PureCycle Technologies, Inc.

Thank you for standing by and welcome to the PureCycle Technologies first quarter 2020 new corporate update conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. If you require any further assistance, please press star 0. As a reminder, today's conference call is being recorded. I will now turn the conference over to your host, Mr. Larry Soma, Chief Financial Officer, PureCycle Technologies. Sir, you may begin.

Thank you. Welcome to PureCycle Technologies' first quarter earnings update conference call. I am Larry Soma, Chief Financial Officer. And joining me today are Chairman and Chief Executive Officer Mike Outworth and our Chief Operating Officer and Chief Manufacturing Officer Dustin Olson. This morning we will be highlighting our corporate developments for Q1. The presentation we will be going through on the call can also be found on the IR page of our website, 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 2022 corporate update press release and in our filed quarterly report on Form 10-Q filed this morning, as well as in our other reports on file with the SEC 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 statements. Our remarks today may also include preliminary non-GAAP estimates and are subject to risks and uncertainties, including, among others, changes in connection with quarter-end and year-end adjustments. Any variation between PCT's actual results and the preliminary financial data set forth herein may be material. You're welcome to follow along 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, and I will now turn it over to Mike Otworth, PureCycle Chairman and Chief Executive Officer.

Thanks, Larry. Good morning. This is an exciting time for PureCycle as we pursue our mission of revolutionizing plastic waste into a renewable resource. We're facing a critical moment as the plastic pollution crisis plays out on the world stage. Now more than ever, we believe PureCycle offers a solution for companies looking to be genuine and deliberate when it comes to sustainability. We are making strong operational progress. Since our last update, the first four of 26 recycling modules arrived in Ironton this past week, and we expect a larger shipment to arrive over the summer. We remain on track and expect to produce pure-cycled plastic from our commercial facility in Q4 2022. We broke ground on PureCycle's Augusta facility, expanding our footprint into the southeast. We're currently on track for a startup in Q4 2023. In Q1, we secured feedstock LOIs that are expected to yield approximately 215 million pounds of recovered polypropylene to supply PureCycle's Augusta Purification Facility. The offtake from the first two lines in Augusta is 70% allocated through multi-year commitments. We continue to expand our commercial agreement footprint across converters and compounders with two new signed sales agreements and non-CPG channels. Our existing partnerships continue to generate exciting results, and as an example, we achieved a major testing milestone with Aptar for hinge closures that yield performances on par with non-recycled resin. The PureCycle PureZero program continues to see momentum since launching, with our focus now expanded to include partnering with professional and collegiate sports leagues. We anticipate exciting announcements on new partners in coming months, And I'm pleased to report that we ended Q1 2022 with $610 million in total cash and investments. Moving to slide four, our goal is to produce 1 million pounds of our ultra-pure recycled resin by 2025, and we are aggressively working toward that goal. As we previously reported, we're thrilled that PureCycle's Augusta Purification Facility can support up to eight purification lines. which collectively are designed to produce approximately 1 billion pounds of pure cycled plastic annually. This facility can be a significant game changer when it comes to achieving this major milestone. Further, our relationship with SK Geocentric continues to advance toward our goal of a completed facility in South Korea by Q4 2024, and we're progressing toward a joint venture agreement with Mitsui for a facility in Japan. Moving to slide 5. As PureCycle continues to grow, we work towards scaling our operations commercially. Our goal has been to add top-tier talent across our business segment. We have worked hard to ensure different experiences within our industry are represented, and we're thrilled that two exceptional industry experts have joined our board of directors. Stephen Valk, former president of Waste Connections, Inc., and Alan Jacoby, chief strategy officer and senior vice president of corporate development for Milliken & Company, have joined PureCycle's board in March. These two independent directors are both proven and successful leaders who combined bring more than 50 years of relevant experience. Both Steve and Alan will help PureCycle advance our mission and business objectives, and I'm confident they will serve us well. We have assembled the best talent here at PureCycle, and to achieve our goals, we wanted to ensure everyone is in the right place for success. To that end, we've realigned some of our teams to help us better deliver our mission to revolutionize plastic waste into a renewable resource. We most recently announced that Dustin Olson was appointed to the Chief Operating Officer position, in addition to his Chief Manufacturing Officer responsibilities. As such, changes have been made internally to his current organization that emphasize the importance of Ironton, Augusta, and our feed prep strategy. Our CFO, Larry Soma, has also expanded the finance team to bolster our financial operations, bringing on top-tier talent to round out his team to include a Vice President of Finance, Senior Director for Revenue, and Director of Analytics. With that, I'd like to turn it over to our Chief Operating Officer, Dustin Olson, to discuss our manufacturing, commercial, and feedstock updates.

Thank you, Mike. Our first facility in Ironton, Ohio, is well underway and is currently expected to be operational in Q4 of 2022. Just last week, the first four modules, designed by Koch Modular and constructed by Goldspan, were delivered and lifted into place one month ahead of the anticipated delivery date. This is a significant moment for PureCycle, one that has been years in the making. The remaining 22 modules are in active construction at the Gulfspan facility and are expected to ship over the summer. We have 98% of the feed prep equipment on site with an anticipated startup of Q3-22. We're targeting mechanical completion of our purification facility in Q4 with pellet production by the end of the year. As discussed during a previous update, the Ironton site was energized in March. We have discussed how integral our work with Koch Modular, Denim Blythe, Gulfspan, Krauss-Maffei, and Emerson are, and we're seeing tremendous benefits from these partnerships. Our work together has improved safety, schedule compliance, and cost efficiencies, and created the foundation to successfully replicate our facilities both here and abroad. Moving to slide seven, as mentioned, we broke ground on our second U.S. facility in Augusta, Georgia on March 22. Not only has the work commenced on site, but engineering activities are on track and key construction contracts are in place. Long lead orders such as high pressure vessels, precision machinery, and specialty instrumentation have been placed. We track the global supply chain very closely and believe that we can effectively manage the construction schedule through our partnerships. We have made considerable progress developing feed prep operations that will supply Augusta Phase I, which includes the first two purification lines. And we expect a full plan rollout in Q3. As noted, we secured feedstock LOIs that are expected to yield approximately 215 million pounds of polypropylene to supply PureCycle's Augusta facility. As with Ironton and all of our future facilities, our copy-paste design should allow us to build our facilities faster with minimal disruptions and schedule certainty. With our partners in place, we know that we have the right team to help solve any challenge that may arise. Moving to slide eight. Next, we would like to share our progress on securing feedstock for our business plan. We are intently focused on securing feedstock for Augusta's first two purification lines. We continue to strengthen our relationships in the partnership, and that has resulted in 933 million pounds of feedstock in active negotiations with approximately 215 million pounds under LOI for Augusta lines one and lines two. A key component to our overall business plan is to remain at the forefront of innovative ideas and opportunities. In order to continuously diversify our feedstock strategy, we are investing in R&D to target more challenging and untapped waste streams. The born digital strategy that we have outlined in previous quarters is also designed to optimize our feed management. This includes helping us track feedstock from the source to the final product. This level of transparency is important to our stakeholders and their customers. Moving to slide nine. The commercial team continues to build our sales pipeline and because of this work, Ironton is fully allocated and the first two lines at our Augusta Purification Facility are 70% allocated through various multi-year commitments. We are currently seeing strong contracting momentum to fully allocate Augusta Lines 1 and 2, and we're also seeing interest from the compounders that create specialized materials for consumer goods and automotive. As Ironton and Augusta projects progress, we see our sales cycle shortening. Our FDA letter of no objection is still under review, and we are currently waiting for the FDA's response. PureCycle is well-positioned to connect brands with high-quality resin to deliver products that are truly sustainable to the customers. We continue to execute the objectives we need to expand our pipeline and help companies achieve their top sustainability goals. I will now turn it over to our CFO, Larry Soma, for our financial update.

Thank you, Dustin. Please turn to our first quarter liquidity and balance sheet on slide 10. As of the end of March, we had approximately $610 million of liquidity. As a reminder, we think about our liquidity in terms of restricted and unrestricted cash and investments. Our restricted cash totaled $191.9 million and our unrestricted liquidity was $418 million. Unrestricted increased by $217.2 million, primarily driven by the $250 million equity raise that was closed on March 17. Offsetting that equity raise, we spent approximately $32 million of unrestricted cash during the quarter. Included in that was $4.3 million spent on Ironton construction that is outside the bond cash. any overruns on the Ironton plant are paid for out of unrestricted operating cash instead of bond cash. During the quarter, we also ramped up spending on our feed prep site in Central Florida, as well as made continued progress on the Augusta pre-engineering for lines one and two, which was a cash use of $11.6 million. Finally, we spent $16.1 million on operating and SG&A costs. These costs included payroll to support our growing needs related to ramp up of staffing as a public company, to prepare for Ironton, feed prep, Augusta, and future Europe and Asia investments. We paid an annual cash bonus that is part of our short-term incentive plan, and incurred cash tax payments related to equity compensation. Also included in the spend were site-specific and corporate investments in systems and technology, corporate functions, and various other needs. The other part of our liquidity position is our restricted cash. As a reminder, the restricted cash can be broken down into several buckets. Ironton Plant Build, future interest and principal payment reserves for our Ohio bonds, and equity and other reserves that are required to be set aside for the Ohio bonds. As the Ironton plant progresses towards completion in Q4 of this year, you can expect to see cash drawdowns related to that plant build. In Q1, we spent $41.6 million on the plant. With our current cash investment position and our capital raise strategy, we believe there will be sufficient capital to execute our business plan. This includes the remaining build out of Ironton, the future build plans in Augusta, our feed prep facilities, and investments in Asia and Europe. Please turn to slide 11. On this slide, we highlight additional financial commentary that we think is useful for modeling purposes. Our capital structure has been bolstered by the $250 million private placement that was announced in March. This influx of capital provides equity for Augusta lines one through four, as well as other strategic corporate purposes such as cash needed to seed our equity investment in South Korea. Furthermore, we have engaged Jefferies to lead the project debt financing for Augusta Lines 1 and 2 and for three prep, feed prep facilities. While challenging, we have a high margin operating plan, which gives us confidence in the debt financing process. And we will be sure to announce details as soon as we are able. At our first commercial facility, Ironton's total cost in excess of the original budget will be $55 to $65 million versus the previous guidance of $30 to $40 million. This should come as no surprise based on the high inflationary environment and supply chain challenges around the globe. Of the excess, approximately 50 percent is for manufacturing process improvements and the other 50 percent for inflation coverage. The most inflated costs are driven by increases in transportation, which is two times the original cost, or $7 to $9 million, the electrical segment, which is two to three times the original cost, or $8 to $11 million, And finally, holding to schedule, which is costing us approximately $3 to $5 million. We deem the extra cost to stay on schedule as a prudent economic decision. Relative to Ironton, our Augusta facility CapEx efficiency is expected to improve with each subsequent build. Despite the current inflationary concerns, the learning from Ironton, and the multi-lang scale efficiencies are expected to yield double-digit capital efficiency improvements. The most important comment I can pass along is that the Augusta Project ROIC remains on track. Our revenue increases due to inflation and feedstock plus pricing strategy are expected to more than offset the CAPEX and OPEX increases in the current global economy. With this in mind, the project economic estimates for Augusta are at 100% to 150% of pre-SPAC estimates and are currently expected to provide a simple payback of approximately three to four years. I will now pass it back to Mike Otworth to close.

Thanks, Larry. We're now on slide 12. We've outlined how PureCycle remains focused on executing against its strategic plan and how we continue to build operational momentum. At PureCycle, we can help reverse the world's mounting plastics waste crisis through our innovative technology that is scalable and enables us to rapidly expand to meet global demand. We are intently focused on launching commercial operations at our Ironton flagship facility, completing phase one of our second facility in Augusta, Georgia, and progressing expansion plans for Asia Pacific and Europe. We are also diversifying our feedstock acquisition strategy and bolstering R&D efforts to continue testing challenging waste streams. PureCycle continues to build operational momentum with Ironton on track for Q4 2022 pellet production. Augusta construction is underway. Ironton offtake fully allocated and Augusta first two lines 70% allocated. Seventy-five percent of Augusta's first two lines are under LOIs for feedstock. Overall feedstock discussions are on track. Feed prep strategy is progressing with planned rollout in Q3. We've broadened our converter network and expanded applications for pure cycle resin. Ironton and Augusta continue to show strong economics relative to original pre-SPAC estimates. And as Larry said, we ended Q1 2022 with $610 million in total cash and investments and added experienced independent members to our board while continuing to recruit top talent. With heightened expectations around the world, sustainability requirements are taking shape. Rather than be a burden, companies should see this as an opportunity to make major environmental difference. We believe PureCycle can connect brands with high-quality recycled plastics, in a way that meets the demands of consumers and regulatory bodies, but more importantly, helps society end our dependence on new plastic production. Thank you for your time this morning. We'll now open up the floor to questions.

Thank you. And participants, as a reminder, to ask the question, you will need to press star 1 on your telephone keypad. Again, that's star, then the number 1 on your telephone keypad. To withdraw your question, press the pound key. Your first question comes from the line of Hassan Ahmed from Alembic Global. Your line is now open.

Morning, guys. You know, a question around, you know, obviously you guys touched on the inflationary environment we're living through. You know, in this sort of environment, you know, I just wanted to dig a bit deeper into – the raw material availability side of things, you know, as you guys are sort of structuring newer contracts, you know, how should we be thinking about, A, the availability, you know, keeping in mind all the logistical constraints as well, and also pricing on a go-forward basis for the roads.

Thank you for the question. I'll let Dustin Olson address this.

Yeah, thanks, Hasan. So on the project side, I mean, we're really tracking – the overall material supply conditions for all aspects of our operation. We track steel and copper and different base materials like that just to keep an eye on where things are. The real concern is with production capacity. And what we're doing to address that is looking to widen our global supply network. So where we may have been over-indexed on receiving material from Europe, now we're looking to diversify our supply chain into either Central South America or in Asia to diversify. And look, I mean, the world's going to be what the world is with respect to inflation concerns. And so what we're doing to address it is just to try to build as much optionality in the supply as possible.

Understood. Understood. Now, on the capital cost side, you know, I mean, a bunch of moving parts, right? You know, on one side, all the inflationary pressures you guys are dealing with, but on the other side, you know, you talked about how the Ironton experience, you know, you've learned sort of efficiencies from that as you think through Augusta and the like. So my question really is, if I sort of drill it down on a greenfield replacement value basis, call it on a cent per pound basis, you know, is Augusta tracking significantly higher than Iron Turn at the same levels? I mean, just some sort of directional guide would be appreciated.

Yeah, thanks. So we're tracking that right now and going through our process to evaluate, let's say, the apples-to-apples comparison between Ironton and Augusta. There's a couple of notable things. First of all, when we go back to the Ironton project, remember, I mean, in this environment, to be able to deliver that project on schedule with modest increases in cost relative to schedule hold, is pretty good. And we believe that we've been able to do that because of our close partnerships with people like Coke Modular, Gulfspan, Denim & Blythe. And so those have really helped us quite a lot on the schedule side for delivering Ironton. But in addition to that, because we're keeping the same partners from Ironton to Augusta, there's been tremendous lessons learned between the two phases. So the Gulfspan operation, as an example, is not only going to deliver, let's say, certainty on schedule for Ironton, it's also helping to deliver cost efficiency as we build into Augusta. And so from an overall CapEx per pound, we're not in a position to put detailed numbers into the marketplace right now. But what we can say is that we are tracking better than Ironton CapEx per pound for the Augusta build. And that comes because we're strong partnerships. But secondly, it comes from just the scale of Augusta. With Augusta, we have the capability to build a lot of lines. a billion pounds of capacity is potential in Augusta, and we're going to see pretty significant benefits by spreading out the infrastructure build, the utility build, et cetera, at that facility. So we expect the overall capex per pound to be improved relative to Ironton.

Very helpful. Thank you so much.

Your next question comes from the line of Eric Stein from Craig Hallam. Your line is now open.

Good morning, everyone. Thanks for taking the questions. Hey, Eric. How are you doing? Hey, doing well. Thanks. So just sticking with Augusta, I think in the past you've said your plan was to think about two lines every six months. Now that may... You know, curious if that's the case. And just wondering, you know, you just said that on a cost per pound basis that Augusta is looking like it will come in lower. You know, would that still be the plan given that level? You know, how do increased materials costs potentially play into that when you're also balancing demand?

Yeah, so that's a great question, Craig. Thank you for that. So basically... Sorry, Eric. That's a good question, Eric. So we have built our entire system to be able to scale quickly. Okay, so everything that we've done with our partners will give us the ability to build on the schedule that you mentioned, which is two lines per six months. The driving factor for that schedule and holding that schedule will be, you know, securing the debt the feedstock and the offtake to support that plan. We're currently on track for that. We're not changing our guidance for that. And we have the system built to achieve that if that's the pace we want to maintain.

Got it. Okay. Well, and I'm just curious, you know, obviously you're seeing a lot of demand in the market, and you also obviously have got to factor in the feedstock. But I I mean, are you seeing demand driven by scarcity value given the uniqueness of your process? You know, and how do you balance that with just, you know, bringing things online in a timely fashion and maybe not wanting to get ahead of that as well?

Yeah, I think that the drive for sustainability in general is very hot right now. So if you look across the board on sustainability reports, ESG reports, and the commitments that brand owners are making to the market, I mean, it's a very, very high bar to hit in terms of delivering sustainable solutions to the marketplace. So that continues to drive a lot of what we're seeing. And then you pointed out the key part there. I mean, we deliver a product that is differential to the market in terms of color, odor, and consistency, and the ability for a molder or tier compounder to use. And so because we offer, let's say, a no-compromise solution for the consumer or for the compounder or converter, they like our product quite a lot.

And Eric, I would add that we hear repeatedly from our customers that they don't have a quality backup plan to us. And so I think this speaks to your comment about the uniqueness of the product that we offer into the marketplace. And many of these customers are big multinationals who really understand the landscape of possibilities in terms of all the resins that they buy. So that's been the case since we started this. signing offtake agreements, and that hasn't changed. And if anything, we see the level of concern from our customers increasing, not decreasing in terms of the lack of options for high-quality recycled.

Yeah, and Eric, I think there's a couple other points. One is that with respect to polypropylene specifically, we're seeing – increased demand for polypropylene naturally, anyway, just for the general growth of the market. We're also starting to see some desellection of other plastics into, let's say, more recyclable plastics. We view that as a positive story for polypropylene as well. And then just we're seeing our product demand going beyond CPG. Okay, so we've obviously focused on the CPG market to start, but we're starting to see compounding, automotive, and other applications like that that are starting to see value in the product that we produce.

Okay, that's great. Thanks, everyone.

Thank you. Again, participants, if you would like to ask a question, that's star, then the number one on your telephone keypad. Again, that's star, then the number one on your telephone keypad. Your next question comes from the line of Noah Kay from Oppenheimer. Your line is now open.

Thanks for taking the questions. The first one's really about the increased planned spending and how that relates to ongoing process improvement. If I go back to the prior 30 to 40 million figure, which we discussed during 3Q last year, I think two-thirds of that was really designed around processing a higher percentage of feed contaminants and some process safety design improvements. It looks like you may have maybe nudged that spend up even a bit more here, but can you just talk about where these investments are focused and what you think the benefits are in terms of de-risking operations?

Yeah, that's a great question, Noah. So it's exactly like you said. I mean, the original guidance was 30 to 40 million, and two-thirds of that was plant improvements, and one-third was inflationary concerns. And basically what we're saying now is all of the second increase is due to inflationary concerns. There's a little bit of a bleed over where the plant improvements may cost a little bit more today than we said originally because of inflation. But our guidance is really saying now the first batch of increase was two-thirds plant improvements, one-third inflation, and all of the second increase is due to inflation. And it's like we said in the prepared remarks. I mean, transportation, electrical, and a little bit of holding schedule are the primary reasons for the increase.

So in other words, at this point, the design, the process, it's all baked. You have something in it.

Yes.

And what's going to be built is what's in the plan. Okay.

Yeah, that's exactly it. The plant improvement story, no, it hasn't changed at all. That's the same story that we said before, and it is, as you said, it was to increase, let's say, process safety compliance and security, but the bigger portion of it was really to handle a wider range let's say, contamination in the feed through the process. And that's 100% a consistent story from last time.

Great. And that actually ties into the second question around feedstock quality. You know, for us, if I add up what you have got under LOI, which you're hoping to get, pencils out, I think, to about a 10% expected yield loss So can you just talk about the quality of the feedstock that you've got LOIs in place for? And clearly this 290 million pounds you need is a net number, which assumes some processing, you know, at your prep facilities. But just talk a little about the quality of the feedstock that you're seeing out there and how much you need to actually do in terms of preprocessing to get to that 290 million.

Yeah, so on the feed prep side, you're right. We are investing heavily into the feed prep for the Augusta project. Quite frankly, that's a differential spend for us in Augusta than it was in Ironton because we are, let's say, backward integrating a bit more into sort. So that's going to get us into the ability to buy three to sevens. and also let's say some secondary residual streams as well as low-quality No. 5s on top of the high-quality 5s that we've already discussed. So really what we're doing, Noah, is we're building optionality into feed prep. Because with respect to what kind of feed are we buying, we've got a really talented team out there canvassing the market, and we're finding feed of all various shapes, sizes, and concentrations. And so when you aggregate that together, you end up with our plan – And so the way to think about it, I think, is more so around the optionality built into the feed prep and that giving us the ability to, let's say, pick up many different types of feed streams, which, by the way, is possible because of our technology. Our technology allows us to be, let's say, less selective in how we're buying feed, uh, because we can handle a varying levels of contamination in the, in the feed stream and still make good product. And so that puts us into a slightly different place to purchase than, than, than we've, we feel some of the others in the market.

And quality for us really has more to do with, uh, the percentage of polypropylene in the feedstock than it does actual quality. We're less sensitive to, uh, contaminants and dirt, uh, than mechanical recyclers or chemical recyclers. But we do look for feedstocks that contain a high percentage of polypropylene, obviously.

I think that's a good point, Mike. The point is that the higher the polypropylene percentage that we find and that we can feed to Augusta, that will lead to higher yields and higher profitability, but the feed prep system that we're building allows us to upgrade even low-quality number five bales to a higher concentration so we can maximize the capacity of purification.

Perfect. Thanks so much. I'll take the rest off the line.

Your next question comes from the line of Thomas Boyce from Cohen & Co. Your line is now open.

Thanks for taking my questions. Obviously, great to see the progress, you know, selling out the first two lines in Augusta. Do you still think that you'll have that capacity fully sold out by the end of 2Q? And then for the additional offtake agreements that were done this quarter, you know, how much was done under that feedstock pricing model, or is that still something that's developing?

Yeah, so we're seeing good growth in our offtake commitments. To put a timeline on it and a percentage on it, I probably don't want to get that specific, but we don't see any concern there from a financing perspective or project perspective with our offtake.

And I would just, before Dustin continues, I would say that, While we want to have a significant percentage of offtake allocated in advance, given the market demand and the rising market demand and corresponding changes in price, We're a bit walking a line between having offtake preallocated and letting the market further develop to our advantage. I'll just put it that way. So the goal isn't necessarily to sell all of the offtake at the earliest possible date. There's some balance in our strategy.

Yeah, and with respect to your second question, Thomas, around feedstock plus, I mean, when we watched the market last year, the number five price volatility was really high. And so as we evaluated our overall strategy for contracting offtake, we shifted part of our portfolio into feedstock plus. And so I would say that the majority of the conversations that we're having with offtake today are based on feedstock plus. And that's really just not – that's very consistent with the way most markets like this work, where it's always the base feedstock plus. Raw material, that is the reference point for the offtake. So there's good coverage across volatility in the market. We're seeing good adoption to that.

I'd also add that the feedstock plus being prevalent in Augusta is what drives the profitability for the Augusta complex to be higher than we saw in Ironton.

And we put together, I think in the last quarterly, Thomas, there was a slide we put together that showed some of the impact of that and also some of the resiliency of the portfolio. to different pricing moments over the last couple of years. And that still holds pretty true. I mean, we're not advocating for one specific pricing model. We're flexible. And we're building a portfolio around, let's say, multiple pricing mechanisms. But today, especially given the high volatility and just the global marketplace, we're really anchoring more to the feedstock plus than anything else at this point.

That makes sense. You know, maybe I just wanted to get a bit more insight into the CapEx expectations for the year, because it seems like you have a pretty good handle on what's going on in the next three to six months. How much spending kind of remains an aggregate for Ironton to get it up and running? And then how much do you think you have to commit to Augusta this year to keep on schedule?

So I actually don't know the exact number for how much spending is left for Ironton. as far as cash spent versus total project. I think it's in the $155 to $175 million range of remaining capital to spend to finish Ironton. And that gets us to the numbers that we put in the presentation. With respect to Augusta, we've allocated approximately $75 million so far to continue spending for the project. That takes us through the end of June, I believe, and then we will continue to allocate probably on the order of $5 to $10 million per month through the rest of the year to hold Augusta's schedule, but that's an estimate, and I want to probably come back at some point and clean up those numbers to be sure they're accurate. But as far as basic guidance, $75 million through the end of June and probably $5 to $10 million per month thereafter. It's a little bit difficult to say on average because there's different milestone payments across the Augusta project.

No, it's a very helpful color. And let me just squeeze one last one in here because, you know, I appreciate the update on the FDA letter of no objection. You know, do you still intend to submit applications for the categories A, B, and H? And there is the idea that you would probably hold off on doing so until you receive approval for the kind of the other categories. Are those coming, you know, hopefully, you know, ahead of our engine starting at the end of the year? Is that the expectation?

No, look, I mean, with respect to the FDA, I mean, we're very, very excited about this process, actually. We've obviously submitted the first letter and are just awaiting information back from the FDA, so we expect that any time, but that's out of our control. With respect to the remaining sensitivities, there's getting qualification for the A, B, and H, but then there's also getting qualifications on different feedstocks that we bring into the system. And so this FDA LNO process is not a one and done type activity. This will be an ongoing activity as we find new feeds, test new feeds globally. as well as start up the commercial plant. And so that activity is actually scheduled. One of the, let's say, constraints that we have today that we won't have when Ironton is up and running, or we'll have less of when Ironton is up and running, is just the utilization of the FEU. You know, we talk all the time about the FEU is really built to do three things. It's built for process design, product design, and also production. And the production is important because we will use that with customers to do molding trials to get different specific products qualified. And so really getting the next FDA test is more of a function of building it into the schedule amongst all of the other things that we're using the FEU for right now. When the commercial plant is up and running and we're making many, many, many more pounds of product, a lot of these constraints will go away, but this is just something that we're managing right now.

Got it, and that's very helpful. I'll hop back in the queue. Thanks a lot.

Your next question comes from the line of Steve Byrne from Bank of America. Your line is now open.

Yes, thank you. I'm curious as to what is the level of tolerance for other plastics other than polypropylene, not in your front-end sorting, but once you enter into the solvent-based process, how much other plastics other than polypropylene can you tolerate and and as I understand you separate those polymers and those resins out from the polypropylene during during the process what is the quality of those do those become just waste products or do they have value yeah that's a great that's a great question so there's like there's a couple aspects here so

First of all, the feed that comes into our purification plant, so this is after the sorting, the washing, the agglomeration, just the purification plant. Let's just take some examples. Let's say it comes in at 90% polypropylene. It will have 10% of other stuff. that 10% of other stuff will break down into what we call coproduct one and coproduct two. So when we actually originally modeled this commercial plant, we assumed that the 10% of other stuff would be a cost. It would go to a landfill, it would be a cost, it would go somewhere else. Actually, what we're finding is that there's very good markets for those two coproducts. Coproduct 1 is effectively an organic-type compound, which is, I would say, similar to a pyrolysis oil or could sell into a refined feedstock or olefins feedstock-type plant. And then the coproduct 2 depends a bit on the concentration of materials that are coming in with the feed, but it's primarily polyethylene and inorganic inerts. Okay, and so that product actually resembles a, let's say, mechanically recycled polyethylene product very nicely. And so there's good value on both co-product one and co-product two that we've, let's say, under-modeled in the process, but we think has really good upside in the future. With respect to the, let's say, technical aspect of your question, this is probably the source of most of the confusion with respect to the technology. In the original report that we issued on the technology, there was a bit of a misunderstanding on, let's say, a binary work or not work for the technology. And it was interpreted that anything under 91 to 93% polypropylene, it just wouldn't work in the process. And that's really just not true. we've actually run much lower percentages of polypropylene feeding the process and had very successful runs. And so with respect to what can we handle and how much, we are really effectively managing the solubility of polypropylene in our process. And so we can take polypropylene and separate it from just about any other plastic out there, so whether it's nylon or ABS or polycarbonates or polyethylene or polystyrene, we can accept those as contaminants and then they will purge out of the system in either coproduct one or coproduct two. It's not really a concern for us with respect to Ironton or Augusta because the feed prep work that we're doing will remove most of those contaminants prior to purification. But we're doing it for an economic reason more so than a technical reason. We want the highest level of polypropylene percentage because it maximizes the economics of the unit, not because the technology won't work. So we're hitting both, but we really don't have a concern on the technology front for the contaminants coming in.

And that coproduct one that you described as being like pyrolysis oil, has that ever been run through a cracker and could be effective feedstock? And do you have a view on how your costs of producing that pyrolysis oil compares to some of the other efforts at developing pyrolysis oil?

Well, to be clear, I mean, the amount of volume in that material is pretty low in our overall process. And when I say it is akin to pyrolysis oil, I'm not speaking to it chemically at all. I'm speaking to it in terms of potential value. because this product, I think, we have not, let me be clear, we have not tested that product in refineries or in olefins plants as of yet, and we have not tested that product relative to any sort of pyrolysis oil. So this is more work that's ongoing on the commercial side to see where it's best going to fit. Quite frankly, I think that the value for that product could be better than like a number six oil for resid or a shale gas equivalent to an olefins plant or something like that, because it is fully recycled post-consumer waste product. And so everybody in the market wants to find recycled product, kind of in whatever form, shape that they can. And this one is a good niche project that we'll develop over time to start placing it into, let's say, different and hopefully uplifted markets.

That's helpful. And just one more from me. So, the process at Ironton and Augusta are both essentially the same, all based off of scaling up a pilot plant at Ironton Is it fair to say the value to you to get commercially larger, faster, more than offsets the risk that maybe there's something being overlooked in that scale-up that you don't learn from by bringing one on before the other one?

Yeah, I think the way you characterized it is right. I mean, we believe that the opportunity for us to scale outweighs the risk of the scale up. But I'll also say that as we start up Ironton and we learn from it, and there will no doubt be learnings from it, you know, this doesn't necessarily mean a complete redesign or you have to completely rebuild. Some of these are just tweaks to the operation. And so adding components to the secondary or tertiary designs, those are things that we can handle on the run if needed. But look, we're not really overly concerned about that because our confidence level in the scale-up is very high. We've done a lot of testing on the process side with the FEU to test the boundaries of this operation to know that we are let's say, building it with the right, let's say, contingency and capacity in the right areas. So we feel very confident in our ability to scale. Very good. Thank you.

You know, I want to – sorry, I just wanted to come back to a question that Thomas asked earlier about cost because I want to correct what Dustin said. He admitted that he didn't have information. We'll be coming back, but I think you mentioned 5 to 15 per month. it's going to be closer to $25 million a month. The spend through June is accurate, but our spend on a monthly basis will be more than $5 to $15. I don't know if Dustin was thinking of only one of the lines, but it will be closer to $25 billion per month. But, of course, as we go along, we'll be refining that. So I don't want anyone to think that that is final.

And again, participants, if you would like to ask the question, that's stored in the number one on your telephone keypad. And speakers, we don't have any questions over the phone. Please continue.

Thank you, everyone. Thank you for your time.

and speakers we have a follow-up oh okay i'm sorry and ladies and gentlemen this concludes today's conference call thank you for your participation you may now disconnect thank you