Yahoo Finance Danimer Scientific, Inc. (NYSE:DNMR) Q1 2024 Earnings Call Transcript
Danimer Scientific, Inc. (NYSE:DNMR) Q1 2024 Earnings Call Transcript May 7, 2024
Danimer Scientific, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings. Welcome to the Danimer Scientific 2024 First Quarter Earnings Call. At this time all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]. I would now like to turn the presentation over to Mr. Blake Chamblee, the company's investor relations representative. Please go ahead.
Blake Chamblee: Thank you, operator. Good afternoon, everyone, and thank you for joining us today for Danimer Scientific's 2024 first quarter earnings call. Leading the call today are Steve Croskrey, 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 2 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 Croskrey, Chairman and Chief Executive Officer of Danimer Scientific.
Stephen Croskrey: Good afternoon and thank you for joining us. When we last spoke to report on our 2023 fourth quarter and fiscal year end results, we were just a few days away from the completion of the first quarter and our quarterly results are in line with our previously announced expectations. We are pleased with the increase in PHA revenues of 64% on a year-over-year basis. PHA revenues during the first quarter made up 82% of product revenue during the quarter compared to 45% of product revenue in the prior-year quarter. We expect PHA as a portion of total revenue to increase throughout 2024. The award to provide 20 million pounds annually of resin for cutlery and 3 million pounds per cutlery wrappers to a large global QSR chain continues to progress as we anticipated.
We are well into the first stages of scale up and I am very excited to tell you that the first commercial order has been received, with planned deliveries of cutlery to at least one customer distribution center during the third quarter of 2024. As a reminder, we expect this award to reach full run rate in the second quarter of 2025 and are excited about the previously announced opportunity to expand geographically and into additional end product categories. We continue progressing towards the 2024 commercial launch of our straw resin with another large QSR, which has led to an exciting joint development agreement with that QSR for lids and coated paper containers. Additionally, we have received a straw resin order for a new customer in Asia.
We also continue to advance in the commercialization process of compostable cups using our PHA resins for both aqueous and extrusion coatings. This represents a huge market opportunity of over 250 million pounds of petroleum-based plastics used annually in the creation of cups. We made our first commercial shipments of compostable single-use coffee pot capsule resin to Delta Coffee during the first quarter. These pods are in full compliance with proposed new EU regulations requiring any coffee pods sold to meet new compost standards. We also want to reiterate our excitement with the progress made in regards to our collaboration with Eagle Fishing, an innovation leader in the sports fishing industry. Full-scale testing of our PHA based soft plastic technology for fish baits should be underway by mid-year.
We believe the commercialization of these fish baits will drive legislation limiting the use of petroleum-based plastic baits. The sports fishing industry represents an opportunity of approximately 50 million pounds of soft baits alone and major players within the industry are positioning themselves for purchasing rights. We need to alert you to a development which will result in some short-term revenue headwinds and will impact our second and possibly third quarter results. We recently learned that our end customer Starbucks has awarded a portion of its Nodax-based straw business to WinCup from their previous sole source provider. This is a lengthy process and, in anticipation of this award, WinCup built up straw resident inventory. On the other hand, the incumbent converter partner is now drawing down inventory to adjust to this decision.
This had a negative impact of approximately $0.5 million on our first quarter sales, and we currently anticipate these inventory adjustments will impact our second quarter sales by approximately $2 million. While we anticipate these adjustments will carry over to our full year results, we fully expect this business will rebound to historic levels before the end of the year. It is important to reiterate that we work with both of these converters and have retained 100% of the Nodax based straw resin business with Starbucks. As we ramp up our capacity to meet forecasted demand levels, we would like to note our increased operational efficiencies at our Kentucky facility. Installation of new equipment and technological process changes in conjunction with our R&D department have improved our downstream processing to improve product quality, production waste, and increased throughput.
We continue to refine our proprietary PHA manufacturing process and are excited for the benefits of incorporating these improvements into our future greenfield facility. Our emphasis on continuous improvement has enabled us to increase our technical and process specific lead over our nearest competitors. Customer orders tend to spike in the last month of each quarter. And with that spike in shipments and the previously mentioned facility improvements, our Kentucky facility broke even in March, which further validates our production model for profitability at higher production levels. We recently completed two financing transactions, the first being an equity offering generating approximately $13.5 million of additional cash after customary closing fees.
Secondly, we have entered into a $20 million revolving asset based credit agreement secured by our accounts receivable and inventory. This agreement can be expanded by an additional $5 million to accommodate growth of our business. These new liquidity infusions provide flexibility to operate our business and to help maintain an adequate cash runaway to enable us to reach full capacity utilization at our Kentucky facility as forecasted. We also recently announced the proposed pro rata distribution of warrants to our stockholders. Under the terms of this transaction, each stockholder of record will receive one dividend warrant for each three shares of common stock held as of the record date. This unique transaction will allow us to improve our balance sheet leverage, strengthen our capital structure, while at the same time maximize our shareholder value.
I will note that this transaction is contingent upon our stockholders approving an increase in the number of authorized shares of our common stock. In closing, we have made great progress in regards to the DOE loan program and are in the final stages of the process. I will now turn the call over to Mike Hajost, our Chief Financial Officer, to update you on the financial results for the first quarter of 2024.
Mike Hajost : Thank you, Steve. And good afternoon, everyone. I'll start with our financial results in slide 7 of our presentation for those of you following along. First quarter total revenue was $10.2 million compared to $11.9 million in the prior year quarter. PHA based resin sales increased by 64% or $3.2 million in the first quarter of 2024. This increase did not completely offset a decline in PLA-based resin sales of 71% or $4.3 million due to continued disruption from the Ukraine conflict and lower R&D service revenue. We expect the first quarter PLA sales of approximately $1.8 million will simulate the forward run rate in the second half of 2024. First quarter 2024 PHA sales represented 82% of product sales, and we expect this percentage to increase throughout the year as we continue to ramp up PHA volumes.
We reported a first quarter 2024 gross loss of $6.3 million, which is in line with the prior year quarters gross loss of $6.3 million. After adjusting for depreciation and stock-based compensation, we reported an adjusted gross loss of minus $1.2 million as compared to an adjusted gross loss of minus $1 million in the first quarter of 2023. The positive impact on adjusted gross margin from higher PHA volumes and lower costs at our Kentucky operation were more than offset by the combination of lower PLA volumes and reduced R&D margin. Combined R&D and SG&A expenses, excluding depreciation, amortization, stock-based compensation, and certain non-recurring items, totaled $7.5 million in the first quarter of 2024 compared to $7.9 million in the first quarter of last year.
The year-over-year reduction in these operating costs was a result of continued cost control initiatives across many areas of the business. Adjusted EBITDA loss was $8.7 million. in the first quarter of 2024, which was an improvement over a loss of $8.9 million in the first quarter of 2023. Adjusted EBITDA excludes stock-based compensation, depreciation, amortization, interest, and other non-recurring items as reconciled in the appendix. Unrestricted cash and equivalents at the end of the first quarter was $57.3 million, as compared to $69.2 million at the end of 2023. Restricted cash was $14.2 million, which is mainly held for future interest payments under our senior secured term loan. Capital expenditures were $2 million in the first quarter compared to $16.4 million in the prior year first quarter, which included sizable, required equipment payments to the greenfield project that has substantially diminished in the current year.
We ended the first quarter with a total debt balance of $385 million comprised mainly of our convertible senior notes, the senior secured term loan, and our new market tax credit loans, which we expect will be forgiven starting in 2026. Liquidity remains a big focus for us as we seek to manage cash and support our customers' demand forecasts. Our recent financing transactions include an equity offering that generated approximately $13.5 million of additional cash after fees, as well as a revolving asset-based lending credit agreement with a loan commitment of $20 million, with an option to expand the facility by an additional $5 million. Availability under the credit agreement at any given time is subject to a borrowing-based formula based on accounts receivable and inventory balances.
Let me take a minute to discuss the full-year guidance expectations that we initially provided on our call last month. With respect to our 2024 adjusted EBITDA, we expect there will be a full-year negative impact from the changes that Steve described earlier related to the Starbucks WinCup straw resin inventory issue. This will not cause us to change our adjusted EBITDA guidance range that we previously provided of minus $22 million to minus $32 million, but we do believe now we will be closer to the lower end of that range. We will get more clarity on that situation as we progress through the second and third quarters. Our CapEx expectations remain unchanged, and we reiterate our prior guidance for CapEx spend in the range of $8 million to $10 million.
With the recent completion of the revolving asset-based credit agreement, we will now guide toward year-end liquidity instead of just unrestricted cash. At this point, we estimate that our end-of-year liquidity comprising unrestricted cash and availability under a revolver will be in the range of $25 million to $30 million. I'll now hand the call back to Steve for his closing remarks.
Stephen Croskrey : Thank you, Mike. We remain confident that recent progress in our commercialization efforts and R&D trials will generate increased revenues during 2024 and beyond. As shown in our investor presentation, we continue to grow our sales pipeline with 89 customers in the material selection phase as compared to 85 just a few weeks ago. We have several customers who have reached commercial launch phase recently. Delta Coffee with their compostable single-use coffee pods; Bolthouse Farms with their compostable produce bags; and a large QSR that is scaling up cutlery in North America, as well as another QSR scaling up straws in North America, and a new straw customer in Asia. We often say that with just the customers in our sales pipeline, we could fill up several plants.
I would like to add that, considering just our customers that have already launched, our sales are on track to triple by this time next year, and this does not include significant brand owners now in pre-commercial stage. Thank you to everyone listening to today's call for your attention and your support. We will now open the lines for questions.
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