PureCycle Technologies, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are with FY2020. This is an annual filing, not a standalone fourth-quarter report. PureCycle is an early-stage company commercializing licensed polypropylene recycling technology and had not begun commercial production or generated operating revenue.
Business context and progress
The company’s purification process is intended to turn polypropylene waste into ultra-pure recycled resin. Its Feedstock Evaluation Unit had processed approximately 145 feedstocks and produced samples for prospective customers and suppliers. The company reported long-term offtake and feedstock agreements, but commercial-scale production and customer acceptance remained unproven.
- Ironton, Ohio: The first commercial plant was under construction, with planned capacity of approximately 107 million pounds annually. Production was expected to start in late 2022, with the facility fully operational in 2023.
- Augusta, Georgia: Planned as a cluster site with up to eight lines, each expected to produce approximately 130 million pounds annually. Engineering was underway; construction financing and completion remained future requirements.
- Feed PreP: The first facility, in Winter Garden, Florida, was expected to operate in the second half of 2022.
Financial results and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Operating revenue | None | None | Pre-revenue |
| Operating costs and expenses | $69.6 million | $37.2 million | Up 87% |
| Net loss | $77.5 million | $53.0 million | Loss increased 46% |
| Basic and diluted loss per share | $0.75 | $1.96 | Per-share loss narrowed |
| Net cash used in operating activities | $54.5 million | $18.0 million | Use increased |
| Net cash used in investing activities | $305.6 million | $29.8 million | Use increased, including securities purchases and construction |
| Net cash provided by financing activities | $293.4 million | $378.2 million | Lower than prior year |
Margins are not meaningful because the company had no revenue. Selling, general and administrative expense rose to $57.6 million from $28.0 million, including higher equity compensation, personnel, professional and public-company costs. Research and development expense increased to $1.4 million from $0.6 million. Interest expense was $6.7 million, up from $4.1 million. The reported warrant fair-value expense was $1.5 million, versus $11.6 million in FY2020.
At year-end, cash was $33.4 million and available-for-sale debt securities were $167.4 million, for reported unrestricted liquidity of $200.8 million. Restricted cash was $230.4 million; it was largely committed to Ironton construction, reserves and related obligations. Working capital was $306.9 million. Carrying-value bonds payable were $232.5 million; the $63.5 million convertible-note balance was converted into approximately 9.2 million common shares in the fourth quarter. The company reported total assets of $664.7 million and stockholders’ equity of $381.5 million.
Operating cash use and construction investment were substantial. Construction of the plant used $137.4 million of cash in FY2021, while purchases of available-for-sale securities used $229.2 million, partly offset by maturities and sales. The Ironton facility’s original budget was $242.1 million; management estimated a further $30–$40 million would be required to complete it. In March 2022, after year-end, the company raised approximately $250 million gross in a private placement of common shares and Series A warrants. Management said funds on hand, including those proceeds, were expected to support operations for more than twelve months after filing.
Material changes, outlook and risks
- Operating expenses grew sharply, particularly SG&A; cash used in operations more than tripled. The loss per share declined as the weighted-average share count increased following the business combination and financing transactions.
- The FDA had not issued a Letter of No Objection for food-contact use. After FDA questions about a migration calculation, PureCycle revised its application for Conditions of Use C–G and was awaiting a decision; additional testing was planned for Conditions A, B and H.
- Management expected revenue to begin in 2023, following anticipated Ironton operations in the fourth quarter of 2022. Timing, completion costs, commercial-scale performance, resin quality and customer qualification remained uncertain.
- The company cited risks involving feedstock quantity and quality, construction and supply-chain costs, facility permitting, financing needs, customer acceptance, pricing and the success of its Feedstock+ pricing model. Its P&G technology license includes performance and pricing requirements that could affect exclusivity or continuation of the license.
- The SEC had opened a non-public fact-finding investigation concerning, among other matters, statements about the technology, projections, supply agreements and management. Securities class-action and derivative lawsuits were pending; PureCycle said it could not estimate a possible loss range at that stage.
- Disclosure controls were judged ineffective at year-end because of material weaknesses in financial reporting controls, including technical accounting expertise, segregation of duties, review processes, IT access controls and expense/payables cutoff. Management had begun remediation. The auditor issued an unqualified opinion on the financial statements but did not attest to internal-control effectiveness.
- FY2021 included the March 2021 business combination, substantial equity-based compensation, and an immaterial correction to FY2020 capitalization of interest and equity issuance costs. The correction increased FY2020 property, plant and equipment and reduced interest expense by $3.8 million.
Key facts investors should verify
- Whether Ironton is completed and commissioned on schedule, within the revised cost estimate, and able to meet quality, yield and performance targets.
- FDA review outcomes and the food-contact uses and feedstock types, if any, that receive clearance.
- Whether committed feedstock and offtake volumes are binding and achievable, and whether customer qualification and pricing support viable margins.
- How the March 2022 financing proceeds are allocated, the funding plan for Augusta and future facilities, and the impact of new shares and warrants on dilution.
- Developments in the SEC investigation and shareholder litigation, including any financial, operational or disclosure consequences.
- Progress in remediating material weaknesses and whether disclosure controls become effective.