Origin Materials, Inc.

Thank you for standing by. This is the conference operator. Welcome to the Origin Materials second quarter 2024 earnings call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will 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. At this time, for opening remarks and introductions, I would like to turn the call over to Ryan Smith, co-founder and chief product officer. Please go ahead.

Thank you. Good afternoon, and thank you for joining us, everyone. Speaking first today is Origin's co-CEO, Rich Riley. Co-CEO and co-founder John Bissell and CFO Matt Flavin will speak next. Then we'll open the call to questions from analysts and discuss questions submitted as part of our Ask Origin campaign. Ahead of this call, Origin has issued its 2024 second quarter press release and presentation. These can be found on the investor relations section of our website at originmaterials.com. Please note that during our discussion today, we will be making forward-looking statements based on our 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 are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For further discussion 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 10Q filed today. During today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of origins materials performance. These non-GAAP measures should be considered in addition to and not as substitutes 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, 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, and thank you, everyone, for joining us. I will begin with a commercialization update as our caps and closures business is making significant strides, and we are closer than ever to producing and selling products in significant volumes. Today, we are announcing our first signed customer for our PET caps and closures. We anticipate delivering multiple billions of caps to this customer, which we expect will generate over $100 million in revenue in the initial two-year term. with revenue ramping from 2025 to 2026. Therefore, to fulfill demand for this MOU as well as anticipated demand from other customers, we expect to build capacity well beyond our initial system purchases, which we previously announced as having expected capacity to generate between $45 million and $65 million in annual revenue. We plan to announce future customers as appropriate, taking into consideration context such as the timing of our prospective customers' product launches involving our caps and our customers' related marketing activities. Concurrently, we are negotiating potential licensing agreements with key players. We anticipate that licensing our technology, in addition to selling the caps we produce with our world-class manufacturing partners, will drive explosive growth for our PET caps business. This will further catalyze the revolution in recycling, circularity, and product performance that we are bringing to beverage packaging, food packaging, and home goods. We expect to be first to market with PET caps. We expect to produce them cost-competitively. We can make them with any type of PET, making the use of 100% recycled PET possible from cap to container for the first time ever. Our caps perform better than today's HDPE and polypropylene caps in ways that can improve product shelf life, and our caps are designed for circularity, with no additives used to modify the polymer. For a wide variety of containers, our technology enables the lightest cap, reducing plastic waste and improving sustainability. Demand for these products has been incredibly strong, and some have called PET-CAPS the holy grail for packaging circularity. Today, we are reaffirming that CAPS commercial production is on track to begin during the fourth quarter of this year, with revenue generation expected to start ramp up during the first quarter of 2025. This past quarter, in Switzerland and Germany, we've tested all manufacturing line subsystems at full speed, and we are pleased with the system's performance. We also passed the milestone of over 1 million caps produced to date, which puts us well on our way to launching the strategically important business. We are also reaffirming our path to profitability, requiring no additional equity capital. Our path to profitability is entirely independent of the scale-up of our biomass conversion technology and related manufacturing plant construction. We believe our cash runway, with over $130 million on hand, is sufficient to eliminate the need for an equity capital raise. given the revenues we expect to generate in the quarters and years ahead, led by our caps and closures business. Today, we are maintaining our expected 2024 net cash burn of between $55 and $65 million. We anticipate our caps and closures business will begin to generate revenue during the first quarter of next year, with significant gross profit generation beginning in 2025 and a healthy growth trajectory thereafter. As such, we continue to forecast a solid minimum cash flow on our way to sustained profitability. Apart from our caps and closures business, we continue to grow the long-term value of the Origin platform. We anticipate caps and closures will enable us to reach profitability and will be a strong business on its own terms. But the Origin technology platform is more than caps and closures, with significant upside due to the extreme flexibility and low cost of the sustainable molecules produced by our technology for converting biomass to sustainable intermediates. Growing the long-term value of the Origin platform means continuing to engage potential strategic partners around the scale-up of our biomass conversion technology, including exploring high-value application development initiatives that could generate near-term revenue. Some of these applications are capable of using materials that Origin 1 and Origin 2 are designed to produce but are not dependent on those plants for production and sale. We're managing these initiatives thoughtfully, and we'll announce them as appropriate. Looking ahead, we are positioned to vigorously grow our business, led by caps and closures, and to continue to cultivate our broader technology platform in the quarters and years ahead with a strong financial position, strong IP moat, and a highly innovative and creative team. With that, I'll turn it over to John. Thank you, Rich, and good afternoon, everyone.

This quarter, we announced a European PET cap mass production partnership with Bachmann Group, a respected Swiss packaging production and logistics company. Backman Group will assist in the end-to-end operation and automation of our PET cap mass production lines, helping us produce billions of caps by taking pellet or flake, including recycled material, all the way to finished closures using Origin equipment. Earlier this month, we announced a North American PET cap mass production partnership with Reed City Group. Reed City Group is a full-scale injection mold builder, injection molder, hydraulic press maker, an automation solutions company. This partnership enables a geographic expansion complementary to our European manufacturing capability. We look forward to operating CAP's lines with the Reed City Group team, which includes skilled machinists, mechanical engineers, and operations professionals with impressive capabilities in toolmaking and clean room manufacturing. Bachmann Group and Reed City Group are joining us alongside our previously announced world-class partners in PET CAP manufacturing, Paxys Global, and IMD Vista. In the past several quarters, you have seen us assemble this incredible team, and we couldn't be happier with how the manufacturing, technology, and people are all coming together. We remain on track to begin commercial production later this year. This quarter, we achieved multiple caps and closures manufacturing milestones. We crossed the milestone of over 1 million caps produced. The testing and scaling of our cap production technology and manufacturing system has been going very well, and our manufacturing partners, prospective customers, and team are energized by the success. As mentioned last month in Switzerland and Germany, we ran each subsystem of our manufacturing line at full speed, including industry-standard high-speed camera systems with the system operating as expected. We validated QAQC indicators that operators can use to assess quality such as stable cap weight and dimensions. Earlier this month, we unveiled engineering and design innovations in the manufacturing of our tethered PET caps, the world's first tethered caps made with PET. These tethered caps are a breakthrough in circularity designed to improve cap collection rates for recycling and offer an excellent user experience while enabling leading brands to respond to the EU Single Use Plastics Directive. The EU Single Use Plastics Directive which came into effect last month, mandates that caps stay connected to bottles throughout the European Union. Our PET cap innovations are perfectly suited for that regulatory environment and, frankly, any environment. If you're going to keep caps connected to bottles, the logical thing to do is to make the cap and the bottle from the same material, PET. Otherwise, recycling centers have to deal with separating the material streams. With our solution, it's all one high-performing recyclable material connected via a tethered offering a real breakthrough for circularity. Our tethered cap design is simple, clever, and user-friendly. We use the threads of the PET cap and bottle to lock the cap into place, angled away from the mouth, not toward it. With this product, we are combining the performance and sustainability advantages of our PET caps, recyclability, shelf life extension, lightweighting, ability to use recycled PET, and enablement of monomaterial packaging, with an excellent user experience for tethered applications. We have already seen extremely strong interest in this welcome addition to our PET cap product line. With our leading PET cap technology and manufacturing systems, we're extremely well positioned to address a $65 billion caps enclosures market that consumes billions upon billions of caps per year, which today cannot be recycled into new caps, only downcycled. We're very pleased with progress and excited to begin commercial production later this year. Regarding our biomass conversion technology, we continue to execute on what has been our thesis from day one. Make molecules that are chemically flexible and low cost and build businesses around those sustainable molecules to have as great an impact as possible. To that end, we continue to perform development work with multiple partners. Right now, multiple origin partners are actively engaged in development work using our samples of CMF and HTC. For this kind of work, typically we crystallize our CMF and carbonize our HTC before delivery to our partners. Our partners continue to impress us with their application development capabilities, and we are growing our expertise in CMF and HTC as we are producing them on a scale that wasn't possible before the operation of OriginOne. OriginOne, our biomass conversion plant located in Sarnia, Ontario, Canada, continues to support market development activities. We are producing materials, shipping them, and collaborating with supply chain partners on logistics, joint development activities, and customer materials testing and formulation. For Origin 2, we continue to engage partners as part of our asset light strategy for further biomass conversion technology scale-up. Timelines and economic forecasts will depend on the partner and deal structure, which consider a range of scenarios and locations, including Geismar, Louisiana, as well as Asia brownfield scenarios. We are exploring a variety of plant designs, evaluating potential brownfield sites, and performing development work with partners, including testing and optimizing various feedstocks to generate data that could influence our scale-up strategy. We will provide updates as appropriate. Scaling up a new fundamental materials technology is challenging and takes time, but the reward is worth the effort. In the history of chemicals and oil and gas, it has never been fast or easy to make a sea change in the basic building blocks of our material economy. But we are fortunate to have a brilliant team that is leading us to profitability by way of application development, specifically through the innovative engineering, design, and manufacture of PET caps and closures. It is not unusual for a platform, whether in chemicals or the software industry or otherwise, to be pulled to the market for a specific application, whether it's a specially chemical, performance material, or something else that enables a scientific breakthrough to achieve significant revenue and profitability. Our caps and closures business is Origin's first application expected to reach truly mass production. We expect it to enable near-term cash flow and profitability and the long-term flourishing of our broader technology platform. And thus, with the widespread application of sustainable, performance-enhanced materials and products, a better planet. We are encouraged that in the short term, we have a winning business true to our mission of sustainability and that in the long term, by staying true to our vision, we can transform the world. And now I'll hand it over to Matt.

Thanks, John. Good afternoon, everyone. We've provided second quarter results in the tables and the earnings release, so I'll focus my comments on a couple of key financial highlights. We ended the quarter with $132 million in cash, cash equivalents, and marketable securities, $26 million less than at December 31, 2023. As a run rate for cash burn at the halfway point in the year, this amount is slightly below the low end of our cash burn guidance range of $55 to $65 million. However, we remain confident and comfortable in maintaining that range as our guidance for the full year. Origin's second quarter revenue was $7 million compared to $6.9 million in the prior year quarter and also trending in line with our revenue guidance for the full year. which is between $25 and $35 million. Also, as expected, these revenues are comprised of what we refer to as supply chain activation revenue generated in conjunction with Origin 1 operations. Looking ahead, as just highlighted by John and Rich, we expect the onset of new revenue from our caps and closures initiative to be as of Q1 2025. Beyond 2024, we anticipate caps and closures revenue in 2025 to be significant, recurring in nature and with a margin growth profile that will drive us to overall cash-positive operations within our existing cash resources, eliminating the need for an equity capital raise on our way to sustained profitability. Now I'd like to open the call for questions. Operator, may we have the first question, please?

We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question is from Steven Byrne with Bank of America. Please go ahead.

Yes, thank you. Where are you seeing the most interest in the products coming out of OriginOne? Is there still interest in a bio-based PET, or is this really moving more towards, you know, these furan-based derivatives or the variety of products you can produce from HTC? Has there been a change in the level of interest of these products?

Hey, Steve. Nice question. Yeah, I think we have focused ourselves more on the furan and HTC. You know, we see HTC really as a subset of furanics more broadly. But on Furanic-specific products, that's for a couple of reasons. One is because we are seeing real performance improvements and pretty unique functionality in some of those Furan-based products. So we think that's interesting, especially in a more capital-efficient environment that we need to be operating in. You know, performance is going to drive margin or differentiated performance, I should say, is going to drive margin. And margin is a lot easier to manage in a more capital-light environment. So that's been really our decision. I think we have seen in the broader market still a lot of pull on biobased and lower-carbon polyester, and I'd say polymers more broadly. But, you know, our view is we have a lot of demand for that. We've demonstrated that demand. We don't think – So incrementally demonstrating more of that demand really changes the picture very much. But what we think is new and differentiated is for us to bring Furion, I'll say specific and in some cases even unique functionality to these applications that people can't get anywhere else. We think that's a place where we can really show the breadth and strength of the platform.

Okay, got it. And now that you've been running Origin 1.0, you know, using, you know, cellulosic materials and so forth. You run a lot of things through there. Do you think that you would design a new plant, whether it's Origin 2 or something in between? Would you design it differently? Have you learned anything about this process from Origin 1 that could help you reduce the, you know, the capital costs of building another plant? And or what about just doubling the size of OriginOne? Is that an opportunity? You already have the infrastructure at that site. Could you expand that site as kind of a lower cost approach to getting more capacity of the CMF and HTC?

Yeah. Oh, man. Asking an engineer if they would do things differently on a plant, that's a deep well, Steve. I think, of course, there are lots of things that we would like to do differently for the next plant. That's not necessarily because we have regrets or something like that about OM1, but, of course, we've got not just some data from OM1, but also just our own ideas about what are things that we can improve as we go to next iterations. And, of course, you know, when you're developing a technology like this, you're going to see improvements in the plants, you know, item by item or plant by plant for a long time. So I think, you know, that's the long version. The short version is, yeah, definitely. There are things that we would do that we think for the next plant that we think could improve it. I think in terms of expanding OM1 at the Sarnia site, you know, we have some really interesting ideas, I think. around what we can do to expand the functionality of that plant over time or adjust the functionality of that plant over time. And some of that is going to depend on not just our own thoughts on it, but as we talk to partners for the next phase or the next step of this technology, what those partners want and how they want to deploy this technology with us is going to inform the way that we operate and perhaps even make adjustments to the operation of OM1, which, you know, could be expansion. It could be other things, too. So I think those two things are things that we would expect to, you know, be in pretty close lockstep going forward.

Very good. Thank you.

Thank you. Now I'll turn it over to Ryan Smith, co-founder and chief product officer, for a Q&A section answering Ask Origin questions 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 Origin campaign, and thank you so much to everyone who participated. We received a lot, and you asked some great questions. 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 popular and relevant questions during the time we have, and for the questions we couldn't get to today, we will look to cover them in our mid-quarter update. Our first questions are going to go to you, John, and it pertains to the biomass conversion technology and scale-up, and this is a multi-part question, so I'm going to give you the whole thing here. Can you provide any additional color on OM2-related discussions and progress on Origin's capacity expansion strategy? For example, will it progress beyond OM1 in the next five years? Specifically, could we get more insight as to what stage we are at with partners and their decision-making? Are we already negotiating the manufacturing plant partnership? Are partners working on further application development and testing? Are they waiting for macro conditions to become more favorable before pulling the trigger? What can you tell us about the state of play on the expansion strategy?

Yeah. Well, I think, um, to, to your point, these questions got submitted before, uh, the consciousness that we just had. So I think Steve sort of front ran some of that, that question, his own questions, but, um, but I think that the short version is, um, is that, uh, we see a variety of different directions, um, for the origin fear annex platform to go from here. Um, And I think the commercial drivers for that are really going to drive that direction. It's the same core technology, a lot of the same applications, but geographic location, scale, partner, even potentially feedstock are things that could meaningfully change the way that we expect that next step. And so I think We're reading off of the commercial environment and the partners that we've been talking to. I think that's the big lesson there.

That's great. And I think there's a follow-on question here, and you're partially answering it, I think, but let's explicitly touch it, which is they ask, is the two-phased OM2 plan as presented last August, is that still the current plant design strategy?

Yeah, you know, that's a really interesting question because we view the origin platform technology, the Fair Enix platform technology, as... sort of like a refining technology in that they're, you know, of course, we've always talked about the complete facts that you can put in and how that can adjust the ratio of products out the other side. But of course, when we talked about the two phase approach, that's also, um, a way to, uh, uh, sort of instantiate the core technology in a way that is, um, that performs slightly differently than if you were lumping it all together. And so, and that's not the only way that you could adjust some of those parameters. And so, um, in the same way that we're really waiting for the commercial side to lead what direction we take for next steps beyond OM1 on the PureNX technology. I think we're also, you know, we have a variety of options for how you could configure the Furanix technology. Yeah, as you said, I sort of mentioned the feedstock and scale. But some applications or commercial partnerships could really drive it toward that two-phase sort of biofuels first architecture of the technology. But there are others which, you know, which look different. Some which are closer to sort of our original vision for the way that that process architecture would work, and some that are not ones we've talked about yet. So I think it's going to be interesting to see how that turns out. But, yeah, I think commercial leads the way.

That's great, a kind of menu of plant designs. The next question I'm going to take over to Matt. It pertains to caps and closures. And Matt, the investor asks, previously it was said that caps and closures manufacturing will have higher operational costs at the beginning. Will that have a significant effect on margins? And if yes, will we see that normalizing in weeks, months, quarters, or years?

Yeah, thanks, Ryan. It sounds kind of like a question that involves giving some guidance around 2025, and I think I'd like to speak to that, but maybe dial the lens back a little bit and reiterate and maybe provide a little better clarity on the guidance that we've given to date and start with this announcement that we made today, which we're pretty excited about. There's a commitment, initial commitment for two years that in total is over $100 million in revenue. We wanted to share that to provide visibility into a few things. One, kind of a quantum vision. of revenue per customer that we could see in this business. And really illustrate that when we think about rolling into 2025, we expect a number of additional customers beyond the one that we announced here. And that together, they give us great confidence that our EBITDA loss will decline significantly during 2025. And it would be our expectation if things unfold on plan that we would be crossing over to positive EBITDA territory on a monthly basis somewhere between 18 and 24 months between now and the future. And so, you know, there's this great confidence in our plan and the guidance that we do have out there with regard to being able to achieve sustained profitability on our own capital and and that the trajectory, if you think about it over the two years, is a significant decline in EBITDA loss in 25, likely profitability in 26, hopefully as early as possible. It will all depend on how quickly we can ramp capacity to serve what is an increasing and very attractive demand for the product. So that is our expectation at a high level. And I think as we close out some of these customer agreements, and continue to execute operationally, we expect to be able to share more specifics around our 2025 financial expectations in the coming months, and we look forward to doing that. But for the moment, I think I just wanted to kind of restate what we said with regard to kind of overall guidance and express our confidence that, you know, the strength of that guidance continues to grow.

Great. And I'll take these last few questions over to you, Rich. If Matt and John want to chime in, that's fine as well. But this first one, the investor asks, and, again, this was before today's earning, of course, and some of the news. But they ask, has a buyer been lined up for the caps? Why haven't any off-tick agreements been executed? Rich was saying they had letters of intent since Q4 earnings six months ago.

Yeah, well, we're very excited to announce our first big caps customer today. And I can, you know, add that we have a robust pipeline of potential customers, including potential licensing partners, lined up. And, you know, this pipeline represents, you know, fairly overwhelming demand in terms of our challenge will be to satisfy it, not to get more. But we, of course, continue to – to engage new customers. And, you know, there are various stages of the sort of buying process. Several of them are, you know, highly engaged, including traveling to join us on some of the scale-up trials and testing and things like that. And so they're very much deep in the process and, you know, looking to modify their own product plans and things like that to incorporate our caps. So we feel great about the demand picture and, like I said, are very excited to announce our first customer today.

Great. All right. Now this next question sort of gets right at it and asks, what do I have to look forward to in the next six months? So big question there.

It's going to be a really exciting six months. I would say we have a high degree of confidence, one that we'll have additional customer announcements over the next six months, and that's certainly going to be exciting. We expect to be commercially producing caps. which is a very major milestone in terms of once we're commercially producing caps, you know, then we're effectively just adding more equipment to do the same thing. And so we sort of will have started our ramp. And what comes with that ramp is revenue. And so if we can start that revenue ramp really going in Q1, you know, which is within six months, then we feel like we can really be, you know, showing a great trajectory and continuing to accelerate it. So we're really excited about the next six months and hope you are as well.

That's great. That's exciting. And then the last question, the investor asks, Why should I continue to hold this stock despite the performance over the last year of the stock?

Yeah, well, I think you don't have to do too much evaluation math to see that there is – the current stock price is placing very little value on our technology and our talent and our possibilities. You know, I personally was disclosed in the 10Q today, placed in order to buy 300,000 more shares in addition to the shares that I already have. So can't really give stock advice, but I can tell you what I'm doing.

That's great. All right. Thank you, Rich, John, and Matt. And thank you, everyone who joined and to everyone who sent in questions. We're looking ahead with confidence and excitement for 2024, and we look forward to our next update. If they ask origin questions we couldn't get to today, we'll be looking to address them in our next mid-quarter update. So thanks again, and this concludes our call for the day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.