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spk06: Good morning, everyone, and thank you for participating in today's conference call. I would like to turn the call over to Mr. David Brenner as he reads the company's safe harbor statement within the meaning of the Private Security Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. David, please go ahead.
spk08: Thank you, and good morning, everyone. Welcome to PureCycle Technologies' first quarter 2021 corporate update conference call. I'm David Brenner, the Chief Commercial Officer here at PureCycle, and joining me today are Mike Otworth, PureCycle's Chairman and Chief Executive Officer, Michael Dee, Chief Financial Officer, Dustin Olson, Chief Manufacturing Officer, and Tamsen Edifah, Chief Sustainability Officer. We're here to discuss our recent corporate developments, highlighting activity from the first quarter, recent corporate actions, and our updated strategic plans. We will be using the slides to accompany today's call, which are accessible via a link on our website, purecycletech.com. During this call, certain statements we make will be forward-looking and 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 2021 corporate update press release issued this morning in our form 10Q filed, which will be filed today or later this week, and in our other reports on file with the SEC, and that provide 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 statement. Our remarks today may also include non-GAAP financial measures. Additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures, can be found in our slide presentation and in our first quarter 2021 corporate update release issued this morning. And with that, I turn the call over to Mike Otworth, our Chief Executive Officer.
spk04: Mike. Thank you, David. Good morning. We appreciate everyone's time who's listening in. And we are going to be presenting a deck of slides here. And I do realize that some people may just be calling in and don't have access to visually the slides. So I'll try to talk through them appropriately. You know, this first slide really highlights the fact that, you know, there is enormous global unmet need not being satisfied by existing technologies. The market generally wants recycled plastic that can be used without compromise. And by without compromise, I mean can be used essentially interchangeably with virgin resins. can be recolored, has the same physical properties as virgin resin, has no odor. And historically, although there have been a number of approaches that exist, most recycled polypropylene can only be used for lower value applications. And so this needs to change. With less than 1% of polypropylene being recycled, it's a wholly unacceptable situation, and PureCycle endeavors to change that, and we will change that. This next slide is titled Execution Roadmap. You can see that the technology has been in the process of development for over seven years now, and it was about 2015 that PureCycle obtained a license to the technology. The patent portfolio was largely filed in 2016, and then we started aggressively on the path of commercializing the technology. through initiating operation at our FEU in Southern Ohio to now where we are working on, not only are we working on building the first commercial scale plant in Ironton, Ohio, we've started line engineering on future plants, you know, and are working aggressively toward our goal of a billion pounds of installed and commissioned nameplate capacity for pure cycle operations. You know, it is exciting time for us in terms of execution. And we have been very purposeful in how we've assembled our team with expertise that we know can deliver on the execution plan. And, you know, I feel very comfortable about where we are, the team we've assembled to date, and where we're going. We're now moving on to slide three. I'm sorry, this is slide five in the deck. It's my third slide. But we're talking about a number of points here that I think are critically important to understand. And starting with the intellectual property that's at the core of PureCycle. I've been a part of evaluating IP portfolios for decades. You know, this was a very expertly assembled portfolio. a consortium of patents and intellectual property. And, you know, it's maintained by a procter and gamble company, and it's one of the best I've ever seen. You know, I also want to talk about de-risking. You know, we are continually looking for ways we can further de-risk our operations on all fronts. And while the muni bond financing for the first plant took some time, and I would say it wasn't without some pain, the things that we went through and the things that we had to achieve as part of the qualifications for that bond financing served us well in terms of de-risking. It required us to have offtake agreements. for the duration of the bond, 20 years. It required us to have feedstock supply agreements for that same duration of 20 years. We were required to endure very deep technical due diligence that is ongoing as part of the bond financing. So, you know, it did help us from the standpoint of achieving many things probably many emerging stage companies don't need to achieve and set the bar very high. I also want to touch upon the fact that, you know, it was evident to us from a very early date in the development of PureCycle that what we're endeavoring to do, and that is transform plastic recycling's in our case with polypropylene, globally is a big task. It would take a consortium of very powerful, capable, and experienced partners to enable us to do that. I couldn't be more proud of the group of partners that we've assembled. We assembled them very thoughtfully in terms of making sure we covered the landscape of areas where we would need help and assistance. And so all of these partners have done extensive due diligence on PureCycle, both from a business model standpoint, from a technical standpoint, and just from the standpoint of making sure they felt that our team was strongly committed and capable of execution going forward. And so Again, I would say I don't know that we could have done a stronger job in terms of who we picked as partners and how helpful they've been to us going forward. So we're going to transition to talking about technology. I'd like to introduce Dustin Olson. He's our chief manufacturing officer, and he'll walk you through a set of slides talking about where we are in terms of the technology and manufacturing and the playing forward. Dustin.
spk01: All right. Thanks, Mike. Yeah, so the core of our company is based on technology, and I want to make a point here that our technology is based on a very strong foundation. It's obviously had many, many years of core R&D development, but the last three to four years have been focused on operationalizing those concepts through detailed engineering, scale-up activities, and proof of concepts. And in a sense, what we've done is we've taken the concepts, which were very good, from a white piece of paper and turned them into the reality that's in the field and operating today in Ironton. As a function of this being a deep, technically-based organization, for the last quarter we have spent a tremendous amount of time deepening our internal technical bench. We've hired a lot of really good people, really domain subject matter experts, not just generalists but domain-specific experts. And that continues. We've partnered, as Mike said, with some of the leading experts in the field, and we really have a good relationship, cohesive, collaborative relationship with all these people in order to bring to fruition what we're talking about here. A key part of our success thus far has been the feedstock evaluation unit. It has been in operation since 2019, and really it helps us with three primary things. The first is it advises us on feedstock evaluations. Second, it helps us to provide samples to our customers for their own application evaluation. And then last, it's been extremely critical in the development and the design of the scale-up activities for the engineering design package. The FEU is just a fundamental piece of our machine. And quite frankly, it proves that the technology works. And it works on a wide variety of types of polypropylene. Polypropylene is unique. It's the most produced polyolefin in the world because of its product versatility. It can be used everywhere, whether it's food packaging or ridges or toys or automotive or carpets for textiles. It's everywhere. And so the type of polypropylene that comes in through the recycling world can have different odors, different colors, different additive packages, and it comes in every shape, whether it's the two-dimensional film It's a three-dimensional rigid or the fiber that comes in carpet. And so the reality is that polypropylene has been very difficult to recycle because of the versatility that polypropylene brings to the world. It's a good polymer. It's used everywhere, and that makes it difficult to recycle. Our technology and our feedstock evaluation unit has processed many different types of samples ranging with all sorts of different properties. And I think it's the robustness of this process that brings value to the market because we can handle a wide variety of feedstocks in our facility. The next slide is really a discussion about Ironton. Ironton was a similar moment for us. in pure cycle because it helped to solidify our path forward with the bond and with ultimately going public. But the key point is our first facility commercial size facility, which is 107 million pounds per year in Ironton is on track. Okay, so final engineering packages are being issued for construction. Site work has begun. Buildings are being either built or retrofitted. All the long lead items are purchased and on track. All of our costs are on track, and our schedule is intact. And honestly, for a project of this size and this complexity, it's a very good statement to the credibility of the team building this out. The second point is the cluster facility is on track. We actually initiated the initial engineering phases in April. We expect that to finish in Q3. We're engaged in a comprehensive site selection activity for the next cluster and potentially the second cluster after that, and that is in process but nearly complete. We're doing a deep, detailed supply chain analysis on this site selection activity, which is very beneficial. Our multimodule construction capacity is secured, and I think a key point is that we're building for the long term. We're not doing anything with a short-term milestone in mind. We're very much focused on the long term with a critical focus on short-term milestones. The last point I want to make about our overall strategy with the construction is we're building a digital company as well, and by that I mean we are going to build a foundation for digital for PureCycle to build everything else on top of. So it's the right time for us to do that. It will enable us to copy and paste all of our activities, not just the steel in the ground, but also the work processes and systems that require us to make our company move. It will help us to transition the key infrastructure items from the first plant into plants two through N. and we'll be able to develop a deep, selective data analytics to guide our reliability and our operability of our operations. This is an accelerant to our growth. Every company sees the value in being digital. Just about every company wants to do it, but most can't afford it because they have established operations. Digital transformations can cost 10 times the cost of the digital. But that's why PureCycle is different. We are born digital. We don't have the legacy baggage of things that we've done before. We're starting new, and with this in mind, we're moving forward with digital. Next slide. All right, so the next slide really is a more detailed discussion about how we plan to build out the next set of plants and lines across our ecosystem. One key point to note is we've changed the cluster plant size from 165 million pounds per year to 130. And you really have to ask, why would we do that? The way to think about this is to view it as a 107 plus or an Ironton plus. What we're trying to avoid is a complete redesign of the process to scale to another level. So instead, what we've done is we're sticking to the core 107 model and we're improving the edges. So we're removing some key constraints and we're creeping to a new capacity of 130. This is going to be very important to us because it will allow us to keep the efficient modular design. It's accelerating the engineering phase substantially. And it will allow us to do the construction simpler, the spare parts management easier, the engineering will be faster, and just about every aspect of our operation will be cleaner and more efficient because we're anchoring to the same chassis that we were building in Ironton and then just changing the features on the outside. You'll also notice that we added a second cluster facility to our long-range plan. This is aligned with our ability to copy and paste this design and construct it and move it and put it in place anywhere. But really, the reason that we're adding the second cluster is because we know that supply chain costs are very important to the design and strategy of our company, and we will place the second cluster facility in a location that helps us manage those supply chain costs. Our Europe plan is still progressing. We're very excited to continue moving that forward. We have pushed that back in the schedule a bit, but that's really replaced with accelerated U.S. operations. We continue to work with our regional partners, but this allows us to focus where we have the biggest opportunity, which is in the U.S. right now. The final point on this slide is really about creating a package that's built for growth. The technology is solid. We know it's solid because we're operating at the FEU. And we have an aggressive plan to build out to the billion pounds that Mike talked about by 2024. This is possible because we have the right digital foundation. We have a similar design package being copied and pasted over and over and over. And we have the right partnerships to help us deliver the construction, the engineering, and the equipment that we need to move forward. With that, I'll pass to Tamsen, our Chief Sustainability Officer, to talk to us about feedstocks. Thank you.
spk02: Good morning, everyone. As Dustin mentioned, I'm Tamsen Edifah, the Chief Sustainability Officer for PureCycle, working with this team to build out our feedstock strategy. I have spent 32 years of my career in plastics recycling, but this is my most exciting chapter. To date, there has been very little investment in sorting and washing of polypropylene from the other plastics in our waste stream, simply because there has not been a value-added market for recycled polypropylene at the quality by the consumer product companies to justify the investment. PureCycle completely changes that dynamic. This is key to the revolution we are creating, making it economically attractive to gather feedstock, process it to an ultra-pure state, and meet the enormous growing demand. For our first plant in Iron Tent, as mentioned, we have already engaged third-party suppliers to do this for us. Going forward, we are laser-focused and are undertaking a development effort to add these valued partners by collecting, sorting, and washing the pipe of green feedstock ourselves to supplement the supply. This will allow us to control our own destiny in an economical way. Now, for me, this becomes the fun part, creating those supply chains to feed the process well into the future. Today, this feedstock strategy has four main streams that I'm looking at. Our first, of course, comes from curbside collected plastics. The multi-recycling facilities that some people call MRFs have a material called plastic residue. Some call it a three through seven bale. Historically, these three through seven bales of plastic residue were shipped to China. But in 2018, China stopped taking it and is now being predominantly landfilled domestically, even after going to the MRF to be recycled. This is sad. The recycling partnership estimates that 1.8 billion pounds of this 327 plastic residue ends up in the MRF annually today, making this our largest opportunity to acquire feedstock. Our second stream is the post-consumer high-propylene scrap that is not collected at curbside. Carpeting is an example, as all carpeting has a polypropylene backing, and some of the carpeting has polypropylene fibers. PureCycle has already proven our ability to take this to an ultra-pure state. We anticipate extended producer responsibility, policies, and legislation will accelerate this supply of feedstock. This stream also includes plastic waste from a wide range of retail stores, manufacturers, intended use has occurred. These items are things like produce boxes, fish and meat trays, oil tubs, deli buckets, super sacks, bale wrap, takeout containers, cups and hangers, and there are so much more to speak of. We are working on special event venues such as sporting events, musical festivals, and conventions, which create also a lot of single-use pipe rippling waste. Pure Cycles Third stream is post-industrial polypropylene. Today, mechanical recyclers are already covering close to a billion pounds of this type of waste coming out of manufacturing of making polypropylene items. This graph today goes to very limited low-end applications because it's not purified. We are the alternative solution for high-value markets for manufacturers that create this waste. using their own scrap to create circularity. Furthermore, post-industrial scrap that is landfill today can be purified and brought back to its original state through the purification process the beer cycle employs. We will open up new and deeper markets, translating into more stable and consistent feedstock supply chains. We will meet the needs of the consumer product companies who have made sustainability commitments to use recycled pipes of lean but have had no access for the high quality that they must have. Mechanical recycling simply cannot meet this need alone. This is why we want to build out our capacity and production to one billion pounds as quickly as possible. The demand is already there and we've demonstrated this with the offtake contracts we already have in Ironton. Finally, our fourth stream is advocacy. We are creating a market where one didn't exist before and it is huge. It's because we have a proprietary technology. This is what its disruptive innovation is all about and what excites most of us here today. For 30 years, the cycling industry has focused on the traditional number one and number two polyethylene terephthalate and high-density polyethylene plastic bottles only because of the clear and natural color and mainly free packaging that they bring to the market. Polypropylene packaging, as Dustin had mentioned, is very diversified, and it mostly comes in a colored form. PureCycle can take all formats, not just bottles, and turn this back into pristine, ultra-pure polypropylene that can go directly back into those formats again, again, and again. This is huge because the consumer, the consumer product companies, NGOs, and governments want more of their waste recycled, and we bring that solution to the largest segment of plastic pipeline today. Thank you. And now you will hear from Michael B., our Chief Financial Officer.
spk03: Thank you, Tamsen. Let me try and run a few things. I want to give you an update on Q1 and then talk a little bit about going forward. First, as David mentioned, we hope to have the 10Q out this week. As many of you are aware, there has been tremendous confusion on the treatment of SPAC warrants. We have decided to update ours. It's non-material, but that just delayed us a little bit. So we are working on that, should have that out shortly. Let me just say as an override, the things that I focus on mostly with the team are how can we do our build-out strategy faster, How can we do it cheaper? And most importantly, how can we de-risk it? Keeping in mind that de-risking doesn't always mean it's faster, and de-risking doesn't always mean it's cheaper. But we are on an aggressive plan to build out up to a billion pounds, and we want to make sure that we are doing everything today which will de-risk that scaling which will occur in the future. I'll talk about that in a moment. There are three slides here. I'm actually not going to follow these slides. You can look at them and I'll reference them as I go through my remarks. I would prefer to have you listen to my comments rather than trying to read the slides. Let's talk about quarter one for a moment. Number one, Ironton remains on track and on budget. This is very important. This is our number one priority. This is the flagship plant, 107 million pounds being built in Ironton, Ohio. Now, there is a monthly report put out on the municipal bond system called EMMA. That is Leidos who puts out that report. I'm not going to characterize it, but I'm going to encourage everyone to read that Leidos report and get a link and read it every single month. That is independent from us, and it provides an update as to how our construction is coming. I think it's very important for all our investors to understand whether you're in the fixed income market or whether you're in the equity markets that you have an independent report which you can look at to see how that is coming. That's number one. Number two, in the first quarter, we have really built out the team. We've made a lot of very critical hires. both at the corporate level and in terms of the team that Tamsen and Dustin are putting together on the manufacturing front. These are very key hires. Everyone who's joining us comes with literally decades of experience. And this is not, I've said many times, this is not a business built on 20-year-olds. This is a business built on highly experienced professionals like Tamsen, Dustin, and others. And we have been able to hire the people we need. And, in fact, we have many, many people that understand the industry, understand the polypropylene market, who want to come join us. That's number two. Number three, our capital resources are now extremely strong. We've raised in Q4 and Q1 $732 million, and we have $570 million on the balance sheet. The $244 million is at the trustee. It's restricted cash set aside for the construction of Plant 1. In addition, there's over $70 million of reserves which are set up in order to support the build-out plan. And then there's over $250 million of unrestricted cash at the Topco level to help us sustain the corporate growth that we want and to provide the equity to do the build-out in the future. In terms of some basic numbers, the net reported loss will be $30 million. About half of that is due to a warrant adjustment to non-cash charge. We do have debt of $310 million. That is the $250 million of the municipal bond deal, $220 million of senior debt, and $30 million of subordinated, plus an in-the-money $60 million bond. convertible note. The burn rate per month approximates about $2 million per month. So while we are operating well within our parameters, we continue to look forward in terms of the build-out strategy. Let me now pivot and talk a little bit about what I see as the important issues going forward and some of the new developments that we're either working on or have to come. First is, as Dustin talked about, the build-out. Here the critical change in what we've done is to go from a 165-million-pound plant to a 130. Why did we do that? We did that because that is absolutely consistent with our strategy to de-risk. The engineering team that we've brought in and our external partners, we've worked very, very closely, and this represents what we believe is the optimal size per plant to minimize the scale-up risk and yet in order to keep the CapEx per pound comparable to what we had before. So this is an important development. Often I've likened it to the decision made by Southwest Airlines to focus on 737s rather than running a lot of multiple plants. By having a single plant engineered, we can get it done quicker, And we can also have a single plant, and this will help us in the future as we're trying to do multiple plants of the same nature at the same time. Let me also just say that we get a lot of questions about siting. We are getting much closer on that decision, but we're not yet ready to say exactly where we're going to put it. Let me move on to feedstock and just pivot a little bit to some of the things that Tamsen spoke about. bringing TAMSEN on board with Dustin was critical because now we're integrating the feedstock decisions into the site selection. But while there are many plant and manufacturing issues that relate to the site selection, we also want to make sure that in choosing a site, we're making it easier to acquire feedstock from a catchment area. We're not making it more difficult. So the fact that we are, in effect, crossing the screens between Tamsen's group and Dustin's group is proving to be very positive in helping us work through that site selection decision. There is on the feedstock, as Tamsen mentioned, we have already the feedstock committed for Plant 1. We have existing partners that we're working with, and we will continue to work with those partners because they are very valued. They know what they do, and they're doing it very well for us. However, in parallel with that, as Tamsen mentioned, we are studying an initiative to move upstream. This is to control our own destiny. We believe that in the past there has been a lack of investment in the sorting, the cleaning, the methodology to pull number five polypropylene out of the waste stream. And there's been a very simple reason for that. It hasn't been economical, and there hasn't been a financial reason really to do that. However, we are creating that reason to do that. And therefore, we think it actually can be economical and de-risk the feedstock decisions for us by also having a parallel route where we can then work to decrease our risk and bring the number five feedstock out and do some of that on our own. It's a very natural move to look at this. and will accelerate the investment in feedstock. So we think that's a very good development, and you will hear more about that as we move forward. But we want to make sure you're aware of that as an initiative. Number three, the pricing model. There is a slide in there that looks at the pricing model. We have migrated and continue to migrate and learn from our experience and working with our customers. Our original model was to start with a indexed price and add a premium as a percentage to that. We then also were able to do fixed price models. And what we want to do and what we think is a natural evolution is to begin to discuss with our customers and with the market a model which is a combination of a fixed price plus a modifier which is based on the feedstock price. This would serve to insulate us from movements in the feedstock price and protect what we believe are the important margins that we're able to develop. Again, you will be hearing more about that in the future, and that's, I believe, a very, very important initiative for us. Number four, I want to talk about the financial model a little bit. We remain very comfortable with the financial model that we have, particularly as it pertains to our EBITDA projections, which are, of course, directly linked to our production. The production goals remain having a billion pounds of capacity in 2024 and a billion pounds of production in 2025. We believe that based on the discussions that we're having, the pricing model in terms of the third-party prices per pound, which we've modeled in that range, if not a touch higher, remain viable, and we have no change to that. As Dustin mentioned, we want to be de-risking, and therefore we have decided to be more U.S.-centric early on. This does not mean that Europe is not a major focus of ours. It is, as is Asia and other geographic locations. However, in the very short term, this remains in the U.S. our prime focus. We have a partner that we're working on in Europe, and we feel very confident of that, and we will be talking more about that as time goes on. Let me just also say that our bonds are something that normally the equity investors don't look at, and it's very important to understand what's happening there. Following the closing of the SPAC transaction, the bonds traded up almost 15 percent. It is very unusual to see bond spreads tighten in 200 to 300 basis points in a relatively rapid period of time since they were done. We thank our fixed income investors, many of whom we hope are on this call. They've been very supportive of us, and they've done tremendous due diligence. Let me just say now that in looking at our business, we have been subject to some of the most excruciating due diligence that I have seen in my career. And I have been – and I was at Morgan Stanley for 26 years – and then was an investor after that. We have really had fixed income and equity investors. Our core investors in the pipe, in the bond, et cetera, have done extensive due diligence. They've talked to our customers, our partners, et cetera. Sometimes I do read an article or two here and there in the papers, as I'm sure you've seen, and the one thing I notice is that they often don't mention some of the things that I call the three L's. The first is There is an extensive report in our S4. I encourage you to read that report in full. When I see an article that doesn't mention that report or somehow mischaracterizes it, that obviously bothers me. That is an excellent piece of work. I'm not going to characterize it here, but you, I believe, must read that, which is why we included it in the S4. The second L is the lockup. This lockup demonstrates the commitment of management. Over 60% of the 83.5 million shares that went to PureCycle shareholders are subject to a lockup, which releases 50% of those shares not until plant one in Ironton is commissioned. That's very important. And only 20% of the shares are released after six months, whereas most transactions, be they an IPO or a SPAC transaction, would release 100 percent of the shares after six months. This is the company and the management's way of demonstrating to you, our investors, both in fixed income and equity, that we are committed and we believe in what we're doing. Roughly 25 percent of the shares are able to be released in six months. However, the important number is that almost 44 percent of all PCT shareholders are locked up until plant one is commissioned. And that commissioning is done by an independent group, not done by us. Very important. The third L is long-term. I say to almost all our investors on all of our calls, we are in a marathon. We are not in a sprint. We understand that this is a long-term process, and we understand that we have to demonstrate and meet milestones. And I encourage our investors to keep that in mind. People can have different points of view of what they think is going to happen in the future. However, this is a marathon, and we know we are in a long-term process. Finally, let me say that 117 million shares outstanding. PureCycle has 83.5 million shares. Those remain locked up. The 2.2 million founder shares from the SPAC, which only represented 1.8 percent, are also locked up, and that means only 26 percent of the shares outstanding are really free to trade. Let me conclude by saying we are achieving our milestones. We take them seriously. We respect our investors, and we will continue to keep you informed of how we do against those milestones. We are aware of the challenges. We're prepared. We're preparing. And we have the talent to meet those milestones because we have a very, very experienced team. We have seen some of the negative articles. Our key investors have done extensive due diligence. Anyone of the negative articles that I've seen, they have not contacted us and they have not talked to us. Best I can tell, they have not read the Leidos report. But most importantly, they've not gone to Ironton. Many of the investors on this call have been to Ironton. We send investors out to Ironton to see the feedstock evaluation unit regularly. This is a critical part of the due diligence. It's difficult to explain it unless you see it. We are going to likely set up somewhere in the end of June an open house where we will invite everyone to come out. But you don't have to wait until the end of June. If you want to come out and see Ironton and actually look at it, talk to the team there, we will set that up for you as we have for many, many others. And I said personally, I will just say I really don't have time for those who write negative articles who have not made the effort to talk to us, to read the materials, and to go out and actually see the facility. We are very committed to you as our investors because we are in a capital-intensive business. We know that. And we intend to deliver, and we intend to meet the milestones and the aggressive milestones that we set for us. At this point, I will end my prepared comments, and we will open it up for Q&A. Thank you very much.
spk00: Thank you. As a reminder, to ask a question, you will need to press start and the number one on your telephone keypad. Again, that would be star 1 on the telephone keypad. And to withdraw your question, press the pound key. Our first question comes from the line of Nolocave with Oppenheimer. Your line is now open. You may ask a question.
spk10: Great. Good morning. Thank you for the update and for taking the questions. Maybe we could start with what you talked about in your prepared remarks about moving from 165 million pounds target design to 130 million. Can you just help us understand a little bit what makes it easier to go from 107 to 130 versus 165? You talked a lot about modularity, time to build. Can you, without getting too technical, just give us some additional insight on why this is a more efficient way to go? And then I think the follow-up question to that would really be about CapEx efficiency. You know, in your prior presentation, For the cluster plant, I think you were targeting something around $1.30 plus per pound of CapEx. How do you think about CapEx efficiency on a plant that's 130 million pounds? Thanks.
spk04: Thanks, Noah. I'm going to direct the first part of your question to Dustin to talk about the capacity decision, and then I'll let Michael address your CapEx question. Thanks.
spk01: Yeah, thanks, Noah. So with respect to the 165 versus 130, it really has to do with how much of the core equipment is changing inside of the system. And so what we're doing is we're starting with the Ironton design and looking at where the constraints to that design will be based on our expectations for feedstock and operation and product slates. and then fixing the edges of the design to relieve constraints. And so the reason that it makes sense is it allows us to stay consistent on the core of the technology and only work on the edges. Additionally to that, any time that you're building something, the first time you build it will likely be the least efficient that you do it. You're going to have to learn how to make the right the right jigs, the right equipment. You have to learn where to lay the equipment down to move it into the construction phase. The second plant that you build, if it is the same basic design, is much more efficient. And so by doing what we've done on the 130, or I like to call it the 107+, it effectively allows us to gain construction efficiency, long lead efficiency, procurement efficiencies, And ultimately, it enabled us to accelerate the engineering phase substantially because we're not changing as much of the design.
spk03: Yeah, no, it's Michael. CapEx efficiency is very, very important to us. One of the metrics that we look at is CapEx per pound of capacity. The 165s were about $1.33. And based on what we're looking at now, it's in a similar range. So it's not costing us more in terms of building the capacity. The engineering timeframes are shortening. And we're also able to do it in such a way that it de-risks that scale-up factor. We've put a lot of effort into the scaling. We've heard it as a question for many, many people. And that's why we want to make sure that people understand that what we're trying to find is that optimal size. Now, building more capacity with smaller-sized plants, it means we need to build a few more plants. But once you have the similar-sized plant, it then is going to become much easier over time. And we have actually not factored lower costs in the future or shorter timeframes into our modeling in order to be somewhat conservative. Thank you.
spk10: Yeah, thank you. And, I mean, just to reflect back, You know, plant one was, feel free to correct my figures, around $250 million budgeted capex. Here it sounds like you're going to be sub $200 million per plant with, you know, a good amount of higher output. So, you know, that's a very helpful metric for us to think about. Thank you. The last question I have is really around the feedstock and some of the strategic efforts that you mentioned. You know, we look at the three to seven price per pound versus, you know, recycled, baled polypropylene. There's just a huge spread right now. I mean, effectively, the market seems to be saying, you know, three to seven, not worth a lot. PP, if you can pull it out, worth a lot. And so I guess with that in mind, can you talk about how, you know, some of that spread dynamic factors in and then really what is the type of potential investment you would need to make, whether in sort of sortation or other equipment, to be able to do this sort of separation and washing yourself? Sure.
spk04: I'll let Tamsen, this is Mike, I'll let Tamsen address this question, but I think it's important to understand a couple of dynamics anytime you're talking about feedstock. You know, one is that because of the fact that our process will work With so many different types of feedstock, we don't have to compete with the mechanical recyclers' feedstock. So you hear opinions out there about, oh, feedstock is going to be really difficult, et cetera. We take it very seriously. Global feedstock strategy is top of mind for us on a daily basis. We're building a whole team of people focused on feedstock strategy and execution. But, you know, one of the things that attracted me to this opportunity very early on was the fact that, you know, things that are wholly unacceptable to most people in the recycling game work perfectly well for us. So that makes the task certainly easier than it would be otherwise. And so I'll just stop there and let Tamsen finish answering your questions.
spk02: Well, I would just say that mechanical recyclers wouldn't take that material and stick it straight through their extruder and expect a quality product. Technically, we could get a quality product, but as I mentioned in my speech, we are planning to grind, sort, and wash this material. And because we have partnerships that we're working with out there, we will find other homes effectively and efficiently for the other materials. So basically, we'll be able to mine a much higher-cost pypropylene in a much lower-cost format by doing what we're doing with a 3-7. It doesn't mean we won't buy pypropylene bales where they're available. It doesn't mean we won't buy other sources of post-consumer pypropylene. This is just a big opportunity. It's a need for the MRF to find a solution, and we can help bring that to them.
spk03: Yeah, Noah, it's Michael. If I can just add one more short thing to that. The differential you're seeing in prices is largely due to shortages that occurred earlier this year and late last year because of maintenance on polypropylene production facilities, which drove prices up and created a shortage in the polypropylene market. However, looking forward, the pricing model that I discussed that we would like to migrate to, which is somewhat of a pass-through, will help protect us against that, number one. Number two, that differential you correctly pointed out, means we can pull it out and create a lot of value. So, therefore, that also leads to the feedstock evaluation that we're doing right now and looking at moving upstream and pulling some of that out and making an economic decision that way as well. Third, it's very important for everyone to understand what we are not. We are not chemical recyclers and we are not mechanical recyclers. Keep in mind, mechanical recycling creates a very low quality and a very low value-added output. That's not what we're doing. We're creating a very high-value output. That means we can pay more for the feedstock, and that means ultimately that we will be more competitive. So if you see a mechanical recycler talking about us, keep in mind that they're talking their own book, as we say, and they're focused on the fact that they will have a difficult time competing with us in terms of pricing for that feedstock. Thank you.
spk00: Thank you. Next question comes from the line of Eric Stein from Craig Halliam. Your line is now open. You may ask a question.
spk10: Yes, good morning, everyone.
spk09: So... So, I mean, clearly your customers are very invested in this process, what you're doing, and you're a key part of their sustainability goals. Just curious how involved they are or what type of input and planning do they have in the site selection, in the supply chain analysis, and everything that's going into that.
spk04: Thanks for that question. We look to almost all of our partners to give us their perspective on feedstock. When you're talking about site selection, obviously feedstock and availability of feedstock, logistics associated with transportation of feedstock to a particular site, those are all important elements that we consider. We talk to those partners and With regard to what we're looking at in Europe, because of the complexity of regulatory considerations and other considerations that we yet to have experience with, we will most certainly endeavor on our first plan or possibly first several plans in executing them with a partner, either in a co-location and or a co-location joint venture. And of course, in that case, we would consult with our partner on a variety of fronts with regard to the site. And so we're actively talking to partners about multiple considerations with regard to kind of finalist sites in Europe. And we're doing a lot of analysis of comparative sites in North America, including analysis of all the logistics involved in the transportation of feedstock to those sites. So, Dustin, is there anything additional you'd like to add on this question?
spk01: No, I don't think so. I mean, the supply chain analysis is very dynamic, and whether you're shipping product to your customers or you're shipping feed into the plant, The analysis is complex. So we're looking at a lot of different variables and conditions to make the right decision there.
spk09: Got it. Very helpful. And then maybe just more of a, well, demand question going forward. Obviously, significant demand. When you think about your future plants, do you think that these are made up of your current customers, the ones that are really underpinning plant one? Or do you feel like, given that you are opening the ability or an avenue that's really not been opened to this point in polypropylene, that it will be current customers in addition to new customers?
spk04: I think it most certainly will be current customers plus new customers. You know, there are a number. We're getting a lot of interest from vertical markets that we haven't even penetrated at all in terms of our customer set for the first plant. And so, you know, in not trying to make the task any harder or any riskier than it needed to be for plant one, we largely settled on for a large percentage of the offtake for plant one, I would characterize as kind of a midline kind of spec for the CPG packaging. But as we go to subsequent plants, we'll continue to service those customers But, you know, there are many other verticals, automotive, aerospace, and transportation in general, a whole host of others, you know, that we're talking to on a daily basis. And so I think you'll see a rapid expansion in terms of breadth of customer sets as we move to plants to and beyond.
spk09: Got it. And then maybe just a follow-up to that is, I mean, since this whole process started or since the plan merger was announced, I guess it would have been in October. I mean, anything you can share on just how that pipeline has expanded? Details would be great. Thanks.
spk08: David Brenner This is David Brenner. Yeah, I would say at this point there are a series of concurrent discussions both with current and future partners. We're not at a point this afternoon or this morning where we'll dive into details of those numbers, but we'll be providing updates in the coming months.
spk00: Next question we have from the lineup. Jerry Sweeney is from Rose Capital. Your line is now open. You may ask a question.
spk05: Good morning. Thanks for taking my call. I just wanted to touch back on feedstock, and I know we talked about it quite a bit, but I do find it has been a critical point of conversation I had. Can you just maybe explain a little bit more about the opportunity PureCycle brings in terms of upcycling of used polypropylene versus downcycling that is essentially prevalent in today's market and all the levers that really provide PureCycle with the opportunity to expand this feed stock base.
spk04: Thanks, Jerry. I'll let Tamsen speak to this question, but I would first just say that one of the things that was quite shocking to me when I first started to learn about how plastic recycling is separated and how it works is that, you know, Even though polypropylene is recycled at a shockingly low rate of less than 1%, even for that 1% that's recycled, it's kind of a, to use the sports analogy, one and done. Most of that is sorted by virtue of optical scanners who can't discern between different resins if it's black. So if it's being recycled by mechanically recycling and it's turned, you know, black, which is what typically happens, it can't be recycled again. So it's a bit of a recycling death sentence to be recycled even once. You know, obviously very poor situation. And in our case with PureCycle, you know, we can recycle, you know, polypropylene essentially indefinitely. with an indefinite number of cycles, which changes the whole game significantly. So I think that's an important thing to realize, but I'll let Tamsen make any comments she thinks are relevant.
spk02: Well, I think you made a good point about a lot of this material goes into a black application. So we do see most polypropylene that's recycled today mechanically. Very few use hot washes. They haven't put the investment in because the end market that could pay a higher price, which comes into the packaging form, haven't been able to buy that type of recycled pie surplus in the past, mainly because it's gray and it has an odor. And so it's the chicken and the egg. They could possibly put in hot washes to get rid of some of the odor, some devolutization, which a couple have done to get rid of odor, but they're still stuck with a gray product. Then you've got some mechanical recyclers who have put in optical sorting to make specific colors, but all they can do is make a shade, a shade of blue, a shade of green, a shade of yellow, and then quite often a large amount of colorant has to go back into that to color correct it to the color the consumer product company needs if they're going to use a recycle. So they've got variability that they have to deal with. The other thing is, the recyclers that do mechanical have been kind of focused on a specific format. As you've seen, bottles are recycled and they don't want thermoforms. Bottles are recycled and they don't want film. The difference that PureCycle has is that we can take all those different formats and also remove the color and the odor. So we've kind of got three little buckets that really put us ahead of the traditional mechanical recycling. And that's being able to take different formats in, being able to take different colors in and take it back to a natural so that it can be used in any type of application for color. We also, by removing the odor, we're also removing a lot of the absorbed chemicals, so we bring it back to a food-grade material. There isn't that much in food-grade LNOs for mechanically recycled today, so this will be a huge accomplishment to bring to the market is to make it so that it can go back into the packages that we're recycling to begin with really creating circularity is key.
spk04: Because the mechanical recyclers are generally limited in terms of their capability, they reject a lot of the recycled material that they do buy. And I had a conversation recently with a with a supplier of feedstock who was selling to one of the larger players in recycling who said, hey, yeah, they buy from us, but they reject as much as 40% of what we ship them. Obviously, this is a big problem with regard to the whole efficiency of the recycling process in general, and it's obviously helpful when your process can successfully deal with a much broader spectrum of feedstocks and still make an extremely high-quality product.
spk05: Got it. Super helpful.
spk00: Thank you. Next question comes from the line of Barry Haynes from Sage Acid Management. The line is now open. You may ask your question.
spk07: Thanks very much. I had a couple questions. One is, as you do the full-scale plant at Ironton and think about the key parts of the process, and where you could have some scale-up risk. Could you talk through that a little bit? And sort of related to that, in terms of breaking ground on the second plan, is it your intent to wait until the first one is up and running and working, or will you actually break ground before You have all that data from the first plant. Then I have one other financial question. Thanks.
spk04: Thank you for that question, and I'll let Dustin Olson address your question.
spk01: Yeah, so thanks for the question. I think the first way to answer this is that we do have a proof of concept up and running in Ironton today, which is our feedstock evaluation unit. Okay, so it is working. We bring trash in of all shapes and sizes, and we make beautiful polypropylene on the backside. So many times when you're talking about new scale technology, taking it from paper to the field is probably the biggest, most critical step. Sometimes what you think will happen on the paper won't happen in the field, and you learn it at that stage. We're past that because we have the FEU up and running. When it comes to scale-up concerns, I mean, there's no doubt that as we started the FEU and we worked through the growing pains of getting that plant up and running, there were some, okay? There were some issues around the plant where we had some plugging that we had to heat trace better. There were some issues where we had to test the filtration, and we tried various mechanisms. But we worked through those, okay? And so I would say that, for sure, There have been, let's say, technical items that we have worked through at the FEU, and that has advised us on how to design the commercial plant. In some ways, actually, the commercial plant is going to be less prone to some of the problems that the FEU had in the early stages because of its scale and of its size. I guess the second portion of your question is really how unique is the technology that we're using to build the plant? And what I'd say is the magic of our process is not so much in the type of equipment that we're buying. as it is in the way that we are arranging it and the way that we are using it. And so I have pretty high confidence that the pots and pans that we're putting together are going to work properly because it's pretty well-known technology.
spk04: There were outside engineering resources brought in to opine on the process and its design even before we acquired the license. And I think it's important to understand that there is no heretofore unknown magic going on inside any of the unit operations that comprise the system in total. It is a unique assemblage of unit operations that have existed in manufacturing processes of different types, in some cases for decades. So, you know, when you looked at the list of unknowns with regard to the technology in the system, it really wasn't such that you would be so worried that, you know, you would want to go to every last step of detail to make sure, oh, well, let's make sure that all these unknowns are answered and this will work. We feel like we've answered enough that we're quite confident in moving forward with starting to build subsequent plants, but this decision has been made with a lot of careful consideration and with the advice of existing industry partners that deal with similar processes that involve temperature and pressure and with some of the world's best engineering resources that have opined early on in the development of PureCycle and continue to do so to this day.
spk07: Thanks. That's extremely helpful. And, you know, again, maybe just the timing of Plan 2. And then my other question was, could you just remind us what the expected revenue in EBITDA would be out of the original Ironton plant at the 107 level, but then even more importantly, the 130 million prototype or subsequent design? Thanks.
spk01: Just to answer your first question in completion, we do intend to break ground on the second facility before Ironton is up and running, and that's because of the confidence that we have in the original design package based on the information that we've been able to glean from the FVU and the work that we've done with the experts around the world. Play through timings. And Plant 2 timing, Plant 2 is expected to be up and running in the first half of 2023. And Michael will answer that.
spk00: Is there no further question at this time? Please continue.
spk03: I'm sorry, operator. Just to answer, because Barry, your other question, Barry, the revenue on the 130 would be about 94 and the EBITDA would be about 50. Sorry, that was . Sorry, go ahead, operator.
spk00: All right, so there are no further questions at this time. Please continue, presenters. We have no more questions.
spk04: Okay. Thank you, everyone. We appreciate your time. And as Michael mentioned, we will be hosting an open house for investors that will determine the date soon. It will be late June, and we would welcome anyone who hasn't seen our facility and how it operates to come and see it. And And, you know, as we said, we've been open about making it available for people to see and hear and smell, and we'll continue to do so in the future. Thank you.
spk00: Thank you, ladies and gentlemen. That concludes today's conference call. Thank you all for participating. You may now disconnect.
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