Origin Materials, Inc. Q3 FY2025 Earnings Call

Thank you for standing by. This is the conference operator. Welcome to the Origin Materials Third Quarter 2025 Earnings Call. The conference is being recorded. At this time, for opening remarks and introductions, I will turn the call over to Ryan Smith, Co-Founder and Chief Product Officer. Please go ahead.

Thank you. Good afternoon, and thank you for joining us, everyone. Speaking first today is Origin's CEO and Co-Founder, John Bissell; followed by CFO and CEO, Matt Plavan. Then we'll open the call to questions from analysts and discuss questions submitted as part of this quarter's "Ask Origin" campaign. Ahead of this call, Origin has issued its 2025 third quarter press release and presentation. These can be found on the Investor Relations section of our website at originmaterials.com. Please note that during our discussion today, we will be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our views as of today, should not be relied upon as representative of views of any subsequent date, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. These statements are subject 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 quarterly report on Form 10-Q filed today. 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 a substitute for or in isolation from GAAP results. You will find additional disclosures regarding the non-GAAP financial measures discussed on today's call in our press release issued this afternoon and our filings with the SEC, which will be posted to our website. The webcast of this call will also be available in the Investor Relations section of our company website. And with that, I will turn the call over to John.

Thank you, Ryan. Good afternoon. Today, we are announcing financing that strengthens our balance sheet and provides access to additional capital that can be staged according to our manufacturing capacity build-out. This financing fuels the scale-up of PET cap production. Our financing is composed of debt financing, both equipment-backed and corporate-level debt with the flexibility to optimize cash management and cost of capital by optionally servicing the debt with equity. Following our evaluation of multiple corporate financing structures over the past couple of quarters, we have executed a secured convertible debt facility with an initial close of $15 million in cash by the end of the month, with the capacity for additional tranches up to a total of $90 million as needed to maintain a healthy cash flow and to fund growth. During the third quarter, we evaluated a number of term sheets for CapFormer equipment financing and from those in the fourth quarter added USD 20 million in equipment backed financing capacity, bringing our total equipment financing capacity to approximately $30 million. We believe the funding from these two sources will enable us to continue to keep pace with our manufacturing build-out and to serve the forthcoming volume orders pursuant to qualification. For those new to Origin, we are making a big difference with a small cap and the technology behind it. Our technology platform produces what we believe are the only commercial-ready PET caps as opposed to the HDPE and polypropylene caps, which today dominate the over $65 billion closures market. Our platform excels in seven areas: recyclability; oxygen and CO2 barrier, enabling shelf life extension; closure diameter, which enables more economic large-format production; thickness, which enables lightweighting; rigidity for a premium feel; use of recycled content; and optical clarity. Our innovation stands to be transformative for the packaging industry. In addition to achieving key financing milestones this year, we continue to execute our operating plan. Our CapFormer deployment schedule is on track, and we are maintaining our related guidance. As such, we continue to expand PET cap production capacity in accordance with our revenue growth strategy. We remain on track for completing factory acceptance testing through CapFormer Line 6 by the end of 2025. To optimize capital deployment, Line 7 and Line 8 startup could extend into Q1 2027, updated from Q4 2026. On the commercialization front, we are executing our water first go-to-market strategy with line of sight to our revenue targets in 2026. Last quarter, in California, we put our closures on what we believe are the only beverage products on the market with PET caps. Since then, we've built sales momentum globally, marketing our products in North America, Europe, South America, and Asia and bolstering our customer pipeline in accordance with our water first growth strategy. In recent months, our sales team displayed PET caps at key international conferences for the plastic parts and beverage industries and it is clear that Origin holds a strong lead in PET cap commercialization. Water customer demand is strong, growing and provides a path on the way to CSD sales. More than half of the water brands in Origin's customer qualification funnel are also potential CSD customers. This quarter, our customer Berlin Packaging placed its first order, which we are now in the process of fulfilling. Berlin Packaging is a respected market leader and represents a sales and distribution partner for Origin. Berlin's broad and deep distribution footprint not only extends our market reach for 1881, but opens the door for all our forthcoming formats across closure applications globally. You can find more about our Berlin Packaging relationship in our August 2025 release. We extended our technology lead this quarter by making significant progress with two priority challenges: impact resistance and multi-day heated horizontal stress testing. Amongst separate cap designs, we successfully exceeded performance requirements for both of these tests. In upcoming production trials, we expect to consolidate these features into a single cap design. With that, I'll hand it over to Matt, who will discuss the quarter's financing and strategic highlights and provide a review of our expected near-term financial performance.

Thanks, John, and good afternoon, everyone. First, while the details of the convertible debt financing will be published in the 8-K to be filed in the coming days, I would like to share a qualitative perspective on our financing strategy. We expect the next several quarters to be operationally dynamic at Origin with concurrent executions of a number of critical workflows, including key design iterations, multiple customer qualification processes, and significant capital equipment acquisition and capacity build-out activities. At the moment, we believe the combination of our equipment financing and convertible debt instrument is the optimal funding strategy for the agility to best respond to the rapidly evolving working capital needs and to have ready access to future equipment funding at the optimal cost of capital for a given situation. We anticipate drawing additional tranches in 2026 as needed, although we are not obligated to do so. It is at our discretion, contingent upon meeting certain minimum equity and financial conditions. Similarly, it is the company's decision whether to service any outstanding debt with either cash or shares, contingent on meeting certain minimum liquidity requirements. Second, our revenue and run rate adjusted EBITDA guidance remains unchanged. Before consideration of potential strategic review outcomes, we continue to expect 2026 revenues of $20 million to $30 million, 2027 revenues of $100 million to $200 million, and we continue to expect to reach EBITDA adjusted run rate breakeven in 2027. Third, during this quarter, Origin settled securities litigation with no finding of liability or wrongdoing. Announced in October 2025, Origin entered into binding agreements to settle the shareholder class action lawsuit and the related derivative lawsuit initially filed in August 2023 and March 2025, respectively, pending in the United States Court for the East District of California. The proposed settlement, which will be fully covered by insurance, resolves all claims asserted against Origin and the other named defendants in the lawsuit. Even when a company has strong confidence in its position, which Origin does, the way the litigation process works, it can often cost more to fight through vindication than it does to settle and make the case go away. This settlement allows us to avoid distractions associated with the lawsuits and avoid uncertainty and focus on our core business. Lastly, Origin's strategic review engagement with RBC Capital Markets announced in our Q2 2025 earnings release is progressing well with productive engagement from potential counterparties. We look forward to sharing more on this topic as appropriate. With that, I'll pass it back to John for concluding remarks.

Thanks, Matt. I'll conclude with the following: We secured financing that strengthens our balance sheet and provides access to substantial additional capital. We are the clear technology leader for PET caps poised to grow and dominate a new market category. We are making strong progress with respect to our manufacturing capacity build-out and product development, and demand is strong, both for water and CSD applications. We look forward to sharing our milestones with you as we progress in our mission centered on the future of packaging, sustainable materials and recycling that actually works. With that, I'll open up the call for questions. Operator, may we have the first question please?

Our first question today comes from Frank Mitsch with Fermium Research.

Congratulations on the financing. I have a couple of questions regarding the cash position and the convertible debt financing. You're set to receive $15 million by the end of this month, with the option to access an additional $75 million later, totaling $90 million. Matt, you mentioned there are certain milestones that need to be achieved for the future funding. Is that correct? Could you describe those milestones?

Yes. Frank, thanks for the question. And at this point, the 8-K with the deal terms, it's going to be out by month end, probably sooner. And frankly, I think it's best to see all the terms together at one time in order to get a proper understanding of how the instrument works. And so I think I need to wait until we file that to really get into a level of detail beyond what we did in the prepared comments. So I think that's the approach we should take at the moment.

All right. Fine. I'll be on the lookout for that. The burn rate in the third quarter was $15 million. It's a little bit higher than perhaps I've been thinking. Can you offer your outlook in terms of the burn rate for the next couple of quarters?

The burn rate currently reflects our operating expenses, which are cash-based. In the first half of the year, our combined operating expenses were around $20 million, with additional spending on CapEx for CapFormers. In the third quarter, our operating expenses were approximately $10 million, and CapEx was about $5 million, showing consistency. Looking ahead to 2026, this spending trend serves as a useful guideline. As we start to generate gross profit, we will lower the net burn. However, our focus remains on building out capacity to meet demand, which is why our financing is structured the way it is. For the foreseeable future, we expect a balanced split between operating expenses and capital expenditures, roughly 50-50 or 60-40.

Terrific. And John, you indicated that Lines 2 and 4 are going to be starting up in the fourth quarter and in the first quarter. And I was wondering if you could give us an idea as to when you expect that that's going to be generating acceptable product quality for the customers because it's kind of important, I guess, given the NASDAQ delisting, I guess, is you're extended until April of 2026. So if these lines are up and running and you're qualified, et cetera, then I think there could be scope to see the stock get to $1 on its own. But yes, if you can give us a little more color on the start ups of Lines 2 and 4, please?

So we're making good progress on the start up of those lines already. And we're excited to get them up running and producing consistent product that we can test with our customers. As we said before, it can be a little bit tricky to predict exactly when we're going to get line time with customers to do that qualification on the customers' lines, right? So first, you've got to get our lines up and running, and then you've got to be take that product from those lines and specifically use it in the customer lines, check that off. And then you can figure out exactly what the timing is to start generating revenue off of that and making sales into that customer line. But we do think that we can make really significant progress across all of those items in the window that you were just referring to, which is really sort of through the end of Q1. We think we can do a lot across those. We're sort of not ready to commit on any single particular customer at this point, but we really think we can make a lot of progress across all of those. There's plenty of time for us to do that, and we like the way that the Lines 2 and 4 are starting up right now anyway.

All right. Very helpful. Lastly, speaking of customers, you received your first order from Berlin Packaging. I assume that this is for a water application and that you've completed the necessary qualifications. Can you provide any details about this first order and your expectations for future orders from Berlin Packaging?

Yes, we're excited to ship it and are looking forward to receiving feedback from Berlin's customers. We anticipate that discussing what we've learned from them will be part of next quarter's agenda. We have been actively working on establishing our customer support service, focusing primarily on product development and customer engagement in a methodical way with Berlin. The key difference here is that we don’t have direct control over which customers will use our caps, so it’s essential for us to be able to provide responsive customer service rather than planning too far ahead. We are pleased that we have this capability in place, and it should provide us with valuable insights into the performance of our cap and its usage. As is common with applications, using something can reveal unexpected insights, which is particularly exciting for us as engineers and scientists.

Now I'll turn it over to Ryan Smith, Co-Founder and Chief Product Officer for a Q&A section answering Ask Origin questions submitted by investors prior to today's call.

Thank you, operator. Prior to our earnings call, we invited all investors to submit questions as part of our Ask Origin campaign. So thank you so much to everyone who participated. These questions were, of course, submitted before our call today, and we answered many of them thoroughly with our prepared remarks. We will generally be answering the most relevant questions today during the time that we have. So let's start with the first question. The investor asks, could you please provide more explanation about the various phases of qualification and their significance? And this is specifically in reference to qualification of the Lines, terms like FAT and SAT.

Yes. I appreciate your comment, Ryan, as it highlights something important. We discuss qualification in two different contexts. One involves qualifying our product with customers on their bottling lines, which has been a key focus for us over the past year. This process includes sending our caps to customers, allowing them to test our caps on their bottling lines. Customers evaluate the caps' performance in terms of throughput and quality. Potential issues could arise, such as misapplication of caps or bottling system jams. The other aspect customers analyze is how our caps perform with their finished products. This includes checking for proper application levels, as under-application may affect usability, while over-application could cause issues like difficulties in removing the cap. These considerations are part of the customer qualification process, which also involves ensuring that our specific cap design works well with their equipment. It may require adjusting settings on their lines to optimize performance. Crucially, we need access to our customers’ operating lines to run tests, gather data, and confirm that our caps function correctly before they can be incorporated into their product cycles. However, I realize that this wasn’t the primary focus of your question, which pertains to our qualification of our own cap manufacturing lines. During factory acceptance testing, or FAT, we assess the performance of equipment at the supplier's site to ensure it meets specifications before shipping. After successful FAT, we transport the equipment, often to our Reed City manufacturing location in Michigan, where we set it up again to confirm it performs as intended. Following this, we conduct a site acceptance test, or SAT, to verify the equipment's operation once installed. Additionally, we have an internal start-up and qualification process to fine-tune the equipment for optimal performance. This phase is focused on calibrating the machinery to achieve precise specifications, ensuring that the caps produced consistently meet quality standards necessary for customer qualification.

Great. The next question from an investor asks, can you speak to the customer demand in Europe versus the U.S. given the environmental stance of the current U.S. administration and how that factors into your expected growth plans?

Yes. First, I want to emphasize that there is a notable distinction between the perception of sustainable materials or climate technology, such as low-carbon materials, and sustainability efforts focused on end-of-life and recycling. These topics are often addressed by different teams within larger organizations, and they may be managed by different individuals even if they report to the same overarching sustainability department. This results in varying consumer influences. While we, like others, have observed a shift in the conversation surrounding climate issues, our commitment to the significance of climate remains unchanged. However, the general sentiment regarding climate has evolved. We have not experienced a decline in focus on end-of-life recycling initiatives or sustainability projects. In the U.S., we continue to see strong momentum, similar to before, in addressing recycling and end-of-life challenges, particularly concerning plastics. The same holds true in Europe, where interconnected activities are influencing end-of-life efforts in the U.S. We identify robust demand arising from the desire for recycling and sustainability. Moreover, as consumers become increasingly connected to the issue of plastic and microplastics, we believe this awareness is promoting recycling, which we think ultimately benefits PET significantly compared to other packaging materials. We're genuinely optimistic about these demand drivers and believe the outlook for PET caps is very positive.

Excellent. All right. And so this next question, I think, was motivated by the fact that Origin has participated in a number of trade shows recently. The investor asks, have any concrete developments come from your recent spate of trade shows in the U.S. and Europe?

Yes. So not things that we're ready to sort of communicate externally. A lot of these deals can take quite a long time. There's a lot of involvement especially if it's not just a straight up, I'm going to buy some caps from you that you're already making. And obviously, in our face of life, there are a lot of transactions or sort of commercial development activities that involve something that we could do or will do in the future or those kinds of things. And those take a little while to be able to communicate out. So lots of concrete things that happened there. Not all things that we can talk about. But I will say our sales team and our business development team has been really busy with the outputs of not just those trade shows, but in general, and I think that our experience so far has been as people become aware of what we are doing, we get a lot of inbound interest as a result of that. And so that sort of qualitatively tells us that there's lots and lots of markets that we haven't touched, haven't tapped, isn't aware of us. It's going to be valuable for us to continue to push our message and show people our product and that there is a high percentage of the market that is very interested in PET caps across the board, both small companies and large competitors.

Yes. That makes sense. All right. And then last question here, John, to close this out. What do we have to get excited about as we look into the future?

We are excited about the capacity we are bringing online, as it will allow us to better serve larger customers. We are also enthusiastic about new product features and ongoing product development, which will help us access a wider market. Large customers often start with one product but are looking for a broader strategy to address sustainability issues related to non-PET materials. Demonstrating how our products can address these challenges across their entire portfolio is something we can achieve with additional product types and features, and we are eager about that. Additionally, we just closed on some financing that we believe will help us drive the business in the way we aspire to. Overall, we feel we are in a strong position, with the right products in the appropriate market and the resources needed to execute effectively. There will be much to discuss moving forward. Thank you.

Excellent. And that's all for our ASK Origin questions. Thank you, John. Thank you, Matt, and thanks to all of our investors on the line today. This concludes our call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.