PureCycle Technologies, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to PureCycle Technologies' fourth quarter 2024 corporate update 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Eric Donataly, Director of Investor Relations. Please go ahead.

Thank you, Michelle. Welcome to Pure Cycle Technologies' fourth quarter 2024 Corporate Update Conference Call. I'm Eric Di Natale, Director of Investor Relations for PureCycle, and joining me on the call today are Dustin Olson, our Chief Executive Officer, and Jamie Vasquez, our Chief Financial Officer. This morning, we will be highlighting our corporate developments for the fourth quarter of 2024. The presentation we'll be going through on this call can also be found on the Investor tab at our website at 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. The 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 and forward-looking statements that can be found at the end of our fourth quarter of 2024 corporate update press release that was filed this morning. as well as in other reports on file with the SEC that provides further detail about the risks related to our business. Additionally, please note that the company's actual results may differ materially from those anticipated, and except as required by law, we undertake no obligation to update any forward-looking statement. Our remarks today may also include preliminary non-GAAP estimates and are subject to risks and uncertainties, including, among other things, changes in connection with quarter-end and year-end adjustments. Any variation between PureCycle's actual results and the preliminary financial data set forth herein may be material. You're welcome to follow along with our slide deck, or if you're joining us by phone, you can access it at any time at purecycles.com. We are excited to share updates from the previous quarter with you. I will now turn it over to Dustin Olson, PureCycle's Chief Executive Officer.

Thank you, Eric. And by the way, welcome to PureCycle. The fourth quarter was an exciting time for PureCycle. with continued momentum across our business. This is a testament to the hard work and dedication of our team. And as I look around the company, I can see we are all increasingly energized as we enter this new chapter. Before we get into the specific quarterly details, I think it's worth taking a step back to frame the progress we have made and to share why we believe so strongly in the future of PureCycle. It's never easy to bring a first of its kind technology to the market. but the last year and a half of ramping Ironton has shown the strength of our team through tremendous grit, determination, and innovative spirit. All of this is foundational and will serve us well into the future. With our first meaningful purchase order from Drake, we are now entering into a new period of commercialization of Ironton. I'm incredibly pleased with the progress made so far and excited with what is to come. As we have previously discussed, the potential market for recycled polypropylene is enormous. with virgin markets soon to exceed 200 billion pounds globally. Plastic waste disposal and sustainability continues to be an unsolved problem. Despite pushes from policymakers, polypropylene is still less than 1% recycled on a global basis. Of the polypropylene which is recycled, it is generally done so through mechanical processes and is of lesser quality than virgin. Dissolution technology is a unique technology segment. that fits between mechanical and chemical recycling technologies and more efficiently checks the boxes of yield, quality, and carbon footprint. Simply stated, we believe this technology stands alone. Inside this space, PureCycles technology is leading the market as the only dissolution process which can produce at industrial scale and meet customers' often stringent quality needs. We are thrilled to be in commercialization finding so much success and adoption within commercialization, and believe our success in the next chapter will allow for decades of profitable expansion. The feedback from our customers has been incredibly positive, with many saying that our product meets the qualities of virgin material, and some even saying that our compounds exceed the qualities of virgin material. Our list of potential customers continues to grow. We are engaged in more than 20 trials with more than 10 in later stage industrial trials with significant volume potential. And I'm incredibly impressed by our technical team's ability to meet spec requirements across numerous industries and applications. And let me just say this personally. This has been so much fun. There's nothing more gratifying than seeing a decade of work turn into a product that customers are excited about. This initial phase of development has been time-consuming, but our successful qualifications of new applications is opening large channels of demand for our product that will serve us well for Ironton and beyond. Since we became a public company, we've learned a lot about recycled plastic ecosystem and made many strategic decisions to best position ourselves to capitalize and monetize the incredible opportunity in front of us. What has emerged is a vertically integrated strategy that connects our business from the purchase of bales to the sale of compounded material and then to our customer's product that you see in the store. This approach has several key benefits. First, it is designed to give us control over our own destiny as we enter a nascent and ever-evolving feedstock market. Second, it gives us broader access to customer applications through a compounding strategy. Third, we believe that there are incremental economic returns at each stage of the vertical. This is most clear in our compounding operations, where we see an increasing portions of volumes going, but we also see additional opportunities in feedstock preprocessing operations as well. And fourth, given our technology's feedstock flexibility, we see strong ability to expand the technology globally. This will allow us to create one of the world's first vertically integrated global recycling companies, capable of supplying product to the global brands around the world. We are also very excited about the substantial progress that has been made in Ironton. As I explained at the Ironton Showcase Day back in March last year, we expect operational progress to follow an S curve, with slow initial movements improvements followed by a stage of rapid acceleration. With meaningful improvement in max rates as well as on-stream time, we believe we are in the latter phase, and we have line of sight to moving toward nameplate capacity. As we have brought Ironton into commercial operations, we made the strategic decision to hold back some of the sales to achieve higher value for the product as we sell into the marketplace. We know our resident is PCR compliant, and we know PCR compliance generates values for our customers. We also know that many customers require third-party validation and thus have made the decision to hold the inventory until we receive the certification to maximize value in the company. We're in the process of acquiring third-party certification, expect it will retroactively apply to the 7.2 million pounds of finished product and inventory, and currently expect to receive it toward the end of Q1. I think it's useful to go into more detail surrounding the customer application process and how we proceed from initial interest to a firm purchase order. The first step is an iterative phase of pilot trials, where our technology and compounding teams work diligently with the customer to find the formulation that meets the requisite product specifications. This part's the most time consuming. It requires a very focused discussion to fully understand exactly what the customer requires and is the most complex part of our process that can take up to six months. The good news is that after we qualify a product application with one customer, the timeframe should be substantially reduced and shortened with future customers. We are already seeing this play out with Fiverr, where we accelerated the qualification process with numerous other customers subsequent to our Drake successes. We then enter industrial trials where we run at full-scale production to ensure product viability at the customer's commercial-level volumes. This stage generally takes less time than the initial phase and is usually completed in one to three months, though this also should shorten after initial application success. Upon the completion, the successful completion of this phase, the commercial ramp begins and we can build to fill to full customer volume targets. Our relationship with Procter & Gamble continues to be extremely strong. As filed in an 8K earlier this week, we have recently amended our license agreement, which concludes the North American requirements to secure exclusivity and provides additional exclusivity as we pursue expansion into other regions. This agreement is a testament to our strong working relationship and our shared excitement about the success going forward. We're entering into industrial trials for five different applications with P&G, all of which are well-known consumer brands. This shows we're not only gaining momentum with P&G, we're also gaining momentum with specific brands within P&G. The current goal is for full approval early in Q2, and we will then ramp sales into year end. Note, this is only the first phase of work with P&G, and there are more than twice the number of applications not listed here that are currently in earlier stages. We believe this puts us on track to get the full PG allocation by year end. We are extremely grateful for the collaboration and hard work from our largest partner and excited for what is about to come. We are very happy to succeed in qualifying fiber applications and announcing a commercial order with Drake Extrusion. The fiber market is an extremely challenging application to enter with recycled material. As discussed before, recycled resins typically carry excessive ash and contaminants that makes this a very difficult process. Our purification process was able to remove these contaminants, produce a resin that is greater than 99% pure, and our team worked with Drake to compound a resin that performed like a virgin material, or in their words, better than the virgin resin. We ran industrial scale trials to successfully produce staple fibers and continuous filament yarns. This ultimately led to their first purchase order, which we announced in late January. Drake Extrusion is part of a larger global conglomerate, but the Virginia facility alone that qualifies the pure cycle material currently purchases 60 to 70 million pounds of polypropylene per year. We're excited to continue to partner and look to scale our business with Drake into the future. and we continue to work on other product applications in their portfolio. For those of you who haven't seen it, we've provided a link at the bottom of this slide to our recent interview with the CEO of Drake, where we discussed our relationship and the use of our purified resin in their facility. Over the course of the quarter, we compounded approximately 4 million pounds of material for fiber applications. The Drake purchase came out of that material, and since the announcement, Other customers are also starting to pull on the inventory. We also recently announced our first commercial product line, Run It Back, with Churchill Container. Churchill is the leading manufacturer of all of your favorite local and national souvenir cups and containers. This new product line is made of Pure 5 resin and was able to meet strict product requirements around odor, color, and processability. We are incredibly excited to get this product onto the market, particularly in front of the upcoming baseball season. We estimate that most professional sports teams in the big four sports in North America use about 50,000 to 100,000 pounds of resin in their souvenir containers each season. When you add to that Churchill's presence in college sports, live events, movie theaters, conventions, and convenience stores, we believe the commercial opportunity here is quite large and they could be a significant customer for Ironton. Since the announcement, Churchill has already received the first commitment from a professional sports team and more than 10 other professional sports teams have already submitted inquiries to Churchill. They are a great partner. We are thrilled to see this relationship grow. And while the customers are sensitive to managing the balance between overall cost and value creation, Churchill has seen no pushback from their customers on premium resin pricing. We currently are underway with 29 trials with potential customers, of which 16 on an industrial scale. And this is just the tip of the iceberg. The total potential volume from these trials is, one, is on the total volume potential from these trials is based on one, the applications we are testing, and two, the customer's stated market intentions. And it is approximately 250 to 500 million pounds per year at steady state. We also have customer interest in 42 trials that should begin soon, and these applications could unlock north of 1 billion pounds of demand. The progress that has been made on this front gives us tremendous amount of confidence that we can sell out Ironton in the near future. Success in these trials should accelerate the need for global expansion as our ability to supply our customers stated needs will be constrained. Let's go through a few of these segments. Rigid packaging is the largest market for polypropylene in North America at roughly 3.8 billion pounds per year. By unlocking access to this large premium part of the market, we can go a long way to successfully ramping our commercial operation at attractive unit margins. We are currently engaged in seven pilot application trials and five industrial trials. This includes large CPGs and one of the largest converters in the country. And successful conversion here can unlock over 200 million pounds of customer demand. The flexible packaging market, or FILM, represents a significant opportunity for us. Many CPG customers, many CPG companies have a strong appetite for recycled content, but face limited access to high-quality recycled solutions. Last quarter, we discussed the path for development here, and we have remained on track with those estimates. We've developed a 30% PCT content compound that we feel good about for various flexible applications and are currently engaged in two pilot trials with additional trials set to begin soon. This is a massive, largely undersupplied market with very high demand, and pending the results of these early trials, we are well positioned to capitalize on it. The nonwoven and other fiber markets represent approximately 1.9 billion pounds in North America and roughly 6.8 billion pounds globally. And of that, only 0.3% is made up of recycled content in 2024. We are incredibly excited about a recent success at Drake, and this announcement has accelerated commercial interest across other interested parties. both in parallel to Drake and downstream of Drake. This has shortened the approval process for others, and we are engaged in seven industrial trials, which should be completed in the coming months. This has also created the opportunity to direct sales and market brands that you can find in your local big box stores. The automotive market is another important market for PureCycle to target future sales. The industry's trend in light weighting to improve fuel economy has created the need for increasing plastic content in cars. Currently, there is approximately 100 pounds of polypropylene per car, and we believe it will continue to grow. Additionally, as proposed regulation in Europe and Japan aims to have 25% recycled content per vehicle in 2030. While the final form of the legislation is still to be determined, we see increased urgency to find reliable, high-quality recycled solutions from automotive manufacturers, particularly those in Europe and Japan, and those with global platforms. Europe is expected to produce over 16 million vehicles in 2025, growing to over 18 million in 2030. It's with that context that we are incredibly excited by our successful production of a compound with Washington Penn. to create a bumper fascia for one of the largest global automotive manufacturers. This is a major step forward for our use of recycled content in the automotive industry. As you know, automotive quality standards are among the highest in the world. Using post-consumer recycle or PCR as a feedstock for parts is incredibly challenging for traditional recycling programs. Typically, automotive manufacturers face challenges with paint adhesion, scrap rate, and consistency, or are limited by highly restricted feedstocks when using other recycling techniques. However, with the compound and PCT's product, we see very good success across all these quality components. This application was comprised primarily of pure 5 resin, which was compounded with other non-polypropylene components to make the final bumper. We expect further safety testing to be completed in the coming months with approval scheduled later in 2025. While there is no change in interest from the customer, there is still an open discussion on whether it will be introduced into this model in mid 2025 or in the next model which is slated to start production in late 2025. It's important to note the scale of this opportunity. Global demand for just one bumper fascia on one vehicle model is roughly 30 million pounds per year, with 15 million for North America alone. With this case, both the addressable volume and the margin opportunity driven by regulation has the potential to be a very strong component for the pure cycle strategy in the coming years. The bottom line for all of our commercial activity is this. While initial qualification can be time intensive, It is a necessary undertaking for us to unlock and enhance the value of our resin. To date, we've had good success. And frankly, we've succeeded at every application we've tested, even if it's taken a few iterations to get there. Based on customer interest and success we've achieved across numerous applications, we see even higher demand for our product today. Given the supply and demand imbalance in the market, the high percentage of applications that are FDA, continues to provide the confidence in our unit margins and growth to come. On the operational front, we're really excited about the progress we've made since our last update. We continue to pace Ironton production to match the commercial ramp. We produced 3.6 million pounds in Q4, and there is tremendous improvement under the surface. There are three areas that highlight our increased confidence in the path to nameplate capacity and meeting our customers' needs. We have continued to improve our maximum achieved feed rate. This is really exciting. As main plate capacity is now in sight, each time we reach new heights, we learn more about our facility's potential. Second, our reliability is improving significantly. This is appropriately measured by on-stream time, which is almost 70% in December, a new monthly high. We expect to continue to see quarter-over-quarter reliability improvement, and we'll update the market on our performance as each quarter concludes. Finally, our quality metrics continue to improve as well. This is practically seen in our ability to qualify customer applications, but is also seen in the pellets with improvements in opacity and odor. This is a direct result of the investment that we made in Denver in our flake sorting operations coming online and improved operating performance at Ironton. Running PCR feeds is much harder than running post-industrial recycle, or PIR, and yet the PP we are producing is over 99% pure compared to mechanically recycled product, which is typically in the 90% to 95% range. Given we are now running almost exclusively very challenging PCR feedstocks, this operational progress is even more exciting to our team and really increases our confidence for Ironton and beyond. We also ramped our compounding activities in Q4 to 4 million pounds, which is helping our customer qualification efforts. As I've mentioned before, the domestic market for compounding capacity is in excess, and we secured 5 million pounds per month of local compounding capacity at very attractive unit economics. This is an exciting development and is making the theoretical economic benefit of compounding very real. We are also finding additional sales channels for our co-products from the purification process as well as the excess PET and PE and other saleable materials from our purchased bales. Approximately 5% of our feed to purification goes to co-product one and co-product two, and we see emerging sales channels at the 22 to 55 cent per pound range. This process is still being optimized, but it is a clear and exciting opportunity to further lower our net feedstock costs going forward. We have continued to spend capital on long lead equipment for Augusta, given the progress we see in Ironton. The data that has come out of Ironton has been valuable in developing our plans for future growth. There is a lot of work going on behind the scenes. We are seeing real opportunities to improve our project and technology execution and I can't wait to update the market on our expansion plan soon. This, coupled with our successes in operations and commercial efforts, are the principal reasons why we continue to invest. Let me end by saying that I'm incredibly proud of how far the company has come and even more excited about the opportunity in front of us. What we have seen in the last three months has only further validated the scale of the opportunity in front of us, as well as the potential financial returns for our stakeholders. A company is only as good as its people. We continue to grow our talent, particularly in commercial sales and projects, and the people across the entire company are as energetic and optimistic as ever. This new chapter is an exciting one and a bridge to becoming a unique growth concept, one that can create substantial good for the society and the world at large while generating strong returns for our stakeholders. With that, I will turn it over to Jamie for the financial presentation.