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.

Thank you, Steve, and good afternoon, everyone. I have several items to cover, and I'll start with our financial results on slide six and should mention that all of our numbers are consistent with our March 20th pre-announcement. Fourth quarter revenues were $15.3 million as compared to $17.7 million in the same quarter of 2021. We experienced a modest decline in both products and services revenue. The lower product revenue was the result of an unfavorable shift in the timing of PHA-based shipments to a large customer relative to the prior year quarter and lower PLA-based product sales due to the war in Ukraine, which did not impact sales in Q4 2021. Service revenue is down, which indicates our customers are moving from R&D contracts into commercialization. We reported a fourth quarter gross loss of $2.7 million compared to a gross loss of $2.4 million in the prior year period. After adjusting for depreciation, stock-based compensation, rent, and certain non-recurring items, adjusted gross profit was 2.6 million, or 17% of sales, compared to 400,000, or 2% of sales, in the fourth quarter of 2021. The 2.2 million improvement in adjusted gross profit was the result of a favorable shift in the mix of revenues caused by a major customer that while unlikely to be repeated, came at a very high rate of profitability. This more than offset the impact of lower sales. R&D and SG&A expenses, excluding depreciation and amortization, stock-based compensation, rent, and one-time items, totaled $10.3 million in the fourth quarter, compared to $9.7 million in the prior year quarter, mainly attributable to an increase in headcount and salaries, to support our future expansion plans. Adjusted EBITDA loss for the fourth quarter of $8.6 million compared favorably to a loss of $10.2 million in the fourth quarter of last year. The year-over-year improvement was driven at the gross margin line. Adjusted EBITDA excludes stock comp, other income, and other add-backs as reconciled in the appendix. I'll now turn to our full-year results. We book revenues of $53.2 million for the full year of 2022 as compared to $58.7 million in 2021. Product revenue for the year was $48.4 million compared to $50.8 million reported for 2021. PHA-related sales increased by $7.3 million, or 34%. but this increase was more than offset by a decline in PLA-based resins of 9.9 million. As we've discussed previously, our PLA business has been impacted by disrupted customer operations in Ukraine and Russia. PHA-related revenues increased to 53% of total revenue in 2022 from 36% in 2021. We completed several funded research and development projects over the course of 2021 and 2022, leading to a decrease in service revenue in 2022 to $4.8 million as compared to $8 million last year. We reported a full-year gross loss of $10.4 million for 2022 compared to a gross profit of $900,000 in 2021. After adjusting for depreciation, rent, stock-based compensation, and certain non-recurring items, adjusted gross profit was $4.4 million in 2022 compared to $11 million in 2021. The decrease in adjusted gross profit was primarily driven by a change in product mix away from relatively higher margin PLA-based resins PHA-based resident margins reflected increased costs related to the ramp-up of capacity at our Kentucky facility. We expect gross margin will improve dramatically over time as the facility's capacity utilization numbers increase. R&D and SG&A expenses, excluding depreciation and amortization, stock-based compensation, rent, and one-time items, totaled $46 million in 2022 compared to $31 million in the prior year, mainly attributable to an increase in headcount and salaries to support our future expansion plans, as well as increases in costs associated with having a larger asset base, such as property and liability insurance. I'll also note that the closing of the November acquisition was in August of 2021, so we picked up a full year of expenses for their operation against a partial prior year. Adjusted EBITDA for the full year, which provides a view of results that excludes the impact of several non-cash and or non-recurring items, was a loss of $45 million. This is consistent with the range of EBITDA guidance we established on our first quarter call in early May of last year. Our cash balance at the end of 2022 was $62.8 million, which was within the guidance range we provided of $60 to $65 million. Capital expenditures totaled $165 million in 2022, which was at the low favorable end of our guidance range of $165 to $175 million. We also ended the year with total debt balance of $288 million, up slightly from the prior year end balance of $261 million, mainly due to additional forgivable new market tax credit borrowings during our third quarter. Our year-end financial statements, of course, do not reflect the cash proceeds or additional debt from our recently completed $130 million term loan. It is our intent to generally preserve this new cash on the balance sheet to maintain a strong liquidity position. That enables better management of the business in general and, in the event of unforeseen challenges, can have additional importance. A strong liquidity position means that when we need to move quickly, we will not hesitate. When we need to slow down, consider our options, and come to a deliberate and thoughtful decision, we will have the time and resources to do that as well. We will continue to treat our cash very dearly and maintain a disciplined approach in its use. Before I turn the call back to Steve, I'd like to provide our outlook for 2023 that corresponds with slide seven of the presentation. The key to our performance in 2023 will be the magnitude and timing of the customer demand ramp-up for PHA-based resins and the degree to which we utilize the increased production capacity of our Kentucky operation. We are confident in our ability to produce PHA-based resins at much higher levels, which will have a favorable impact on our gross profit margin. Our guidance also reflects reductions to our SG&A and R&D costs, an effort that has already begun and is reflected as sequential improvement over the past few quarters. Those factors contribute to our expectation of adjusted EBITDA to be in the range of negative 31 million to negative 23 million in 2023, and improvement in profitability of between 14 million to 22 million over the negative 45 million we've just reported for 2022. In terms of quarterly flow, while we don't provide quarterly guidance, we have good visibility into the first quarter. First quarter will show modest decreases in products and services revenues compared to the prior year. On the revenue line, we've seen a shift in the timing of shipments to one customer relative to last year, which we expect to normalize in the second quarter. Service revenue will also continue to reflect the completion of some projects. We have some major programs launching midyear, but it's not yet clear how much of the initial impact will be recorded in the second quarter or the third quarter. We do expect to return to year-over-year growth beginning in the second quarter, strengthening through the third quarter And then the fourth quarter of the year should show the benefits for a number of major launches, the highest levels of utilization at Kentucky, and we expect it to be our strongest quarter of the year. With respect to adjusted EBITDA, I'll note the obvious connection between utilization and gross margin as we scale up production activity over the course of the year. Looking out beyond 2023, we expect our PHA gross margin to strengthen further as we utilize Kentucky's full capacity. We expect our PLA business will stabilize at around the level we end with in 2023. We also believe that our current SG&A and R&D spending levels are generally adequate to support the growth of the business. In terms of full-year CapEx, we have a baseline expectation of $26 million to $31 million for 2023. This range captures prior commitments for the Greenfield facility maintenance expenditures, spending to complete the November demonstration plant in Rochester, and a few minor projects. This range excludes significant additional spending for the Bainbridge Greenfield facility. Once we have received feedback on our application from the DOE, we will be in a position to provide you with guidance beyond this baseline. I'll now hand the call back to Steve for his closing remarks.

Thanks, Mike. There is momentum in our operations, momentum in the biomaterials category, and momentum in sustainability as a mandate for responsible brands and businesses around the globe. The pace of new customer inquiries continues to track at significant rates. This past quarter, the way we tracked that activity, we saw a 41% year-over-year increase. What that number doesn't reflect, though, is the increase in urgency and seriousness of those calls. The world continues to move in our direction. We have financial flexibility and strength. We have an outstanding team. We have the production capacity we need. And most importantly, we have the ability to translate all of those advantages into value for our customers who need not only great solutions, but also great execution. We think we have a powerful formula for success. 2022 was an important year that held a great deal of success, but I think our most important accomplishment this past year was that we completed the foundation we need for a strong 23 and beyond. I believe, and our entire team believes, that 2023 will be a watershed year in Dannemere's history. Thank you, and operator, we're now ready to take questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In the interest of time, we ask that participants limit themselves to one question and one follow-up. One moment, please, while we poll for questions.

Thank you.

Our first question is from John Tanwantang with CJS Securities. Please proceed with your question.

Hi. Good afternoon, everyone. Thank you for taking my questions. My first My first one, Steve, was just on the question of regulation or the topic of regulation, you mentioned the EU has some potential out there to move away from petroleum-based plastics. It sounds like if they do that, you don't have the capacity to meet even just a small portion of that. What are the other options that are out there for these large companies to do so? And if there's not that much out there, what are they doing, if anything, to help you guys reach that could calculate sooner to meet those needs.

Thank you for the question, John. Right now, I'm not aware of any other really elegant solutions to that particular problem because of heat tolerance qualities. A lot of the other biopolymers that could be used won't work. That's obviously a great thing for us. But this is pretty early in the news cycle on this. So I don't really have anything to report yet, John, about, you know, any possible cooperation with those potential customers to help increase our capacity.

Okay, fair enough. You also mentioned that, you know, your catalytic PHA opportunity was getting stronger. That could be a very high return investment. Could you just give us a little bit more detail on what you're expecting out of that just in terms of timing, profitability? whether it's a licensing agreement or some kind of joint facility, help us understand what's new compared to six months ago or a year ago when you were just starting out with that.

Yeah, sure, John. Thank you. Timing-wise, well, let me just start with a little detail on what we're actually doing. So what we're working on is negotiating two agreements. One is a co-location agreement. in the Gulf with a major supplier of ethylene oxide. And the second is an off-take agreement with a major chemical company. That off-take agreement would take enough volume to cover our cash flow needs to operate that facility. So it will allow us, I believe, we believe, to get attractive project financing. That's about all I can really tell you right now other than Both those negotiations are moving forward. The offtake agreement is at an LOI drafting stage at this point, and we expect to have some kind of agreements in place by the end of this year. Once we have financing lined up, then it'll be roughly two years to start shipping product. And just as a reminder, the plant that we're talking about here is a 168 million pounds of capacity.

Great. Thanks for that detail, Steve.

My question for you, I think you had mentioned that you would be at very good utilization levels for Kentucky exiting, you know, the year. Any sense of what that run rate might be? I understand that, you know, through the year you have some questions about timing and volumes of the ramps, but it sounds like you have a bit more surety as you approach the end of the year. Can you talk about that expectation?

Yeah, thanks, John. Appreciate the question. Yeah, I think as we, you know, we're expecting our volumes to pick up, you know, quarter to the next quarter to the next one, and obviously being stronger at the end of the year. And we believe that, you know, we're not going to be necessarily consistent all the time as there still will be some lumpiness, albeit we think that with a higher customer base, we'll take a little bit of the volatility out of our capacity utilization than what we've seen over the last couple of years. But I think for the expectations there is that we would certainly be running well above the break-even capacity required for the Kentucky facility itself. And I think probably making very good headway towards levels that would cover, make the overall company even to positives. But again, a lot of work to go on between now and then to achieve the customer demand to come through on the pace that we are expecting it to do to achieve that.

Okay, great. And then second, just what is your current cash burn rate with the new financing in place and the adjustments you're making to SG&A and R&D?

Yeah, I think overall, we're pleased with some of the changes. I mean, our guidance range that we gave out you know, provides, I think, a pretty good pathway to look at, you know, what the cash flows are going to look like for the year. And when you look at the ranges of the adjusted EBITDA that we gave out, the CapEx ranges, we believe, you know, cash interest this year will certainly be higher than it has been. And it's probably, you know, closer to maybe like a $23 million rate, considering that the new financing is for the most part starting up here, you know, as we exit Q1. But, you know, you could put those together and get a sense of what the cash burn would be. The savings that we're expecting, you know, kind of with an SGA and R&D, we think that year over year that can be, you know, in the $8 million range. So that's a pretty sizable amount of reduction. And we're pleased to be able to kind of pull through and get more granular to achieve that. But, you know, with the ending cash balance we had, As you know, we paid off a $10 million loan and then we added the term loan proceeds. We believe that we'll probably end up the year somewhere in the low 50s to mid 60s of liquidity. And I think we're very comfortable with that considering what we said before about being comfortable at the $20 million range.

Okay. Got it. That's very helpful. Just one more and I'll jump back in queue. What is the nature of the reductions in expenses you're looking at? Are they more efficiencies? Is it something else?

You know, I think a number of those, again, they're kind of spread out across SG&A and R&D. And there are a lot of things that we looked at just more granularly as part of our budget process this year. We did take out some headcount. We are going to have, you know, less R&D going on as we've got more projects sort of established and we have products that we can sell and just a lot of other, you know, sort of external spends that we've now, you know, have been able to manage more effectively inside. So less consulting, things like that. But again, we watch these costs very, very carefully. As you know, our SGA and R&D is a percentage of our sales remains high. We're eventually going to grow into that, but while we're doing that, it's very important for us to continue to sharpen the pencil there as well.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Our next question is from Lawrence Alexander with Jefferies. Please proceed with your question.

Hi, guys. This is actually Kevin Estek on for Lawrence Alexander. Thank you for taking my question. I guess my first question is, you know, are you guys counting, you know, for any recessionary risks, I'll say, in the back half of 23 and the first half of 24 in your outlook? And I guess what's your view on sort of the biggest risk to your volumes going forward or in the next few years?

Thanks, Kevin. Thanks for the question. You know, in terms of recessionary risk, I would say that we, We haven't built anything necessarily into the financial model, but it was one of the important considerations in doing this term loan. As I know most of you have heard me say many times whenever I've been asked about risk to our business, I talk about the timing of these customer launches because we really don't have control over when those happen. We can do our thing on our end, and then we have to wait for the customers. The one thing we can control that takes that risk off the table is improving our liquidity. And so that, you know, with an uncertain economy out in front of us, we felt like it was important to do that now rather than, you know, wait for a moment in time maybe when perhaps if things got really bad in the economy that we wouldn't even be able to do that. So that's really why we have taken on this additional debt.

Got it. Thank you.

And you actually may have referenced this already, but I just wanted to confirm the approximate utilization rate that would make you guys break even at your Kentucky facility. Just wanted to confirm that.

Yeah, we've stated this a couple times, Kevin, and what we've said is that about a 20% capacity utilization rate would make the facility itself break even from an EBITDA perspective. I think, you know, gross profit for the most part equals EBITDA. There's not a lot of SG&A and R&D there. And then, obviously, at higher levels, we can cover the, you know, the corporate costs as well.

Great. Yeah, perfect. Thank you very much. I appreciate it.

Thank you. Our next question is from John Tanwantang with CJS Securities. Please proceed with your question.

Thanks for the follow-up. Can you guys just give us an update on the DOE loan program and kind of what you're expecting on a timing basis?

Yeah, sure. So as you heard in the script, and it was in our press release as well, we've just completed the Part 2 application. That was about an 8,000-page document. So just to give you an idea of the comprehensive nature of that application. The next step on our end is to wait for a response from the DOE, but if our application is approved, then we'll move on to negotiation of terms and a due diligence period. We're hopeful of seeing funding in the second half of the year, but obviously that's something we have to wait and see what the DOE does.

Okay, great. Well, can you use part of that, assuming you get it, to pay down the high-cost debt that you have, or would that purely go to CapEx?

No, that would just go to CapEx for the project. You know, there would be some management fees and licenses and things like that back to the company. But all those details would be part of the negotiation with the Department of Energy.

Okay. Are offtake agreements for the greenfield mostly on hold until you get that financing? Is that safe to assume?

Well, good question, John. We, of course, are kind of always working on offtake agreements just in the natural course of time with customers as our relationships develop. But what we kind of determined while we were going through the application process is that we may have enough contracts and support now to get through the approval process. But as we get more detail, that would allow us to go back to customers if we needed to round out those contracts. with kind of a clear understanding of what we need out of the contract to get it across the finish line. So prior to them coming back, to DOE coming back and proposing terms and those kind of things, we're flying a little bit blind in terms of what they might need in that respect.

Got it. Okay. And then just any update on The costs complete the greenfield that's at this stage. Is that something you're still working on?

Yeah, that number is going to probably change depending on the timing of the project approval and all those sort of things. But we did recently bump up our estimate. in our ranges. I think we brought the low end up by $15 million and the top end up by around $50 million in terms of our expected cost of that facility. So I think we're at $515 million to $665 million now.

Is that the remaining or is that the total?

That's the total.

Okay. What have you spent so far?

Mike, you can catch me if I'm wrong here. I want to say $171 million through the end of the year, but if you have a better number, why don't you give him that?

Yep, that's exactly the number. Okay, great. Thank you so much, guys. All right. Thanks, John.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue.

Thank you. There are no further questions.

I would like to turn the floor back over to Stephen Kroski for any closing comments.

Thank you, Operator. Thank you again to everyone for joining us today. I'd like to thank you for your continued interest in Dannemere Scientific, and we look forward to updating you on our progress when we report the first quarter.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.