PureCycle Technologies, Inc. (NASDAQ:PCT) Q1 2023 Earnings Call Transcript May 13, 2023
Operator: Good day and thank you for standing by. Welcome to the PureCycle Technologies First Quarter 2023 Corporate Update. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker, Charlie Place, Director of Investor Relations. Please go ahead.
Charlie Place: Thank you, Therese. Welcome to PureCycle Technologies first quarter 2023 corporate update conference call. I’m Charlie Place, Director of Investor Relations for PureCycle. And joining me on the call today are Dustin Olson, our Chief Executive Officer; and Larry Somma, our Chief Financial Officer. This afternoon, we will be highlighting our corporate developments for the first quarter and subsequent to quarter end. The presentation will be going through on this call will also be found under the Investor tab of our website at www.purecycle.com.Many of the statements made today will be forward-looking and are based on management’s beliefs and assumptions and information currently available to management at this time.
These statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control, including those set forth in our Safe Harbor provisions for forward-looking statements that can be found at the end of our first quarter 2023 corporate update press release and in our quarterly report on Form 10-Q filed this morning as well as in our other reports on file with the SEC that provides further detail about the risks related to our business. Additionally, please note that the Company’s actual results may differ materially from those anticipated, and except as required by law, we undertake no obligation to update any forward-looking statements. Our remarks today may also include preliminary non-GAAP estimates and are subject to risks and uncertainties included, among other things, changes in connection with quarter end and year-end adjustments.
Any variation between PureCycle’s actual results and the preliminary financial data set forth herein may be material. You are welcome to follow on with our slide deck or if joining us by phone, you can access it at any time on purecycle.com. We are excited to share updates from the previous quarter with you. I will now turn it over to Dustin Olson, PureCycle’s Chief Executive Officer.
Dustin Olson: Thank you for joining us today for our first quarter 2023 corporate update conference call. We appreciate your support and look forward to discussing our recent developments. Our flagship state-of-the-art purification facility in Ironton is certified mechanically complete and has completed the pre-startup safety management documentation required for solvent deliveries, which we started yesterday. We have the initial solvent charge delivery schedule over the next five days and then expect to circulate solvent early next week. All of our core operations have been commissioned and are ready for start-up. We are on track to begin commercial pellet production using the first post-industrial recycle and then post-consumer recycled feed in the second quarter.
We still expect to be able to complete our start-up time line in order to meet the milestones as outlined in the recent bondholder agreement. Our goal is to produce between 45 million pounds and 75 million pounds of ultra pure recycled resin in 2023.We have continued to advance pre-construction activities for our Augusta project since our last call. Importantly, we are working toward a agreement with the AEDA for a plan to begin development activities. Additionally, preparation for module construction is in progress and equipment is beginning to arrive at Gulfspan’s facilities in Beaumont, Texas. Our international projects are making progress. Our European team has initiated pre-construction engineering work for the permitting process at our site at the Port of Antwerp.
Our joint venture with SK Geocentric continues to advance the collaborative engineering process for a multiline purification facility in South Korea. And we continue to make progress with detailed joint venture discussions and site selection efforts with Mitsui in Japan. Our joint venture team has started the feasibility study process on two locations that have the capacity for the development of two to four purification lines. We are frequently approached and also actively seek out opportunities to amplify what PureCycle’s technology means to the global polypropylene recycling marketplace. As you can imagine, our primary focus has been on commercializing our first plant in Ironton. This is, quite frankly, where all employees have been spending most of their time.
Having said that, we are beginning to spread our message globally through several recent events. I was invited to Davos to present on a Procter & Gamble panel, which highlighted PureCycle’s technology. Several of our team members are active in national industry associations such as the Plastics Industry Association, the Institute of Scrap Recycling Industries and the Association of Plastic Recyclers, where we are often provided speakership opportunities. And recently, PureCycle representatives traveled to Washington, D.C. to participate in Domestic Plastic Recycling Tabletop discussions as well as the U.S.-Korea Sustainability Summit discussions. While there, we also met with numerous members of Congress and other senior policy officials. We expect this participation to increase over the coming years as critical legislation is crafted to govern this emerging industry.
We’re proud to have secured an additional $62 million of non-dilutive debt financing and are working several other equipment financing packages that we intend to close in the next few months. The AEDA has received our financing plan for one line in Augusta, and we are working on closing the land bonds by June 30, 2023.Turning to Slide 4. This project has been a testament to grit, determination and a desire to finish. As you can imagine, there are a number of minor equipment issues when starting up the facility and our team has been managing through all of those challenges. This is normal. They are teething challenges for all new technologies. We’ve spoken several times about needing to work through the early start of headaches, and this is what we’re doing.
While we have encountered some delays over the last two months, we’re now excited to move forward with startup. I can tell you personally that the plant just feels different now. There’s a new energy building within our team, and we are ready to run this facility. OurPureCycle team and field contractors who have worked on this project have willed this facility to mechanical completion. And I’m very proud to say position the facility to receive solvent deliveries, three arrived on Monday. We are currently in the following position: completed key pre-startup and safety requirements, utility plant is operational and in service, PrEP is operational and in service, flare systems are operational and in service, extruders are commissioned and ready for start-up.
As a result of all of this, solvent is being delivered to the site. The next step is to make every effort to ensure safe and smooth start-up that’s focus on long-term operational success. We are not going to rush into the next steps. I hope you’ve had an opportunity to watch some of the videos that we posted on to our website, on the social media and in the YouTube that showcase our PrEP, purification and born-digital operations. We intend to continue showcasing our company with these videos all the way through initial pellet production. Turning to the next slide, I will walk through the next steps of Ironton’s startup process. This is an updated slide from last quarter’s call that shows our progress in achieving the operational milestones for the certification of the Ironton project.
This is what we call our path to pellets. We closed the first bond milestone by achieving certification that Ironton is mechanically complete by June 30, 2023. PureCycle formally received third-party engineering certification just a few days later on April 28th with agreement that the plant was mechanically complete on the 24th of April. We’re currently in the in-between stage and between mechanical completion and first pellets. During the last call, I underestimated the time it would take the transition of first pellets. Instead of dual tracking activities like we originally planned, we purposefully slowed down our process for solvent introduction in order to more effectively facilitate a path to mechanical completion. This ultimately slowed down our initial forward progress, but also helped us to build a better and long-term foundation for steady operations.
Given this is our first facility, we took extra time preparing the plant through a process called PSSR, or pre-startup and safety review. This involves final operations checks, safety walk downs, final equipment commissionings. During this process, we spent a significant amount of time testing instrumentation, working valves to ensure we are ready to operate. This is all now complete. Yesterday, we cleared another major hurdle and accepted solvent to the site for the first time. This is a big step and paves the way for commercial operations. The next two weeks will involve the testing of solvent circulation systems, commissioning of the remaining equipment, primarily our filter media systems, while the solvent is circulating, and then we will introduce feed.
Once feed is introduced, we will set levels, and then we will make our first pellets. We will notify the market of our success and start ramping up production rates from there. We remain committed to achieving these milestones in the time frames I’ve just described, given where we are today in ramping up the Ironton operations. Moving to Slide 6. I want to spend a few minutes to highlight the operational progress that we’ve made on executing the next phase of our growth strategy. In Augusta, our engineering teams have completed approximately 90% of the ISBL design and have begun work on the OSBL design. Gulfspan, our contracting partner, has started module preparation for the Augusta construction project at its site in Beaumont, Texas. We continue to make progress on our international projects.
We have initiated engineering work at the Port of Antwerp in Belgium to support the permitting process. This activity will set this facility’s critical path.Our joint venture engineering team in South Korea has advanced plant designs in accordance with the schedule and priorities identified in the JVA with SK Geocentric. Our core focus right now is to ensure that the final design measures seamlessly with the feedstock available to the site. And finally, our JVA discussions with Mitsui have progressed as anticipated, and we started feasibility studies on two preferred locations. All of this at PureCycle are fully committed to the Company’s mission of providing a new solution to global plastic waste. Ironton is critically important today, but it’s just the beginning of what PureCycle will become.I will now turn it over to our CFO, Larry Somma, for the financial update.
Larry?
Larry Somma: Thank you, Dustin, and please turn to Slide 7. We ended the quarter with just under $264 million in total available liquidity, a decrease of $62.2 million from the prior quarter. As stipulated in the bondholder agreement we executed in March, we transferred $87.5 million from unrestricted cash to restricted cash or a net of roughly $74 million once PCT was reimbursed for the remaining original bond requisition. Our corporate and pre-operational employee expenses were $6.6 million during the first quarter, which was a slight decrease from the prior quarter despite additional taxes paid on employee stock vesting. We used $7.6 million of cash during the quarter for normal corporate operations, such as insurance, professional fees and various other expenses.
Additionally, we continue to make investments in our Ironton, Augusta and PreP facilities, the majority of which came from unrestricted assets. As a consequence and in conjunction with the payments that we made to the bondholders, cash and debt securities available for sale decreased from December 31st by $124.1 million. One positive note is that we were able to execute a $25 million surety bond, which is relevant for our Augusta restricted escrow construction account. Our agreement with one of the multiple vendors supplying long lead items for the Augusta purification modules requires us to fund the escrow account with funds to address future costs and the risk of payment to their sub-suppliers. Closing the surety bond allows PCT to recoup some of the cash that had previously been in the restricted escrow construction account.
Subsequently, we were able to progress the Augusta project during the quarter with $15 million of payments from the restricted construction escrow, $5 million of which was returned to our unrestricted cash balance. Now let me comment on our budget for completing the Ironton project. As noted in our 10-Q filing this morning, PureCycle anticipated as of March 31, that the remaining investments in 2023 to complete the Ironton facility could range from $26 million to $51 million. This range is dependent upon various contract contingencies and their ultimate resolution. The most important point is that we have already spent or forecasted the need for a total of $51 million, which means that any positive resolution of contract contingencies will be favorable to our future cash forecast.
Please turn to Slide 8. Before I discuss the points on the slide, let me provide some details on the financing events that were completed since our call in March. We are pleased to continue executing on our financing plans with $62 million raised from non-dilutive sources. Our ability to execute additional agreements and term sheets, some of which I will discuss in a minute, enabled us to present a plan of financing to the AEDA related to the completion of at least one purification line in Augusta. In addition to the plan that we sent them, we informed them of more than $50 million of completed spend on the second purification line. The information sent now has us ready to focus on closing the financial bonds, which will grant tax incentives for PCT to build and operate in Augusta.
We are working diligently to close this land transaction by June 30th, so that we can begin to prepare the land and ready it for the required OSBL work. Now I will discuss our cash and capital raise strategy. In past calls, we highlighted our focus on managing our cash uses against available sources. So this slide is intended to summarize our goals, present the opportunity and depict what has been achieved so far. Our goals are simple: manage the corporate cash burn rate until Ironton is operational. Pursue capital that provides financial flexibility and optionality while being mindful of our long-term capital structure. And pursue and execute cost-effective longer-term project financing transactions for our growth projects once technology risk is removed with Ironton operating.Near-term financing opportunities have been focused on equipment financing, shareholder loans and capital outsourcing of non-core operations referred to as DBOOM, which is the acronym for design, build, own, operate and maintain.
A few relevant examples are the Augusta central utility plant and the Augusta PreP building, which will house, sort and wash lines. We estimate that we have approximately $125 million of Augusta PreP equipment, sale leaseback and capital outsourcing opportunities, excluding the central utility plan. Since our last update, we closed on a [$24 million] sale-leaseback transaction with CSC Leasing, which is secured by the Augusta PreP wash equipment. It’s a 36-month lease with a 7% interest rate and flexible end of lease terms. We also secured a $40 million term loan with an entity controlled by Dan Gibson, the Chief Investment Officer of Sylebra Capital, PCT’s largest shareholder. The loan matures on December 31, 2025, bears interest at a floating rate of SOFR + 7.5%.
We are also actively working to close additional sale-leaseback transactions of Augusta PreP equipment. We have received proposals and are evaluating next steps. Now let’s turn to Slide 9 for a summary of our first quarter achievements. We continue to execute on both near- and long-term goals. As we noted, Ironton is mechanically complete and certified by the independent construction engineer. Ironton has completed pre-startup process safety management and solvent is on site and is prepping for circulation. We secured $62 million of additional non-dilutive capital raises, that’s the $22 million sale-leaseback I referenced and the $40 million term loan that will keep our Augusta project moving forward, and we’re evaluating other additional proposals that we’ve received.We’re working to close on the land for the Augusta project by June 30th now that we’ve submitted a plan to the AEDA.
We’re preparing Augusta modules for construction in Beaumont, Texas. We’ve initiated engineering work at the Port of Antwerp, which will set the construction time line for our Belgium project. And we were voted One of the Best Places to Work by Plastic News for the second year in a row. We look forward to updating the market with respect to upcoming milestones achieved in completing the start-up process of our flagship Ironton facility and, of course, the Augusta financing process as soon as we are able. Thank you to everyone for joining us on the call today. At this time, we would like to open up the call to questions. Operator?
Q&A Session
Follow Purecycle Technologies Inc.
Follow Purecycle Technologies Inc.
Operator: [Operator Instructions] Our first question comes from Eric Stine of Craig-Hallum.
Operator: Our next question comes from Hassan Ahmed from Alembic Global Advisors.
Operator: Our next question comes from Michael Hoffman with Stifel.
Operator: Our next question will be from Noah Kaye with Oppenheimer.
Operator: And our next question is from Thomas Boyes with TD Cowen.
Operator: And our next question comes from Gerry Sweeney of ROTH MKM.
Operator: I would now like to turn it back to Dustin Olson for closing remarks.
Dustin Olson: Yes. Okay. So thank you very much for joining the call today. We thank you for your continued support. It’s a big step that we crossed actually yesterday when we took the plant to mechanical completion and solvent — ready for solvent. Getting to ready for solvent is a really big deal. And now we’re truly in full operations mode and just running the plant to the paces until we get the first pellets. We feel like Ironton is now truly operational. We’re optimistic about our growth plan. We can’t wait to show the world what we can do, and we are excited to start making pellets and start delivering them to all of our customers around the world. Thank you so much for your patience and your time and your continued support. Look forward to talking to you again soon.
Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.