Hey everyone, and welcome to our mid-quarter investor Q&A video. Today you're going to see a shift in our investor relations efforts. Namely, we want to focus the investor relations conversation on Origin's path to profitability, caps, and closures. So we won't be discussing Origin's biomass conversion technology platform, furanics, this time. But rest assured, we'll update our investors about furanics when we have something meaningful to share. We also want a lively, concise discussion, so we're going to answer the most relevant questions rather than attempt to be exhaustive. The result should be informative and focused on the topics that are most relevant to Origin investors and focused on our path to profitability. So we received a lot of questions trying to understand our caps business: questions about economics, long-term vision, plan for setting up multiple caps lines, revenue generation, expansion into new product areas.
So we're going to deliver a sort of caps business 101 today, and we're going to talk about what this business looks like and why we're excited for it. So first, Rich, if I can ask you, give us an overview of why the caps business is attractive as an investment and what we can expect from it.
Sure. Happy to walk through that. I think at the highest level, it's a very big market, over $65 billion and growing. And what's fortunate is that this market has wanted PET caps for a long time. So there's pent-up demand. You don't really have to sell it like you would if you were, no one had ever thought of something before. And so they really wanted this. And one of the reasons they've wanted this for a long time is because a lot of these packaging decisions that involve marketing, procurement, R&D, manufacturing, a lot of times they have to make really difficult trade-offs: performance of the material, price, sustainability. Does it just mean you have to change a bunch of other things? And what's nice with our product is you get a big increase in stability, an increase in performance.
It's drop-in, so you don't have to change anything, and it's all for a reasonable price, so when you look at the way these companies are managing their sort of packaging strategy, this is a pretty easy one relative to a lot of the other decisions that they face. It really helps them on improving performance, and dramatic increases in sustainability is not something that you typically get where they have to make a lot of changes to your process, so that's really attractive, and I think for us to be able to go into that situation with a highly differentiated and proprietary product is really attractive, and so I think of it as having product-market fit in terms of the market has wanted exactly what we're bringing to it, and we are uniquely positioned to be able to bring that product.
And so that creates a really exciting setup for us to then go into scale-up. And so you've seen us talking about ordering the machines and how we scale into this market, which has relatively short timelines to scale, relatively straightforward scaling, and all attractive economics. And so that's where we're very focused on execution. And I think the next sort of six to 12 months will be a very critical execution phase as we bring these caps to market.
Got it. No, that's a helpful overview. We received some questions specifically kind of in that same vein, but asking about some of the biggest hurdles from the demand side. And I'm just going to read one of them directly here because I think it encapsulates it. Investor asks, "Rich, it sounds like demand for the company's PET caps is through the roof, and it will be a real challenge to address it all. With that incredible demand in mind, what would you say is the biggest hurdle for potential customers to actually sign on the dotted line and become customers? Do they want to see more trial runs? Are they afraid the company won't be able to address their demand needs? Is more testing required? It'll be good to get your thoughts.
And additionally, it would be great to get your thoughts about hurdles for potential licensees that they want to clear before they're comfortable signing licensing deals as well.
Sure. So at a high level, we're confident we'll be able to sell every cap that we can make and that there is just enormous demand out there. I would say, just like I was saying, people have wanted this for a long time. They've also been told it's impossible for a long time. And so if you're involved in buying caps or making caps decisions, you've likely been told that by somebody that you trust that it's not possible. And so that creates a natural level of skepticism. And it's one of the reasons we've been very transparent in bringing our prospective customers along on the technical journey with us, including attending trials and standing sort of shoulder to shoulder with us as we go through this process. And so I think they're all very encouraged by what they've seen.
It was a big announcement when we announced our CapFormer Factory Acceptance Test recently, and so I think actually being up and running is the ultimate milestone for customers to enter into sort of binding contracts to buy caps and things like that, and so I think that's the biggest. The other one is that it's a big cap market. We're coming to market with two particular products, the 1881 and the 1881 tether, and a lot of customers are approaching one another for expenses and things like that, and so we're going through the process internally of figuring out which one comes next and prioritizing that, and so some customers are a little further away than the 1881 launch, which is imminent.
That's great.
Also, if I can jump in real quick on this, right? There's a lot of what's called a, maybe I'll call them minor features, which is not to undersell them, but not at the level of what Rich's just talking about in terms of Tether or 1881 formats, but smaller features which are still important to our customers. And optimizing some of those features for particular customers is something we think about quite a bit too. And as a consequence, we were just kind of saying people said this is realistic to expect a PET cap, getting those caps with that particular feature from a production level line that we can give to customers so that they can run them on their own, trial them on their own lines. That just takes some time. And it's something that is really important for these customers.
They really don't want to see their lines go down because the cap wasn't trialed long enough, or even to slow down if the cap wasn't trialed long enough, those kinds of things, so it just makes it so that the organization of the lines operating with all of the different components that they want to see, that is the final off-take agreements for a lot of these things in our expectation.
Yeah, full qualification process. I want to circle back to the other part of that question asking about licensees. Is there anything you want to say there, Rich, about sort of the role or John, about the role of licensees and how that figures into sort of the aperture of Origin's strategy and approach to the deals?
Yeah, I think licensing conversations are active. We think that's a great way for us to get to market fast and very efficiently. And so I think it's sort of a similar process in terms of going through all the various trial processes. And then we even have some potential customers teaming us with their current suppliers and encouraging us to do that because they like having multiple sources. And so it's one of the ways for us to be a multi-source provider is to both have it come in from our manufacturing and from licensed manufacturing. So things continue to progress nicely.
Great. All right. So I'm going to transition or switch over to some questions that came in around the financial performance of the lines. And so, Matt, the next couple of questions are probably for you here. So this first question is about revenue. Essentially, how much and when? Specifically asking, what is an optimistic scenario for revenue and possible timeline?
Yeah, that's a good question. Thank you. We've given bits and pieces of revenue guidance. Let me see if I can kind of pull them together and paint a broader kind of macro picture. The first revenue guidance that we gave was back earlier in the year when we indicated that we were ordering a number of CapFormer lines with a revenue range between $45 million-$60 million for those lines up and running at full productivity. We also then announced one of our customer deals that was the first two years of, or the initial two years of that arrangement. And we characterized it as over $100 million in revenue, with a portion of it coming in in 2025, but the majority being in 2026. Of course, we expect to have more than a single customer.
As we enter into 2025, we expect that customer with others, some similar size, some smaller depending upon the product format. Clearly, we're going to have to add lines beyond the first few that we had announced to the production capability in 2025 to manage that size of production for those customers. As you look forward to 2026 and 2027, with that kind of quantum of revenue per customer, we're expecting once we're at scale 2026, 2027, that we're talking about hundreds of millions of dollars in revenue from the 1881 and other formats that we'll bring to bear over that period of time. We haven't given really specific guidance, but you can kind of get a feel that we're starting in 2025 with a ramp. By the time we hit 2026, nice steep trajectory in 2027, significant scale of caps production.
And so as we get further into 2025, I think we will be in a better position to share even more discrete elements of the revenue and how to think about how that business is going to grow over time.
Great. And then the other question pertains to financing the lines and also asks about return on invested capital. What are the expected economics around the capital cost of the lines?
Yeah, the capital that the CapFormer systems are off-the-shelf equipment that has been around for a very long time. It is very well established in the market as thermoforming has been for quite some time. Very financeable. And we aren't going to give the specifics in terms of an ROIC on it, but say it's a very attractive return. And therefore, we don't anticipate any headwinds with regard to financing those as we scale up the manufacturing capacity.
Great. Thank you. And actually kind of a perfect segue into the next thing I wanted to ask about specifically for you, John. We released the video of our CapFormer system showing our system producing caps at commercial speeds. And we've received several questions asking about production volumes and how we'll be scaling the system in particular. And so a couple of questions here. First, in the near term, what do you see as the limiting factor in scaling caps production? For example, manufacturing the equipment, capital investment, demand. What's the limiter?
Yeah. So there are quite a few that are clustered together in terms of limiters. But I think the first one that we're addressing sort of in real time is capital availability, right? And we have a variety of ways that we're addressing that. One is by setting up good financing structures for these. And we've talked about this before, right? But setting up good financing structures. Two, making sure that we have our own equity capital and cash available to provide financing and sort of be the delimiter on some of those things. I think another besides capital thing that is relatively closely coupled is just the ability to execute multiple projects simultaneously.
If you think about these lines, each one is sort of a, I mean, I'll call them a mini capital project, but that's really in the mini part is in the context of the other kinds of capital projects that we've done, and so each one of those requires time, effort, focus from our existing team to execute successfully, and so that also increases our ability to do multiple capital projects simultaneously or many capital projects simultaneously is another thing that just takes some time to ramp up that capability, so I think those are the two that are most closely clustered. The next that we actually started out worried about, but I think won't come into play for some time, and there's plenty of time for us to ramp up the capacity here is on other equipment suppliers.
So as you were commenting, there are other equipment suppliers that provide the equipment that we use to make these caps, and they have their own production capacities. At first, we had thought that that might be an early limiter, but it looks like for the most part, they have quite a bit of capacity. And so we're excited to expand into that capacity over time. I don't think that'll be a major issue for us. So for us, it's mostly capital availability, and that just limits rate. And then we need to ramp our internal ability to execute multiple projects simultaneously.
Got it. So with respect to these sort of the capital availability and our ability to execute multiple in parallel, maybe it'd be useful if you could give us a sense of maybe sort of a short-term, medium-term, long-term view. What are the company's ambitions in terms of creating more caps lines in parallel and scaling up and expanding out? What does that look like?
Yeah. So I think consistent with Matt's comments around getting to even a positive as a whole as a company, we have a pretty, I think, I'd say very reasonable plan for executing these capital projects over the next 18 months, so to speak, that gets us there. Looking beyond that is hard because you start to have decreased the limits that are provided by time, right? And so how quickly can we go get access to more capital? Well, if we're a profitable company and we're growing quickly with good EBITDA margins, then you can get access to large amounts of capital, and we shouldn't expect that to be a limiter. Similarly, I think over an 18-month to two-year period, I think we can increase our ability to do capital projects in parallel quite substantially. And so that shouldn't really be a major limiter there either.
So I think at that point, it becomes more of a demand question, which is how quickly can we address this demand, either with the same formats going to new geographies, increasing our manufacturing production volume and coordinating that, licensees. And that's why we are excited about this in part is because there's such a large market for it. It's hard to see what the limiting feature is going to be two years out, right? It doesn't look like it's going to be demand. It shouldn't be capital. It shouldn't be our ability to execute capital projects simultaneously. It shouldn't be the equipment suppliers. I think something will be. And so as we get closer, I think we'll have a better view of what that is.
but sort of on paper, it doesn't look like there's something that should be limiting our growth rate meaningfully in the sort of two-year- plus time horizon for caps.
That helps. We have questions asking what is the volume of PET caps that can be produced using a single manufacturing line?
So we haven't talked about some of the specific economics around each one of these. There's a reason for that. Part of it is that we'd like to see some of them operating for a little while before we start to forecast using that or have external people forecast using that. Another is because we want to control the information and knowledge around this as much as we can for as long as we can. We know we can't do that forever, right? Not even close to forever. And at a certain point, we're going to need to give pretty clear economic indicators around how these lines operate and how they behave economically. But we just don't think it's the right time to do that yet. So not ready to give those kinds of numbers.
But I would say we're in this sort of general ballpark of what you'd see for caps production from lines using existing technology right now. It's not a 10x difference in either direction or something like that. It's sort of roughly similar.
Got it. Okay. Fair enough. And then we had some questions asking about Reed City in North America versus Bachmann production in Europe. And asking the question, is the focus of the European lines different than the Reed City lines? Are they making the same product?
Rich talked about two different formats that we're introducing initially. There's the 1881 format, and there's the 1881 with tether format. The European regulatory requirements are such that we need a tether on the cap. It'll be 1881 with tether in Europe and 1881 probably without tether in the U.S. One of the nice things about this kind of technology is that you actually can change the mold that's running on a given line. You may not want to do it all the time, but it's not a huge project to swap out what format is being produced on a given caps manufacturing line. We have some flexibility in exactly how we roll those kinds of things out in different geographies once we have a format developed.
Right. And the next question is about new products a little more generally. They ask, "John, one of Origin's goals is to have a completely recyclable PET bottle. Your PET caps solve the cap issue, leaving just the label. So one would assume there's an active effort toward a PET label. Can you tell us where you are on that endeavor if you were pursuing that?
So we've thought about the same thing, obviously. We have some thoughts on how we can address that. I don't think we're ready to talk about those as an independent program at this point. We think that solving the caps problem is harder. And once you solve the caps problem, the pressure to solve the label problem universally is higher. And so we sort of see it all going in the right direction. If you solve PET caps first, then I think the label will come.
Right. All right. And then last question, John. Investor asks, "When am I going to see this product on store shelves?
It depends on where you live, what products you buy, what stores you go to. I think as we've communicated, we expect to see revenue in Q1 around this. The transit time for a product like this in the supply chain is not that long. I think conceivably people would see revenue or see this product on store shelves relatively soon. That's one of the things that's so exciting about it.
Right. All right. And then an investor asked, and this is kind of for the group, maybe I'll direct it to you, Rich, or anyone else who wants to chime in, but just generally, as an investor, what should I get excited for in the coming quarter?
There's a lot to be excited about in the coming quarter. Generally, we have line of sight to profitability, which is a huge milestone for us as a company. That's not happening in the coming quarter, but big steps along that journey are happening in the coming quarter. As we go into commercial production of our first CapFormer system, that's a big moment on that journey. I think that unlocks a lot of stuff in terms of the scale-up process here, which is, I don't want to oversimplify it, but it's largely copy-paste in nature versus you have to keep building bigger and bigger things. There's some neat levers within that process for you to scale and that kind of stuff.
But generally speaking, once you have one system or scale, you've crossed a big milestone, and now you get to do a lot of copy-pasting effectively to scale up. So that happens in the coming quarter. We expect to cross that milestone and make a lot of progress on the customer side, the finance side. And we're just really focused as a company. And so you've seen us shifting resources, shifting focus. And so we've got an exciting quarter and a transformative 2025 in front of us.
I might make a comment not just on exactly the next quarter, but over the next sort of intermediate future, let's call it the next year or less, something like that. And I think some of the really exciting things are that we can keep using our sort of deep materials and chemistry expertise to improve these caps extended to other formats, right? We just talked about the 1881 and 1881 with tether format, but there are lots of other formats out there. And they have different unit economics, which can be really exciting. But I think I was actually talking to a Fortune 100 SVP of R&D recently that we work with. And it was really exciting to hear how valuable they thought that materials expertise was around caps.
Their comment was that it's surprising how thin the material science capabilities are at a lot of the existing players in the plastic parts world. They tend to be extremely empirical and not have a lot of theoretical depth, and so I think that's one of the unique first of all, that's really what allowed us to develop this in the first place when other people had failed, but I think it gives us a lot of design space and capability that we have access to with this kind of product, and so I think I'm excited to keep using that over the next year to find exciting spots, exciting new products, and exciting applications to bring those products to.
Right. Well, that was excellent. Thank you, guys.