Danimer Scientific - Q4 2023

Executive Summary

• Q4 2023 revenue was $10.9M, down 28.8% YoY (vs. $15.3M) as PLA demand collapsed due to Ukraine-related disruptions; PHA revenue grew 11% YoY, and management guided to ~60% YoY PHA growth in Q1 2024.
• Adjusted EBITDA loss was $10.7M (vs. $8.6M in Q4’22), with gross loss of $6.4M driven by lower PLA volumes and higher depreciation; FY23 adjusted EBITDA loss was $39.0M, in line with guidance.
• 2024 outlook: adjusted EBITDA loss of $22M–$32M, CapEx $8M–$10M, and YE cash $20M–$25M; canola feedstock costs expected to fall to ~$0.70/lb by mid-year and mid-$0.60s by YE, supporting margin trajectory.
• Strategic catalysts: 20M-lb QSR cutlery award ramping to full run-rate by Q2 2025; DOE loan process nearing conditional commitment targeted for Q3 2024; completed $15M gross equity raise to bolster liquidity (net ~$13.5M).
• Consensus estimates from S&P Global were unavailable; comparisons to Street estimates cannot be provided (consensus data not retrievable via S&P Global mapping).

What Went Well and What Went Wrong

• What Went Well

  • PHA momentum: “We continued our trend of year-over-year PHA revenue growth in the fourth quarter,” and expect ~60% YoY PHA growth in Q1 2024.
  • Strategic wins: 20M-lb cutlery award for a large global QSR progressing toward full run-rate in Q2 2025; expansion potential into Asia and adjacent categories (straws, wrappers).
  • Liquidity actions and cost control: ~$13.5M net equity proceeds to extend runway; OpEx cut ~+$14.4M in 2023 vs. 2022 and another ~$4M targeted reduction in 2024.

• What Went Wrong

  • PLA exposure: PLA sales fell ~74% YoY in Q4 given Ukraine-related disruptions; net product revenue decline of ~$4M (PLA -$4.9M, partly offset by PHA +$0.9M).
  • Profitability: Q4 gross loss ($6.4M) and adjusted EBITDA loss ($10.7M) worsened vs. prior year, reflecting lower PLA volumes and higher depreciation as Kentucky scaled.
  • Dependency on capacity/utilization: Company-level adjusted EBITDA positive only when Kentucky reaches 70–80% utilization, pushing breakeven to early 2025 and emphasizing execution risk on volume ramp and DOE financing.

Transcript

Operator (participant)

Welcome to the Danimer Scientific 2023 fourth quarter earnings call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for a question. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would now like to turn the presentation over to Mr. Blake Chamblee, the company's investor relations representative. Please go ahead.

Blake Chamblee (Head of Investor Relations)

Thank you, operator. Good afternoon, everyone, and thank you for joining us today for Danimer Scientific's 2023 fourth 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 alternative 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 (Chairman and CEO)

Good afternoon, and thank you for joining us. The conclusion of the fourth quarter of 2023 marks the end of a challenging year as Danimer experienced delays in anticipated commercial launches. Despite these delays, we are greatly encouraged by our successes during the year, and we believe we remain well ahead of the competition in both deep understanding of the biodegradable plastics industry and the available production capacity to meet our current and future customers' needs. Some examples of our recent successes include the previously announced 20 million pound PHA resin cutlery award for a large quick service restaurant chain, or QSR, the start of a Nodax-based straw scale-up with another large QSR, as well as the commercial launch of home compostable certified mini carrot bags under the Bolthouse Farms brand, completed in conjunction with our converter partner, Columbia Packaging Group.

We are excited about our partnership with Delta Cafés in the development of single-use coffee pods that will meet stringent EU environmental standards. Additionally, we have made great strides in research and development efforts with several of our customers, including Mars Wrigley, Kemira, Eagle Claw, and Pepsi. We have also announced the completion of our Rinnovo pilot plant in Rochester, New York. This allows us to demonstrate the capabilities of this unique PHA material in meeting our end customers' needs and provides an important proof of concept supporting our designs for commercial scale production. We remain engaged with a major oil and gas company as a co-location partner for a commercial facility and are also in negotiations with another partner to engage in research applications using our Rinnovo PHA.

Our work with Chevron Phillips Chemical to develop and commercialize cast extrusion films, blown extrusion films, injection molded parts, and rotational molded parts using Rinnovo polymers continues to progress in a very positive manner. Our primary focus remains our development and commercialization efforts in the quick service restaurant channel. We work closely with the top three QSRs, as measured by U.S. system-wide sales, for a variety of end-use products, including straws, cutlery, film wrappers, bowls, and container lids. Our previously announced 20 million pound annual award to provide cutlery resin to a large global QSR chain continues to progress as we anticipated. We have entered the first stage of scale-up and expect the first commercial shipments in the second quarter of 2024, with cutlery being delivered to at least one customer distribution center during the third quarter of 2024.

We expect this award to reach full run rate in the second quarter of 2025. We have also recently learned of an opportunity to expand both in geography, specifically into Asian markets, including Japan, and into additional end product categories, including straws and film wrappers for cutlery with this same customer. Scale-up of our Nodax-based straw resin with another large QSR has progressed and is expected to enter commercial launch during 2024. The success of these trials has also led to a joint development agreement with the same QSR for lids and coated paper containers. We also continue to advance in the commercialization process of compostable cups using our PHA resins for both aqueous and extrusion coatings. This has been a technically challenging area, but we are very close to a successful outcome....

Our partner, Kemira, has recently exercised an option to extend their license and exclusivity with us to commercialize biodegradable aqueous barrier coatings to be used on paper-based food and beverage applications. This extension builds on our long-standing successful development partnership, which began in 2020, and bodes well for the future. The QSR industry continues to rapidly move towards more sustainable solutions, and we are thrilled to be a part of this transformation. We partnered with Delta Cafés, a coffee roaster and coffee packaging company in Portugal, to develop a compostable single-use capsule for their Delta Q line of ground espresso. We have begun commercial shipments of this resin in the first quarter of 2024. These pods are in full compliance with proposed new EU regulations, requiring any coffee pod sold to meet new compost standards.

These capsules degrade inside industrial composting environments, leaving no microplastics or other residues that would harm natural ecosystems. As a reminder, coffee pods and tea bags represent a potential 500 million pound opportunity in the European marketplace. We have also expanded our research and development contract with Mars Wrigley to further our relationship with their snacking division, including the completion of testing and validation of a unique product packaging using fully biodegradable PHA materials this year. Our partnership has also made significant progress towards the development of compostable PHA packaging that showcases the desired performance for products in Mars Petcare and Food and Nutrition businesses. Another promising R&D project is focused on the sports fishing industry. Eagle Claw, an innovation leader in the industry, has partnered with us to develop a new PHA technology for soft fish baits.

Development of this new PHA soft plastic technology is nearing completion, and full-scale testing should be underway by mid-year, which will help to replace the plasticized PVC lures that harm our aquatic ecosystems. This is an exciting market for us as we continue to grow in new directions and end-use applications with our Nodax PHA-based resins. We have successfully completed a joint development agreement with PepsiCo to create home-compostable multilayer films for use in snack food packaging. Our combined R&D efforts have led to the development of a multilayer packaging structure that meets the practical requirements for protecting the product while offering a sustainable, disposable alternative. The expected demand growth for our PHA-based products allows us to reaffirm our projected profitability timeline for our Kentucky operation and the company in total.

We expect our Kentucky facility, on a standalone basis, to become EBITDA positive during the second half of 2024 at plant capacity utilization of just over 30%. We expect the total company will become EBITDA positive when our Kentucky facility reaches 70%-80% capacity utilization near the start of 2025. To support the customer revenue growth outlined above, we decided to further augment our liquidity position to help ensure an adequate cash runway. As we previously announced, we recently completed an equity offering, generating $13.5 million of additional cash after customary closing fees. This additional liquidity, along with our projections for a decreasing cash burn rate as volumes increase at our Kentucky facility, will aid us in meeting our forward cash needs.

I would like to now draw your attention to slides 5 and 6 in our investor presentation, which provides a visual reminder of our sales cycle process. From the initial lead to commercialization, this can be a lengthy, iterative process rather than a linear one, but we have been at this a long time. We currently have 85 customers in the material selection cycle, ranging from initial sample production to larger scale trials, to market testing, to regulatory and certification work. This cycle establishes the long-term sales pipeline for our business. We recently announced two new board members. We are honored to welcome Dr. David J. Moody and Mr. Richard Altice to the Danimer Scientific Board of Directors. Dr. Moody, who was appointed to the board on January 17th of this year, is the former Chief Executive Officer of Jadex Incorporated, a U.S.-based manufacturing and materials science company.

He has over 30 years of experience managing chemical and polymer-related businesses. Mr. Richard Altice, whose appointment will be effective April fifteenth, 2024, is the former president and CEO of NatureWorks, a developer and manufacturer of biopolymers. He has over 30 years of sales, marketing, operational, and management experience in the specialty chemicals and biopolymer industries. These new board members bring valuable industry perspective and experience as we seek to rapidly grow our business, and we are very excited about adding these seasoned executives to our team. Finally, we are entering the final stages of our due diligence work with the DOE Loans Program Office, and we look forward to negotiations on a projected term sheet. I will now turn the call over to Mike Hajost, our Chief Financial Officer, to update you on the financial results for the fourth quarter and on our outlook for 2024.

Michael Hajost (CFO)

Thank you, Steve. Good afternoon, everyone. I'll start with our financial results on slide 7 of our presentation, for those of you following along. Fourth quarter total revenue was $10.9 million, compared to $15.3 million, led by a product revenue decline of $4 million or 28% compared to the prior year level. PHA-based resin sales grew by 11% in the quarter compared to last year, and we continue to experience steady growth. But PLA-based resin sales fell 74% compared to last year, primarily due to the ongoing issues associated with the Ukraine conflict. We reported a fourth quarter 2023 gross loss of $6.4 million, as compared to the prior year quarter's gross loss of $2.7 million. The year-over-year increase is primarily due to overall lower PLA sales, as well as higher depreciation expenses.

After adjusting for depreciation and stock-based compensation, we reported an adjusted gross loss of $1.2 million, as compared to an adjusted gross profit of $2.0 million in the fourth quarter of 2022, primarily due to the lower PLA sales. R&D and SG&A expenses, excluding depreciation, amortization, stock-based compensation, and certain non-recurring items, totaled $9.4 million in the fourth quarter of 2023, compared to $10.5 million in the fourth quarter of last year. Our continued cost control initiatives across many areas of the business created this $1.1 million year-over-year improvement. Adjusted EBITDA loss was $10.7 million in the fourth quarter of 2023, and was a loss of $8.6 million in the fourth quarter of 2022.

For the full year, we had an Adjusted EBITDA loss of $39 million, which was in line with our latest guidance range of -$37 million to -$40 million. On a year-over-year basis, this represents a $6 million improvement over prior year's Adjusted EBITDA loss of $45 million. Adjusted EBITDA excludes stock-based compensation, depreciation, amortization, interest, and other non-recurring items, as reconciled in the appendix. Cash and equivalents at the end of the fourth quarter was $59.2 million, as compared to $62.8 million at the end of 2022. Restricted cash was $14.3 million, which is mainly held for future interest payments under our senior secured term loan. Capital expenditures were $2 million in the fourth quarter and $27.7 million for the full year, which was in line with our latest guidance range of $27 million-$29 million.

We ended the fourth quarter with a total debt balance of $382.8 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. We continue to view the magnitude and timing of the customer ramp for PHA-based resins and our increased utilization to serve that demand from our Kentucky operations as the largest factors for variability in our short-term financial results. With the customer expectations described earlier that will improve cash flow from our Kentucky operations, we are set to release our full year 2024 guidance. We believe our Adjusted EBITDA will be in the range of -$22 million-$32 million.

With very little required spend on the Greenfield project in 2024, we're expecting our total capital expenditures for the company to be in the range of $8 million-$10 million. We also expect to end 2024 with an unrestricted cash balance in the range of $20 million-$25 million. This ending cash balance range is driven by the Adjusted EBITDA range as a proxy for cash flow, the 2024 CapEx range, known cash interest for the year based on our current debt structure, the net cash received from our recent equity issuance, and significant improvements in working capital. The working capital improvements will be led by our opportunities to reduce inventory from artificially high current levels and our ability to improve our overall receivables collections, to include collections from completed R&D contracts.

This ending cash balance range does not include potential cash or liquidity from other financing transactions that are available to us. I'll now hand the call back to Steve for his closing remarks.

Stephen Croskrey (Chairman and CEO)

Thanks, Mike. In conclusion, and as we look towards 2024, we are focused on the immense long-term opportunity to transform the plastics market. With our developmental expertise, capacity footprint, and a growing blue-chip customer base, we believe we remain well ahead of any competition and have a clear path to deliver on our goals for 2024 and beyond. Thank you for your time today, and we look forward to updating you on our progress. We will now open the line for questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one should you wish to ask a question. Your first question is from John Tanwanteng from CJS Securities. Please ask your question.

Jonathan Tanwanteng (Managing Director)

Hey, guys. Thank you for taking my questions. My first one is, could you talk a little bit more about your expectations for timing and ramp-up through the year? It sounds like you're getting a little bit better visibility, just as related to the Cullery and some of the other contracts that MSC have, but I'm wondering if you have a more detailed breakdown as to how this ramp by quarter.

Stephen Croskrey (Chairman and CEO)

Yeah, John, I don't know that we can give you a detailed ramp by quarter, but I can try to color it in here. You know, most of this is gonna be driven by the cutlery award, which is, you know, significantly larger than some of the other opportunities. As we mentioned already, we expect to be in distribution centers by Q3, and to be at full run rate with that by Q2 of next year. Where the project is right now, the converters that have been awarded the business are in the process of getting tools built specifically for this program. One converter has ordered about $9 million worth of new equipment that will be delivered in April. So it's well underway.

We don't have specific production requirements yet, but, you know, we know what the goals of the customer are, that support you know, our point that this will be at full run rate by Q2 of next year. I'll just point out, you know, that's 20 million pounds, and that will more than double our PHA sales. One of the exciting things now is that we're also going to be doing the plastic wrap for the cutlery, and that's gonna also add significantly to the award. Thanks for the question.

Jonathan Tanwanteng (Managing Director)

Got it. That, that's helpful. Second, I was wondering if you could give us an update on the DOE loan program and if there's any movement there or any changes to expectations.

Stephen Croskrey (Chairman and CEO)

Okay. We are at the point now where the DOE is nearing completion of its due diligence, and we expect to be negotiating the terms and are looking for a conditional offer, conditional commitment by sometime in Q3.

Jonathan Tanwanteng (Managing Director)

Got it, and the funds would be available around Q4 in that timeline? Is that fair to think about?

Stephen Croskrey (Chairman and CEO)

Well, you know, that's possible, John. But, yeah, that's possible, John, but it will also depend on, you know, what the actual conditional commitment is, you know? So depending on, you know, what requirements there might be, you know, we know what we've asked for, but we, we don't really know exactly what we're getting. So there could still potentially be monies that have to be raised, and so it will just kind of depend on how much, on in terms of how long that could take. But, you know, we're, we're hopeful that we can get it done by Q4, but until we actually see the term sheet, it's really hard to predict exactly.

Jonathan Tanwanteng (Managing Director)

Understood. And then lastly, as you think about the Greenfield and the timeline, it might go up and, you know, depending on what you get financing for. Are you seeing any movement in customers who are willing to commit to it, either an anchor customer or, you know, volume indications, which, you know, which may indicate they may need the Greenfield?

Stephen Croskrey (Chairman and CEO)

Yes. I would tell you that, you know, some of our customers that are included in the, this current ramp are moving forward with the expectation that we're gonna get the Greenfield deal done because they know that we won't be able to handle, you know, their entire requirements just out of Kentucky. So, you know, we think that's a favorable thing, obviously. And we expect, as we continue to get some of these other development projects across the finish line, that, as we've said many times, there's multiples more demand in our pipeline than what we can handle, even with the Greenfield. So, and I would point to, you know, one specific need, which are compostable cups, drinking cups.

You know, as we get that over the finish line, that's gonna create a tremendous amount of demand and will require the Greenfield to support that.

Jonathan Tanwanteng (Managing Director)

Okay, great. I'll jump back in queue. Thank you.

Stephen Croskrey (Chairman and CEO)

Thanks, John.

Operator (participant)

Thank you. Your next question is from Thomas Boyes from TD Cowen. Please ask your question.

Thomas Boyes (Vice President and Equity Research Analyst)

Thanks for taking the questions. Maybe just to follow on, just a bit on the DOE loan. More on, like, the process, kind of a high level. If assuming that the loan conditional commitment comes in, in 3Q of 2024, you know, for the $180 million that you've already spent on Bainbridge, would you get 80% of that all at one time? Is that kind of how that works? And then maybe would it be fair to assume that there's a one quarter lag on CapEx that you, you know, spent in 1Q of 2025, showing up in 2Q and then 3Q and 4Q and so on and so forth? Is that kind of the how the timing has, you think works?

Stephen Croskrey (Chairman and CEO)

Thanks for the question, Thomas. Let me make sure I... I'll try to answer it and make sure I'm answering the right question. So we're going to get, as part of the term sheet, an LTV, a loan to value. So, we, you know, we'll get credit for the $100 million and roughly $190 million-ish, you know, that we've already got into the project. We'll count towards our equity, and whatever—if there's a gap, we'll have to raise additional equity. If there's not a gap, we'll just get started right away, and it will be an immediate draw against the loan proceeds. So there—it won't be-

Thomas Boyes (Vice President and Equity Research Analyst)

Got it.

Stephen Croskrey (Chairman and CEO)

There won't be like a step thing each month or anything like that. It'll just be. It will all be available when the loan closes.

Thomas Boyes (Vice President and Equity Research Analyst)

Okay. That's helpful. And then just as for my second one, could you talk a little bit more about the joint development agreement for the lids and coated paper containers? I just, I know you already have made significant progress internally on lids and, you know, in theory, could that speed up the sales process that you outlined in the deck?

Stephen Croskrey (Chairman and CEO)

Yes, I can't really offer too much more, Thomas, to that, other than, you know, it's for, you know, a major QSR. But these are lids, you know, it's very similar to lids for cups, but these are lids, you know, specifically for food containers. So it's a little different but, you know, every time we do one of these projects, we learn things, and we learn things that we can, you know, translate into other areas, so it's all good.

Thomas Boyes (Vice President and Equity Research Analyst)

Got it. And if I could, sneak one more in, just, any update on feedstock pricing, which you're seeing in the market, which you've locked in, would be helpful.

Stephen Croskrey (Chairman and CEO)

Yeah. Mike, do you wanna take that one?

Michael Hajost (CFO)

Yeah, sure, Thomas. Yeah, I think, overall, you know, in Q4, canola prices averaged right around $0.86 a pound, and we're seeing really about the same type of price here in Q1. It's as we look forward here for the rest of the year, we're looking, you know, projecting those prices to move down to about $0.70 by midyear, and we're also expecting to kind of end the year somewhere in the mid-60-cent range. So we're seeing a nice decrease in the prices, and we're starting to lock some of those in.

Thomas Boyes (Vice President and Equity Research Analyst)

Appreciate it. I'll hop back. Thank you. Thanks.

Operator (participant)

Thank you. Your next question is from Laurence Alexander from Jefferies. Please ask your question.

Laurence Alexander (Managing Director and Senior Equity Research Analyst)

Good afternoon. Just want to start with the filtration process for the customers. You know, the 85 that you mentioned, does that materially change the aggregate potential demand pool that you have, compared to what you've talked about previously? Or can you give some sense of kind of if all of those customers did ramp up, you know, how many plants of potential demand that would represent?

Stephen Croskrey (Chairman and CEO)

Yeah, Laurence, in kind of just big round numbers, I would say that those customers represent at least three times more capacity than is available in Kentucky and the Greenfield. And I, and obviously, that's a conservative number, without throwing, like, everything at it. That's, you know, just the specific projects we're working on. And, and, and to be clear, that the 85 doesn't necessarily represent a change. It's just we've been looking for a way to try to, you know, demonstrate, to help, help investors kind of understand the process better and, and to kind of see where things are. And so this is something we're going to, we'll continue to refine, but we'll continue to track this in the future and present that kind of information.

Any feedback we get on how that looks and on how we might do it better would be helpful.

Laurence Alexander (Managing Director and Senior Equity Research Analyst)

Oh, you'll probably get too many metrics we all want. Speaking of which, one that would be helpful is, in terms of the customers who you won earlier and who you've been ramping up with, you know, can you just give a sense for how much churn you've had? You know, kind of the, you know, customers that are increasing the volumes they take versus customers who are dropping out, because products either didn't hit their specs or their needs changed.

Stephen Croskrey (Chairman and CEO)

Sure, Laurence. If you, you know, look on slide five and look at the customers on the right, those customers are all growing. And I would say we have never lost a customer once we had them in at kind of full run rate. We might—we had had maybe one customer in the past, and that, this has been a number of years ago, where you know, they launched—they probably didn't understand their own specifications. It was a smaller company, and we launched, and then they found out things after the fact that didn't work for them. But other than that, we have not lost a customer.

All these customers are happy and, you know, growing with us.

Laurence Alexander (Managing Director and Senior Equity Research Analyst)

Okay, great. And then just at, what's the current, market expectation or customer expectation or your messaging to them around when you do the Greenfield, do they expect, as volumes ramp, a significant drop in ASPs? Or do we be thinking about kind of flat to, you know, a modest erosion in mix, you know, as you get economies of scale?

Stephen Croskrey (Chairman and CEO)

You know, yeah, sure. I understand your question. You know, we have talked with some of the larger customers. We've kind of shown them some expectations over, like, a 10-year period of what that can look like as we scale and what's possible. But we have never specifically offered anybody, you know, better lower pricing once the Greenfield comes online or, you know, had any specific discussions like that.

Laurence Alexander (Managing Director and Senior Equity Research Analyst)

Great. And then just lastly, can you update kind of the market prospects for the Novomer technology, particularly into the aqueous film applications?

Stephen Croskrey (Chairman and CEO)

Sure. So, we are. You know, as you know, we've just completed the scale-up of the new pilot plant, and that will allow us enough volume to be able to sample some of these customers that will, you know, then, you know, be able to create demand by validating the material. We are in the middle of negotiations with another major chemical company for a development agreement to support that. And as you know, we're working with Chevron Phillips on a couple of those projects as well. And we have a kind of, just call it a verbal agreement at this point with, because we're waiting on the customer traction now.

But we have an agreement with another major oil and gas company for a co-location agree venture. We can't, I can't talk to anything on the aqueous side, but on the film side itself, what we're seeing is, if you remember, Laurence, when we bought that, one of the things we were touting was that the barrier properties of that material is much better than other commercial biopolymers, significantly so. And what we're seeing now is it's also better than the fossil fuel-based products.

So I, I keep telling people, we have a killer app here, and when we can get that, commercialized and, and combine it with, with Nodax, we're gonna be able to create applications that none of the other, biopolymer competitors that are in the market today, or even the ones that are trying to get into the market, would be able to compete with on the snack food side because of the barrier properties.

Laurence Alexander (Managing Director and Senior Equity Research Analyst)

Then just sorry, one last one, then I'll hop back in the queue. Is there a--would all of those agreements, if they did pan out, do those represent any significant capital requirements on your part, or is the goal on that side of the business to be mostly capital light?

Stephen Croskrey (Chairman and CEO)

Well, the goal is to be capital light. But, you know, worst case, if we do a co-location, which we're going to do, that's just how it's gonna be done, because, you know, the, those suppliers, they have the raw materials that we need, these big oil and gas companies. And so that's just the natural way that it will work. If we do that, that will reduce the CapEx requirement because we will piggyback off of their infrastructure for things like utilities, you know, chillers and electricity and things like that. So we can reduce our capital requirement that way. We're hopeful that we'll find a partner through this process on the commercial side that would like to participate.

And we think if we, if we get that, then we think the co-location partner will also want to participate, and we can, you know, reduce our CapEx requirement even more. But the beauty of this, this product is that the CapEx cost, on a per pound basis, is one-fifth of the cost of a Nodax plant. And so even if we have to, you know, foot the bill, we expect to be able to do it on a, on a project financing basis.

Laurence Alexander (Managing Director and Senior Equity Research Analyst)

Okay, great. Okay, thank you.

Operator (participant)

Thank you. Once again, that is star one, should you wish to ask a question. Your next question is from John Tanwanteng, from CJS Securities. Please ask your question.

Jonathan Tanwanteng (Managing Director)

Hi. Yes, I just wanted to follow up on that last one with the catalytic PHA. I was wondering, when is the earliest you think you could see commercial volumes in that product? Just given the deals that you're working on now, the partners, and then kind of the, you know, with the pilots starting up.

Stephen Croskrey (Chairman and CEO)

Yeah, look, I, I think you've, you've got to kind of assume a couple of years to build a plant. I mean, it can be done more quickly, but, but, you know, just to be safe or fair in, in the analysis here, I'd just call it 2 years to build a plant. And since we're, you know, we don't actually have that customer partner ready to negotiate, we've got, you know, we've got the customer partners that we think we're gonna be negotiating with, but they've got to validate the material with their customers first. So, you know, I think you got to add, probably add a year to that 2 years at any given time. So I think 3 years out is, is a fair, you know, as in terms of an earliest date.

Jonathan Tanwanteng (Managing Director)

Okay, great. That's helpful. Mike, if you could just any thoughts on OpEx this year and if that's gonna be remain, you know, relatively stable, or if there's any growth planned in the budget and guidance?

Michael Hajost (CFO)

Yeah, I mean, I think, you know, we're really pleased with how we've been driving OpEx costs down. If you look at, you know, the, the, the fourth quarter, we're down another $1 million year-over-year. For the whole year, 2023 versus 2022, I think we drove down $14.4 million, and we're expecting to reduce those operating costs again in 2024, year-over-year versus 2023, you know, in the range of about $4 million or so. You know, we've gone through, you know, rationalizing headcount, we've gotten rid of a lot of outside services and consultants. We're utilizing our own, our own staff and capabilities to do a lot of those things. We've gotten some, some better insurance rates, so a number of things across all the boards.

We're looking everywhere, that's kind of where we ended up, which, you know, we're really pleased because it's just been a nice, you know, year-over-year change now for a couple of years and getting those costs down.

Jonathan Tanwanteng (Managing Director)

Got it. That's helpful and good to hear. And just last before I go, just any thoughts on volumes in Q1, since we're pretty closely on the quarter anyways?

Stephen Croskrey (Chairman and CEO)

Yeah, you know, we mentioned in our press release that our year-over-year growth with PHA for the quarter will be approximately 60%, and I think it will probably exceed 60% at this point.

Michael Hajost (CFO)

Hey, John, if I can add also on the OpEx.

Stephen Croskrey (Chairman and CEO)

What? I'm sorry, John.

Jonathan Tanwanteng (Managing Director)

I'm sorry.

Michael Hajost (CFO)

Go ahead, John.

Jonathan Tanwanteng (Managing Director)

Was there PLA in Q1 last year?

Stephen Croskrey (Chairman and CEO)

Yes, but we're not. We haven't provided any guidance on that.

Jonathan Tanwanteng (Managing Director)

Okay. Sorry, go, go on.

Stephen Croskrey (Chairman and CEO)

Yeah.

Jonathan Tanwanteng (Managing Director)

Didn't mean to interrupt you.

Michael Hajost (CFO)

John, I want to just add one thing I think would be good for everybody to know, you know, in terms of your models and all that. Stock-based comp, you know, it's been running up, you know, close to $56 million a year, I think, in 2023, and a lot of those large grants are falling off. We're expecting something that's closer to about $4 million for full year 2024. So I think that's just a good thing for everyone to kind of know, not to have that, you know, large piece of noise, you know, in your models.

Jonathan Tanwanteng (Managing Director)

Got it. Thank you.

Michael Hajost (CFO)

Okay.

Operator (participant)

Thank you. There are no further questions at this time. I will now hand the call back to Stephen Croskrey for the closing remarks.

Stephen Croskrey (Chairman and CEO)

Thank you for your time, everybody, and your interest in Danimer Scientific. We're pleased with our recent progress and the additional customer opportunities that have been presented to us, and we look forward to talking to you again soon when we present our first quarter earnings, which will be coming up in just several weeks now. Thank you.

Operator (participant)

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.