Q1 2021 Purecycle Technologies Inc Earnings Call
COVID-19 Brenner asked of you read the Companys Safe Harbor statement within the meaning of the private Security Litigation Reform Act of 1095 that provides important cautions regarding forward looking statements. David. Please go ahead.
Thank you and good morning, everyone welcome to pure cycle of technologies first quarter 2021, corporate update conference call I am David Brenner, the Chief commercial officer here at pure cycle and joining me today are Mike Wirth jure cycles, Chairman and Chief Executive Officer, Michael <unk>, Chief Financial Officer.
And Olson Chief manufacturing Officer, and Thompson, <unk>, 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 web site pure cycle.
<unk> dot com during.
During the call of 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 maybe 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, and our form 10-Q 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.
<unk> 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 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'll turn the call over to Mike <unk>, Our Chief Executive Officer, Mike <unk>.
Thank you David Good morning, we appreciate everyone's time, who is listening in.
And we.
We are going to be presenting a deck of slides here and I do realize that some people may not may just be calling in and don't have access to visually the slides. So I'll try to talk through them appropriately.
The first slide really highlights the fact that.
There was enormous global unmet need not being satisfied by existing technologies.
The market generally once recycled plastic that can be used without compromise by without compromise.
<unk> can be used essentially interchangeably with Virgin resin can be recovered.
It's the same physical property physical properties of the Virgin resin.
No odor.
Historically, although there have been a number of approaches that exist.
Most recycle of polypropylene can only be used for lower value applications.
And for this needs to change.
With less of 1% of polypropylene being recycled.
It's the it's a wholly unacceptable situation and pure cycle endeavors, the change that and we will change that.
The next slide is titled execution roadmap and so.
You can see the the technology has been in the process of development for over seven years now.
And it was about 2015 debt.
Pure cycle.
The <unk> license for 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 that are out for you in southern Ohio to know where we are working on not only are we are working on building. The first commercial scale plant at Ironton, Ohio, We started line engineering on the future plants.
And are working aggressively toward our goal of 1 billion pounds of.
<unk> installed and commissioned nameplate capacity for.
For pure cycle operations.
Sure.
It is exciting time for us in terms of execution.
We have been very purposeful in how we've assembled our team with expertise that we know can deliver on the execution plan.
I feel very comfortable about where we are the team we've assembled to date.
And where we're going.
Now moving on to slide three.
Im sorry, just the 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.
Of the intellectual property, that's at the core of pure cycle.
I've been a part of evaluating IP portfolios for decades.
This wasn't very expertly assembled.
<unk>.
Consortium of patents and intellectual property.
And.
It is.
Range by.
<unk> Procter <unk> Gamble company in.
It's one of the best I've ever seen.
I also want to talk about Derisking.
We are continually looking for ways, we can further de risk our operations on all fronts.
While the the Muni bond financing for the first plant.
Was took some time and I would say it wasn't without some pain.
Of the things that we went through on 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 off take agreements for the duration of of the bond 20 years. It required us to have feedstock supply agreements for that same duration of 20 years.
We were required to endured.
Very deep technical due diligence.
That is ongoing.
Part of the bond financing.
So.
It did.
Help us from the standpoint of achieving many things probably many emerging stage companies don't need to achieve.
In the set the bar very high.
I also want to touch upon the fact that it was evident to us from a very early date in the development of pure cycle debt what were endeavoring to do and that is transform plastic recycling.
In the case in our case with polypropylene globally is a big task and it would take a consortium of very powerful capable and experienced partners to enable us to do that I couldnt be more proud of the the group of partners that we've assembled.
We stumble we assembled the very thoughtfully in terms of making sure we cover the landscape of areas.
Where we would need help.
Assistance and so all of these partners have done extensive due diligence on onshore cycle. Both from the 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.
Sure.
So.
Again, I would I would.
Good.
I would say.
No that we could've done a stronger job in terms of who we picked as partners and and how helpful. They have been to the us going forward.
So we're going to transition to talking about the technology I'd like the introduce Dustin wholesome, 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 in the playing forward.
Alright, Thanks, Mike.
Yes, so the core of our really 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 developments, but the last three to four years have been focused on operational opt.
<unk> those concepts.
Through detailed engineering scale up activities and proof of concepts in and of sense. What we've done is we've taken the concepts which were very good.
From a white piece of paper and turn them into the reality thats from the field and operating today and ironton.
So as a function of this thing of deep technically based organization for the last quarter. We have spent a tremendous amount of time deepening our internal technical bench and 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 of these people in order to bring true.
To fruition, what we're talking about here are 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 that advises on feedstock evaluations.
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 of the design of the scale up activities for the engineering design package the.
For you is just the fundamental piece of our machine.
And quite frankly, it proves the technology works.
And it works on.
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 taught or toys or automotive or carpets for textiles, it's everywhere.
And so.
The types of 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.
So the three dimensional ridges or the fiber of that comes in carpet and so.
The reality is that polypropylene has been very difficult to recycle because of the versatility of the polypropylene brings to the world. It's a good polymer.
Used everywhere and that makes it difficult to recycle however, 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.
Facility.
The next slide is really a discussion about ironton.
Ironton was a seminal moment for us and pure cycle, because it helped too.
The solidify our path forward with the bond.
And with the ultimately going public.
But the key point is our first facility commercial sized facility, which was 107 million pounds per year and irons and 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 of the long lead items are purchased and.
On track all of our costs are on track on our schedule is intact.
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 <unk>.
Process, but nearly complete.
We're doing a deep detailed supply chain analysis on this site selection activity, which is very beneficial or multi mode are multi module 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 mined in.
We're very much focused on the short term with the credit we're very much focused on the long term with the critical focus on short term milestones.
The last one 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 be.
Building a foundation for digital for pure cycle too.
Two 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 for all of our activities not just the steel in the ground, but also of the work processes and systems that require us to make our company move.
Help us to transition the key infrastructure items from the first plant in the plants to through in <unk>.
And we will be able to develop.
Deep selective data analytics to guide our reliability and our Operability of our operations. This is an accelerant of our growth.
Every company sees the value of 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 thats why pure cycle 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.
Excellent.
All right. So the next slide really is the more detailed discussion about how we plan how we plan to build out the <unk>.
Next set of plants and lines across the.
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 of 107, plus or in irons and 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 moving some key constraints and we're creeping to a new 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.
Fair 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 were building and 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 the 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 and are located.
<unk> that helps us manage the supply chain costs.
Our Europe plant is still progressing and we're very excited to continue moving that forward.
We have pushed that back in the schedule a bit but thats 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 the in the U S right now.
The final point on this slide is really about creating a a package that's built for growth the technology of solid we know it solid because we're operating at the <unk> and we have an aggressive plan to build outs of the 1 billion pounds that Mike talked about by 2020 for 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 of the engineering and the equipment that we need to move forward with that I'll pass to Thompson, our chief sustainability officer to talk to us about feedstocks. Thank you.
Good morning, everyone and that's the khamsin edified the key sustainability of specific curious cycle working with us to build out our feedstock.
The strategy.
33 years of my career in plastics recycling, but this is my most exciting chapter the day.
It has been very little investment in sorting Washington, the type of fruit from the other plastic from the range.
Simply kind of and not part of the market for recycled time for the quality.
The consumer product portfolio to justify the investment.
Michael really changes.
This is key to the revenue leasing we are creating net.
Economically attractive feedstock.
Lots of tears.
Non this drilling demand.
For our first partner.
As mentioned, we have already engaged third party suppliers the cadence for it going forward here of laser okay.
They're taking the development.
The app.
Great.
The current pool.
The type of boutique stock price.
Supplement the supply.
As for allow us to control our own destiny.
Good day economical way.
Now for me to come from creating the supply to feed the profit well into the future.
This feedstock strategy for needs change and Lucky.
Of course comes from criticized collected plastic.
The market recycling facility hit from people from March.
Of the care of plastic residues from call It seven day.
Historically these three from seven down.
It is the China.
In 2018 kind of stopped.
Predominantly landscape domestically Ethernet to go into the market the recycled for success.
With respect from the partnership estimate.
8 million pounds that the space of seven classic revenue and.
In the late today.
Our largest opportunity to acquire feedstock.
Our second is true.
Is the consumer of hyperbole scrap is not collected the curbside carpeting is an example of Dol.
<unk> had the Piper bring back in some of the company has pipe from fiber.
Our cycle has already proven our ability to take the turn out to peers.
We anticipate extended the responsibility policy and legislation.
The supply of feedstock.
It's true also includes plastic waste from a wide range out there.
Retail stores manufacturers, where <unk> has a current these items are things like who these boxes leachate Hello Todd.
The only bucket.
The fact that takeout containers, perhaps the linear and there is so much more to speak of.
Working.
Especially for needs.
Such a sporting event musical festivals and conventions, which create also a lot of single pipe for free rent period.
Of course cycle starts trading expense industrial.
Great.
The day mechanical recyclers already covering close to 1 billion pounds at this type of waste coming out of the actual making type of items, it's back to day to day.
Limited low end application because it's not clarify.
We are the alternative solution for high volume markets for manufacturers to create the space that using their own scrap to create circularity first of all of our industrial scrap it as landfill today can be purified brought back to the original state.
Verification process.
At this point.
We'll open the new <unk>.
For the market translating for more stable and consistent feedstock supply chain.
We will meet the needs of the consumer product companies.
Of the ability for.
The use recycled types of liens that have now.
For the high quality cash.
Mechanical recycling quickly cannot meet this need of loop.
This is why we wanted down out of capacity with production of 1 billion pounds as quickly as possible and demanded already for wheat.
But the off take contracts, we already have.
Finally of course treatment advocacy.
Creating the market, where one day look at it.
For enable.
It's because we have the proprietary the technology.
It's disruptive innovation is all about analytics five most of the.
The here today.
The 30 year.
At this time the traditional of number one the number of key polyethylene carefully and high density polyethylene plastic bottles only because of the clear in Nashville, collecting mainly for packaging.
Okay the market.
The packaging assessing momentum is.
It's very diversified mostly comes in the current for sure.
Sure cycle can take all or not.
This model in terms of this back into the pristine ultra pure pipe.
Taking out directly back into the format again.
Some of the game.
This is huge because the consumer the can.
From a product for penni.
India.
More of their waste recycled when we bring that solution to the largest segment of plastic pipe of lean today. Thank you.
And now you'll hear from <unk>.
Michael the RF Chief Financial Officer.
Thank you Thompson.
Let me try and run a few of few things I wanted 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 10-Q out this week.
Many of you are aware of there has been tremendous confusion on the treatment of spec warrants.
We have decided to update ours.
Non material, but that just the latest 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 or how can we do our build out strategy faster how can we do of cheaper and most importantly, how can we derisk it.
Keeping in mind, the Derisking doesn't always mean, it's faster and Derisking doesn't always mean, it's cheaper.
But we are on an aggressive plan to build out up to 1 billion pounds and we want to make sure that we are doing everything today, which will de risk of 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 the slides you can look at them and I'll reference from as I go through my remarks, I would prefer to have you listened 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 and Ironton, Ohio now there is of monthly report put out on the municipal bond system called Emma.
That is lighthouse, who puts out that report I'm not going to characterize it but I'm going to encourage everyone to read that <unk> 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 of our investors to understand whether you are in the fixed income market or whether you are 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.
Number two in the first quarter, we have really built out the team. We've made a lot of very critical hires both of the corporate level and in terms of the team that Thomson and.
Dustin or of putting together on the manufacturing front. These are very key hires.
Everyone, who is joining us comes with literally decades of experience.
And this is not Ive said many times. This is not of business built on 20 year old. This is of business built on highly experienced professionals like tamsin Dustin and others.
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 from Q4, and Q1 $732 million and we have $570 million on the balance sheet.
The $244 million is if the trustee it's restricted cash set aside for the construction of plant one.
In addition, there's over $70 million of reserves, which are setup.
In order to support the build out plan.
And then there is 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 for 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.
The 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, let me now pivot and talk a little bit about what I see is the important issues going forward and some of the new developments that were either working on or have to come.
First as Dustin talked about the build out here of the critical change in what we've done is to go from a 165 million pound plant two of 130 of why did we do that we did that because that is absolutely consistent with our strategy to derisk. The engineering team that we brought in and our extra.
It'll 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.
<unk> made by southwest Airlines to focus on 730 sevens, rather than running a lot of multiple plants by having a single plant engineer, 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 citing 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. The khamsin spoke about first of all bringing tamsin onboard with Dustin was critical because now we're integrating the feedstock decisions into the site selection. The 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 screams between Thompson's group and <unk> group is proving.
To be very positive and helping us work through that site selection decision.
There is on the feedstock is timpson mentioned, we have already the feedstock committed for plant. One we have existing partners that were 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 <unk> mentioned, we are studying and 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 a number of five polypropylene out of the waste stream and there has been a very simple reason for that it hasnt been economical and there hasnt 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 derisk. The feedstock the decisions for us by also having a parallel route where we can then work to decrease our risk and bring the number five feedstock.
<unk> out and do some of that on our own.
It's a very natural move to look at this.
And we 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 are 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 learned from our experience in working with our customers. Our original model was to start with a index price and at a premium as a percentage to that.
We then also we're able to do fixed price models and what we want to do and what we think is the natural evolution is to begin to discuss with our customers and with the market a model, which is a combination of 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.
We believe our the important margins that we're able to develop again, you'll 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.
The goals remain having.
Having a 1 billion pounds of capacity in 2024, and a 1 billion pounds of production in 2025.
We believe that based on the discussions that we're having the.
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 in 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.
Something that normally the equity investors don't look at and it is very important to understand what's happening there.
Following the closing of the spec transaction the bonds traded up almost 15%.
It is very unusual to see bond spreads tightened in two to 300 basis points.
A relatively rapid period of time since they were done.
I think our fixed income investors many of whom we hope are on this call. They have been very supportive of us and they've done tremendous due diligence.
Let me just.
Now that in looking at our business we.
Have been subject to some of the most excruciating due diligence that I've seen in my career and I have been.
At Morgan Stanley for 26 years, and then wasn't of Investor after that.
We have we have really had fixed income and equity investors are core investors in the pipe and the bond et cetera have done extensive due diligence they talk 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 noticed is that they often don't mention some of the things that I call. The three <unk> the.
The first is lighthouse.
There is an extensive report in our S. Four I encourage you I encourage you to read that report in full when I see an article that doesn't mentioned net report or somehow mischaracterized as it that obviously bothers me.
That is an excellent piece of work I am not going to characterize it here, but you I believe must read that which is why we included it in the sport the.
The second al is the lockup. This lockup demonstrates the commitment of management over 60% of the 83 5 million shares that went to pure cycle shareholders are subject to a lockup, which only relief, which releases 50% of those shares not until plant one in <unk>.
Ironton is commission.
That's very important and only 20% of the shares are released after six months, whereas most transactions be the an IPO or of spec transaction would release of 100% of the shares. After six months. This is the company in the management's way of demonstrating to you the our investors both in.
Fixed income and equity that we are committed and we believe in what we're doing.
Roughly.
The 25% of the shares are able to be released in six months. However, the important number is that almost 44% of all PCT shareholders.
Our locked up until plant one is commissioned and net commissioning is done by an independent group not done by us very important the third out is long term.
I would say to almost all of our investors on all of our calls we are in of marathon. We are not in of sprint. We understand that this is the 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 may of different points of view of what they think of.
It's going to happen in the future. However.
This is of marathon and we know we are in a long term process. Finally, let me say that 117 million shares outstanding pure cycle has 83 5 million shares.
Those are remain locked up the $2 2 million founder shares from the stack, which only represented one 8% are also locked up and that means only 26% 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 who of the of 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 <unk> report, but most importantly, they have not gone to ironton. Many of the investors on this call have been to Ironton, we set.
Investors out to iron tend to see the feedstock evaluation unit regularly. This is of 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.
Open House, where we will invite everyone to come out, but you don't have to wait till the end of June if you want to come out and see ironton and actually look at it and talk to the team. There we will set that up for you as we have for many many others.
And I said personally I would 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 the 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.
Thank you as a reminder to ask the question you will need the quest Todd and the number one on the telephone keypad again that will be tier one line of telephone keypad until we take a question of the county.
Our first question comes from the line of Mila Keith with Oppenheimer. Your line is now open you may ask the question.
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 designed to $130 million can you just help us understand a little bit what makes it easier to go from one of seven to $1 30 versus $1 65, you talked a lot about modularity time to build can you can you without getting too technical.
Give us some additional insight on.
And why this is.
More efficient way to go and then the follow up question of that would really be about capex efficiency.
In your prior presentation for the cluster plan I think you were targeting something around about 30% plus per pound of Capex.
How do you think of that kind of capex efficiency on the plant that the 130 million pounds.
Thanks, Don I'm going to let I'm going to direct the first part of your question to Dustin the talk about the capacity decision and then I'll, let Michael address your Capex question, Yes.
Yes, thanks, Noah so with respect to the 165 versus $1 30, 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 of that design will be.
Based on our expectations for feedstock in operation and product slate and then fixing the edges of the designed to relieve constraints and so the reason the reason that it.
It makes sense as it allows us to stay consistent on the <unk>.
Core of the technology and only work on the edges.
Additionally to that.
Anytime that you're building something the first time you build it will we will likely be the least efficient that you do it.
You got to learn how to make the right.
The REIT jigs derived equipment has to learn more of the lay of the equipment down to moving into the construction phase. This is 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'd like to call. It the 100 <unk>.
Plus it effectively allows us to gain the construction efficiency long lead efficiency procurement efficiencies and ultimately enabled us to accelerate the engineering phase substantially because we are not changing as much of the design.
Yes no.
It's Michael <unk>.
Capex efficiency is very very important to us one of the metrics that we look at is capex per pound of capacity.
The $1 65 for 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 time frames are shortening.
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 is the question for many many people and that's why we want to.
Make sure that people understand that what were trying to find is that optimal size now and building more.
Capacity with smaller sized plants. It means we need to fulfill the few more plants, but once you have the similar sized plant.
<unk> is going to become much easier over time, and we are actually not factored lower costs in the future or shorter timeframes.
Our modeling in order to be somewhat conservative. Thank you.
Thank you Amin just of reflect back.
The plant one was for the correct my figures around 250 million budgeted capex here it sounds like youre going to be sub 200 million per plant.
With.
A good a good amount of higher output so.
That's a very helpful metrics for us to think about the.
Last question I have is really around the feedstock and some of the strategic efforts that you mentioned.
We look at the.
The 3% to seven price.
Per pound versus the.
The cycle bailed polypropylene there is just the huge spread right now I mean, effectively the market seems to be saying, 3% to seven not worth of lot of PPE. If you can pull it out.
A lot.
And so I guess with that in mind can you talk about how.
Some of that spread dynamic factors and then really what is the type of potential investment you would need to make whether it's sort of sortation or other equipment.
To be able to do this sort of separation of Washington yourself.
Sure I'll, let I'll, let tamsin. This is Michael the timpson addressed this question, but I think it is important to understand.
Couple of dynamics anytime Youre talking about feedstock 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 of recyclers feedstock. So you'll hear opinions out there about of 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 but.
One of the things that attracted me to this opportunity very early on was the fact debt.
The 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 I'll stop there and let the let pants and finish answering your question.
Well I would just say the mechanical recycling it wouldn't take that material and ticket straight to their extraordinary expect declining part of it.
Technically we could get it quality.
As I mentioned in my speech, we arent.
The planning to crime sort of wash this material.
And because we have partnerships that we're working with out there we will find other home effectively and efficiently for the other material.
Basically we will be able to mine.
Cost of Piper.
The lower cost format.
And what we're hearing that the 87 it doesn't mean, we won't buy pipe for clean deals where they're available. It doesn't mean, we won't but other sources of postconsumer pipe airplane.
This is just the <unk> opportunity is a need for it.
To find the solution and we can help bring net debt.
Yes, no. It's Michael if I can just add one more short thing to that the differential youre seeing in prices 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 too which is somewhat of a pass through.
Will help protect us against that number one number two that differential you correctly pointed out it 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 its very important for everyone to understand what we earn not.
We are not chemical recyclers, and we are not mechanical recyclers keep in mind mechanical recycling is 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 theyre 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.
Thank you and next question comes from the line of Eric Stine from Craig Hallum. Your line is now open you may ask a question.
Yes, good morning, everyone.
Okay.
Sure.
So clearly your customers are very invested in this and this process what youre doing in your key part of their sustainability goals just curious Allen of they are.
What type of input and planning do they have.
The site selection in the supply chain analysis, and everything thats going into that.
Yeah. Thanks for that question.
It is.
So we look to all of our almost all of our partners to give us their perspective on feedstock right and Thats. When you are 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.
So we talk to those partners.
With regard to what we're looking at in Europe, we will because of the complexity of <unk>.
<unk> Tori.
Considerations and other considerations that we yet to have experience with we will most certainly endeavor on our first plan or possibly for several plants.
And executing them with the partner.
Neither in of co location.
<unk> co location joint venture and of.
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.
Partner for about multiple considerations with regard to.
Kind of final of sites in Europe.
And.
We're doing a lot of analysis of comparative sites.
In North America.
Including an analysis of all of the logistics and involved in the transportation of feedstock to those sites.
So the thing is there anything additional you'd like to add on this question.
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 your shipping feed into the plant.
The analysis is the <unk>.
Complex. So we're looking at a lot of different variables.
Conditions to make the right decision there.
Got it very helpful. And then maybe just more of a well.
The demand question going forward, obviously significant demand when you think about your future plans.
Thanks for that these are made up of your current customers the ones that are really underpinning plant one.
Or do you feel like given the EUR opening.
The or an Avenue thats really not been opened at this point of polypropylene that debt. It will be current customers. In addition to new customers.
I think it most certainly will be current customers plus new customers. There are a number we're getting a lot of interest from vertical markets that we havent even penetrated at all in terms of our customer set for the first plant.
And so.
Not trying to make the task any harder or any riskier than it needed to be for plant. One we largely settled on for for a large.
Tonnage of the offtake for for one I would characterize in the kind of mid line kind of spec for the CPG packaging.
But as we go the subsequent plants will continue to service those customers.
But there are many other verticals of automotive aerospace.
Transportation in general a whole host of others.
And of that we're talking to on a daily basis.
And so I think youll see a rapid expanse expansion in terms of breadth of customer sets as we move the plants two in the op.
Got it and then maybe just the follow up to that is I mean since this whole process started or a sense of the planned merger was announced I guess it would have been in October of <unk>.
Moving to compare on just how that pipeline has expanded.
The details would be great. Thanks.
This is David Brenner.
Yes, I would say at this point there are a series of concurrent discussions both with current and future partners.
We're not at the point <unk>.
This afternoon or this morning, where we'll dive into details of those numbers, but we will be providing updates in the coming months.
Okay.
Next question, we have from the line of Gerry Sweeney from Roth Capital. Your line is now open you may ask the question.
Good morning, Thanks for taking my call I, just wanted to touch back on feedstock and I know, we've talked about quite a bit.
Did you find it has been a critical point of conversation I had can you just.
Maybe explain a little bit more about the opportunity for a cycle brings.
Cycling of used polypropylene versus.
Down cycling.
Essentially prevalent in today's market.
All of the levers that really provides.
True cycle of what the opportunity to expand the feedstock base.
Thanks, Jerry I'll, let <unk> speak to this question, but.
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.
Even though.
Polypropylene is recycled out of shockingly low rate of less than 1% even for the 1% Thats recycled it's kind of the use of the the sports analogy one and done.
Most of that is sorted by virtue of optical scanners, who can't discern between different resins that the black so if it's being recycled by mechanical recycling and its turned black what typically happens.
Can't be recycled again, so it's a bit of recycling death sentence the be recycled even once.
Very obviously very poor situation.
And in our case with pure cycle.
We can recycle.
Polypropylene essentially indefinitely.
With an indefinite number of cycles, which changes the whole game significantly.
So I think thats, an important thing to realize but.
I'll, let <unk>.
Net Thompson and make any comments she thinks irrelevant.
Alright. Thank you made a good point about a lot of it to the characterization of the black application. So we do see most pipe hopefully net trade cycle today mechanically very few used hot wash it.
They haven't put the investment and because the end market it could pay a higher price which comes into the packaging for them.
Haven't been able to buy that type of recycled types of things in the past, mainly because of its cray and has an odor.
The chicken and the egg they could possibly put in hot losses to get rid of some of the owner from Novartis nation, which a couple of the done to get rid of older. But they are still stuck with a great product and you've got some mechanical we thank thanks for putting in optical sorting to make specific color that.
All of that can do is make a shade of shade of blue shaded green Shanghai, the yellow and then quite often a large amount of current heads to go back into that to collect correct. It for the color of the consumer credit company. If there is any use of recycle.
So they've got variability that they have to deal with the other thing is.
The recycler the in mechanical has been kind of focused on it specific format as you've seen.
Our recycled and they don't want 10 reforms bottles of recycled and they don't want.
The difference of the pure cycle has it we can take all of those different formats and also removes the color in the outer the kind of got three little bucket. It really put US ahead of the traditional mechanical recycling and that enable the take different format.
Being able to take different colors, and then take it back to of natural so they can be used in any type of application for color.
Also by removing the other we're also removing a lot of the absorbed chemicals. So we bring it back to the fifth grade material.
That much integrate Elena of <unk> from mechanically recycled today. So this will be a huge accomplishment to bring to the market to make it. So that can go back into the packages that we're recycling it became really creating secularity is key.
And because of the mechanical recyclers are generally limited.
Terms of their capability they reject a lot of.
The recycled material that they do buy.
And I had a conversation recently with the.
With the supplier of feedstock, who was selling to one of the larger players in recycling, who said hey, yes, they buy from us, but they reject as much as 40% of what we ship.
Obviously this is the big problem with regard to the whole of efficiency of the recycling process in general.
And it's obviously helpful. When your process can can successfully deal with a much broader spectrum of feedstocks and still make an extremely high quality product.
Got it Super helpful.
Thank you. The next question comes from the line of Barry Haimes from Sage asset management. Your line is now open you may ask your question.
Thanks very much.
Kind of couple of questions one is.
As to the full scale plant at Ironton and think about.
The key parts of the process and where.
You could have some scale up for risk.
Could you talk through that a little debt.
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 of that data from the first plant and then I have one other financial question. Thanks.
Thank you for that question and I will let us and also address your question.
Yes. So thanks for the thanks for the question I think the the first way to answer. This is that we do have a proof of concept up and running in irons and today, we serve feedstock evaluation unit. Okay. So it is working.
We make we bring traction of all shapes and sizes and we make beautiful polypropylene on the backside. So so.
Many times, when you're talking about new scale technology.
Taking it from paper to the field.
Probably the biggest most critical steps, sometimes what you think will happen on the paper wont happen in the field and you learn it at that stage, we're past that because we have the <unk> up and running.
When it comes to scale up of concerns.
And there is no doubt that as we started the for you and we worked through the growing pains of getting that plant up and running there were some okay. There were some.
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 of the filtration and we've tried various mechanisms, but we worked through those okay, and so I would say that.
For sure.
Have been.
Let's say technical items that we have worked through the <unk> and that has advised us on how to design. The commercial plan. Okay. In some ways actually the commercial plant is going to be.
Less prone to some of the problems with the after you had in the early stages because of its scale and of its size.
The second portion of your question is really.
How 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 okay and so I have I have pretty high confidence.
But the pots and pans that we're putting together are going to work properly because of its pretty well known technology. Okay.
And there were outside engineering resources brought in to opine on.
On the process and its design, even before we acquired the license and I think it's important to understand important to understand that there is no here to for unknown magic going on inside inside any of the unit operations that comprised the system in total.
It is a unique assemblage of unit operations that have existed and manufacturing processes of different types.
In some cases for decades, so so.
There was the when.
When you looked at the list of unknowns with regard to the technology and the system.
Really wasn't such that you would be so worried debt.
You wouldn't want to.
To go to every last step of detail to make sure Oh, well, let's make sure that all of 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 has been this decision has been made with a lot of careful consideration and with the advice of.
The existing industry partner the deal with similar processes that involve temperature and pressure and with some of the world's best Engineering resources.
Half.
Opined early on in the development of pure cycle and continue to do so to this day.
That's extremely helpful.
And again, maybe just the timing of planned too and then my other question was could you just remind us.
What's the expected revenue and EBITDA would be added the original iron from plant at the 107 level, but then even more importantly, the $130 million prototype or for subsequent design. Thanks.
Because of just just to answer your first question and completion.
We do intend to break ground on the second facility before ironton is up and running.
And thats 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 <unk> and the work that we've done with the experts around the.
Around the world the plant through timing.
And plant two timing.
Plant two is expected to be up and running in the first half of 2023.
Okay.
Michael will answer the.
The question at this time for please.
I'm, sorry, I'm, sorry, operator, just to answer Barry.
Other question Barry the revenue on the $1 30 would be about 94, and the EBITDA would be about 50.
Sorry.
The net with iron.
Sorry go ahead operator.
Alright, there are no further question at this time discontinued the standard.
We have no more question.
Okay. Thank you everyone. We appreciate your time and as Michael mentioned, we will be hosting.
An open house for investors that will be.
Determined the day soon it will be late June and we would welcome anyone who hasn't seen.
Our facility and how it operates the come and see it and.
And.
We as we said we've been open about making it available for people to see and hear and smell and we will continue to do so in the future. Thank you.
Thank you ladies and gentlemen that concludes today's conference call. Thank you all for participating you may now disconnect.
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