PureCycle Technologies, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. PureCycle is pre-revenue and is commercializing licensed technology to recycle polypropylene into ultra-pure recycled resin.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $0 | No operating revenue in either period |
| Operating costs and expenses | $21.8 million | $19.1 million, up 14% |
| Net loss | $25.8 million | $25.4 million |
| Loss per share, basic and diluted | $0.16 | $0.19 |
| Cash used in operations | $14.8 million | $16.9 million |
| Plant construction cash spending | $46.6 million | $52.2 million |
Margins are not meaningful because the company has not generated revenue. Operating costs rose 110% to $8.5 million, mainly from higher Ironton staffing, rent and depreciation. SG&A declined 12% to $12.9 million, primarily due to lower equity compensation and bonus expense. The $4.8 million warrant fair-value expense contributed to the loss; warrant remeasurement is non-cash.
At March 31, cash and cash equivalents were $38.4 million; restricted cash was $225.5 million. Available unrestricted liquidity was $38.4 million, down from $107.9 million at year-end after transfers to restricted accounts. Working capital was $43.2 million. Revenue bonds had $249.6 million principal outstanding and a $233.8 million carrying value; no borrowings had been drawn on the $150 million revolving facility by quarter-end. Total assets were $875.4 million and stockholders’ equity was $487.6 million.
Material changes and operating outlook
- PureCycle continued construction of its first commercial-scale Ironton, Ohio facility, designed for 107 million pounds of annual capacity. It estimated $26–$51 million of remaining investment to complete the facility, with $25.2 million set aside in restricted cash. The estimate depends on contract contingencies.
- After quarter-end, the company announced mechanical completion on April 25; independent certification followed on April 28. The company expected commissioning to begin in Q2 2023 and full production capacity later in 2023. It had not yet begun commercial operations.
- In March, bondholders waived the missed December 2022 completion deadline subject to funding and operating milestones, including production targets and facility completion by December 31, 2023. Failure to meet waiver terms could trigger default.
- The company entered a $150 million revolving credit facility on March 15, maturing June 30, 2024. Its interest margin escalates from 5% to 17.5% over the facility term, in addition to fees. The lenders and their affiliates are significant beneficial owners.
- After quarter-end, PureCycle entered a delayed-draw term loan facility of up to $40 million, maturing December 31, 2025, with Term SOFR plus 7.5%, a 5% original issue discount and other fees. It also arranged leasing of up to $22 million of equipment. These are financing arrangements, not Q1 cash or funded debt.
- Management said the company’s unrestricted liquidity was insufficient to fund operations, commitments and growth plans and that conditions raised substantial doubt about its ability to continue as a going concern. Management stated that subsequent financing plans, including up to $62 million of additional available unrestricted liquidity, alleviated that doubt for the next twelve months. Further financing may still be needed.
Risks, contingencies and other notable items
- Additional stated commitments included approximately $21.2 million for Augusta long-lead equipment and pre-construction, and $39.9 million for future Feed PreP and purification equipment and leases. Augusta financing and construction timing remained uncertain; the company was limiting spending and pursuing financing alternatives.
- The company had not generated revenue and depended on successful commissioning, production performance, feedstock sourcing, regulatory approvals and customer offtake. The filing provides no quantified earnings or revenue guidance.
- FDA clearances had been obtained for specified food-grade feedstock sources and conditions of use; further testing and submissions were planned. A P&G side letter extended the date for maintaining commercial sales at 70% of nameplate capacity to December 31, 2024.
- Disclosure controls were ineffective at March 31 because of material weaknesses in IT access/segregation controls and financial reporting review. Remediation was underway but not yet validated as complete.
- Shareholder securities litigation and derivative cases remained unresolved; the company said potential losses could not be reasonably estimated. It also disclosed a shareholder books-and-records demand.
- A $25 million surety bond was issued for a vendor contract; it was not recorded as debt. The company reported no defaults upon senior securities in the period.
Key facts for investors to verify
- Whether Ironton achieved commissioning, production and pellet-output milestones required by the bond waiver, and whether remaining completion costs stayed within estimates.
- Actual cash availability after accounting for restricted funds, construction spending, bondholder reserve requirements and the status and costs of the revolver and subsequent term loan.
- Whether the company generated commercial revenue and achieved the expected production ramp, product quality and contracted offtake.
- Financing and timing for Augusta and other expansion commitments, including any additional debt or equity issuance.
- Progress in remediating material weaknesses and developments in litigation and other contingencies.