Danimer Scientific, Inc. (DNMR) on Q4 2021 Results - Earnings Call Transcript
Operator: Greetings, and welcome to Danimer Scientific Fourth Quarter and Full Year 2021 Earnings Call. . As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Russ Zukowski, Vice President of Corporate Finance. Thank you. You may begin.
Russ Zukowski: Thank you, operator, and thank you, everyone, for joining us today for our fourth quarter and full year 2021 earnings call. Hosting the call today are Danimer CEO, Steve Croskrey; and CFO, Jad Dowdy. Mike Hajost will also be joining us for Q&A. During our discussion today, we will be referring to our earnings presentation, which is available on the Investor Relations section of our website at danimerscientific.com. On Slide 2, please note that we may discuss forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, future results of operations, capacity, production and demand levels that could differ in a material way from those expressed or implied in the forward-looking statements. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date hereof, except as required by law. Today's presentation also includes references to non-GAAP financial measures. Reconciliations to the most comparable GAAP financial measures can be found in the earnings presentation. I will now turn the call over to Steve.
Stephen Croskrey: Thank you, Russ. Good afternoon, everyone. Thanks for joining. I am proud of the focused execution by our team and our many accomplishments during 2021 as we conclude our first year as a public company. In 2021, we progressed further on our journey to profitably deliver leading biodegradable packaging solutions and products as we dramatically increased customer deliveries to generate record fourth quarter and full year 2021 revenue. As we look back at our achievements for the year, I would like to note that every initiative we have undertaken as well as all of our current initiatives align with our strategic priorities. As shown on Slide 3, these priorities drive us to: number one, expand our capacity to achieve substantial economies of scale, which is not just about increasing organic production capacity in Kentucky, Bainbridge and beyond, but we're also evaluating third-party manufacturing and licensing agreements, preserve our available capital for key strategic allocations. A good example is the potential partnership between us and Kemira developing solutions for aqueous coatings that our customers clearly want without us having to invest all the capital needed to drive this growth initiative. Another example of executing against this strategic priority is our recently announced Hyundai Oilbank collaboration, which could be a capital-light approach. Number two, lead with innovation to address a broad range of customer needs, which means leveraging our core competency around formulation and application development. This will be done through our proprietary technology and experienced team of researchers and scientists and includes the pursuit of new R&D development and licensing agreements with customers. Number three, grow customer partnerships and product volume commitments as we continue to negotiate development and supply agreements with global blue-chip customers to secure future demand for our increasing capacity. We have several exciting discussions underway, which could give us orders fully in line with our ambitious long-term growth objectives. Number four, secure cost-effective inputs. While canola remains the most attractive route today and we are engaged in managing the price of our contracts, we also continue to explore the viability of lower-cost alternative feedstocks. The Total Corbion collaboration will provide us with enough cost-effective PLA inputs for our PHA formulations as the business scales. Number five, attain favorable unit economics to enhance margins, first through increased capacity utilization, then ramping up production of Rinnovo following our Novomer acquisition. Separately, we are continually working to reduce utility costs and chemical usage, and our Chevron Phillips collaboration could represent a step change for Rinnovo manufacturing costs. And finally, number six, enhancing team capabilities to support growth. It is imperative that we increase the knowledge and capabilities of our leadership team as we grow in size and complexity. This includes increasing the overall experience levels in manufacturing business development, R&D, information technology and finance as well as other areas to support global growth. Examples include the additions of Deborah McRonald as Chief Corporate Development Officer; Keith Edwards as Vice President of Business Development; Brad Rogers as Vice President of Technology Development, R&D; and Mike Hajost, who will be our CFO upon the filing of our annual report on Form 10-K and who is with us on the call today. Everything we have worked on and communicated during the last year and everything we are focused on going forward can be connected to one or more of these strategic priorities. We hope this provides you with a clear view of our strategic vision as we move into 2022. Danimer is dedicated to creating a highly profitable business that supplies the growing unmet need, provide degradable polymers and addresses the global issue of plastic waste. Moving to Slide 4. Looking at our facility expansions, we remain well positioned to substantially scale production of Nodax in 2022. At Phase 1 of our Kentucky facility, we made significant progress in scaling up production levels as the year progressed. Most of our step functions in downstream process have continued to operate on average at nearly twice the speed required. And in the first half of December, we were able to meet our goal of testing Phase 1 operations at full capacity. In the second half of December, we had a small fire which did not impact our ability to supply customer needs. The incident had the silver lining of leading us to perform additional safety evaluations and make some process improvements, which will benefit from in all of our facilities. Having tested the plant at near maximum operating rates both in December and February, we are now comfortable we can run this plant at full capacity on a go-forward basis. Recent operations suggest that we may be able to operate above 100% of nameplate capacity at some point in 2022. Looking at Kentucky Phase I, we are excited to report that construction progress remains ahead of schedule. And as you can see from the pictures on the bottom of the slide, exterior construction is nearly complete. We continue to expect Kentucky Phase 2 to come online in just a few months. As we have discussed in the past, the completion of both phases will collectively bring our annual nameplate finished product capacity to an expected 65 million pounds, which, as a reminder, is PHA plus other compounded degradable materials. The completion of this expansion will be an exciting milestone for our company, and we expect a year 1 benefit to our operating results. For the full year 2022, we expect the Kentucky facility to have a favorable impact to adjusted EBITDA as we increase capacity and drive operational efficiencies at the expanded facility. Turning to Slide 5. We are showing a schematic of the site of our new state-of-the-art greenfield facility in Bainbridge, Georgia. As we discussed with you last quarter, we accelerated our groundbreaking to occur last November in order to retain the contractor team that did such a great job on our Kentucky expansion. We also acted prudently in the current inflationary environment to order several key pieces of equipment and materials in advance of expected price increases. Having taken these prudent initial steps, we still face uncertainty with respect to key equipment delivery delays and inflationary pressures. For these reasons, we remain committed to putting in place this critical capacity for growth, but we plan to remain nimble and flexible as to the pace of capital spending on this project. Our current intention is to moderate spending until we are comfortable that outside factors won't cause us a delayed startup, thus preserving cash. This can also provide us with the opportunity to capture and better apply learnings from the Kentucky expansion and the pilot plant. In addition, it can allow for further value engineering to maximize the efficiency of the plant and potentially reduce project costs. We will also look to develop a plan to quicken the spending of supply chain issues dissipate and customer contracts allow us to pass through enough cost to justify accelerated spending. The diagram we have provided on Slide 6 provides a view of the opportunity from all of the capacity expansions we currently have underway. Upon completion of Kentucky Phase 2 and the greenfield facility, we expect to have overall PHA finished product nameplate capacity of approximately 190 million pounds. Our acquisition of Novomer was a prime example of our ability to identify attractive opportunities that are expected to drive down production costs over the long term, help us achieve scale and provide further unique product offerings. As shown on Slide 7, when including the impact from a future Rinnovo plant size to produce 168 million pounds of Rinnovo, we have line of sight to 330 million pounds of PHA-based resin out of our Kentucky and Georgia facilities, which represents a nearly 75% increase in this product along with 60 million pounds of stand-alone Rinnovo. As it relates to our plans for Rinnovo plant, we are in discussions with several major ethylene-oxolene producers in the U.S. Gulf Coast for an EO offtake agreement, a site colocation agreement and other ancillary agreements related to the manufacturing of Rinnovo products. While we are focused on building out our capacity and operations to serve the increasing demand for PHA, our ambition also includes partnering with others willing to commit their capital rather than ours to build out capacity that would be mutually beneficial. In January of 2022, we announced our collaboration with Hyundai Oilbank to help drive global growth of PHA. This represents a future opportunity to partner with a major player in Asia who will bring their own capital into the table and speed up market entry in the region. We are grateful for their partnership and support on this initiative. Now turning to our customer and business development updates, I will speak to Slide 8. We are expanding our market share by developing biodegradable products that leverage our unmatched application development expertise, and we have increasingly found that customers are looking for complete biodegradable systems as alternatives to the traditional plastic products they sell. I would also like to note that while customer product launch time lines are always subject to change, we continue to focus on the factors that are in our control to serve customers in a timely manner. The team at Mars Wrigley reports that they are happy with the progress in our partnership to develop an innovative home compostable skills bag and are exploring several other applications for conversion. We also continue to make progress with our developmental partners like PepsiCo, Bacardi and numerous others. We are very excited to confirm that Starbucks has launched Nodax-based straws nationwide to supply bottle straws in their stores across the United States as of September 2021. As you can imagine, this is a significant milestone for us and the industry as a whole. Additionally, our converter partner Genpact plans to launch Nodax-based home compostable takeout containers this year. Also, major big box retailer Target has initiated sales of biodegradable page straws sold through our converter partner, Wind Cup. Page straws have also been supported by Yellowstone National Park and the National Football League and other professional sports associations. In fact, SoFi Stadium, the host of Super Bowl 56, has been using face straw since September. Mercedes-Benz Stadium, home of the Atlanta Falcons, the Patriots Gillette Stadium in New England, EBS Sawgrass and the 2021 PGA Championship in Kewa Island, South Carolina have also all utilized page straws as an alternative to traditional plastics. You can also find our Nodax straws made by Wind Cup in retailers and restaurants such as CVS, Walmart, Biggerville, Bonefish Grill, Tropical Smoothie Cafe Dunkin' Donuts and numerous other restaurants across the country. Our partnership with Wind Cup has been a great success thus far. We have also made exciting advancements with products sold through our converter partner, Columbia Packaging Group. Columbia Packaging is currently supplying Nodax-based e-commerce mailers and shopping bags for the fashion brand, House of LRNC owned by Russell Wilson and Ciara. CPG is also a sustainability partner of the Kansas City Major League soccer team, sporting K-C to supply PHA shopping bags, apparel bags and straws. Looking at Slide 9, I would like to draw your attention to our inaugural ESG report, which we published in February. Our stakeholders are well aware of our mission to develop sustainable alternatives to traditional plastic, and this report provides additional details on our ESG efforts across Danimer from supplier and customer partnerships to hiring initiatives. Overall, we expect that our ongoing ESG initiatives and reporting are another important way to align our interest with those of our customers and shareholders. that will contribute to maximizing long-term shareholder value. Before I turn the call over, I'd like to take a moment to discuss our previously announced CFO transition. Michael Hajost joined us in February and will be named Chief Financial Officer upon the filing of our annual report on Form 10-K. Mike brings considerable experience in managing global growth and profitability having led the finance and Investor Relations functions of several large companies across a variety of industries. His skills and perspectives will be instrumental in helping us maintain our leading position as a bioplastics manufacturer during this period of industry growth, and I'm thrilled to welcome him to Danimer. I would like to thank Jad for his invaluable guidance throughout Danimer's journey from a start-up to a public company. Jad has worn many hats over the years and has helped us build Danimer into what it is today. I'm grateful to have his continued support as we execute our growth initiatives. He will continue to serve as a valued member of our team and will move into the role of Senior Vice President of Financial Planning and Analysis next month. With that, let me turn the call over to Jad for an update on our financial results.
John Dowdy: Thank you, Steve. I'll speak to Slide 10. We closed out the fourth quarter of the year with PHA representing a growing share of our revenue. Given that we remain in the early stages of our long-term trajectory, I will focus my comments today on our full year 2021 results with fourth quarter context as applicable. Revenues for the full year 2021 grew 24% to a record $58.7 million compared to $47.3 million in the prior year. This increase was driven by higher sales of PHA-based resins as we scaled up production of Phase 1 at our Kentucky facility this year. Revenues for the fourth quarter of 2021 grew 47% to a fourth quarter record of $17.7 million compared to $12 million in the fourth quarter last year. In 2021, we derived 36% of our revenues from sales of PHA-based resins, a significant increase compared to 10% in 2020. In the fourth quarter, PHA-based resins climbed to 50% of sales, reflecting our expanded production capabilities. We produced full year gross profit of approximately $900,000 compared to gross profit of $11.5 million in the prior year. Full year adjusted gross profit was $11 million compared to $16.6 million in the prior year. On a margin basis, adjusted gross profit was 18.6% and compared to 35.1% in the prior year, primarily the result of elevated fixed cost absorption as production continued to scale at the Kentucky facility. As we have mentioned previously, we expect our average cost per unit at our existing facilities to improve as production scales. For the full year, R&D and SG&A expenses, excluding depreciation and amortization, stock-based compensation, rent and onetime items, was $31 million compared to $16.2 million in the prior year mainly attributable to an increase in headcount and salaries to support R&D efforts and our future expansion plans as well as increases in costs associated with having a larger asset base such as property and liability insurance. Public company expenses added approximately $4.6 million of incremental costs for the full year of 2021, which we did not incur last year and include items such as D&O insurance, increased public company, auditing and accounting costs and stock readiness fees. In addition, we incurred approximately $1.9 million of R&D and operating expenses as a result of consolidating Novomer in our full year financial results. which we did not incur in the prior year. The adjusted EBITDA loss for the full year was $22.6 million compared to a loss of $3.2 million in the prior year primarily due to the factors I discussed in our gross profit, SG&A and R&D results. Adjusted EBITDA excludes stock comp and other income and other add-backs as reconciled in the appendix. Full year adjusted EBITDA was a loss of $20.1 million in 2021 compared to a gain of approximately $400,000 in 2020. We add back our rent expense because it is primarily related to a sale leaseback agreement associated with the Kentucky facility and is thus essentially a replacement of depreciation and interest expenses. Our total long-term debt was approximately $261.3 million at year-end and includes $21 million of low interest new market tax credit loans that we expect will be forgiven in 2026. Our cash position continues to support our planned capacity expansions into 2022. Looking at our outlook for the full year of 2022. As Steve mentioned, we expect the Kentucky facility to turn adjusted EBITDA positive as we increase capacity and drive operational efficiencies at the expanded facility. Before I turn the call over to Steve, I wanted to briefly comment on our plans to file an extension for the 10-K and our material control weaknesses, as mentioned in our press release. During the annual reporting cycle for fiscal year 2021, we were required to comply with Section 404(b) of the Sarbanes-Oxley Act and accelerated 10-K filing deadline for large accelerated filers for the first time. During our control evaluation process, we identified certain material weaknesses that we will be disclosing in the 10-K, and the statements identified related to these issues have been corrected prior to releasing our results. I have full confidence that we will make significant progress towards remediation over the course of 2022 in eliminating these internal control matters going forward. We are working through these issues with our auditors and are confident that we will file the 10-K prior to the extended deadline. Now I'll turn the call back to Steve for closing remarks on Slide 11.
Stephen Croskrey: Thanks, Jad. In summary, we are pleased with our capacity expansion progress and record revenue in 2021. Growing commercial scale production of PHA remains the core focus of our business, and I am confident we are on the right path to profitably execute our strategic priorities and capture a growing share of PHA demand in the years ahead. We have a large addressable market to serve, and we are working as quickly as possible to expand our production capacity further in 2022. Thank you for your time today, and we look forward to update you on our progress next quarter. We'll now open up the line for questions.
Operator: . Our first question comes from the line of Laurence Alexander with Jefferies.
Laurence Alexander: Can you unpack the comment about getting to positive EBITDA contributions this year? Do you see either of the 2 facilities in the current raw material environment having a path to the original 30% plus return on capital that happened -- that was being discussed before this inflationary period started? And can you talk a little bit about what you're seeing in terms of conversion costs relative to what you had expected before construction began?
Stephen Croskrey: So Laurence, thanks for the question. As far as conversion costs, I assume you're talking about conversion of canola oil into PHA. Our -- yes, our costs have run about $0.10 higher per pound than what we had modeled, but we think we've got that taken out now and that we should be on plan. And so at scale, we still expect those kind of returns. We anticipate, as I mentioned earlier, that the Kentucky facility will be positive on an adjusted EBITDA basis before the end of the year. And then after that, it's just a matter of continuing to increase sales to cover our corporate overheads. And as a reminder, our current OpEx spend without -- we can cover our current CapEx spend without bringing on any additional capacity. Of course, that's not our plan. We strategically added expense mostly in the form of people to support our future growth, which includes both completing the greenfield facility in Georgia and the Rinnovo facility in the Gulf. But in this environment of tight biopolymer supply, anybody that can bring on capacity is going to win, and we expect to win.
Laurence Alexander: Okay. Great. And an unfair question perhaps, but given that mics in the room, can you -- Mike, if you wouldn't mind speaking a little bit about your perspective on Danimer and the challenges or the opportunities to -- where you want to focus first and what your priorities are?
Michael Hajost: Sure. I'm thrilled to be here with the group after the first call here. I look forward to future discussions with all of you. But on the first call here, I think, Laurence, really want to kind of start out and say why did I join this company and what did I see. And truthfully, I couldn't be more excited to be part of this exceptionally talented team. They're truly making our planet cleaner, and I decided to join the team as the CFO for several reasons. To start, I was impressed with the strength and conviction of the leadership team and the Board. It also became clear to me that Danimer has the leading technology position and a near-term sizable commercial opportunity that's well ahead of its competitors. This position is further enhanced by strong industry tailwinds as the brands and the manufacturers are prioritizing sustainability initiatives. And finally, I saw this as a great fit with my 30 years of broad financial leadership experience and skills. What brought me here in the first 3 weeks in a row has been -- done nothing but confirm my reasons for joining this terrific team and this company. So as I'm getting started, again, I've just kind of finished off my first 3 weeks, but my initial focus areas are going to be to get out to the facilities, meet with the team, learn the business, and I think those give me an opportunity to reframe what our guidance should be to you. I also -- I want to improve our communication with investors so that our actions can be clearly tied to our 6-pronged strategy that Steve laid out. And lastly, to continue to strengthen the finance and information technology teams to provide effective analysis and insights to our business leaders while ensuring appropriate controls. So again, I appreciate the question.
Operator: Our next question comes from the line of John Tanwanteng with CJS Securities.
Jonathan Tanwanteng: My first one is just about the greenfield and the potential changes you might be thinking about. Is this something that may delay the start date? Just tell me the scale and kind of the details on what you're thinking about doing or delaying that inflation effect your decision-making.
Stephen Croskrey: Sure, Jon. Thanks for the question. We're very focused on managing and preserving our cash in this uncertain environment that we're in, and I should point out that the environment is even more uncertain now than it was even a week ago. We have developed a plan that allows us to maximize the flexibility to do that until we have more clarity moving forward, so we can speed up or slow down as we deem necessary. In the meantime, we'll continue to build out the greenfield facility and work with customers on product development and offtake agreements. Customer interest is still as strong as ever. But in these uncertain times, it's incumbent upon us to be careful stewards of our resources. My best guess at this point in time, if everything continues to go well through this year is that we could still have that plant up and running by the end of 2023. But obviously, if we slow down further, it will go -- it will bleed over into 2024.
Jonathan Tanwanteng: Got it. And then as it pertains to this year, can you give us a sense of how you expect sell-through to trend your sales of PHA products as you bring online new capacity, as your customers' programs launch, states reopen and we all view it would be continuing headache of supply chain inflation issues that are still out there?
Stephen Croskrey: Well, Jon, the first part of the question didn't come through clearly. Can you repeat it?
Jonathan Tanwanteng: Yes. I was just trying to get a sense of what your expectations for PHA sales are going to be like this year and kind of what are the puts and takes to it.
Stephen Croskrey: Well, obviously, we expect them to continue to grow, and I guess from a put and take standpoint is we always have the issue of customer timing. So as the capacity comes online, it's not a commodity that you're going to be able to sell on the spot market, so you have to be coordinated with customer launches and conversions. And other than that, I think I will defer to Mike's comment when he mentioned that he's going to be working on developing a plan for what guidance we're going to give going forward, so we'll wait for that to come out before I give you more specific guidance.
Operator: Our next question comes from the line of Thomas Boyes with Cowen and Company.
Thomas Boyes: Just following the recent convert offering, you obviously made some meaningful progress towards funding the greenfield facility. I was just wondering if you could talk about the capital allocation approach going forward, if you could just touch on any potential there for the DOE loan. Could that be a 2022 event? And then maybe anything having to do with a potential anchor tenant for the greenfield facility.
Stephen Croskrey: Sure. Thanks, Thomas. So as you've identified, we have plenty of cash on hand now. And I just would like to point out that we control how fast we spend it, as I've mentioned with respect to our greenfield construction plan. So we believe that our focus right now should be on demonstrating capability in Kentucky. We want to get that scaled up and show that we can produce a quality product profitably, and then we will continue to focus on our negotiations to secure that anchor tenant for the greenfield, and we think that the combination of those 2 things will help us secure any financing that we need going forward. With respect to the DOE, we're still very optimistic that we will get accepted in Phase I. But there's no guarantee of that, and we expect to hear back from them within the next couple of months at the latest.
Thomas Boyes: Excellent. Appreciate it. And then just as a follow-up on the CapEx plan for the greenfield facility. I think I saw that it was between $500 million and $612 million. Was that down from the $600 million to $700 million? Before, I wasn't sure maybe if that had included Phase 2 construction in it or Rinnovo piece, just with the change in kind of how you're building out is -- can you break down that dynamic for me?
Stephen Croskrey: Yes, good question. That original $700 million top in estimate included the Rinnovo plant, so that is updated guidance on the greenfield facility. We got our plus or minus 10% estimate in and move the midpoint up, but the top end didn't go up as far because the previous estimate was plus or minus 20%. So we're still somewhere close to that $700 million. We're at the top end of that. I think that was an estimate from about 6 months ago, if I remember, we're still close to that range around the top end of it.
Operator: Our next question is a follow-up question from the line of Laurence Alexander.
Laurence Alexander: Could you discuss a little bit where you are on building customer acceptance of Rinnovo? How much trialing or how much volume do you need to have out for trialing? Or just how much time do they need for that to be comparable and acceptances where Nodax is?
Stephen Croskrey: Sure. We're working diligently to increase the capacity of the pilot plant in Rochester, which will facilitate the speed of customer adoption and that product development work. So we're still working at this point with fairly limited quantities of material, but we are also having great results. And so our confidence is even higher in terms of what we might be able to do with that product. We -- also, just to remind you that some of the potential outputs of that plant involve acrylic acid and other derivatives of acrylic, and those products in this example are really commodities. Unlike Rinnovo or Nodax, which are value-added, highly engineered applications, the acrylic that could come out of this plant could be sold on a spot market, and so that's something that we are actively discussing with several potential customers that are interested in ultimately a renewable acrylic solution.
Laurence Alexander: And then can you discuss a little bit more sort of with the Kemira, what milestones need to be reached for that to become a material opportunity?
Stephen Croskrey: We are really in the process of papering that up at this point. So in terms of making -- having the agreement come together, we are very close. And then as far as having success in the marketplace, it's really just a matter of customer adoption. But we've always been very bullish on this product. And obviously, Kemira is as well where they wouldn't be proceeding with this. But some of the customers we have been in trials with are super excited about the product. The main application that we see at this point would be coating paperboard for cups. As you've heard me mention before, we are really excited that some of our straw customers are very focused on having a complete biodegradable system, which would include lids and cups. And using our aqueous coating as a coating for cups has the kind of the double benefit of allowing those cups then to be repulpable and so that, that paper can be reused, which you can't do now with a polyethylene coating. So as far as milestones, I guess, the first would be get the agreement signed, and then the second will be some potential customer announcements as soon as those come through.
Laurence Alexander: And then just on to one last one is the -- can you talk a little bit about the trend in ASPs and mix? And sort of, obviously, lots of gives and takes in the supply chain, but maybe just what was happening towards the end of last quarter and how the backlog of orders looks for this quarter?
Stephen Croskrey: I'm sorry, it was really broken up at the beginning. I couldn't hear -- we couldn't hear you how...
Laurence Alexander: Sorry, if you can just touch on ASPs and mix and how prices were -- how realized prices have trended in Q4? And maybe what the backlog of orders looks like for Q1?
Stephen Croskrey: Yes, Laurence, I'm going to punt on that one to Mike again on this work. He's going to do on kind of figuring out what guidance we're going to provide going forward, but that's a major initiative of his. He's going to be prioritizing here, so I'll delay answering that question until we've figured out how we're going to do it going forward.
Operator: Our next question is a follow-up question from the line of Jon Tanwanteng.
Jonathan Tanwanteng: Could you talk a little bit more about the deal with Hyundai Oilbank? What are they interested in doing at what scale? And how committed are they at this point to actually bring their own capital to the table to bring your product to Asia?
Stephen Croskrey: Well, we're very happy with this development, and we hope it will form the basis for a long-term collaboration, which presents both parties with a compelling opportunity to meet the demand in Asia. We will initially be focusing on providing Nodax to commercial customers in South Korea and other Asian regions for more sustainable packaging. All forms of potential investment collaboration and joint projects will be considered under this partnership, including establishing production facilities in Asia, and we'll provide more updates on that in the future. But my concept of how these type of partnerships should work are that we are bringing the technology and quite often the product application know-how and in fact even customer contracts, and so we're looking for partners who are willing to invest capital in the business to grow the business going forward.
Jonathan Tanwanteng: Okay. Great. And then I just wanted to come back to the prior comment about the return on the facilities. Were you just referring to the Kentucky facilities or the greenfield as well just in terms of your target return? And maybe related to that, as you talk to customers, getting -- trying to find an anchor tenant for the greenfield, are you talking about the increase in prices and trying to pass them on as you try to get a contract signed? How are they responding to that if that's what you're talking about?
Stephen Croskrey: Yes. We've already passed on pricing for this year based on our current -- the current increases that we've received, so that's already been done. I'm sorry, what was the first part of your question, Jon? Sorry. Okay, I got you, yes. The -- I was referring specifically to Kentucky when we were talking about the production costs there. But going back to your question about the greenfield tenant, yes, those -- the new pricing is baked in to all of the discussions, and nobody is ever happy to get a price increase that I know of. But so far, we haven't had any trouble getting those increases passed on.
Operator: Our next question is a follow-up question from the line of Thomas Boyes.
Thomas Boyes: Excellent. Yes. Just a quick follow-up here. I know you're longer term working on alternative feedstocks, soybean Penny Crest. I was just trying to get a sense of what you're seeing on the supply side for the canola market. I think last quarter. You had mentioned maybe there's some additional supply that was coming on line longer term. Is that still the case? Do you think that like $0.80 is kind of that high watermark there? Or what kind of costs should we be thinking about for canola on a per pound basis?
Stephen Croskrey: Sure. Thanks, Thomas. Our average price for canola oil in Q4 was about $0.56 a pound. We've locked in Q1 at $0.59 a pound, but Q2 is locked in at $0.07 a pound. The futures prices have been coming down, as you recall from our last call, actually into the low 70s. But then there was a weather event that affected crops in North America, and now the war in Ukraine is putting some pressure on prices, but we still expect them to moderate in the long run as that additional capacity comes online. But going out into the future now, I think low 80s is kind of the trend line, but there is a current spike in Q3 in the 90s. But we have not completed our -- we're still working on locking in Q3 for prices.
Operator: There are no further questions in the queue. I'd like to hand the call back to Mr. Croskrey for closing remarks.
Stephen Croskrey: Thank you again to everyone for joining us today. We're encouraged by our progress and remain excited about our business prospects as we move into 2022. I'd like to thank you for your continued interest in Danimer Scientific and your time on this call. We look forward to updating you on our progress in the future. Thank you.
Operator: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.
