Danimer Scientific(DNMR) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Danimer Scientific's unaudited Q1 2024 condensed consolidated financial statements, including balance sheets, operations, equity, cash flows, and detailed notes Condensed Consolidated Balance Sheets Total assets and equity decreased, while liabilities rose due to warrant and debt increases from December 2023 to March 2024 Condensed Consolidated Balance Sheet Summary (in thousands) | Metric (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Total assets | $688,925 | $698,131 | | Total liabilities | $432,832 | $420,111 | | Total stockholders' equity | $256,093 | $278,020 | - Warrant liability significantly increased from $5 thousand at December 31, 2023, to $9,656 thousand at March 31, 2024"[13] Condensed Consolidated Statements of Operations Net loss improved to $27.26 million in Q1 2024, despite lower revenue, driven by reduced operating expenses Condensed Consolidated Statements of Operations Summary (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Total revenue | $10,224 | $11,926 | | Cost of revenue | $16,535 | $18,209 | | Loss from operations | $(18,522) | $(32,227) | | Net loss | $(27,263) | $(36,639) | | Basic and diluted net loss per share | $(0.26) | $(0.36) | - Selling, general and administrative expenses decreased significantly from $18,699 thousand in Q1 2023 to $6,869 thousand in Q1 2024"[17] - A gain on remeasurement of warrants of $99 thousand was recorded in Q1 2024, compared to a loss of $1,116 thousand in Q1 2023"[17] Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased to $256.09 million by March 31, 2024, primarily due to net loss, partially offset by common stock issuance Condensed Consolidated Statements of Stockholders' Equity Summary (in thousands) | Metric (in thousands) | March 31, 2024 | March 31, 2023 | | :-------------------- | :------------- | :------------- | | Total stockholders' equity (end of period) | $256,093 | $355,616 | | Additional paid-in capital (end of period) | $737,465 | $690,893 | | Accumulated deficit (end of period) | $(481,384) | $(335,287) | - Issuance of common stock, net of issuance costs, contributed $4,650 thousand to additional paid-in capital in Q1 2024"[19] - Stock-based compensation expense significantly decreased from $14,065 thousand in Q1 2023 to $574 thousand in Q1 2024"[19] Condensed Consolidated Statements of Cash Flows Net cash used in operations increased to $12.99 million in Q1 2024, while investing cash use decreased, and financing provided less cash than the prior year Condensed Consolidated Statements of Cash Flows Summary (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(12,991) | $(5,865) | | Net cash used in investing activities | $(1,970) | $(16,400) | | Net cash provided by financing activities | $13,037 | $91,539 | | Net (decrease) increase in cash and restricted cash | $(1,924) | $69,274 | - Cash paid for interest, net of interest capitalized, increased from $2,942 thousand in Q1 2023 to $4,910 thousand in Q1 2024"[22] - Financing activities in Q1 2024 included $8,883 thousand from issuance of common warrants and $4,650 thousand from issuance of common stock"[22] Notes to Condensed Consolidated Financial Statements These notes offer crucial context to the condensed financial statements through detailed disclosures on business, accounting policies, and key financial items Note 1. Basis of Presentation Danimer Scientific, a bioplastic company, operates on a going concern basis, managing risks through cost reduction actions - Danimer Scientific is a performance polymer company specializing in bioplastic replacements for traditional petroleum-based plastics"[24] - Unrestricted cash resources of $57.3 million at March 31, 2024, are believed to be sufficient for liquidity requirements for more than one year"[30] - The company has implemented cost reduction actions, including reduced discretionary spending, employee headcount rationalization, increased focus on accounts receivable collections, postponed capital expenditures, and an initiative to reduce on-hand inventory levels"[33] Note 2. Inventories, net Net inventories increased slightly to $25.99 million at March 31, 2024, from $25.27 million at December 31, 2023, primarily due to raw materials Inventory Categories (in thousands) | Inventory Category (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Raw materials | $11,843 | $10,867 | | Work in process | $503 | $546 | | Finished goods and related items | $13,643 | $13,857 | | Total inventories, net | $25,989 | $25,270 | - Finished neat PHA included in finished goods and related items increased from $7.6 million at December 31, 2023, to $8.1 million at March 31, 2024"[34] Note 3. Property, Plant and Equipment, net Net property, plant and equipment decreased to $439.83 million at March 31, 2024, with Greenfield Facility construction paused pending financing Property, Plant and Equipment Summary (in thousands) | Asset Category (in thousands) | March 31, 2024 | December 31, 2023 | | :---------------------------- | :------------- | :---------------- | | Total property, plant and equipment, net | $439,834 | $445,153 | | Construction in progress | $203,617 | $202,998 | - Major construction on the Greenfield Facility has been paused, and completion is contingent upon obtaining additional financing, with an estimated cost ranging from $515 million to $665 million (2022 estimate)"[36] Depreciation and Amortization Expense (in thousands) | Depreciation and Amortization Expense (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of revenue | $5,147 | $5,213 | | Research and development | $2,031 | $2,082 | | Selling, general and administrative | $353 | $284 | | Total depreciation and amortization expense | $7,531 | $7,579 | Note 4. Intangible Assets Net intangible assets, primarily patents and know-how, decreased slightly to $77.17 million at March 31, 2024, with consistent amortization expense Intangible Assets Summary (in thousands) | Metric (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Intangible assets, net | $77,169 | $77,790 | - Amortization expense for intangible assets was $1.1 million for both the three months ended March 31, 2024, and 2023, included in research and development costs"[39] Note 5. Accrued Liabilities Total accrued liabilities increased to $6.48 million at March 31, 2024, mainly due to higher accrued interest and professional fees Accrued Liabilities Summary (in thousands) | Accrued Liability (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------- | :------------- | :---------------- | | Accrued interest | $2,399 | $440 | | Accrued legal, consulting and professional fees | $1,408 | $839 | | Compensation and related expenses | $508 | $1,692 | | Total accrued liabilities | $6,484 | $4,726 | Note 6. Income Taxes The company reported immaterial income tax expense for Q1 2024, resulting in a zero effective tax rate due to valuation allowances - Immaterial income tax expense for Q1 2024 resulted in an effective income tax rate of zero percent"[41] - The effective tax rates differed from the federal statutory rate of 21% due to valuation allowances against substantially all net deferred income tax assets"[41][44] Note 7. Leases Total operating lease costs increased to $1.04 million in Q1 2024, primarily driven by higher costs allocated to cost of revenue and R&D Operating Lease Cost (in thousands) | Operating Lease Cost (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of revenue | $754 | $581 | | Selling, general and administrative | $33 | $137 | | Research and development | $248 | $76 | | Total operating lease cost | $1,035 | $794 | Note 8. Warrant Liability Warrant liability significantly increased due to the issuance of 15 million Common Warrants in March 2024, partially offset by a remeasurement gain - 3,914,525 Private Warrants were outstanding at March 31, 2024, with an exercise price of $11.50 per share, expiring December 28, 2025"[47] - 15,000,000 Common Warrants were issued on March 25, 2024, with an exercise price of $1.33 per share, exercisable from September 25, 2024, and expiring September 25, 2029"[50][51] Warrant Liability (in thousands) | Warrant Liability (in thousands) | March 31, 2024 | | :------------------------------- | :------------- | | Private Warrants liability | $(206) | | Common Warrants liability | $(9,450) | Note 9. Debt Total long-term debt, net, increased slightly to $384.23 million at March 31, 2024, including Convertible Senior Notes and a Senior Secured Term Loan Debt Components (in thousands) | Debt Component (in thousands) | March 31, 2024 | December 31, 2023 | | :---------------------------- | :------------- | :---------------- | | 3.25% Convertible Senior Notes | $240,000 | $240,000 | | Senior Secured Term Loan | $130,000 | $130,000 | | New Market Tax Credit Transactions | $45,700 | $45,700 | | Total long-term debt, net | $384,229 | $381,436 | - The Convertible Notes accrue interest at 3.25% per annum, payable semi-annually, and mature on December 15, 2026"[55] - The Senior Secured Term Loan accrues interest at a fixed annual rate of 14.4% and requires $12.5 million to be held in an interest-payment reserve account (restricted cash)"[57] Note 10. Equity Common stock outstanding increased to 114.24 million shares at March 31, 2024, due to new issuances, with 57.24 million anti-dilutive instruments excluded Common Stock Activity | Common Stock Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Balance, beginning of period | 102,832,103 | 101,804,454 | | Issuance of common stock | 11,408,818 | 133,922 | | Balance, end of period | 114,240,921 | 101,938,376 | - As of March 31, 2024, $48.6 million remains available for distribution under the ATM Offering, which was amended to reduce the total offering price from $100.0 million to $50.0 million"[72] Anti-dilutive Instruments (shares) | Anti-dilutive Instruments (shares) | March 31, 2024 | March 31, 2023 | | :--------------------------------- | :------------- | :------------- | | Convertible Notes | 22,250,040 | 22,250,040 | | Common Warrants | 15,000,000 | - | | Employee stock options | 9,253,370 | 12,044,231 | | Private Warrants | 3,914,525 | 3,914,525 | | Pre-Funded Warrants | 3,750,000 | - | | Senior Secured Term Loan Warrants | 1,500,000 | 1,500,000 | | Total excluded instruments | 57,237,580 | 42,104,573 | Note 11. Revenue Total revenue decreased to $10.22 million in Q1 2024, driven by lower PLA-based product sales and service revenue, despite significant PHA-based product growth Revenue by Category (in thousands) | Revenue Category (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------ | :-------------------------------- | :-------------------------------- | | Products | $9,955 | $11,096 | | Services | $269 | $830 | | Total revenue | $10,224 | $11,926 | Geographic Revenue (in thousands) | Geographic Revenue (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Domestic | $9,729 | $10,274 | | Portugal | $180 | - | | Poland | $155 | $77 | | Switzerland | $91 | - | | All other countries | $69 | $1,575 | | Total revenues | $10,224 | $11,926 | - PHA-based product sales increased by $3.2 million (64%) in Q1 2024 compared to the prior year quarter, representing 82% of product revenues"[156] - PLA-based product sales decreased by $4.3 million due to a 59% decrease in volumes and a 33% decrease in weighted average selling price, partly attributed to the conflict in Ukraine"[156] Note 12. Stock-Based Compensation Total stock-based compensation expense significantly decreased to $0.97 million in Q1 2024, primarily due to certain executive awards being fully amortized Stock-Based Compensation (in thousands) | Stock-Based Compensation (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of revenue | $3 | $2 | | Selling, general and administrative | $818 | $13,318 | | Research and development | $145 | $1,623 | | Total stock-based compensation | $966 | $14,943 | - As of March 31, 2024, 4,519,719 shares remained authorized for issuance under the 2020 Incentive Plan"[87] - Unrecognized compensation cost related to unvested stock options and restricted shares was $2.7 million as of March 31, 2024, expected to be recognized over a weighted-average period of 0.9 years"[103] Note 13. Fair Value Considerations The company categorizes financial instruments into a three-tier fair value hierarchy, with Level 3 instruments valued using the Black-Scholes model - The fair value of Convertible Notes was approximately $17.8 million at March 31, 2024"[106] - The estimated fair value of the Senior Secured Term Loan was approximately $40.5 million at March 31, 2024"[109] Black-Scholes Inputs (Common Warrants) | Black-Scholes Inputs (Common Warrants) | March 31, 2024 | March 25, 2024 | | :------------------------------------- | :------------- | :------------- | | Share price of our common stock | $1.09 | $1.08 | | Expected volatility | 68.42% | 72.80% | | Risk-free rate of return | 4.12% | 4.15% | | Expected warrant term (years) | 5.49 | 5.50 | | Fair value determined per warrant | $0.63 | $0.65 | Note 14. Commitments and Contingencies The company is involved in consolidated class action and shareholder derivative lawsuits, with no losses accrued due to estimation inability, and responded to an SEC inquiry - Multiple class action and shareholder derivative lawsuits have been filed against the company and its directors/officers, alleging violations of federal securities laws and breach of fiduciary duty"[116][117][121] - The court granted the Defendant's motion to dismiss the consolidated class action lawsuit in full on September 30, 2023, which is currently under appeal"[120] - The company has not accrued any losses for these legal matters as of March 31, 2024, due to the inability to estimate the likelihood or amount of loss"[122] - The company voluntarily produced requested information to the SEC in connection with a non-public, fact-finding inquiry"[123] Note 15. Subsequent Events Subsequent to quarter-end, Danimer Scientific entered a $20.0 million Revolving Credit Agreement and proposed a Dividend Warrants distribution subject to shareholder approval - On April 19, 2024, the company entered into a Revolving Credit Agreement for $20.0 million, secured by accounts receivable and inventory, accruing interest at SOFR plus 7%, and maturing on April 19, 2027"[125][126][127] - On May 2, 2024, the Board of Directors proposed a distribution of Dividend Warrants to stockholders, contingent on shareholder approval to increase authorized common stock shares at the July 9, 2024 annual meeting"[128] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's Q1 2024 financial condition and results, discussing revenue, expenses, current developments, and liquidity Introductory Note The introductory note reiterates the company's history, including its formation as a SPAC and subsequent acquisitions of Meredian Holdings Group and Novomer - Danimer Scientific was formed through a business combination with Meredian Holdings Group, Inc. (Legacy Danimer) on December 29, 2020, and later acquired Novomer, Inc. on August 11, 2021"[134][135] Overview Danimer Scientific is a bioplastic company specializing in biodegradable replacements for petroleum-based plastics, expanding PHA production capacity with a paused Greenfield Facility - Danimer Scientific is a performance polymer company specializing in bioplastic replacements for traditional petroleum-based plastics, combining base polymer production with reactive extrusion capacity"[136] - The company produces PHA-based resins (Nodax brand) through fermentation and PLA-based resins, designed as 'drop-in' replacements for petroleum plastics"[137][141] - Construction of the Greenfield Facility in Bainbridge, Georgia, with a planned annual production capacity of approximately 125 million pounds, has been suspended, and completion is contingent upon securing additional financing"[139] Key Factors Affecting Operating Results Revenue is driven by PHA adoption, new PLA products, and R&D contracts, while expenses are influenced by raw material costs, personnel, and overhead - PHA-based revenue drivers include the pace of material adoption and the ability to bring additional production capacity online, such as the Greenfield Facility"[146] - Service revenue is primarily impacted by the timing and execution of customer R&D contracts, which are expected to lead to long-term supply agreements"[147] - Cost of revenue includes raw materials, personnel, production overhead, rent, utilities, and depreciation, while SG&A covers corporate administration and non-direct production/R&D expenses"[148][149] Current Developments In Q1 2024, Danimer advanced biodegradable packaging with a commercial coffee pod shipment and customer agreements, though the Ukraine conflict continues to impact sales and costs - Completed the first commercial shipment of compostable single-use coffee pod capsule resin to Delta Cafes"[154] - Made additional progress in negotiating development and supply agreements with blue-chip customers"[154] - The conflict in Ukraine has led to a decline in PLA product sales, supply chain challenges, and increased logistics and raw material costs, particularly for canola oil"[152] Results of Operations for the Three Months Ended March 31, 2024 and 2023 Total revenue decreased by 14% year-over-year, but net loss improved due to substantial reductions in selling, general, and administrative expenses Results of Operations Summary (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change ($) | Change (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Total revenue | $10,224 | $11,926 | $(1,702) | -14.3% | | Cost of revenue | $16,535 | $18,209 | $(1,674) | -9.2% | | Gross profit | $(6,311) | $(6,283) | $(28) | -0.4% | | Selling, general and administrative | $6,869 | $18,699 | $(11,830) | -63.2% | | Research and development | $5,342 | $7,075 | $(1,733) | -24.5% | | Loss from operations | $(18,522) | $(32,227) | $13,705 | 42.5% | | Net loss | $(27,263) | $(36,639) | $9,376 | 25.6% | - PHA-based product sales increased by $3.2 million, or 64%, in Q1 2024, representing 82% of product revenues"[156] - The improvement in selling, general and administrative expense primarily relates to decreases in stock-based compensation of $12.5 million"[159] Liquidity and Capital Resources As of March 31, 2024, Danimer Scientific had $57.3 million in cash and equivalents, deemed sufficient for the next twelve months, though Greenfield Facility completion requires additional financing - As of March 31, 2024, the company had $57.3 million in cash and cash equivalents and $31.4 million in other working capital"[164] - Management believes current liquidity is adequate to fund operations for the next twelve months"[164] - Completion of the Greenfield Facility, which has an estimated cost of $515 million to $665 million, is contingent upon receiving additional financing, with $187.8 million already invested"[165] Cash Flows for the Three Months Ended March 31, 2024 and 2023 Net cash used in operating activities increased to $13.0 million in Q1 2024, while investing cash use decreased, and financing provided less cash than the prior year Cash Flow Activity (in thousands) | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(12,991) | $(5,865) | | Net cash used in investing activities | $(1,970) | $(16,400) | | Net cash provided by financing activities | $13,037 | $91,539 | - The increase in cash outflows from operating activities is primarily due to a full quarter of interest payments related to the Senior Secured Term Loan in Q1 2024"[174] - Financing activities in Q1 2024 included $13.5 million from the issuance of warrants and common stock, net of issuance costs"[176] Off-balance Sheet Arrangements As of March 31, 2024, Danimer Scientific has no material off-balance sheet arrangements likely to affect its financial condition or results - The company has no material off-balance sheet arrangements as of March 31, 2024"[176] Item 3. Quantitative and Qualitative Disclosures About Market Risk Danimer Scientific is exposed to commodity price risk for raw materials, with prices fluctuating due to market demand and global events, but does not use derivatives for speculative purposes - The company is exposed to commodity price risk for raw materials such as PLA, PBS, PBAT, and canola oil, with prices fluctuating based on market demand and global events like the Russian invasion of Ukraine"[177][179] - Product margins and profitability may fluctuate depending on whether increases in raw material costs are passed on to customers"[179] - The company does not enter into derivatives or other financial instruments for trading or speculative purposes"[177] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2024"[182] - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2024"[183] - Control systems provide only reasonable, not absolute, assurance and have inherent limitations, including potential for faulty judgments or circumvention"[180] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 14 of the financial statements for detailed information on legal proceedings, including class action and shareholder derivative lawsuits, and an SEC inquiry - Refer to Note 14 for detailed information on legal proceedings"[185] Item 1A. Risk Factors There have been no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes in risk factors from the Annual Report on Form 10-K for the year ended December 31, 2023"[186] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report during the period - No unregistered sales of equity securities or use of proceeds to report"[187] Item 5. Other Information No Rule 10b5-1 trading arrangements were adopted or terminated by directors, officers, or the company during the three months ended March 31, 2024 - No Rule 10b5-1 trading arrangements were adopted or terminated by directors, officers, or the company during the three months ended March 31, 2024"[188] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various agreements, warrants, and certifications from executive officers - Exhibits include forms of Pre-Funded Common Stock Purchase Warrant and Common Stock Purchase Warrant, Placement Agency Agreement, Securities Purchase Agreement, and Credit and Security Agreement"[190] - Certifications from the Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act of 2002 are included"[190] Signatures The report is duly signed on behalf of Danimer Scientific, Inc. by Stephen E. Croskrey, Chief Executive Officer, and Michael A. Hajost, Chief Financial Officer, on May 7, 2024 - The report was signed by Stephen E. Croskrey, Chief Executive Officer, and Michael A. Hajost, Chief Financial Officer, on May 7, 2024"[194]