Origin Materials Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 9 speakers on the call.

Operator

Welcome to the Origin Materials First Quarter 2023 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 I would now like to turn the conference over to Ashish Gupta from Investor Relations, please go ahead.

Speaker 1

Thank you, and welcome, everyone, to Origin Materials' Q1 2023 earnings conference call. Joining the call today from Origin Materials are Co CEO, Rich Riley Co CEO and Co Founder, John Bissell and CFO, Nate Whaley. Ahead of this call, Origin has issued its Q1 press release and presentation, which we will refer to today. These can be found on the Investor Relations section of our website at originmaterials.com. Please note, on this call, we will be making forward looking statements based on current expectations and assumptions, which are subject to risks and uncertainties.

Speaker 1

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 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 ks filed on February 23, 2023, as amended on April 28, 2023. In addition, 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 a substitute for or in isolation from GAAP results. Will find additional disclosures regarding the non GAAP financial measures discussed on today's call and our press release issued this afternoon and our filings with the SEC, each of which is posted on our website.

Speaker 1

The webcast of this call will also be available on the Investor Relations section of our company website. With that, I'll turn the call over to Rich.

Speaker 2

Thank you, Ashish, and thanks to everyone joining us. Today, we'll be referring to the slides that were posted to the Investor Relations section of our website earlier this afternoon. I will start by reviewing Q1 highlights, then provide a commercial and regulatory update. I will then turn it over to John, who will discuss Origin 1, Origin 2 and Application Development. Nate will wrap up with the financial overview.

Speaker 2

We will begin on Slide 3. We continue to execute on our plan and make progress on our mission to enable the world's transition First, customer demand remains strong and broad based with off taking capacity reservations exceeding $9,300,000,000 As of February 2023, our commercial strategy has evolved from demand generation to revenue generation and the development of higher margin products. As such, we do not plan to provide quarterly updates to our total signed offtake agreements and capacity agreements going forward, but we'll provide updates as appropriate. Are also pleased to announce that we are reporting our 1st revenue this quarter generated by joint development agreements and our supply chain activation program. Our supply chain after commission program is the set of activities we engage in to develop our commercial and logistical capabilities for delivering product to establish relationships with vendors and customers across the supply chain.

Speaker 2

2nd, as announced in January, OriginOne is mechanically complete and commissioning is underway with the completion of plant commissioning and start up expected in Q2 2023. 3rd, we continue to make progress on the front end design, construction planning and financing of Origin II. We continue to expect that Origin II can be fully funded from a combination of cash on hand, previously indicated traditional project financing and potential strategic partnerships. We plan to provide an update on new product offerings and construction plans for the Origin planned in August 2023 during our Q2 earnings call. And finally, we are maintaining 2023 guidance for revenue of $40,000,000 to $60,000,000 and adjusted EBITDA loss of $50,000,000 to $60,000,000 We continue to see strong favorable tailwinds for our technology and business model.

Speaker 2

Turning to Slide 5, the Inflation Reduction Act or IRA is expected to provide approximately $369,000,000,000 in direct investment related to Climate Solutions. Origin is actively exploring several IRA funded programs, including the Department of Energy's Advanced Industrial Facilities Deployment Program or AIFD, which we expect to hear results from by the end of the year and the Section 48C Advanced Manufacturing Tax Credit. We remain optimistic that these programs could provide meaningful support the construction of Origin's plants. Finally, in March, the Biden administration released a report titled Bold Goals for U. S.

Speaker 2

Biotechnology and Biomanufacturing. The report stated objectives include both climate and supply chain related directives that we believe could create positive momentum for Origin in securing additional funding and deploying our platform. Turning to Slide 7. In early May, we were thrilled to announce a strategic partnership with Indorama Ventures Public Company Limited. Those not familiar with Indorama, they are one of the world's leading petrochemicals producers and the world's largest producer of virgin and recycled PET resins With about 26,000 employees worldwide and close to $19,000,000,000 in 2022 sales.

Speaker 2

This is a highly strategic relationship for Origin as Zindorama Ventures has made Meaningful pledges related to sustainability as part of its Vision 2,030 plan, including commitments to invest $8,000,000,000 in recycled and bio based plastics in pursuit of its goal of increasing the use of Circular for bio renewable feedstocks. Origin's technology could enable Indorama to enhance the value of its existing global petrochemical As part of the strategic partnership, we have signed a memorandum of understanding to explore initiatives related to the rapid commercialization of low carbon bio based materials. The initiatives include evaluating the use of existing Indorama units in the USA with some modification to commercially produced bio based materials. Under this arrangement, Indorama would convert derivatives of Origin's platform chemical, CMF, into various sustainable chemicals and bio based plastics. Under the MOU, Endorama and Origin will also study the potential to use production samples of bio based materials in limited volume product launches in partnership with High Profile Brands.

Speaker 2

The materials are anticipated to be used in packaging, textiles, films and automotive applications And could include Bio PET, Bio PTA, the advanced bio based chemical, FDCA and co polyesters that have an advantage over traditional PET plastic. Turning to Slide 8. In mid April, we were excited to announce a strategic partnership with SCGP, a leading multinational consumer packaging solutions provider to explore licensing Origin Technology for use in an Asia based manufacturing facility. The strategic partnership includes a joint development agreement between Origin and CGP, whereby we aim to develop sustainable carbon negative products from eucalyptus feedstocks provided by SCGP for applications in food packaging, logistics, Automotive and Construction. As part of the JDA work, we have successfully processed and tested SEGP's eucalyptus feedstock at our West Sacramento, California pilot facility, Confirming similar yields to other sustainable wood residues that we have evaluated.

Speaker 2

As a feedstock, eucalyptus offers several benefits, including rapid growth, Adaptability to the diverse environments and other properties useful for industry. Turning to Slide 9. In late March, we were pleased to announce a strategic partnership with TSUNG Advanced Materials Corporation, a Korea based industrial materials company, to industrialize sustainable high value specialty materials for use in a wide range of end markets and applications, including batteries, automotive and apparel. As part of the partnership, ESM signed a multiyear capacity reservation agreement to purchase sustainable carbon negative materials from Origin, Including PET and a hybrid polymer, PETF, which is a blend of PET and FDCA for use in paracord applications As well as HTC for use in battery materials and Puranic Derivatives for use in spandex applications in the apparel industry. Turning to Slide 10.

Speaker 2

In mid April, Origin and the Green Chemistry division of the Minifin Group, a global fine chemical company, Announced a new commercial arrangement whereby Minifin will become Origin's manufacturing partner for the downstream supply chain of OriginOne. The initiative, which expands upon our previously announced strategic partnership with Minifin to industrialize sustainable chemicals, aims to further build on the strength Origin's patented technology platform and Minifin's manufacturing capability, process know how, supply chain strength and deep expertise in Puranic Specialty Products. As part of the manufacturing initiative, CMF produced by Origin at OriginOne will be delivered to Minifin, which will convert the CMF into Downstream Intermediates and Products. The initiative is expected to position the company's complementary technologies to grow the value of the biobased supply chain for high value chemicals and materials including biobased PET. In addition, this quarter we amended our existing agreement with PepsiCo.

Speaker 2

We have increased the flexibility of the agreement By expanding the slate of products that may be supplied as well as which plants may supply those products, with final volumes, product mix and plants to be mutually agreed upon. To wrap up our commercial update, our sales pipeline remains strong. We continue to expand the breadth of industries and end markets that we serve and identify opportunities to direct our intermediates towards higher margin products. Turning to Slide 11, in early April, we were thrilled to announce the appointments of Craig Rogerson and Tony Tripeny To the Origin Board of Directors, they bring a wealth of experience in operations, strategy, corporate finance and M and A to the company from leading world class chemicals and material science companies, which will prove to be a tremendous benefit as we begin commercial production. Craig Rogerson has 4 decades of executive experience leading private and publicly held Special Chemical Companies, having most recently served as Chairman and President and CEO of Hexion Inc, a leading global producer of adhesives and performance materials that enable the production of engineered wood products and other specialty materials.

Speaker 2

Prior to being acquired for $1,900,000,000 in 2022 by American Securities, Xcient had over $2,000,000,000 in annual sales. Previously, Craig served as Chairman, President and CEO of Kimchura Corporation, a global developer, manufacturer and marketer of engineered industrial specialty chemicals. Prior to being acquired for $2,500,000,000 in 2017, Violexis AG, Contura generated $1,700,000,000 in 2015 revenue. Tony and Company brings over 3 decades of significant operational strategy and M and A experience, Extensive knowledge of the manufacturing, technology, material science industries and a background in international corporate finance. He most recently served as Director at Mesa Laboratories, a global leader in the design and manufacturing of life science tools and critical quality control products and services, many of which are sold into niche markets driven by regulatory requirements.

Speaker 2

Previously, Tony had a 36 year career with Corning, A global leading innovator in material science with more than $10,000,000,000 in annual revenue. We have held various progressive leadership roles in corporate accounting and finance, including Chief Financial Officer. Craig and Tony will be outstanding additions to our Board of Directors, and we are thrilled to welcome them. We would also like to thank Vinod Dorer, who resigned from the Origin Board on May 8 and who was recently appointed CEO of VF Corp for his contributions during his tenure with Origin. With that, I would like to turn it over to John, who will discuss OriginOne, Origin2 and product development.

Speaker 3

Thanks, Rich. I'll begin on Slide 12 with an update for OriginOne. OriginOne, our first commercial manufacturing plant located in Sarnia, Ontario remains on track with Commissioning expected to complete and plant start up to take place in Q2 in line with prior guidance. As announced in January, Origin 1 is mechanically complete and commissioning is underway, with work on-site progressing favorably. During the Q1, we hired our Director of Manufacturing, who brings valuable experience to the team, including experience working at carbon black producers such as Cabot.

Speaker 3

Looking ahead, we're excited to start up the plant, begin commercial production, deliver product and samples to customers and take the next step in our journey to decarbonize the world's materials. OriginOne is 1st and foremost a strategic asset that we will use to qualify higher value applications for our intermediate CMF, HCC and oils and extractives. Apart from paraxylene and Bio PET, using product from Origin 1, we plan to explore or qualify FPCA, epoxies, resins, surfactants, sustainable carbon black, Bioasphalt and Biofuels. We expect to gradually ramp up Origin 1 operations aiming to optimally fulfill customer demand while we produce samples and qualify materials. We remain confident that we will be able to meet our production goals to support our revenue guidance.

Speaker 3

In product development, we continue to strengthen our IP position with additional patent filings in 5 new patent families, including for some very interesting potential intermediates, products and applications advances in FTCA related polymers that improve overall polymer performance, HTC and the use of HTC and rubbers among others. In March, We announced the achievement of a significant milestone in our Carbon Black program, validating the suitability of our HTC Drive Carbon Black for automotive tires and mechanical rubber goods. To understand how we achieved this milestone, I'd like to offer some additional background on HTC and what makes it so special and valuable to our customers. Starting with Slide 13, Origin's HTC or hydrothermal carbon is believed to be a unique material, not produced anywhere else in the world by any process other than Origins. HTC forms from the interaction of lignin and degraded CMS or chloromethorphyrrole and related compounds during the conversion of the biomass in our core process.

Speaker 3

Turning to Slide 14, a scanning electron micrograph, SEM image of Origins HTC is shown alongside an SEM image of carbon black made from petroleum. Origins HTC is morphologically quite similar to the carbon black from fossil based materials with primary particles clustered into grape like or aciniform aggregates with complex structure. Beyond the immediate morphological similarity, Origins HTC offers an enhanced ability to manipulate surface chemistry and morphology or the shape, size and connectivity of the particles. This tunability makes HTC a particularly versatile Material in addition to HTC offering sustainability and performance benefits for a given application. The value of this tunability is that it allows us to for applications like inks and paint pigments.

Speaker 3

HTC has two characteristics which can be readily tuned. First, we can control its surface chemistry. Origin's HTC starts out with a level of service functionality that fossil carbon black can obtain only with great difficulty and expense. Typically, Carbon black from petroleum starts out hydrophobic with few functional groups and expensive treatment is required to make it more hydrophilic to attain the desired performance. Furthermore, the treatment of fossil based carbon black has a limit and fossil based carbon black cannot practically attain the hydrophilicity that HCC naturally has.

Speaker 3

In contrast, by treating HTC, we can remove functional groups to vary the hydrophobic and hydrophilic behavior. 2nd, We can change the morphology of HTC. This is valuable for Carbon Black with the ability to meet different specifications and performance criteria determined in large part by particle size, shape Structure. We can affect both the micro morphology and macro morphology of the HTC clusters. Micro morphology by the process conditions in our overall reaction and macro morphology by post Putting it all together, the tunability of HTC gives us the ability to adjust surface chemistry and morphology, thus providing us with tremendous power over the materials performance.

Speaker 3

Having established this context, I'd like to tell you about our recent HTC milestone. Turning to Slide 15, we were excited to provide an update in March on our continued strong progress in carbon black development. Specifically, we produced a carbon black that when blended with fossil based carbon blacks performed better than existing fossil based carbon black, specifically N660, a widely used and technically demanding performance specification for automotive tires and mechanical rubber goods. The achievement validates the potential for our sustainable bio based low carbon carbon black to be used broadly in the large rapidly growing carbon black market. The N660 specification represents a gold standard, Origins product has achieved indicating the potential for widespread adoption of our harden black not only in N660 applications, but in less technically demanding specifications as well.

Speaker 3

We look forward to bringing a host of benefits to this application space. 1, our material is a sustainable replacement for fossil carbon black With up to 100 percent bio content and low carbon intensity. 2, our material shows no detectable levels of pilocyclic aromatic hydrocarbons or PAHs. 3, our material is expected to provide stable pricing largely decoupled from the petroleum supply chain, which is exposed to more volatility than supply chains based on sustainable wood residues. 4, we can expect our carbon black to be an attractive alternative to reclaimed Carbon Black, since it does not suffer the same performance limitations and as we have shown, can even exceed the performance of fossil based materials.

Speaker 3

5, we don't expect the production of Origins Carbon Black to be affected by the same regulatory limitations in the United States as fossil based carbon black. And 6th, finally, our studies have demonstrated that we can achieve superior dispersion and tan delta qualities, which offer performance advantages in tires related to durability and fuel economy. Now having made several carbon black blends that exceed the performance of N660, a highly technical We look forward to further increasing the proportion of our material in similar blends in the future, typical of carbon black development programs for tires and other applications. Turning to Slide 17. Our HTC team has done an incredible job getting us to this point.

Speaker 3

We have a spectacular group of scientists, engineers and commercial folks that specialize in carbon black and Carbon Products, everything from application development, process engineering, materials engineering, materials analysis and regulatory management are represented at the highest level in our And we are tremendously excited about this group of people and what they can accomplish. Regarding Origin 2, our second plant to be built in Geismar, Louisiana, We continue to advance for end design, construction planning and financing. We continue to make progress developing new products and applications, which may be incorporated into the design of Plants such as FDCA, which can be converted to BEF and carbon black in biofuels. We expect to provide an update on new product offerings and construction plans to the plant in August 2023. To summarize, I'm proud of how our team continues to execute against our Origin 1 and Origin 2 milestones.

Speaker 3

The approaching start up of Origin 1 is an Exciting milestone in our mission to enable the world's transition to sustainable materials. We continue to advance our product development and commercialization roadmap, Create valuable new strategic partnerships and deepen our existing relationships to carry out our shared vision of a more sustainable, better performing chemicals and materials industry. With that, I will turn it over to Nate to discuss some of the financial details.

Speaker 4

Thanks, John. I'll begin with

Speaker 5

a commentary on our Q1 results, then provide our financing expectations For Origin 2, I'll finish with an update on our 2023 outlook. Speaking to Slide 18, we reported quarterly revenue for the Q1 of $1,700,000 were $13,000,000 compared to $7,600,000 during the same period in the prior year. Net income was $9,800,000 for the Q1 compared to a net income of $7,300,000 in the same period in the prior year. Adjusted EBITDA loss was $9,700,000 for the Q1 compared to a loss of $6,500,000 in the same period of the prior year. Turning to our balance sheet, Origin ended the Q1 with $263,900,000 in cash cash equivalents and marketable securities.

Speaker 5

A meaningful portion of Q1 cash expenditures related to the completion of Origin 1 and are therefore non recurring. Regarding the financing of Origin 2, in early January, we announced Louisiana State Bond Commission unanimously passed a resolution granting its final approval The issuance of up to $1,500,000,000 of tax exempt bonds to support the construction and commissioning of the plant. This amount is inclusive of and builds on the strong foundation of previously announced expected $400,000,000 in private activity bond volume cap allocation. Origin's use of solid waste feedstock to Carbon negative materials enables the company to use these tax exempt bonds toward the financing of the Origin II project. Bank of America has engaged by Origin to underwrite the bonds and market them to investors, which could enable the financing of the debt of Origin II using entirely tax exempt bonds.

Speaker 5

Fortune continues to work with leading financial institutions on other forms of traditional private financing and federal loan programs, including through the United States and federal tax credit, grant, loan and other programs, including those promoting advanced manufacturing from the Inflation Reduction Act To be incrementally beneficial for the financing of Origin II. As Rich mentioned, we continue to expect that Origin II can be fully funded from a combination of existing cash on hand, Previously indicated traditional project financing and potential strategic partnerships. Given Origin's ongoing global technology licensing effort and an active governmental affairs team, we anticipate Strategic Partnerships and Federal Incentive Programs play a meaningful role in the financing of Origin 2. Again, we expect to provide an update on Origin 2 in August 2023. I will now wrap up with our 2023 outlook.

Speaker 5

We are maintaining our guidance for revenue of $40,000,000 to $60,000,000 and an adjusted EBITDA loss of $50,000,000 to 60 And with that, I will turn it back to Rich for closing remarks.

Speaker 2

Thank you, Nate. In closing, I would like to thank our customers, our team and our And taking the next step in the world's once in a planet transition to sustainable materials. And with that, I will ask the operator to open the line for questions.

Operator

Thank you. We will now begin the question and answer session. The first question comes from Frank Mitsch from Fermion Research. Please go ahead.

Speaker 4

Thank you so much and congratulations on The numerous partnerships that you formed, I'm curious about Endorama, given that it's the largest PET company out there and obviously that's a natural Outlet for CMF into paraxylene. And obviously, you've had relationships with the brand owners, the Pepsis and Danone's over the last couple of years, but Indorama is kind of a Johnny come lately into the partnership. How did that come about? Was that a push from the brand owners? Or sort of color that you could talk about the relationship that you have with Indorama and where do you think that can go?

Speaker 2

Yes. Hey, Frank. This is Rich. Thanks for asking. Yes, Indorama is an incredibly strategic partnership for us as the world's largest Producer of PET and for some of our other listeners, the paraxylene that we make is 80% of what goes into PET.

Speaker 2

So in terms of partnering with the absolute global leader in the market to convert our paraxylene Into Bio PET for our customers around the world, we couldn't have a better partner than Endorama. We also line up very well with their stated Sustainability goals that they call Vision 2,030 and where they've committed to invest $8,000,000,000 into this initiative and really have sustainability at the top of their agenda. So you have incredible strategic alignment and it's a multifaceted partnership that we think will continue to grow. But initially, we're evaluating using Indorama facilities in the U. S.

Speaker 2

To handle The conversion and to produce bio based materials. And then secondly, to work together on creating bio based samples, Matt, it's Sam. Kind of like smaller scale in the near term, so that we can get those in the hands of our mutual customers. So A lot of ways to work together.

Speaker 4

Fantastic, fantastic. And then if I could ask, in the press release, you talked about Hiring a financial firm to underwrite the bonds and so forth for the Louisiana State Tax exempt bonds. Just curious as to roughly what thoughts you have in terms of a timeframe That you might be coming to market with those bonds understanding that Origin 2 is a 2025 startup, so we are a little ways away from that.

Speaker 5

Sure. Frank, this is Nate. So first, as we announced back in February, we have hired Bank of America To help us bring that financing to market. Really as far as timing, like we said earlier in the call, we are going to have a Full update on Origin 2 and all of our expectations around that in August. So I'm going to hold on that until our full update at that point.

Speaker 4

Understood. Thanks so much.

Operator

The next question comes from Steve Byrne from Bank of America. Please Go ahead.

Speaker 2

Yes, thank

Speaker 6

you. The chemistry of what you guys are developing It's continually evolving. I just find it really fascinating every time we get On a call with you, you're going down a new path. And putting the interest in the chemistry aside, Can you talk a little bit about your view of the potential value of these different pathways? I mean, if we think about where this process initially started as a way to produce PEP, And now you can go down the FDCA pathway and maybe produce PDF or Any of these other Suren derivatives, how would you characterize the potential value of those versus PET and then now you're going down this path of being able to convert HTC into Effectively, a carbon black derivative or a carbon black Pernative perhaps is a better way to describe it.

Speaker 6

The value proposition here seems to Continually evolve. Can you characterize it in your own view of The size of the value proposition versus the way you look at it now versus where it was previously as just A PET, a bio based PET?

Speaker 3

Yes. Hey, Steve. This is John. Thanks for the question. Really appreciate it.

Speaker 3

So I think if you zoom all the way out, what we're really doing is developing a platform upon which you can build lots of other Products and Chemistry. And I think what you're referring to in this sort of evolution of additional products is We're exploring and discovering the highest value places to put the intermediates that come off of our platform. I think when you look at the value proposition, as you said, of each of these individual products and markets really, I think generally speaking, and I am speaking quite generally, when we talk about things being performance advantaged, That usually means better margin and higher value for the individual product itself. But then also, When we go look at a new product, we're usually saying, okay, well, this is something that isn't in the industry right now. It's performance advantage, so it feels justified to do the additional work with a partner to develop that new product.

Speaker 3

And the reason why we would go look at that is Usually, both because it's a higher value product and because it's a sort of easier Lower cost material to make off of our platform than just a drop in sort of incumbent. So you were sort of getting it on both sides in a nice way. On the price side and the cost side, usually, when we're looking at these sort of new performance advantaged materials. And that's one of the reasons why we get so excited about them. The other side is, obviously, the world uses an enormous amount of PET right now.

Speaker 3

We don't have to do a bunch of product development around PET To understand that there's an enormous amount of demand for it. So from an impact perspective, products like PET are just So important for us because we know we can scale, I would say, almost arbitrarily into that market relative to our ability to bring online has to be in the near term. But the more we can get into these performance advantaged, higher value kinds of products And believe that we can actually penetrate into the market reasonably, the happier we are It's sort of the short I guess that's maybe a longer answer there. I think the other side is you asked about HPC. I think the same Generic principles apply to our HTC products.

Speaker 3

What's been really interesting with the carbon black Product from HTC is we're finding as we get more sophisticated in our integration of that product Into its applications in rubber, we're finding that it not only performs better than N660, which is the data that we published recently, But it did better without reformulating the rubber. And a critical part of a lot of these applications is how do you actually formulate the material Into the end product, right? So what are the other components or additives that you're putting in with the rubber alongside the carbon black to make that carbon black perform just as well? Generally speaking, if you're willing to do a little bit of reformulation, you're going to get higher value out of the ultimate product. So we think about the HCCNOC Carbon Black is sort of the same way.

Speaker 3

All these cases, we're talking about Performance Advantage Materials and bringing it forward. We think of that as higher value, lower cost Kinds of materials as compared to PX going into PET.

Speaker 6

And in addition to the higher value and lower Costs, it would seem to me that this new pathway that you're pursuing with HTC going down And becoming a carbon black alternative, the other benefit it would seem would be a Significant reduction in the CO2 emissions and maybe you would have some data on that. My understanding is carbon black Yes, it generates a significant CO2 emission source. And I'm just curious as to whether this might be the end product that Might enable you to get more DOE funding if the DOE is looking for products that reduce the CO2 emissions. This HTC product versus carbon black could be pretty compelling for just the CO2 footprint?

Speaker 3

Yes. I mean, we see a huge opportunity to reduce the CO2 footprint of Carbon Black and then, of course, one of the major markets And of course, tires are a really significant part of the materials consumption for automobiles, right? So I think huge industry, lots of opportunity for positive impact. I think we're pretty optimistic about sort of Our ability to impact CO2 footprint broadly, and so we think there's lots of opportunities for us to get various incentives and things like that For our work there, without being specific about exactly which one. But I think there's actually another interesting dynamic in the carbon black world.

Speaker 3

And that's that In the carbon black world, there's the CO2 emissions, which, of course, as we just discussed, I think we have a big opportunity to improve that. But they're actually just general Pollutant emissions associated with carbon black production as well, which especially in North America has really limited the ability to Bring online economically new supply using older processes. Because of the way we make our carbon black from HTC, We don't think that we will be subject to those same kinds of constraints in bringing online supply. So we think there's actually sort of another layer to the opportunity in Carbon Black where we could really we can expand production capacity In North America in a way that other players may be challenged to do in the future. Thank

Speaker 1

you.

Operator

The next question comes from Eric Stine from Craig Hallum. Please go ahead.

Speaker 2

Hi, everyone.

Speaker 3

Hey, Eric.

Speaker 2

Hi,

Speaker 3

Eric. Hey, Eric. Sorry.

Speaker 7

No worries. It happens all the time. So I can appreciate The strategy changed a little bit to look more at the revenue generation and higher margin products. I mean, Given where demand is or the offtake value is now and I think that probably fills plants 3 or 4 or gets close and you've got I'm just curious, I mean, how is that driving interest on the licensing side companies that feel like maybe they could get to market faster if they go that route?

Speaker 2

Yes, Eric. It's a great question. So we were excited to announce our first Licensing exploration partnership this quarter with SCGP, which is an example of a company that has a lot of different assets, including a lot of eucalyptus And a need for sustainable packaging and a lot of other capabilities. And so working with them to explore An Asia based facility is an example of our licensing efforts. We do continue to receive inbound interest And we'll sort of announce and share those as appropriate.

Speaker 2

But yes, I would say more and more Companies with various feedstocks and obviously with OriginOne being mechanical complete and online soon, I think we'll only increase the interest and that's also the kind of thing that we can use OriginOne to do is test yields and do various tests some of these various licensing scenarios that our partners want to explore.

Speaker 7

Got it. And I guess good segue to Origin 1. I mean, I know that this plant obviously smaller than what you Envision for Origin 2 and beyond, just curious how that plays into things, obviously A lot of different products getting those out into the market increasing your reach. Do you think that other companies go the route of What you just disclosed about Pepsi in terms of amending agreements to get into some other areas?

Speaker 2

Yes, I think, we continue to have a lot of customers who want access to multiple materials. We recently announced a deal with Hyosun and they were interested in PET and PTF and HTC To go into a really wide range of end markets and as a lot of our customers are chemical companies and companies that can Take these materials in a lot of different directions. We think that will continue to be the case. And on the polyester side alone, we do think there are a lot of companies that Need a lot of PET and will need a lot of PET for a long time, but I'm really interested in the value propositions around PTF and PEF and certainly Excited to explore those sort of next generation polymers.

Speaker 7

Got it. I mean, do you think do you kind of view What Pepsi is doing is kind of tip of the iceberg and that more companies go that route? Or I mean, at this point, do you kind of view that as a one off and you'll See how things progress going forward?

Speaker 2

It's hard to say. I would say, I think There's obviously enormous demand for PET and I don't think that that's only going to continue to grow. But there is interest from multiple Our customers in FPCA and PEF and so that's a newer polymer for them. And I think that demand I do think will continue to grow as They learn more about it and test it and develop on top of it. So I think we'll continue to see more of those.

Speaker 2

Okay. Thank you. Thank you.

Operator

The next question comes from John Roberts from Credit Suisse. Please go ahead.

Speaker 2

Thank you. Is the revenue capacity for Oregon 1 still $120,000,000 And Do any of these new contracts pull that forward from a 2025 target that you had before? Yes. Hi, John. This is Rich.

Speaker 2

I think we reaffirmed our revenue guidance for this year, Haven't given it for next year yet, but as OriginOne Comes online this quarter and continues to ramp, and we continue to use it as strategic asset to get Large scale samples in the hands of customers and do joint development agreements around those samples and explore licensing arrangements and those kind of things, I don't think there's any reason to think our outlook on OM-one has materially changed. Okay. And then secondly, will OriginOne have any HTC sold commercially as 60 carbon black or in blended fossil and 60?

Speaker 3

It's a great question. I think that it's pretty clear that we'll be making some material from Origin 1 off of the HTC that's going to be I'm not sure that we're ready to call it N660 since it seems to perform a little better than N660, but I think we'll be making a carbon black Great, that we'll be using those applications. Can't speak to the volume. I don't think we're ready to talk about the volume that will Typically, the allergen to that application at this point, but I'd say I'd be surprised if we weren't making some pretty meaningful volumes of that off of OM-1.

Speaker 2

Thanks and congrats on the progress.

Speaker 3

Thank you. Thanks.

Operator

The next question comes from Pavel Molchanov from Raymond James. Please go ahead.

Speaker 8

Thanks for taking the question. I saw in the press release that after this quarter you will no longer be Reporting the offtakes and capacity reservations, what led to The decision to stop disclosing that number, it was quite useful over the years.

Speaker 2

Yes. Thanks, Pavel. This is Rich. We felt like that number has grown 9x In a relatively short period of time and the reason we were focused on that was to prove that we had a lot of demand beyond packaging And so the number grew very rapidly and in fact I would say it grew kind of more rapidly than we would have expected. And we talked about a couple of quarters ago We really feel like we've proven that demand and we've got demand for several, O2 scale plants.

Speaker 2

And so continuing to just keep growing that demand wasn't really the right focus and instead we would focus on joint development agreements and Licensing relationships and revenue generation and some of that's what you even hear in our product advancements like we've been talking about. Some of that stuff comes from working with other companies closely and spending our partnership resources on developing deeper relationships, for example, with companies that make carbon black or tires or things like that in the case of HTC. So we think it's going to keep growing. We'll continue to update that number as appropriate, but we just thought it increasingly sort of wasn't super helpful. We generally get the feedback from investors that they have really no doubt that there's massive demand for our materials and there will be supply constrained for a long time.

Speaker 2

So that's some of the rationale.

Speaker 8

Understood. Let me follow-up on Origin. And so you're obviously right on the cusp of start up. Have your thoughts changed about how long it will take For OriginOne to reach steady state operation, I think £36,000 A quarter of production, something like that. Are we still looking at a 12 month kind of timetable for that or what's the latest?

Speaker 3

Yes. Thanks Pavel. I think generally speaking, our view hasn't really changed there. A meaningful part of that is really not us looking at it and saying, okay, we're going to make sure that there's exactly this Increase in percentage ramp capacity ramp up on a month by month basis, but more reflecting that generally speaking, both the demand for specific kinds of Customer for specific kinds of materials from customers is a little bit uncertain and probably a stronger driver for us than just maxing amount of capacity As fast as we can. And then the second is sort of reflecting our recognition that there's always some uncertainty around exactly how fast you get these And we want to try to under promise and over deliver to the extent that we can for those kinds of things.

Speaker 3

So I think it's not to say that we haven't learned anything at all from OM-one at this point since the last time we talked about this. But I think we haven't learned something that would materially change our view of the sort of timescale of bringing OM-one all the way online.

Speaker 8

Yes. Now that's clear. Appreciate it guys.

Speaker 2

Thanks.

Speaker 3

Thanks, Pavel.

Operator

That concludes today's live Q and A segment. I will now turn it over to Ashish Gupta, Investor Relations to conduct the next segment of our investor Q and A.

Speaker 1

Thank you, operator. As we've done on our last For earnings calls, for today's call, we invited all investors to submit questions as part of our Ask Origin campaign. Once again, we are pleased with the very high level of participation and want to thank everyone who submitted a question. In the interest of time, we'll be taking the most commonly asked questions. Our first questions are for Rich.

Speaker 1

Rich, what is Origin developing with SCGP? Is it retrofitting a factory? Can you talk about the terms or possible revenues from future licensing?

Speaker 2

Yes, it's a great question. And SCGP is a really interesting company, as I discussed previously. And what we're really doing is working with them to explore the feasibility of them being able to make Large commercial quantities of PET in Asia using eucalyptus as a feedstock. So we were excited to have received eucalyptus from them, have processed that in our pilot plants And to have proven out the yields on eucalyptus are attractive and that seems like a very feasible feedstock for an origin plant. And so we'll continue working with them on the feasibility assessment and look forward to working with other companies On similar sort of projects.

Speaker 1

Do you think licensing could be a significant source of revenue over the next few years?

Speaker 2

I do. Certainly a source of some revenue as We will likely be able to be compensated for some of these explorations that we do with various partners. And How serious and the timing is still not all that clear, but it is clear that a lot of companies need An entire Origin 2 scale plant or more for their own needs, which quickly leads us to a licensing kind of conversation in terms of wouldn't make sense for us to build a plant for a single customer, as part of our initial plants. And so, I think that could lead to a pretty meaningful Revenue in the relatively near term, it's just really hard to say how much and by when. But we continue to make, I would say, a lot of progress on the licensing front.

Speaker 1

Great. Really appreciate that color, Rich. With that, we'll now turn to some questions for John. Question for John. John, are there any key learnings from OM-one building commissioning process that You think you want to take into consideration for OM2 and beyond?

Speaker 3

Yes, sure. I think There

Speaker 2

are quite

Speaker 3

a few things that we have been learning. I think probably the most important set of things that we've learned Around the way that we specifically will do capital projects execution. I remind investors pretty regularly when we talk to them, We're really doing 2 things. We're both scaling a technology, but we're also scaling the organizational capabilities of Origin With these kinds of projects. And so when it comes to a capital project like 1, it's a good sized project where You really have to test our sort of fit and form of our processes and the way that we execute that.

Speaker 3

And I think we've learned Quite a bit about how to do that right and what was what did we have to end up muscling our way through because we frankly didn't do it as efficiently as we could have and what are things that Man, that really just worked fantastically, and we'd like to make sure we do that in the future every single time. And so I think that's been Pretty significant in terms of the number of things that we've run there. I think a lot of that is going to be Very transferable to OM2. And the other thing is that we along that same line is we brought together A lot of spectacular people from a lot of different organizations, each of which individually are Capable at capital project execution, engineering design and manufacturing. And so Across each of those areas, we're trying to understand what are the pieces of the way that Some of those great companies, the people from those great companies do each of the parts of the capital project execution and meld that together In a really clear way that it's sort of where you get a great sum of the parts in terms of our organizational capabilities.

Speaker 3

I think there's been quite a bit there. I think on the technology side, there are some small things where we say, boy, I think we'd rather do that a little differently or maybe we want to change the stack of Particular components in the process, but I'd say, at this point, it's still quite modest. I'd say sort of nothing that really jumps out for us. But of course, as we started up and ramp up capacity on OM-one, we're going to learn a different set of things about technology and organizational capabilities. So I think we're all looking forward to that.

Speaker 1

That's fantastic. Really appreciate all the detail there, John. And it sounds like we can take a lot to OM2 and beyond. And thank you so much to both Rich and John. Absolutely.

Speaker 1

That will conclude the Q and A portion of today's call. I'm going to turn it back to Rich for closing remarks.

Speaker 2

Thanks, Ashish, and thank you all for joining us today for all the great

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant

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Earnings Conference Call
Origin Materials Q1 2023
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