Danimer Scientific(DNMR) - 2023 Q2 - Quarterly Report

FORM 10-Q Filing Information This section provides key administrative details of the Quarterly Report, including the filing entity, stock exchange listing, and company classification - The report is a Quarterly Report (Form 10-Q) for the period ended June 30, 2023, filed by DANIMER SCIENTIFIC, INC[2] - The company's Class A Common stock is traded on the New York Stock Exchange under the symbol DNMR[3] - Danimer Scientific, Inc. is classified as a Non-accelerated filer and a Smaller reporting company[4] - As of August 8, 2023, there were 102,035,267 shares of common stock outstanding[4] Forward-Looking Statements This section cautions that future performance statements are based on current expectations and are subject to significant risks and uncertainties - Forward-looking statements are based on current information, assumptions, expectations, and projections, and are not guarantees of future performance[9] - These statements are subject to future events, risks, and uncertainties, many beyond the company's control, which could cause actual results to differ materially[9] - The company does not undertake to update these statements, except as required by law[10] PART I. FINANCIAL INFORMATION This part encompasses the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $90,771 | $62,792 | | Total current assets | $145,375 | $125,071 | | Property, plant and equipment, net | $454,136 | $453,949 | | Total assets | $744,253 | $712,270 | | Total current liabilities | $14,602 | $25,287 | | Long-term debt, net | $375,994 | $286,398 | | Total liabilities | $413,969 | $334,658 | | Total stockholders' equity | $330,284 | $377,612 | Condensed Consolidated Statements of Operations This statement details the company's revenues, expenses, and net loss over specific reporting periods Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $12,865 | $12,703 | $24,791 | $27,446 | | Cost of revenue | $19,433 | $14,934 | $37,642 | $30,999 | | Loss from operations | $(31,121) | $(32,120) | $(63,348) | $(62,809) | | Interest, net | $(9,162) | $(652) | $(12,548) | $(1,644) | | Net loss | $(39,241) | $(30,445) | $(75,880) | $(56,831) | | Basic and diluted net loss per share | $(0.38) | $(0.30) | $(0.74) | $(0.56) | Condensed Consolidated Statements of Stockholders' Equity This statement outlines changes in the company's equity accounts, including additional paid-in capital and accumulated deficit Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Balance, beginning of period (Additional paid-in capital) | $676,250 | $619,145 | | Stock-based compensation expense | $27,974 | $27,983 | | Warrants issued with Senior Secured Term Loan | $510 | $- | | Balance, beginning of period (Accumulated deficit) | $(298,648) | $(118,890) | | Net loss | $(75,880) | $(56,831) | | Total stockholders' equity (end of period) | $330,284 | $471,855 | Condensed Consolidated Statements of Cash Flows This statement categorizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(21,151) | $(37,393) | | Net cash used in investing activities | $(23,041) | $(108,809) | | Net cash provided by financing activities | $85,029 | $71 | | Net increase (decrease) in cash and cash equivalents and restricted cash | $40,837 | $(146,131) | | Cash and cash equivalents and restricted cash - end of period | $105,238 | $140,837 | - Net cash provided by financing activities in 2023 was primarily driven by $130 million in proceeds from the Senior Secured Term Loan, offset by $33.3 million in issuance costs and $11.7 million in debt repayments[19] Notes to Condensed Consolidated Financial Statements These notes provide additional information and explanations for the figures presented in the condensed consolidated financial statements Note 1. Basis of Presentation This note describes the company's business and the foundational principles used in preparing the financial statements - Danimer Scientific, Inc. is a performance polymer company specializing in bioplastic replacements for traditional petroleum-based plastics[22] - The company completed a reverse recapitalization business combination with Meredian Holdings Group, Inc. on December 29, 2020, and acquired Novomer, Inc. (now Danimer Catalytic Technologies) on August 11, 2021[23] Note 2. Fair Value Considerations This note details the company's methodology for fair value measurements, including the three-tier hierarchy and valuation inputs - The company uses a three-tier hierarchy for fair value measurements: Level 1 for quoted prices in active markets, Level 2 for observable inputs other than quoted prices, and Level 3 for unobservable inputs[28] - Private Warrants and stock options with cash-settlement features are re-valued each period end using the Black-Scholes option pricing model (Level 3 inputs)[32] Private Warrant Valuation Inputs (June 30, 2023 vs. December 31, 2022) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Share prices of our common stock | $2.38 | $1.79 | | Expected volatilities | 52.82 % | 55.83 % | | Risk-free rates of return | 4.61 % | 4.13 % | | Expected warrant term (years) | 2.50 | 3.00 | | Calculated Private Warrant values | $0.06 | $0.05 | Note 3. Inventories, net This note provides a breakdown of the company's inventory components and their net values Inventories, net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :------------------------ | :------------ | :---------------- | | Raw materials | $13,746 | $19,964 | | Work in process | $1,538 | $1,524 | | Finished goods and related items | $14,582 | $11,255 | | Total inventories, net | $29,866 | $32,743 | - Finished neat PHA included in inventory increased from $4.9 million at December 31, 2022, to $7.9 million at June 30, 2023[36] Note 4. Property, Plant and Equipment, net This note details the company's property, plant, and equipment, including construction in progress and facility development plans Property, Plant and Equipment, net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Construction in progress | $208,128 | $198,545 | | Total Property, plant and equipment, net | $454,136 | $453,949 | - Major construction on the Greenfield Facility in Bainbridge, Georgia, has been paused, with completion contingent upon receiving additional financing (estimated cost range from $515 million to $665 million)[38] - The Rinnovo pilot plant in Rochester, New York, is expected to be placed in service in 2023[38] Note 5. Intangible Assets This note outlines the company's intangible assets, their gross value, accumulated amortization, and estimated useful life Intangible Assets, net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Intangible assets, gross | $95,090 | $94,291 | | Accumulated amortization, ending balance | $(15,758) | $(13,350) | | Total intangible assets, net | $79,332 | $80,941 | - The company's intangible portfolio, primarily patents and technological know-how from Danimer Catalytic Technologies, has an estimated weighted average useful life of 18.0 years[41] Note 6. Accrued Liabilities This note provides a breakdown of the company's accrued liabilities, including compensation, taxes, and construction accruals Accrued Liabilities (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Compensation and related expenses | $1,557 | $1,305 | | Accrued taxes | $1,159 | $669 | | Construction in progress accruals | $473 | $1,089 | | Accrued interest | $455 | $134 | | Total accrued liabilities | $4,985 | $5,001 | Note 7. Income Taxes This note presents income tax benefits and explains the factors influencing the effective tax rates Income Tax Benefits (in thousands) | Period | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $61 | $240 | | Six Months Ended June 30 | $151 | $531 | - Effective tax rates were significantly lower than the federal statutory rate of 21% due to valuation allowances against substantially all net deferred tax assets[43][45] Note 8. Leases This note details the total operating lease costs and significant lease extension activities Total Operating Lease Cost (in thousands) | Period | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $951 | $874 | | Six Months Ended June 30 | $1,745 | $1,761 | - During the six months ended June 30, 2023, the company exercised four five-year extension options for its Winchester, Kentucky, and certain Bainbridge, Georgia facilities, extending the lease term by twenty years[47] Note 9. Private Warrants This note provides information on outstanding private warrants, their exercise price, and the liability rollforward - There are 3,914,525 Private Warrants outstanding, exercisable at $11.50 per share, expiring on December 28, 2025[48] Private Warrants Liability Rollforward (in thousands) | Period | Amount | | :-------------------------------- | :----- | | Balance at December 31, 2022 | $(212) | | Loss on remeasurement of private warrants (Q1 2023) | $(1,116) | | Gain on remeasurement of private warrants (Q2 2023) | $1,083 | | Balance on June 30, 2023 | $(245) | Note 10. Debt This note details the components of the company's long-term debt, including convertible notes and secured term loans, and their future maturities Long-Term Debt Components (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | 3.25% Convertible Senior Notes | $240,000 | $240,000 | | Senior Secured Term Loan | $130,000 | $- | | New Market Tax Credit Transactions | $45,700 | $45,700 | | Subordinated Term Loan | $- | $10,205 | | Total | $418,007 | $298,317 | - A $130 million Senior Secured Term Loan was closed on March 17, 2023, secured by substantially all assets (excluding Danimer Catalytic Technologies and Greenfield Facility assets), with net proceeds of $98.6 million[55] - The Subordinated Term Loan was fully repaid in 2023 with $10.2 million of principal and accrued interest[58] Future Cash Maturities of Long-Term Debt (in thousands) as of June 30, 2023 | Year | Amount | | :--- | :----- | | 2023 | $1,231 | | 2024 | $672 | | 2025 | $259 | | 2026 | $261,121 | | 2027 | $130,023 | | Thereafter | $24,701 | | Total | $418,007 | Note 11. Equity This note outlines common stock activity, available equity distribution, and anti-dilutive instruments Common Stock Activity (shares) | Period | Balance, beginning of period | Issuance of common stock | Balance, end of period | | :-------------------------- | :------------------------- | :----------------------- | :----------------------- | | Six Months Ended June 30, 2023 | 101,804,454 | 133,922 | 101,938,376 | - As of June 30, 2023, $99.1 million remains available for distribution under the Equity Distribution Agreement (ATM Offering)[69] - Warrants to purchase 1.5 million shares at $7.50 per share were issued in connection with the Senior Secured Term Loan and accounted for as an equity arrangement[73] Anti-dilutive Instruments Excluded from Diluted Shares Outstanding (shares) | Instrument | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :-------------------------------- | :------------------------------- | :----------------------------- | | Convertible debt | 22,250,040 | 22,250,040 | | Employee stock options | 11,950,598 | 11,950,598 | | Private Warrants | 3,914,525 | 3,914,525 | | Senior Secured Term Loan Warrants | 1,500,000 | 1,500,000 | | Total excluded instruments | 42,163,759 | 42,163,759 | Note 12. Revenue This note disaggregates revenue by product sales and services, detailing recognition policies and geographical distribution - Revenue is disaggregated into product sales (PHA- and PLA-based resins) and services (R&D and tolling)[74] - Product revenue is recognized upon shipment, while service revenue from R&D contracts is recognized as performance obligations are satisfied[75][77] Total Revenues by Country (in thousands) | Country | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $12,520 | $11,540 | $22,794 | $22,221 | | Germany | $225 | $- | $1,343 | $2,689 | | Belgium | $- | $556 | $199 | $1,084 | | All other countries | $120 | $607 | $455 | $1,452 | | Total revenues | $12,865 | $12,703 | $24,791 | $27,446 | Note 13. Stock-Based Compensation This note presents total stock-based compensation expense, unrecognized costs, and the accounting treatment for cash-settlement features Total Stock-Based Compensation Expense (in thousands) | Period | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $13,666 | $14,547 | | Six Months Ended June 30 | $28,609 | $28,245 | - As of June 30, 2023, $32.8 million of unrecognized compensation cost related to unvested stock options and restricted shares is expected to be recognized over a weighted-average period of 1.6 years[98] - Certain performance-based restricted stock units and stock options have cash-settlement features if adequate shares are not available, leading to them being accounted for as liabilities[93][96] Note 14. Commitments and Contingencies This note discusses significant commitments, including a terminated royalty agreement, ongoing class action lawsuits, and an SEC inquiry - The company terminated a royalty agreement with Procter & Gamble, resulting in a $0.5 million loss for the six months ended June 30, 2023[99] - Danimer Scientific is involved in consolidated class action lawsuits alleging violations of federal securities laws and shareholder derivative lawsuits alleging breach of fiduciary duty; no losses have been accrued due to inability to estimate[101][104][106][107] - The SEC is conducting a non-public, fact-finding inquiry, to which the company has voluntarily responded[108] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key factors affecting performance, a detailed analysis of revenue and expenses for the three and six months ended June 30, 2023, and an overview of liquidity and capital resources CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This note reiterates that forward-looking statements are subject to inherent uncertainties and risks that could cause actual results to differ materially - Forward-looking statements are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of the company's control[114] - Factors that could cause actual results to differ include business combination benefits, costs, regulatory changes, legal proceedings, the impact of COVID-19, the ability to execute the business model, raise capital, and the ongoing conflict in Ukraine[116] Introductory Note This note provides background on the company's formation through a reverse recapitalization and subsequent acquisition - Danimer Scientific was formed through a reverse recapitalization business combination with Meredian Holdings Group, Inc. on December 29, 2020[116] - The company acquired Novomer, Inc. (now Danimer Catalytic Technologies) on August 11, 2021[117] Overview This section describes Danimer Scientific as a performance polymer company specializing in biodegradable bioplastics and outlines its production capacity and facility development - Danimer Scientific is a performance polymer company specializing in biodegradable bioplastic replacements for traditional petroleum-based plastics, offering PHA- and PLA-based resins and R&D/tolling services[118][119][123][124][125] - The Kentucky Facility's capacity expanded to 65 million pounds of finished product per year in 2022[120] - Construction of the Greenfield Facility (planned 125 million pounds annual capacity) is suspended, with $186.7 million invested, and completion contingent on additional financing (estimated cost $515M-$665M)[121] Key Factors Affecting Operating Results This section identifies the primary drivers influencing the company's revenue and expense performance Factors Impacting Our Revenue This section discusses how material adoption, production capacity, new product launches, and R&D contract execution influence revenue - PHA-based revenue is driven by the pace of material adoption and the ability to bring additional production capacity online, such as the Greenfield Facility[128] - PLA-based revenue is impacted by the effective launch of new product offerings by customers and the growth of neat PLA production capacity by suppliers[128] - Service revenue depends on the timing and execution of customer contracts, successful biopolymer formulation development, and the ability to transition formulations to commercial scale production[129] Factors Impacting Our Expenses This section details the components of cost of revenue, selling, general and administrative, and research and development expenses - Cost of revenue includes raw materials, labor, production overhead, rent, utilities, and depreciation[130] - Selling, general and administrative expenses cover salaries, marketing, corporate administration, and unallocated stock-based compensation[131] - Research and development expense includes salaries, stock-based compensation, depreciation, consulting fees, and facility expenses for non-revenue generating R&D activities[132] Current Developments This section highlights recent operational milestones, including the Rinnovo pilot plant and progress in customer agreements - During Q2 2023, the company finished module assembly of its Rinnovo pilot plant in Rochester, New York, and entered the pre-commissioning phase[135] - Additional progress was made in negotiating development and supply agreements with blue-chip customers[135] Russia & Ukraine Conflict This section addresses the impact of the conflict on supply chains and raw material costs - The conflict has led to supply chain challenges and increased logistics and raw material costs, particularly for canola oil, a PHA feedstock[134] Critical Accounting Policies This section notes that financial statement preparation involves significant management estimates and assumptions - The preparation of financial statements requires management to make significant estimates and assumptions, as detailed in the Annual Report on Form 10-K[136] Condensed Consolidated Results of Operations for the Three Months Ended June 30, 2023 and 2022 This section provides a detailed comparative analysis of the company's financial performance for the second quarter of 2023 versus 2022 Revenue This section analyzes the changes in product and service revenue, highlighting contributions from PHA-based products Revenue (in thousands) | Category | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change | | :---------------- | :------------------------------- | :------------------------------- | :----- | | Products | $12,174 | $11,575 | +$599 | | Services | $691 | $1,128 | -$437 | | Total revenue | $12,865 | $12,703 | +$162 | - PHA-based products represented 66% of total revenue in Q2 2023 (vs. 61% in Q2 2022), with sales increasing by $0.7 million due to a 2.6% increase in weighted average selling price[138] - Service revenue decreased primarily due to the completion of several R&D contracts[139] Cost of revenue and gross profit This section examines the changes in cost of revenue, gross profit, and gross profit percentage Cost of Revenue and Gross Profit (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change | | :---------------- | :------------------------------- | :------------------------------- | :----- | | Cost of revenue | $19,433 | $14,934 | +$4,499 | | Gross profit | $(6,568) | $(2,231) | $(4,337) | | Gross profit percentage | -51.1 % | -17.6 % | -33.5 pp | - Cost of revenue increased 30% due to a $2.6 million increase in depreciation and a $0.8 million increase in raw materials costs from inflationary pressures[140] Operating expenses This section details the changes in selling, general and administrative, and research and development expenses Operating Expenses (in thousands) | Category | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :----- | | Selling, general and administrative | $16,844 | $20,975 | $(4,131) | | Research and development | $7,709 | $8,913 | $(1,204) | | Total operating expenses | $24,553 | $29,889 | $(5,336) | - SG&A expense decreased due to $1.7 million in legal cost savings, $0.5 million in property and consulting expense savings, and a $0.5 million benefit from allowance for doubtful accounts reversals[141] Gain on remeasurement of private warrants This section explains the gain on remeasurement of private warrants, primarily driven by changes in common stock market price Gain on Remeasurement of Private Warrants (in thousands) | Period | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :----- | | Gain on remeasurement of private warrants | $1,083 | $2,012 | $(929) | - The gain was primarily due to a decrease in the market price of the company's common stock during the period[142] Interest expense This section analyzes the increase in net interest expense, primarily due to the Senior Secured Term Loan Interest, net (in thousands) | Period | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change | | :---------------- | :------------------------------- | :------------------------------- | :----- | | Interest, net | $(9,162) | $(652) | $(8,510) | - The increase in interest expense resulted from the incurrence of the Senior Secured Term Loan in March 2023 and a reduction of capitalized interest[143] Income taxes This section discusses income tax changes and the impact of valuation allowances on effective tax rates Income Taxes (in thousands) | Period | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change | | :---------------- | :------------------------------- | :------------------------------- | :----- | | Income taxes | $61 | $240 | $(179) | - Effective tax rates differed from the federal statutory rate of 21% due to valuation allowances against net deferred tax assets[144] Net loss This section summarizes the factors contributing to the increase in net loss for the quarter Net Loss (in thousands) | Period | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change | | :---------------- | :------------------------------- | :------------------------------- | :----- | | Net loss | $(39,241) | $(30,445) | $(8,796) | - The increase in net loss was primarily attributable to increased interest expense and decreased gross profit, partially offset by decreases in operating expenses[145] Condensed Consolidated Results of Operations for the Six Months Ended June 30, 2023 and 2022 This section provides a detailed comparative analysis of the company's financial performance for the first half of 2023 versus 2022 Revenue This section analyzes the changes in product and service revenue, highlighting the impact of sales volumes and pricing Revenue (in thousands) | Category | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change | | :---------------- | :----------------------------- | :----------------------------- | :----- | | Products | $23,270 | $24,791 | $(1,521) | | Services | $1,521 | $2,655 | $(1,134) | | Total revenue | $24,791 | $27,446 | $(2,655) | - Total revenue decreased due to a 9% decrease in pounds sold, partially offset by a 3.4% increase in weighted average selling price[147] - PHA-based product sales decreased $1.9 million due to lower volumes, while PLA-based product sales increased $0.6 million due to higher selling price and pounds sold[147] Cost of revenue and gross profit This section examines the changes in cost of revenue, gross profit, and gross profit percentage for the six-month period Cost of Revenue and Gross Profit (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change | | :---------------- | :----------------------------- | :----------------------------- | :----- | | Cost of revenue | $37,642 | $30,999 | +$6,643 | | Gross profit | $(12,851) | $(3,553) | $(9,298) | | Gross profit percentage | -51.8 % | -12.9 % | -38.9 pp | - Cost of revenue increased 22% due to a $5.6 million increase in depreciation, $1.6 million in property taxes and insurance, and $0.4 million in utilities, partially offset by reductions in raw materials, direct labor, and disposal costs[149] Operating expenses This section details the changes in selling, general and administrative, and research and development expenses for the six-month period Operating Expenses (in thousands) | Category | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :----- | | Selling, general and administrative | $35,543 | $43,211 | $(7,668) | | Research and development | $14,784 | $16,044 | $(1,260) | | Total operating expenses | $50,497 | $59,256 | $(8,759) | - SG&A expense decreased due to $2.3 million in legal cost savings, $1.5 million in consulting expense savings, and a $0.9 million benefit from allowance for doubtful accounts reversals[151] - R&D expense included a $0.5 million write-off of a prepaid royalty asset due to the termination of a royalty agreement[151] Gain (loss) on remeasurement of private warrants This section explains the gain or loss on remeasurement of private warrants, influenced by common stock market price fluctuations Gain (Loss) on Remeasurement of Private Warrants (in thousands) | Period | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :----- | | Gain (loss) on remeasurement of private warrants | $(33) | $7,007 | $(7,040) | - The current period loss was due to an increase in the market price of common stock, contrasting with a gain in the prior year period due to a stock price decrease[152] Interest expense This section analyzes the significant increase in net interest expense for the six-month period, primarily due to new debt Interest, net (in thousands) | Period | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change | | :---------------- | :----------------------------- | :----------------------------- | :----- | | Interest, net | $(12,548) | $(1,644) | $(10,904) | - The increase in interest expense resulted from the incurrence of the Senior Secured Term Loan in March 2023 and a reduction of capitalized interest[153] Income taxes This section discusses income tax changes and the impact of valuation allowances on effective tax rates for the six-month period Income Taxes (in thousands) | Period | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change | | :---------------- | :----------------------------- | :----------------------------- | :----- | | Income taxes | $151 | $531 | $(380) | - Effective tax rates differed from the federal statutory rate of 21% due to valuation allowances against net deferred tax assets[154] Net loss This section summarizes the factors contributing to the increased net loss for the six-month period Net Loss (in thousands) | Period | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change | | :---------------- | :----------------------------- | :----------------------------- | :----- | | Net loss | $(75,880) | $(56,831) | $(19,049) | - The increase in net loss was primarily attributable to increased interest expense, a loss on remeasurement of private warrants (vs. prior year gain), and decreased gross profit, partially offset by decreases in operating expenses[155] Liquidity and Capital Resources This section assesses the company's cash position, working capital, and ability to meet future obligations, including facility financing - As of June 30, 2023, the company had $90.8 million in cash and cash equivalents and $130.8 million in working capital, believing it has adequate liquidity for the next twelve months[156] - Construction of the Greenfield Facility is suspended, with $186.7 million invested, and completion is contingent on additional financing (estimated cost $515M-$665M)[157] - Significant borrowing facilities include $240 million Convertible Senior Notes (due 2026) and a $130 million Senior Secured Term Loan (closed March 2023)[158][159][162] Cash Flows for the Six Months Ended June 30, 2023 and 2022 This section provides a comparative analysis of cash flows from operating, investing, and financing activities Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(21,151) | $(37,393) | | Net cash used in investing activities | $(23,041) | $(108,809) | | Net cash provided by financing activities | $85,029 | $71 | - Net cash used in operating activities decreased primarily due to changes in working capital, specifically accounts receivable and inventories[166] - Net cash provided by financing activities increased significantly due to proceeds from the $130 million Senior Secured Term Loan, net of issuance costs and debt repayments[168] Off-balance Sheet Arrangements This section confirms the absence of material off-balance sheet arrangements as of the reporting date - As of June 30, 2023, the company reported no material off-balance sheet arrangements[168] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to various market risks, particularly commodity price fluctuations for key raw materials, and states that derivatives are not used for speculative purposes Commodity Price Risk This section identifies the company's exposure to price volatility for key raw materials and its potential impact on profitability - The company is exposed to commodity price risk for raw materials such as PLA, polybutylene succinate (PBS), polybutylene adipate terephthalate (PBAT), and canola oil[171] - Fluctuations in these prices, influenced by market demand and global events like the Ukraine conflict, can impact product margins and profitability[171] Item 4. Controls and Procedures This section addresses the effectiveness of the company's disclosure controls and procedures, acknowledging their inherent limitations while confirming their effectiveness as of June 30, 2023, and reporting no material changes in internal control over financial reporting Limitations on Effectiveness of Controls and Procedures This section acknowledges that control systems offer reasonable, not absolute, assurance against errors and fraud due to inherent limitations - Management acknowledges that control systems provide only reasonable, not absolute, assurance against errors and fraud due to inherent limitations such as faulty judgments, simple errors, and circumvention[172] Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures as evaluated by senior management - The Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of disclosure controls and procedures as of June 30, 2023[174] - They concluded that the disclosure controls and procedures were effective in ensuring material information is recorded, processed, summarized, and reported timely[174] Changes in Internal Control over Financial Reporting This section reports no material changes in internal control over financial reporting during the quarter - There were no changes in internal control over financial reporting during the three months ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[175] PART II. OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity security sales, and a list of exhibits filed with the report Item 1. Legal Proceedings This section refers to Note 14 of the Condensed Consolidated Financial Statements for detailed information regarding legal proceedings - Details on legal proceedings are provided in Note 14 to the Notes to the Condensed Consolidated Financial Statements[177] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes in risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[178] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds for the period - No unregistered sales of equity securities or use of proceeds occurred during the period[179] Item 6. Exhibits This section lists the exhibits filed with the quarterly report, including a financing agreement amendment, executive officer certifications, and Inline XBRL documents - Exhibits include the First Amendment to Financing Agreement (10.1), Certifications of Principal Executive Officer (31.1) and Principal Financial Officer (31.2, 32.1), and various Inline XBRL documents[180] SIGNATURES This section formally attests to the accuracy and completeness of the quarterly report by the principal executive and financial officers - The report was signed on August 8, 2023, by Stephen E. Croskrey, Chief Executive Officer, and Michael A. Hajost, Chief Financial Officer[182]