Eric Stine: So I appreciate the metrics for the operating budget for Ironton and what you put out yesterday, and what you’ve got in the presentation today. Just curious given that that is more virgin or the old pricing strategy, just I would love to hear your thoughts on as you go forward and as you transition to more feedstock plus the kind of EBITDA margins that you are projecting long term at Ironton, how does that compare to or what maybe your expectations are for Augusta and additional plants?
Dustin Olson: We’re excited about the Ironton budget also, because we’re showing how we’re going to be able to ramp this plant in the profitability very quickly. But you bring up a key point and that’s the leverage of virgin polypropylene pricing on the Ironton facility and also the future facilities. The way we look at it is about 50% to 60% of the Ironton facility is baked on a virgin polypropylene basis as opposed to Ironton, or sorry, as opposed to Augusta or about 20% to 30% of the Augusta facility is baked on virgin polypropylene. And the balance of the pricing strategy is really feedstock plus. So what you see is a higher reliance on feedstock plus for Augusta, a lower reliance on feedstock plus for Ironton. And I would say it has a balancing effect to the overall margin projection.
In some cases when polypropylene price is extremely high, actually a higher reliance on virgin can be beneficial. And this is where when we start thinking about Ironton and we backcast to what the margins were like one year ago, there was a significant improvement to the Ironton earnings a year ago just with the polypropylene pricing change. But having said that, on the other side of it the feedstock plus pricing, it really gives very strong reliability to the overall margin structure, because it will stay consistent regardless of what is happening with the feedstock pricing. So the way — there’s certainly a difference between Ironton and Augusta, but the way I would view it is, it’s a bit of a balancing mechanism between the two. We won’t be as highly levered on virgin polypropylene once Augusta is up and running and we’ll have better, let’s say, margin protection with the feedstock plus pricing out of Augusta.
Larry Somma: So Eric, I want to bring you to Slide 12. The one we presented, we did that purposefully. If you look at the two columns we had in there, we very purposefully left the PP pricing and the number five pricing that same and that was to show you that when we move on to the feedstock plus, those two numbers wherever they go, were largely immunized. So this view for Ironton, we wanted to keep those stable because the benefits in Ironton will be on the cost reductions that we referenced. When we move to Augusta, those cost reductions we’ll be able to leverage but we won’t have the volatility, because we could have easily shown you another column where we changed the PP price and the number five price but that would’ve just complicated things.
Eric Stine: I mean, maybe put another way, so it won’t tell me if I’m misunderstanding it. But provided that the price of virgin doesn’t, I guess, stay stays somewhat normal, right? I mean, whatever that is. But normal than the margin your outlook should be that they’re pretty similar. When you have those spikes, as you said, that — I guess under that scenario, virgin might mean higher margins but you’ll have to deal with that volatility. Is that a fair way to summarize?
Dustin Olson: I think so, Eric. I mean, the PP pricing volatility will definitely have an impact on the overall margins. But what we show, and I think we showed it, I don’t know if it’s a year ago now in that slide from one of the earnings calls, but the resiliency of our margins are pretty strong. So even in low polypropylene margin environments like we’re seeing today, we still show pretty strong earnings and those will continue to improve as we improve our cost profile in Ironton.
Eric Stine: Maybe just last one for me. You announced concurrently here this morning this agreement with form Formerra. Just curious, can you talk about the scope of that agreement? I know it’s targeted to North America. I mean, is this something where they will distribute to your existing off takers, is this more related to the open volumes at each plant as those play out going forward, or how should we think about that?
Dustin Olson: So we’ve selected Formerra as our US distribution partner for US domestic sales. So the way this works is, first of all, why did we choose Formerra? Formerra is a leader in the polypropylene market. They have incredibly strong technical depth and also breadth to reach customers at its very wide scale. I mean, this company is an expert at building a strong sales team and finding the customers that will find the most value in our product. And so we’re — I mean, I can’t tell you how excited I am about this relationship. I think it’s going to be a really good collaborative march for us together in the market to take this product to a lot of different customers that maybe otherwise wouldn’t see it. The way a distribution process typically works is they will not be distributing for our core customers like we will still manage Proctor & Gamble as an example, but they will be there to help us with all of the — to help us with all the new customers that we want to bring into our fold.
And so we had actually initially worked with Formerra as a new partner for the Augusta facility. But then as the contract situations had changed in Ironton, we were able to bridge them into the Ironton to give us a headstart there, which we believe will bridge nicely into Augusta as well. So they will be instrumental for low volume distributions for boxes and trucks as opposed to railcars, and also reaching the customers that we do not intend to staff up to reach on our own.
Operator: Our next question is coming from Gerry Sweeney of ROTH.
Gerry Sweeney: I wanted to follow-up, obviously, a lot to talk to you about the debt, et cetera. But we have always talked about trying to find — you telegraphed to the market that you’re going to look for maybe some type of bridge financing, which this $150 million credit facility provides you. But at what point can you replace this facility with another facility that has a lower interest rate? I think we always talked about lenders becoming more comfortable once the facility is de-risked. So at what point in this ramp up do you sort of hit that de-risking point and alternatives come into play, potentially come into play?
Dustin Olson: So let me answer the first part of your question, because it’s a revolving line. We are not committed to borrowing from it and we can pay it off or terminate it at any point in time without penalty. The only cost would be if we have money is drawn on it and there is breakage fees. So it would — you can imagine, it would be minimal. As we referenced, there has been a lot of activity. We talked about the fact that we were out in the market last year for a project financing. We made great strides. The feedback consistently was, hey, we like what you guys are doing, just come back to us as soon as you are producing pellets. As you have heard here, we are getting darn close to that. Now we don’t have to wait until we are finishing, i.e. producing pellets before we go back to the market.
So there is a number of activities that we referenced that we will look forward to bringing to the public as soon as we are able to — we are just not quite yet in that stage, where we can talk about the details on the other things that we are working on. But as I said, the line, we are grateful for the resources that Sylebra has to support our business for us to be able to have this, if needed. But clearly, we are looking for more permanent solutions and we know that once Ironton is operating, our cost of capital will go down. So we have always intended to minimize the cost in this short term bridge scenario and have the flexibility of getting out without large costs so that we can layer in cheaper cost of capital.
