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Q & A Highlights

Q: Can you elaborate on the timeline and qualification process for the caps produced from line 1? A: John Bissell, Co-CEO, explained that millions of caps have been produced from line 1 and are being sent for customer qualification. This involves testing the caps on capping and filling systems to ensure performance and reliability. The qualification process varies by customer size, with larger customers requiring more extensive testing. Additionally, caps from line 1 are used to qualify equipment for lines 2, 3, and 4.

Q: Regarding the $100 million-plus contract, how is the timeline affected by the delay in line 1? A: John Bissell noted that the delay in starting line 1 has pushed back the initiation of purchases under the MOU by a similar amount of time. The contract remains a two-year term, now expected to extend into 2027. The production rate is expected to be higher in 2026, reflecting the ramp-up of CapFormer lines.

Q: What is the minimum cash level you aim to maintain, and what is the cash burn forecast for 2025? A: Matthew Plavan, CFO, stated that while they haven't disclosed a specific minimum cash level, they aim to maintain at least 12 to 18 months of run rate cash. The operating expenses for 2024 were approximately $48 million, and they expect similar levels for 2025. The financing strategy involves using existing capital and raising debt to cover equipment purchases.

Q: Can you explain the issues with line 1 and why they impact the EBITDA breakeven timeline? A: John Bissell explained that customer feedback led to adding a knurling feature to line 1, causing delays. This delay affected the qualification work for subsequent lines. The EBITDA breakeven timeline has been adjusted to reflect the uncertainty in forecasting more than a year out, now expected in 2026.

Q: Why did you start with bottle caps instead of larger formats, given the cost advantages of larger caps? A: John Bissell stated that strong customer demand for the 1881 format drove the decision to start with bottle caps. The 1881 format represents a significant market, and the technology developed allows for flexibility to pursue both small and large formats without significant trade-offs.

Q: What is the main bottleneck or constraint to bringing CapFormer lines online? A: John Bissell mentioned that for 2025, everything is in process, and the focus is on 2026. The main constraint is balancing the cost of capital with the deployment rate of CapFormer lines. As the technology is de-risked and financing becomes cheaper, they expect to deploy more lines.

Q: How do you prioritize customers given the demand? A: John Bissell explained that customer prioritization involves balancing volume, margin, deployment flexibility, technical expertise, credibility, and strategic growth potential. There is no strict algorithm, but rather an artisanal balance of these factors.

Q: What is your financing plan for 2025 and 2026? A: Matthew Plavan outlined a strategy involving existing capital and equipment-based debt financing. These sources will fund operations and the build-out of 8 CapFormer lines, expected to drive significant revenue and cash flow by the end of 2026.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.