Origin Materials - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue was $9.2M, down 29.8% year over year (Q4 2023: $13.1M), driven by supply chain activation program; GAAP diluted EPS was $(0.09). Management introduced commercial PET cap production in February 2025 and shifted revenue realization timing into Q3–Q4 2025.
• Guidance updated: EBITDA positive “run-rate” now expected by end of 2026 (from 1H 2026 prior), primarily due to delayed start of CapFormer line 1 and knock-on effects to lines 2–8.
• Execution milestones: CapFormer line 1 passed site acceptance and began commercial production; three additional lines nearing completion and expected to pass FAT in Q2 2025; eight lines targeted online by year-end 2025 with design upgrades to increase throughput and unit economics.
• Financing strategy: Management is arranging debt financing to fund equipment and working capital, targeting a healthy minimum cash floor; they do not anticipate raising equity capital, a potential stock catalyst if cap ramp executes as planned.

What Went Well and What Went Wrong

What Went Well

• “Historic first” commencement of commercial PET cap production at Reed City, Michigan; line 1 expected to produce hundreds of millions of caps annually, validating manufacturability and market pull.
• Throughput improvement roadmap and scalability: forthcoming lines will incorporate Origin design modifications; management anticipates line 8 output roughly double line 1, with mid double-digit gross margins targeted and payback <18 months per line.
• Strong demand and pipeline: multiple signed MOUs and additional customers in qualification; management asserts indicative demand exceeds near-term fulfillment capability, supporting licensing potential and cap price leverage.

What Went Wrong

• Revenue timing pushed back: cap revenue “in earnest” now expected to begin with lines 2–4 starting in Q3 2025, with meaningful revenue in Q4 2025 (previously expected Q1 2025 ramp), reflecting qualification and feature changes (knurls) added to meet customer needs.
• Profitability timeline delayed: EBITDA positive run-rate moved to end of 2026 (from 1H 2026) due to the delayed start of line 1 and propagated impacts on downstream lines.
• Elevated OpEx and impairment: Q3 2024 included $15.2M non-cash impairment (Geismar site decision), and full-year OpEx rose to $85.3M (vs. $60.1M), contributing to FY 2024 net loss of $83.7M versus FY 2023 net income of $23.8M.

Transcript

Operator (participant)

Thank you for standing by. This is the conference operator. Welcome to the Origin Materials fourth quarter and full year 2024 earnings call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. At this time, for opening remarks and introduction, I would like to turn the call over to Ryan Smith, Co-Founder and Chief Product Officer. Please go ahead.

Ryan Smith (Co-Founder and Chief Product Officer)

Thank you. Good afternoon, and thank you for joining us, everyone. Speaking first today is Origin's CEO and Co-Founder, John Bissell, followed by CFO and COO, Matt Plavan. We will open the call to questions from analysts and discuss questions submitted as part of this quarter's Ask Origin campaign. Ahead of this call, Origin has issued its 2024 fourth quarter and full year press release and presentation. These can be found on the investor relations section of our website at originmaterials.com. Please note that during our discussion today, we will be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties.

These statements reflect our views as of today, should not be relied upon as representative about views of any subsequent date, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For further discussion on the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including our Annual Report on Form 10-K filed today. During today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Origin Materials' performance. These non-GAAP measures should be considered in addition to and not as substitutes for or in isolation from GAAP results.

You will find additional disclosures regarding the non-GAAP financial measures discussed on today's call in our press release issued this afternoon and our filings with the SEC, which will be posted to our website. The webcast of this call will also be available on the Investor Relations section of our company website. With that, I will turn the call over to John.

John Bissell (Co-Founder and CEO)

Thank you, Ryan. Good afternoon. This quarter was both a success and an inflection point for Origin. We stood up our first caps manufacturing line, turned on commercial production in February, and are now shipping product to a growing list of customers for qualification as we continue our transformation into a technology-driven manufacturing organization on the path to substantial revenue and healthy margins. We are solving a really big problem. A bottle cap made from PET that fits in the palm of your hand may seem like a small thing, but it's the key to a $65 billion market that has been seeking the solution we offer for decades. To our customers, this solution means better-performing products with extended shelf life. It means sustainability. It means product circularity and recycling that really works.

For everyday people, it means starting to fix a broken recycling system by simplifying it, streamlining it, and making recycled products more valuable. The solution has been out of reach. Nobody could solve the technology problem. Nobody could even see the problem in a way that would lead to a solution that works until now. In February 2025, we were pleased to announce we'd begun commercial production from the world's first commercial PET cap manufacturing line. Line 1 is up and running. To date, this is arguably our most important milestone as it is tangible proof of the CapFormer System's commercial-scale production capability, proof that is critical to our stakeholders, strategic partners, financiers, customers, and investors. We want to acknowledge the perseverance, dedication, and sacrifice made by the Origin team to achieve this historic first.

This week, we released a video showing the CapFormer System operating in our Reed City, Michigan, manufacturing center. I encourage everyone to watch that video as it showcases the CapFormer in action and illustrates why we believe in this technology and the business it enables. We also announced that three new CapFormer lines are nearing completion, and we expect them to finish Factory Acceptance Test during Q2 of this year. We confirmed prior guidance that we expect to have eight CapFormer lines online by the end of 2025. We are now engaged in delivering caps for qualification, and we expect to have the first beverage products with Origin caps on shelves in Q3 or perhaps as early as late Q2. From this point forward, continuous improvement is the rule.

We have design modifications that we expect to implement both in future CapFormers and that we can use to retrofit existing CapFormers. We expect those modifications to substantially increase cap throughput per line and to enable new cap design features and add new formats to our product catalog. Naturally, increased throughput should equate to even better unit economics per line. To help quantify the extent of these improvements, we anticipate the output for CapFormer Line 8 will be roughly double that of Line 1, with additional upgrades planned for lines thereafter. Although we expect Line 1 will produce tens of millions of 1881 caps every month, it's important to keep in mind that our PET cap technology is a platform, which means it's a base for growing many different product formats and SKUs for many different applications.

We started with the 1881 format because it's a massive market. Last year, we announced a tethered version of it, designed to keep the cap connected to the bottle and comply with cap tethering mandates in the EU. In time, we're looking forward to announcing a variety of cap types, including not only beverage caps, but food container closures and more. We expect to introduce our first larger format cap in 2026, and we expect that larger CapFormats will drive better margins because our manufacturing technology is particularly advantaged over the incumbent technology for making large caps. Today, caps are made by injection molding. With injection molding, the bigger the cap, the longer it takes to inject plastic resin into the circular mold. We make caps differently. Part of our technology advantage is that we use thermoforming.

Instead of injecting molten plastic, we form it out of a hot sheet, similar to stamping the caps out. No matter how wide the cap, it doesn't take extra time to fill the diameter of the mold. In this industry, production economics is about speed, and our technology is capable of going faster. Cap economics is also about weight. PET is a more dense material than current cap materials, but it's also stronger. We take advantage of that strength in a way that injection molding cannot because our CapForming technology excels at making thinner caps. Stronger materials enable thinner caps, and thinner caps use less material. That's a fundamental advantage for Origin, capturing more and more value the larger the format. Another advantage of our platform is flexibility. Our CapFormers can be retrofitted with new molds reasonably quickly.

That means we can make different products from the same line and that we can retrofit existing lines with higher throughput technology, enabling us to be nimble both in responding to customer demand moving forward and in deploying new technology across lines that are already operating. Lastly, eight lines is just the beginning. Our intention is to stand up additional Origin CapFormer lines in 2026 at a roughly similar pace to our deployment in 2025, accelerating as capital allows. Now, let me turn to demand. Demand is incredibly strong, and we anticipate it will only grow stronger. Multiple customers have signed MOUs to purchase our caps. With our first production line up and running, we are now in the process of delivering caps to a growing list of customers for qualification, with many additional customers in our pipeline.

Despite not having publicly named our customers, we continue to accumulate substantial and accelerating demand for our caps. There are beneficial reasons for our discretion, as we'll discuss later. The reality is that we are increasingly in the enviable position of having indicative demand that significantly exceeds our fulfillment capability for several years to come. Our bigger challenge is to bring supply online as fast as practical to better meet demand and gain market share. We are assembling a melange of customers and partners that we believe balances volume, margin, deployment flexibility, technical expertise, credibility, and ability to grow Origin. All of these different customer types are currently represented in our pipeline. We found the caps market to be quite dynamic with a variety of customer types. This market dynamism means cap pricing is, pleasantly, more variable than we had expected when we began commercializing this technology.

As the only commercial producer of PET caps currently in the market, we are naturally aiming to price to the differentiated and unique value of our product. Volumes and expected delivery rates are different for each customer. Some customers are flexible on delivery times; others are not. Some customers require large inventory build, multiple months of production from a single line before they will switch to a new cap type, while others need smaller shipments and consequently require less inventory. We are slotting customer deliveries in a way that satisfies customers' needs while allowing us to continue to onboard new customers and set realistic expectations around delivery times as well. We, of course, aim for our near-term tactical decisions to enable our long-term strategy. Beyond the production lines, we plan to own and either operate or contract for operation.

We continue to lay the groundwork for partnerships, such as licensing, in which we can supply technology to further enable the scale-up of overall PET cap supply. Standing up our first production line supports that effort. We now have a proven intellectual property-protected technology platform. We have demand from large companies for the technology, and we have the ability to ramp deployment of our CapFormer lines to meet the massive supply needs of large customers. We're also pleased to share today that we've successfully expanded our CapFormer manufacturing relationships to ensure redundancy and additional capacity. All of these efforts are strategic for expanding supply generally, including in support of potential partnerships.

We look forward to revealing the names of the customers who have already signed MOUs and of those in our pipeline, but our customers generally want to keep the time between an announcement and their product with our caps on shelves as short as possible. With that in mind, we do anticipate announcing some initial customer names in the coming weeks or months. In summary, market interest is strong and increasing. Our sales pipeline is growing, and more customers are progressing through the pipeline as time goes on. We continue to believe we can sell every cap we make, and we are just getting started in pursuing the massive opportunity presented by the $65 billion caps and closures market. Now I'll hand it over to Matt for a review of the impact of these commercial dynamics on our expected near-term financial performance.

Matt Plavan (CFO and COO)

Thanks, John, and good afternoon, everyone. I'd like to speak to the financials of the cap business specifically before I turn to cover financials at the full company level. First, a little commentary on cap margins and CapFormer line economics. For competitive reasons, we'll continue to refrain from sharing granular pricing information, but we do want to reiterate and expand on our previous guidance around the caps business at a macro level to help investors connect the dots on the value creation potential of this business. Margins per CapFormer line will vary due to a number of factors, including CapFormat, special features on the cap, and customer volume commitments, just to name a few. That said, we expect the aggregate gross margins for the cap business to fall in the mid-double digits range.

Additionally, our average capital cost per line is in the mid-single digit millions, separate from the cost of any extruders we may purchase along the way. We expect the payback period for the average line, including extrusion, to be less than 18 months. Second, a few words about our financing strategy. As we've indicated previously, we believe our stock is significantly undervalued today, and therefore we believe debt is the optimal way to finance our near-term growth. Thus, we are in the process of securing debt financing to fund our capital equipment build-out and our working capital needs to maintain a healthy minimum cash flow at all times. The expected short payback period per line makes for an attractive financing opportunity for lenders, and we are curating a number of financing proposals for all lines we have on order and in production.

Third, let me speak to the timing for realizing revenue this year. Our first CapFormer has produced millions of caps, many of which are in the hands of some of the largest and most famous brands in the world to continue their qualification procedures. Although these qualification shipments will not count as sales, they do demonstrate significant and important commercial pull-through. As for when we can expect revenue generation to begin in earnest this year, it'll be concurrent with our next three lines commencing production and customer order fulfillment during Q3, with meaningful revenue generation by Q4 this year and a strong 2025 revenue exit run rate. Fourth, I'll speak to our view on 2026 revenue.

With an expected strong revenue run rate entering the year, we anticipate adding a number of new CapFormer lines on a regular cadence during 2026, which we believe will result in a range of revenue for the full year between $110 million and $140 million, separate from any potential licensing revenue. Fifth, we are updating guidance on expected profitability timing, due primarily to the delayed start Line 1's commercial production and the subsequent impact on timing for Lines 1 through 8. We now expect to achieve EBITDA positive results on a run rate basis by the end of 2026, updated from our first half of 2026 prior guidance. Now for a few highlights on our quarterly and full year results.

We ended the year with $103 million in cash, cash equivalents, and securities, and when compared to the balance at the end of 2023 of $158 million, the difference is $55 million, which is at the low end of our cash burn guidance range for 2024 of $55 million-$65 million. Origin's fourth quarter revenue was $9.2 million compared to $13.1 million in the prior year quarter. Annual 2024 revenue of $31.3 million was well within our guidance for the year of $25 million-$35 million. Also, as expected, these revenues are comprised of what we refer to as supply chain activation revenue. Turning now to our operating expenses for the fourth quarter, they were $16.2 million compared to $19.8 million in the prior year period, a decrease of $3.6 million.

This decrease consisted primarily of $2.7 million in lower research and development expenses and $1.3 million lower general and administrative expenses. For the full year 2024, operating expenses were $85.3 million compared to $60.1 million in the prior year period, an increase of $25.2 million. A significant component of this increase is the $15.2 million non-cash impairment charge of asset expense recognized in the third quarter of 2024, along with $7.4 million higher depreciation expense primarily associated with Origin One. With that, I'll pass this back to John for concluding remarks.

John Bissell (Co-Founder and CEO)

Thanks, Matt. I want to take a moment to emphasize that Origin's intellectual property portfolio is substantial, growing, and increasingly valuable in our view, deepening Origin's technology advantage. Our portfolio now comprises over 70 issued patents, as well as dozens of pending applications. In January 2025, five applications published covering single and double walled closures, knurled and threaded closures, and methods of making our closures via thermoforming. Origin's IP lets us make a new, lighter, better performing cap than our competitors can make. Using a proprietary CapForming method, our competitors can't duplicate. In short, we believe we have created a defensible moat for this business. In the near future, millions of our caps will be in consumers' hands. Although we do not sell directly to consumers, we recognize the importance of the consumer experience to our success.

From the tactile experience of twisting the cap and breaking the seal, to the sound of the seal breaking, to the hand feel of the cap itself, to the visual and physical design possibilities available to us with our technology, it all leads to that critical first use experience and the visceral response that determines if someone likes the experience or not. We're happy to report that we've seen a lot of smiles so far. It really is a very satisfying experience. We've been encouraged by the consumer feedback we've received thus far and are looking forward to all of you and millions of others getting to have your first experience with Origin PET caps in the near future. Finally, I want to reiterate that we are building a product, but more importantly, we are building a platform.

I'm proud of the work we're doing, and at the same time, I think it's important to have our team, including our investors, look up from where we are now and stay oriented on where we're going. Success for Origin is not making a billion caps. It is not launching one CapFormer line or even eight CapFormer lines. Success for us is building a platform that can grow smoothly and scalably to accommodate hundreds of caps lines over time, one that is capable of converting a significant share of the $65 billion cap and closures market to PET caps in the coming years. We're just getting started. With that, I'll open up the call for questions. Operator, may we have the first question, please?

Operator (participant)

The first question comes from Frank Mitsch with Fermium Research. Please go ahead.

Frank Mitsch (Analyst)

Thank you, and I appreciate the color, John and Matt. I want to dig into the timeline a little bit more and the qualification process, etc. You have gotten commercial volumes out Line 1 three weeks ago, and right now you are producing that, and it is going out to testing to multiple customers. I am assuming that, or educate me, that they are qualifying the product and in future would have no issues in sourcing from Lines 2, 3, and 4. Can you confirm that? Also, how long does the qualification process take? Any more specificity on the three lines that are currently in production right now that you have not taken, that you have not been able to get up and running yet? Any additional color there would be very helpful.

John Bissell (Co-Founder and CEO)

Yep. Hey, Frank. Thanks for the question. A couple of things. First, yes, you're right. We've been producing millions of caps from our first CapForming line, and those are going to a couple of different areas. Qualification can be broken down into a couple of different categories. One is sending caps to customers for them to qualify the product in its entirety, let's call it. Using our caps at the appropriate rates on their capping and filling systems. One of the tricky things about this is that there's the performance of the cap on a given bottle, but there's also the performance of the cap in the capping line or the capping and filling line.

A big part of the performance of these caps is not just how do they perform on average or at best, it's how do they perform in their frequency of misfire or failure or something along those lines. You really need large sample sizes to do that kind of evaluation at the quality level that our customers care about. That's why, even though they've tested it on individual bottles, they've tested it on relatively tens of thousands and hundreds of thousands of caps on lines. It's a really large quantity of caps that's required to do a true qualification for the capping lines themselves. That's the kind of thing that's happening right now and that we're preparing samples for them to run.

There's a second kind of qualification, which is the qualification actually internally for our own next set of lines. Because, as you mentioned, we have lines two, three, and four in process. We take caps from our first line, and we actually use them to qualify the next sets of equipment also. Our view is that that's important because building capacity is sort of high leverage relative to everything else. Our caps, and again, we're talking tens, hundreds of thousands, and ultimately millions of caps to do those kinds of things. The first set of those caps coming off of Line 1 is going to those kinds of activities, both customer qualifications and for our own internal equipment qualification.

In terms of how long these qualifications take, the answer, and we spoke to this a little bit in terms of just the extent of variability in the caps market that we found, we see this, of course, with price, but we also see it with the, really frankly, the level of diligence that these customers will use during their qualification process. What we find is generally, the larger the volume of product that the customer is expecting to roll these caps out onto, as you'd expect, the more qualification work they do. Consequently, we see that with smaller customers, they can usually move quicker, their qualification is less intensive, and just takes less time. With larger customers, it tends to be a longer process.

We also mentioned there's the qualification, and then there's actually the inventory build that goes into supplying these larger customers as well, right? They don't want to be operating in a just-in-time kind of fashion with our first line. They want us to have a significant amount of inventory that's built to continue to supply them if we happen to have any supply chain hiccups that show up. We don't think that we'll have those, but I think it's prudent for organizations to have that kind of inventory built in their supply chain, no matter how you slice it.

Frank Mitsch (Analyst)

All right. That's very helpful in explaining some of the complexity. The one account that you have, it named, although you did name the size, it's a $100 million+ memorandum of understanding that I believe it was supposed to start in the first quarter of this year, and that contract was over a two-year period. The expectation was that you would be able to get to that $100 million over a two-year period starting now. Now, obviously, it looks like that's being delayed a little bit. Also, if your sales in 2026, the projection is basically this one customer itself, and I know that that's not going to be the case. Is there anything you can describe qualitatively or quantitatively with respect to that kind of baseline customer that you have out there that you've identified, everything except the name of the customer? Where do things stand with them?

Anything there would be helpful.

John Bissell (Co-Founder and CEO)

Yeah, sure. No, understood. As you said, we were a little bit slower getting this Line 1 up and running than we were originally expecting when we announced that MOU. As a consequence, we do expect that that is going to push the start date or the initiation date of the purchases made or described in that MOU by a sort of day-for-day or equivalent amount. We are a little bit slower getting that rolling, but we still expect it to be a two-year term, which is the way we described it originally. That would be backloaded into the second year.

When we put that agreement together, that was in mind of the or in light of the ramp rate that we're describing now, where we have eight CapFormers this year, and that obviously, as a consequence, the bulk of cap production or the run rate is going to be much higher at the end of this year than it will be at the beginning, right? We are escalating quite quickly into our production rate as those CapFormers come online. We see the production rate in 2026 being, obviously, quite a bit higher than the production rate in 2025. That is sort of reflected in the balance of that agreement. Of course, because it's a two-year contract that we're talking about, and it's being pushed by a little bit into 2025 for the start, we expect it to extend into 2027.

Some of that revenue that we would have expected there from that particular contract is going to extend into 2027. The guidance that we gave for 2026 is consistent with all the things that I just said. You can sort of trace that out and say, "Well, that contract is probably going to be a meaningful amount of our 2026 revenue," but we expect there to be quite a few other customers that are meaningful in that mix as well.

Frank Mitsch (Analyst)

Okay. Yeah, that's very helpful. Matt, in the presentation, you talked about wanting to maintain a minimum cash level, and kudos on hitting the low end of the cash burn for 2024. What is that minimum cash level? Any forecast on your cash burn rate for 2025?

Matt Plavan (CFO and COO)

Yeah, I just wanted to follow up real quick on the last answer that John gave, although I know it's probably obvious. I'd like to be explicit. When he said it's a two-year term, that's just the MOU itself. Our expectation is that that would be a contract that would persist or that relationship would persist for time over time. It's not, it's two years, and it somehow doesn't persist. Just wanted to clarify that. It's probably the obvious, but when he said the term, it's an initial two years. Just wanted to clarify that. From a cash burn standpoint, a minimum cash balance, we haven't disclosed what that would be, but we think it's we always think it's prudent to have at least a year to 18 months of run rate on your balance sheet.

Although we haven't given specific cash burn guidance, I think it's fair to say that when you look at the operating expenses for 2024, and we think of that in terms of cash in particular, so we would strip out any non-cash charges, material non-cash charges, which would be stock comp and depreciation and amortization, it was roughly $48 million in 2024. We don't expect that to change materially in 2025. We think we're going to keep that steady. The financing strategy is really utilize our existing capital and raise debt to cover the equipment that we're purchasing. Those two sources, we think, get us through the year with a healthy minimum cash balance and on our way into an exciting 2026.

Frank Mitsch (Analyst)

Okay. Very helpful. Thank you so much.

Matt Plavan (CFO and COO)

Sure.

Operator (participant)

The next question comes from Salvador Tiano with Bank of America. Please go ahead.

Salvator Tiano (Equity Research Analyst)

Yes, thank you very much. I understand now you're talking about the, I guess, free cash flow for around $50 million for this year. You still didn't provide, though, in the past few years, any revenue or EBITDA guidance for 2025, unless I missed it. Can you elaborate both on what that outlook would be and also why the change in your framework?

Matt Plavan (CFO and COO)

Sure. You're right. We haven't been specific about 2025. I think we've kind of given as much as we're comfortable giving, which is that it will be revenue beginning, really materially beginning in Q3 and then ramping in Q4 in accordance with the builds of the CapFormers. As John mentioned in his comments with regard to the timing of bringing on customers and the volumes in between those different customers and the timing of those is significant variability. We think it's prudent to try and give you a specific number for revenue at this point for 2025. What we thought was more important is to give you our confidence in the exit rate being substantial and significant off of these eight lines and that we felt more comfortable sizing 2026's revenue than 2025.

The fact that we also expect to reach run rate profitability in 2026, we felt that was the best guidance to give the street right now based on our visibility. Again, all the moving parts in Q3 and Q4 are such that we're not comfortable we can give you a number that would be meaningful.

Salvator Tiano (Equity Research Analyst)

Okay. Perfect. I also want to ask a little bit about the issues Line 1. can you first elaborate a little bit on what happened there? Secondly, why is it pushing, I guess, if we think that the prior break-even EBITDA or positive EBITDA was expected in the first half of 2026 and now end of that year, it implies a minimum of four to six months delay, if not more. Why would the delay in what seems to be the smallest line you're adding cause such a big pushback in your break-even EBITDA?

John Bissell (Co-Founder and CEO)

Yeah. I think, Salvator, I missed actually the first part of your question. I think you broke up a little bit. What was your question on Line 1?

Salvator Tiano (Equity Research Analyst)

Oh, what are the issues that you mentioned? If you can elaborate a little bit on that.

John Bissell (Co-Founder and CEO)

What? I'm still missing the second word. Sorry.

Salvator Tiano (Equity Research Analyst)

Sorry. I believe there are some issues Line 1 that was mentioned.

John Bissell (Co-Founder and CEO)

Oh, issues.

Salvator Tiano (Equity Research Analyst)

Essentially, what are the issues? Yes. And ultimately, why is it pushing back your timeline for EBITDA break-even by at least four to six months?

John Bissell (Co-Founder and CEO)

Yeah. Got it. Okay. Line 1, and I think we described this a little bit in some of our social media posts, when we were giving sort of regular updates on the progress Line 1, one of the things that we saw was customers in Q4 really came back to us and said, "Look, we understand why you think that the user experience associated with the cap doesn't require knurling." Our customers really believed that it was necessary for some of the manufacturing components that I described, the filling and capping lines, really needed those knurls to be able to perform well. We went back and added the knurling feature Line 1, when really, when we were planning all this out originally, we didn't expect to. We expected to always add knurls, but it wouldn't be with the first line.

That was really what gave us a bit of a delay there. The broader philosophy behind that is, of course, we want to bring all of the beneficial features that we can to our caps, but we're also trying to go quickly. The game is to make sure that we bring all the necessary features at every stage and then give ourselves time to introduce the more performant features as we make our way through the process of building this business. We took our customer feedback, went back, introduced knurling. That gave us a little bit of a delay there Line 1. we are seeing that delay, not day for day, but propagate through a lot of the work we're doing, not just because of knurling, but because, as I described, there's qualification work that has to happen with these lines.

Getting that knurling on and Line 1 delayed some of that qualification work. It just has a variety of sort of impacts as you look across the propagation of the business or of our manufacturing capacity. I'd also say we really aren't saying there's a six-month delay. What we're saying is it's difficult more than a year out to forecast the exact point where we think that we're going to cross over into an EBITDA positive run rate. We were saying first half, we're now saying it's sometime in 2026, as you suspect. That's because we think there's a little bit of fuzziness there, and we would rather sort of be transparent about that fuzziness now. We are not looking back and saying that we expected it to be a full six months. There's high uncertainty when you're this far out.

Salvator Tiano (Equity Research Analyst)

Okay. The last thing I want to understand a little bit is I hadn't realized, these lines you start with PET sheets that you get from, I guess, other suppliers rather than just buying, I guess, the pellets and extruding the PET yourselves, right? If I understood correctly. I guess what drove that decision and what allows you to have this strong economics? I don't know if it's 40%-50% gross margin that you're talking about, even though you are not essentially you're leaving one step of the manufacturing process, the extrusion, to an external party, which should be technically get compensated for that. How do you achieve this margin and why did you make this decision?

John Bissell (Co-Founder and CEO)

Yeah. I think there are two places where you need to sort of two time regimes that we need to talk about here. The first is near term, which is it takes some time to get extruders. Extruders are longer lead time than thermal formers and all the other equipment or CapForming systems. As a consequence, even if you have extruders on order, if you're waiting for the extruders to operate those CapForming lines, then there's a mismatch. We don't think that mismatch is worthwhile to wait for. We want to get our CapForming lines landed. We want to start making caps and generating revenue, making money off those CapForming lines. We will introduce extruders to vertically integrate those lines over time. That's one in terms of timing.

You described correctly that there's margin available, increased margin available by operating our own extruders. That's true. Our margin is not entirely dependent upon operating those extruders. We can make margin without them. We think it's worthwhile to start doing that. You quoted a particular margin profile. I think what we said was mid-double-digit percentages. Our expectation on that, I should say, is not immediate right from the very first CapFormers. That is the way that we expect the business to evolve over, say, the next couple of years. We also think that's going to be a mix of different types of CapFormats. It's not all just on any given CapFormat that we have the same margins.

I think just be cautious about applying that to any given CapFormer or CapFormat, but we do think that's going to be something in the mid-double-digit percentages is the margin profile that we expect for the caps business overall.

Salvator Tiano (Equity Research Analyst)

Okay. Perfect. Thank you very much.

John Bissell (Co-Founder and CEO)

Yep.

Operator (participant)

That's all the questions we have from the phone line. Now I'll turn it over to Ryan Smith for a Q&A section answering Ask Origin questions submitted by investors prior to today's call. Please go ahead.

Ryan Smith (Co-Founder and Chief Product Officer)

Thank you, operator. Prior to our earnings call, we invited all investors to submit questions as part of our Ask Origin campaign. Thank you so much to everyone who participated. You asked some great questions. These questions were, of course, submitted before our call today, and we answered many of them thoroughly with our prepared remarks and our analyst Q&A. We will generally be answering the most relevant questions today during the time that we have. Let's start with our first question for you, John. It's about market conditions. Because of current events and market conditions that were previously unforeseen, how do you feel your stock price compares today with what your recent past expectations were? Do you believe you have a viable strategy to navigate these current issues to mitigate their impact?

John Bissell (Co-Founder and CEO)

Yeah. Look, we definitely see the macro environment right now as one that we did not explicitly anticipate when we embarked on this business, but it's one that we believe that we can navigate. It requires us to do things differently, and we're adjusting our plans as a result of this. It's obvious that we're constructing a significant amount of our equipment in Europe. Our customers are global. We expect to manufacture in the U.S. There are things that we can do to adjust if the trade conditions change, but that has an effect, right? That particular configuration is affected or appears as though it will be affected by what's going on. That said, we think that the fundamentals of the business are effectively unchanged by the macro conditions. We think that we're significantly undervalued right now. We think that we have been.

We think that this technology has a lot of running room and is one that brings a lot of value to consumers and to our direct customers, the major brands. We think that there's nothing stopping us from executing on that. We are excited about it.

Ryan Smith (Co-Founder and Chief Product Officer)

Great. Now, the next question is similar to the question Frank asked, but slightly different, which is about sales pipeline. It asks, can you map out what the sales pipeline looks like from initial customer interaction to the signing of a definitive agreement?

John Bissell (Co-Founder and CEO)

Yeah. So really, there are a couple of different phases, just to break it up simply. The first is there's customer interest, and often that involves handling samples that are the appropriate format or demonstrative format for what they're interested in. They take a look at that. They look at it internally. They look at the specs of that product to see if it's going to match what they're looking for. At that point, if they say yes, then we move to the next phase, which is this qualification phase that we've been describing. We think that that qualification phase, as I described to Frank, can change quite a bit depending on the customer and actually depending on the specific application as well. Not all bottles are created equal in terms of what they require from the cap, and not all products are created equal.

We move our way through that qualification process with the appropriate volumes and support. We often get feedback as part of that qualification process as well, which is great. That is how we get better, by getting feedback from our customers and then also obviously assessing things ourselves internally. That qualification process is the bulk of this. The interest process is pretty quick. The qualification process tends to be longer. Even when it is on the shorter end of the qualification types, it is still longer than the other two phases. The third is moving into a definitive agreement of some sort. We are very explicit as we go through that process, exactly what the numbers and pricing and volumes and ramp-up would be to deliver the product.

That's work that happens far before we sign a definitive agreement and, in fact, before we go into most of the qualification work. That's sort of the way it breaks down: three phases: interest, qualification, and then signing of a definitive agreement of some sort.

Ryan Smith (Co-Founder and Chief Product Officer)

Great. All right. Next question, given the demand that you've mentioned, this is a question about customers and customer selection. The question is, how do you prioritize customers? What goes into that?

John Bissell (Co-Founder and CEO)

Yeah. I think in our prepared remarks, we talked about a couple of different things, but there are a lot of differences between the customer types. That leads to, we sometimes tongue-in-cheek say, it's sort of an artisanal balance or slate of customers that we want at this stage. We're balancing things like the volume that the customer demands, the margin that we expect to get off of that particular cap, their deployment flexibility. Some are more flexible than others. The technical expertise of the customer or partner, because that can provide us with different kinds of information about what we can do better and how we can improve our product and our process as well. The credibility, of course, of the customers and partners, because the more credible they are, that allows us to continue to access even larger parts of the market.

Finally, in a more strategic sense, what are the things that they can do to help us grow Origin and grow this platform and this technology? We are looking at all of those things. I do not think there is an algorithmic ranking for if they score this, this, this, and this in all those different categories, that means they are going to go to the top of the list. Balancing it is really a key part of what we are doing here.

Ryan Smith (Co-Founder and Chief Product Officer)

Great. The next question, an investor asks, consumers are used to color caps with printed labels. How are you thinking about tinting, embossing? How does that affect recycling? Can the cap be recycled with the bottle?

John Bissell (Co-Founder and CEO)

Yeah. First, I think the overwhelming response we've gotten is that customers are excited about a clear cap. Having a clear cap or a clear part of packaging is something that obviously the market wants. If you look at the sort of arc of packaging history, obviously performance matters, but all else being equal, consumers like to buy products in clear packaging. They want to look at the product. They do not want to look at the packaging for the most part. We see this as sort of another step in that direction of the packaging arc of history, towards another component, a meaningful component of the product, packaging being clear and transparent. You can see the product as the showcase instead of the package as the showcase.

That said, there are some really good ways that look great because I've seen the mockups to color and emboss our caps to have some great, highly differentiated looks to them. A particular brand or product can really differentiate themselves with the way that our cap looks on that product. What's important to us, though, even as we look at those kinds of differentiated appearances, is that the cap can still be recycled. If we're dyeing the PET with a material or with something that can't come out or that stays colored, then that's going to restrict the ability to recycle that as effectively. It's mission-critical to us that our caps are recyclable in the existing recycling stream. In fact, what we're trying to do is increase the value of the recycling stream, not decrease it.

We have some really, really good ways to introduce color, impart color and patterns onto the caps that look great, that do not impact the recycling stream on the other side of the use of the product. We are excited about that. We have answers. We do not think we need them yet. We also think that the clear cap just looks great. That is what everybody tells us. We are listening to that.

Ryan Smith (Co-Founder and Chief Product Officer)

Great. Next question. If your manufacturing process enables cost advantages as cap size increases, why did you start with the bottle caps as opposed to working down from larger formats?

John Bissell (Co-Founder and CEO)

The short version is that our customers asked for it. We saw from the beginning a really strong demand for the 1881 format. There are a whole bunch of reasons for it. 1881, it's a huge market. Our customers wanted it. We think that our solution is a really good solution for 1881 as well. We think that's a great spot to be. There are other benefits that come with the large format caps. We want to access those as well. Because of the flexibility of the technology that we've developed, the platform we've developed, we think we can go after both without there being much sacrifice between the two.

Ryan Smith (Co-Founder and Chief Product Officer)

Great. Next question. What is the main bottleneck or constraint bringing CapFormer lines online?

John Bissell (Co-Founder and CEO)

Yeah. For 2025, that's mostly set. Everything's in process. It's moving. Our suppliers are spun up. They're targeting a certain number of machines. Our team is geared to deliver those machines on the ground and then start operating them. Really, as we look at bottlenecks, we're talking more about 2026. As we look at 2026, the key really is balancing our cost of capital with the rate at which we deploy capforming lines. Our suppliers for these capforming lines have the ability to deliver more machines. Our customers want more caps. Our view is that we're going to continue to de-risk the technology, make it clear that this works the way that we say it works, that customers want the product, that the margins are acceptable for financing. That will enable us to access cheaper capital. We can use that capital to grow faster.

We're excited to do that. Given macro market conditions and the nature of this kind of business development, we don't know exactly when that inflection point's going to get reached. We're going to have to see. We believe it's in 2025. We think it's soon. We don't know exactly when it's going to be. We view 2026 CapFormer deployment as mostly capital-limited. As we can remove that constraint or reduce that constraint, we expect that we're going to be able to deploy more CapFormers.

Ryan Smith (Co-Founder and Chief Product Officer)

Great. Can you speak a little bit about CapFormer 1's performance and then also talk about improving performance in future CapFormers?

John Bissell (Co-Founder and CEO)

Yeah. CapFormer 1 has been doing a great job. We, frankly, were really impressed with how well the system performed right out of the box. There were minimal adjustments that needed to be made to sort of tune it or bring it back into spec with what we did during the FAT. We think that our suppliers just did a fantastic job, not only from the packing a complex piece of equipment like this, but also sending their teams to work with us to bring them back online. Just really, really impressive overall. We are excited with the way that we are able to iterate on that machine at Reed City. Some of the technology improvements that we have described, those are coming from very specific modifications that we want to keep making and introducing over time on our existing lines and then also on future lines.

At Reed City, what's wonderful is that we have the ability to machine things and make modifications almost in real time as we do this. We have really focused on the ability to make those changes quickly. We're seeing great performance off of the line so far. We're excited to really drive continuous improvement across Line 1, but then all of our future lines as well.

Ryan Smith (Co-Founder and Chief Product Officer)

Great. All right. Now, this next question is going to be one for Matt. Matt, you talked a little bit about cash burn in the Q&A, but this question is, what is your financing plan for 2025 and 2026, given the need to ramp manufacturing lines in that timeframe?

Matt Plavan (CFO and COO)

Yeah. Thanks, Ryan. This might be a little bit repetitive as I think about this response in terms of what Frank asked, but I think it's good. I appreciate the simplicity of this question because it allows me to dial the lens back and answer with kind of a macro view of our financing strategy, which really is pretty simple and straightforward. In addition to utilizing the existing capital on our balance sheet, we're securing equipment-based debt financing, as outlined on the call, a portion of which we've already secured, and the rest we continue to curate amongst a number of other lenders.

With those two sources of cash, we have what we need to both fund our operations and build out the eight CapFormer lines, which we expect to propel us into 2026 with, as we said, significant revenue, margin, and cash from operations on a run rate basis before the end of the year.

Ryan Smith (Co-Founder and Chief Product Officer)

Great. All right. For this last question, I'm going to throw it back to John and just ask, what do we have to get excited about as we look to the future?

John Bissell (Co-Founder and CEO)

Yeah. Look, I think the exciting things are the underlying business fundamentals. We've got incredibly strong demand. We're looking forward to building capacity over the course of 2025, at which point we're going to have really quite meaningful production capacity by the end of the year, and then rolling into 2026 and continue to expand that. We've got three CapFormers in process that are going to land in Q2 or Factory Acceptance Test in Q2. We're shipping caps to customers. We're expecting caps on shelves, well, on products on shelves soon. We're excited to share some customer names in the weeks and months ahead. We're stoked.

Ryan Smith (Co-Founder and Chief Product Officer)

That's great. Thank you, John. Thank you to everyone who joined and everyone who sent in questions. We look forward to our next update. This concludes our call for today.