PureCycle Technologies, Inc.

Good day, and thank you for standing by. Welcome to the PureCycle Technologies third quarter 2023 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Charlie Place, Director of Investor Relations. Charlie, please go ahead.

Thank you, Stacey. Welcome to PureCycle Technologies' third quarter 2023 corporate update conference call. I'm Charlie Place, Director of Investor Relations for PureCycle, and joining me on the call today are Dustin Olson, our Chief Executive Officer, and Larry Soma, our Chief Financial Officer. This morning, we will be highlighting our corporate developments for the third quarter and subsequent to quarter end. The presentation we will be going through on this call will also be found under the Investors tab of our website at www.peercycle.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 third quarter 2023 corporate update press release and in our quarterly reports on Form 10Q, as well as on 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 statement. 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 PureCycle's actual results and the preliminary financial data set forth herein may be material. You are 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're excited to share updates from the previous quarter with you. I will now turn it over to Dustin Olson, PureCycle's Chief Executive Officer. Dustin? Thank you, Charlie.

Thank you for joining the call. We are excited to share an important update with you today. Our focus today will primarily be on Ironton operations. While Q3 was a challenging quarter for Ironton, I'm proud of the tangible operational progress we are making. We have adapted and overcome numerous startup challenges thrown our way and continue to push this project forward. One notable area of progress has been in our utilities and solvent operations, which are core to reliability. You can't run without electricity and steam, and you can't run without proper control and solvent circulation. Over the past four months, we've made good progress improving the reliability of both operations, and we believe this will continue to improve. Despite the numerous mechanical headaches, which we will discuss, we have successfully been able to process 410,000 pounds of feedstock through the purification system. While this level is not what we had originally expected, this number does validate that our technology can recycle large amounts of feedstock and remove contaminants. This number could have been dramatically higher if we had not constrained our ability to pelletize, which I will discuss shortly. We are continuing to learn and evolve our process IP, and we're confident that we can control and manage the system. While overall production rates were limited in Q3, we have shown the ability to run high levels of rate across our three operational steps, prep, feed extrusion, and product extrusion. Once utilities and solvent were working reliably, we then push feed rate. During these operational windows, we were able to show the following key operational rates. 14,000 pounds per hour of prep feed rate, which is approximately 97% of nameplate. 9.4 thousand pounds per hour of feed extruder flow rates, which is 77% of nameplate. Note, this was achieved with only one extruder, We have two, and we intend to run both extruders at the same time, and 13.4 thousand pounds per hour, or 109 percent of main plate flow rates across the final product extruder. These are good indicators of the system's ability to run main plate rates once we get our uptimes improved. We expect to see exponential increases in production rates. We've also continued to expand the range of feedstocks we can utilize. We've run four different types of post-industrial recycled material, or PIR, at different melt flow rates, 5, 10, 15, and 20, and also pushed both PCT prep agglomerate, which is RAFIA and SuperSax, and flake produced from post-consumer recycled waste. In addition to showing progress on rate, we've successfully produced on-spec product for our PIR and for various PIR-PCR blends. We continue to test various mixtures of feedstocks in conjunction with product quality so that we can predictably produce reliable offtake for our customers. Getting product to spec was recently verified by our first production shipments to Formera last week and to Millikan this week. These shipments are a key initial step in enabling our customers to drive towards their sustainability goals. One area of nice upside in the quarter was around the development of our plant utility usage. or variable cost. We've closely monitored the electricity and natural gas consumption across the facility during all operations, and it is very apparent that the actual electricity usage is significantly lower than the original pre-construction estimate. While this is still early in our learnings, we are encouraged by the potential here. This continues to support the overall business economics of our facility. Additionally, low current feedstock pricing, competitive variable price, variable cost, and a differentiated product pricing give support for a strong business model. Clearly, the startup in Ironton has not been without challenges. Honestly, as I think back over the last four months and remember all of the challenges that our team has faced, it gives me great pride despite the frustrations. I'm so proud of the technical and operational resiliency of our team. The unexpected design, installation, or operational setbacks that we've faced have been hard often poorly timed and very technically challenging, yet our team persevered. Look, I know it's incredibly difficult for the outside world to see inside of our bubble, and with new technology, the issues often take more time than expected. We recognize that it can be very frustrating for our stakeholders while we troubleshoot through these operational issues. Please understand that the entire PureCycle team is committed to resolving these issues and communicating our successes, but note, It's important for our team to have a clear understanding, resolution, and path forward before communicating to the external market. One area that has limited our production efforts the most has been associated with the absorbent bed leaks, which resulted in bead contamination. I will discuss this more in the next few slides, but it has stalled our ability to achieve any meaningful production progress. We worked through several different potential short-term solutions, but in the end, they just didn't work well enough. Therefore, we are now installing an automated screen changer over the next two weeks, which we believe will significantly change the trajectory of our operations. The screen changer is a commonly used piece of equipment which will enable us to automate the removal of beads and run the pelletizer continuously. Two days ago, we started to de-inventory the unit in preparation for a shutdown that is expected to last for two weeks. This outage is instrumental for our ability to achieve high rates. It not only allows us to install an automatic screen changer, but we plan to also take advantage of the outage to implement a number of improvement projects to fix less invasive but equally frustrating operational headaches. In the end, it is our responsibility to make product and to make profits for our shareholders. And for that, I'm fully committed. After the outage is completed, we will restart the production at 50% rates. We will work our rates toward higher levels with the expressed goal to make 4.45 million pounds in December. We have a well-planned feed and production strategy for that activity. We have seen this progress process work and work well, and we are excited to implement the changes discussed. The key message to shareholders coming out of this update should be that our technology works. We are recycling feed, we are removing contaminants, and we are getting on-spec product to the system. While beads have been a hindrance to production rates, with this two-week outage, we believe that we are better positioned to deliver strong production. Startups are hard. This was never expected to be easy, but we are building more operational momentum. We are also really excited about our product quality. We had good early indication of success that we discussed in prior calls. We showed the side-by-side appearances of the pellets in prior presentations. We are now making on-spec products. Odor, color, both look good across the PIR and PIR-PCR mixed feedstocks. Also note that we completed commercial shipments of our on-spec material to both Formera and Millikan. We're thankful for their continued partnership and excited about the applications they will develop with this material. If you take a close look at the picture on the bottom left, you can see what the pure cycle process is removing from our feedstocks. This is our co-product number one. It represents the contaminants that were present in the feedstocks. It smells just as bad as it looks, but we continue to receive numerous market inquiries for this product in construction, roofing, and other base petrochemical applications. The left picture shows it freely flowing, and the right picture shows it's solidified after cooled. I believe there is no greater example of our technology working than seeing contaminants of this quality being removed from our feedstock. They say it is unexpected that surprises and challenges you. That is certainly the case with this plant. I've worked in polymers for years and I have rarely encountered pelletization problems. They just work. You don't have to focus on them. You just turn them on and they run. As we turned our focus to the production of pellets in August, we knew that clearing construction debris through the extrusion system would be a normal part of the process. And we knew that it could plug the die plate and limit pelletization. So while the initial pelletization runs showed limited success, this was thought to be a function of the continued construction debris and not viewed as abnormal. However, as time passed and uptime on the pelletizer did not show meaningful progress, we thought that the same process tweaks to operational conditions were needed to keep the pelletizer running consistently. But as the problem persisted, we knew we had to go deeper. We have two operational meetings every day, seven days a week in Ironton ever since January 2nd. And I remember one day in early September, all of us staring at the situation and saying, there has got to be something else happening. It just shouldn't be this hard. Pelletizing is supposed to be the easy part, one of the most mature parts of our process. After a deep dive troubleshooting effort, we found the core problem was leaking adsorbent beads. The root cause was a faulty weld procedure across our adsorbent beds. Once we identified the problem, we actively worked to repair the beds, but it was after the beads had already contaminated the downstream system. We thought the problem would have been short-lived. We thought we could purge the system to remove the beads, but every time we changed feed melt flow index or feed rate, it seemed like the beads came back. We tried to MacGyver several short-term inventions. All of these ideas were abnormal, but we kept trying. The first prototype ended up working the best, but it limited feed rates to approximately two hours per day. The second prototype was invented to give more life, but it just didn't work as expected. The purging bin was a good solution and allowed us to purge more volume. It worked really well. It improved a lot of long-term issues, but the beads just didn't go away very quickly. It's hard to express the level of frustration with being able to run this complex system and be limited by the final, least complicated step in the entire process. And parallel to all of this, we worked very hard to find and expedite an automated screen changer. Because of a few inventive engineers and a really good partnership with Krauss-Maffei, we were able to find, engineer, and prepare this project for November. We believe this is the key to unlocking the process and driving production. Most importantly, The screen changer is on site, the engineering is complete, and the project is scheduled to finish on November 22nd. We've overcome a lot, and slide 9 shows a short list of some of the challenges that we've overcome or that we intend to address during the outage. There are a couple key takeaways here. We've solved a lot of operational startup issues. Every single green checkmark represents hours, days, and weeks of work. and smart troubleshooting by our team, but we persevered. We found good permanent solutions, and now we don't think about these elements anymore. Secondly, we have operated the vast majority of plant functions with the new items being added to the list has declined significantly. While it is inevitable that things will pop up, we do not expect there to be any long lead issues with the plant at this stage. Lastly, we are about to fix a lot of nagging headaches. The more challenges that we remove, the better the operations will be. I really spent quite some time thinking about our progress. New technology is just hard. There are no shortcuts. The only way we are going to solve and drive better outcomes for the planet is with the hard work, dedication, and grit of our team. The drive and determination of our team inspires me and I believe will ultimately drive our long-term success. While the most critical work during this outage will be the screen changer, every single project completed during this outage will improve the plant's operability and reliability. As I take a step back and I look at the bigger items that have impacted us this year, it falls into three key buckets. Delayed project closure, five to six months, seal leaks, three to four months, and screen leaks, three months. I don't want this update to turn into a detailed tech talk. but I think it's important to note some of the critical improvements that we've already made. We've endured multiple seal failures across three key seal systems, and each of them required a root cause failure analysis to find a solution and prove it for the future. There's one thing to remember about seals. Once you find the right solution, they run for years. Every time we have a failure, we make significant improvements. Some of them were missed during the original design, Some of the problems were a result of external factors. The power outage was one good example. In all cases, we learned, we fixed, and we improved. Our mixer seal was replaced two months ago and has run without hiccups since. Our Shival bonus pump has run well since the last upgrade. And we expect the Shival mixer seal to run well after the outage. Everyone always asks me, are we getting better? Yes. I emphatically say yes. This slide shows the basic progression from where we were to where we are now. What used to take weeks now takes days. What used to take days now takes minutes. What used to take three people now takes one. And what used to take third-party support is now done better by our team. I can tell you with absolute confidence that we are getting better every day. Old problems are fading, and we are solving the new problems as they come. The number of new problems popping up is greatly reduced, and we expect it to continue to drop. Everyone in our company and our core partners are committed to making this work. As we learn more about Ironton and gather more operational detail and continue to build our Antwerp facility, I would like to highlight two key components to our lifecycle analysis. First, given the reduction of utility usage indicated by the initial Ironton operations, We are showing approximately a 10% improvement to all LCAs across both Ironton and Antwerp. This is an early estimate and we'll continue to monitor the performance and report back to the market. Secondly, note the difference between Antwerp and Ironton. We are so excited to be part of the next-gen district in Antwerp. We already feel like part of the family and community in Belgium, but more importantly, we're excited about our planet. Placing our facility in the next-gen district provides for a very carbon-favorable energy footprint. We will use electricity from windmills, and we will use steam created from biohydrogen produced by a neighbor. When you combine the location advantages with the improvements that we see in Ironton, the facility in Antwerp will provide great product at a very low carbon footprint. At this point, I would like to shift the presentation to Larry Soma, our CFO.