PureCycle Technologies, Inc. (NASDAQ:PCT) is a Florida-based company that is revolutionizing the plastic recycling industry through its innovative and patented purification technology. The company's mission is to create a new segment of the global polypropylene market that assists multinational entities in meeting their sustainability goals, provides consumers with polypropylene-based products that are environmentally friendly, and reduces overall polypropylene waste in landfills and oceans.
Company Background
PureCycle's remarkable journey began in 2016 when it licensed a game-changing purification technology from The Procter & Gamble Company (PG). This patented process, originally developed by P&G, is the foundation of PureCycle's efforts to restore waste polypropylene into a resin called ultra-pure recycled (UPR) resin, which has nearly identical properties and applicability for reuse as virgin polypropylene.
PureCycle Technologies, Inc. was officially formed in 2018 with the goal of commercializing the patented purification recycling technology. In 2019, the company became operational with its Feedstock Evaluation Unit (FEU), a pilot facility that allowed PureCycle to test and validate its recycling process. Building on the success of the FEU, in 2020 PureCycle began construction on its first commercial-scale recycling facility, the Ironton Facility, located in Lawrence County, Ohio.
To fund the development of the Ironton Facility, PureCycle's subsidiary PureCycle Ohio LLC secured $250 million in revenue bonds issued by the Southern Ohio Port Authority in 2020. This facility was designed to have an annual production capacity of approximately 107 million pounds of ultra-pure recycled (UPR) resin when fully operational.
In 2021, PureCycle took a significant step forward by completing a business combination with Roth CH Acquisition I Co., a special purpose acquisition company (SPAC). This transaction provided the company with the necessary capital to accelerate its growth and commercialization plans. Following the business combination, PureCycle's common stock, units, and warrants began trading on the Nasdaq Capital Market.
Current Operations
PureCycle's first commercial-scale recycling facility, the Ironton Facility, located in Lawrence County, Ohio, began commissioning activities in April 2023. Despite facing some intermittent mechanical challenges during the commissioning process, the company has made progress in addressing these issues and continues to work towards achieving consistent sustainable production rates.
PureCycle's process includes two main steps: 1) Feed Pre-Processing (Feed PreP) to collect, sort, and prepare polypropylene waste feedstock, and 2) the purification step using a combination of solvent, temperature, and pressure to return the feedstock to near-virgin condition. By not altering the chemical makeup of the polymer, PCT is able to use significantly less energy and reduce production costs compared to virgin resin.
Financials
As of June 30, 2024, PureCycle had $10.9 million in unrestricted cash and cash equivalents, as well as $12.6 million in restricted cash. The company also has access to a $200 million revolving credit facility with Sylebra Capital, which remains largely unutilized and expires in September 2025.
PureCycle's financial performance has been impacted by its early-stage nature, with the company reporting no revenue for the fiscal year 2023 and the second quarter of 2024. The company reported a net loss of $101,715,000 for the fiscal year 2023 and $48,212,000 for Q2 2024. Operating cash flow (OCF) was negative $94,906,000 for FY 2023 and negative $40,430,000 for Q2 2024. Free cash flow (FCF) was negative $248,805,000 for FY 2023 and negative $50,800,000 for Q2 2024.
The company's operating costs and expenses, primarily driven by depreciation, operational site costs, and legal and professional fees, totaled $78.90 million for the six months ended June 30, 2024.
PureCycle has sold an immaterial amount of resin through the first six months of 2024 but has not yet reached meaningful production volumes and on-spec product. The company has experienced intermittent mechanical challenges during the commissioning process, including limits in the rates at which certain contaminants can currently be removed from the purification process, as well as challenges with continuous operations of the pelletizing system for finished product. Recently, PCT has been focused on the recovery and removal of polyethylene and other solids co-product 2 or CP2, which impacts the ability to run higher volumes and produce consistent, high-quality UPR resin.
Liquidity
As of June 30, 2024, PureCycle's debt-to-equity ratio stood at 1.08. The company's current ratio was 0.67, and its quick ratio was 0.54, indicating potential short-term liquidity challenges.
Despite these challenges, PureCycle remains focused on its long-term growth strategy. The company is actively working to address the mechanical issues at the Ironton Facility, as well as exploring ways to blend its UPR resin with either post-industrial recycled material or virgin polypropylene to improve product consistency and enhance the delivery to customers.
Expansion Plans
In addition to the Ironton Facility, PureCycle is also making progress on the development of its first U.S. multi-line facility in Augusta, Georgia, the Augusta Facility. The company has invested approximately $91.9 million for pre-construction engineering and long-lead equipment for the benefit of the first phase of the Augusta Project. PureCycle is currently pursuing various structures for project financing of the Augusta Facility, as market conditions have created uncertainty regarding the timing or likelihood of success of the currently anticipated project financing.
PureCycle's expansion plans extend beyond the United States. In January 2023, the company announced its first European purification facility will be located in Antwerp, Belgium. Additionally, in October 2022, PureCycle executed a joint venture agreement with SK geo centric Co., Ltd. to develop a UPR purification facility in Ulsan, South Korea. The company is also planning to expand its production capabilities into Asia through negotiations with Mitsui Co. Ltd. in Japan for in-country production and sales.
Challenges and Opportunities
The company's innovative technology, first-mover advantage, and global expansion plans have attracted the attention of the investment community. However, PureCycle has also faced some challenges, including legal issues and operational hurdles.
In May 2021, two putative class action complaints were filed against PCT, certain senior members of management, and others, alleging violations of federal securities laws. PCT reached a tentative $12 million settlement in the consolidated securities lawsuit in April 2024, which is subject to court approval.
Several shareholder derivative actions were also filed against PCT's management and directors, alleging breaches of fiduciary duties and other claims. PCT reached a proposed $3 million settlement of the consolidated derivative litigation in July 2024, which is subject to court approval.
Additionally, on June 16, 2023, Denham-Blythe Company, Inc. filed a demand for binding arbitration against PCT's subsidiary PureCycle Ohio LLC, seeking approximately $17 million related to certain fee applications, change orders, and amounts currently held in retainage. PCT is defending against Denham-Blythe's claims and pursuing recovery of damages.
In November 2023, Bleeker Street Research published two reports alleging that PureCycle had misled investors about the launch of the Ironton Facility and would not meet its production targets. These allegations have led to additional legal scrutiny, with a purported shareholder, Selim Piot, filing a litigation demand letter and a books and records demand, as well as initiating a derivative action in the Chancery Court of Delaware.
Conclusion
Despite these obstacles, PureCycle remains committed to its mission of revolutionizing the plastic recycling industry. The company's unique technology, global footprint, and strong partnerships with industry leaders like P&G position it as a force to be reckoned with in the rapidly evolving world of sustainable plastics.
As PureCycle continues to navigate the challenges and opportunities ahead, investors and the broader market will closely monitor the company's ability to achieve consistent and sustainable production at the Ironton Facility, secure the necessary financing for its expansion plans, and address the legal concerns that have arisen. The company's success in these areas will be crucial in determining its long-term trajectory as a pioneer in the plastic recycling revolution.