Q2 2022 Purecycle Technologies Inc Earnings Call

Yeah.

Good day, and thank you for standing by welcome to the pure cycle technology second quarter 2022, corporate update call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session to ask a question. During the session. You May Press Star one one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Charlie place director of Investor Relations. Please go.

Right.

Thank you Victor welcome to pure cycle technologies second quarter earnings update conference call.

Charlie place director of Investor Relations for pure cycle and joining me on the call today are Dr. Olson, our Chief Executive Officer, and Larry Soma, Our Chief Financial Officer. This morning, we will be highlighting our corporate developments for the second quarter.

Reputation will be going through can also be found on the investor Relations page of our website at www Dot <unk> Dot com.

Many of the statements made today 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 second quarter.

2022, corporate update press release and in our filed quarterly report on Form 10-Q filed yesterday as well as our other reports on file with the SEC 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.

Except as required by law, we undertake no obligation to update any forward looking statements.

Our remarks today May also include preliminary non-GAAP estimates and are subject to risks and uncertainties, including among others changes in connection with quarter ended year end adjustments.

Any variation between the company'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 joining us by phone you can access it at any time on pure cycle Dot com.

We are excited to share updates from the previous quarter with you.

Now I'll turn the call over to Dustin Olson sure cycles, Chief Executive Officer, Dr. Adam Yes. Thanks, Charlie Good morning, everyone. Thank you for joining us I'm thrilled im thrilled to be with you today for my first corporate update as CEO first off I want to thank Mike Wirth, our previous CEO for his dedication over the past seven years, taking pure.

Cycle from an early concept to a publicly traded company I am excited and honored for the opportunity to lead pure cycle. During this important time as we transition our operating and global expansion growth and growth strategy.

Our flagship irons and facility remains on track.

And continue to expect pellets by year end, the first phase of our Augusta purification facility is planned to ramp to full capacity in 2024, and our global expansion efforts continue to advance in South Korea, Japan and Europe .

Our ironton feed prep operations are in commissioning and are expected to start coming online in Q3, 2022, and our plans for prep expansion beyond iron are progressing very well we are developing three regional feedstock prep facilities, along the east coast to supply Augusta purification facility.

<unk> one in Central Florida, one in Eastern Pennsylvania, and one co located on the Augusta site, we will discuss this in more detail later.

We continue to successfully execute our feedstock acquisition strategy in the second quarter, we secured additional feedstock LOI that expected that are expected to yield approximately 111 million pounds of recovered polypropylene to supply the Augusta purification facility, which combined with our previous feedstock.

<unk> brings our total feedstock commitments for Augusta to 329 million pounds, representing in excess feedstock supply compared to our full capacity purification processing requirements.

We continued to diversify our feedstock sources in the second quarter through our peers Euro program.

This program is expected to provide organizations companies communities and events and opportunity to eliminate plastic waste from their venues and create a truly circular environment.

We received the pre notification letter from the FDA for an agency opinion and Elano on two different feed streams.

Ironton Offtake is sold out.

The lines, one and two are 70% allocated and we have 205 million pounds of offtake in final contract negotiations to fill the remaining 80 million pounds of capacity for Gus the lines, one and two.

As we approach commercial operations, our sales team is actively coordinating with numerous brand owners on specific projects for their product applications.

Our finance team has taken the next steps for our financing efforts to fund Augusta lines wanted too and the three east coast prep facilities, we've allocated $173 million from the Augusta project to support the project execution with expectations for full commissioning in 2024, we.

The second quarter with $516 million in total cash and investments move.

Moving to slide four.

Scaling our operations remains the principal strategy for the company, we remain focused on the mechanical completion of our iron facility. This year with ramp up in 2023, and completing phase one of our multiline Augusta facility with ramp up in 2024 <unk>.

Additionally, we continue to deepen our relationships with SK geocentric in South Korea, and Mitsui in Japan to develop pure cycle purification facilities in Asia. During Q2, we had the pleasure to visit the SK team in South Korea, and the opportunity to visit both their global R&D facility as.

Well as the future location for this joint venture.

Phase.

Phase two construction and Augusta, representing lines, three and four our South Korean facility and our European facility are expected to start and ramp to full operations in 2025.

Our Ironton project remains on track, we expect mechanical completion in the fourth quarter 2022, followed by initial pellet production by year end. This is consistent with our previous messaging and also consistent with the timing established over two years ago our entire.

Team.

Very proud of this achievement given the market headwinds experienced during COVID-19, lockdowns and supply chain disruptions and inflationary pressures.

We're in the final phases of construction with 14 or 26 modules delivered and lifted into place. This continues to validate our modular construction strategy and confirms our assumptions for installation Pearce.

Pure cycle is nearing completion of feed prep build out and full commissioning is underway. There's a lot of work to do at ironton, but we are on track and gearing up for a successful startup.

Peer cycle has been nimble and adaptive to challenges during this process and we will continue to adjust and recalibrate as needed. We have the right team we have the right attitude and we're ready to go.

During this moving to slide six during the second quarter, our engineering procurement and construction activities at our first multiline purification facility in Augusta.

Continued to make progress with current projections anticipating mechanical completion startup and full commissioning to 2024. This is a slight change from the previous estimates due to current economic and supply chain conditions, but it's essentially on track.

Longtime long lead equipment has been ordered key construction contracts are in place and preliminary site work has commenced the pure cycle team is integrating lessons learned and improvements from iron into the Augusta project, which we fully expect to improve efficiencies across every activity.

We have leveraged the same key strategic partners for Augusta that we've been working with for several years and our iron facility working with Coke modular process systems denim glide Gulf spend Emerson and Krauss Maffei gives us increased confidence in maintaining projects schedule. During this peer.

The substantial supply chain challenges our partnerships are yielding benefits, we have been able to improve safety navigate scheduled changes and increased cost efficiency.

Moving to slide seven we are developing three regional prep facilities, along the east Coast. This is a key component to our overall Augusta project because first the locations are expected to provide transportation efficiencies.

The overall project creates the necessary recycling infrastructure for sorting grinding and washing.

And third the assets create a platform for reliable and valuable offtake partnerships with feedstock suppliers.

Pure cycles first regional prep facility in Central Florida is approximately 90% we anticipate the annual sorting capacity of 115 million pounds of mixed plastic we are working through a few final construction and equipment delivery details, but still expect operations to commence in Q4 of this year or early.

<unk> next year.

Additionally, we have made progress on plans for additional facilities to supply Augusta, we have selected two locations Denver, Pennsylvania, and we will co locate a prep facility onsite at our Augusta, Georgia purification facility.

We anticipate the prep facilities in Denver, Pennsylvania in Augusta, Georgia to be operational in the second half of 2023.

Denver, Pennsylvania facility is designed to have number one to seven Bel sort capacity of 175 million pounds annually and the Augusta prep facility will be designed to have a number five bail sort capacity of approximately 263 million pounds and also wash capacity of <unk>.

Up to 331 million pounds annually.

The overall prep asset design will allow us to purchase mixed bales also known as 1% to seven or 3% to seven and also low quality and high quality number five polypropylene bells. This asset base will become an easy landing spot for all waste handlers in North America.

Moving to slide eight we're making real progress on executing our prep strategy decisions made one to two years ago are coming into view as assets go in the ground.

<unk> prep operations are in full commissioning now and on track for startup in Q3 of this year you can see in one of the pictures that commissioning bales are being run through the equipment.

We expect our first regional pet facility in Central Florida to be complete by the end of this year or in early Q1 with ramp up to full operations in 2023.

And as noted, our Pennsylvania, and Georgia facilities, our anticipated startup in the second half of 'twenty three.

On slide nine.

<unk> continues to strengthen its relationships in the marketplace.

As a result, the two lines for the Augusta purification facility are fully supplied with 329 million pounds of recovered polypropylene under LOI. We are oversubscribed for our first two lines in Augusta. Our teams are now focusing on securing feedstock for Augusta lines three and four.

As reported last quarter, we are diversifying our feedstock strategy focusing on Etsy, you R&D efforts on targeted untapped waste streams and developing strategies to create new resin solutions across different market channels.

Our born digital strategy is also being designed to optimize our feed management. This includes helping us track feedstock from source to final product. This level of transparency is important to our customers and their stakeholders. We are also developing asset optimization strategies to create unique EPR gray.

AIDS across different purification lines.

The commercial team continues to build our offtake pipeline at this time, our Augusta purification facility.

Our allocated to 70% through various multi year commitments. Our team is actively working with brand owners to develop specific plans for consumer product applications.

We're seeing strong contracting momentum to fully allocate Augusta lines, one and two we currently have 205 million pounds of offtake in final negotiations for the remaining Augusta allocation.

The market's continuing interest in pure cycles <unk> resin is demonstrated through the full offtake allocation ireton and the acceptance of its feedstock plus pricing model being implemented at Augusta.

Moving to slide 11.

We've completed the first step in a multistep process with the FDA as such we received a pre notification letter from the FDA on two different feed streams the pre notification.

Pre notification confirms that pure cycle will receive an agency opinion butter for the use of food grade postindustrial recycled materials for all food types under conditions a through H. The FDA also confirmed that we will receive a letter of note no objection elano for all food types under the condition of use E.

<unk> for food grade post consumer stadium trash recycled materials. This was a collaborative effort with the FDA. Our teams closely work together to define the process required for current and future polypropylene approvals. We also spent significant time informing the FDA about the benefits and unique.

<unk> potential of the pure cycle technology to achieve superior product quality, we now have a clear understanding developed to achieve future feedstock approvals.

This is great news for pure cycle.

The first time that we have worked directly with the FDA and we see this as an opportunity to familiarize the FDA with our purification process and technology, helping to establish a baseline testing methodology for recovered polypropylene. This will be an iterative process to achieve the approvals on additional feed streams pure cycle plans to conduct.

Additional testing at the <unk> to expand the feedstock application qualifications and make further <unk> submissions for additional post consumer recycled sources and expanded conditions of use our targeted streams will include curbside and other underutilized feedstock. So we can leverage our <unk>.

Technology to reduce landfill and incineration I will now turn it over to our CFO , Larry Soma for our financial update.

Yes.

Great. Thank you that's in.

Please turn to our second quarter liquidity and balance sheet on slide 12.

We ended the quarter with just over $516 million in total available liquidity.

During the quarter, we continued to make significant investments in our IL 10, Augusta and craft facilities.

Juruti of which came from unrestricted assets.

Cash and debt securities available for sale decreased from March by $68 2 million.

In order to advance our Augusta Multiline and prep strategy, we made deposits on long lead equipment.

Further the design and construction for both the purification lines and the prep facilities that we provided updates on earlier in the presentation.

That accounts for almost $37 million of the second quarter investments.

We also continue to run our corporate and pre operational businesses, which means we incur payroll and benefit costs, which were $6 $3 million during the second quarter.

We had $8 million of cash used for normal corporate operations, such as insurance professional fees and various other expenses.

Now, let me comment on the cash invested in the iron plant as we are nearing mechanical completion later this year.

Previously we have disclosed that we expect the project to be $55 million to $65 million over our initial budget.

At this stage, we are maintaining this position.

These additional project expenses are funded from our unrestricted cash and we spent about $5 $6 million this quarter.

Additionally, we are required to replenish certain amounts.

The amounts of our iron from bond funds from unrestricted cash and so we transferred $11 $5 million from.

Strictly cash to restricted cash.

We also made payments of $27 5 million.

Directly from our project funds.

Let's now turn to slide 13.

Pure cycle continues to build on its operational momentum and execute against the strategic growth plan.

The operational startup of our flagship facility in Iron 10 remains on track and marks a significant milestone and peer cycles commercial path to addressing the global plastic waste crisis.

Clear cycle continues to build operational momentum and a number of key areas.

I intend on track for Q4, 2022 pellet production Augusta construction underway.

FDA pre notification letter.

We will receive an agency opinion letter for the use of food grade postindustrial recycled materials and an LLS for post consumer stadium trash.

I intend offtake fully allocated and Augusta first two lines, 70% allocated.

100% of Augustus feed stock for the first two lines are under LOI.

The feed prep execution strategy is on track with IL two startup in Q3.

Central Florida later in 2022 or early 2023.

Both Pennsylvania and Augusta in 2023.

We continue to broaden the end applications are pure cycle resin through converters and specialty compounds.

We ended the second quarter with $516 million in total cash and investments.

And most importantly, we broaden the experience of our board and we continue to recruit top talent to the organization.

We look forward to updating the market with additional relevant information with respect to how we are executing our strategic plan, which will include a further update on the Augusta debt raise process as soon as we are able.

Thank you for joining us on the call today, and we'll now open for questions.

Thank you at this time.

I ask a question you need to press star one on one on your telephone.

Once again Nexstar, one one <unk> component the <unk> roster.

Okay.

Our first question will come from the line of Hassan Ahmed from Alembic Global Advisors. Your line is open.

Good morning, guys.

A quick question around pizza.

Feedstock sort of pricing as well as availability.

Obviously, you guys did a very good job.

Explaining to us that.

Lines went into feedstock for that is oversubscribed.

Just wanted to sort of.

Here, what you guys are seeing in terms of sort of discussions.

With regards to availability be there with regards to pricing for the other lines, particularly keeping in mind. All the logistical issue is that we are seeing keeping in mind, the inflationary environment and the like.

Yes, Thanks, a lot it's honest with us and I think that's a good question I think the differentiator for US is that our technology really opens up our ability to use a wider swath of feedstock in the market.

So while we we agree that there is.

Active <unk>.

<unk> in the market for some of the spot pricing for number five sales that doesn't really illustrate the.

The availability of product that's outside of that stream and so we feel like we're in really good position on the one side, we have a feedstock plus pricing program that effectively insulates us from the variability in the number five bill.

On the other hand, we've got a technology that allows us to dig into feedstocks that others can't touch and so.

We're in good shape for Augusta lines, one and two and we're not prepared to speak about the details yet for lines three and four but we've got.

Got a few very active discussions with feedstock for three and four that were going be excited to share in the future.

Very helpful.

And as a follow up maybe for Larry.

Obviously, a recessionary abound.

Abound.

Rising rates and the like so.

What are you guys seeing on the capital raising side of the photo obviously, the world's changed a fair bit over the last couple of quarters.

So any any any sort of color around that would be appreciated.

Yes.

We are.

We as everybody look at rates every day and.

Mentioned in the press release that we have a process that's underway.

Since we started looking at this several months ago.

You can see that the 10 year Treasury has moved up at least 100 basis points. So that's real but at the same time that the projects that the projects that we look to fund our very strong cash flow models, which give us an opportunity to keep the spread over <unk>.

Treasuries pretty tight.

Tight relative so.

Well it is pressures from an up trend in rates.

It's not really material so.

We feel like we're in good shape.

It doesn't it doesn't impact our future plan and.

So thats, where we are.

Very helpful. Thank you so much.

Kidney care.

One moment for our next question.

Yes.

Yes.

Our next question comes from the line of Noah Kaye from Oppenheimer. Your line is open.

Good morning.

I'd like to start by zooming in on the FDA approval process.

I think it'd be really helpful for you to give investors a picture of how important.

Getting this letter.

<unk> four.

Ironton, specifically and I got to as well how important getting that approval for post industrial feedstock and.

Stadium slash it how much of the feedstock youre planning to source kind of already qualifies or falls into that category and then maybe talk us through how you see the profit playing out from here.

Yes, Thanks a lot.

We're we're very excited about the progress we've made with the FDA. It's I think it's important to step into the process a little bit.

This initial discussion with the FDA was really.

To level set so they understood our process and technology and we understand what they needed to see in order for us to move forward and so there was there is a lot of collaboration and good discussion and in some ways. The FDA hasnt seen a technology like this for polypropylene and many scenarios.

We were able to advise one another on how to do this process better tighter more efficiently in the future. So on the first on the first point I think that what we'll see going forward.

Shorter cycle time with the FCA.

Because I think just theres a lot of time spent getting to know one another and I think that now we understand what they're looking for and we'll be able to slide the information to them in a more efficient way with respect to your specific question.

When you think about the offtake partners that we have they have a pretty big appetite for polypropylene in general, Okay, and they sell across lots of different market channels and so what we're able to do in the interim.

Is work with them.

To source applications that fit into the FDA approvals that we have.

And then as we gain more and more and more approvals then we'll be able to widen that out to get to.

So therefore their full portfolio. So I don't see I don't see really any risk to our current offtake position with ironton, because we've got flexibility in our contracts in order to move the product into the lanes that they see fit.

But then I think more importantly, I think that getting the approval that we've gotten now it really gives us a lane to go get additional approvals across more feedstocks and a wider application of use more quickly and I think youll see that <unk>.

The coming months and quarters, just more and more and more adoptions of <unk> for different product lines.

No its Larry I, just wanted to add one further thing and that is almost all of the iron 10 contract for supply are post industrial I.

I think thats been said that but I just wanted to clarify as well.

Right right.

We're effectively going to be covered on the.

The feedback that you have the iron.

Just want to make sure that pointless understood by everyone.

So congratulations on that.

The operational update maybe maybe you could talk a little bit about kind of from the last pieces that need to fall into place here for irons in.

To turn online and then we will.

I'm sure revisit this in the November call, but just how you are currently thinking about the cadence of the ramp as we get into the first half of next year.

Yeah, that's great. So.

You can appreciate I mean, theres a lot of moving parts on a project of this scale and size and given the environment that we're operating in it's just it's just a daily battle to hold schedule stay.

Stay on track because there is just there's just a lot of moving parts.

But again I'll reiterate.

I'm very very happy with our partners. We've made some really nice strategic relationships in key areas like in the electrical construction space, that's really allowed us to bypass a lot of the pain. That's felt by the rest of the industry. Because we have partners that are putting us first and so honestly that's one of the reasons.

We've been able to hold schedule in irons, and we're very proud of that because we've got partners that are standing behind us and really really going to battle for the components that we need.

This can be one of those things, where you really charging forward and you get to almost everything done and then you end up with a punch list of activities that you've got to close before you can get started and so.

We are actively working let's say multiple critical path lanes to ensure that we hold the schedule, but I will tell you.

We continue to let's say zero in on with more and more certainty every month the mechanical completion in Q4 with pellets by the end of Q4 with respect to the ramp up for iron.

When we talk about this most people assume that the ramp up that we've stated which is effectively a nine month linear ramp up.

That plan most people assume that that's everything to do with.

That plan most people assume that that's everything to do with technology and the scale up and all of that.

It's really not I mean, we're very confident in the scale up in that activities. There will be operational things, we'll have to work through but technology is solid and that will go fine.

The things that people don't think about our that we have to continue to work the feedstock ramp ups that will go fine.

The things that people don't think about.

We have to continue to work the feedstock ramp up plans so that our feedstock suppliers can go from zero to 100% on the feedstock ramp and the same thing with our offtake, we're going to have to continue to work with the off takers to start taking material start making applications and grow that as well and so the nine month ramp up.

Plan for Ironton is longer than Augusta and it is really pivoting on three things a ramping the feedstock up to our contractual plans be getting the operations up running tuned up and running reliable and then see making the pellets pushing it to the to the.

The off takers.

And getting them comfortable with an.

Reliably taking a material so those three things we're working on and I'll, just say that we've made great progress across all three fronts, we're starting to take feedstock into irons and now as you saw with some of the pictures, we're having detailed discussions with the off takers about okay. In theory, I want to take X million pounds of <unk>.

But in practice, it's got to go to this piece of equipment and so those details we're working through right now and we're we're very happy with the progress and I think we're on track to to at least meet the ramp up plan that we've stated.

Terrific. Thanks for the color.

Thanks, Don.

Yes, one more for next question.

Okay.

Our next question will come from the line of Eric Stine from Craig Hallum. Your line is open.

Hi, Larry.

Eric.

Good morning.

So maybe just a little bit more on the FDA and I ask this just because you don't have full knowledge of.

How deep that classification set is.

I know ultimately I mean, your goal would be if you've got.

If you've got all of those classifications covered then whatever whatever feedstock you've taken can supply any customer. So I mean is there a way to think about this with what you just announced today I mean, how far as you how far does that get you to your ultimate goal.

So that you can fully meet the market opportunity.

Well I mean, so we're not at our final goal. Our goal is to have let's say ultimate feedstock flexibility with all classifications a through H. Okay. So that's our goal that's where going forward and that's what we're on track for.

Okay, what we've done with the FDA over the last really nine months is charted a path for how to get there okay and so.

This is going to be an iterative process because the FDA has really got to get comfortable with.

How you are using the product how your technology works before they'll get comfortable with and I know and quite frankly, this technology and the level of purification that we're bringing to the molecule.

It's just it's just unprecedented relative to others that have gone before and so theres a lot of education that has to happen with the FDA. The most important part is that we were able to get in Illinois at the initial classifications and we have a path to go get more so.

I feel very confident that the.

The learnings with the FDA is going to lead us to the rest.

Okay.

So the <unk> is for EG <unk>.

Ultimate goal is 8% <unk>. This this gives you a lot of confidence that <unk> got a pathway to get the entirety of it.

Yes.

There are several operational reasons for that I mean, some of it has been procedural where we followed some procedures from FDA testing protocol and they were built for other molecules not so much polypropylene. It will have to adjust that for the future, which will improve the overall performance. Other part of it is it's just the FERC.

Feed that we tested and so as we test more and more feeds and prove to the FDA that the product quality between different feedstocks is indistinguishable then we'll get further <unk> for additional feedstocks and so this was a very good first step.

To get what we got and I think the most important thing is that there's a great understanding between the two organizations Theres an open dialogue and there is a path to short circuit the discussion in the future and continue to move forward.

Okay No that's helpful.

Maybe just turning to Augusta.

And I know the off takes I think you have 70% allocated but laid out there's a lot more behind that things that are being finalized and then our pipeline beyond that.

I mean, any any of those potential off takers.

Are they waiting on this.

Letter of no objection I mean, how does that plan.

Potentially closing on some of that activity to get it.

On a full off take position.

I think it is helpful. I think that it will give confidence for a path to moving forward to get the FDA.

No I think up until the point of getting this <unk>. It was very theoretical and so yes, there's definitely.

And appreciation for what has been achieved so far but I'll also point to the fact that.

As we continue to widen our offtake portfolio and introduce our products to more and more customers. We find a lot of customers, who don't need FDA LNR.

<unk> is like an indication of the quality of the product, but theres a lot of customers say for instance in automotive.

Needed at all and so as we get into Augusta. The <unk> will certainly help on different offtake allocations or just different discussions, but we're broadening that discussion beyond consumer products and <unk>.

Two applications that don't need it and quite frankly.

We're seeing very good interest in our products.

Good value.

Across the across the entire market spectrum, regardless of channel.

Got it.

Maybe last for me just on Europe , I noticed that in South Korea, and Japan, <unk> got named partners and I know that Europe has been one where even if you go back a year plus a lot of the ironton off takers were involved or are involved in looking at the ideal location in Europe , So maybe just where the.

Where that stands and then I know that.

Leno here.

Thought would be helpful in terms of getting into the European market.

Yes, that's a great question.

So as we got into the discussions around Europe . There was a lot of discussion about different partnerships and who would be worked with and I'm going to keep that very confidential at this moment and just say that that'll be a subject for future announcements.

But.

Anytime.

Anytime you get into discussions with jv's or with partners.

There's always a level of work that you need to do on your own to prepare for it and so what we're doing on the European front is really building the case.

For this activity.

Kind of within with independence in mind, but with the opportunity to partner with others in the future. If we so choose okay. So I'm not going to speak too much to potential partners that we may or may not have in Europe .

But more to the process.

As we looked at feedstock available in Europe , and I would say that the same discussions in Europe are applying in the U S.

Yeah.

There's a lot of feedstock in Europe that cannot be used by traditional recyclers and so thats an active field for us to target and that's the same in the U S.

As it is in Europe , and so we're doing that and then just like what we did with Augusta I mean, our Augusta facility site selection was first focused on efficiency, where where can we put a facility that will maximize the overall operational efficiencies of the operation.

For the long term so that means good labor force good logistics good access to energy.

Good good overall infrastructure.

This is what we did in Augusta and quite frankly, the same process is underway with.

Specific sites in Europe , we've done a lot of work for site selection.

Believe we are on a good path for some future discussions and announcements there, but we're not in a place to release that publicly today.

With respect to the importance of SBA on Europe , it's important.

Because there are for sure separate processes with Europe called App. So it's kind of like the the way to think about as kind of like the FDA equivalent in Europe . They have a process by which you go through to get <unk> qualification in Europe , and it's different it's a separate process that will need to be managed completely separately.

But the SBA.

Work the FDA results the FDA approvals feed into both our customers' impression of where we are on FDA qualifications as well as the <unk>.

<unk> that will follow through and also mentioned that the rules and regulations there.

Theres a lot of discussion in Europe , right now on where they will go and so we're watching that so we can learn from them on what our steps should be to get the approval and to date. It's just not totally clear. So at the end of the day I think that we're on track for Europe , we still feel confident about the 2025 full ramp up.

And.

And then and then from an FDA to EFS perspective, we're waiting and watching in Europe , and we're very very confident that the work we do on FDA will support that activity.

The only other thing I'd add Eric is that.

We are also staffing appropriately to meet the.

The needs of what will be required for Europe . So.

We're not we're not doing this just from the U S. We are finding a few critical <unk>.

Sources that we're putting in place in Europe . So that we can achieve the goal that we have.

Okay. Thanks, a lot.

Thank you Omar for next question.

Okay.

Our next question comes from the line of Gerry Sweeney from Roth Capital. Your line is open.

Hey, good morning, and thanks for taking my call.

Hi, Jerry.

Two questions one longer term and one is going to be shorter term, but on the longer.

Term question.

In your prepared remarks, you talked about.

Working on different <unk> grades and I think you also talked about working with that compound.

Can you explain this a little bit further is this an opportunity to even add additional value to some of the polypropylene.

Youre going to competitors.

What exactly does this to maybe from a value standpoint.

Okay.

Yes so.

So I think that's our.

Let's be clear, we do not intend to move into the compounding space. So it is not part of our business plan to become a compound or.

It's our business plan to be a ultra pure recycled resin producer of polypropylene.

And so what we're doing today is establishing relationships with the compounds in the market because they ultimately know the final brands and understand what's needed in order to let's say build the right recipes create the most value in the market. Okay. So so the comment.

About creating new value in the market channel that's more about relationships that we're developing.

With others in the market.

Yeah.

With respect to let's say the new channels of speed to product I think that I think that theres going to be some really unique opportunities for us to show.

Really high level of transparency of full circularity and the certain into certain market segments. I mean, if you take if you take any market segment, they really want to be able to say that the product that they produced in a container that's made of plastic.

Recycled came back through the chain and turned back into their product again, okay. So we've done a lot of this with respect to consumer goods applications.

And I think that we're really beginning to show.

Fantastic true circularity in the market, but I think that when we start looking at other market segments as well, there's going to be a lot of interest by brands to be able to do things to do the same thing with their plastic waste as well and so that's really what we're speaking to.

Getting into too many of the specific details on lines three and four in Augusta or the the feed streams that were targeting I think at the end of the day, it's going to create.

It's going to create a really nice story.

And sustainability showcase for some of the brands that otherwise really haven't been able to show that circularity and quite frankly, I think the market is super excited about that.

Got it that makes sense and then the other question. This is more shorter term obviously you gave us some.

Are you on an iron and on track and when Pelleted Our group produced in <unk>.

Maybe the ramp up time, but.

The next several months or probably very critical for ironton are there some major steps in the commissioning process that.

Once you cross them.

I will give you a better view or visibility that the facilities on track to run the way that new plant.

Yes, I think Thats I think Thats, a fair question, Gary I think that.

Jerry I think Thats right.

Okay.

I think that.

When we reached mechanical completion thats going to be a big day for us.

We're able to introduce some of our.

Some of our process specific solvents into the process circulating get up an operation that's a big day and then when do we start when.

When we start making pellets out of the back into the process. There's a lot of steps in the commissioning I won't go into all the details here, but I mean, there is literally hundreds of steps that we're going to go through to ensure we do it right and have a safe reliable startup.

But those are the I would say those are the three big milestones and then after that as far as the ramp timeline et cetera.

That's.

That's going to come as it comes I will tell you that we are in no rush to break records on on the Ironton capacity, we'll do it methodically and reliably and safely all the way through and so we're going to be very thoughtful and purposeful for that ramp activity.

But and that will also depend on the three things that I mentioned before getting the feedstock ramped up and reliable giving offtake.

Ramps up in a reliable and then getting the tech proven out.

Got it okay very helpful. I appreciate it thanks guys.

Yeah.

Thank you.

Homeaway for next question.

Our next question comes from the line of Thomas Boyce from Cowen Your line is open.

Thanks for taking my questions just two quick ones.

Can you talk a bit more about the transition to the feedstock pricing I know you said that there were some customer acceptance. There is that for a portion of the 70% that's already allocated or is that really talking about maybe.

205 million Thats in the contracting phase.

But I think the way to look at it is approximately 80% of portfolio and the <unk>.

<unk> will be feedstock plus pricing.

That's an estimate right now, but that's really where we're targeting some of the legacy contracts that we have with some of our original.

Let's say offtake stakeholders are based on <unk>.

Virgin based pricing, a virgin plus type pricing.

But the majority of customers that we're bringing in and Thats those that we have signed as well as those that we are in.

In final negotiations with our in the feedstock plus category.

Yes.

Yeah.

Got it and then just maybe how should we think about R&D spend.

The goal is kind of adding additional feedstock streams.

For things that were being Landfilled and order and our incinerators.

Yes look I would say that it's premature to really talk about material R&D spend.

With respect to other materials that could come into the technology.

I will say that.

What we are learning about the materials that we process and thats polypropylene and some others.

Is very <unk>.

Instrument, let's say very insightful educational for us on what we think the potential of our technology is and so we have clear line of sight on where we think that this could go but at this moment were really not focused on an R&D stream outside of what we currently do with the <unk>.

You and testing different conditions for the polypropylene and the different feedstocks outside of that we're really not focused on.

So branching into new areas I think.

It's important to keep an open eye as to where this could go but I also think it's important for us to stay focused on what we need to do immediately and our focus and really since the very beginning has always been about ironton getting the schedule right getting the tech right getting <unk>.

<unk> is up and producing.

That's been our focus and we remain.

We remain committed to that but we also keep an eye on where we think it could go in the future and I think over the next three to six to 12 months, we will have more granularity to be able to share with everyone about that activity.

Great appreciate the color. Thanks again.

Our next question.

And our next question comes from the line of Vivek Arora from Jefferies. Your line is open.

Hey, guys. Thank you for your time today.

Mentioned that Youre seeing strong demand from customers, who don't require FDA, Illinois at all can you. Please give us some color on the pricing you are able to negotiate on the non packaging applications and when you discuss these offtake agreements. Thank you.

Yes, Hey, Vivek, we really appreciate the question I think I think with respect to.

Pricing in the market right now, we're going to keep that a little bit closer to the vast until we get.

Until we get irons and up and running.

We get Augusta ready to roll I can tell you that there is no material difference between the pricing that we see with SBA required customers and non FTA required customers. So in terms of let's say overall modeling or interest in the.

Kind of how to think about the stream going forward I would say that theres really not a material difference in the market channels from a from a revenue perspective.

What's what's exciting.

What's exciting is watching our product with our product quality really being adopted by lots of different channels and look this is what we said I mean, we've said all along that we are.

<unk> like replacement.

And I think the more and more channels that get exposed to our products.

Get to test our products.

And get to use our product I think the more that that proves that the polypropylene that we are making.

As usable just in many many market applications.

Great. Thank you so much.

Thank you I'm not showing any further questions in the queue I'd like to turn the call back over to our CEO doesn't Olson for any closing remarks.

Yes first of all thank you everybody for dialing in today, we are very excited to share the news about pure cycle and look I think the big the big takeaway for pure cycle today and really in the near term future is that we are 100% committed to executing our <unk>.

Plan and the plan that was set forward many years ago. The plan that we've talked about quarter over quarter.

It's really staying fairly consistent there are minor changes on the edges, but but by and large the strategy that we've developed we are just an execution phase.

And I think it is very exciting for us to see steel go into ground to see our projects be.

To be built and get ready for service and I think that that's going to be really a watershed mark for all of us here and those that follow us. So thank you for the.

For the following and all the great questions and we look forward to continuing this path of execution. You may now disconnect everyone have a great door and more updates with you in the future. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

The conference will begin shortly to raise Johan during Q&A, you can dial star one one.

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