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Danimer Scientific, Inc. (DNMR) Q4 2020 Earnings Call Transcript

DNMR Earnings Call - Final Transcript

Danimer Scientific, Inc. (NYSE: DNMR) Q4 2020 earnings call dated Mar. 29, 2021

Corporate Participants:

Russ Zukowski — Vice President of Corporate Finance

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

John Dowdy — Chief Financial Officer

Analysts:

Jon Tanwanteng — CJS Securities — Analyst

Laurence Alexander — Jefferies LLC — Analyst

Vincent Andrews — Morgan Stanley — Analyst

Presentation:

Operator

Hello, and welcome to the Danimer Scientific Fourth Quarter and Full-Year 2020 Conference Call. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] I would now like to turn the call over to your host, Russ Zukowski, Vice President of Corporate Finance. Thank you. You may begin.

Russ Zukowski — Vice President of Corporate Finance

Thank you, Chemali. [Phonetic] And thank you everyone for joining us today for our fourth quarter and full-year 2020 earnings call. Hosting the call today are Danimer’s CEO, Steve Croskrey; and CFO, Jad Dowdy. Phil Van Trump, our Chief Science & Technology Officer, is also on the line for questions-and-answer.

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. A reconciliation to the most comfortable GAAP financial measure can be found in the Investor Presentation.

I will now turn the call over to Steve who will begin on Slide 3.

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

Thank you, Russ. Good afternoon, everyone. Before we get started, I want to express my appreciation to our team for their strong execution as well as to our new shareholders for their exceptional support. During 2020, we completed construction of the world’s first commercial PHA facility and went through a rigorous De-SPACing process all during a pandemic, while simultaneously negotiating development agreements with Mars and Bacardi. Thank you for your hard work, dedication and support.

I will start with a review of our business highlights. Following that, I will turn it over to our Chief Financial Officer, Jad Dowdy, who will provide financial highlights from the fourth quarter and full-year 2020. I will then wrap up with some exciting updates on our growth strategy.

I’m extremely pleased with our numerous accomplishments during 2020 to end the year with an outstanding customer base and an unrivaled commercial-scale bioplastic technology platform. Becoming public was an important milestone for our company providing us with additional financial flexibility to achieve our long-term expansion objectives.

2020 was a year of record revenues for Danimer, and we are still in the early stages of an immense opportunity to grow our business and build long-term shareholder value.

On today’s call, we are going to address four key takeaways. First, the depth and capabilities of our high growth, next-generation eco-tech company that produces 100% biodegradable polymers for use in plastic applications. Second, our massive addressable market spanning 500 billion pounds. Third, our unrivaled growth potential from intense demand by blue chip multinational customers. And finally, the progress we have made to significantly expand our business to meet customer demand.

Moving to Slide 4. Those of you who met us during our SPAC merger transaction know that we view PHA as the best end-of-life solution for single-use plastics and that there are no other marine degradable materials available today with PHA’s performance characteristics. We are even more bullish about PHA now that — we are even more bullish now about PHA than we were a few months ago. The tremendous demand resulting from the powerful tailwinds of corporate sustainability commitments, governmental regulation and consumer awareness of the environmental impact of plastic waste is expected to only make our future brighter.

We are in a very unique place within our industry that sets us apart from peers. We have the market know-how, a large portfolio of patents developed over the past 13 years, commercial scale, and long-term customer contracts, all of which puts us well ahead of our industry. We have already built our first commercial-scale production facility, and we have a significant pipeline of new capacity to extend our leadership position. We have aligned the majority of our expansion plans based on long-term partnerships with customers. Our customers are mainly major blue chip multinational brands that have all made long-term commitments to make their plastic packaging recyclable, reusable or biodegradable.

With bioplastics representing less than 1% of the addressable market today, we have only scratched the surface of what we believe to be the immense upside moving forward. Our team is comprised of acknowledged leaders in the bioplastics space, and I could not be more pleased with their measurable achievements at Danimer and in this industry. On the next several slides, I’ll provide some context to address some questions that we get on PHA and Danimer’s proprietary approach.

Turning to Slide 5, Danimer’s Nodax PHA is certified as marine degradable by TUV AUSTRIA. I’ll give you some context on why that is positive for customers and the environment. The two questions we think about with respect to polymers for plastic are, is it renewable and what happens at the end of its life. Fossil fuels are non-renewable and typically accumulating in landfills and in nature. Most biopolymers don’t go away, and those that do can obtain industry certifications for five different environments. Industrially compostable is the easiest standard to achieve, but requires the high heat and moisture of an industrial compost facility.

Home compostable is similar, but requires less heat and moisture. Soil degradables not require heat or moisture as the polymer is broken down in dramatically by bacteria. Fresh water and finally marine degradable certifications, such as those Nodax has received are the most difficult and highest standards to achieve, because there is less bacteria in those environments and so more difficult to degrade.

On Slide 6, we show the lifecycle of PHA. We make PHA by feeding canola oil to bacteria. The bacteria then convert the carbon from the canola oil into another form of carbon for their own metabolic process, that’s PHA. The resulting product is the bioplastic resin that we turn into a finished product. The product is not degraded in your home or on the shelves, but after it is discarded, it will be enzymatically degraded by bacteria as this is their preferred energy source. We believe our PHAs beginning through end-of-life cycle puts us at the forefront of sustainability.

Moving to Slide 7, we are excited about our PHA leadership position in a significantly large addressable market. It’s an 800 billion pound total market, and today virtually all of that ends up accumulating in landfills or in nature. Even recycled products have to be discarded at some point. Bioplastics, particularly PHA, are a viable end-of-life solution to truly address the growing need to reverse the global plastics crisis. We think bioplastics can replace about 500 billion pounds of the total market and so far, have only achieved less than 1% of that figure.

To put that into perspective, Danimer has announced plans to have 315 million pounds of nameplate production capacity by 2024. That makes us by far the largest producer of PHA globally, and that still pales [Phonetic] in comparison to the over 200 billion pounds discarded in nature — 200 billion of fossil fuel-based plastics discarded in nature, including the 17 billion pounds of plastic dumped into the ocean every year that don’t make their way into landfills.

On Slide 8, we have a long journey that we believe puts us significantly — we have had a long journey that we believe puts us significantly ahead of our industry in terms of patents, commercial-scale production, and long-term commitments from customers. This has made us a pioneer and a world leader in producing natural biopolymers that are biodegradable and compostable.

We have grown alongside our customers as partners in our mission to address the global plastic crisis. Their long-term contracts and commitments with us continue to fund our R&D efforts, capacity build-outs and revolutionary products. This history of continuous innovation has brought us to this current inflection point. Now as a better capitalized company, we plan to accelerate our growth trajectory and further invest in capabilities to support this growth. We have continued to build out our R&D, engineering, sales and marketing teams to prepare for the expected ramp-up in production. We have hired a number of highly experienced leaders in engineering, manufacturing, technology development, and finance in support of this growth.

We have entered into new partnerships, including our March announcement of a two-year partnership with Mars to develop biodegradable packaging as part of their supply chain. We entered into an agreement with Bacardi to make a biodegradable and compostable spirits bottles to help Bacardi replace 80 million plastic bottles. And more recently, we announced that we intend to double the size of our planned greenfield facility to further capture the growing demand from customers.

I’ll now turn it over to Jad for an update on our financial results.

John Dowdy — Chief Financial Officer

Thank you, Steve. I’ll speak to Slide 9. Given the early stage of our trajectory, I’ll focus my comments today on the full-year 2020 results with fourth quarter context as applicable followed by some color on 2021. Revenues for the full-year 2020 grew 46% to $47.3 million compared to $32.3 million in the prior year. This increase was driven by higher sales of our legacy PLA-based resins, as well as significant sales of PHA-based resins as we commenced the scale-up of commercial PHA production beginning in March of last year. Year-over-year growth of 38%, and the fourth quarter was more modest compared to the full year due to accelerating PLA-based resin sales earlier in the year as customers saw the increased inventory levels in order to prevent potential supply chain disruptions from the pandemic.

Today [Phonetic] that we are currently producing PHA-based resins out of our Kentucky facility, having recently completed the first of a two-phase expansion for PHA production. Phase I added 20 million pounds of finished product nameplate production capacity with fermentation around starting in March 2020, at the same, the pandemic-related lockdowns began. Phase II construction has commenced in December of 2020 and is expected to add an additional 45 million pounds of finished product nameplate capacity in the second quarter of 2022, with production ramping up thereafter. The completion of both phases will bring our total nameplate PHA capacity up to 65 million of finished product per year. In 2020, we derived 10% of our revenues from sales of PHA-based resins, a significant increase compared to 1% in 2019. In the fourth quarter, PHA-based resins climbed [Phonetic] to 19% of sales, reflecting our expanded production capabilities.

Full-year gross profit increased to $11.5 million compared to $11.1 million in the prior year. Adjusted gross profit, which excludes depreciation, stock-based compensation and rent related to our manufacturing operations, increased to $16.6 million compared to $14 million in the prior year, driven by higher revenues. On a margin basis, adjusted gross profit was 35.1% compared to 43.2% in the prior year, primarily the result of having limited PHA manufacturing activities in 2020 and incurring incremental costs associated with the ramp-up inefficiencies.

R&D and SG&A expenses, excluding depreciation and amortization, stock-based compensation, rent and one-time items, were $16.3 million compared to $12.5 million in the prior year, mainly attributable to an increase in headcount and salaries to support R&D efforts and our future expansion plans. The adjusted EBITDA loss was $3.2 million as compared to a loss of $1.6 million in the prior year, with the slight increase in gross profit more than offset by the higher operating expenses. Adjusted EBITDA excludes stock-based comp, other income and other add-backs as reconciled in the appendix. Adjusted EBITDAR was $402,000 in 2020 compared to $1.5 million in 2019. We are separating out rent as rent expense was primarily related to a sale leaseback agreement associated with the Kentucky facility.

Turning to Slide 10, we’ll look at 2021. I’ll provide several items to keep in mind. Increased availability from the completed Phase I capacity expansion will provide for a significant ramp-up in revenue for 2021. We expect adjusted EBITDA and cash flow from operations of 2021 as the Kentucky Phase I facility ramps up utilization levels from approximately 50% at the beginning of the year to fully ramp at the end of the year, noting, however, that we are planning a turnaround in Kentucky in the latter part of the second quarter of 2021 to debottleneck and accelerate ramp-up.

As I noted earlier, the Phase II expansion is now expected to be completed in the second quarter of 2022 compared to our initial assumption of late 2021, resulting from the shift in timing of our closing the public company transaction. Total operating costs are expected to be approximately $27 million for 2021, excluding depreciation and amortization, stock-based compensation and one-time items. In addition, we expect net zero — we expect zero cash taxes due to the significant NOLs that the company has available. For the full year of 2021, we anticipate capital expenditures to be in the range of $100 million to $125 million primarily to invest in the planned capacity expansions.

Now I’ll turn the call back to Steve.

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

Thank you, Jad. Please turn to Slide 11. We have seen customer demand grow as our blue chip multinational customers develop more sustainable products made from bioplastics. It’s important to highlight that the growing plastic waste market does more than just increase our addressable market. It also pushes customers to adopt the best solutions amongst plastic alternatives. We, therefore, continue to experience intense demand and accelerating growth for our marine degradable PHA products. As you can see here, we have a mix of very tenured customer partnerships with major consumer packaging brands such as Pepsi and Nestle. The recent announcements of partnerships with Bacardi and Mars, among others, are a testament to the growing appeal of our PHA as a solution to plastic waste.

On Slide 12, I’ll spend a moment on our growth strategy, which has two primary financial objectives, accelerate our top line growth and expand our adjusted EBITDA margins. Our growth strategy is comprised of three elements. First, expanding our market share by developing products in partnership with customers to grow demand. We are working on improved versions of our existing products and are currently in the process of filing several new patent applications. Second, derisking our growth strategy by securing multi-year purchase commitments, work contracts to have the customer demand in place before beginning production. Three, finally attaining favorable unit economics. This includes putting contracts to place that are mutually beneficial to Danimer and customers, as well as approaching expansion decisions with the focus on returns that are well above our cost of capital.

So that should be finally as a third bullet attaining favorable unit economics. Based on all of these objectives, we are accelerating and increasing our announced expansion plans. The timing and size of future expansions will follow that similar framework.

To that point on Slide 13, we are moving toward a bioplastic world even faster than we projected six months ago. Considering that we have announced our intention to double the size of our planned greenfield facility to catch up with demand. We have chosen Bainbridge, Georgia based on a detailed site selection process. Our plan is now to increase the anticipated greenfield capacity from 125 million to 250 million nameplate finished pounds of product annually. The new state-of-the-art facility is currently in the pre-construction engineering stage. It is expected to break ground in 2022 with the first half of the project coming online in mid-2023 and the second half operational in 2024.

The cost of facilities are now projected to be around $700 million, which incorporates the doubling of the facility plus additional enhancements for efficiency. The unit economics remain very attractive on this larger scale. Upon completion, we will be in a much better position to serve our growing order commitments from customers.

Moving to Slide 14. Even with the planned doubling of the facility, we continue to forecast that the greenfield plant will be sold out. In fact, based on our conversations with customers and the trends we are seeing in the business, we believe that the market demand and unit economics support additional capacity more than 250 million pounds of finished product per year beyond currently announced capacity additions. We expect our expansion plans to bring considerable benefits to Danimer in coming years as we reduce lead times and costs, serve more customers concurrently, and leverage the operational infrastructure that we are putting in place today.

As you can tell, we have been very busy PHA demand is growing rapidly, our products are winning with customers and we are laying the foundation to accelerate growth. We couldn’t be more excited with our leading position to deliver a dramatic solution to the global crisis of plastic waste. I’ll wrap up with the four simple reasons why we are excited for ’21 and beyond.

We believe our high-growth, next-generation 100% biodegradable plastics have no match. We are on our way to tapping the 500 billion pound market opportunity, of which only 1% is currently served by bioplastics. Our unrivaled growth potential from blue chip customer demand is intensifying. We are accelerating our investments to significantly expand our business supported by customer commitments. We are adding exceptional point in our company’s history, and I cannot be more optimistic about our growth prospects in coming years.

Thank you for your time today. We’ll now open up the line for questions.

Questions and Answers:

Operator

And at this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Jon Tanwanteng with CJS Securities. Please proceed with your question.

Jon Tanwanteng — CJS Securities — Analyst

Hi. Good afternoon everybody. Thank you for taking my questions and congratulations on your first quarter as a public company.

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

Thank you, Jon.

Jon Tanwanteng — CJS Securities — Analyst

And it’s also great to see the demand that you’ve been talking about increase. My first question, I guess, can you provide an updated expectation in terms of the profitability you’re expecting compared to what you had in your investor deck last fall, given your new growth and expansion plans and what looks like a significant inflation that’s coming to supply chain right now?

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

Jon, could you be little more specific in terms of time frame that you’re asking about?

Jon Tanwanteng — CJS Securities — Analyst

Sure. I mean, over the next two or three years, it will be perfect if you could go into how you expect your profitability to ramp, especially as new plants complete?

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

So we expect our margins to improve over time as we increase capacity. The more scale we have, the better we can spread out those fixed costs. So I think, when you look at the out years as compared to the previous models that you’ve seen, there will be tremendous increase in profitability really just driven by volume. In the near term, I would expect less profitability at the bottom line than what was previously disclosed, because in order to accelerate that growth, we’re pulling in quite a bit of opex mainly with new hires. We’re hiring quite a bit of people this year that we didn’t intend to prior to the announcement to double the size of the greenfield plant.

Jon Tanwanteng — CJS Securities — Analyst

Understood. That makes a lot of sense. And can you just comment on the spreads that you are making on your product these days. How you’re pricing to customers just given the price of feedstocks, the canola oil going up?

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

Yeah, let me say one more thing in terms of kind of longer term before I address that one specifically. We are just getting started, and you’ve heard me say this before probably. The fossil fuel industry has been optimizing for 70 years. So we know — this is one of those things, you actually talked about — unknowns and no knowns and all that. This is one of those things where we know we’re going to be able to take costs out of this business as we grow both on a capex per pound basis and on a cost of goods sold basis. And just as we kind of look at that in the next five to 10 years, we think we can easily take 25% out of those costs versus what we’re kind of currently forecasting.

And then as far as your question, Jon, about margins, that’s a little more — in the short term, canola oil is going up in price. About half of our current contracts have escalators in them that allow us to pass that on to the contracted customer. We put that language in every contract that we had that was multi-year. So in the one-year contracts that we did, we didn’t have that in there, but we had hedged. So we don’t — we won’t really see impacts from that canola margin or canola pricing increasing until the later part of this year.

Jon Tanwanteng — CJS Securities — Analyst

Got it. Thank you very much. And then just on the new expansion plan, $700 million, about half of that you already have on the balance sheet, how do you plan to finance the rest?

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

We are exploring every option available, and we will get back to you on that. And go back to your last question to, Jon, I would also just want to remind you that we are not limited to using canola oil as a feedstock. And so, we are also aggressively looking at alternatives, which — we know there are lot of alternatives, but obviously we’re looking for economical — more economical alternatives, if you will. So that’s an ongoing project.

Jon Tanwanteng — CJS Securities — Analyst

Okay, great. Actually, if you don’t mind, one more just, has there been any change in the competitive environment now that you’ve shown the world that you’re sold out for the next two years and maybe for the next four or five? Are there perhaps companies that can’t get on your list at the moment who are turning to other PHA players and maybe willing to fund them to accelerate their growth over the next couple of years in order to get their hands on similar products?

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

Well, we’re not aware of any other major brand owners that are doing that. We have, let’s — I would say this that we have not ever engaged with one of these major brand owners and then had them go somewhere else. I think we’re far enough ahead that they see the benefit of dealing with us now, and we’re working really hard, which is one of the reasons why we are — announced doubling of the greenfield. We’re working really hard to make sure that we can satisfy all these customers that have kind of interested future packaging to us. So that’s the goal is to try to keep them all happy and keep adding customers to the — in the fold, but we have not seen anything yet that would indicate that our lead is in jeopardy.

Jon Tanwanteng — CJS Securities — Analyst

Got it. Thank you very much, and congrats again.

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

Thanks, Jon.

Operator

And our next question is from Laurence Alexander with Jefferies. Please proceed with your question.

Laurence Alexander — Jefferies LLC — Analyst

Good afternoon. First, on the new expanded capacity target, do you already have an anchor tenant for the extra volume or to what degree of that capacity sold out under contract?

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

Yeah, it’s — in the early years, I would say, it’s roughly 10% under contract, Laurence, but we still have a lot of time to get to actual contracts. And so, the answer is yes. We have two new anchor tenants, which would be Mars and Bacardi. Mars and Bacardi were not contemplated in our financial models when we were marketing the pipe. And — so, those are new customers. We’ve also added a third brand, which we can’t talk about, because they view it as a competitive advantage. So we really have three significant new customers in the pipeline from the financial model that we used to build the greenfield plant originally, the model for the plant. And so, we — while we don’t have offtake agreements yet with those customers, we have forecast and plans are in place.

Laurence Alexander — Jefferies LLC — Analyst

And then with respect to the State of Georgia, are the — is the support from the State of Georgia significant, and if so, is that factored into the 30% cash ROIC?

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

It is. We believe it is significant. It’s valued in the tens of millions of dollars, and it’s not factored into the ROIC.

Laurence Alexander — Jefferies LLC — Analyst

And then, can you address, sort of, average selling prices, how they’re doing now and do you still expect them to be in roughly the $250 [Phonetic] range or what — or to what degrees, ASPs are moving?

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

Yes, the average selling price is pushing about $270 [Phonetic] right now. So I would say it’s been increasing slightly over the last few months.

Laurence Alexander — Jefferies LLC — Analyst

And then just the last one on my side. Can you address the criteria that you would have to do a project overseas? I noticed on Slide 14, you go from two green lines to three green lines, to four green lines and there is all sorts of interpretations for that. So just wondering how you’re thinking about geographic expansion or doing multiple projects in parallel?

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

Yes. So, as you may have heard me say before, Laurence, after we finish this — by the time we finish completion of this first greenfield project, we need to have the internal resources and competence built up to be able to build two plants at once, and one or both of those could be overseas. So we’re proceeding with that in mind. And when you see that, the green lines on that slide, I guess, when you — it goes from two at once, to three at once, to four at once, that sort of — it represents our medium-term goal, if you will, to develop that competence and resources in-house to build four plants at once.

Laurence Alexander — Jefferies LLC — Analyst

Okay. Great. Thank you.

Operator

And our next question is from Vincent Andrews with Morgan Stanley. Please proceed with your question.

Vincent Andrews — Morgan Stanley — Analyst

Thank you. Good afternoon everyone. I wanted to just dig in a little bit on the $700 million for the two greenfields. If you could just sort of bridge us from — I believe, the original estimate was $285 million for one. So I’m just curious what’s changed in terms of the cost of each greenfield, and I thought maybe there might be some scale benefits of building two rather than one. So maybe you could just help us understand what’s happened, the sort of the per unit cost of construction since your last update?

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

Yes. So really it’s three things, Vincent. The first is — and again, some of you will have heard me explain this in the past, but a refresher, that original estimate we spent about $200,000 on. It’s been well over a year since that was done. And now since we closed on the SPAC deal and had cash, we’ve started a $13 million engineering project to finalize not just the price quote estimate, but the actual plants to be constructed with. So that started in late December. And we just — about week and a half ago, we got a plus or minus 30% estimate. That estimate by, I believe, July will be done will go to a plus or minus 20%, and before construction, it will get down to a plus or minus 10% estimate. So we’re hoping to — no guarantees, it could go the wrong direction, but we’re hoping to be able to drive that cost lower over time with value engineering.

So the three things that I would point to that are different. First of all, it’s just maybe the level — the thoroughness of the estimate at this point relative to the first one that was made is part of it. Secondly — and we were surprised at some of the inflationary things that we saw, both with the cost of steel, but with labor as well. And I think one of the things that’s happening right now is as people are — as we see ourselves coming out of the pandemic, I think there is a lot of activity like this going on. And then thirdly, it’s — we’ve added — we’ve intentionally added some costs to the project where we can drive COGS lower or drive expenses out. So there has been some optimization and some efficiencies developed that will cost more money, but ultimately have a great return. And that’s why where — when we look at the efficiencies that we’re getting by — between those things and doubling the size of the plant, that’s why we’re still reporting that we believe it’s a 30% ROIC.

Vincent Andrews — Morgan Stanley — Analyst

Okay. And just as a follow-up to that, it’s the timing of how long it will take to build the greenfield, is that within that sort of plus or minus 10% estimate or is that subject to change as the engineering sort of work is completed in the coming months?

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

Yeah. Right now, the timing is the same on a relative basis, but it’s going — the entire project is going to take longer than the three fermenter version because of the way we’re doing it. We’re starting with three fermenters initially. And then when those are complete, we will turn to the next three. So that second half will take longer to complete than originally proposed. So the entire project is a longer project now than what it was originally. Did I answer that question?

Vincent Andrews — Morgan Stanley — Analyst

I understood. You’re saying that first greenfield can take as long as you previously thought, but now that you’ve added the second one, it obviously takes longer to do both. But the timing of constructing each project hasn’t changed. Is that correct?

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

Yeah, it’s pretty much. That’s correct, the way you said it although we are thinking of it really as just one plant. So it’s not really greenfield one and greenfield two. It’s really just a greenfield one and it’s just going to have six fermenters.

Vincent Andrews — Morgan Stanley — Analyst

Got you. And maybe just one last clarifier for me. Did you earlier say that you have about 10% of the new greenfield capacity contracted or was that — is that not correct?

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

I said that.

Vincent Andrews — Morgan Stanley — Analyst

Okay. All right. Thank you very much. I’ll pass it on.

Operator

And our next question is from Jon Tanwanteng with CJS Securities. Please proceed with your question.

Jon Tanwanteng — CJS Securities — Analyst

Hi, thanks for the follow-up. So I just wanted to ask about the PLA business and what your expectations for that this year and kind of how that tracks going forward as well?

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

Sure. So we had a really strange year last year on the PLA side of the business. Really, we should just kind of call that the base business, because where we are agnostic as far as the final formulation of a product, we’re trying to solve customer problems. And if those formulations end up with all PHA, all PLA, or some combination in between, it doesn’t really matter to us. But the base business is all PLA based and other biopolymers.

So we had a strange year last year. When COVID came, our foodservice business just went away. And honestly, we’ve had customers that had not ordered since before March. Though some of that — the folks that are in the restaurant business, some of that is still — we’re still seeing the effects of that. We made up for it last year in large part because of one, particularly a large customer was concerned that — what might happen if Danimer had a shutdown due to COVID. And so, they ordered in about 25% of their annual requirement as stocking inventory and that had a significant positive impact last year. Now unfortunately, we won’t see that again this year. So it will — we’ve got that in the history now, but it won’t be in the growth numbers for this year. So I think on a year-over-year basis, the PLA business is not going to look — it’s not going to grow as rapidly as we’re used to this year.

Jon Tanwanteng — CJS Securities — Analyst

Okay. I got, but still growing, just to clarify?

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

Yes.

Jon Tanwanteng — CJS Securities — Analyst

Okay, great. Maybe just going back to the expansion, the 30% ROIC in year two [Phonetic] sounds great. I was just wondering what the timeline is to actually reaching profitability after you complete construction. What do you define that in terms of cash flow or EBITDA or net income, just whatever you’ve been modeling too, is it six months, is it nine months, how are you thinking about them, starting with the Kentucky, and then going on to the greenfield?

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

I don’t know if I know that answer off the top of my head, Jon. I do know that when we modeled these projects that we hit breakeven when we are roughly a third of the stated capacity. When we get to that point, we’re breakeven.

Jon Tanwanteng — CJS Securities — Analyst

Okay. Got it. Okay. That’s great. Thank you. And then finally, just wanted to get the difference between the GAAP and the non-GAAP in terms of the other costs that were expected to come through the stock comp fee, the depreciation, and I’m just wondering what the differences between GAAP and non-GAAP as we go forward?

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

Jad, you want to take that one?

John Dowdy — Chief Financial Officer

Yeah, I’ll take it. As we go forward, we’re planning on, I guess, reporting adjusted EBITDA and adjusted EBITDAR. And with adjusted EBITDA, we will be adding back depreciation and amortization, taxes, stock-based comp, and then there is some unusual one-time items, I think, that in this year, for example, will have some expenses that we would term one-time expenses that the company might incur as we make the transition to becoming a public company, and that would be things like — under the next year, we have to be compliant with Sarbanes-Oxley. So we’ll have some sort of rating this project that the company will have to undertake in the current year that we think would be like an incremental expense. Those are the types of things.

And then, we also have some rent expense that we’ve added back to get the EBITDAR that’s primarily related to our facility in Kentucky. When we acquired the facility, we leased it back to a REIT and as an alternative to borrowing money. So we will also provide that metric. We will get our results with the brand added back as well.

Jon Tanwanteng — CJS Securities — Analyst

Okay. Got it. I was just wondering if you have a non-GAAP estimate for the opex this year?

John Dowdy — Chief Financial Officer

No. For the opex over the non-GAAP estimates — bear with us some second.

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

Hey, Jon, I’d give you little clarity on the PLA business this year. I would just make the point that we are still growing, because we’re in programs that are growing, but we don’t forecast to add any pure straight PLA business this year. All our business this year that we’re forecasting growth — new growth — new program growth would be — have PHA in it.

Jon Tanwanteng — CJS Securities — Analyst

Okay. Got it. Thank you guys. If I can ask one more, just, what is the share count at the end of Q1 that you’re expecting to have?

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

Can you repeat that question please?

Jon Tanwanteng — CJS Securities — Analyst

Yeah. What’s the expected diluted share count at the end of the first quarter?

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

I don’t have the — what I can tell you is that, as of the day, we have about 88 million shares outstanding and we also have about 11 million options outstanding that have a weighted average exercise price of about $13.94 in addition to the 16 million warrants that the company has outstanding as well.

Jon Tanwanteng — CJS Securities — Analyst

Okay. Great. Thank you.

Operator

And our next question is from Laurence Alexander with Jefferies. Please proceed with your question.

Laurence Alexander — Jefferies LLC — Analyst

Hi. Just one last one. Could you give some detail on kind of the cadence of customer inquiries types of end markets, if you have any new end markets or applications that are requiring you to develop new grades of PHA or if they are all just focusing on the same set of PHA grades?

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

Yeah, great question Laurence. So kind of depending on where you want to make the comparison. Our incoming leads are 2x to 3x over what they were prior to us making the announcement that we were going public. So the number of incoming leads has picked up considerably. Our pipeline of big brand owners is as robust as it’s ever been. And just to kind of give you the history there, we signed up Pepsi in Q4 of ’16, we signed up Nestle in Q4 of ’18, we signed up Bacardi in Q4 of ’20, and then in Q1 of 2021, we signed up Mars. And I expect that kind of compression to continue going forward.

As far as applications there, I would say the majority of the inquiries are usually responding to things where they’ve seen a press release or an article about another — an existing product or a product that’s being — we’re announcing is being developed. But a good number of them — it’s obviously smaller or relative basis. So I don’t want to put a percentage on it. But there are some new applications coming to light. There are inquiries coming and development in process on applications that don’t even have anything to do with plastic. I can’t talk about any of the specifics, but that’s one of the things that we’ve always thought could happen and would happen. And we’re excited to see it that there are definitely some opportunities to expand outside of the 500 billion pound addressable market that we’ve talked about in the past.

Laurence Alexander — Jefferies LLC — Analyst

Great. Thank you.

Operator

And our next question is from Vincent Andrews with Morgan Stanley. Please proceed with your question.

Vincent Andrews — Morgan Stanley — Analyst

Thank you. I just wanted to follow up on the sort of customer contracting, sort of the greenfield, and I get that there is a sort of chicken and egg thing here where you can’t contract the plant that you haven’t announced yet, and now you’ve announced it. So presumably the conversation are going to change and probably multiply. But I guess, what I’m trying to understand is, if you’re — if I’m looking at Slide 14, and it looks like you’re going to break ground in early 2022 according to that, how much of the plant would you think you will have contracted by the time you break ground and how should we be thinking about that, maybe let’s just start there?

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

Well, what I would like to see is to have a third of the whole plant contracted by the time we break ground on the second half. But I’d like to — that’s a goal, not a hard forecast but a goal.

Vincent Andrews — Morgan Stanley — Analyst

So just to be clear, a third of the overall greenfield by the time you’re during the second three fermenters or a third by the time you start the whole thing?

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

It would be like a — you could break it down into sixth and a sixth. I’d like to have a sixth out of it under contract by the beginning of next year and then another sixth before the end of next year.

Vincent Andrews — Morgan Stanley — Analyst

Okay. All right. Thanks very much.

Operator

We have reached the end of our question-and-answer session. And I will now turn the call over to Stephen Croskrey for closing remarks.

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

Thank you. Thank you everyone for joining us today. I’m proud of our team and excited for our future. I’d like to thank our shareholders for their tremendous support. We look forward to updating you on progress in the future. Have a good day.

Operator

[Operator Closing Remarks]

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