PureCycle Technologies, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. PureCycle is developing licensed technology to purify waste polypropylene into ultra-pure recycled resin. It had not begun commercial operations and reported no operating revenue.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Operating costs and expenses | $19.7 million | $9.9 million | $38.8 million | $20.2 million |
| Net loss | $15.0 million | $11.1 million | $40.4 million | $37.1 million |
| Loss per share | $0.09 | $0.09 | $0.27 | $0.44 |
| Net cash used in operations | Not stated for quarter | Not stated for quarter | $35.1 million | $34.7 million |
Margins are not meaningful because the company had no revenue. Q2 operating expenses rose 99%, mainly due to higher personnel and equity compensation, bonuses, consulting, rent, and depreciation. Six-month expenses rose 92%. The six-month net loss increased 9%; lower warrant-related expense and interest costs partly offset higher operating expenses. Q2 results included a $4.5 million benefit from a decline in the fair value of liability-classified warrants; six-month results included a $1.3 million warrant expense.
At June 30, 2022, cash and cash equivalents were $118.5 million and available-for-sale debt securities were $231.3 million, for $349.8 million of unrestricted liquidity. Restricted cash was $166.6 million; working capital was $395.5 million. Total assets were $886.5 million, liabilities $335.5 million, and stockholders’ equity $551.0 million. Bonds payable were $233.0 million; there were no convertible notes outstanding, as those notes were converted to common stock in Q4 2021. Six-month cash flows were $35.1 million used in operations, $191.9 million used in investing, and $248.1 million provided by financing. Investing included $127.1 million of plant construction; financing included net proceeds from the March PIPE.
Material changes and financing
- In March 2022, PureCycle issued 35.7 million shares and 17.9 million Series A warrants for approximately $250 million gross proceeds. Shares outstanding increased from 127.6 million at year-end 2021 to 163.3 million at June 30, 2022.
- Property, plant and equipment rose to $345.6 million from $225.2 million, including $315.0 million of construction in progress.
- Warrant liabilities increased to $51.4 million from $6.1 million, principally reflecting the newly issued Series A warrants. Fair-value changes can materially affect reported earnings.
- Restricted cash declined to $166.6 million from $230.4 million, largely as project funds were used. The revenue-bond arrangements impose use-of-proceeds and reserve requirements.
Outlook, risks and contingencies
- Management expected Ironton production to commence in late 2022 and the facility to be fully operational in 2023; revenue was expected to begin in 2023. Ironton’s stated capacity is approximately 107 million pounds annually. These are forward-looking expectations, not reported results.
- The original Ironton budget was $242.1 million. Management estimated a further $55–$65 million would be needed to complete it, citing added equipment and supply-chain costs; $52.2 million of bond funds remained allocated to construction at June 30.
- For Augusta, management described a planned multi-site facility with up to eight lines and approximately 1 billion pounds of annual capacity when fully operational. Funding, construction, feedstock supply, execution, and customer offtake remain key uncertainties. The company expected to seek additional debt financing and warned it might not obtain financing on acceptable terms or at all.
- Management reported market acceptance of its “Feedstock+” pricing approach, intended to pass through feedstock costs, and said it had secured and contracted feedstock and offtake for Ironton. It had allocated 40% of Augusta output to existing customers; arrangements remain subject to conditions.
- FDA correspondence indicated an agency opinion letter was expected for food-grade post-industrial recycled material under Conditions of Use A–H and a Letter of No Objection for certain post-consumer feedstock under Conditions E–G. Further testing and submissions were planned; regulatory approvals and ongoing compliance remain risks.
- Risks highlighted include construction overruns and delays, ability to scale the process and sort feedstock, feedstock availability and quality, commodity and inflation pressures, financing needs, regulatory approvals, and market acceptance. The company reported material weaknesses in internal control over financial reporting and said remediation was underway; disclosure controls were not effective at June 30, 2022.
- Shareholder securities and derivative lawsuits alleged misleading statements about the technology and business. The securities class actions were dismissed without prejudice on August 4, 2022, with plaintiffs allowed until August 18 to amend. The company could not estimate potential losses for the unresolved matters.
Investor verification priorities
- Track Ironton construction spending, the projected additional $55–$65 million requirement, commissioning, and actual operating performance against the stated timetable and capacity.
- Confirm available unrestricted cash versus restricted project reserves, future financing needs, and the cost and terms of any new borrowing.
- Monitor Augusta funding and construction, progress toward contracted offtake, feedstock sourcing, and Feed PreP facility readiness.
- Check subsequent FDA decisions and the scope of any food-contact approvals, including distinctions between feedstock types and conditions of use.
- Assess progress in remediating internal-control weaknesses, developments in the litigation, and the effects of warrant remeasurement and further equity dilution.