Danimer Scientific, Inc.

Greetings. Welcome to the Dannemeyer Scientific 2023 Second Quarter Earnings Call. I would now like to turn the presentation over to Mr. James Pelzinski, the company's Investor Relations Representative.

Thank you, Operator. Good afternoon, everyone, and thanks for joining us today for Dannemeyer Scientific's 2023 Second Quarter Earnings Call. Leading the call today will be Steve Crossgreet, Chairman and Chief Executive Officer, and Mike Hajost, 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. As we begin, I'll call your attention to the company's safe harbor language, which is published in our SEC filings and 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 supplementary measures of performance and not as alternatives 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 Crossgreet, Chairman and Chief Executive Officer of Dannemere Scientific.

Good afternoon, and thank you for joining us. Our second quarter financial results were consistent with our expectations. In particular, we are pleased to have delivered year-over-year and strong sequential growth in PHA-based sales. More importantly, as you should have seen in a separate release, our Part 2 application for the Department of Energy Loan Guarantee Program has been accepted. We're very excited to take the next steps and we'll move into the confirmatory due diligence and terms negotiation process. If successfully completed, this program will provide funding necessary for us to complete our greenfield facility. It's important to remember that the DOE Loan Guarantee Program has a basic mandate to identify emerging technologies that are in the national interest and to provide the financial support necessary to enable their growth. The program office at the DOE has been very supportive throughout this process, and we've received consistent positive feedback about our candidacy. At the core of our application, woven through 8,000 pages of documentation is a simple, very powerful truth. that Dannemer has a serious solution, decades in the making, that has the potential to be a meaningful part of addressing pollution from petroleum-based plastics. The DOE evaluation process has been exceptionally rigorous. Our greenfield project, our business model, and our market opportunity have been put under a microscope. The most work-intensive and time-consuming part of the loan process is behind us. While the next steps are important and the outcome isn't guaranteed, We are pleased to have the validation we think this acceptance of our application signals. This should also signal our clear intent and opportunity to the market that we can serve demand not only right now, but as a persistent and capable partner in the years ahead. Staying power is important to our customers and is one of the number of attributes that competitive leadership requires. I'd like to walk you through the additional reasons why we believe we are emerging as a leader in the market for responsible alternatives to petroleum-based plastics and expect to retain that position. Leadership in our market requires the ability to provide solutions to a wide range of customer needs. With each passing quarter, we are increasing the diversification of end-use applications that our residents address and the portfolio of end-use customers that have adopted those products. Growing our addressable market opportunity through diversification is a competitive priority. We are way out in front with regard to the technology of PHA, the manufacturing of PHA polymers, and the blending of those polymers into uniquely capable biodegradable resin blends. When we think about competition for the foreseeable future, our fight is against the entrenched but increasingly vulnerable position held by petroleum-based materials. Consumers, corporate executives across many industries, and regulators now understand that the true cost of petroleum-based plastic is much, much higher than simply the price per pound. It has become increasingly clear that single-use petroleum-based plastics are particularly responsible for tremendous collateral damage to the environment. Until somewhat recently, scientific studies have focused on the invasion of the global food chain by microplastics. Increasingly, research has focused on the impact of much smaller nanoplastic particles, which we now know pollute the very air we breathe. Nanoplastic particles have been found in our bloodstream and tissues, even in the tissues of unborn children. Recent findings suggest that nanoplastic particles attached to and may be carrying other pollutants, including carbon monoxide with them as they penetrate our bodies. Very recent research suggests a link between nanoplastic pollution and a wide range of chronic health problems. including cancer and diabetes. It seems inevitable that the alarm and the call for alternative materials will do nothing but grow in intensity and urgency. The companies who adopt our resins for use in their businesses have brands and reputations to protect. They also currently use a great deal of petroleum-based plastic. Shifting to a new material takes time, is challenging, creates some short-term risks, and may have incremental costs. Even so, across many industries, There is an increasing awareness that a reckoning is approaching, a reckoning that carries reputational risk to the brands and consequences for the businesses that do not move to adopt environmentally responsible materials. This is particularly the case with regard to single-use plastics. As consumers reach a tipping point of awareness that there are solutions to these problems, The risks and consequences of doing nothing easily eclipses those associated with updating supply chain practices and partners for disposable items that, in many cases, cost pennies or even fractions of a penny per unit. Dannemer has been working for nearly two decades to create the alternative materials that our customers and the world need. The challenge has been creating materials that are seamless replacements that don't negatively impact the experience for consumers. This is important to mitigate any related risk of damage to a brand or business. Straws make for a good example. Most people, consumers, restaurant owners, and legislators know that plastic drinking straws are a pollution problem, and yet, despite the environmental impact we are still using, depending on which estimates you use, anywhere from 200 million to half a billion straws every day just here in the United States. It's hard to know for sure how many of those straws leak into the environment, as pollution estimates can range anywhere from a low single-digit percentage to as much as the 32% global average for food packaging estimated by the Ellen MacArthur Foundation. Just to illustrate, if you take a midpoint of those estimates and do the quick math, at 350 million straws every day in the U.S., at approximately 750 straws per pound of plastic, at an environmental leakage rate of 20%, That math gives you well over 15,000 tons of pollution every year. That's over 15,000 tons of environmental damage every year just from straws and just from the United States. We can debate because there are lots of different estimates from various sources, the numbers in that equation. But what is not debatable is that straws are only a fraction of the larger and extremely serious problem of pollution from single-use plastics. It also seems beyond debate because PHA-based materials are the solution that this problem should no longer be tolerated. By now, I suspect most of you have used a straw made from our PHA resins without even realizing it. For example, if you've been to Starbucks, those green straws, that's Danimer's material, and it's impossible to tell it isn't petroleum-based plastic. Our material is non-polluting. It's fully biodegradable, including marine degradable. It is home compostable. It does not get soggy. It does not melt in hot liquids. PHA-based resin is a seamless replacement material. It is the solution that the market and the environment need. We believe the same is true in many other categories dominated by petroleum-based plastic. Developing a true material solution to create and capture opportunities to replace petroleum-based plastics has taken many years of biotechnology, process engineering, and material science, and then, in most cases, additional years of acceptance testing, biodegradation testing, and field trials by each individual customer and their supply chain partners. Many of those efforts are now bearing fruit. Just this quarter, we have diversified into residence for protective films, shrink wrap, and produce bags, and there are many more end-use applications in our pipeline at various stages of development. While the development process is generally lengthy, we are increasingly able to leverage our prior R&D work to move much more quickly. The commercialization of compostable coffee pods, for example, required a rapid development effort. Over the past year, we began to work with several potential commercial customers in this category, including one that is already moving into industrial trials, the last step before full commercial production. Our longstanding leadership position in the research and development of these materials enabled us to respond to the urgency in this category and help our customers. They have no choice but to move quickly to address the risk of disruption from legislation in Europe, which, if passed, will prohibit the use of petroleum-based materials, which they are currently entirely reliant upon. Our leadership position may prove strongest of all in the quick service restaurant or QSR space. Right now, We have a significant customer that is proceeding through store trials for straws in two states, and we expect a successful outcome and a full rollout to follow. Additionally, we are pleased that Checkers Rallies has adopted PHA-based straws and has begun their national rollout through one distribution center. Credit for this opportunity goes to our customer, Columbia Paxson Group. Checkers Rallies is a great new customer with just under 900 locations nationally. We continue to await decisions on two very large opportunities for new QSR programs that we mentioned on last quarter's call, one for cutlery and one for straws. We are increasingly confident we will win the cutlery program, which has an annual requirement of approximately 15 million pounds of resin, with first shipments preliminary expected to begin sometime in the late fourth or early first quarter. We stand ready and are confident we can execute both programs in their entirety. We expect our emergence as the leader for alternative materials in the QSR channel will be extended by the development of compostable coatings for paper cups, a technically challenging category, but one that we are confident we will soon enter successfully. We believe that having cups and lids in addition to straws and cutlery will put us in a powerful position to offer our QSR customers an end-to-end solution for most of their single-use plastic waste. Before I move on, I'll also mention that AMC Theaters, with approximately 500 locations, sources their single-use food service items much like a QSR does and has also begun to offer PHA-based straws. This customer was also captured by our direct customer, Converter Columbia Packaging Group. TPG purchases our resins and manufactures straws and other items and then sells those products through their distribution network. Our leadership position also comes from our continuous innovation. Danimer is the first and only commercial-scale manufacturer of PHA in the world, and because we are at the cutting edge, we are constantly discovering new areas for improvement. This is not only reflected in our creation of new resins for additional end-use applications, but in finding ways to improve the manufacturing process we use to produce those resins. As you may recall, our Kentucky facility successfully achieved much better levels of PHA output from fermentation than originally anticipated. A few months ago, we started testing some new equipment in our downstream processing and believe we have found a path to a faster, more efficient extraction process that yields higher-quality, neat PHA than we previously thought possible. Ultimately, we believe we'll be able to achieve better throughput, reduce waste, and reduce cost. It'll take some time to validate these process improvements, but the work is exciting. especially as it reminds us that we are still in the early stages of commercializing PHA polymers, and there are powerful science and engineering improvements that we have yet to discover. I will now turn the call over to Mike Hajos, our Chief Financial Officer, to update you on the numbers for the quarter and our outlook for the rest of the year.