Danimer Scientific, Inc.

Greetings and welcome to the Danimer Scientific 2022 Fourth Quarter and Full Year Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the presentation over to Mr. James Palsinski, the company's investor relations representative.

Thank you, operator. Good afternoon, everyone, and thank you for joining us today for Danimer Scientific's 2022 fourth quarter and full year earnings call. Leading the call today is Steve Crossgree, Chairman and Chief Executive Officer, and Mike Hajost, Danimer's Chief Financial Officer. I'd like to note that there is a slide deck that accompanies today's discussion, which is available on the investor relations section of our website at danimerscientific.com. I'll call your attention to the company's safe harbor language which is published in our SEC filings and also on slide two of the presentation I just referenced. 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. 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. 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-GAAP measures have analytical value, but note that they should be taken as an additional measure of performance 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. Thank you, and it's now my pleasure to turn the call over to Steve Crossgree, Chairman and Chief Executive Officer of Dannemert Scientific.

Thank you, James. Good afternoon to everyone, and thank you for joining us. As you know, We pre-released preliminary fourth quarter and full year results for 2022 on March the 20th when we announced the successful completion of our new $130 million senior term loan. There are three things I'd like to point out about the term loan as we get started this afternoon. First, this debt achieves an important strategic financial goal to take near-term liquidity risk completely off the table. It provides us with the financial runway we need to easily navigate timing and unforeseen circumstances as we realize expected customer demand that we expect will fully utilize our recently expanded capacity. Second, I want to be clear that we have no plans to use the proceeds of this term loan for capital projects. We remain confident that we can obtain the required project financing to complete the Greenfield facility and are pleased that we've now completed our application to the DOE's Loan Guarantee Program. Third, despite the high capital cost of this debt, we were absolutely unwilling to utilize equity to create a liquidity cushion. We viewed the dilution to shareholders that would have resulted as flatly unacceptable. As you've known for the past week, our fourth quarter and full year 2022 financial results were in line with the guidance we first provided in May of last year on our first quarter call. The numbers alone don't do proper justice to where we are today. The opportunities we have going into 2023 continue to improve and are certainly better relative to what we could have reasonably expected at this time last year. I'd like to walk you through step by step the path we've laid down for the year ahead. First, as I said, we've taken liquidity issues off the table. Second, over the past 18 months or so, we continued to assemble a very special team of executives. Mike Hay-Jost as Chief Financial Officer, who brings significant public company experience. Keith Edwards, a leader in business development at BASF. Anthony Austin, a Chief Human Resources Officer with large company HR experience at Delta Airlines and PepsiCo. Deborah McRonald from Nestle, who serves as our Chief Corporate Development Officer. Brad Rogers, who came to us from PepsiCo and serves as VP Technology and Development. and Steve Martin, our new chief legal officer, an excellent attorney with significant public company and intellectual property experience, who also holds two engineering degrees, including a master's in electrical engineering. Finally, with regard to our executive team, I'm particularly pleased to call out that Dannemere Catalytic Technologies, under Jeff Urich's leadership, has successfully retained every key teammate from November, and that business is fully integrated onto the Dannemere operating platform. I know every company makes a statement that they have a quote, world-class executive team, but when you put Dannemer's new talent together with the seasoned Dannemer leadership cadre of folks like Scott Tootin, Chief Marketing and Sustainability Officer, Phil Van Trump, our Chief Science and Technology Officer, and Michael Smith, our Chief Operating Officer, the statement could not be more true. In addition to having de-risked our liquidity position and cemented our team, As we go forward into 2023, the third critical advantage we have is that our Winchester, Kentucky facility is now fully capable of serving as the growth engine for production that we need. The team on site at the plant is also extraordinary. They are showing us in no uncertain terms just what they can do. On slide four of our presentation, you'll find a simplified visualization of the manufacturing process in Kentucky. Each of our five fermentation units is fully commissioned and running at much higher than expected yield levels. When we design future production capabilities relative to earlier designs, we expect to see significantly lower capital expenditures for future fermentation capacity due to the progress we've made in yield. Those five units feed into three downstream processing lines, or trains. Each train can produce about 900,000 pounds of neat PHA per month, from any combination of fermentation tanks. We have now commissioned all three downstream processing trains. The final stage of the process is the two extrusion lines that blend neat PHA with other biodegradable materials into finished resin. I'll remind you that PHA is roughly half of the final material weight in our engineered materials. At design capacity, this enables us to produce, depending on customer mix, roughly 2.7 million pounds per extruder per month of formulated PHA-based resin, our finished product. The almost 20 years of formulation and application development experience that informs the blending and extrusion process is far more valuable and far more difficult than I think is generally appreciated. The ability to engineer or formulate high performance materials is an important barrier to entry into this market. It is as significant as the ability to make neat PHA itself. The specific resin formulas we provide all have a challenging and intensive research and development effort behind them. As a result, our materials are able to run on customers' existing process equipment, whether they are using blow molding, injection molding machines, or other equipment. Our products also perform well in their end use applications, as straws, cutlery, or films, for instance. As of today, with a little increase in plant staffing, we can push the plant to support the shipment of 3.6 million pounds of formulated resin per month. An additional increment of staffing would be necessary to get to 5.4 million pounds of formulated resin per month. That's our full design or nameplate capacity, roughly 65 million pounds of finished product out the door each year. We believe we could reach this level of capacity by year end if needed. So here's how you should understand the critical math for Kentucky. Neat PHA capacity of 32 and a half million pounds enables us to produce about 65 million pounds of formulated resin. At an average price of just under $3 a pound, the Winchester plant can deliver roughly 190 million of revenue per year. While we won't know the peak margin capability for sure until we actually reach and sustain full capacity utilization, we believe the contribution margin of Kentucky tops out at north of 30%. This would drive positive cash flow at the facility level of roughly $60 million, a number that would generate positive EBITDA for the company. We're incredibly proud of what our entire team has accomplished in Kentucky and pleased to have such a powerful manufacturing engine to propel us forward. So, to quickly recap, we have the financial resources and liquidity, the expertise and talent, and a world-class production facility to execute well for our customers around the world. We are enabling our customers to grow their business with branded high-value, high-margin, environmentally responsible products. Our formulated resins combine unique biodegradation and performance qualities that only a PHA-based material can provide. We can design our products to meet any level of the different biodegradability certifications issued by independent agencies around the world, certifications that governments are increasingly requiring and that consumers are increasingly seeking out. Category by category, we are poised to disrupt large commodity markets dominated by petroleum-based plastic. The demand for ecologically responsible materials is clearly coming from today's consumer. particularly younger adults with quickly growing purchasing power. They are passionate about the big global issues that PHA can help solve, and they are educated about the products and companies they spend with. This is why the end consumers for our products tend to be large global brands. Without adoption, they risk losing share over what often boils down to what could be fractions of a penny for a straw or a bag or a cup. Starbucks, Dunkin' Donuts, And Mars Wrigley are great examples, as are Pepsi and Nestle, both key early partners of Danimer. These are the types of companies that have embraced a leadership position on sustainability. Others will follow their example. And for those of you following along, I'll turn your attention to slide five of our earnings presentation. We had a number of specific wins that I'll talk about. One is Zespri, a Javi partner and the largest global marketer of kiwi fruit who will use PHA-based cutlery in its snack assortment. We're excited to be working closely with Javi, a global leader in sourcing for quick service restaurants. We are working to build on strong initial interest from some of Javi's major global partners and have delivered validating trial results for a range of products, including straws, cups, cutlery, and other applications. Additionally, we're pleased that our customer, Columbia Packaging Group, has partnered with U.S. Foods to launch Nodak-based straws under their Evolve brand. We are excited to see our partnerships and our degree of penetration into the market grow in strength and in scope. The demand for our solutions is not only coming from customers, it is also coming from governments across the world. Consumers are increasingly serious about pushing change on these issues. particularly with respect to the unnecessary pollution of our marine environments. That is a powerful electoral issue, particularly for single-use plastics. Recent proposed legislation in Europe will, if enacted at the end of next year, create a 24-month window after which petroleum plastics will be banned for the manufacture of single-use coffee pods, among other categories. We've launched development efforts with three of the five largest producers in Europe and have anticipated our first test market launches in the second half of this year. To put this opportunity into perspective, a 10% share of coffee pods just in Europe would require the entirety of Kentucky's nameplate capacity. That emerging opportunity is just another data point that illustrates why we increasingly see significant demand growth as inevitable. The trends and activity in the market confirm for us that we will need the greenfield plant capacity. We're pleased to announce that we have now submitted our Part 2 application to the Department of Energy Loan Guarantee Program for our Greenfield Manufacturing Facility in Bainbridge, Georgia, and we look forward to working with the DOE as it evaluates our application. I'd now like to turn to the Additional Production Technology Underdevelopment in Rochester, New York, with Dannemere Catalytic Technologies, or DCT, where we continue to make progress scaling up renovo. A type of PHA that isn't just evolutionary, it's truly revolutionary. The production of our Renovo PHA, known chemically as P3HP, through catalysts rather than fermentation, should be a game changer that drives tremendous efficiency into the process and drives tremendous capital and operating costs out of the process. These features are driving advanced discussions with global blue chip chemical companies for large-scale commercial offtake agreements. As we complete our Renovo demonstration plant, we have simultaneously begun its commissioning. This plant serves two important purposes. First, it provides product at a sufficient scale to support our customer tests and trials. Second, because we have specified reactor and distillation column designs that are scaled-down versions of full-size commercial equipment, the demonstration plant will provide us with useful data that allows for optimization of our commercial plant. This demonstration plant will help to make clear to extremely important partners, all household names in the chemicals industry, that there are compelling economics and tremendous utility associated with the catalytic production of PHA. They should see clear opportunities for advantaged capital investment, lower per pound production costs for PHA, and a development of novel applications that incorporate the renovo polymer. A strategic partnership approach to scale our catalytic technology platform is intended to enable the rapid deployment of low-cost alternative supply chains for a range of materials. BCT's potential continues to be validated. Everything points in the direction we have seen since we acquired this technology, and we are increasingly confident that the capital we invested in that deal back in August of 2021 could ultimately generate perhaps by far the highest ROIC of any of our capital investments. I'll reserve a few comments for closing, but this is a good time to turn the call over to Mike for a closer view of the numbers and some comments on our outlook.