecasted PHA sales remain on track to cripple by this time next year.

Stephen Croskrey: We are also pleased by the initial success of our dividend warrant program, which has resulted in the retirement of $6.1 million. This program has the potential to greatly improve our balance sheet leverage and strengthen our capital structure while maximizing our shareholder value. Thank you to everyone listening to today's call for your attention and your continued support. We'll now open the line for questions.

Speaker Change: We are also pleased by the initial success of our Dividend Warrant Program, which has resulted in the retirement of $6.1 million in debt.

Speaker Change: This program has the potential to greatly improve our balance sheet leverage and strengthen our capital structure while maximizing our shareholder value.

Speaker Change: Thank you to everyone listening to today's call for your attention and your continued support.

Speaker Change: We will now open the line for questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star, followed by the number on your touched stone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2. If you're using a speaker's phone, please lift the handset before pressing anything.

Speaker Change: [inaudible]

Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session.

Speaker Change: Should you have a question, please press star followed by the 1 on your touchtone phone. You will hear a prompt that your hand has been raised.

Speaker Change: Should you wish to decline from the polling process, please press star followed by the number 2.

Speaker Change: If you're using a speaker's phone, please lift the handsets before pressing any keys.

Operator: Again, if you have a question, please press star, followed by the number one. One moment please for your first question. Our first question comes from the line of Jon Tanwanteng from CJS Securities. Go ahead, please.

Speaker Change: Again, if you have any questions, please press star followed by the number 1.

Speaker Change: One moment please for your first question.

Speaker Change: Our first question comes from the line of Jon Tanwanteng from CJS Securities. Go ahead, please.

Jon Tanwanteng: Hi, thanks for taking the question. I was wondering just the sources of the reduced EBITDA guidance: is that just more inventory that needs to be burned off at the converters for Starbucks, or is it a result of something else? It wasn't quite clear.

Jon Tanwanteng: Thanks for taking the question. I was wondering just the sources of the reduced EBITDA guidance. Is that just more? Inventory that needs to be burned off at the Converter's Restarbox, or is it a result of something else? It wasn't quite clear. Thank you.

Stephen Croskrey: Hey, John, it's mostly the impact of the Starbucks inventory adjustment. That's causing that now. Last quarter we guided towards the lower end of our guidance, so with the impact of that inventory issue, it's putting us over somewhere a little higher, lower than what we expected last quarter.

Speaker Change: Hey John , it's mostly the impact of the Starbucks inventory adjustment.

Jon Tanwanteng: Got it. Okay.

Speaker Change: That's causing that now, you know, last quarter we guided towards the lower end of our guidance, so with the impact of that inventory issue, it's putting us over, you know, somewhere a little higher lower than what we expected last quarter.

Jon Tanwanteng: And then just the halting of the catalytic operations. How much does that save you over the year? And can you just start?

Speaker Change: Okay, and then just the halting of the catalytic operations, how much does that save you over the year and can you just start that back up whenever you need to or is it something that you're shutting down?

Jon Tanwanteng: Yeah, we're saving John about a million and a half dollars annually by doing that.

Speaker Change: and we're retaining enough key employees there to be able to start back up when we need to.

Speaker Change: which, you know, we don't necessarily think that we will have to. If we are successful with some of the commercial opportunities that we're working on, it would not be impossible to go, you know, to a commercial plant from this stage.

Jon Tanwanteng: Okay, got it. And then could you discuss the tolling and licensing arrangements that you think might be possible beyond Kentucky? I think that's the first time I've heard that outside of the catalytic business.

Speaker Change: Okay, got it. And then could you discuss the tolling and licensing arrangements that you thought might be possible beyond Kentucky? I think that's the first time I've heard that outside of the catalytic business.

Stephen Croskrey: Yeah, we can't really talk about much detail there, John, but it's just something that we're working on and looking into to see if we can bridge any potential gap and capacity between Kentucky filling up and the green field coming online. But we'll keep you updated as that progresses with any news that we can share.

Jon Tanwanteng: Yeah, we can't really talk about much detail there, John , but it's just something that we're working on and looking into to see if we can bridge any potential gap in capacity between Kentucky filling up

Jon Tanwanteng: and the Greenfield coming online, but we'll keep you updated as that progresses with any news that we can share.

Jon Tanwanteng: Okay, is that being demanded by customers, or is that something that you're exploring in anticipation of that?

John: Okay, is that being demanded by customers or is that something that you're exploring in anticipation of that?

Stephen Croskrey: Well, it's indirectly being demanded by customers because of the volume forecast that we're being given and what we're seeing in the marketplace. But we know that, again, depending on the exact timing of the greenfield coming online, there could be a gap there.

Speaker Change: Well, it's it's indirectly being demanded by customers because of the volume Forecasts that that we're being given and what we're seeing in the marketplace We we know that

Speaker Change: Again, depending on the exact timing of the greenfield coming out of line, there could be a gap there.

John: Understood. And then finally, you mentioned you're in the final stages of the DOE. I'm wondering if you could give us an update on the timing of when you're going to have to move through. Yeah, not specifically, John , but what I can tell you is that both teams are very, very focused on getting it done before the end of the year.

Jon Tanwanteng: Got it. Okay. Thank you very much.

John: Got it. Okay. Thank you very much.

Operator: Just a reminder, ladies and gentlemen, should you have a question, please press star followed by the number 1 on your touchtone phone. There seem to be no further questions at this time. I'd now like to turn the call back over to Mr. Croskrey for any final closing comments. Thank you, operator.

John: Thanks, John .

Speaker Change: Thank you. Just a reminder, ladies and gentlemen, should you have a question, please press star followed by the number one on your touchtone phone.

Speaker Change: Thanks for watching, and don't forget to like, share, and subscribe to our channel.

Speaker Change: There seems to be no further questions at this time, I now let's turn the call back over to Mr. Croskey for any final closing comment.

Stephen Croskrey: Thank you, Operator, and thanks, everybody, for your attention, and I've got to tell you that I'm looking forward with great expectations to our next call because we'll be three months closer to the scale-up of this large piece of cutlery business and be able to get into a lot more specifics about what the wrap will look like going forward. So really excited about that, and thanks again.

Mr. Croskey: Thank you operator and thanks everybody for your attention and I got to tell you that I'm

Mr. Croskey: Looking forward with great expectations to our next call, because we'll be three months closer to the scale up of this large piece of cutlery business and be able to get into a lot more specifics about

Mr. Croskey: what the wrap will look like going forward. So really excited about that. And thanks again.

Speaker Change: Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask me to please disconnect your line.

Speaker Change: How do I lead you?

Stephen Croskrey: We're saving John about a million and a half dollars annually by doing that, and we're retaining enough key employees there to be able to start back up when we need to, which we don't necessarily think that we will have to if we are successful with some of the commercial opportunities that we're working on.

Operator: Mason. Ladies and gentlemen, this concludes your conference calls for today. We thank you for participating, and as we please disconnect your line.

Jon Tanwanteng: And then finally, you mentioned here in the final stages of the DOE, I'm wondering if you could give an update on the timing of when you get off the roof. Yeah, not specifically John, but what I can tell you is that both teams are very, very focused on getting it done before the end.

Michael Hajost: Thank you, Steve, and good afternoon, everyone. I'll start with our financial results on slide 7 of our presentation for those of you following along. Total revenue was $7.6 million in the second quarter, which was down from $12.9 million in the prior year quarter. PHA-based resin sales of $5.9 million decreased by 30%, or $2.5 million, in the second quarter of 2024 compared to the prior year, which was primarily driven by Starbucks' reallocation of its straw resin business that Steve spoke about earlier.