August 08, 2022 – On today’s podcast we welcome special guest, Footprint CEO Troy Swope. Footprint is a global materials science technology company focused on sustainable solutions.
On the show, Troy discusses:
- The innovation and improvement available in packaging solutions
- How plant-based packaging solutions compare to plastic
- Footprint’s business model and estimated total addressable market
- Insights into their merger with SPAC Gores Holdings VIII
- And more
Welcome investors to The Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies, your hosts, Julian Klymochko, and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate because performance matters. Find out more at accelerateshares.com.
Julian Klymochko: Welcoming Troy from Footprint on the show today, on a scorching hot summer day. Troy, I hope you’re staying cool. How are things?
Troy Swope: Great. It’s hard to stay cool right now in Arizona. I think it’s 114 outside.
Julian Klymochko: Oh, my.
Troy Swope: So it’s — things are good. Going to spend a lot of time in the pool tonight, I’m sure.
Julian Klymochko: Oh, that’s great to hear. So I wanted to start the show off by setting the table. You’ve been in the packaging industry for over 20 years. So certainly an expert in this field, an emerging field of sustainable packaging. I was wondering why it is such an important area for innovation and improvement. I mean, I just got a piece of online furniture delivered in the mail a week ago. And obviously, it had Styrofoam and I looked at it; I’m like, wow, this can’t be good for the environment. So what are your thoughts on the industry?
Troy Swope: Well, I think there’s — my initial thoughts are there’s massive amounts of opportunity. You’re talking about a huge industry, right, that has a number of negative environmental issues associated to it. Number one, when you think of plastics and packaging, plastics as just a producer of CO2 emissions, right, is — would be the fifth largest country. So it has a massive CO2 or climate change impact. And in addition to — in all lifecycle analysis or in every lifecycle analysis we do, it doesn’t really contemplate killing whales with plastic bags and other things. So it’s got a — it’s a disaster from its pollution, carbon pollution. It’s a disaster from harvesting natural gas and oil. It’s a disaster from it’s in every one of us. We’re all eating plastic every day. We get about a credit card’s worth of plastic a week. And it’s just — and a disaster for what it’s doing to the ocean. So that to me, all that creates massive opportunity to innovate and develop technologies that help the planet heal. You could have significant impacts. Footprint is having massive impacts on climate change, obviously pollution. And certainly number one for us, and our origin came from — we identified that plastics were in your bodies while we were working at Intel. We stumbled on the fact that plastic was contaminating Intel’s products, and we started experimenting with food, going, hey, what’s on these? So way before Bloomberg came out with their article and Rolling Stone came out with their article, we knew plastics — we were eating plastics, right? So number one is we’ve got to get plastics out of our bodies, right? It’s got massive impacts to us. It’s causing us to live less healthy lives, causing endocrine disruption issues. So when the — back to your very simple question is, you know, how do I see the industry? It’s just tons of opportunity to have a massive, very positive impact on the planet and human health.
Julian Klymochko: I’m sure no one’s happy knowing that they eat a credit card of plastic in a very brief moment of time. Now, speaking on that, you guys at Footprint are doing something about this. You have plant-based solutions that are meant to replace plastic-based packaging and different products and things of that nature. What are some of the pros and cons compared to plastic, outside of, you know, the broad-based ones that you touched on? Specifically from a company’s perspective, I assume companies are — you know, they’re moving to more sustainable solutions. What are you seeing from some your customers and prospective customers?
Troy Swope: Well, If there was a technology available that was either remotely close in performance and cost, they’re going to change. In scale, right? You need to have massive amounts of — billions and billions, trillions of units to replace plastic, right? So what I see from every business is that there is performance and even competitive on price. You’ve got to be in the ballpark. You don’t have to be, you know, at parity. If you’re competitive on price, but performance is the bigger issue. If you have the performance where you protect the food product, all of these companies want to change. They want to do the right thing, and we see that. I think back to your previous question, I think you were asking like what are some of the benefits of plastics? So plastic’s a disaster — I’m using that word again; I’ve got to come up with a synonym for that. But it’s a disaster from its end-of-life and harvesting oil and the human health. But it is really cheap and efficient to produce now, right, because it’s got 50 years of innovation and process technology innovation to where they can produce it quickly, efficiently. It is very — I mean, it does a great job of protecting the food product, right? So you can seal out — you could flush nitrogen, you can seal out oxygen. You know, it’s a great oil barrier, all those things. So food performance protection is great. So I think that that is the challenge, is it’s done a good job of preserving food and protecting food. So we have to come up with solutions that compete with it on a performance basis.
Michael Kesslering: And so what — what is the difference in cost between your solution and plastics?
Troy Swope: So the reality is we’re pretty close to parity, Michael. But we are a superior product, right? So, you know, an example of our product goes into — you know, for frozen food goes into an oven and/or a microwave. Plastic can’t do an oven.So we have a superior product. We generally like to sell it as a superior product. So we sell what the market will bear. The reality is, though, from a — we can be at parity with plastic if we have to be.
Julian Klymochko: Now, Troy, you mentioned this massive total addressable market available for Footprint’s products. For the benefit of our listeners, can you frame that in terms of the size that investors are looking at here?
Troy Swope: It’s about $310 billion annually worldwide, and that includes you have about $150 billion in rigid plastics, is really our sweet spot today. Rigid plastics being like your Kraft macaroni and — when you go through a supermarket and most everything there is rigid. So there’s a real opportunity for us there, and that’s another really big — and quite — we haven’t framed out that one. And then replacing, you know, where you see fiber like your Starbucks or your Tim Horton’s cups where they have plastic liners in there with a fiber cup, I mean, it’s kind of misleading to the consumer. A lot of us don’t know that there’s plastic in there. That’s another TAM to us. So, I mean, you’re talking about a massive — well over $300 billion TAM. We have, again, a real sweet spot in about $150 billion, where we have a very sweet spot where we compete in today.
Julian Klymochko: Now, in terms of tailwinds for the company, I was wondering — you mentioned that most, if not all, companies want to be more sustainable and more environmentally friendly. However, there seems to be a big government drive to make their economies more sustainable, and elimination of single use plastics, et cetera. How much of the tailwind behind demand is driven from the bottom-up customer, or how much is it driven from the top down, regulatory, for example?
Troy Swope: Well, I think it’s getting closer to where legislation is equal in driving demand today. But a few years ago, it was clearly the consumer, and it’s still the consumer. The reality is the ship has sailed on plastic. I think the number is like 75% on the Wunderman Thompson survey said that they feel very guilty whenever they use plastic. It might’ve been 75% to 80%, right? And there’s another very large number that a lot of people know that plastic has a huge impact on their health, right? So our customers know the ship has sailed, like people do not want this. When you’re using it, you feel guilty when you use it. You’re concerned when you use it. You don’t want to give it to your children. And we’ve been educated in the last five years on the health impacts of plastic, and you can see the visual pollution impacts as well. So that’s been the main driver for a very long time.
But legislation is certainly changing the conversation with our customers. We’re now getting conversations about what are we going to do for the UAE; when are we going to go to India? Because India’s writing significant single-use plastics legislation. Historically, it’s going to — when we started the business was, you better address Canada because the EPR in Canada, and we better address the EU. Well, California has probably come on and passed everybody when it comes to legislation, and that’s changed the entire supply chains for everybody in North America because California has such a massive impact for our multinational companies. So that’s really driving significant and quick change when it comes to things like protein and others in the state of California.
Julian Klymochko: And speaking of those changes, your customer base a real Who’s Who of blue-chip large cap companies. You’ve got McDonald’s, Nestle, Procter & Gamble. Can you give us some examples of how they are using Footprint’s solutions out in the field right now?
Troy Swope: Well, the entire frozen food section for ConAgra we’re working on. And we’ve converted Healthy Choice, Hungry Man, are all converted into plant-based solution. For ConAgra, we are working in — on margarine products for Upfield and ConAgra. General Mills is Annie’s — macaroni and cheese, Kraft macaroni and cheese. You name it, we’re working on it or at launch. Beyond Meat sausage trays; for McDonald’s, So depending on where they see the most consumer pressure or legislative pressure, we generally launch first.
Julian Klymochko: It makes a lot of sense. So you’ve really infiltrated the consumer products space within North America. All sorts of different solutions that you guys have created. Are there any future products that are in development, or perhaps not yet but you hope to be in the future that you haven’t created yet? Like what sort of futuristic plays are there going to be?
Troy Swope: Yeah. So we’re working on these things now, so I can’t say that we haven’t — we’re developing them. So feminine hygiene products are important to us. It’s got a significant impact on the planet. We are working on detergent bottles, you know, shampoo bottles, motor oil bottles. Not as much — it could certainly lead to beverage bottles, but we see a greater opportunity, if you will, in the detergent, motor oil, shampoo space, you know, if you will. Diapers, some of the technology we have we think were components of a diaper, but feminine hygiene products is critical. The other one that’s really important to us is — because when we developed this technology, the material science around this, Julian, we had to build the entire ecosystem. So we had to build the process technology, the material science, the manufacturing, everything we’ve had to create pretty much from scratch, which is given us a great competitive moat.
We’ve got IP on every aspect of the business, but some of the future innovations that we’re working on today is, one, we want to continue to reduce the energy that we use to produce the product. We just want to increase that story. We are already a significant CO2 reduction. And we want to be 100% net zero water. So we don’t want to have any water — net water use, right? So those — the innovations around that, and the innovations around energy use specifically in our factories will lead to not only allow us to get to 100% renewable energy, but we think there’s really another — that that’s potentially another revenue path for Footprint, is that we can take some of these things which are symbiotic to what we’re doing today and actually create and help the planet in other ways.
Julian Klymochko: I did want to touch on the revenue and company’s business model, specifically. You do get these long-term customer contracts, and with that, you do have pretty good insight into future revenue and growth. Can you touch on the business model?
Troy Swope: Yeah. So our focus today, again, is to get plastic out of food, right? We want to get plastic out of the body. And the way we do that is we go to the biggest retailers and the biggest CPGs in the world. We used to have — we used to walk through a supermarket and we’d see a product and go, yes, we can work on this; let’s call them. Generally now, we have all the relationships and it’s just taking the existing pipeline and working with our customers on just expanding our capabilities and expanding their product portfolio in our product. So today, we engage the customer. We align on what the customer or the product needs. So if it’s margarine, I’ve got an example here of a margarine tub. If it’s margarine, we need to understand what’s the use case? So how is the product applied? Is it hot oil and then it gets cold, solidified, the temperatures? How does all that work? How long is the shelf life? So do we need to control not only oil barrier, do we need an oxygen barrier? Once align on all that, we create a technology target spec. We officially move the product into development. And then after development, it’s completed. So we demonstrate performance on a fairly large sample size. We demonstrate it in high-volume production. We usually run a pilot of some sort with the customer, get some consumer feedback, and then we get revenue under contract. And to your point, we will by the end of this year have sold out 2024. We’re currently building 1.7 million square feet in Mexico. It’s almost all completed. We’re just now moving in the lines today. We are — completed a lease in Poland. We’ll have Poland 1 completely filled out by the end of next year. So it’s — and we will — right now, we’re trending. We’re about two years — the commitments are about two years ahead of when we start the factory. We want to close that gap to where it’s about a year.
Michael Kesslering: And I’m sure that would really factor into the sort of payback periods that you’re seeing on each manufacturing facility. Can you talk a little bit about the unit economics of the business?
Troy Swope: You know, as we — the process technology, if you think about the cost curve of the business, the process technology and our innovations are in there so fast that we’re constantly improving our capital structure and Capex needs. We’ve reduced it since November, so the payback period is probably around 2.5 to 2.7 years payback period on a factory, but that’s improving. We’re continuing to improve that. One of the huge advantages we have over plastic is plastic resin. So everything else is in our innovation window. You know, it’s energy and labor. All of that can be innovated. We are constantly improving our energy use, right? So from our first process technology with Gen-1 to our fourth-generation Gen-4 that we have now, we’ve reduced energy by 40%, right? So we’re drastically improving and we’re continuing to improve on that. And then if you look at, you know, in that innovation window as well, labor is all about how do we reduce our labor and headcount is through — you can automate, cycle times can be improved. You can increase more units per platen. All those things are in that innovation window an opportunity for us to continue to reduce our costs. So the long-term economics of the plant-based technology are substantially better than a resin-based technology.
Julian Klymochko: And increasing these efficiencies, I assume, only widens your competitive moat that you discussed. Now, with respect to that, what does the competitive landscape look like? Obviously, this is a fairly new industry. What are your competitors doing and how does Footprint stand out?
Troy Swope: Well, I think what’s difficult for us sometimes when you guys — and I show you this General Mills — sorry for everybody that can’t see this — and you’ll go to your local store and find General Mills Annie’s Mac & Cheese, and you can find Footprint’s technology. But the difference is that this technology here has about 2600 invention disclosures to produce. So it’s drastically — although the technologies look the same, drastically different performance. So when you talk about the competitive landscape, a lot comes out of China today. There’s a lot of sourcing agents here in the U.S. and in Canada that procure out of China. And it’s the takeout containers. You might see some stuff in some quick-service restaurants, but that’s — and there’s a ton of opportunity there, Julian. There’s a ton of opportunity.
Our sweet spot is really in more innovative, longer barrier shelf life, oxygen barriers, oil barriers. We have a real competitive moat in transforming the supermarket. And our focus is to transform the supermarket. Now, we certainly work with McDonald’s and Starbucks and others where we see those innovative opportunities and differentiated opportunities. But our focus and sweet spot is transforming the supermarket, and the other stuff just happens.
Julian Klymochko: So, in terms of pursuing this goal of transforming the supermarket, do you think that these plastics, single-use plastic bags, packaging, things of that nature, will those ever go away? And if so, how long to replace them with Footprint products?
Troy Swope: I think, yes, it’s going to 100% go away. And Footprint is certainly one of the leaders in that transformation, but you’re going to see a combination of reuse. You’re going to see a combination of glass and aluminum, and a big part of Footprint technologies that are going to transform the supermarket. But we’re going to have to change some of our behaviors in some cases relative to bags and some other areas. But the center of the supermarket — your proteins, your dairies and frozen food — Footprint is going to transform. And then a combination of Footprint and aluminum and glass is going to transform the beverage section.
Julian Klymochko: Now, I did want to touch on the recently announced deal to go public through a SPAC Gores Holdings VIII, and this team is one of the most reputable SPAC sponsors out there. Besides their tracks record, which is pretty exceptional over the years, what other reasons did you decide to go public this route?
Troy Swope: Well, when we chose, it was last year at this time. Frankly, Julian, that’s where the deals were happening. If you found the right sponsor — I think the vehicle of a SPAC to go public is a good vehicle with the right sponsors. Unfortunately, what happened I think to SPACs is you got a lot of sponsors that weren’t really pros at it. Gores is a true pro; that’s all they do. And then they know how to do due diligence, they know if a company’s ready for prime time, if you will, for the public markets. And so we felt with the right sponsor that the deal’s certainty, the proceeds’ certainty, was the right path for us. Now, I think the entire market isn’t trading on fundamentals today, regardless of SPAC or not. So, you know, we’re probably — everyone’s experiencing that. We’re not sure if we will or not. We have such a strong E presence that I think in such a very good business and huge demand and huge competitively, we not be impacted by the same forces that we see the macro forces today. But for us, Gores was a great partner, just an absolute great partner with a ton of experience. And we didn’t want our — you know, one of the analogies that we heard was if you’re going to have surgery, you don’t want the doctor’s first surgery to be on you. So Gores was certainly a pro. I think they’ve done 10. — and they’ve had a lot of success. Even in a challenging market.
Julian Klymochko: Yeah, and they are bringing proceeds in terms of capital for investment funding. The company’s growth, in addition you mentioned significant demand from customers. Now, how does that compare to your manufacturing capacity, your growth plans? Is thus far current and future demand outstripping what you guys can actually make?
Troy Swope: Well, yeah. We’re about two years — as I mentioned earlier, about two years behind on our production, and we like that, right? And I think investors like that as well, right? They want to know that — we don’t want to build a factory and be sitting around going, what are we going — who are we going to sell this to, right? So our factories are presold before we even start building them. That’s just kind of — that’s part of our business model today. And then at that point, you look at it and go, okay, how do I accelerate and then I can beat a lot of my projections relative to revenue? But we are behind, but this transaction gives us a ton of capital to really build the factories.
Julian Klymochko: And no doubt that relieves a lot of stress from investors with respect to having that certainty before committing to a massive capital project, in terms of the revenue that you can expect from that. Now, with respect to the investment case, anything else that investors should know?
Troy Swope: Well, I think just some of the highlights of this business is this is not a science project. You know, I think unfortunately, there’s been some SPACs out there that looked really good on PowerPoint. We have a lot of the great attributes of a packaging company from an investment side, right? Very consistent, very reliable, you know, growth and performance. But we’re in a sector that’s exploding growth. It’s completely transforming. I think the last time we saw this transformation in the supermarket is when everything went from aluminum to plastic, right? So you’re seeing a massive transformation and a massive opportunity for the planet.
And I think some of the other highlights is — and, Julian, I was talking to you about it earlier — Footprint expects that if we aren’t — we’ve already seen some recognition from Fast Company and Newsweek and CNBC and some others on our environmental impacts. We really believe that we’re a true environmental impact. When you look at, you know, the E in ESG, our E is not debatable. I mean, you could really debate aluminum’s impact on the planet and recyclability rates and, you know, harvesting and mining for aluminum. But you don’t — there is no debate on Footprint’s impact on the planet.
And with our innovations, our background from Intel and our innovations in how we process the technology, we believe in short order here we’ll be recognized as one of the most, if not the most, environmentally impactful company on the planet. And the reality and the reason we feel so strongly about this, as I mentioned earlier, is all of the ways that plastic is so harmful to the planet. Human health impacts, pollution impacts, climate change impacts. It’s just — I’ve got to come up with a better term, but it’s a disaster, but it creates a huge opportunity for us.
Julian Klymochko: Oh, no doubt. And we see these themes every day, ESG sustainability, impact investing, are becoming more and more top of mind for allocators and investors. And no one wants to be ingesting a credit card of plastic every week or month or so. So you guys are doing great work. The SPAC, the ticker symbol is GIIX. Once the merger closes the new symbol will be FOOT, F-O-O-T. So, Troy, thanks for coming on the show today. Wishing you the best of luck with Footprint, and I’ll certainly be looking for your solutions in my fridge and my cupboard because, you know, we all want to make this transition to something more sustainable and obviously more healthy; get this plastic out of our bodies. So thanks for doing great work.
Troy Swope: Well, thank you so much. Thanks for having me.
Julian Klymochko: All right. Bye, everybody.
Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.
