Danimer Scientific Inc (DNMR) Q1 2023 Earnings Call Transcript

Danimer Scientific Inc (NYSE:DNMR) Q1 2023 Earnings Call dated May. 10, 2023.

Corporate Participants:

James Palczynski — Investor Relations Representative

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Mike Hajost — Chief Financial Officer

Analysts:

Kevin Estok — Jefferies — Analyst

Thomas Boyes — TD Cowen — Analyst

Jon Tanwanteng — CJS Securities — Analyst

Charles Neivert — Piper Sandler — Analyst

Presentation:

Operator

Greetings. Welcome to the Danimer Scientific 2023 First Quarter Earnings Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Wednesday, May 10, 2023.

I would now like to turn the presentation over to Mr. James Palczynski, the Company’s Investor Relations Representative.

James Palczynski — Investor Relations Representative

Thank you, operator. And good afternoon to everyone, and thank you for joining us today for Danimer Scientific’s 2023 first quarter earnings call. Leading the call today is Steve Croskrey, Chairman and Chief Executive Officer; and Mike Hajost, Chief Financial Officer.

I’d like to note that there is a slide deck that accompanies today’s discussion, which is available on the Investor Relations section of our website at danimerscientific.com. I’ll call your attention to the Company’s Safe Harbor language, which is published in our SEC filings and on Slide 2 of the presentation I just referenced.

On today’s call, we may discuss forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 as amended. Forward-looking statements include among other things, statements regarding future results of operations, including margins, profitability, capacity, production, customer programs, and market demand levels. Actual results could differ materially from what is expressed or implied in our forward-looking statements. The Company assumes 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 within the meaning of SEC Regulation G. We believe these non-GAAP measures have analytical value, but note that they should be taken as an additional measure of performance to GAAP results. We have provided reconciliations for non-GAAP financial measures to the most comparable GAAP financial measures in our earnings release and our presentation.

Thank you. And it’s now my pleasure to turn the call over to Steve Croskrey, Chairman and Chief Executive Officer of Danimer Scientific.

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Thank you, James. Good afternoon, and thank you for joining us to talk about our progress thus far in 2023. When we reported our 2022 year-end results, we were just a few days shy of completing our first quarter. And as you might anticipate, our quarterly results are in line with our expectations. They show the pressure of a timing shift in topline revenue, which impacted gross profitability, but that temporary situation is now behind us.

What’s also clear in the first quarter numbers and is expected to remain clear in future quarters is the progress we’ve made in controlling our operating costs. We continue to expect with the impact of new commercial opportunities to accelerate our growth through the remainder of the year. We are gathering momentum in the business, harnessing our research and development to drive new solutions into the market, and growing in confidence about the path in front of us.

We have gained additional and specific visibility into the levels of demand associated with a discrete set of near-term commercial opportunities. If captured in full, this business would require the lion’s share of our remaining production capacity.

We have a solid strategic and competitive position to secure those programs with uniquely capable material and ready capacity. We are increasingly confident that we will finish 2023 on a strong pace.

I’d like to walk through a few recent operational and strategic highlights that should demonstrate why we feel that way. I’ll start by reviewing some important advances in our customer and product portfolio. While it is premature to make any customer or program announcements, we are energized about the near-term opportunities that are materializing in the quick-service restaurant channel were straws and for cutlery especially, but also in the cup category with our coating materials.

As we speak, our product is in a multi-store test for straws with a new major QSR chain with thousands of locations in the United States. We anticipate a successful test will lead to a wider rollout in the third quarter. Additionally, we are in the late stages of an opportunity with another major QSR chain for straws also numbering in the thousands of locations in the United States alone.

Further, we are excited to be moving quickly forward with our biodegradable cutlery resin. As we announced last quarter, we were pleased to capture in coordination with Hobby [Phonetic] cutlery for an important snack line with Zespri. We made the first shipments to execute that program at the end of the first quarter and believe that a fully biodegradable solution for this high-visibility application will prove to be brand-enhancing.

We are also pursuing a large and high-priority opportunity in the cutlery market with a major QSR we expect to begin shipping to in early 2024. We believe that the unique environmental benefits of our PHA-based resins are becoming increasingly visible and we were honored to be invited to ring the closing bell at the New York Stock Exchange on April 17 to help recognize the importance of birthday.

In conjunction with that event, we announced that we have successfully developed in partnership with TotalEnergies Corbion, a new engineered resin for the manufacture of single-use coffee pods. That material, which is used in an injection molding process has been in development for a little over two years. While any new resin we develop benefits from decades of research into various blends, this was a challenging material to formulate, given the combination of requirements for heat tolerance, barrier properties, and stringent biodegradability standards required within the EU market for this product.

Importantly, we have experience in this category and currently have a PLA-based material used for the manufacturer of coffee pods for a U.S. brand. We are pleased to have received certification for this new material from TUV Austria for Home Compost and are currently in testing with multiple potential customers. While somewhat obvious, this means that our material biodegrades safely and quickly in home as well as industrial composting and can eliminate a tremendous amount of waste from the environment.

While the EU legislation is still a bit into the future, we expect that demand for our materials maybe strong even in advance of the legislation’s inaction, as major suppliers seek to pre-position themselves to avoid potential disruption to the business.

I’d like to turn to cup-coating materials, which provide a barrier to contain liquids. In the aggregate, this is a significant application for single-use plastics. Currently, paper cups achieve functionality with a petroleum plastic liner making them essentially non-recyclable. Our PHA-based biodegradable coating materials can change that as an important customers of ours is demonstrating.

We were very excited to see Wincup launch a new paper cup product with a Nodax-based coating under its distinctive fade brand. Phade is an increasingly meaningful and visible brand in an otherwise commodity-oriented set of categories. We think that is a powerful statement to the market. We’re proud to provide the unique PHA-based resins that enable their products.

While we share a vision for the future with many customers, we think what Wincup is doing in the market speaks exceptionally well to that mission. As we look toward the second half of the year, we’re confident that our Kentucky manufacturing plant is capable of operating at a high level. It has consistently performed at or above all requested throughput targets. Further, we are working toward improved product quality and process efficiency, all of which should benefit our margins.

In closing, I’ll just note that we have no information to provide regarding the Department of Energy’s process. We will communicate any developments as soon as the DOE informs us of our status.

Now I’ll turn the call over to Mike Hajost for a discussion of our first quarter results.

Mike Hajost — Chief Financial Officer

Thank you, Steve, and good afternoon, everyone. I’ll start with our financial results on Slide 7 of our presentation for those of you following along. First quarter revenues were $11.9 million as compared to $14.7 million in the same quarter of 2022. We experienced a modest decline in both product and service revenue.

First quarter product revenue was $2.1 million lower versus prior year, driven largely by an unfavorable shift in the timing of PHA-based shipments to a large customer relative to the first quarter of 2022. This was partially offset by modest growth in the PLA-based product sales in the quarter.

I’d also note that the PLA business now shows normalized comparisons as disruption to that business from the war in the Ukraine impacted both this year’s and last year’s quarter.

First quarter services revenue continues to be lower, reflecting, as was the case in the fourth quarter that certain customers that have completed funded R&D projects are now moving to commercialization. We reported a first quarter 2023 gross loss of $6.3 million compared to a gross loss of $1.3 million in the first quarter of 2022. An increase of $3.4 million in noncash depreciation and amortization expenses was by far the largest driver.

After adjusting for depreciation, stock-based compensation, and certain nonrecurring items, we reported an adjusted gross loss of $1 million as compared to adjusted gross profit of $2 million in the first quarter of 2022.

On top of an increase in fixed production costs associated with greater capacity in Kentucky, we also had unfavorable leverage of those fixed costs due to decreased production volume. We expect gross margin to recover nicely with growing volume. R&D and SG&A expenses, excluding depreciation and amortization, stock-based compensation, and onetime items totaled $7.6 million in the first quarter compared to $12.3 million in the prior year quarter. This improvement was a result of a broad cost control program that yields savings in many areas of the business.

Adjusted EBITDA loss for the first quarter improved to $8.9 million compared to an adjusted EBITDA loss of $10.6 million in the first quarter of 2022. Despite the revenue timing impact, and fall off in adjusted gross margin, the positive operating cost factors permitted adjusted EBITDA to improve by $1.7 million year-over-year.

Adjusted EBITDA excludes stock comp, other income, and other add-backs as reconciled in the appendix, including $12 million of restricted cash that has since become unrestricted, effective liquidity at the end of the first quarter was $114 million as compared to $62.8 million at the end of 2022.

Capital expenditures in the first quarter were $16.4 million, mainly related to pre-existing obligations for the greenfield facility. This should represent the highest budgeted quarterly spend for capex this year. We continue to guide to full year capex spend in the range of $26 million to $31 million. We ended the first quarter with a total debt balance of $380 million. This now reflects the term loan we closed on during the first quarter. I’ll remind you that this includes about $46 million of new market tax credit loans, which we expect will be forgiven starting in 2026.

As we noted on our year-end call, the key to our performance in 2023 will be the magnitude and timing of the customer demand ramp-up for PHA-based resins and our increased utilization to serve that demand from our Kentucky operations. Our first quarter was fully consistent with our expectations and therefore has had no impact on our full year guidance.

We are maintaining our expectation for adjusted EBITDA in the range of negative $31 million to negative $23 million in 2023, an improvement in profitability of between $14 million to $22 million over the negative $45 million we reported for 2022.

I’ll now hand the call back to Steve for his closing remarks.

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Thank you, Mike, and to everyone for joining us. Even in the short time since our last call, we’ve been able to make progress across the board. We feel really good about a few recent developments in particular, identification of some specific high-volume sales opportunities, which we expect to be decided very soon, ongoing process engineering work in Kentucky, increasing discipline on our expense line, and progress on research and development is specific to a number of significant market opportunities. The momentum in our business is tangible. Major customer opportunities are now very close at hand, and we are very excited about the future we are creating.

Thank you to everyone listening to today’s call for your attention and your support. And operator, we’re now ready to take questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And first question comes from Laurence Alexander with Jefferies. Please go ahead.

Kevin Estok — Jefferies — Analyst

This is Kevin Estok on for Laurence Alexander. Thank you for taking my questions. I guess my first question…

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Hi.

Kevin Estok — Jefferies — Analyst

Hi. So I actually have more than two, so I’ll maybe hop back on the line after. But I guess if you were to roll together all the brand launches that you hear customers intend for this year. And you talked a bit about this on the call already, but I guess what is the implied run rate of demand if those all scale as expected? And I guess, what is the potential demand just from those customers, if those launches go well and then they flip the switch and then embrace PHA in a more aggressive fashion, I guess like sort of an upside scenario? Just curious to hear your thoughts there.

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Yes. Thanks, Kevin. This is Steve. If every one of the forecasted launches hits and hits at the scale that’s forecasted, I guess the first step is that we would fill up Kentucky. If those customers then get even more aggressive and move forward with follow-on applications, we could fill up the greenfield as well.

Kevin Estok — Jefferies — Analyst

Okay. Thank you. That’s really helpful. And then I was just wondering if you could provide an update on the adhesive partnership. I guess, any progress there? And I guess, what would be a reasonable time frame for seeing a revenue stream and maybe another monetization event?

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

I’m sorry, Kevin, which partnership?

Kevin Estok — Jefferies — Analyst

On adhesives, yes, any adhesive partnerships or even maybe an update on the Novomer applications in acrylic acid? I guess, any progress there? Just curious to get some updates on partnerships you have.

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Sure. So on the Danimer Catalytic Technologies side, which was the Novomer acquisition, we are building out the pilot plant. All the modules have been delivered and booked up and we’re well along the way in conditioning that facility. In terms of the partnerships, as we’ve talked about in the past, we’re negotiating a co-location agreement in the Gulf Coast, and we’re also negotiating an offtake agreement with a major chemical company. Those conversations are still going well, and they’re actively being negotiated. So we still expect to be able to complete those or at least make some announcements about those towards the end of the year.

Kevin Estok — Jefferies — Analyst

Okay. Thank you very much. I appreciate it.

Operator

Thank you. And next question, we have Thomas Boyes with TD Cowen. Please go ahead.

Thomas Boyes — TD Cowen — Analyst

Thanks for taking my questions. Maybe the first one, just — looking at the kind of the coffee pod opportunity more broadly. I mean, you kind of articulated what it looked like in Europe. But since you already have a PLA version here in the U.S., just wondering if you could kind of give me a sense of maybe potential demand or size of opportunity that you could see here. I know the overall policy landscape is a little bit more fragmented in the U.S. than in Europe. But I was just trying to get a better sense there of what’s going on or what could go on?

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Yes. Thanks, Thomas. Good question. Off the top of my head, I do not know the market share for that particular application in the U.S. So I can’t answer that, but we can find that out and get back to you. So that we do have a PLA version of the pod, which we’ve been selling in the U.S. for quite some time. But I don’t see that growing. It’s part of our PLA business which we don’t really see as strategic, but we could see those sales flipping over to PHA and then potentially becoming a growth driver. But it’s not a current part of our forecast.

Thomas Boyes — TD Cowen — Analyst

Got it. I appreciate the insight there. And then maybe another question would just be on the work that you’re doing with Corbion, since you’re both kind of committing resins there. Is that the same kind of split? Are you 50-50 as far as what that final product looks like? Is there still more work to be done on final formulation and kind of getting it exactly where you want it to be? Or is that set in stone and you know what kind of fillers and additives you need to get it to perform the way you want?

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

The formulation is set in stone, although sometimes we think that there could be potential tweaks along the way as you scale up. But right now, we think that’s in final form, and it’s in the very final stages of testing to be able to go live with a specific customer testing to be able to go live this year with that.

As far as kind of how that arrangement works, it’s really similar to how we have always done business in terms of formulating with PLA. It’s a buy-sell. So we buy the PLA from TotalEnergies Corbion and then we formulate it and sell into the market.

Thomas Boyes — TD Cowen — Analyst

Thank you very much. I have a couple more housekeeping ones. I’ll jump back in queue.

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

All right. Thanks, Thomas.

Operator

Thank you. Next question, we have Jon Tanwanteng with CJS Securities. Please go ahead.

Jon Tanwanteng — CJS Securities — Analyst

Hey, guys. Thanks for taking my questions. It’s nice to see that you’re getting better visibility here. I was wondering if you could give us a little bit more sense of how you expect utilization in our Kentucky facility to trend with all these new and large, I guess, projects that are in the pipeline. Any hope of getting it towards flow utilization by the end of next year? Is there any milestones that you want to reach before that? Just help us get a sense of how quickly these things are actually going to ramp from a volume perspective.

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Yes. Thanks, Jon. Yes, I think it’s a reasonable expectation to think that by the end of ’24, we would be at full utilization there.

Jon Tanwanteng — CJS Securities — Analyst

Okay. And your sense of full utilization is like, what, 80%, 90% or thereabout in that range?

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Sure, yes.

Jon Tanwanteng — CJS Securities — Analyst

Okay. Got it. The color reannouncement is interesting because my understanding is that that probably uses a lot more PHA per unit than a straw wood. Could you help us understand the economics of something like that and how it’s being distributed in kind of the use cases?

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Sure. So as far as the amount of PHA, I don’t think that you could say that it uses more PHA on a percentage basis than a straw resin wood. But what it really comes down to is what end-of-life standard you’re trying to achieve in terms of the amount of PHA that we need to put in it.

So to achieve industrial compostable, we use — we don’t need much at all. To achieve Home Compost, we need more, and then to achieve marine degradable, we would need even more. So we’re — right now, we have more than one formulation out in — on market trials. And so there’s sort of a range, but it’s in the mid — it’s still kind of in that mid — like 50%, 60% kind of area as far as the amount of PHA that’s in the formulation.

Jon Tanwanteng — CJS Securities — Analyst

Okay. I was actually thinking of like the absolute amount, just in comparison to the straw. I assume that it would be significantly…

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Oh, I’m sorry. Yes, okay. Jon, I misunderstood. From what I’ve seen from individual customers, I would say that the size of those two markets or at least when you look at like one QSR, any one QSR, the size of those markets are similar. If what recovery might be a little larger than straws, but not a whole lot larger.

Jon Tanwanteng — CJS Securities — Analyst

Okay. Understood. Got one for Mike. Just your opex was just a little bit under $8 million on an adjusted basis. Is that a good run rate to be using going forward? Or what are the puts and takes that you progress through the year?

Mike Hajost — Chief Financial Officer

I think overall, we’re continuing to control costs very carefully. We were pleased with what we did achieve in the first quarter, especially on a year-over-year basis, which I think was substantial. Some of those related to reversals of bad debt reserve and things like that. So we’ll have to kind of see if we continue to move the needle on things like that.

But from an overall cost perspective, we are very cautious of looking at those costs. As you know, when we came out as a public Company, we had to stand up a lot of things very quickly, and that cost — that took a lot of external spend to get us in a position to be able to manage those. And we’ve been able to reduce a lot of those costs by bringing those in-house, just by having more internal experience now and skills.

So we’re really pleased with how we’ve been able to get rid of outside services. We brought in our own internal general counsel, and we believe that saving us a lot of money in legal expenses there. So I’ll say a lot of things between outside services, consulting, and all of that. We would expect to maintain those levels going forward, and we’ll continue then to look at the next tranche of cost that we can kind of manage. So we’re hopeful it can go down further. Certainly, we don’t expect it to go up.

Jon Tanwanteng — CJS Securities — Analyst

Okay, great. Thank you.

Operator

Thank you. Next question, we have Charles Neivert with Piper Sandler. Please go ahead.

Charles Neivert — Piper Sandler — Analyst

Hi, guys. Just a couple of things. One, when you look at the build-out of the things that you mentioned, the cutlery, the straws, some of the other end markets, and I know you talked already about the size of those markets as they are, I guess, today. When we get to the more fuller use, not the except, but the period of introduction in there, where — which products are the biggest in terms of sort of split of where the PHA is going? And where do you estimate them looking out longer term, which one has the strongest — the best possibility for volume?

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

So Charlie, let me take a stab at that. I’m not 100% sure I got the question, but I’ll give you an answer, and if it’s not the right question, you can repeat. So straws and cutlery are sizable opportunities for us, given the amount of capacity that we have available. But cups is kind of the next domino to fall. And that is a much bigger opportunity, coatings for cups. Those coatings can be extrusion, which are PHA-based or they can be aqueous coatings that are PHA-based. Order of magnitude, again, from what I’ve seen with individual customers that the size of that business can be eight to 10 times larger than straws or cutlery.

Charles Neivert — Piper Sandler — Analyst

Got it.

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

[Speech Overlap]

Charles Neivert — Piper Sandler — Analyst

No, that’s perfect. And also, though, — so if I look going forward, your opportunities — you’ve got some opportunities in straws. They’re growing. You’ve got some opportunities in huge centers. They’re growing. But is there any reason that over the course of the next year and a half, you’re going to, for lack of a better term, reserve some capacity for the cup coatings if they start to move? Is that something you’re going to have to do?

I mean, you just said this potentially is the biggest thing we got and you might be getting some traction on it in the — over the course of the next, let’s say, 12 months. Is that — given the fact that you won’t have the new plant up for a while, how do you strategize going forward in terms of gaining volume? Is that something you’re going to have to — it’s a nice problem to deal with, but is it — how do you deal with that considering the [Speech Overlap]?

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Yes, good question. So when I answered Jon’s question earlier on, I was — Jon or Thomas asked about our run rate at the end of next year. I’m including in that assumption that there’s going to be some cup business in there. So our plan would be to try to match the timing of the greenfield coming online with the timing of customers’ ramp-ups.

And that doesn’t mean that there’s — you’re not going to hit some point where that means you’re flat on the top line for some period of time. But obviously, we want to compress that as much as possible.

Charles Neivert — Piper Sandler — Analyst

Got it. And one last question. This one is a little sort of upbeat. Is the cutlery that you guys put out with the resin and we’ll call it for the — on the commercial side, not residential, not marine side. Is that — well, let’s say, for lack of a better term, flimsy like polypropylene or stiff and firm like polystyrene would be in the cutlery business. What’s — how does the [Technical Issues] set up?

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Yes. Good question, Charlie. I mean, we think the quality is fantastic, and the items that our customers have seen are getting good reviews. I would say that the answer to me, it depends on the thickness of the cutlery. So different molds, as you’re aware, have different thicknesses. Now honestly, I can’t personally tell you at a 60 mil thickness, is it softer or stiffer than polystyrene or polypropylene. I’m not sure because I know — I see the differences at different thicknesses. So I’m not 100% sure.

Charles Neivert — Piper Sandler — Analyst

Yes. I mean, I asked the question because of who might be the buyers that the better cutlery, the firm or stiff is done by sort of higher in places and places that use the polypropylene are looking for really cheap. And again, you can hardly cut anything or pick anything up with their forks. So it’s sort of a problem that move into a higher end of the market.

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Yes, good question. I will tell you that every sample that I’ve seen is not floppy, okay? They’re firm enough to be able to cut food with and things like that. But here’s a key point is it depends on the customer. What does the customer want? We can formulate to meet either standard, if you will.

Brian, are you there?

Operator

Oh, sorry, I was on mute. Next question, we have Laurence Alexander with Jefferies. Please go ahead.

Kevin Estok — Jefferies — Analyst

Hi, thanks for taking my questions. This is Kevin again. I guess I was just wondering if you could impact, I guess, trends you’re seeing in ASPs. So I mean, have — like in the different applications and product categories, are they relatively stable? Or are they sort of moving just as those kinds of rising uncertainty in the U.S., but just curious to hear what you’re seeing in terms of pricing in your end applications?

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Yes. Kevin, good question. What we saw through ’21 and ’22 was some really rapid inflation, and that drove up a lot of our raw material costs. And so we were passing on costs that pushed the average selling price up, but that has stabilized. And so we have not seen — as far as trends go, there has not been any trend up or down with respect to current products that are on the market.

Kevin Estok — Jefferies — Analyst

Got it. Okay. Thank you. And I guess my last question, I guess, I’m just curious to hear what you’re hearing from your customers and further downstream. I guess, what are you hearing? And what do you expect maybe in the cadence of launches? Like do you — could they change if there’s a recession in the back half of this year and in 2024? Just curious to hear what you’re hearing from customers.

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Yes. I wish I was that good at predicting the future. But obviously, anything could happen, especially if there’s a dramatic change in the economy. But the things that we’re focused on right now are a long way down the road. I would expect that even in the event of some — as long as it was in some kind of massive economic upheaval, in a mild recession, I wouldn’t expect a significant impact on our forecast.

Kevin Estok — Jefferies — Analyst

Got it. Okay. Thank you very much.

Operator

Thank you. [Operator Instructions] Next question, we have Thomas Boyes with TD Cowen.

Thomas Boyes — TD Cowen — Analyst

Thanks for taking the follow-ups here. Just — I didn’t see in the deck, can you let us know what percentage of revenue was attributable to PHA for the quarter?

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Yes. I never calculated that personally. Do you have that, Mike?

Mike Hajost — Chief Financial Officer

I do. I’m not sure if that’s something — yes. Let me get that for you here. If you have another question, I’ll get that information for you.

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Go ahead, Thomas…

Thomas Boyes — TD Cowen — Analyst

Sure. Yes, I just wanted to kind of better understand the nature of the restricted cash release. Was that performance related to something that was going on? Or is there something else there?

Mike Hajost — Chief Financial Officer

Yes. I’ll take that here as I go. We had changes in our restricted cash for the most part were kind of related to the IP term loan, and those are short-term in nature. The one that has really stuck with us is the interest reserve account where we had to put about $12.5 million into that and roughly maintain that balance over the next couple of years to have reserves for the interest payments on the loan.

There was, I would say, some short-term — I would say, cash availability constraints that we had. We had to go through and get some consents from the new market tax credit lenders for our Kentucky operation, and which we have gotten in place already. And — but prior to that, we did have some restrictions on about $45 million of minimum cash balance that we maintained of those proceeds.

And we also had to put $12 million into a restricted account, a blocked account just for any kind of subsequent to those loans in the event that we never did get that consent. So there’s a lot of noise in the restricted cash line this quarter. A lot to do about nothing, but we’ve got all of that kind of worked out at this point.

And the only real change we, for the most part, have is just a restricted interest payment. So I think going forward, as we talk about — we kind of look through all of that. And when we talked about our — really our effective liquidity being $114 million. But you’re realizing that $12 million of that was actually in a restricted account for a short period of time. Does that help you?

Thomas Boyes — TD Cowen — Analyst

No, that makes sense. I appreciate the insight. I just kind of wanted to make sure I understood the machinations that were going on. So give enough time for the PHA percentage or we can always take it offline looking here?

Mike Hajost — Chief Financial Officer

My stellar staff is pinging me here on that. And PHA was about 42% in the current quarter. And it’s about 52% in the prior quarter. And I think this is in the 10-Q.

Thomas Boyes — TD Cowen — Analyst

Perfect. I appreciate it. Thanks again.

Mike Hajost — Chief Financial Officer

Okay. Thank you.

Operator

Thank you. Next question, we have Jon Tanwanteng with CJS Securities. Please go ahead.

Jon Tanwanteng — CJS Securities — Analyst

I was wondering if you could give us a sense of just what’s happening in Q2 just directionally. I know timing impact to Q1. Have those issues been resolved and kind of is regular production resuming? Number one. And do you have any programs actually ramping in Q2? I know you mentioned Q3, Q4, Q1, but I didn’t hear any mention actually this quarter.

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Yes. Jon, the issue that caused the tough comparison to last quarter was really the Eagle Starbucks ramp. And so that’s behind us. Going forward, we expect year-over-year growth. But as Mike caveated the last quarter, we’re still small and these are big customers. So it’s still possible that we’ll see lumpiness as these things scale up.

And as far as any Q2 scale-up, we do have one large QSR that’s starting store trials this quarter, which is really just the first step in the ramp-up. So we have every expectation that will continue — that ramp will continue to scale, and we’ll end up with all of their straw business.

Jon Tanwanteng — CJS Securities — Analyst

Great. Thank you. And then, Mike, any update on just input costs and where those are going relative to where you thought they would be earlier this year?

Mike Hajost — Chief Financial Officer

Yes. Look, we’ve been really pleased with what we’re seeing as the direction of canola prices. They kind of got pretty high last year, especially as the war in Ukraine took off, and that put a lot of pressure on commodity prices in general. And we are on our forward outlook, and these are numbers that we’re starting to kind of lock-in with our contracts.

We see prices that were up in the mid-90s sometime last year and then low-90s is some of the things that we’re experiencing, even our first quarter into our second quarter as we kind of work off some of those inventories.

But as we look forward here, we’re looking at prices now that we can contract in Q1 that could be in the low 70s. And we think that maybe it’s a little bit of — if you can be a little bit patient, what we’re hearing from our brokers and vendors is we can start seeing things that are maybe mid to high 60s, maybe second quarter of next year. So I think it’s very promising compared to where we’ve been as a sizable input cost that we track.

Jon Tanwanteng — CJS Securities — Analyst

Great. Thank you very much. Last one for you. Just how much interest was actually capitalized in the quarter? Could you give us that number?

Mike Hajost — Chief Financial Officer

There’s very little interest capitalized in the quarter. It’s, I think, less than $1 million and probably less than that. Overall, as we’ve kind of paused the greenfield projects and our capex spend has come way down, our CIP has gone way down as well.

So at this point, the majority of our interest is now flowing through the interest expense line as opposed to being capitalized. If we — once we get the funding for the greenfield project and that starts up again, we can see a change on that going forward. But right now, the amount of interest that we’re seeing capitalized is pretty de minimis.

Jon Tanwanteng — CJS Securities — Analyst

Got it. Thank you.

Operator

There are no further questions at this time. Steve, do you have any closing remarks?

Stephen E. Croskrey — Chief Executive Officer; Chairman, Board of Directors

Yes. Thanks, Brian. I’d like to thank everyone on the call with us again for your time and attention today. We’re excited about the increased awareness of PHA-based materials among consumers and customers, pleased to have major opportunities for growth right in front of us, and grateful for the ongoing support and dedication, and shared vision of our investors, employees, partners, teammates, and customers.

We’ll be looking forward to speaking to you about our continued progress again next quarter.

Operator

[Operator Closing Remarks]