PureCycle Technologies, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. PureCycle is developing technology to purify waste polypropylene into ultra-pure recycled resin. It had not begun commercial operations and reported no revenue.
Financial results and position
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Revenue | None | None |
| Operating costs and expenses | $19.1 million | $10.3 million |
| Net loss | $25.4 million | $26.1 million |
| Loss per share, basic and diluted | $0.19 | $0.51 |
| Cash used in operations | $16.9 million | $20.6 million |
| Capital spending on plant construction | $52.2 million | $33.9 million |
| Cash and cash equivalents | $198.2 million | $33.4 million at Dec. 31, 2021 |
| Available-for-sale debt securities | $219.8 million | $167.4 million at Dec. 31, 2021 |
| Restricted cash | $191.9 million | $230.4 million at Dec. 31, 2021 |
| Working capital | $494.0 million | $306.9 million at Dec. 31, 2021 |
| Bonds payable, net | $232.8 million | $232.5 million at Dec. 31, 2021 |
There is no meaningful operating margin to report because the company had no revenue. Unrestricted liquidity, defined by management as cash plus debt securities, was $418.0 million. Cash flow statements report $390.0 million of cash and restricted cash at quarter-end; this includes restricted funds and is not equivalent to unrestricted liquidity. Gross bonds and notes payable, including discount and issuance costs, were $249.6 million.
Changes from the prior comparable period
- Net loss narrowed by $0.6 million, although operating expenses rose 86% to $19.1 million. Higher operating and SG&A costs were partly offset by lower interest expense and a smaller warrant fair-value charge.
- SG&A increased 93% to $14.7 million, reflecting higher compensation, headcount, bonuses, and insurance costs, partly offset by lower business-combination-related professional expenses.
- Cash used in operations decreased by $3.6 million. Investing cash use rose to $105.1 million, including plant construction and purchases of debt securities.
- The March 2022 private placement raised approximately $250 million gross through issuance of 35.7 million shares and 17.9 million Series A warrants. Common shares outstanding rose to 163.2 million from 127.6 million at year-end.
Outlook, risks, and notable items
- Ironton construction: Planned capacity is approximately 107 million pounds annually. The company said it expected production to begin in late 2022 and the facility to be fully operational in 2023. It estimated $82.7 million of bond funds remained for completion and anticipated another $55–$65 million of spending, citing process improvements, additional equipment, and supply-chain costs. The filing gives differing timing for initial revenue: one passage says by the end of 2022, while another says revenue would begin in 2023.
- Expansion: PureCycle plans an Augusta, Georgia, cluster site with up to eight lines and approximately 1 billion pounds of annual capacity when fully operational. It had allocated 40% of expected Augusta output to existing customers and expected further offtake agreements. A first Feed PreP facility in Winter Garden, Florida, was expected to operate in the second half of 2022.
- Regulatory approval: The company was awaiting FDA action on its revised Letter of No Objection submission for Conditions of Use C–G and planned additional testing for A, B, and H.
- Funding and execution risks: The company expects substantial future capital needs for Ironton, Augusta, and other facilities, and may seek additional debt financing. Risks include construction costs and delays, inflation, feedstock availability and quality, commodity prices, technology scale-up, customer offtake, and regulatory approvals.
- Litigation and investigation: Securities class-action and derivative lawsuits remained unresolved; the company said potential losses could not be reasonably estimated. Subsequent to quarter-end, on April 26, 2022, the SEC notified the company that its non-public investigation had concluded without further action at that time.
- Financial reporting controls: Management concluded disclosure controls were ineffective due to material weaknesses involving technical accounting expertise, segregation of duties, review processes, IT access controls, and expense/payables cutoff. Remediation efforts were underway but not yet complete.
- Unusual accounting item: Series A warrants are liability-classified and remeasured at fair value. The quarter included a $5.8 million net warrant fair-value expense overall; the Series A warrant component alone generated $7.3 million of expense.
Investor verification priorities
- Track Ironton construction progress, actual remaining cost, and the timing of production and first revenue, reconciling the filing’s differing revenue timelines.
- Confirm how much of the $418.0 million unrestricted liquidity remains available after construction spending and other commitments, and whether additional financing is required.
- Verify FDA progress, feedstock supply and processing performance, and the status and conditions of customer offtake arrangements.
- Monitor Augusta funding, construction, customer commitments, and the planned Feed PreP rollout.
- Review dilution exposure from the March share issuance and the 17.9 million Series A warrants, as well as movements in warrant liabilities.
- Follow litigation developments and whether management remediates the reported material weaknesses and restores effective controls.