Danimer Scientific, Inc. (DNMR) is a performance polymer company that has established itself as a leader in the bioplastics market. The company specializes in developing and producing biodegradable bioplastic materials to replace traditional petroleum-based plastics, addressing the growing global concern over plastic waste.
Business Overview
Danimer's core product is its proprietary Nodax brand of polyhydroxyalkanoate (PHA), a biodegradable polymer that can be used in a wide range of plastic applications, including straws, food containers, and cutlery. The company's manufacturing process involves a fermentation process where bacteria consume vegetable oil and produce PHA within their cell walls. Danimer then harvests, purifies, and formulates the PHA into pellets that can be used as a drop-in replacement for petroleum-based plastics.In addition to PHA-based resins, Danimer also produces proprietary plastics using polylactic acid (PLA) as a base resin. The company formulates the PLA into bioplastic resins that allow companies to use renewable and compostable plastics to meet their sustainability goals.
Danimer's business model extends beyond product sales, as the company also provides research and development (R&D) services and toll manufacturing for customers. The R&D services involve developing custom biopolymer formulations for specific applications, which can lead to future supply agreements. The toll manufacturing services allow customers to leverage Danimer's unique extruder or reactor setup for new or scale-up production.
Financials
Danimer's financial performance has been impacted by the ongoing challenges in the global economy, including the COVID-19 pandemic, supply chain disruptions, and the conflict in Ukraine. For the fiscal year ended December 31, 2023, the company reported annual revenue of $46.7 million, a decrease from the previous year. Net income for the year was a loss of $155.5 million, and the company generated negative operating cash flow of $47.3 million and negative free cash flow of $74.9 million.In the first quarter of 2024, Danimer reported revenue of $10.2 million, a 14% decrease compared to the same period in the prior year. The decline was primarily due to a 71% decrease in PLA-based resin sales, which was partially offset by a 64% increase in PHA-based resin sales. The company's gross profit margin for the quarter was -61.7%, compared to -52.7% in the prior year quarter.
Liquidity
As of March 31, 2024, Danimer had $57.3 million in unrestricted cash and cash equivalents, as well as $14.2 million in restricted cash. The company's total debt balance stood at $385 million, primarily consisting of convertible senior notes, a senior secured term loan, and new market tax credit loans.To strengthen its liquidity position, Danimer recently completed two financing transactions. The first was an equity offering that generated approximately $13.5 million in additional cash, and the second was the establishment of a $20 million revolving asset-based credit agreement, with an option to expand the facility by an additional $5 million. These new sources of liquidity provide the company with greater flexibility to operate its business and maintain an adequate cash runway to reach full capacity utilization at its Kentucky facility.
Recent Developments
During the first quarter of 2024, Danimer made significant progress in its commercialization efforts and R&D trials. The company completed its first commercial shipment of compostable single-use coffee pod capsule resin to Delta Cafes, and it continues to advance the commercialization process of compostable cups using its PHA resins.Danimer also announced an exciting joint development agreement with a large quick-service restaurant (QSR) chain for the development of lids and coated paper containers using its PHA-based resins. Additionally, the company received a straw resin order from a new customer in Asia and is making progress in its collaboration with EGO Fishing, an innovation leader in the sports fishing industry, to commercialize PHA-based soft plastic technology for fish baits.
However, the company did experience a temporary setback in the first quarter, as one of its end customers, Starbucks, awarded a portion of its Nodax-based straw business to a competitor, WinCup. This resulted in a negative impact of approximately $0.5 million on Danimer's first-quarter sales, and the company currently anticipates an additional $2 million impact on second-quarter sales as the inventory adjustments continue. Danimer expects this business to rebound to previous levels before the end of the year.
Outlook
Regarding the company's guidance, Danimer expects its 2024 adjusted EBITDA loss to be at the lower end of its previously provided range of $22 million to $32 million, primarily due to the impact of the Starbucks straw resin inventory issue. The company's capital expenditure guidance remains unchanged, with an expected range of $8 million to $10 million for the year. Additionally, Danimer now expects its year-end liquidity, comprising unrestricted cash and availability under its revolving credit facility, to be in the range of $25 million to $30 million.Risks and Challenges
Danimer faces several risks and challenges in its pursuit of growth and profitability. The company's long-term success is heavily dependent on the successful commercialization of its PHA-based resin products, which is subject to market acceptance and adoption by customers. Additionally, the company's ability to bring additional production capacity online, such as its Greenfield Facility in Bainbridge, Georgia, is contingent on securing additional financing.The company also faces competition from other bioplastics and traditional petroleum-based plastic manufacturers, as well as potential regulatory changes that could impact the demand for its products. Danimer's financial performance has been affected by the ongoing global economic conditions, including the COVID-19 pandemic, supply chain disruptions, and the conflict in Ukraine, which have resulted in decreased demand and increased costs.