Danimer Scientific, Inc.

Greetings and welcome to the Dannemann Scientific first quarter 2022 conference call. At this time, we're in a listen-only mode. A question and answer session will follow the formal presentation. If anyone needs operator assistance to the conference, please press the answer button on the phone keypad. As a reminder, this conference is being recorded. I'll now turn the conference over to Ross Zukowski. Please go ahead.

Thank you, Operator, and thank you, everyone, for joining us today for our first quarter 2022 earnings call. Hosting the call today are Danimer CEO Steve Cross-Cree and CFO Mike Ajost. During our discussion today, we will be referring to our earnings presentation, which is available on the investor relations section of our website at danimerscientific.com. On slide two, please note that we may discuss forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, future results of operations, capacity, production, and demand levels that could differ in a material way from those expressed or implied in the forward-looking statements. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date hereof. except as required by law. Today's presentation also includes references to non-GAAP financial measures. Reconciliations to the most comparable GAAP financial measures can be found in the earnings presentation. I will now turn the call over to Steve.

Thank you, Russ. Good afternoon, everyone. Thanks for joining. During the first quarter, we progressed further on our journey to deliver leading biodegradable packaging solutions for a variety of in-demand customer applications. Today, I will discuss our first quarter performance, recent business development updates, and the progress of our capacity expansion plans. Every initiative we have undertaken aligns with the key strategic priorities we outlined last quarter, shown on slide three. These priorities are, number one, Expand our capacity to achieve substantial economies of scale, not only through increasing our organic production capacity in Kentucky and Georgia, but also by leveraging strategic third-party relationships, such as our collaborations with Hyundai Oil Bank and others. Number two, lead with innovation to address a broad range of customer needs as we continue to leverage our core competency of formulation and application development. This will be done through our own proprietary technology and experienced team of researchers and scientists, and also includes the pursuit of new R&D development and licensing agreements with partners, such as our recently announced license and supply agreement with Chimera. Number three, grow customer partnerships and product volume commitments with global blue chip customers to secure future demand for our increasing capacity. Number four, secure cost-effective inputs. Examples of this are our collaborations to evaluate effective alternative feedstocks, as well as securing long-term input supply contracts, such as our agreement with Total Corbion. Number five, attain favorable unit economics to enhance margins, first through increased capacity utilization, then ramping up production of Renovo. And number six, enhance team capabilities to support growth across manufacturing, business development, R&D, information technology, human resources, and finance. Everything we have communicated to you and everything we are focused on going forward can be connected to one or more of these strategic priorities. Turning to slide four, PHA became an even larger portion of our revenue during the quarter, nearly doubling year over year and driving total revenues up 12% to $14.7 million. PHA sales could have been even stronger in the quarter, but several straw converter customers are sold out, and some have had supply chain issues with new equipment orders required to increase their capacity. Our higher PHA sales more than offset a decrease in PLA sales during the quarter. A portion of PLA sales were negatively impacted by the war in Ukraine, and given the uncertainties there, we do not expect this business to return in 2022. At the same time, we have been asked to reformulate a piece of this business which could further reduce expected future PLA revenue. This is one of the factors that Mike will discuss in his guidance section later in the call. As we look ahead in this environment of heightened geopolitical uncertainty and market volatility, we remain laser-focused on delivering what is within our control, including excellence of execution across the six strategic priorities of our growth strategy. We are focused on the immense long-term opportunity to transform the bioplastics market, and we are confident that we can continue working closely with our customers to overcome near-term volatility. We work with some of the world's largest consumer brands on our shared goal of addressing the global plastic waste crisis and could not be more thrilled about our company's potential to do just that as we progress further on our capacity expansion and contract negotiations. In addition to expanding our own capacity, we're also looking to create value for shareholders through successful R&D collaborations with large corporate partners that are looking for sustainable solutions. During the first quarter and into April, we expanded our partnership with Chimera to commercialize biodegradable aqueous coatings, and we announced our collaboration with Hyundai Oil Bank to drive global growth of PHA. We also made some key strategic hires, including our new CFO, Mike Hajos, as well as a new chief human resource officer as we continue to focus on expanding team capabilities to support growth. We made further progress towards scaling production at phase one of our Kentucky facility while ensuring phase two construction of our Kentucky operation advanced in line with our plan to bring the facility online and begin scaling up this quarter. Please turn to slide five. As you saw in our press release a week ago, we were happy to announce an exclusive license and supply agreement with Chimera to commercialize biodegradable aqueous barrier coatings to be used on pulp and paper and food and beverage applications globally. That is an approximately $500 million market and is expected to grow at a 10% rate annually. This builds on the success of our existing partnership that we have been working on since 2020 She developed a coating and surface treatment that ensures paper and board items, such as single-use coffee cups, are biodegradable in soil and water environments. In addition to its biodegradable and strong barrier properties, the new coatings are also repulpable, which enables paper recyclers to disintegrate the material for fiber recovery. This capability further enhances the sustainability of the material and enables brands to contribute to circular economy. Furthermore, the PHA coatings can replace polyethylene and provide a viable alternative to PFAS, also known as forever chemicals, which are increasingly being phased out in food packaging around the world due to potential health risks associated with their use. This expansion of our partnership with Chimera represents several important milestones in Danmarin's mission to reduce plastic waste. First, it represents the potential for PHA to serve as a sustainable alternative to traditional plastic across multiple product categories. Second, this new license and supply agreement lays the foundation for a new revenue stream where Dannemere will be cash flow positive from day one without significant CapEx investment while further supporting the global commercialization of this material. Tamara is an industry leader in the pulp and paper and aqueous coatings markets with a large sales force, technical support staff, and global production scale, making them the perfect partner to bring our solutions to market. We are grateful for their continued partnership and look forward to helping them bring these coatings to the food and beverage industries globally. Now, turning to our other customer and business development updates, I will speak to slide six. As a reminder, our customers are mainly major blue chip multinational brands that have all made long-term commitments to make their plastic packaging recyclable, reusable, or biodegradable. Interest in our products from both new and existing customers has only continued to grow as these corporations evaluate solutions to maintain their ESG commitments, particularly as an increasing number of municipalities implement regulations and other legislation to reduce the environmental impact of plastic waste. An example of this is the state of California's newly proposed legislation that would require all single-use plastic packaging and foodware used in the state to be recyclable, reusable, refillable, or compostable by 2030, and single-use plastic production to be reduced by 25% by 2030. As another example, Virginia Governor Glenn Youngkin signed an executive order in April that aims to increase biodegradable materials and recycling and lure clean energy businesses to the state of Virginia. Furthermore, California's Attorney General announced on April 28 that he issued a subpoena to ExxonMobil for information on its role in causing the global plastic waste crisis. These are just several recent examples of positive tailwinds for our business that are driving new customer inquiries. New customer inquiries were up nearly 20% in Q1 as compared to Q4 2021, another encouraging sign of the strong demand we are seeing for Dannemer's biodegradable solutions. Our converter partners are also seeing accelerated interest in PHA. A great example of this is the success our partner, WinCup, has achieved through their sales of biodegradable Nodax-based peat fade straws, which can now be found at Yankee Stadium, First Watch restaurants, Target Big Box Retailers, and Sam's Club Cafes, adding to an ever-growing list of restaurants and retailers across the country. We also continue to make progress with our multinational developmental partners like Mars Wrigley, PepsiCo, and numerous others. Last month, PepsiCo showcased their compostable laced chip bags using Dannemers technology during their participation at the Coachella Music and Arts Festival in California, an event widely known for championing sustainability. The event was a great place to showcase PepsiCo and Danimer's partnership to produce sustainable solutions as PepsiCo continues to work toward their goal of designing 100% of their packaging to be recyclable, compostable, biodegradable, or reusable by 2025. Additionally, as we continue to explore a broad range of applications for our customers, we are pleased to announce that last month we signed a development agreement with Ego Products to develop soft lures for the fishing industry in an effort to provide a biodegradable alternative for traditional plastic PVC lures. We are encouraged about where we stand today with our many development agreements and the potential for a meaningful number of those commitments to transition into supply agreements. Moving to slide seven. Looking at our facility expansions at phase one of our Kentucky facility in February and March, we were very pleased with our production levels and were recently running above nameplate capacity in April. We continue to be comfortable we can run this plant at full capacity on a go-forward basis. Looking at Kentucky Phase 2, we're excited to note that construction is concluding, and we have already started the commissioning process of transitioning from construction to operations. We expect to begin producing product at Phase 2 starting in June. As we have discussed in the past, the completion of both phases will collectively bring our annual nameplate finished product capacity up to an expected 65 million pounds, which, as a reminder, is PHA plus other compounded degradable materials. We continue to expect the Kentucky facility to turn profitable on a standalone basis this year as we increase capacity and focus on driving operational efficiencies at the expanded facility. Turning to slide eight, I will take a moment to discuss the latest updates on our plans for the construction of the Greenfield facility in Bainbridge, Georgia. As we discussed with you last quarter, we still face uncertainty with respect to key equipment delivery delays and inflationary pressures. We remain committed to instituting this critical capacity for growth, but we plan to remain nimble and flexible as to the pace of capital spending on this project. For now, we have deemed it prudent to slow further construction in the near term to preserve cash. This can also provide us with the opportunity to capture and better apply learnings from the Kentucky expansion and the pilot plant. In addition, it can allow for further value engineering to maximize the efficiency of the plant and potentially reduce project costs. Based on our current plan, we now expect the Greenfield plant startup to occur in 2024. We're still confident in a long-term opportunity to improve our cost profile through combining Renovo with Nodax at commercial scale. Discussions are progressing with several major ethylene oxide producers in the U.S. Gulf Coast for EO offtake, site location, site colocation, and other ancillary agreements related to the manufacturing of renewable products. Overall, while we are focused on all six of our strategic priorities outlined earlier in the call, our primary focus in the near term is achieving profitability at the plant in Kentucky and continuing our negotiations with a major brand owner to sign up for a significant amount of volume as the anchor tenant for our planned greenfield facility. We expect our ability to accomplish these two key goals will help us secure the additional financing needed to advance our long-term capacity expansion plans. With that, let me turn the call over to Mike for an update on our financial results.