Business Overview and History
Danimer Scientific, Inc. (NYSE: DNMR) is a leading next-generation bioplastics company focused on the development and production of biodegradable materials. The company’s mission is to create innovative solutions that address the global plastic waste crisis by providing sustainable alternatives to traditional petroleum-based plastics.
Danimer Scientific’s roots trace back to 2004 when it began producing proprietary plastics using polylactic acid (PLA) as a base resin. The company’s journey took a significant turn in December 2020 when it merged with Live Oak Acquisition Corp., a special purpose acquisition company formed in 2019. This business combination was structured as a reverse recapitalization, with Meredian Holdings Group, Inc. (MHG), also known as Legacy Danimer, becoming a wholly-owned subsidiary of Live Oak. Following this transaction, Live Oak changed its name to Danimer Scientific, Inc.
In 2018, Legacy Danimer made a strategic move by acquiring a fermentation facility in Winchester, Kentucky, which was dedicated to the commercial-scale production of its Nodax polyhydroxyalkanoate (PHA) bioplastic. The company subsequently embarked on a two-phase expansion of this facility, completing it in 2022 and increasing the total capacity to 65 million pounds of Nodax-based finished product per year.
Danimer further expanded its technological capabilities and product portfolio in August 2021 through the acquisition of Novomer, Inc., which was integrated into the business as Danimer Catalytic Technologies. However, in July 2024, the company made the decision to temporarily suspend its Danimer Catalytic Technologies business as part of its capital conservation efforts.
Throughout its history, Danimer has faced various financial challenges, particularly in managing its debt levels and maintaining sufficient liquidity. The company has implemented cost reduction initiatives, including headcount rationalization, to address these issues. Additionally, Danimer has explored mechanisms to reduce debt and provide additional liquidity, though the outcomes of these efforts remain uncertain.
Financial Performance and Challenges
Danimer’s financial performance has been marked by significant losses and negative cash flows in recent years. For the full year 2023, the company reported revenue of $46.68 million, a net loss of $155.5 million, and negative operating cash flow of $47.3 million. Free cash flow for 2023 was -$74.95 million. This trend continued in the first nine months of 2024, with a net loss of $71.8 million and negative operating cash flow of $46.5 million.
In the most recent quarter (Q3 2024), Danimer reported revenue of $8.63 million, a net loss of $21.84 million, operating cash flow of -$14.50 million, and free cash flow of -$18.22 million. Revenue decreased by 21% year-over-year, primarily driven by a 22% decrease in PHA-based resin sales due to Starbucks reallocating some of its straw resin business between Danimer’s converting partners. PLA-based product sales also decreased compared to the prior year quarter.
The company’s substantial leverage has also been a major concern, with total debt of $387.9 million as of September 30, 2024. Danimer’s most significant borrowing facilities include $231.9 million in outstanding 3.25% Convertible Senior Notes due 2026 and a $130 million Senior Secured Term Loan. The company also entered into a $20 million revolving credit facility in 2024 to provide additional liquidity.
Liquidity
Danimer’s liquidity position has been a significant focus, as the company’s unrestricted cash and cash equivalents stood at $22.2 million as of September 30, 2024, with $4.8 million in availability under the revolving credit facility. The debt-to-equity ratio was 1.83, while the current ratio was 3.28 and the quick ratio was 2.05 as of September 30, 2024.
The company has implemented various cost-saving measures, including reductions in discretionary spending, labor cost rationalization, and the temporary suspension of its Danimer Catalytic Technologies business. However, Danimer has acknowledged that its existing liquidity may not be sufficient to sustain operations for the next 12 months, raising substantial doubt about its ability to continue as a going concern.
Commercial Developments and Partnerships
Despite the financial challenges, Danimer has made progress on the commercial front. The company continues to supply PHA-based resins to major customers, including a significant cutlery award from a large global quick-service restaurant (QSR) chain. This award is expected to reach full run rate of 20 million pounds of resin for cutlery and 3 million pounds of resin for cutlery wrappers annually by mid-2025.
Danimer has also expanded its partnerships, including a growing relationship with Delta Cafes for compostable single-use coffee pod capsules and a collaboration with Mars Wrigley to produce a 100% compostable Skittles® bag using Nodax PHA-based resin.
Product Segments and Performance
Danimer operates in two primary product segments: PHA-Based Resins and PLA-Based Resins.
PHA-Based Resins: Sold under the proprietary Nodax brand name, these bioplastic materials are designed to be fully biodegradable and serve as replacements for a wide variety of plastic applications. During the nine months ended September 30, 2024, PHA-based product sales were $20.70 million, representing 82% of the company’s total product revenue. This reflects a 5.4% decrease compared to the prior year period, primarily due to a 9.9% decline in sales price that was partially offset by a 5.0% increase in sales volumes.
PLA-Based Resins: Danimer produces proprietary plastics using polylactic acid (PLA) as a base resin, which are formulated into bioplastic resins through a proprietary reactive extrusion process. PLA-based product sales were $4.40 million during the first nine months of 2024, a decrease of 62.4% compared to the prior year period. This decline was due to decreased demand from certain PLA customers, and the PLA business is expected to represent a smaller portion of Danimer’s overall product revenue going forward.
Service Revenue: Danimer also generates revenue from research and development (R&D) contracts and tolling services. Service revenue was $1.31 million for the first nine months of 2024, a decrease of 35.1% compared to the prior year period.
Regulatory and Industry Tailwinds
The bioplastics industry has gained increasing attention and support due to growing concerns over the environmental impact of traditional plastics. Several regions, including the European Union, have implemented or are in the process of implementing regulations that mandate the use of compostable and biodegradable materials for certain single-use items. This regulatory landscape provides tailwinds for Danimer’s products, as its PHA-based solutions align with these sustainability initiatives.
Risks and Outlook
Danimer’s financial challenges, including its substantial leverage and liquidity constraints, pose significant risks to the company’s long-term viability. The company’s ability to secure additional financing or successfully restructure its debt obligations will be critical in determining its path forward. Furthermore, the company’s reliance on a limited number of large customers and the competitive nature of the bioplastics industry present ongoing operational risks.
Despite these challenges, Danimer’s innovative technology, partnerships with major brands, and the growing regulatory support for sustainable materials provide reasons for cautious optimism. However, the company’s near-term outlook remains uncertain, and investors should carefully consider the risks and uncertainties associated with an investment in Danimer Scientific.
Guidance and Future Expectations
For the fourth quarter of 2024, Danimer expects adjusted EBITDA to be between -$7 million and -$7.5 million. For the full year 2024, the company expects total adjusted EBITDA to be in the range of -$34.4 million to -$34.9 million, which is within the previously provided guidance range of -$30 million to -$35 million.
Regarding capital expenditures, Danimer now expects CapEx for the full year 2024 to be between $8 million to $9 million, which is within the previously provided guidance range of $8 million to $10 million.
The company is not providing a year-end 2024 liquidity outlook at this time, as it continues to analyze various transactions and mechanisms to reduce debt and provide additional liquidity. The success of these efforts will be crucial in addressing Danimer’s ongoing financial challenges and ensuring its ability to continue operations in the long term.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.