PureCycle Technologies, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. This unaudited report covers the three and nine months ended September 30, 2021. PureCycle is a pre-commercial plastics recycler developing technology to purify waste polypropylene into near-virgin resin. It had not begun commercial operations and reported no operating revenue. The March 2021 business combination and PIPE financing materially changed the company’s capital structure and share count; prior periods reflect Legacy PCT under reverse-recapitalization accounting.
Financial performance and liquidity
| Metric | Q3 2021 | Nine months 2021 | Comparison |
|---|---|---|---|
| Revenue | None | None | No operating revenue in either 2020 comparison period |
| Operating costs and expenses | $27.5 million | $47.7 million | Up 361% and 295%, respectively |
| Net loss | $21.0 million | $58.1 million | Compared with $6.6 million and $15.6 million losses in 2020 |
| Loss per share | $0.18 | $0.61 | Compared with $0.28 and $0.75 in 2020 |
| Operating cash used | Not separately shown | $42.0 million | Versus $10.8 million in 2020 |
| Investing cash used | Not separately shown | $273.1 million | Versus $2.4 million in 2020 |
| Financing cash provided | Not separately shown | $294.1 million | Versus $13.2 million in 2020 |
At September 30, cash was $36.7 million, restricted cash $272.9 million, and available-for-sale debt securities $184.6 million. The filing also reports $309.6 million of cash and restricted cash combined; much of the restricted balance is subject to project and debt-service restrictions. Working capital was $169.8 million. Balance-sheet debt included $59.7 million of notes payable and $232.3 million of bonds payable; accrued interest was $7.8 million. Management separately describes $319.0 million of debt and accrued interest before $19.3 million of discounts and issuance costs.
Total assets were $691.9 million, liabilities $361.8 million, and stockholders’ equity $330.1 million. Property, plant and equipment, net, was $189.2 million, including $161.5 million of construction in process. The filing does not provide a meaningful operating margin, as there was no revenue.
Material changes and notable items
- SG&A rose to $24.5 million in Q3 and $39.4 million for nine months, driven by equity compensation, increased staffing, incentive compensation, public-company costs, insurance, and professional fees. Equity-based compensation for nine months was $14.8 million.
- Construction spending and investment purchases drove the increase in investing cash outflow: the company spent $88.2 million on plant construction and purchased $229.2 million of debt securities, partly offset by $44.2 million of sales and maturities.
- The Q3 warrant fair-value change was a $8.4 million gain, reducing expense; for the nine months it was a $4.9 million expense. This non-cash item contributed to period-to-period earnings volatility.
- The company raised approximately $298.5 million net from the business combination and PIPE, after transaction costs. The September 30 share count was 118.3 million; approximately 125.0 million shares were outstanding as of November 10.
- On October 22, after quarter-end, the company issued 6.53 million shares to noteholders converting approximately $45.3 million of convertible notes.
Outlook, risks, and contingencies
- Management expected Ohio Phase II production to begin in late 2022, with the facility fully operational in 2023, and expected revenue to begin by the end of 2022. The planned plant has nameplate capacity of approximately 107 million pounds annually.
- The Ohio plant’s original budget was $242.1 million. Management estimated $155.9 million of bond funds remained allocated to completion at September 30 and anticipated an additional $30–$40 million of construction costs, including costs related to supply-chain issues and planned process improvements.
- The Augusta, Georgia cluster plan envisaged five lines with capacity of up to 650 million pounds annually. The first Feed PreP facility in Winter Garden, Florida, was expected to be operational in the first half of 2022. These are plans, not operating results; the filing gives no formal financial guidance.
- Management said capital raised was sufficient to fund obligations for at least one year from issuance of the financial statements, while warning that additional financing could be needed if forecasts or construction costs differ. The company had recurring losses, negative operating cash flow, no revenue, and material execution and scale-up risks.
- Key risks include construction delays and cost overruns; whether the technology can operate reliably at commercial scale and meet quality specifications; feedstock availability and processing; offtake performance and pricing; regulatory approvals, including the FDA Letter of No Objection; and maintaining rights under the P&G license.
- The SEC had opened a non-public fact-finding investigation concerning statements about the technology, projections, supply agreements, and management. A consolidated securities class action was pending; a shareholder derivative action was filed November 3, after quarter-end. The company said it could not estimate potential losses for the unresolved matters.
- Disclosure controls were deemed ineffective due to material weaknesses in financial reporting controls, including staffing and segregation of duties, review processes, IT access controls, and expense/payables cutoff. Management described remediation steps, but had not concluded remediation was complete.
- The filing disclosed immaterial prior-period corrections related to capitalized interest and equity issuance costs; management concluded no period was materially misstated.
Important facts for investors to verify
- Progress against Ohio construction milestones, the projected additional $30–$40 million cost, and the availability and permitted use of remaining project funds.
- Whether commercial-scale production, product specifications, customer acceptance, and regulatory approvals are achieved on the stated timeline.
- Unrestricted liquidity and compliance with bond-related cash requirements, including the stated $100 million minimum cash requirement for January 31, 2022, which includes the liquidity reserve.
- Remaining convertible-note principal after the October conversion, future interest payments, and resulting dilution.
- Developments in the SEC investigation, securities litigation, derivative action, and remediation of material weaknesses in internal controls.