Q3 2024 Origin Materials Inc Earnings Call
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Speaker Change: Good afternoon, everyone. Thank you for standing by. This is the conference operator. Welcome to the Origin Materials third quarter 2024 earnings call.
Speaker Change: As a reminder, all participants are in a listen-only mode. The conference is being recorded.
Speaker Change: After the presentation, there will be an opportunity to ask questions.
Speaker Change: To join the question team, you may press star and then one on your telephone keypad.
Speaker Change: If you need assistance during the conference call, you must know an operator by pressing star and zero.
Speaker Change: At this time for opening remarks and introductions, I'd like to turn the call over to Ryan Smith, co-founder and chief product officer. Please go ahead.
Ryan Smith: Great, thank you. Good afternoon and thank you for joining us everyone. Speaking first today is Origins co-CEO Rich Riley. Co-CEO and co-founder John Bissell and CFO Matt Plavan will speak next. Then we'll open the call to questions from analysts and discuss questions submitted as part of our Ask Origin campaign.
Ryan Smith: Ahead of this call, Origin has issued its 2024 3rd Quarter Press Release and Presentation. These can be found on the Investor Relations section of our website at OriginMaterials.com.
Ryan Smith: Please note that during our discussion today, we will be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our view as of today, should not be relied upon as representatives about views of any subsequent date, and we undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For further discussion...
Ryan Smith: On the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including our quarterly report on Form 10-Q filed today.
Ryan Smith: During today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of origin materials performance.
Ryan Smith: These non-GAP measures should be considered in addition to and not as a substitute for
Rich Riley: 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, which will be posted to our website. The webcast of this call will also be available on the Investor Relations section of our company website. With that, I will turn the call over to Rich.
Thank you, Ryan. Good afternoon, everyone.
Rich Riley: With our Caps and Closures business, we have achieved product-market fit.
Rich Riley: Customer demand is strong and our ability to produce Origins premium PET caps is largely what will determine our rate of growth.
Rich Riley: Because of the recent success of our first capformer system and its completed factory acceptance test, we are now able to execute our scale-up plan for building additional systems more aggressively and with higher confidence to meet pent-up demand.
Rich Riley: We expect to see healthy growth exiting 2025, and we anticipate that origin will be EBITDA positive on a run rate basis in the first half of 2026.
Now let's talk about how we got to this moment.
Rich Riley: First, this quarter we achieved a milestone on our journey to profitability, the successful factory acceptance test of our initial cap former system.
Rich Riley: In the course of this test, we produced several million fully functional PET caps. Our cap former subsystems ran as expected, including quality systems such as visual inspection, as well as our finishing systems.
Rich Riley: Everything necessary for turning recycled PET sheet into fully formed caps.
Rich Riley: This isn't the test system, it's our first commercial line, and the success of this test means that Origin's proprietary system is performing as envisioned, with over 98% efficiency during the acceptance test.
Rich Riley: As most of you listening know, Origins' Capformer system offers the world a breakthrough for recycling circularity and packaging performance.
Rich Riley: In this quarter, we revealed some of its secrets, the novel applications of thermoforming, finishing, and post-processing, and other design elements, which you can see in the video released in September.
Rich Riley: Our prospective customers and partners visit us and witness our capformer system producing PET caps at commercial speeds firsthand.
Rich Riley: The prospective customers attending, whose total cap consumption is in excess of 100 billion caps per year, saw the validation of our production approach with their own eyes.
Rich Riley: Simply put, our manufacturing system works, and along with our current and prospective customers and partners, we couldn't be more excited about it.
Rich Riley: Furthermore, our commercialization plan centered on launching our caps and closures business and going to market with the world's first commercially viable PET beverage closures is on track.
Rich Riley: Commercial production remains on track to begin this quarter at which time we will continue to engage in customer qualification as we scale our CAHPS output.
Rich Riley: Our caps and closures revenue expectations are on track. We expect initial caps and closures revenue generation during the first quarter of next year with significant gross profit generation projected to begin in 2025 and a healthy growth trajectory thereafter.
Rich Riley: Customer momentum, as I've alluded to, remains strong. Alongside our announced $100 million MOU for PET caps, our caps are now in the hands of multiple potential customers engaged in testing and qualification, offering a strong pipeline of potential buyers who can purchase billions of caps as our systems come online throughout next year and beyond.
Rich Riley: I know many of you want to know more details about our prospective customers.
Rich Riley: Let me tell you why we aren't talking about them yet, and what would cause us to talk about it more. Presently, multiple prospective customers are engaged in a qualification phase.
Rich Riley: That means we've delivered caps to them, and they're performing their own testing. Many of them have attended our trials and tests, and we've explicitly discussed geographies, volumes, ramp-up timelines, and economics.
Rich Riley: We believe these eight cap Palmer systems alone could be sufficient to enable or trying to achieve positive EBITDA.
Rich Riley: This is a significant milestone in our plan to achieve positive EBITDA on a run rate basis during the first half of 2026.
Rich Riley: Further we expect these assets and the revenue they generate to enhance our ability to invest in additional cap homework systems to meet demand and deliver profitable growth.
Rich Riley: It gives you a sense for the growth trajectory of our cats fitness, we estimate the initial eight cap former systems will produce in total between eight and 12 billion caps per year when fully operational and we believe this capacity will exceed that required to service our previously announced Mou.
Rich Riley: The majority of our volume produced during 2025 is expected to be of the $18 81 format and the production volume will depend on factors such as line throughput and efficiency both of which we expect will increase significantly actually maximize production and product mix as additional skus come online.
Rich Riley: This quarter, our factory acceptance tests demonstrated we can make Oregon P. T caps at full commercial speeds with high efficiency. This was a technical feat and represents a true breakthrough we shared a video showing the system operating and for those who haven't seen it I encourage you to check it out.
Rich Riley: It follows the journey of an origin cap from start to finish what you're seeing really is advanced materials knowledge in combination with precision thermal forming.
Rich Riley: To enable a breakthrough in product circularity.
Rich Riley: First a role of a 100% recycled P. E. T is fed into the thermal forming geared up our cat former system.
Rich Riley: In the world of thermal forming this is sophisticated technology. These are amazing machines operating at high speeds and cycle times and we've taken this technology to the next level, our cats undergo keating, forming cooling and training and we followed with the finishing portion of our system, where we performed various forms of post processing optical inspection and deliberate a capsule.
Rich Riley: The container at the end of the line.
Speaker Change: As rich mentioned multiple perspective customers representing consumption over 100 billion caps per year attended our factory acceptance test I believe this was a powerful moment for everyone who attended from the origin team to our manufacturing partners to our prospective customers, who can see the reality of our system coming to life firsthand.
Rich Riley: Yeah.
Rich Riley: Not least they witnessed at the subsystem integrated seamlessly a critical aspect of running a high speed commercial system, combining multiple components in novel ways.
We believe our caps business is highly scalable our product requires minimal changes to our customers' operations, most notably exchanging a part on their bottling line called the truck, which is a straightforward and minor adjustment.
Rich Riley: Growing our capacity at the risk of oversimplifying. It is essentially a copy and paste operation, we will expand capacity largely by standing up more systems and incrementally and continually improving the design of our systems over time.
Rich Riley: In support of our Cat plumber expansion plan alongside our existing partners. We have already identified multiple additional potential partners with excellent P T processing capacity and capabilities. This.
Rich Riley: This is part of the groundwork for ensuring a relatively steady process for bringing new systems online.
Rich Riley: After the initial eight cat plumber systems come online, which as we said we expect to occur during 2025, we plan to continue to add systems for the foreseeable future to keep pace with the steep growth curve of the indicative market demand.
Rich Riley: We believe we can sell as many capsules, we can produce once commercial production is online.
Rich Riley: Perhaps our premium products and we are proud to lead the now commercially viable category a P T closures, enabling superior performance and sustainability.
Rich Riley: We were also pleased to share the latest R&D progress for our caps and closures and the spirit of continuous improvement. The team is working on equipment and tooling upgrades they could more than double the throughput of our cat farmer systems with relatively minor modifications. The team has also launched a rapid prototyping system, including three D printing and other testing capabilities.
Rich Riley: Which will assist in the development of new formats and features.
Rich Riley: Improving in house testing capabilities generally helps us move faster and we look forward to sharing more details in the future about the results of these efforts.
Rich Riley: This quarter with Reed Citigroup, we began preparing what will become the home for our first half lumber system.
Together, we are finalizing the startup and commissioning plan and schedule arranging for the shipment of equipment to our Michigan site engaging with suppliers to qualified materials used in our production process and coordinating with logistics partner step plan to delivery of finished products.
Rich Riley: Lastly, this quarter, we progressed multiple patents through the various phases of application of prosecution, we expect to advance and maintain both the domestic and international patent portfolio to protect our proprietary processing products and we see the work this quarter as part and parcel to that process.
Speaker Change: Yeah, some without leading P E T cap technology and proprietary manufacturing systems, we are extremely well positioned to address the $65 billion caps and closures market. The consumers billions upon billions of caps per year, which today cannot be effectively recycled into new caps only downcycled.
Speaker Change: Our cap offers a fully circular mono material packaging solution in the market desperately needs and has needed for some time.
Speaker Change: We're pleased with our progress and looking forward to the startup of commercial production later this year.
Speaker Change: First your antics and origins biomass conversion technology, we continue to advance the products and process technology.
Speaker Change: Though we expect the focus of origin investor communication kept the Oregon path of profitability, namely our caps and closures Douglas will provide investors with periodic updates as appropriate when we have substantive news to report.
As previously announced and consistent with the company's focus on becoming EBITDA positive in the first half of 'twenty six.
We were operating origin won our biomass conversion plant in Sarnia, Ontario on demand with somewhat reduced staffing.
Speaker Change: Approach preserves our ability to generate product.
Volumes sufficient to explore scale up with strategic partners, while reducing our current overall cash burn.
Speaker Change: How do we establish a strong economic foundation through our P. T caps and closures business, we expect to be ideally situated to drive yields regarding our biomass conversion technology and forensics platform and now I'll hand, it over to Matt.
Matt Plavan: Thanks, John Good afternoon, everyone.
Matt Plavan: We've provided the third quarter results in the tables of the earnings release. So I will focus my comments on a couple of key financial highlights we ended the quarter with $113 million in cash cash equivalents in marketable securities 45 million less that December 31, 2023, as a run rate for cash burn that's a three quarter pause.
Matt Plavan: This year. This amount is within our cash burn guidance range of $55 million to $65 million.
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Matt Plavan: Our third quarter revenue was $8 $2 million compared to $7 1 million in the prior year quarter and also trending in line with our revenue guidance for the year, which is between 25 and $35 million also as expected. These revenues are comprised of what we referred to as supply chain activation.
Speaker Change: Revenue looking ahead, it's just highlighted by John and Rich, we expect the onset of new revenue from our caps and closures initiative to begin in Q1 of 2025 and to reiterate our prior guidance, we anticipate caps and closures revenue in 2020 five to be significant.
Speaker Change: Recurring in nature, and with a margin growth profile that will drive us to EBITDA positive on a run rate basis in the first half of 2026.
Speaker Change: Without having to access the equity capital markets now I would like to open up the call for questions. Operator, we may we have the first question. Please.
Speaker Change: And ladies and gentlemen, we will now begin the question and answer session to ask a question you May Press Star and then one.
Speaker Change: You are using a speaker phone, we do ask that you. Please pick up the handset prior to pressing the keys to ensure the best sound quality.
Speaker Change: To withdraw your question you May press Star two.
Speaker Change: Our first question today comes from Ryan Lynch from.
Permian Research. Please go ahead with your question.
Speaker Change: Thank you so much and good afternoon.
Speaker Change: I wanted to the $100 million customer that you have right. Now you mentioned that you expect a significant ramp in year two of.
That $100 million covers two years correct. So a significant ramp are you looking at like a $25 million year, 170, 590 or two.
Speaker Change: How does how do we think about you know the ramp with that customer and then.
Speaker Change: I know that you said you had a 100 billion cap.
Speaker Change: Customers watching over it but is this still the only Mou that you that you have signed right now in caps and closures. Thanks.
Rich Riley: Hey, Frank This is a this is rich I appreciate the question yeah, So we've announced.
Rich Riley: The $100 million Mou that you reference, which does have an initial two year term and we do expect it to ramp them fairly aggressively into a into your two I don't think you're wildly off but we're not giving precise guidance at this point.
Rich Riley: And and and you know we did have customers representing over 100 billion of annual caps.
Rich Riley: Well at the factory acceptance test with us and in various stages of their own qualification processes. So we hope to have more customer news in the coming months.
Speaker Change: That's very helpful and yeah.
Speaker Change: I guess are you know looking at the 10-Q.
Speaker Change: Obviously, geismar, we're saying goodbye to Geismar, but.
Speaker Change: You did indicate that.
Speaker Change: The timeline and deal structure et cetera on origin to will depend on.
Speaker Change: Well, yeah, the time I'll turn on deal structure and potential partners.
And where the location is but you specifically called out an Asian brownfield facility, what's baked begs. The question have there been discussions on guy on origin to taking place in Asia any color that you could give there would be very helpful. Thank you.
Speaker Change: Okay breakfast.
Speaker Change: Yeah, So I.
Speaker Change: I think the key thing that we're focused on right now is it just it doesn't seem like the likely spot or at least not sufficiently likely that it's worked.
Speaker Change: Thinking a reasonable amount of our capital into holding tight right now and so that's sort of the approximate decision I think certainly we have quite a few relationships that we think could bear fruit over time with an origin to like plant.
Speaker Change: But I don't think we're ready to give a lot of detail beyond what we had before which is you know I I Asian brownfield scenarios seem like a really appropriate and sort.
Sort of efficient way to proceed with a plant like that.
Speaker Change: But I don't think it's exclusive to those and I don't think we have a lot more information to provide at this point.
Speaker Change: Great looking forward to updates as we go along thanks, so much folks.
Speaker Change: Thanks, Mike.
Speaker Change: Once again, if he would like to ask a question. Please press star and one.
Our next question comes from Steve Byrne from Bank of America. Please go ahead with your question.
Speaker Change: This technology has been demonstrated effectively full scale.
Speaker Change: And you know as you describe it as manufacturing is now working.
Speaker Change: [laughter] other paths forward.
Speaker Change: So just outright sell the technology.
Speaker Change: Too many of these prospective customers.
Speaker Change: Are any of them expressing an interest in Rex.
Speaker Change: Barring any either exclusively or life.
Speaker Change: Something it just.
Speaker Change: Just curious whether you.
Speaker Change: The value proposition of what you've discovered here to be greater or you're going down this path.
Speaker Change: Becoming a caps producer.
Speaker Change: Yeah, I think it's a really it's an excellent question.
Speaker Change: Our view is that it's important for us to you know the factory acceptance test is obviously a critical one I think there are additional milestones that are gonna be useful, although maybe not strictly necessary to have those kinds of conversations you were just talking about in terms of actually producing kept shipping kept having them in the commercial market et cetera.
Speaker Change: But I think that maybe the more important point is you know.
Speaker Change: We have had interest in licensing of various sorts of this technology I think that's something that we're open to and we think it could make a lot of sense. You know there are ways to structure. Our licensed there that we think is them.
Speaker Change: It's sort of win for all the parties involved.
We also think that it makes sense for us to continue building out capacity.
Speaker Change: Until you have that sort of the most straightforward way to monetize and access the value of this technology until there is some other alternative for us to pour our resources into a it might be a better and more efficient way to monetize it. So I think for US all options are on the table there and we'll you know we'll see what.
What shows up but for now it's it's drive it and pursue it on our own and with our you know with our production partners and customers.
Yeah.
Speaker Change: And just a question about the Sarnia plant.
Speaker Change: Okay.
Speaker Change: That plant.
Speaker Change: Recent months and is that a reflection.
Speaker Change: Interesting.
Speaker Change: Still seeing out there.
Speaker Change: Sure annex.
Speaker Change: C C.
Speaker Change: Yes, so the operating rate of the plant isn't something that we're ready to go public right now, but it is it is lower than the last couple of months than it was prior.
Speaker Change: And I would say that's more a reflection of our reallocation of resources towards the capped opportunity than it is a reflection of sort of market interest and see them up in H D. C. I think generally speaking, we see still quite a lot of interest in CMS and HTC and I'd say the the chain.
<unk> sort of if there's a if there's a delta of rate of change.
Speaker Change: And interest I'd say the rate of change is slightly positive on H D C. Whereas I think it's pretty you know its the interest level is consistent on CMS, but that's probably more because see them up with what's more interesting to more players and more accessible early Iran. With they're not that H T. T Y. So I think we're seeing a little bit of a mild pick up in <unk>.
Speaker Change: On H D D.
Speaker Change: But in both cases, you know we have that we have accumulated a product that we can use and so our view is let's make sure that we're.
Speaker Change: Deploying that product to customers, usually and we can really focus as many of our resources as we can on getting Catherine quarters up running and cash flowing as soon as we can.
Speaker Change: And maybe just one more on that last call much on and that is.
Speaker Change: Interest in.
Speaker Change: An H T C.
With carbon black.
Speaker Change: Seeing anything now in terms of.
New opportunity or new application of H D C.
Yeah, I think a lot of the HTC interest tends to be around carbon black and I think that often is then the nearest term a from our perspective without trying to put a specific bound on what you know what that term would be but I think we what we do see is more discussion around.
Speaker Change: Applications that we discussed that we've that we've already talked about before.
Speaker Change: But which may be felt.
Speaker Change: Since when we were.
Speaker Change: When we talk about them originally because we were excited about them, but we didn't necessarily have.
Speaker Change: Other parties that were interested in those things that we went a little bit where sort of pushing those applications more so than filling pull from them, but I think we're starting to see a little bit more interest in some of those other applications. You know that varies from everything from you know battery materials over to.
To agricultural products.
Speaker Change: So I I don't want to get into sort of exactly what those what applications. It's hard but I think some of the ones that we we thought of as further out we're starting to see some interesting an.
Speaker Change: Interest in from other parties.
Speaker Change: Okay. Thank you.
Speaker Change: Mhm.
Speaker Change: Thank you and now I'd like to turn it over to Ryan Smith, co founder and Chief product Officer for a Q&A section answering ask Oregon question submitted by investors prior to today's call.
Thank you operator.
Prior to our earnings call, we invited all investors to submit questions as part of our ask Gordon campaign. So thank you. So much to everyone who participated you asked some great questions and these questions were of course submitted before our call today, and we answered many of them thoroughly with our prepared remarks, and our analyst Q&A.
We will generally be answering the most relevant questions today during the time we have.
Speaker Change: With a focus on origins path to profitability, our caps and closures business, but first I want to acknowledge that we've received a few questions about management's purchase and sale of stock.
Speaker Change: I'll say at a high level you should be aware that it can be five one stock purchase orders are subject to timing constraints. Therefore, the time between the filing and the actual transaction can be quite long. So can be five one driven triggers maybe decided well in advance of when they could take effect.
Speaker Change: Stock vests, a common practice is to sell shares sufficient to cover tax withholding.
Speaker Change: So with that said I'll direct my first question to Matt and it pertains to the margins around our caps.
Speaker Change: So that in the past, we've said that there are attractive, but what else can you tell us about what we've learned about our our caps margins and unit economics.
Speaker Change: Sure.
Speaker Change: Yeah I'll answer that question, there's different margins gross margin operating margin I think what I tend to hear.
Speaker Change: A fair amount of inquiry around gross margins because oftentimes people think that's are unimportant.
Speaker Change: Unimportant metrics with regard to the leverage of the business and.
Speaker Change: As you might expect during our manufacturing scale up in 2025 and even in 2026, our gross margins per line will be dynamic you know as we remove from the inefficiencies of startup operations to achieving economies of scale and ultimately reaching a run rate positive EBITDA.
Speaker Change: In the first half of 2026, which we've said a few times on this call because that's really our north star If you will.
We're not giving specific guidance in the very near term around gross profit per product, but I think what we can say that it is important to understand is it a 100% DDG caps our premium products.
Speaker Change: And therefore, we're experiencing favorable leverage in pricing discussions.
Speaker Change: And when you think about costs is a manufacturing platform thermal forming produces caps and closures.
Speaker Change: <unk> had a very effective cost versus injection molding per se, which is the industry incumbent technology and that's due to the time it takes to basically stamp out a cap versus inject plastic into a mold.
And this advantage translates to a lower cost of production that as you can imagine amplifies the bigger the cap format size. So said another way the largest the cap size of the more cost effective we become as compared to injection molding and hence the reason we're excited about bringing additional products skus online shopping for sure.
So it's really the combination of these factors that give us confidence that our caps will generate attractive margins and I think that's the point, we got operations up and running and have better visibility into those specifics, we're probably going to be more likely to be able to share.
Speaker Change: What we think those are going to how they're going to behave over time, but for now I think that's what we're comfortable sharing.
Speaker Change: Yeah.
Speaker Change: Great. Thank you, Matt now I'm going to switch over to Jon and ask you a couple of questions. John We continue to have our investors with a lot of enthusiasm about the long term potential of the origins Phoenix platform in and asking questions about on one so I think.
Speaker Change: More specifically asking about Oman once caps is up and running can you tell us what we could expect there.
Speaker Change: Yeah, So I think we.
Speaker Change: We continue to be excited about the euronext technology broadly and I think Oh I wanted obviously are our most substantial outside essentially with them with their parent X technology, we're learning a ton of stuff from it.
Speaker Change: From the operating time that we've had already.
Speaker Change: Even just analysis of the data from that those operations and then of course, you know ongoing work that we're doing it all in one.
Speaker Change: I think you know by the time, we can bring our focus back to the pure annex technology. After we've achieved profitability with Catherine closures and have that business sort of growing nicely.
Speaker Change: And doing what we wanted to do then I think we can we can take what would you learn or have learned already from all one and what we will learn between now and then and we can we can put together some really interesting things to do it all in one I'm not sure if the plan for all one at that point you know, it's hard to predict what the plan would be.
Speaker Change: You know that far out, but I think the the planned may not be exactly what we thought we would do with all of them want a couple of years ago, but I think it's a it's a very flexible asset and they can do a lot of things related to the arc furnace technology by design and that and I think there's some really exciting things to do with it once we have the ability to folk.
Speaker Change: And mass resources on it appropriately again.
Speaker Change: Great All right and then for my last question, Jon I'm going to come back to you.
Speaker Change: And that's what I'll just quote them directly they ask what do I have to get excited about before the next earnings call.
Jon: Yeah, I mean, so some of the stuff that I'm excited about is we're gonna be.
Jon: Shipping a lot of our equipment at Reed city.
We're gonna be landing at their we're gonna be starting to produce caps with that system that we we've already tested and I.
Jon: At the location, we're gonna be shipping those cast of customers all of that is happening in a sort of between now and roughly the next earnings call.
Jon: Or take a little bit.
Jon: And so that's the stuff that we're excited about I think you know we have as I said, we have new technology, Oh, let's call. It a technology advancements even in the works already around capturing closures I think I think that's incredibly exciting.
Jon: We we expect to be able to deploy that kind of technology advancement quite quickly in this caps and closures business just again because of the shorter cycle with the capital investment required and the engineering cycles.
Jon: So so that's incredibly exciting and then you know.
Jon: Course, being able to announce new customers as rich mentioned earlier is it's gonna be really I think gratifying for not just us, but everybody else as well.
Jon: But we need to get through the appropriate qualification cycles, and all those kinds of things as well. So it just depends on customer by customer on <unk> to what extent they want to.
Jon: Announced things prior to getting those things done or not so I think there's a lot to be excited about but we are certainly are really looking forward to all of these things.
Jon: And I think what's maybe the most exciting part is that it's it's right around the corner.
The cadence of the chemicals business is quite long.
Jon: That's it.
Jon: Really really fun frankly to be doing they kept them closer to work, which is a much shorter cycle a shorter cadence business.
Right. Thank you John and thank you to everyone, who joined and to everyone who sent in questions. We look forward to our next update.
Speaker Change: And this concludes our call for today.
Speaker Change: Okay.
Speaker Change: Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We do thank you for joining you may now disconnect your lines.