Q3 2024 PureCycle Technologies Inc Earnings Call
Good day, and thank you for standing by walking through the pure cycle technologies third quarter 2020 for corporate update call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the special need to press Star one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question.
Press Star one again, please be advised today's conference is being recorded I would now like to hand, the conference over to your Speaker today Christian Brewery Directors Communications. Please go ahead.
Christian Brewery: Thank you, Kevin and welcome to pure cycle technologies third quarter 2020 for corporate update conference call I'm Cristian <unk> director of communications for pure cycle and joining me on the call today are dusting Olson, our Chief Executive Officer Officer, and Jamie Vazquez, Our Chief Financial Officer. This morning, we will be highlighting our corporate developments for the third quarter 2024 of the presentation.
Christian Brewery: We'll be going through on this call can also be found on the investor tab on our website at pure cycle dotcom.
Many of the statements made today will be forward looking and are based on management's beliefs and assumptions and information currently available to management at this time.
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 and forward looking statements can be found at the end of our third quarter 2020 for corporate update press release that was filed this morning as well as in other reports on file with the SEC provide further detail about the risks related to our business.
Yes.
Additionally, please note that the company's actual results may differ materially from those anticipated and except as required by law. We undertake no obligation to update any forward looking statements. Our remarks. Today May also include preliminary non-GAAP estimates and are subject to risks and uncertainties, including among other things changes in connection with quarter end and year end adjustments.
Variation between pure cycle actual results in the preliminary financial data set forth herein may be material.
Speaker Change: Welcome to follow along with our slide deck or joining us by phone you can access at any time at pure cycle Dot com, we're excited to share updates from the previous quarter with you I'll now turn it over to Dustin also pure cycles, Chief Executive Officer. Thank you Christian this has been an exciting and productive quarter for pure cycle as we made significant progress across a number of areas.
Dustin Olson: Momentum is building and I'm proud of the team and their steadfast determination on our mission to revolutionize plastic waste and enable up your planet. There continues to be an enormous need in the market for sustainable solutions and pure cycle is leading the charge with our next generation purification technology.
Q3 was highlighted by achieving three critical production milestones that are irons and facility. We had set these specific goals to show various elements of our production progress and are pleased with their execution against them.
Speaker Change: Production out of Ironton is effectively feed rate times hours of production equals output. These milestones were chosen to be able to show progress.
Against both rate and uptime with solid outcomes on both fronts.
Christian Brewery: While we are pleased with the with the achievement. This quarter, we will continue to lean into production of both rates reliability and quality our confidence in achieving our nameplate capacity targets over time continues to increase.
Christian Brewery: In addition to the milestones tangible progress was seen in feedstock production operations commercial and finance areas with an operations. There were several successful outcomes in Q3 with significant advancement on the CPT removal Denver prep facility launch and the ramping of the compounding operations.
Christian Brewery: Our success on CPG has enabled us to transition to running more challenging feeds with higher <unk> levels and exclusively Pcr content.
Christian Brewery: We are excited about iron since production performance and are now focusing our attention on scaling the commercial aspects of our business.
With more stable production and higher quality output. We are also gaining traction on our commercial plan our compound strategy as it's operational and over the last four weeks producing approximately 400000 per week of Sellable product.
Abiding customers with better product options customers are actively trialing, both compounded in pure cycle Standalone pellets with great success, we are actively developing products for film cyber and injection molding applications.
Christian Brewery: <unk> and fiber continues to be an under served and our product has the potential to fill a badly needed supply gap.
Christian Brewery: We are exploring commercial opportunities in both direct and compounded products with ongoing trials running across a growing number of large companies. The project development takes time.
To develop the right product qualities and then the trust between the supplier and customer with our current plant performance, we're finding a growing pipeline of opportunities that will translate to financial success.
Christian Brewery: The team also made substantial progress on capital raising with proceeds from the Ironton revenue bonds combined with the capital raise in September. These combined efforts raised over $105 million in net proceeds and our support for ongoing operations and growth efforts.
Christian Brewery: As Ireton has increased production successfully we are now looking to pursue financing for additional capacity in Augusta and <unk>.
Christian Brewery: As expected the third quarter was our strongest production quarter ever with more production than we had completed cumulatively to this point quarter over quarter production grew more than 200% and we built inventories across film fiber and injection molded products. This was despite significant time spent commissioning the upgrades to the CPT removal.
Christian Brewery: System preview.
Christian Brewery: Previous CPT had been our primary constraint for both rates and quality once we upgraded that operation.
Christian Brewery: Both have improved and we do not currently expect this to be a rate constraint moving forward.
Christian Brewery: Plant upgrades during the outage have continued to pay dividends for both rate and reliability. We've seen our current operations running steady with long stretches of continuous production.
Christian Brewery: Made solid progress on our production reliability as well, specifically with critical seal systems and CPT removal.
Christian Brewery: Our team is dedicated to improving plant reliability and is delivering on their objectives with good pace and momentum.
Christian Brewery: We are not done ramping our operations product or arent in production.
Christian Brewery: We look we look to build upon the Q3 milestones and we know what we need to do to incrementally push production to higher levels. We continue to learn and also continue to lean into advancing these improvements our production.
Christian Brewery: <unk> capabilities that ironton allow us the confidence to increase production.
Christian Brewery: Our new production capabilities at ireton allow us the confidence to increase production as necessary to meet our growing customer needs. We're currently carrying inventory of both compounded and finished products.
Christian Brewery: And feel comfortable with our ability to service the growing demand.
Christian Brewery: The pellets in this picture are recycled <unk> and I'm very proud of them. Many people across all disciplines collaborated to find a unique solution that CPT removal and then we built it.
Christian Brewery: By improving the system. We also increased our ability to remove contaminants from the final product and by doing so significantly improved product quality. The team has continued to improve our removal capacity and should no longer be limited by our CPT removal constraint.
Christian Brewery: It also should provide an opportunity to create additional value in the CPG stream.
Christian Brewery: We are now removing this material at rates up of up to 15000 pounds per day Pelletizing, the final product and marketing it to multiple companies as a sellable recycled material. This is such a great example of ingenuity. We've taken a waste stream that was originally destined for a landfill and turned it into a <unk>.
Christian Brewery: That customers value. This not only helps our economics. It also makes our team more proud of the circularity that we're building.
Christian Brewery: We see this as a nice addition to our product portfolio.
Christian Brewery: Our feedstock operations were another area of Vinci of achievement in Q3, as we started up our Denver, Pennsylvania plastic sort facility plastic is an important component in our feedstock is an important component in our business and we are pleased with the ongoing development or Denver sort facility was built with high product deficient.
Christian Brewery: <unk>, hi equipment reliability and can be operated with low cost.
Christian Brewery: The nameplate capacity is approximately 22000 pounds per hour and should serve both irons in Augusta operations.
Christian Brewery: This location will upgrade low quality number five barrels to a suitable level for ironton and also helped to purified <unk> HD p/e and aluminum streams for recyclers in the industry.
Christian Brewery: This facility, we should be able to buy more feet draw more feed into the market lower our feedstock costs and build more stability into the irons and operations.
Christian Brewery: While still early we have already achieved nameplate capacity at the facility. This will be a great long term foundational asset for our business. We've also expanded our feedstock flexibility. We can now buy low cost number three to seven bells and low quality number five bells upgrade them through.
Christian Brewery: Sorting and then send a high percentage pp belts ironton for grinding for purification at this moment, we are buying feed from merck's sorting at Denver washing and grinding the bales of irons in prep and purifying at our facility.
Christian Brewery: We've also continued to run the off site flake sorting operations with good reliability at 1000 pounds per hour and are on track to install an additional flight Saudi operation at Ironwood.
Christian Brewery: The net result of all of this is incremental feedstock flexibility and efficiency. This will allow us to buy cheaper feedstock and improved plant yield by avoiding processing non PV streams through purification.
Christian Brewery: Practically speaking our pp concentration has increased from less than 85% to 92% to 95% today and is expected to continue to improve to 97% in Q4. After the final Ironton flakes order is installed.
Christian Brewery: This higher pp concentration allows for irons and production yields to grow while also making our plants more efficient reliable and allow for higher rates, bringing together all of these different feed capability is an important accomplishment for our team.
Christian Brewery: Digging deeper into the successful production outcomes of ireton. There are other important elements worth noting the improvement in production across the plant has come while simultaneously moving into more challenging feedstocks and improving final product quality without being able to process more and more prevalent.
Christian Brewery: Doc Ironton production would have been limited by.
Christian Brewery: Feed or burdened with higher cost feed inputs.
Christian Brewery: <unk> has shown the ability to run prevalent curbside PCR with high levels of CPE, two and shown and shown improved recovery.
Christian Brewery: You can see how the mix of IR PCR with a combination of no CP to low <unk> and high <unk> content will impact feedstock pricing and final product pricing, our improved product quality and irons and helps improve commercial adoption, but also opens up more.
Christian Brewery: More applications to our product progress on both feedstock cost and off take value should continue to build confidence and strong margins and the attractive economics of our business.
Christian Brewery: Initial commercial feedback from the market has been very positive and gives us increasing confidence in achieving the financial margin targets. We've previously discussed our unit economics for Ironton, and our products continue to show strength and should provide a solid foundation to build future plants and capacity are <unk>.
Christian Brewery: Compounding efforts are layering in additional benefits to our business. The compounding strategy was added to position pure cycle to better match the product to the customer specific application.
Christian Brewery: And enhanced service option for our customers to open the door and qualify more quickly and we're seeing early successes customers are excited about the products that we're making compounding also allows us an opportunity to incrementally expand our volume with P. I R PCR and Virgin complements and improve.
Christian Brewery: Overall company profitability, we are able to offer these compounds to the market at lower price premiums versus Virgin alternatives, but should also carry better overall economics to us as the volumes are materially higher for our largely fixed cost business.
Christian Brewery: This works in both pure cycles, our customers favor and should lead to better overall profits for us it's unclear how much of our volumes will be ultimately compounded but in any scenario the mix of compounding should be accretive to the overall profit dollars.
Christian Brewery: Following the success of irons in operations in Q3, and consistent production of RP, we shifted our focus towards commercial efforts. The product that you see on the left is a 50 50 blend of pure cycle and PCR material.
Christian Brewery: This broken from 12, <unk> to 35 <unk> to serve the fiber market. It is a very unique high quality product in the market. The color is good the contaminant level is very low and it run similar to Virgin and customer facility trials. Our compounding strategy has enabled us to build a portfolio of.
Christian Brewery: <unk> for the broader market not only are we creating a variable blend of recycled content. We are also adjusting the product characteristics every application is a little different.
Christian Brewery: We can now formulate blends for general categories, while also creating specific recipes for customers when necessary.
Christian Brewery: It makes their operations simpler and more efficient and also makes the adoption much easier for customers. We have now built $2 5 million pounds of compounded product inventory with various blends in preparation for R. R.
Christian Brewery: This alleviates one of the early commercial challenges for new suppliers about their concern of reliable supply and consistent quality.
Speaker Change: The pure cycle stage is set.
Christian Brewery: Our technology is creating high quality product in large quantities, our commercial strategy is taking shape.
Christian Brewery: We are well positioned to take advantage of this attractive landscape.
Christian Brewery: No matter, how you look at the overall market opportunity in front of US it's absolutely massive.
Christian Brewery: Global PPE demand is over 187 billion pounds and continuing to grow at 3% to 4% per year.
Christian Brewery: The demand for recycled product continues to be high and growing due to brand commitments. The supply gap continues to be very high due to a lack of quality product available and pure cycle is testing products across three key underserved segments, we believe our product can satisfy customer requirements.
Christian Brewery: Approximately 85% of the current market.
Christian Brewery: Not only does the market look attractive today based on industry projections, we believe future years will look even better base.
Christian Brewery: Based on the projections the demand for recycled material is expected to grow to approximately 60 billion pounds by 2030, we believe that it is clear that pure cycle is best positioned to be the primary supplier of high quality material through this enormous market.
Christian Brewery: With Ironton now better positioned we have been focusing our commercial efforts trials have been kicked off across a number of companies industries and applications. This process has been very encouraging as market feedback on our products has been consistently positive.
Christian Brewery: Our product is delivering high quality outcome that will help enable our customers to achieve their sustainability goals. The trials are showing it runs with Virgin like outcomes, and we will be able to address very large parts of the overall PV market.
Christian Brewery: We're excited to be opening up new trials as well as progressing our existing pipeline of potential customers as customer orders arrived we intend to ramp to meet that demand.
Christian Brewery: As we have embarked on our commercialization, we want to give investors some color and some context around our commercial timeframes.
Christian Brewery: Given the unique nature of our product most investors are probably not familiar with the process for project commercialization. We have focused on four key initial categories for sales Ciber film injection molding and automotive.
Christian Brewery: Each category will represent a key proof point for future sales and both ireton as well as future facilities for fiber, we are well on our way. The application is operationally tricky there are numerous adjustments that need to be made to fine tune the process. Both in terms of compounding recipe as.
Christian Brewery: Well as the customer fiber operational there variables. We believe we found the right recipe and we are currently actively trialing our material with five different fiber producers. Some are very big and some are more niche and testing a wide range of yarn types for different applications.
Christian Brewery: We're very very excited here I'll remind you that fiber is an extremely difficult operation even for Virgin material.
Christian Brewery: To find success with our recycle stream.
Christian Brewery: It's just very good.
Christian Brewery: Initial progress has been strong and we are confident this will be a large category for us in the future.
Speaker Change: Injection molding.
Speaker Change: We're excited to now be partnering with Procter to develop several compounding solutions across a couple of different brand categories. This commercialization process at P&G is expected to take time, but initial feedback has been encouraging.
Christian Brewery: And Gamble has been a steady supporter of us and we are excited to deliver the first tangible product to their brand teams automotive as a potentially enormous category for pure cycle. There are typically over 300 pounds of plastic installed on each vehicle.
Christian Brewery: And that number has grown as Oems replace steel to lightened the weight in order to achieve better fuel efficiency.
Christian Brewery: Polypropylene is typically the plastic of choice because of its light because it is lightest of the traditional plastic options.
Christian Brewery: Automotive has been historically challenging to address with traditional recycled materials.
Christian Brewery: It is highly sensitive to quality and also the applications are highly technical.
Christian Brewery: A small imperfection on an automotive plastic part can create paint adhesion problems or odor issues or yield losses to date, it's been very difficult to introduce other recycle supply to automotive at scale due to the contamination level inside of those products, we have been working with it.
Christian Brewery: Global automotive company to gain approval for our products into several of their key applications.
Christian Brewery: The customer approval process is well on its way and we hope to gain final approval in Q4. If this proceeds as planned we expect orders to start in Q1 of 'twenty five.
Christian Brewery: For film we are just getting started.
Christian Brewery: While the trial process will follow a similar timeline its fiber the early results are promising.
Christian Brewery: Have not trials, we have not trial, our product commercially yet, but we have converted our product into film at lab scale. This is a big deal.
Christian Brewery: We have worked with a large food and beverage brand to take their wrappers things like Metallize film and multi layered film into our Durham R&D facility, we purify that and then we converted it into film all onsite and all in front of them.
Christian Brewery: It's a great proof point for our brands looking to close the elusive recycled gap and film.
Christian Brewery: All of these applications across all of these applications. There is also an emerging synergy story developing.
Christian Brewery: We work with one customer who is interested in using our product in a mop head application.
Christian Brewery: This application had an injection molded plastic base connected to a collection of fibers for them up.
Christian Brewery: One customer two application types pure cycle can serve both.
Christian Brewery: We had another automotive customer discussion around replacing the carpet in the car with RP fiber <unk>.
Christian Brewery: During that discussion, we also mentioned our ability to produce bumpers dashboards and other products one customer multiple applications pure cycle and supply all our strategy is to prove that our product can successfully run across multiple lanes. We've found early success in fiber and injection molding.
Christian Brewery: We are in the early stages with film.
Christian Brewery: As we gained approvals, we expect to broaden our customer base grow our offering potential serve the customer more completely and build a commercial a strong commercial foundation for future projects.
Christian Brewery: We expect revenue to begin to show up materially in Q4 and ramp into 2025. This confidence is being built by the growing pipeline of customers strong success from trials and feedback from the market. While there is some uncertainty with exact timing the direction and inflection of.
Christian Brewery: Our financial prospect, it's clear.
Speaker Change: The future is bright and we are energized and excited some of the largest companies in the world are recognizing a new supply has emerged to solve their sustainability needs and they are leaning in enthusiastically to pure cycle. At this time I would like to hand, it over to Jamie for the financial presentation. Thank you Dustin and I will touch on our liquid.
Jamie Vazquez: On slide eight.
Jamie Vazquez: As Dustin mentioned, we raised $90 million on September 13.
Jamie Vazquez: Entering into subscription agreements with certain investors, where we saw the combination of preferred stock common stock and warrants. This was in addition to the $18 million in proceeds from the revenue bond sales earlier in the quarter.
Jamie Vazquez: These transactions boosted our quarter end unrestricted and restricted cash balance to almost $94 million.
Jamie Vazquez: Also as a reminder, we hold about $118 million of our revenue bonds that we plan to sell over the next several months that should further support our liquidity needs in 2025.
Jamie Vazquez: In early October we did make a $36 million payment into an escrow account related to the us Augusta purification projects over the next several quarters, we have about $11 million of commitments for the Augusta project, mostly for long lead equipment and Preconstruction work, we plan to further the activity and adjust in 2025.
Jamie Vazquez: And also plan to secure financing for that project.
Speaker Change: Lastly, operating cash expenses, which are the first three bullets under the unrestricted cash uses on the slide totaled $23 $5 million for the third quarter. This was a decline from nearly $35 million in the previous quarter and down about $4 million from the first quarter of the fiscal year.
Speaker Change: I will now turn the call back to Kevin to open the call for questions.
Speaker Change: Thank you ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone. If your question has been answered or you wish to move yourself from the queue. Please press star one again, we will pause for a moment, while we compile our Q&A roster.
Speaker Change: Our first question comes from Hassan Ahmed with <unk> Global Advisors. Your line is open.
Speaker Change: Good morning Dustin.
Speaker Change: Good progress being made happy to see that you guys hit.
Speaker Change: All of the three main sort of production milestones towards the end of Q3, just from the near term side of page how how are those milestones looking.
Speaker Change: And the early part of Q4 or do you continue to sort of.
Speaker Change: Are you continuing to sort of hit those milestones exceed.
Speaker Change: Where do we stand there.
Speaker Change: Yes. Thanks for the question Hassan every time, we reach a new milestone we map out the boundary conditions for that operation and we learn how to operate it that at that place. So we have very high confidence in our ability to get back to those levels and operate at those levels on demand.
Speaker Change: I will say that as we progress into Q4, we've been running.
Speaker Change: Higher feedstock with higher levels of CPE too we continue to.
Speaker Change: Commission the CP two to get all the Kinks worked out so we can run at high levels and we continue to ramp up production from there.
Speaker Change: I think the important thing here is that we have high confidence in our ability to reproduce those results and run the plant as we once our focus now is really on establishing commercial lane and having irons in operations match that commercial demand. So over the next few months.
Speaker Change: And we'll run the rates that are required to meet the commercial demand will continue to look for new boundary condition, so that win.
Speaker Change: When the demand is there in 2000 and the later half of Q4 and into 2025, the Ironton plant will ramp to meet that.
Speaker Change: That's very helpful desktop and as a follow up.
Speaker Change: I appreciate it.
Speaker Change: Slide 12 in Turkey and in particular, so obviously it appears that you guys are getting very good customer feedback.
Speaker Change: And commercial sales seem to be imminent.
Speaker Change: I read the slide correctly it seems that as early as just this fourth quarter you should start seeing some commercial sales and those sort of ramping up.
Speaker Change: Into 2025, so how should we be thinking about meaningful levels of revenue as 2025.
Speaker Change: And dare I ask EBITDA as well.
Speaker Change: Yes, so we're not going to provide incremental let's say.
Speaker Change: Revenue projections for 2020, but I'm, just saying in terms of ramp up should we start seeing a nice ramp up in 2025 and.
Speaker Change: Yes, I mean thats on look I mean, we're extremely excited about where we are at the customers and we've had a lot of very successful trials and as you can imagine every trial is is unique to the customer every customer has a specific application with respect with specific customer product requirements and then they have to.
Speaker Change: To build the trust and pure cycle as they go through the trial process. So the trust comes in multiple ways. One will pure cycle continued to operate at high levels of irons, and we're getting a check mark there will the quality would be sufficient for their application, we're getting a check mark there and do you have the inventory and capabilities.
Speaker Change: And we've been able to build inventory across the quarter as well.
Speaker Change: Oh, yes.
Speaker Change: I think that while.
Speaker Change: While it's difficult to say when specific customers will give the full green light for pose in commercial transition I think the signs are all there for solid and meaningful commercial progress both in Q4 and ramping into 2025.
Speaker Change: Perfect and if I could just quickly squeeze one more one in.
Speaker Change: Look I mean, obviously production is ramping up fair to say that the technology has been more than proven right.
Speaker Change: In light of this sort of recent announcement about the termination with escape the termination of the joint venture with production ramping up technology proven out in the like I'd like to think that you.
Speaker Change: You guys are getting much more interest in.
Speaker Change: Our joint ventures as well so could you just give us any sense of what potentially what that pipeline looks like.
Speaker Change: Yes, I mean, we.
Speaker Change: I think youre, absolutely right I mean ever since we started we had a lot of interest with different partners to bring the technology to different regions of the world.
Speaker Change: And.
Speaker Change: It's no different today in fact, I would say the excitement is growing many of our partners were very helpful.
Speaker Change: In helping us solve some of the technical problems and also waiting to see the ironton operation up and running consistently as we've demonstrated success and ironton for sure. The interest in growth has increased and I think that youll see.
Speaker Change: You'll see we'll continue to see.
Speaker Change: Positive steps there with respect to SK, specifically I mean, SK first of all I would just like to say I think they've been a very good partner for pure cycle. They were an early investor in our company.
Speaker Change: We're a highly technical team and helped us on numerous fronts.
Speaker Change: As we work through some of the technical challenges.
Speaker Change: One of the things Thats unique about SK is that that wasn't it was a project.
Speaker Change: And that was built to bring multiple technologies into a single space and it was very difficult to get aligned across the timeline for three independent technologies, the one space and in some of the synergies across.
Speaker Change: The facility just couldnt be materialized because of those timing gaps however.
Speaker Change: S. K continues to be a strong partner, we continue to look for new opportunities outside of South Korea, and we think that story is just delayed not not over.
Speaker Change: Very helpful. Justin Thank you so much.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Eric Stine with Craig Hallum Capital Group. Your line is open.
Eric Stine: Hi, everyone. Thanks for taking the questions.
Speaker Change: Hey, Eric Hagen and good morning, well thanks.
Speaker Change: I just want to make sure I understand it so it sounds like I mean, you've demonstrated that you can.
Speaker Change: Ramp to the milestones that you have discussed and that you reached in third quarter, but.
Speaker Change: Should I take your commentary that youre not necessarily Purdue.
Speaker Change: Producing at those levels now and I can appreciate the focus is on the commercial side, but that does beg. The question what is your confidence level that.
Speaker Change: Presumably the commercial interests quite high that you.
Speaker Change: Need to be above those levels.
Speaker Change: That you have currently demonstrated and what is the length of time or confidence.
Speaker Change: And getting to full production levels.
Speaker Change: Obviously, the market opportunity is magnitudes larger than your current production capabilities.
Speaker Change: Yes, so I would say that we are pacing our production at ironton with the commercial aspects of the business. So part of that is in building inventory in preparation for commercial part of that has been.
Speaker Change: Commissioning the co product to in the course of September and October and we feel very good about both of those activities and our operations team is very confident in their ability to ramp up as needed to meet the demand from the market. Okay.
Speaker Change: With respect to the confidence in our ability to move product into the market, it's very high.
Speaker Change: That.
Speaker Change: We made several comments in here about the improved product quality at CP, two became under control and that cannot be understated.
Speaker Change: <unk> seen a step change improvement in overall product quality over the course of the last six to eight months and thats directly related to <unk> and as a result of that.
Speaker Change: To deliver a much higher quality product to our customers.
Speaker Change: And to our customers and and remember.
Speaker Change: Fundamentally we are removing CP, one and CP to from the feedstock.
Speaker Change: And.
Speaker Change: No other technologies do that in the market today, and so our ability to make CPE.
Speaker Change: CB, one and CB two at volume is.
Speaker Change: Good indication of our overall product quality.
Speaker Change: Our customers see that they recognize its benefits over alternatives and theyre leaning into pure cycle as a solution for them.
Speaker Change: Got it and so then I know you've talked about some of the <unk>.
Speaker Change: Commercial activity in the various <unk> I'm sorry products.
Speaker Change: Very helpful. There.
Speaker Change: Assume.
Speaker Change: These are.
Speaker Change: Their near term, but they're also far enough out in terms of a couple of quarters that in your mind that gives you the timing to in fact go from wherever you have demonstrated today, which is I guess, just under 50% of nameplate to actually get to those higher levels to meet.
Speaker Change: This demand I mean is that a fair way to think about it yes.
Eric Stine: Yes, I think thats really good Eric I mean, I think there's a couple of aspects here once you've demonstrated that your product can work in a single customer application. The me two adoption is very fast. So if you choose if you show that you can build a fiber in one plan then that means you can buy you can build fiber and all plants.
Speaker Change: If you show that you can build a bumper and one facility. It means that you can build bumpers across the board and so these early customer trials and qualifications are really important there are proof points to the industry and once a customer does the hard work of getting it qualified it's going to show as an example for others and that's really worth.
Speaker Change: The commercial ramp quickly.
Speaker Change: So we're not concerned about that.
Speaker Change: Also other avenues to move product into the market.
Speaker Change: Through non project related demand there are distribution channels and other compounding channels.
Speaker Change: Currently buy recycled material in the market and we've been introducing our products to them as well and so I think that theres several different avenues for us to move product into the market. Both in terms of Q4 and also ramping significantly in 2025.
Speaker Change: Okay. Thank you.
Eric Stine: Thanks, Eric.
Speaker Change: Our next question.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Our next question comes from Thomas Boyes with TD Cowen Your line is open.
Speaker Change: I appreciate you taking the questions.
Speaker Change: Maybe first I would like to give me some insight into the automotive opportunity I know it can take a kind of a long time to get designed into a vehicle, particularly risk and materials or new technologies. So I was kind of impressive I guess with the speed in which you are getting to commercial sales is that due to the fact that it's a <unk>.
Speaker Change: Compounded resin and making the customer feels more confident and implementation or is there something else at play that we should be aware of.
Speaker Change: Well not not all of our customer trials and customer development activities started recently.
Speaker Change: This one in particular has started many many months ago. So I think part of the progress that you're seeing now are seeds that relayed in the past.
Speaker Change: Thats some of the natural progression of things.
Speaker Change: But also <unk>.
Speaker Change: Some automotive applications do require a very long qualification period, but some do not.
Speaker Change: Okay. If you can demonstrate that your product is a liking kind replacement to the existing qualified material then the adoption can be much faster. So as we demonstrate that our product performs more and more like Virgin polypropylene.
Speaker Change: Quicker the adoption can happen in automotive.
Speaker Change: Got it that's helpful and then.
Speaker Change: It is nice to see obviously, the kind of the new sortation.
Speaker Change: Can you give us maybe a bit of insight on the cost per pound or maybe just diagram.
Speaker Change: As the cost of their.
Speaker Change: Offset by the improved yields having facilities. So it's kind of a net neutral or positive.
Speaker Change: Any information there would be helpful. Yes, that's a great question. So first of all we're extremely excited about Denver and this is Denver, Pennsylvania by the way not Denver, Colorado. So.
Speaker Change: We'll eventually host people out there to show you the operation we want to make sure you get the tickets to the right place but.
Speaker Change: It's a really good location.
Speaker Change: The New York, New Jersey, Philly Baltimore DC population density around that location is very very high and so the ability to pull material and is going to be quite good and growing over time.
Speaker Change: We currently only got one shift of operations, but we definitely see that growing in 2025, we have already demonstrated the ability to run at nameplate capacity, which was just great.
Speaker Change: We're very excited about that with respect to the overall economics of the plant I think we are still mapping that out.
Speaker Change: We are definitely producing.
Speaker Change: We're definitely producing co products from that facility that will offset some of the cost of the facility.
Speaker Change: We've definitely purchased an asset that is extremely efficient and lets say lower cost to operate both in terms of electricity usage as well as manpower and as we ramp both in Ironton in Augusta and then therefore also ramp the operations at Denver.
Speaker Change: I think that youre going to see pretty good economics at that facility at the end of the day, a little bit about the neutrality of the costs for that depends on how much you value the polypropylene thats going to ironton, but one thing I can tell you is we have excess capacity in Denver today.
Speaker Change: And that facility has the ability to run high quality number five bills low quality number five bills three to seven bills and also 1% to seven bills. Okay.
Speaker Change: We really have a nice opportunity to load that facility with <unk>.
Speaker Change: Cost advantaged feedstocks, so that we can gain more value off of the co products and ultimately our team at scouring the market to understand the best feeds to buy for that facility to yield the best let's say overall economics for that site independently.
Speaker Change: And we will be able to show that over time, but I can tell you that.
Speaker Change: One of the one of the areas that was underestimated ironton in the beginning was just the impact of the variability of number five bills I mean, our original premise for this plant was a number five bill in the 95% to 98% range for polypropylene.
Speaker Change: That just doesn't exist.
Speaker Change: And so as we started to bring new bills and we recognize that the amount of <unk> is just much much higher and that put a lot of pressure on our system to be able to control that so having the sort facility on the fronts.
Speaker Change: Not only allows us to improve the yield across the plant to higher levels. It also allows us to control our own destiny. When you buy what people consider to be high quality number five bales in the market, which are 85% to 90% bills. They still have a lot of variability and so.
Speaker Change: Having this asset under our umbrella for our operation allows us to really have.
Speaker Change: Granular insight into the feed thats coming into Ironton, which will not only improve overall economics. It will also improve the reliability because we know the <unk> thats coming in much much better.
Speaker Change: That's a great question.
Speaker Change: That's very helpful.
Speaker Change: One quick one I will jump back in the queue is just can you remind me how long it would take to kind of stand up.
Speaker Change: Say, if you were to get say financing sometime next year is it a.
Speaker Change: Six quarter two year.
Speaker Change: Kind of timeframe would that be to get that yes.
Speaker Change: Yes, that's a good question I guess is a bit different because we purchased a lot of the long lead equipment already and it's and it's ready to go.
Speaker Change: But I think a.
Speaker Change: No.
Speaker Change: Six to 10 quarter range is probably a good framework for modeling I know, that's a wide range, but there's a lot of variables in there that can that can control things.
Speaker Change: We expect we have opportunities to improve the schedule over time once we get into the granular details.
Speaker Change: But I think an average of two years two years plus a couple of quarters is probably a good a good framework for now.
Speaker Change: Perfect ill jump back in queue. Thanks again.
Speaker Change: One moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Andre <unk> with Cantor Fitzgerald. Your line is open.
Speaker Change: Hey, good morning, Dustin good morning, Jamie congratulations on the quarter and thanks, so much for taking our questions.
Speaker Change: Alright.
Speaker Change: Let me just take a step.
Speaker Change: Ted back.
Speaker Change: Just wanted to see if you can maybe give us an update on the current status of the production line in Ohio.
Speaker Change: Are you able to share maybe a loose timeline as to when you might expect to get the plants closer to full capacity. Thank you.
Speaker Change: Yes. Thanks for the question I mean ironton is in a great place. Okay. We had a lot of constraints are ramping up this facility over the last six to nine months. The latest one has been around <unk> and the most prevalent for the last six months has been CPE too, but the solution that we put in place there is really unbridled the.
Speaker Change: <unk> at Ironton, and we feel really good about that I think that in addition to the CPG removal efficiencies our ability to add Denver and flake sorting operations is also allowing us to bring a higher quality feed into the plant and allowing us to raise rates. So we're really excited about our potential.
Speaker Change: There have been some.
Speaker Change: Some some areas that we've noticed that we need to continue to optimize to push rates above the 10000 pounds per hour, we're doing that.
Speaker Change: But in the meantime, and 10000 pounds an hour is roughly.
Speaker Change: 80% to 85% capacity I believe.
Speaker Change: Maybe around that level and so to push above that to get to the nameplate. We have a pretty good line of sight on what we need to do that but honestly the focus right now is more about ramping the commercial.
Speaker Change: We have an asset at ironton that we can control that we will do what we ask it to do and so now it's about feeding the pipeline for sales so thats.
Speaker Change: So that we can then trail iron cents.
Speaker Change: Further production.
Speaker Change: Got it that's helpful. I guess, maybe just a follow up.
Speaker Change: Do you expect I know, it's been early but.
Speaker Change: Do you see a scenario, where you could get close to that 107 million pounds of Upi resin capacity through next year.
Speaker Change: Yes look when we get to.
Speaker Change: A ratable capacity at 107 million pounds per year.
Speaker Change: I don't have a timeline for that right now we still got work to do to get there remember every time that we push into a new boundary of the plant operations, we will find new constraints that we have to work work through to get there.
Speaker Change: So we'll do that through the course of 2025, and we will see and we'll see where the production lens I'll just remind you though that.
Speaker Change: If there is if theres one competency that we've built across our company over the last two years, its grid resiliency and ability to solve problems.
Speaker Change: Every time that we have had a problem pop up in front of us for our operation, we've been able to solve it pushed through and move on and and I see no difference next year as we push up into the higher level closer to the nameplate capacity and then ultimately getting to the 107.
Speaker Change: Got it very helpful. Thanks, and maybe just one more if I could here.
Speaker Change: You mentioned I think.
Speaker Change: Earlier that the status of the Augusta facility and the timeline for that is roughly 6% to 10.
Speaker Change: Quarters.
Speaker Change: Which is encouraging I am curious.
Speaker Change: How many lines up.
Speaker Change: Of the up to eight potentially to you kind of foresee.
Speaker Change: <unk> with that should we be modeling maybe closer to one or two lines from the beginning or any any color there would be helpful. Thank you.
Speaker Change: Yes, I mean, we did it.
Speaker Change: Consistent on this in the market that the Augusta project is a two line operation, it's 260 million pounds per year of production.
Speaker Change: And that's and that's been the consistent message, we're not deviating from that at this time.
Speaker Change: Wonderful. Thank you so much congratulations again on the quarter will pass it on.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Brian Butler with Stifel. Your line is open.
Speaker Change: Hi, good morning, Thanks for taking the questions.
Speaker Change: Okay. Thanks, Paul and thanks for dialing in first on the when you look at Slide 13, which is super helpful. When you look at the commercial sales kind of all kind of being ramped up into call. It the third quarter in 2025, one level of production desire and need to be at and kind of meet that that kind of run rate when you.
Speaker Change: Get to the third quarter of 2025.
Speaker Change: That's difficult to say so the commercial ramp up is still a number that is influx each customer is.
Speaker Change: <unk> is kind of on their own timeline for qualifications. So it's difficult to have a firm number there I think that's.
Speaker Change: <unk>.
Speaker Change: It's difficult for me to say look I think that we'll have between project related sales and then also the ability to sell into distribution and compounding I think by mid 2025.
Speaker Change: We will have the capacity to push up to and beyond the 50% Mark of Ironton.
Speaker Change: Okay. That's helpful and on the economics, you talked about economics on the non compounded are in line with previous expectations can you remind us of those expectations because if I go back to the irons and budget from a year ago. I think you were somewhere around 56.
Speaker Change: <unk> five a pound on an EBITDA basis, and maybe just can you frame what what.
Speaker Change: Expectations on the non compounded economics are.
Speaker Change: Yes, so we're pretty consistent with what we've said in the past.
Speaker Change: At the Irons and showcase this question came up and the way we answered it.
Speaker Change: <unk> and <unk>.
Speaker Change: Order to get to breakeven at the irons and facility, we need between 40% and 50% utilization at the facility and in order to get to breakeven for the company not including Capex spend it takes 80% to 90% rates of irons and we still hold to that we've been doing a lot of modeling the market is obviously.
Speaker Change: Moving around quite a lot both with regulatory efforts, giving us some uplift as well as the Virgin market being a little bit down so the numbers move around quite a bit.
Speaker Change: But we still we still believe that those numbers are still pretty solid.
Speaker Change: Okay, and then on the <unk>, we ask I think we answered most of my questions, but whats the expected future capital requirement. When you think of building out that first and second line and how long does.
Speaker Change: Third line take I mean is that going to be another six to tank orders. If you choose to do a third line.
Speaker Change: Yes, so with respect to the total Capex for Augusta. This is also an area that's in pretty high discussion right now in flux, we're really not in a position to give an updated number for Augusta Capex. There's a lot of moving parts. There I mean, the inflation is one.
Speaker Change: That has a negative impact on capex, but but quite frankly, the things that we've learned it irons in the things that we know how to do in irons and as a as a very.
Speaker Change: Good balance to that inflationary risk so.
Speaker Change: We're just not in a position to give a hard number right now so I would go back to previous guidance.
Speaker Change: With respect to how long, it's going to take to build the third line in the fourth line in Augusta.
Speaker Change: I think that it's not the same amount of time as what it takes to build the first two.
Speaker Change: Okay, it's shorter and the reason for that is we will be building a substantial amount of the infrastructure in that facility.
Speaker Change: For lines, one and two and we will not need to rebuild that for lines three four and five okay.
Speaker Change: So so it would be incrementally less time than.
Speaker Change: And the advice that I gave for ADESA.
Speaker Change: Alright, and then just one last one it looks like the operating cash burn you had said was about $23 million in the third quarter, how should we think about that going into the fourth quarter is that the right level kind of kind of third quarter to fourth quarter is about the same.
Speaker Change: Yes.
Speaker Change: Cash burn has come down.
Speaker Change: I think we're probably be in that $8 million range may be perhaps a little bit better than that but.
Speaker Change: There's a lot of maintenance activity that we had in prior quarters that is not reoccurring.
Speaker Change: We will be at hopefully at a level that we saw this past quarter.
Speaker Change: Yes, I think thats another I think that's another important point Brian.
Speaker Change: Everything across the operation gets better with steady operations okay.
Speaker Change: The product quality becomes more steady the repeatability of production becomes more steady even the product quality of co product, one and co productivity becomes more steady and as you run more steady than also the cost for the structure becomes more study you can imagine that as you're fighting reliability items.
Speaker Change: Chasing challenges and the plan there is a substantial costs associated with that and we expect that.
Speaker Change: All of these things youre going to get better as we continue to run more reliably.
Speaker Change: Okay, great. Thanks for taking the questions.
Speaker Change: One moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Gerry Sweeney with Roth Capital. Your line is open.
Speaker Change: Hey, good morning, Jamie.
Speaker Change: Good morning Collyn.
Speaker Change: I hate to do this one more question on utilization however, it's from.
Speaker Change: Completely different tact and I think it's important.
Speaker Change: You mentioned you have an asset.
Speaker Change: That you can control and what I really wanted to ask are you able to run the iron 10 at a specific rate for an extended period of time.
Speaker Change: From my personal perspective that seems to be more important than an exact pound amount because I think you can grow it from.
Speaker Change: That level, just curious if you could touch upon that.
Speaker Change: Look I mean this is an easy answer Gary I mean, the answer is yes, I mean, we are in.
Speaker Change: That's really the essence of what I'm trying to say.
Speaker Change: We are in control of the Ironton operations, and we can dial it up and dial it back to what we need the key component to that with <unk> and now that we have CP to removal and control and also reducing in our feed the ability to get back to those milestone rates and beyond is very much a knob that we can control.
Speaker Change: Al.
Speaker Change: Got it that was perfectly clear I appreciate it and then on compounding.
Speaker Change: Obviously, there's been a lot of discussion on this.
Speaker Change: How much of an opportunity is there in terms of economics some of it sounded like there was just sort of a fixed cost absorption.
Speaker Change: But I'm also curious as to if youre, a compounding it which I guess power cycled could potentially be.
Speaker Change: Hire somebody to do it versus someone on the outside or doing it meaning behind the product doing themselves would you be able to get a premium for mixing in Virginia compounding it or was this just a pure sort of fixed cost absorption opportunity.
Speaker Change: No look I think that let's let's breakdown compounding two ways. One is compounding compounding does two things it allows us to.
Speaker Change: Provide the customer with exactly the product that they need that allows us to ramp commercial much faster opens doors gets us into new markets gets us to what the customer need.
Speaker Change: Needs and quite frankly by doing that there is.
Speaker Change: That's a higher service level to the customer and therefore, a higher value created for them and the price should be reflected in that.
Speaker Change: In addition to that there's also this concept of blending.
Speaker Change: Blending and other components to the compound and then gaining incremental profit above that so for sure there is a opportunity to <unk>.
Speaker Change: Spread the fixed cost across higher number of pounds. There's also the opportunity to.
Speaker Change: Effectively gain incremental margin on top of the blended components in which also adds to the overall profitability of the company.
Speaker Change: And when you put it on an RP basis.
Speaker Change: It enhances the overall profitability of the pure cycle molecule. So we feel we feel really good about the ability to add incremental profitability to the company based on adding.
Speaker Change: Profit, adding compounding, but but I will I will I will tell you that.
Speaker Change: The day it really comes back to how much value are we creating for the customer if.
Speaker Change: If we have a product that no one else does theres positive value there if were.
Speaker Change: We're manipulating that product in a way that makes it run better with higher efficiency in their in their facilities, there's higher value there.
Speaker Change: If some customers need a 100% recycled product we can do that.
Speaker Change: Customers only want to meet the bare minimum recycle mandates that are coming for different regions like 30% by 2000 2030, then we can also do that.
Speaker Change: And I'll just I'll just tell you that in the compounding market, which is a business I am very familiar with I was I've been in it for about a decade now.
Speaker Change: The value creation and compounding depends on how good you are at solving the customers' problems and doing something that they need and and the compounding operations that we've established.
Speaker Change: Just a tool to help us be better at that and I think that over time youre going to see good economics come from that operational capability and that enhanced our relationship with the customer.
Speaker Change: Got it I appreciate the Devil's in the details so that was that was very helpful.
Speaker Change: That's it for me I appreciate it thanks guys.
Speaker Change: Thanks, Gary.
Speaker Change: I'm not showing any further questions at this time I'd like to turn the call back over to Christian.
Christian Brewery: Alright. Thank you Kevin we do have one question, we wanted to get to that we took through E. Mails from Stanley Porter, Yes can you specify what feedstock you've been running over the past few months you spoke to that but is that the planned feedstock types that you'll be running as you continue to it yes look I mean, we've been running exclusively on post consumer recycled material, we call that Pcr.
Speaker Change: That is the highest valued feedstock and recycled product in the market.
Speaker Change: When you talk to customers they prefer PCR over other alternatives, okay. So by running exclusively.
Speaker Change: That I think puts us into a good position by being able to operationally handle the variability and random PCR coming from a Merck is also is also very good and I think the the operation of Denver combined with the operation of our flake sorting combined with the improvements that we see on CPT removal I put it.
Speaker Change: And a really nice place to be able to run a substantial volumes of PCR going forward.
Speaker Change: Thank you for that question from Stanley and Dusted, if you have any final comments.
Speaker Change: Okay. So.
Speaker Change: I want to thank everybody for joining the call.
Speaker Change: And also just being a steadfast partner for pure cycle over the years.
Speaker Change: We very much appreciate the opportunity to update you on what we're doing across the company. We've been very busy we're very excited it was a great quarter for us to really turn the page on a lot of things that have been in our way in the past six to nine months look at the end of the day Ironton is under control <unk> is under control our product quality is.
Speaker Change: Improved compounding is operational and it's working our inventory is building and most importantly, it's laying the groundwork for commercialization in Q4 and going into 2025, we're extremely excited about the future and we're working hard to make this a reality and we look forward to updating you on our next quarterly meeting. Thank you everyone.
Speaker Change: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yeah.