Earnings call: PureCycle Technologies reports robust Q3 growth

In a recent earnings call, PureCycle Technologies (PCT) CEO Dustin Olson provided a detailed update on the company's third-quarter performance in 2024, highlighting significant production milestones, strategic advancements, and financial developments. Olson reported a 200% increase in production quarter-over-quarter at the Ironton facility and the start of a new sorting facility in Denver, PA, which has achieved its full capacity.

The company's focus on profitability, compounding operations, and the production of various recycled polypropylene (PP) materials has set the stage for expected revenue growth starting in Q4 and into 2025. PureCycle raised substantial capital through revenue bonds and a capital raise to support its operations and future expansion plans in Augusta and Antwerp.

Key Takeaways

• PureCycle Technologies achieved a 200% production increase quarter-over-quarter.
• The company launched a sorting facility in Denver, PA, reaching 22,000 pounds per hour capacity.
• Over $105 million was raised through revenue bonds and a capital raise in September.
• Compounding strategy is yielding approximately $400,000 per week in sellable products.
• Positive customer feedback on sustainability and material performance.
• The company is targeting underserved markets in film, fiber, and injection molding.
• Global demand for polypropylene is over 187 billion pounds, growing 3% to 4% annually.
• Partnerships with Procter & Gamble and a global automotive company are in development.
• PureCycle reported a cash balance of nearly $94 million and a decrease in operating cash expenses to $23.5 million in Q3.

Company Outlook

• PureCycle is preparing to meet a projected rise in demand for recycled products, expected to reach 60 billion pounds by 2030.
• The company anticipates meaningful revenue growth starting in Q4, ramping into 2025.
• Plans to ramp up production at the Ironton plant to meet demand starting in Q4 2023, continuing into 2025.

Bearish Highlights

• Production levels are currently below nameplate capacity.
• The termination of the joint venture with SK, though the company is exploring new partnership opportunities.
• Specific revenue projections for 2025 were not provided.

Bullish Highlights

• Successful customer trials and positive feedback indicate potential for increased commercial sales.
• The company is prioritizing commercial efforts with a strong portfolio of compounded products.
• Optimism about future growth and market positioning.

Misses

• Challenges with the quality of Number 5 bales at the Ironton facility, but improvements are expected to boost yield and reliability.

Q&A Highlights

• Olson emphasized building customer trust through successful trials and inventory management.
• The Denver facility is expected to enhance operational efficiency and economics.
• The Augusta plant's construction timeline is estimated at six to ten quarters, with plans for a two-line operation.

Additional Insights

• The company controls production rates at Ironton and is confident in scaling operations effectively.
• Future capital expenditure requirements for Augusta are still being assessed.
• The expected operating cash burn for Q4 is projected around $8 million, improved from Q3's $23 million.
• PureCycle's operations are running exclusively on post-consumer recycled material, with optimism about ramping up volumes in the future.

PureCycle Technologies is positioned as a primary supplier in the growing market for recycled polypropylene products. With strategic operational improvements, significant capital raised, and positive customer trials, the company is setting a strong foundation for future growth and profitability.

InvestingPro Insights

PureCycle Technologies' recent earnings call paints a picture of a company on the cusp of significant growth, but InvestingPro data and tips provide additional context for investors to consider.

According to InvestingPro data, PureCycle's market capitalization stands at $1.97 billion, reflecting investor optimism about the company's potential. This optimism is further supported by the stock's impressive performance, with a 254.9% price total return over the past year and a 195.31% return year-to-date. These figures align with the company's reported production increases and strategic advancements.

However, InvestingPro Tips highlight some challenges. The company is not currently profitable, with an adjusted operating income of -$144.39 million over the last twelve months as of Q2 2024. This aligns with the company's focus on ramping up production and investing in future growth, as discussed in the earnings call.

The Price to Book ratio of 6.77 suggests that investors are placing a premium on the company's future potential rather than its current book value. This high valuation could be justified by the expected revenue growth starting in Q4 and into 2025, as mentioned by CEO Dustin Olson.

It's worth noting that analysts do not anticipate the company will be profitable this year, which is consistent with the company's current focus on scaling operations and building customer relationships rather than immediate profitability.

For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for PureCycle Technologies, providing a deeper understanding of the company's financial health and market position.

Full transcript - Purecycle Technologies Holdings Corp (NASDAQ:PCT) Q3 2024:

Operator: Good day, and thank you for standing by. Welcome to the PureCycle Technologies Third Quarter 2024 Corporate Update Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Christian Bruey, Director of Communications. Please go ahead.

Christian Bruey: Thank you, Kevin. Welcome to PureCycle Technologies Third Quarter 2024 Corporate Update Conference Call. I'm Christian Bruey, Director of Communications for PureCycle and joining me on the call today are Dustin Olson, our Chief Executive Officer; and Jaime Vasquez, our Chief Financial Officer. This morning, we will be highlighting our corporate developments for the third quarter 2024. The presentation we'll be going through on this call can also be found on the Investor tab at our website at purecycle.com. Many of the statements made today will be forward-looking and are based on management's beliefs and assumptions and information currently available to management at this time. The statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control, including those set forth in our Safe Harbor provisions and forward-looking statements that can be found at the end of our third quarter 2024 corporate update press release that was filed this morning as well as in other reports on file with the SEC that provide further detail about the risks related to our business. Additionally, please note that the company's actual results may differ materially from those anticipated, and except as required by law, we undertake no obligation to update any forward-looking statements. Our remarks today may also include preliminary non-GAAP estimates and are subject to risks and uncertainties including among other things changes in connection with quarter end and year-end adjustments. Any variation between PureCycle's actual results and the preliminary financial data set forth herein may be material. You're welcome to follow along with our slide deck or if joining us by phone, you can access at any time at purecycle.com. We're excited to share updates from the previous quarter with you. I'll now turn it over to Dustin Olson, PureCycle's Chief Executive Officer.

Dustin Olson: Thank you, Christian. This has been an exciting and productive quarter for PureCycle as we made significant progress across a number of areas. Momentum is building, and I'm proud of the team and their steadfast determination on our mission to revolutionize plastic waste and enable a pure planet. There continues to be an enormous need in the market for sustainable solutions and PureCycle is leading the charge with our next-generation purification technology. Q3 was highlighted by achieving three critical production milestones at our Ironton facility. We have set these specific goals to show various elements of our production progress and are pleased with their execution against them. Production out of Ironton is effectively feed rate times hours of production equals output. These milestones were chosen to be able to show progress against both rate and uptime with solid outcomes on both fronts. While we are pleased with the achievement this quarter, we will continue to lean into production on both rates, reliability and quality. Our confidence in achieving our nameplate capacity targets over time continues to increase. In addition to the milestones, tangible progress was seen in feedstock production, operations, commercial and finance areas. Within operations, there were several successful outcomes in Q3 with significant advancement on the CP2 removal, Denver PA's PreP facility launch and the ramping of the compounding operations. Our success on CP2 has enabled us to transition to running more challenging feeds with higher CP2 levels and exclusively PCR content. We are excited about Ironton's production performance and are now focusing our attention on scaling the commercial aspects of our business. With more stable production and higher quality output, we are also gaining traction on our commercial plan. Our compounding strategy is operational and, over the last four weeks producing, approximately $400,000 per week of sellable product, providing customers with better product options. Customers are actively trialing both compounded and PureCycle stand-alone pellets with great success. We are actively developing products for film, fiber and injection molding applications. Film and fiber continues to be an underserved, and our product has the potential to fill a badly needed supply gap. We are exploring commercial opportunities in both direct and compounded products with ongoing trials running across a growing number of large companies. The project development takes time to develop the right product qualities and then the trust between the supplier and customer. With our current plant performance, we are finding a growing pipeline of opportunities that will translate to financial success. The team also made substantial progress on capital raising with proceeds from the Ironton revenue bonds combined with the capital raise in September. These combined efforts raised over $105 million in net proceeds and our support for ongoing operations and growth efforts. As Ironton has increased production successfully, we are now looking to pursue financing for additional capacity in Augusta and Antwerp. As expected, the third quarter was our strongest production quarter ever, with more production than we had completed cumulatively to this point. Quarter-over-quarter production grew more than 200%, and we built inventories across film, fiber and injection molded products. This was despite significant time spent commissioning the upgrades to the CP2 removal system. Previous CP2 had been our primary constraint for both rates and quality. Once we upgraded that operation, both have improved, and we do not currently expect this to be a rate constraint moving forward. Plant upgrades during the outage have continued to pay dividends for both rate and reliability. We have seen our current operations running steady with long stretches of continuous production. We've made solid progress on our production reliability as well, specifically with critical seal systems and CP2 removal. Our team is dedicated to improving plant reliability and is delivering on their objectives with good pace and momentum. We are not done ramping our Ironton production. We look to build upon the Q3 milestones, and we know what we need to do to incrementally push production to higher levels. We continue to learn and also continue to lean into advancing these improvements. Our new production capabilities at Ironton allow us the confidence to increase production as necessary to meet our growing customer needs. We're currently carrying inventory of both compounded and finished products, and feel comfortable with our ability to service the growing demand. The pellets in this picture are recycled CP2, and I'm very proud of them. Many people across all disciplines collaborated to find a unique solution with CP2 removal and then rebuilt it. By improving the system, we also increased our ability to remove contaminants from the final product, and by doing so, significantly improved product quality. The team has continued to improve our removal capacity and should no longer be limited by a CP2 removal constraint. It also should provide an opportunity to create additional value in the CP2 stream. We are now removing this material at rates of up to 15,000 pounds per day, palletizing the final product and marketing it to multiple companies as a sellable recycled material. This is such a great example of ingenuity. We've taken a waste stream that was originally destined for a landfill and turned it into a product that customers value. This not only helps our economics, it also makes our team more proud of the circularity that we're building. We see this as a nice addition to our product portfolio. Our feedstock operations were another area of achievement in Q3 as we started up our Denver, Pennsylvania, plastic sort facility. Plastic is an important component in our -- feedstock is an important component in our business, and we are pleased with the ongoing development. Our Denver sort facility was built with high product efficiency, high equipment reliability and can be operated with low cost. The nameplate capacity is approximately 22,000 pounds per hour and should serve both Ironton and Augusta operations. This location will upgrade low-quality Number 5 bales to a suitable level for Ironton and also help to purify PET, HDPE and aluminum streams for recyclers in the industry. With this facility, we should be able to buy more feed, draw more feed into the market, lower our feedstock costs and build more stability into the Ironton operations. While still early, we have already achieved nameplate capacity at the facility. This will be a great long-term foundational asset for our business. We've also expanded our feedstock flexibility. We can now buy low-cost Number 3 to Number 7 bales and low-quality Number 5 bales, upgrade them through sorting and then send a high percentage PP bale to Ironton for grinding -- for purification. At this moment, we are buying feed from MRFs, sorting at Denver, washing and grinding the bales at Ironton PreP and purifying at our facility. We've also continued to run the off-site flake sorting operations with good reliability at 1,000 pounds per hour and are on track to install an additional flake sorting operation at Ironton. The net result of all of this is incremental feedstock flexibility and efficiency. This will allow us to buy cheaper feedstock and improve plant yield by avoiding processing non-PP streams through purification. Practically speaking, our PP concentration has increased from less than 85% to 92% to 95% today and is expected to continue to improve to 97% in Q4 after the final Ironton flake sorter is installed. This higher PP concentration allows for Ironton production yields to grow while also making our plant more efficient, reliable and allow for higher rates. Bringing together all of these different feed capabilities is an important accomplishment for our team. Digging deeper into the successful production outcomes of Ironton, there are other important elements worth noting. The improvement in production across the plant has come while simultaneously moving into more challenging feedstocks and improving final product quality. Without being able to process more prevalent feedstock, Ironton production would have been limited by feed or burdened with higher cost feed inputs. The plant has shown the ability to run prevalent curbside PCR with high levels of CP2 and shown improved recovery. You can see how the mix of PIR, PCR with a combination of no CP2, low CP2 and high CP2 contents will impact feedstock pricing and final product pricing. Our improved product quality at Ironton helps improve commercial adoption, but also opens up more applications to our product. Progress on both feedstock cost and off-take value should continue to build confidence in strong margins and the attractive economics of our business. Initial commercial feedback from the market has been very positive and gives us increasing confidence in achieving the financial margin targets we previously discussed. Our unit economics for Ironton and our products continue to show strength and should provide a solid foundation to build future plants and capacity. Our compounding efforts are layering in additional benefits to our business. The compounding strategy was added to position PureCycle to better match the product to the customer-specific application. It was an enhanced service option for our customers to open the door and qualify more quickly, and we're seeing early successes. Customers are excited about the products that we're making. Compounding also allows us an opportunity to incrementally expand our volume with PIR, PCR and virgin complements and improve overall company profitability. We are able to offer these compounds to the market at lower price premiums versus virgin alternatives, but should also carry better overall economics to us as the volumes are materially higher for a largely fixed cost business. This works in both PureCycle's and our customers' favor and should lead to better overall profits for us. It's unclear how much of our volumes will be ultimately compounded, but in any scenario, the mix of compounding should be accretive to the overall profit dollars. Following the success of Ironton operations in Q3 and consistent production of RPP, we shifted our focus towards commercial efforts. The product that you see on the left is a 50-50 blend of PureCycle and PCR material. This broken from 12 MFI to 35 MFI to serve the fiber market. It is a very unique, high-quality product in the market. The color is good, the contaminant level is very low, and it runs similar to virgin in customer facility trials. Our compounding strategy has enabled us to build a portfolio of products for the broader market. Not only are we creating a variable blend of recycled content, we are also adjusting the product characteristics. Every application is a little different. We can now formulate blends for general categories while also creating specific recipes for customers when necessary. This makes their operations simpler and more efficient and also makes the adoption much easier for customers. We have now built 2.5 million pounds of compounded product inventory with various blends in preparation for our [indiscernible]. This alleviates one of the early commercial challenges for new suppliers about their concern of reliable supply and consistent quality. The PureCycle stage is set. Our technology is creating high-quality product in large quantities. Our commercial strategy is taking shape. We are well positioned to take advantage of this attractive landscape. No matter how you look at the overall market opportunity in front of us, it's absolutely massive. Global PP demand is over 187 billion pounds and continuing to grow at 3% to 4% per year. The demand for recycled product continues to be high and growing due to brand commitments. The supply gap continues to be very high due to a lack of quality product available and PureCycle is testing products across three key underserved segments. We believe our product can satisfy customer requirements in approximately 85% of the current market. Not only does the market look attractive today, based on industry projections, we believe future years will look even better. Based on the projections, the demand for recycled material is expected to grow to approximately 60 billion pounds by 2030. We believe that it is clear that PureCycle is best positioned to be the primary supplier of high-quality material through this enormous market. With Ironton now better positioned, we have been focusing on our commercial efforts. Trials have been kicked off across a number of companies, industries and applications. This process has been very encouraging as market feedback on our products has been consistently positive. Our product is delivering high-quality outcome that will help enable our customers to achieve their sustainability goals. The trials are showing it runs with virgin-like outcomes and will be able to address very large parts of the overall PP market. We are excited to be opening up new trials as well as progressing our existing pipeline of potential customers. As customer orders arrive, we intend to ramp to meet that demand. As we have embarked on our commercialization, we want to give investors some color and some context around our commercial time frames. Given the unique nature of our product, most investors are probably not familiar with the process for project commercialization. We have focused on four key initial categories for sales: fiber, film, injection molding and automotive. Each category will represent a key proof point for future sales in both Ironton as well as future facilities. For fiber, we are well on our way. The application is operationally tricky. There are numerous adjustments that need to be made to fine-tune the process, both in terms of compounding recipe as well as the customer fiber operational variables. We believe we found the right recipe, and we are currently actively trialing our material with five different fiber producers, some are very big and some are more niche and testing a wide range of yarn types for different applications. We are very, very excited here. I remind you that fiber is an extremely difficult operation even for virgin material. So to find success with a recycled stream, it's just very good. Initial progress has been strong, and we are confident this will be a large category for us in the future. Injection Molding. We're very excited to now be partnering with Procter to develop several compounding solutions across a couple of different brand categories. This commercialization process at P&G is expected to take time when initial feedback has been encouraging. Procter & Gamble has been a steady supporter of us, and we are excited to deliver the first tangible product to their brand teams. Automotive is a potentially enormous category for PureCycle. There are typically over 300 pounds of plastic installed on each vehicle. And that number has grown as OEMs replace steel to lighten the weight in order to achieve better fuel efficiency. Polypropylene is typically the plastic of choice because of it is lightest of the traditional plastic options. Automotive has been historically challenging to address with traditional recycled materials as it is highly sensitive to quality and also the applications are highly technical. A small imperfection on an automotive plastic part can create paint adhesion problems or odor issues or yield losses. To-date, it's been very difficult to introduce other recycled supply to automotive at scale due to the contamination level inside of those products. We have been working with a global automotive company to gain approval for our products into several of their key applications. The customer approval process is well on its way, and we hope to gain final approval in Q4. If this proceeds as planned, we expect orders to start in Q1 of '25. For film, we are just getting started. While the trial process will follow a similar time line as fiber, the early results are promising. We have not trialed our product commercially yet, but we have converted our product into film at lab scale. This is a big deal. We have worked with a large food and beverage brand to take their wrappers, things like metallized film and multilayered film, into our Durham R&D facility, we purified it and then we converted it into film all on site and all in front of them. It's a great proof point for our brands looking to close the elusive recycled gap in film. Across all of these applications, there's also an emerging synergy story developing. We worked with one customer who is interested in using our product in a mop head application. This application had an injection-molded plastic base connected to a collection of fibers for the mop. One customer, two application types, PureCycle can serve both. We had another automotive customer discussion around replacing the carpet in the car with RPP fiber. During that discussion, we also mentioned our ability to produce bumpers, dashboards and other products. One customer, multiple applications, PureCycle can supply all. Our strategy is to prove that our product can successfully run across multiple lanes. We found early success in fiber and injection molding and are in the early stages with film. As we gain approvals, we expect to broaden our customer base, grow our offering potential, serve the customer more completely and build a strong commercial foundation for future projects. We expect revenue to begin to show up materially in Q4 and ramp into 2025. This confidence is being built by the growing pipeline of customers, strong success from trials and feedback from the market. While there is some uncertainty with exact timing, the direction and inflection of our financial prospect is clear. The future is bright, and we are energized and excited. Some of the largest companies in the world are recognizing a new supply has emerged to solve their sustainability needs, and they are leaning in enthusiastically to PureCycle. At this time, I would like to hand it over to Jaime for the financial presentation.

Jaime Vasquez: Thank you, Dustin. I'll touch on our liquidity on Slide [indiscernible]. As Dustin mentioned, we raised $90 million on September 13, by entering into subscription agreements with certain investors where we saw the combination of preferred stock, common stock and warrants. This was in addition to the $18 million in proceeds from the revenue bond sales earlier in the quarter. These transactions boosted our quarter end unrestricted and restricted cash balance to almost $94 million. Also as a reminder, we hold about $118 million of our revenue bonds that we plan to sell over the next several months that should further support our liquidity needs in 2025. In early October, we did make a $36 million payment into an escrow account related to the Augusta purification project. Over the next several quarters, we have about $11 million of commitments for the Augusta project, mostly for long lead equipment and pre-construction work. We plan to further the activity in Augusta in 2025 and also plan to secure financing for that project. Lastly, operating cash expenses, which are the first 3 bullets under the unrestricted cash uses on the slide totaled $23.5 million for the third quarter. This was a decline from nearly $35 million in the previous quarter and down about $4 million from the first quarter of the fiscal year. I will now turn the call back to Kevin to open the call for questions.

Operator: Thank you. [Operator Instructions] Our first question comes from Hassan Ahmed with Alembic Global Advisors. Your line is open.

Hassan Ahmed: Good morning, Dustin. Good progress being made. Happy to see that you guys hit all the three main sort of production milestones towards the end of Q3. Just on the near-term side of it, how are those milestones looking in the early part of Q4? Do you continue to sort of -- are you continuing to sort of hit those milestones, exceed them? Where do we stand there?

Dustin Olson: Yeah. Thanks for the question, Hassan. Every time we reach a new milestone, we map out the boundary conditions for that operation, and we learn how to operate at that place. So we have very high confidence in our ability to get back to those levels and operate at those levels on demand. I would say that as we progress into Q4, we've been running higher -- feedstock with higher levels of CP2. We continue to commission the CP2 to get all the kinks worked out so we can run at high levels, and we continue to ramp up production from there. I think the important thing here is that we have high confidence in our ability to reproduce those results and run the plant as we want. Our focus now is really on establishing a commercial lane and having Ironton operations match that commercial demand. So over the next few months, we'll run the rates that are required to meet the commercial demand. We'll continue to look for new boundary conditions so that when the demand is there in the later half of Q4 and into 2025, the Ironton plant will ramp to meet that.

Hassan Ahmed: Very helpful, Dustin. And as a follow-up, I appreciate the Slides 12 and 13 in particular. So, obviously it appears that you guys are getting very good customer feedback and commercial sales seem to be imminent. I mean, if I read the slide correctly, it seems that as early as just this fourth quarter, you should start sort of seeing some commercial sales and those sort of ramping up into 2025. So how should we be thinking about meaningful levels of revenue, is 2025 the year? And dare I ask EBITDA as well?

Dustin Olson: Yeah. So we're not going to provide incremental, let's say, revenue projections for 2025.

Hassan Ahmed: No, no. Of course. But I'm just saying in terms of ramp-up, should we start seeing a nice ramp-up in 2025 and? Yeah.

Dustin Olson: Yeah. I mean, Hassan look, I mean we're extremely excited about where we are with the customers. I mean we've had a lot of very successful trials. And as you can imagine, every trial is unique to the customer. Every customer has a specific application with specific customer or product requirements and then they have to build the trust in PureCycle as they go through the trial process. So the trust comes in multiple ways. Like one, will PureCycle continue to operate at high levels at Ironton? We're getting a check mark there. Will the quality be sufficient for that application? We're getting a check mark there. And do you have the inventory and capabilities to meet the demand? And we've been able to build inventory across the quarter as well. And so yeah, I think that while it's difficult to say when specific customers will give the full green light for POs and commercial transition, I think the signs are all there for solid and meaningful commercial progress, both in Q4 and ramping into 2025.

Hassan Ahmed: Perfect. And if I could just quickly squeeze one more one in. Look, I mean, obviously, production is ramping up. Fair to say that the technology has been more than proven, right? But in light of this sort of recent announcement about the termination with SK, the termination of the joint venture, with production ramping up, technology proven out and the like, I'd like to think that you guys are getting much more interest in other joint ventures as well. So could you just give us any sense of what potentially that pipeline looks like?

Dustin Olson: Yeah. I mean we -- I think that you're absolutely right. I mean, ever since we started, we've had a lot of interest with different partners to bring the technology to different regions of the world. And it's no different today. In fact, I would say the excitement is growing. Many of our partners were very helpful in helping us solve some of the technical problems and also waiting to see the Ironton operation up and running consistently. As we've demonstrated success in Ironton, for sure, the interest in growth has increased. And I think that you'll see -- we'll continue to see positive steps there. With respect to SK specifically, I mean, SK, first of all, I'd just like to say, I think they've been a very good partner for PureCycle. They were an early investor in our company. They're a highly technical team and helped us on numerous fronts as we worked through some of the technical challenges. One of the things that's unique about SK is that, that was a project that was built to bring multiple technologies into a single space, and it was very difficult to get aligned across the time line for three independent technologies to one space and some of the synergies across the facility just couldn't be materialized because of those timing gaps. However, SK continues to be a strong partner. We continue to look for new opportunities outside of South Korea, and we think that story is just delayed, not over.

Hassan Ahmed: Very helpful Dustin. Thank you so much.

Operator: One moment for our next question. Our next question comes from Eric Stine with Craig-Hallum Capital Group. Your line is open.

Eric Stine: Hi, everyone. Thanks for taking the questions.

Dustin Olson: Hey Eric, how are you doing?

Eric Stine: Good morning. Well, thanks. So I just want to make sure I understand it. So it sounds like, I mean, you've demonstrated that you can ramp to the milestones that you have discussed and that you reached in third quarter. But should I take your commentary that you're not necessarily producing at those levels now, and I can appreciate the focus is on the commercial side, but that does beg the question, what is your confidence level that presumably the commercial interest is quite high that you need to be above those levels that you've currently demonstrated? And what is the length of time or confidence in getting to full production levels since, obviously, the market opportunity is magnitudes larger than your current production capabilities?

Dustin Olson: Yeah. I mean, so I would say that we are pacing our production at Ironton with the commercial aspects of the business. So part of that is in building inventory in preparation for commercial. Part of that has been commissioning the co-product 2 in the course of September and October. We feel very good about both of those activities. And our operations team is very confident in their ability to ramp up as needed to meet the demand from the market. With respect to the confidence in our ability to move product into the market, it's very high. I think that we make several comments in here about the improved product quality at CP2 became under control and that cannot be understated. We've seen a step change improvement in overall product quality over the course of the last 6 to 8 months, and that's directly related to CP2. And as a result of that, we're able to deliver a much higher quality product to our customers. And remember, fundamentally, we are removing CP1 and CP2 from the feedstock. And no other technologies do that in the market today. And so our ability to make CP1 and CP2 at volume is a good indication of our overall product quality. And our customers see that, they recognize its benefits over alternatives, and they're leaning into PureCycle as a solution for them.

Eric Stine: Got it. And so then I know you talked about some of the commercial activity in the various end -- I'm sorry, products, very helpful there. I mean, I would assume these are -- they're near term, but they're also far enough out in terms of a couple of quarters that in your mind, that gives you the timing to, in fact, go from wherever you've demonstrated today, which is, I guess just under 50% of nameplate to actually get to those higher levels to meet this demand. I mean is that the fair way to think about them?

Dustin Olson: Yeah. I think that's really good, Eric. I mean I think there's a couple of aspects here. Once you've demonstrated that your product can work in a single customer application, the me-too adoption is very fast. So if you show that you can build a fiber in one plant, then that means you can buy -- you can build fiber in all plants. If you show that you can build a bumper in one facility, it means that you can build bumpers across the board. And so these early customer trials and qualifications are really important. They are proof points to the industry. And once a customer does the hard work of getting it qualified, it's going to show as an example for others, and that's really where the commercial ramps quickly. So we're not concerned about that. There's also other avenues to move product into the market through non-project-related demand. There are distribution channels and other compounding channels that currently buy recycled material in the market, and we've been introducing our product to them as well. And so I think that there's several different avenues for us to move product into the market, both in terms of Q4 and also ramping significantly in 2025.

Eric Stine: Okay, thank you.

Dustin Olson: Thanks Eric.

Operator: One moment for our next question. Our next question comes from Thomas Boyes with TD (TSX:TD) Cowen. Your line is open.

Thomas Boyes: Appreciate you taking the questions. Maybe first, would like to get maybe some insight into the automotive opportunity. I know it can take kind of a long time to get designed into a vehicle, particularly with materials or new technologies. So I was kind of impressed I guess, with the speed in which you're getting to commercial sales. Is that due to the fact that it's a compounded resin and maybe the customer feels more confident in the implementation? Or is there something else at play that we should be aware of?

Dustin Olson: Well, not all of our customer trials and customer development activities started recently. This one, in particular, has started many, many months ago. So I think part of the progress that you're seeing now are seeds that were laid in the past. That's some of the natural progression of things. But also some automotive applications do require a very long qualification period, but some do not. If you can demonstrate that your product is a liking kind replacement to the existing qualified material, then the adoption can be much faster. So as we demonstrate that our product performs more and more like virgin polypropylene, the quicker the adoption can happen in automotive.

Thomas Boyes: Got it. That's helpful. And then nice to see, obviously, there's kind of the new sortation, but could you give us maybe a bit of insight on the cost per pound or maybe just diagram? Is the cost there offset by the improved yields of having in the facilities? So it's kind of a net neutral or a positive, any information there would be helpful?

Dustin Olson: Yeah. That's a great question. So we're -- first of all, we're extremely excited about Denver. And this is Denver, Pennsylvania, by the way, not Denver, Colorado. So we'll eventually host people out there to show you the operation. We want to make sure you get the tickets to the right place. But it's a really good location. I mean it's close to New York, New Jersey, Philly, Baltimore, D.C. The population density around that location is very, very high. And so the ability to pull material in is going to be quite good and growing over time. And we've currently only got one shift of operations, but we definitely see that growing in 2025. We've already demonstrated the ability to run at nameplate capacity, which was just great. So we're very excited about that. With respect to the overall economics of the plant, I think we're still mapping that out. I mean we are definitely producing co-products from that facility that will offset some of the cost of the facility. We've definitely purchased an asset that is extremely efficient and, let's say, lower cost to operate, both in terms of electricity usage as well as manpower. And as we ramp both in Ironton and Augusta and then, therefore, also ramp the operations at Denver, I think that you're going to see pretty good economics at that facility. At the end of the day, a little bit about the neutrality of the cost for that depends on how much you value the polypropylene that's going through Ironton. But one thing I can tell you is we have excess capacity at Denver today, and that facility has the ability to run high-quality Number 5 bales, low-quality Number 5 bales, Number 3 to Number 7 bales and also Number 1 to Number 7 bales. So we really have a nice opportunity to load that facility with cost-advantaged feedstocks so that we can gain more value off of the co-products. And ultimately, our team is scouring the market to understand the best feeds to buy for that facility to yield the best, let's say, overall economics for that site independently, and we'll be able to show that over time. But I can tell you that, yeah, one of the areas that was underestimated at Ironton in the beginning was just the impact of the variability of Number 5 bales. I mean our original premise for this plant was a Number 5 bale in the 95% to 98% range for polypropylene. That just doesn't exist. And so as we started to bring new bales in, we recognized that the amount of CP2 is just much, much higher, and that put a lot of pressure on our system to be able to control that. So having the sort facility on the front not only allows us to improve the yield across the plant to higher levels, it also allows us to control our own destiny. When you buy what people consider to be high-quality Number 5 bales in the market, which are 85% to 90% bales, they still have a lot of variability. And so having this asset under our umbrella for our operation allows us to really have very granular insight into the feed that's coming into Ironton, which will not only improve overall economics, it will also improve the reliability because we know the feed that's coming in much better. That's a great question, Thomas.

Thomas Boyes: That was very helpful. Maybe just one quick one and then I'll jump back in the queue. Just can you remind me how long it would take to kind of stand up Augusta, if you were to get, say, financing sometime next year? Is it a six-quarter, two-year? What kind of time frame would that be to get that construction?

Dustin Olson: Yeah, that's a good question. Augusta is a bit different because we purchased a lot of the long lead equipment already, and it's ready to go. But I think a six to 10-quarter range is probably a good framework for modeling. I know that's a wide range, but there's a lot of variables in there that can control things. We expect we have opportunities to improve the schedule over time once we get into the granular details. But I think an average of two years plus a couple of quarters is probably a good framework for now.

Thomas Boyes: Perfect. I’ll get back in queue. Thanks again.

Operator: One moment for our next question. Our next question comes from Andres Sheppard with Cantor Fitzgerald. Your line is open.

Andres Sheppard: Hey, good morning Dustin, good morning Jaime. Congratulations on the quarter. And thanks so much for taking our questions.

Dustin Olson: Good morning.

Andres Sheppard: Maybe just to take a step back. Just wanted to see if you could maybe give us an update on the current status of the production line in Ohio. And are you able to share maybe a loose timeline as to when you might expect to get the plant closer to full peak capacity? Thank you.

Dustin Olson: Yeah. Thanks for the question. I mean Ironton is in a great place. We had a lot of constraints ramping up this facility over the last six to nine months. The latest one has been around CP2 and the most prevalent for the last six months has been CP2. But the solution that we put in place there has really unbridled the capacity at Ironton, and we feel really good about that. I think that in addition to the CP2 removal efficiencies, our ability to add Denver and flake sorting operations is also allowing us to bring a higher quality feed into the plant and allowing us to raise rates. So we're really excited about our potential. I mean there have been some areas that we've noticed that we need to continue to optimize to push rates above the 10,000 pounds per hour. We're doing that. But in the meantime -- and 10,000 pounds an hour is roughly 80% to 85% capacity, I believe, maybe around that level. And so to push above that to get to the nameplate, we have a pretty good line of sight on what we need to do that. But honestly, the focus right now is more about ramping the commercial. We have an asset at Ironton that we can control that will do what we ask it to do. And so now it's about feeding the pipeline for sales so that we can then trail Ironton for the production.

Andres Sheppard: Got it. That's helpful. I guess maybe just to follow up. Do you expect -- I know it's a bit early, but do you see a scenario where you could get close to that 107 million pounds of UPR resin capacity through next year?

Dustin Olson: Yeah. Look, when we get to a ratable capacity at 107 million pounds per year, I don't have a time line for that right now. We still got work to do to get there. Remember, every time that we push into a new boundary of the plant operations, we will find new constraints that we have to work through to get there. So we'll do that through the course of 2025, and we'll see where the production lands. I'll just remind you, though, that if there's one competency that we've built across our company over the last two years, it's grid resiliency and ability to solve problems. Every time that we have had a problem pop up in front of us for our operation, we've been able to solve it, push through and moved on. And I see no difference next year as we push up into the higher level, closer to the nameplate capacity and then ultimately getting to the 107.

Andres Sheppard: Got it. Very helpful. Thanks. And maybe just one more, if I could here. You mentioned, I think, earlier that the status of the Augusta facility, the time line for that is roughly six to 10 quarters, which is encouraging. I'm curious, how many lines of the up to eight potentially do you kind of foresee starting with? Should we be modeling maybe closer to one or two lines from the beginning? Or any color there would be helpful. Thank you.

Dustin Olson: Yeah. I mean we're pretty consistent on this in the market that the Augusta project is a two-line operation. It's 260 million pounds per year of production. And that's been the consistent message. We're not deviating from that at this time.

Andres Sheppard: Wonderful. Thank you so much. Congratulations again on the quarter. We’ll pass it on.

Dustin Olson: Thank you.

Operator: One moment for our next question. Our next question comes from Brian Butler with Stifel. Your line is open.

Brian Butler: Hi. Good morning. Thanks for taking the questions.

Dustin Olson: Hi, thanks Brian. Thanks for dialing in.

Brian Butler: First, on the -- when you look at Slide 13, which is super helpful, when you look at the commercial sales kind of all kind of being ramped up into, call it, the third quarter of 2025, what level of production does Ironton need to be at to kind of meet that kind of run rate when you get to the third quarter of 2025?

Dustin Olson: That's difficult to say. So the commercial ramp-up is still a number that's in flux. Each customer is kind of on their own time line for qualifications. So it's difficult to have a firm number there. I think that -- it's difficult for me to say. Look, I think that we'll have between project-related sales and then also the ability to sell into distribution and compounding, I think by mid-2025, we'll have the capacity to push up to and beyond the 50% mark of Ironton.

Brian Butler: Okay. That's helpful. And on the economics, you talked about economics on the non-compounded are in line with previous expectations. Can you remind us of those expectations? Because if I go back to the Ironton budget from a year ago, I think you were somewhere around $0.56, $0.55 a pound on an EBITDA basis. And maybe just can you frame what the expectations on the non-compounded economics are?

Dustin Olson: Yeah. So we're pretty consistent with what we've said in the past. At the Ironton showcase, this question came up. And the way we answered it was in order to get to breakeven at the Ironton facility, we need between 40% and 50% utilization at the facility. And in order to get to breakeven for the company, not including CapEx spend, it takes 80% to 90% rate at Ironton. And we still hold to that. We've been doing a lot of modeling. The market is obviously moving around quite a lot, both with regulatory efforts giving us some uplift as well as the virgin market being a little bit down. So the numbers move around quite a bit. But we still believe that those numbers are still pretty solid.

Brian Butler: Okay. And then on Augusta's, we asked -- I think you answered most of my questions. But what's the expected future capital requirement when you think of building out that first and second line? And how long does a third line take? I mean, is that going to be another six to 10 quarters if you choose to do a third line?

Dustin Olson: Yeah. So with respect to the total CapEx for Augusta, this is also an area that's in pretty high discussion right now and in flux. We're really not in a position to give an updated number for Augusta CapEx. There's a lot of moving parts there. I mean the inflation is one that is a negative impact on CapEx. But quite frankly, the things that we've learned at Ironton, the things that we know how to do in Ironton is a very good balance to that inflationary risk. So we're just not in a position to give a hard number right now. So I would go back to previous guidance. With respect to how long it's going to take to build the third line and the fourth line in Augusta, no, I think that it's not the same amount of time as what it takes to build the first 2, okay. It's shorter. And the reason for that is we will be building a substantial amount of the infrastructure in that facility for lines one and two, and we will not need to rebuild that for lines three, four and five. So it would be incrementally less time than the advice that I gave for Augusta.

Brian Butler: All right. And then just one last one. It looks like the operating cash burn, you had said was about $23 million in the third quarter. How should we think about that going into the fourth quarter? Is that the right level kind of third quarter to fourth quarter is about the same?

Jaime Vasquez: Yeah. The cash burn has come down. So I think we'll probably be in that $8 million range, maybe perhaps a little bit better than that. But there's a lot of maintenance activity that we had in prior quarters that is not reoccurring. So I think we'll be at, hopefully, a level that we saw this past quarter.

Dustin Olson: Yeah. And I think that's another important point, Brian. I mean, everything across the operation gets better with steady operations. The product quality becomes more steady. The repeatability of production becomes more steady. Even the product quality of coproduct 1 and coproduct 2 becomes more steady. And as you run more steady, then also the cost for the structure becomes more steady. You can imagine that as you're fighting reliability items, chasing challenges in the plant, there's a substantial cost associated with that. And we expect that all of these things are going to get better as we continue to run more reliably.

Brian Butler: Okay, great. Thanks for taking the questions.

Operator: One moment for our next question. Our next question comes from Gerry Sweeney with ROTH Capital. Your line is open.

Gerard Sweeney: Hey, good morning Jaime. Thanks for taking the call. I hate to do this one more question on utilization. However, it's from, I think, a completely different tact, and I think it's important. You mentioned that you have an asset that you can control. And what I really want to ask was, are you able to run Ironton at a specific rate for an extended period of time? From my perspective, that seems to be more important than an exact pound amount because I think you can grow it from that level. But I'm just curious if you could touch upon that.

Dustin Olson: Yeah. Look, I mean, this is an easy answer, Gerry. I mean the answer is yes. I mean we are -- and that's really the essence of what I'm trying to say. We are in control of the Ironton operations, and we can dial it up and dial it back to what we need. The key component to that was CP2. And now that we have CP2 removal and control and also reducing in our feed, the ability to get back to those milestone rates and beyond is very much a knob that we can control.

Gerard Sweeney: Got it. That was perfectly clear. I appreciate it. And then on compounding, obviously, there's been a lot of discussion on this. How much of an opportunity is there in terms of economics? Some of it sounded like there was just sort of a fixed cost absorption. But I'm also curious as to if you're compounding it, which, I guess, PureCycle could potentially be that -- hire someone to do it versus someone on the outside of doing it, meaning buying the product and doing it themselves. Would you be able to get a premium for mixing in virgin and compounding it? Or was this just a pure sort of fixed cost absorption opportunity?

Dustin Olson: No. Look, I think that -- let's break down compounding two ways. One is, compounding does two things. It allows us to provide the customer with exactly the product that they need that allows us to ramp commercial much faster, opens doors, gets us into new markets, gets us to what the customer needs. And quite frankly, by doing that, there's -- that's a higher service level to the customer and therefore, a higher value created for them and the price should be reflected in that. In addition to that, there's also this concept of blending in other components to the compound and then gaining incremental profit above that. So for sure, there's an opportunity to spread higher -- the fixed cost across a higher number of pounds. There's also the opportunity to effectively gain incremental margin on top of the blended components in, which also adds to the overall profitability of the company. And when you put it on an RPP basis, it enhances the overall profitability of the PureCycle molecule. So we feel really good about the ability to add incremental profitability to the company based on adding compounding. But I will tell you that [indiscernible] the day, it really comes back to how much value are we creating for the customer. If we have a product that no one else does, there's positive value there. If we're manipulating that product in a way that makes it run better with higher efficiency in their facilities, there's higher value there. If some customers need a 100% recycled product, we can do that. If some customers only want to meet the bare minimum recycle mandates that are coming for different regions, like 30% by 2030, then we can also do that. And I'll just tell you that in the compounding market, which is a business I'm very familiar with, I've been in it for about a decade now. The value creation in compounding depends on how good you are at solving the customers' problems and doing something that they need. And the compounding operations that we've established is just a tool to help us be better at that. And I think that over time, you're going to see good economics come from that operational capability and that enhanced relationship with the customer.

Gerard Sweeney: Got it. I appreciate it. That was in detail, so that was very helpful. That’s it for me. Appreciate it, thanks guys.

Dustin Olson: Thanks Gerry.

Operator: I'm not showing any further questions at this time. I'd like to turn the call back over to Christian.

Christian Bruey: Thank you, Kevin. We do have one question we wanted to get to that we took through e-mails from Stanley Porter. He asked, can you specify what feedstock you've been running over the past few months? You spoke to that. But is that the planned feedstock type that you'll be running as you continue to ramp up?

Dustin Olson: Yeah. Look, I mean, we've been running exclusively on post-consumer recycled material, we call that PCR. That is the highest valued feedstock and recycled product in the market. I mean when you talk to customers, they prefer PCR over other alternatives. So by running exclusively on that, I think, puts us into a good position. By being able to operationally handle the variability in random PCR coming from a MRF (NS:MRF) is also very good. And I think the operation at Denver, combined with the operation of our flake sorting, combined with the improvements that we see on CP2 removal have put us in a really nice place to be able to run substantial volumes of PCR going forward.

Christian Bruey: Thank you for that question from Stanley, and Dustin, if you have any final comments.

Dustin Olson: Okay. So I want to thank everybody for joining the call and also just being a steadfast partner for PureCycle over the years. We very much appreciate the opportunities to update you on what we're doing across the company. We've been very busy. We're very excited. It was a great quarter for us to really turn the page on a lot of things that have been in our way in the past six to nine months. Look, at the end of the day, Ironton is under control. CP2 is under control. Our product quality is improved. Compounding is operational and it's working. Our inventory is building. And most importantly, it's laying the groundwork for commercialization in Q4 and going into 2025. We're extremely excited about the future. We're working hard to make this a reality, and we look forward to updating you at our next quarterly meeting. Thank you, everyone.

Operator: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

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