PureCycle Technologies - Q1 2024

Executive Summary

• Q1 2024 was operationally focused, with Ironton producing ~1.3M lbs of resin as sampling ramped, but GAAP net loss widened to $85.6M (diluted EPS $(0.52)), driven by a $21.2M loss on debt extinguishment, higher warrant fair value change (+$9.1M YoY), and depreciation from commissioning (+$8.0M YoY).
• Management executed >100 reliability and product-quality projects during an April outage and expects improved consistency as operations restart; no further outages are planned in 2024 barring new findings.
• Liquidity actions: agreement to sell $37.5M of Series A bonds and exchange a $45.5M term loan for revenue bonds (all at $800/$1,000), bringing $30M cash and simplifying capital structure; a 12% prepayment penalty will be satisfied with ~3.1M warrants at $11.50 expiring Dec 2030.
• Stock-reaction catalyst: near-term proof of continuous uptime and CP2 removal capacity (10–20k lbs/day add-on implemented; optional Q2 step adds 15–25k lbs/day) could unlock higher feed rates, support bond remarketing, and accelerate offtake approvals in film/fiber.

What Went Well and What Went Wrong

What Went Well

• “We increased the overall production by 6x” from Q4 to Q1; Ironton produced ~1.3M lbs (vs 0.2M lbs in Q4), with semi-continuous pelletizing at ~6,000–7,000 lbs/hr pre-outage and positive sampling feedback in film and fiber.
• Reliability and CP2 capacity improvements executed (>100 projects) during April outage; immediate CP2 removal add-on (10–20k lbs/day) implemented, optional Q2 improvement adds 15–25k lbs/day capacity (additive).
• Financing progress: agreement to monetize bonds for $30M cash and convert the term loan to revenue bonds; warrants used to satisfy prepayment penalty, preserving cash.

What Went Wrong

• GAAP net loss widened materially due to non-operational items: $21.214M loss on debt extinguishment, $13.944M change in fair value of warrants, and higher depreciation ($9.256M) post-commissioning.
• Site reliability issues led to product cross-contamination during railcar loading and back-end logistics; management outlined corrective actions (valve upgrades, silo transition discipline).
• CP2 removal capacity constrained feed rates; reliance on lower-CP2 feedstocks and manual removal throttled throughput; management now addressing with capacity increases and potential tolling/off-site solutions.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the PureCycle conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Christian Bruey.

Christian Bruey (Director of Corporate Communications)

Thank you, Jacinda. Welcome to PureCycle Technologies' first quarter 2024 corporate update conference call. I'm Christian Bruey, Director of Corporate 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 first 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 or 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 first quarter 2024 corporate update press release filed this morning, as well as in other reports on file with the SEC that provides 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 statement. 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 in 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 it at any time at purecycle.com. We're excited to share updates from the previous quarter with you, and I'll now turn it over to Dustin Olson, PureCycle's Chief Executive Officer.

Dustin Olson (CEO)

Thank you, Christian. We wanted to start this call by thanking those who came to Ironton to participate in the showcase and also thank those that attended virtually. We're proud of our facility, our team, and our progress. I hope you're able to get a better understanding of our operations by seeing the steel in the ground with your own eyes. Leading into the outage, we were able to establish rates and feed longer periods of time and semi-continuously pelletize at approximately 6,000-7,000 pounds per hour. We successfully removed co-product one and co-product two, and we're able to ramp up our sample deliveries to customers. We were building good momentum as we entered the outage. We are closer to making the promise of PureCycle a reality today than we've ever been before. We've demonstrated our ability to run the plant, test different feeds, and make good product.

We know the technology works at a fundamental level, and our job now is to leverage the improved reliability, expand the capacity of CP2, and run the plant continuously so we can start pushing pellets out of the facility at scale. Our Q4-Q1 progress was substantial. We increased the overall production by six times and continued to learn. We continued to improve the overall efficiency, and while this was a significant improvement quarter over quarter, as we move forward post-outage, we should quickly see these levels as inconsequential. As we began to make higher levels of pellet production, we did stumble a bit when we first learned how to load rail cars at scale. We cross-contaminated some of the product between silos on the way to filling rail cars.

This is part of the learning process, and we've made improvements to prevent it from happening again. As discussed before, we continue to test the facility by running exclusively post-consumer curbside waste. This feedstock stream has both Co-Product 1 and Co-Product 2 present and allows us to test the boundaries of the facility. We learn something every time we run a new feedstock. We are getting better at product quality. This is the net result of a lot of activity and requires operational stability to get the best results. We have seen high qualities of product during times of our operation, but since our reliability has been up and down, we've struggled some with consistency. When we've got the entire machine running, we start to see quality improve. We expect to see improvements as we restart the plant following the outage. Our outage was very comprehensive.

Every learning, every headache, every challenge, and every reliability blip that we've experienced over the past five months was formulated into a reliability improvement plan. During the outage, we executed over 100 projects, some big, but mostly medium and small jobs that require less than a day or two, and each job, no matter how big or how small, was important to the facility's continued improvement. It's difficult to explain the team's feeling when you're almost there or you are there, and then something minor creates an interference and slows you down. It's deflating. But with this outage, we found a lot of room for optimism because we believe we've taken a lot of those items off the table and have improved the reliability of our facility.

We did extend the outage, partly because we had more cleanup than expected, but mostly because we wanted to give ourselves the best possible chance to run more reliably post-outage. We're currently two days away from finishing the last project and restarting the plant, and we expect to start making product next week. On the commercial side, we're making steady progress. We continue to advance trials across the board with the goal of final commercial product acceptance. If there is one theme that remains steady, the industry supply of recycled product is underserved and the demand for product remains very, very high. We continue to seek new lanes as well. Given our ability to remove CP1 and CP2 from the feedstock, we have naturally better mechanical and technical properties. This gives us the differential opportunity to sell into both film and fiber.

Film and fiber represent a very challenging product application and have been traditionally underserved by the recycled supply. We've tested numerous applications, both internally and externally, and found early success. Excuse me. The pictures on the right of this slide show the progress. At the showcase, we showed two spools of polypropylene twine and a blanket that was manufactured from our product. Today, we show a colored rug made from a third party and a spool of film produced in our Durham lab. There is no better feeling than seeing your resin be transformed into products that people will use. On the financing side, we're doing what we said we would do. We are marketing these bonds as a cash instrument for our operations.

We've reached an agreement on the sale of bonds that will bring forward $30 million of new cash to the operation, as well as convert an outstanding loan. Both are positive for PureCycle, and I will let Jamie speak to the details. But this is, again, another indication of the confidence that our core shareholders have in our technology. The Q1 performance of Ironton can be categorized in two areas. First, site reliability, and second, Co-Product 2 removal. We focused the outage to address both of these areas. I would like to note that every time we take an outage, we make substantial improvements. The first outage in June of 2023 mitigated the adsorbent bead leaks. The second outage in July of 2023 mitigated the seal leak on the Scheibel column. The third outage in November installed a screen changer for the final product extruder.

In each case, we ran into constraints, identified the root cause, and then fixed the problems. For example, while other areas did impact overall reliability, we didn't have a single Scheibel column-related downtime event from July until March. We haven't had any problems with our adsorbent bead plugging on the final product extruder since the November outage. Once the problems are known, we implement solutions to prevent the reoccurrence. We believe this outage will be no different. We attacked the known reliability challenges and also implemented projects that should improve the overall co-product two performance. If you first focus on the table at the top right, you will find numerous reliability challenges that we faced since the November outage. This shows the number of days that were lost to fixable reliability items. We use metrics like this to guide our activities and upgrade projects.

We implemented a lot of improvements. These problems were known operational headaches. In the case of the final product transfer valve, that valve was first oversized in the original design and then damaged by adsorbent bead contamination. As a result of those two items, we were forced to run that one valve in semi-continuous operations. We were batching these transfers to the final product extruder, which is operationally very challenging. This has now been upgraded. Another major improvement to our facility is the settler level indication repair. This was actually an outage discovery item and led to more work and a new project. Our level indication was damaged in a way that provided an incorrect level indication to the plant. This negatively impacted numerous aspects of CP2 operations.

It was a new item we added to the scope list after the outage was started, but it was important to get it fixed. We upgraded the level to prevent similar failures, and it's now back in place and ready for service. I'm confident that it will provide much better reliability to the Co-Product 2 operation going forward. A final series of improvements were made to the seal systems. We continue to add incremental, small improvements to these systems to bolster their reliability. This is a central focus area for our site management team and an operation that we watch closely every day. With respect to Co-Product 2, we made good progress. We advanced the original planning for the Q2 improvements, but we also completed a separate project that we hope will provide immediate Co-Product 2 relief. It's important to reset at first.

As we moved into the outage, we were focused on two items. First, processing low co-product two feeds in order to minimize how much we had to take out of the feed, and maximizing the manual removal of CP2 from the vessel. We were in a good position with these activities entering the outage. As we started the outage, we thought we had the vessel fully empty. However, unexpectedly, we found material in the bottom of the vessel because of the broken level indicator. While this took time to clean and prepare for maintenance, and ultimately it did extend the outage, it also gave us immeasurable insight into the overall system and required improvements. We used this information to pivot and to initiate and finalize a separate project that we believe will increase our CP2 removal capacity.

In addition to this one project, we also implemented several other minor reliability improvements that should improve the overall system reliability. At the end, today, we have options, and we have more options than we expected to have post-outage. We can rely on our original solution, which provided approximately 3,000-5,000 pounds per day of removal capacity, but now we can add to that the new capacity, which we estimate at 10,000-20,000 pounds per day. We believe these improvements, coupled with lower Co-Product 2 feedstocks, give us the opportunity to eliminate the Co-Product 2 removal capacity as a plant limitation coming out of the outage. This is earlier than we originally forecasted. We used commercial production from Q1 to initiate final qualifications with our growing customer base. We have many customer samples out for review and are working directly with them to gain final approval.

We still show good improvement on our product quality. The fact that we can successfully remove both CP1 and CP2 from the feedstock is the best indication of our product value over mechanical recycling alternatives. And while we have had some challenges with product quality during the quarter, most of this was due to learning the new operations of moving product through the site supply chain and inconsistency due to reliability challenges. During the last few weeks of March, between the Ironton Showcase and the outage, we were able to demonstrate much more consistent quality by managing the site supply chain more smoothly. Our commercial team continues to hunt for new customer lanes and improve market destinations, and we know that our product has superior properties to mechanical recycled alternatives that are currently being sold between $0.80 and $1.20 per pound.

Two areas of particular interest are film and fiber. Film and fiber are very challenging applications and traditionally underserved markets due to the high technical requirements. We continue to show good progress, both internally at our Durham facility and externally, developing these products. These products are important for the market and represent approximately 40% of the global supply. In other words, approximately 40% of the global market is currently without significant recycled supply due to existing technical limitations. As discussed on prior calls, we continue to work within FDA requirements to define our process and work toward expanding the conditions of use and available feedstock to make FDA quality product. But we wanted to highlight the information that was shared during the Ironton Showcase. Our internal studies show that regardless of the feedstock is food grade or non-food grade, we show substantial reductions of key substances of interest.

The graph shows the effectiveness of our process. We have already received LNOs for our process and are looking to expand with additional data reviews and submission to the FDA. As you can see from the 2023 data, the recycle supply is lagging the total production. Today, the industry average is less than 10% of recycled supply to the market. The discussion is the same around the world, and while I'm proud of our industry's efforts on PET and HDPE, there is still a lot of opportunity with polypropylene, and the regulations are coming. Several states have already adopted requirements for recycling, and we expect more will follow. All of this indicates that the market marketing timing for PureCycle is good. The demand for our product is strong, and we are well positioned to take advantage of it.

At this point, I will transition the presentation to Jaime for the financial update.

Jaime Vasquez (CFO)

Thank you, Dustin. On slide 11, we show our liquidity position at the end of the third quarter compared to year-end 2023. At the end of the recent first quarter, we had approximately $25 million of unrestricted cash, excluding cash collateral. Our day-to-day cash outlays, shown in the second and third bullets on the slide of the table, totaled $27.6 million, which was in line with expectations in the fourth quarter of 2023. Lastly, on May sixth, we reached an agreement with Pure Plastic LLC for the sale of $37.5 million notional value of bonds at a price of $800 for every $1,000 of notional value, which will provide additional liquidity of $30 million.

The raise of additional liquidity includes an exchange of the Pure Plastics term loan, which has a maturity date of December 2025, into revenue bonds, and the Pure Plastics term loan has an outstanding balance of $45.5 million, which includes paid in kind interest. The exchange also values the revenue bonds at $800 for every $1,000 notional value. The early termination of the Pure Plastics term loan results in a prepayment penalty, as required in the Pure Plastics loan agreement. Both parties agreed to warrants in lieu of cash for the prepayment penalty, which helps to preserve cash. Overall, we are pleased with the agreement as it helps to simplify the capital structure, and importantly, provides additional liquidity as Ironton comes out of the planned outage.

As Ironton is able to demonstrate production of meaningful volumes, we believe that there will be more opportunity to sell additional revenue bonds. Now I'll turn it back to Dustin for concluding remarks.

Dustin Olson (CEO)

This was a very active quarter for PureCycle. We made considerable operational progress. We opened our doors and hosted a large group for our showcase, and we executed a significant outage to improve continuous operations. Our site is now ready to go. We are excited about the next steps and will now open the floor to questions.

Operator (participant)

Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Hassan Ahmed at Alembic Global Advisors.

Hassan Ahmed (Co-Founder, Partner, and Head of Research)

Morning, Dustin. Dustin, obviously, you know, super busy quarter for you guys. You know, really appreciated the Ironton showcase. Obviously, you know, rightly so, the focus right now is on improving operations, you know, fixing all the stuff that you guys are fixing. But my question is more about, you know, as you're sort of coming up the learning curve, you know, just the communication side with the street. What are you guys thinking in terms of more consistency with regards to how you communicate with the street? Meaning, you know, would it be sort of the right strategy to maybe give monthly sort of production updates? Because, look, I mean, in the last update, we heard that in January and February, you guys produced, around 1,000,000 pounds, right?

And then today it's, you know, roughly close to 1.3 in Q1, so, you know, March was around 300,000. So, you know, just broadly speaking, how are you thinking about consistency with regards to communications, and what form would that take?

Dustin Olson (CEO)

Yeah, yeah. Thanks, Hassan. Appreciate the question. You know, if you think about the timeline of Q1 for us, it's only been a few short weeks since we had the Ironton Showcase. And so we had two, let's say, big communications to the market during Q1, both with the fourth quarter review, and then shortly after that, the Ironton Showcase. And then we rolled right into the outage. And so for us, we had expected to do some communication following the outage, but the timing between this review and the outage end was too short. So what you can expect going forward is that we will do more periodic updates to the market over the course of Q2.

Hassan Ahmed (Co-Founder, Partner, and Head of Research)

Fair enough. And, now a two-part question, one on, sort of, you guys sort of flexing the system, per se, meaning, you know, you guys talked about how the recent sort of improvements that you guys have carried out, you know, with regards to, CP2 removal capacity, you know, your, your, your sort of operating rates will improve by, call it, 10,000-20,000 pounds per day. You know, so obviously, you know, your production will improve. My question is that, are you sort of also considering flexing the feedstock side of things as well, where maybe procuring certain feedstocks, maybe potentially at a higher price, which may not have the same amount of CP2 in them? So that's one part.

And a little sort of divergent from that, you know, as you're going through all of these processes, how should we think about, you know, Augusta, and, you know, lessons learned from Ironton, and how potentially quickly you may be sort of up and running in Augusta?

Yeah, so let's talk about feed rates and the impact of co-product 2. You can imagine when we started the system, when we were limited to the manual removal of CP2 to 3,000-5,000 pounds per day, if you end up with any Co-Product 2 in the feed, let's say 5%-10% Co-Product 2, your overall feed rate will be substantially limited. And that's effectively what we saw when we started up out of the November outage: we saw considerable, let's say, restrictions on Co-Product 2 removal, which throttled our feed. We're really excited. I mean, we're really excited about the improvements we've made during the outage.

Not only have we, let's say, incrementally improved the reliability of Co-Product 2 extrusion process throughout the quarter, but during the outage, we implemented a lot of, let's say, small improvements to improve the reliability. But more importantly, we modified the system based on what we learned, so we can increase the amount of volume that we can take out, and that's going to directly translate. Once we get it up and running successfully, that will directly translate to improved feed rates to the plant. Okay, so we're very excited like that. On the feedstock side, we continue to see lots of opportunities here, okay? The market has been, there's ample supply of feedstock in the market.

It gives us the flexibility to choose what we want to run, and so we will be looking at different feedstocks to bring into the plant to minimize the CP2 limit. Having said that, with respect to price, it is true that some of the feeds come at an increased price, okay? And we may choose to purchase some of those, depending on our situation in the plant. But it should also be noted that there are more affordable solutions that we can deploy at the plant and off-site through tolling partners to reduce the amount of CP2 and low-priced feed. So I mean, if you look at the Number 5 bale price right now, it's on the order of $0.04-$0.06 per pound.

and we have the flexibility then to either toll that to remove CP2 or potentially process it on-site to remove CP2 at very affordable prices, okay? And so that still allows us to purchase the low-priced feed, remove quite a lot of the co-product two out of that stream, and also have the same impact on rates to the plant. Okay, so we're chasing all of those avenues. And I think that we're gonna find a nice balance. There might be a little bit of feedstock purchasing at the beginning, but then quite a lot of focus on tolling to remove CP2 as we move forward.

With respect to Augusta, really, you know, when an outsider would come in and look at our plant today, they would say, "Well, it looks the same to me." But the reality is that when you look inside the pipe, you look inside the equipment, you really get into the details of the operation, we've made a lot of really small changes that will improve operability. You know, these are things, Hassan, that help the operator to be more successful, help the operator to have higher reliability so they don't have to focus on this one valve. That product transfer valve is a great example of, you know, this is something that will cost no more money for Augusta. It will cost no more money for our site, but it will relieve significant pressure on operations to operate that valve.

And so all of these small projects that we're doing across the plant are advising the final design for Augusta. While we're not in a position today to talk about the impact on price or the impact on CapEx per pound or any of that, we believe that we're learning a lot about what our plant can do, which will advise us to be smarter about the future designs that will help us improve the overall project standing. So what we're doing currently with Augusta is we continue to work closely with KBR. KBR has turned out to be a very good partner for us to find good, novel, effective, and efficient solutions to not only integrate the learnings from Ironton into Augusta, but to even improve upon them. Those are two good questions. Thanks a lot, Hassan.

Very helpful, Dustin. Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from Jerry Sweeney at Roth.

Gerry Sweeney (Managing Director and Senior Research Analyst)

Hey, Jaime, Dustin, thanks for taking my call.

Dustin Olson (CEO)

Hey, Jerry.

Gerry Sweeney (Managing Director and Senior Research Analyst)

Hey, Jerry. Sticking with CP, the CP2 questions. Looking at slide number six, the way I understand your commentary and, and looking at the slide, you've made some improvements for the removal of CP2, CP2 to amount of 10,000-20,000 pounds a day. Right? That is enough that you can run the system. You may have to include low CP2 feedstock material to optimize it, but it also appears that later this summer or Q2, you can make additional improvements to remove a higher amount of CP2, which I would assume reduces the need, maybe not eliminate, but reduces that need for lower CP2 feedstock as well. Am I looking at that correctly?

Yeah, Jerry, I think it's a good line of questions. And let's do some math on CP2, just to get the basic volumes-

Perfect.

Dustin Olson (CEO)

- and,

Gerry Sweeney (Managing Director and Senior Research Analyst)

Yeah

Dustin Olson (CEO)

... potential here. So if we purchase a feedstock that has 10% CP2-

Gerry Sweeney (Managing Director and Senior Research Analyst)

Yep

Dustin Olson (CEO)

... and we're able to remove 5,000 pounds per day, that means you can feed GBP 50,000 per day of feed, and that's about, I don't know, 20% capacity. You know, 15%-20% capacity.

Gerry Sweeney (Managing Director and Senior Research Analyst)

That's, that's right.

Dustin Olson (CEO)

If you're able to remove 20,000 pounds per day of feed, then that would, and it's a 10% Co-Product 2 stream, then you would be able to feed effectively 200,000 pounds per day of feed, okay? Now, look, we're not giving guidance on where we will be exactly on the feeds, because the feed concentration for CP2 moves around. It can be anywhere from, you know, as low as 2% to as high as 15% on the feedstocks, okay?

Gerry Sweeney (Managing Director and Senior Research Analyst)

Okay, that's fair.

Dustin Olson (CEO)

So you can imagine how that can create quite a variable to the overall rate to the plant. But given where we are, the improvements that we made, we believe it'll be a, you know, once we put it in service and prove that it works, we believe that it'll be a substantial improvement to our ability to remove Co-Product 2, okay? And this will have a direct impact on our overall rate, regardless of feed. And if the feed is at the 5% or lower level, which is very feasible, it gets you to a point where CP2 is no longer a constraint for feed for the facility.

Gerry Sweeney (Managing Director and Senior Research Analyst)

Got it. Perfect. The other question was, have you been able to run any parts of the system during the shutdown? I get that you had to power it up and different things, but, you know, specifically around the CP2 removal enhancements, have you been able to test it out, run it, to troubleshoot things, et cetera?

Dustin Olson (CEO)

Yeah. So we have run portions of the plant, primarily on the prep side. We continue to run, you know, the prep periodically, and, you know, to fill our silos and be ready for feed. We have also, over the last week and a half, done a lot of work for pre-startup checks and ready to start activity. So these are largely operational and mechanical final checkouts to make sure that the systems are ready to run, and our team has done that. We've already, you know, pressure checked the facility to know that it is in, you know, it is ready for operation. So some of the traditional startup procedure items-

Gerry Sweeney (Managing Director and Senior Research Analyst)

Sure.

Dustin Olson (CEO)

- we have done ahead of time because we could do it in parallel. But to answer your question, I think a bit more directly is, you know, when you have the plant down like we did for this outage, you're really not able to run portions of purification because it's all interconnected. And so we did do individual equipment checks, but we didn't run any pieces of the process, in a sizable way during the outage.

Gerry Sweeney (Managing Director and Senior Research Analyst)

Okay, that's fair. One more, or jump back in line?

Dustin Olson (CEO)

No, no, go ahead, Jerry. It's fine.

Gerry Sweeney (Managing Director and Senior Research Analyst)

Okay. I wasn't sure if I was limited to two, but this is my last question, though. On the trial side, obviously, you're working with, you know, off-takers, et cetera. Can you maybe just give us a little bit of detail, you know, where some of those potential off-takers are in their qualification process?

Dustin Olson (CEO)

Yeah, I probably won't get into the specific details about specific customers, but maybe let me describe the process a little bit. Okay, we have made a lot of product at the feedstock evaluation unit in preparation for the commercial plan, and we had, you know, very good—we had very limited volume to share that with our customers, and so that was primarily focused on core customers, and less to the broader market. And so as we started to make commercial product, even our core customers, they have an interest in seeing the commercial-grade product at scale-

Gerry Sweeney (Managing Director and Senior Research Analyst)

Yeah

Dustin Olson (CEO)

So they can have confidence that it is sufficient or similar enough to the FEU that they can bring it into their operation. But as we start to talk to customers outside of that core network, like, they haven't, they haven't had a chance to run our product yet because it was in such limited volume during the FEU. And so we're starting to get that material out to a much wider base of, of customers. Many, many customers, when you talk to them, are like, "Hey, we're ready for PureCycle. We're excited to start testing your materials," because they haven't been able to yet. And so we are at the beginning of those stages with those customers. And I'll tell you, it's very difficult to predict the, let's say, the curve for adoption of the products. Each customer is, is very unique.

Each customer has a different level, a different standard for analysis and approval. And so we're working with, many, many, many of them that are at different places. I will say that we have expanded our supply into compounding, okay? And polypropylene compounders are a pretty significant portion of the market, and they are, let's say, notorious for taking lots of different types of feed, blending them together to make a good product. And so they're... Let's just call them, like, recipe experts, and they are often, quicker and more adaptable to, variations in product quality, or early adoptions, and so we feel good about that as an outlet for sales, over the course of Q2 and Q3.

Gerry Sweeney (Managing Director and Senior Research Analyst)

Got it. That, that's very helpful. I appreciate it.

Dustin Olson (CEO)

All right, Jerry. Thanks a lot.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from Brian Butler at Stifel.

Brian Butler (Senior Analyst)

Hi, guys. Thank you for taking my questions this morning.

Dustin Olson (CEO)

Hey, no problem, Brian. How are you doing?

Brian Butler (Senior Analyst)

Doing well. Doing well. First one, just when you think about the post-fix plan, is there a long-term solution for CP2 or CP1 that's still supposed to be implemented, and then what kind of timeline is that on?

Dustin Olson (CEO)

Yeah, so that's a good question. Let's maybe kind of go back to what we've said previously and let's say, reset the stage there. We originally could manually remove 3-5,000 pounds per day of product, okay? And we told the market that we have a solution in mind that we will implement during the course of Q2, but we were not more descriptive on the timing than that, okay? That project is still in play. That project is executable over the course of May, if we choose to do it. Most of the equipment has arrived. Most of the engineering is complete. We've even started to dig the foundations for that. And that project is kind of, let's say, ripe for execution.

And if we do choose to execute it, it will not take another outage because we made all the proper tie-ins during this outage to do it. Having said all of that, we added another project to this outage based on what we learned from discovery during the outage. I mean, when we opened the settler, we quite frankly expected it to be empty, but it wasn't, okay? And what we found is that there was a level indication device in that vessel that just wasn't working properly. And so when we learned that, we were able to then pivot, think through what we had seen over the last four months, and then refocus our efforts into another project that we implemented during the outage.

Okay, so the long-term solution, the question you asked is, is there a plan for a long-term solution? The long-term solution may have been installed during the outage. We still have to test it, we still have to make sure it works, but we have more confidence in its ability to work now than we did before, and we're very optimistic about it. If it works properly, then we may have the long-term solution already in place. If it doesn't do everything that we need, or we need more capacity to remove CP2, well, then we'll go ahead and execute the project that we planned on implementing in Q2 anyway. But we're holding back on that until we see the progress of this implementation to see how it operates.

Brian Butler (Senior Analyst)

Okay, that's, that's good, color. Thank you. And then maybe can we talk about now that you're gonna roll this into, you know, ramp up production at some level in 2Q, is this gonna be a revenue-generating quarter? And how should we think about maybe facility cost as well as corporate cost in the second quarter?

Dustin Olson (CEO)

Yeah, that's a, that's, that's a good question, Brian. We are excited about our ability to ramp the plant up once we finish the outage. We did extend the outage. Okay? We know that. We extended it on purpose because we wanted to make sure we had as many of the reliability headaches resolved as we could to give us the best chance possible to move forward, okay? With respect to revenue generation and commercial sales, this gets back a little bit to Jerry's question, okay? You know, we are sampling product to a lot of customers, okay? Like, and we get feedback from all of them.

Typically, the way it works is they ask for a small sample, then they ask for a bigger sample, then they ask for a truck, then they ask for a rail car, and then they ask for a lot, okay? We're in that process of ramping up. What I can tell you is that we've got a lot of hooks in the line with a lot of customers, and we're listening to them, we're working with them to advance the qualification process, the approval process, as quickly as possible. I'll maybe hand over part of the question to Jaime with respect to the facility costs and where we stand from that perspective.

Jaime Vasquez (CFO)

Hey, Brian. You know, we've been running, probably around $8.5 million a month, in terms of just cash expenses. And, you know, it seems to be a steady state. I'd like to think, as we're operating more efficiently, that those costs will come down somewhat. It's hard to tell 'cause we haven't been running continuously, but, just based on some of the things that we're seeing, we think that costs will come down a bit.

Brian Butler (Senior Analyst)

Okay. With the new debt, that's sufficient capacity to run for how long?

Jaime Vasquez (CFO)

With the additional liquidity? Well, that additional liquidity, the $30 million, you know, if we're running, call it $8 million a month, that gives us several months. And in the interim, you know, we're still actively looking at marketing the bonds. So hopefully, as Ironton continues to operate, you know, the opportunities, we'll have more opportunities to, to sell additional bonds.

Brian Butler (Senior Analyst)

Okay, and then maybe one last one. Just when you think about, you know, you talked about Augusta a little bit, and as we reset expectations on the ramp of Ironton, how should we think about the ramp and, and I guess the build-out of Augusta, as well as kind of your development projects beyond Augusta? What, what, what is the right way to think about that, timeline-wise, just even at a very high level?

Dustin Olson (CEO)

Yeah. At a high level, the work that we've been focusing on the last several months has been on finalizing the engineering packages for Augusta to ensure all of the Ironton implementation has been included in that design, okay? And so that really has been the focus. As we change engineering companies and partner with KBR, we're finding that relationship to be quite good, quite helpful, and we're implementing a lot of good learnings there. When it comes to the overall expansion of the business, I mean, look, it's fair to say that everybody is waiting and watching for Ironton, okay? So all of our partners. You know, in some cases, our partners have been extremely helpful on the technical side.

I'll speak specifically to SK in that respect. We've spoken about this in the past. SK comes with a lot of technical expertise, and they've been helpful as we have worked through some of the startup challenges. So in varying degrees, our partners are helping us get Ironton going. They are also waiting and watching for Ironton to go, and they're continuing to progress the ground game to be ready when we're ready, okay? So the way I would project it, you know, we're not going to give guidance on dates for Augusta or dates for JVs, but the way that I would describe it is, we are very excited about our growth potential, and so are our partners, once we show Ironton can operate reliably and at scale, okay?

And so we, we believe that we've got the, let's say, the dock loaded and ready to go, and ready to move forward once we get past the early operational reliability challenges....

Brian Butler (Senior Analyst)

Okay. Thank you for taking my questions.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from Thomas Boyce at TD Cowen.

Thomas Boyes (Equity Research Analyst)

Appreciate you taking the time. Most of my questions were asked, but maybe if you could just give a bit more color on the cross-contamination that you had experienced. Was this just the, you know, mixing of, say, tier 5 rated resin with lower quality when you were loading everything up, or how did that come about?

Dustin Olson (CEO)

Yeah, I mean, that's right, Thomas. I mean, basically, as we were learning how to operate the facility, and to be honest with you, we had a lot of challenges with that, the final product valve, that transfer valve. I mean, that product transfer valve forced us into semi-continuous operations because the valve was oversized and not working properly. And so that meant that we had to have the final product extruder up and down a lot. And as you do that, you do a lot of things that are - you make life more challenging than it needs to be. So in some cases, we had, you know, reliability issues with additive packages to where not all products were made with additive.

And in some cases, we were on one feedstock moving into one silo, and as we were transitioning to another feedstock, we didn't move out of that silo quickly enough in order to minimize the cross-contamination. And so, you know, I would say that the majority of the issues that we faced there was on, let's say, equipment reliability, meaning the extruder was up and down, and then also learning how to more effectively predict the transition moments between feeds and then operationally manage it in the silos. And, you know, at the end of the day, this is a fairly small amount of volume that was cross-contaminated, and we're working to move that material to the market to move on. But those were some of the early challenges.

We don't expect that to be a concern going forward.

Thomas Boyes (Equity Research Analyst)

Got it. And then not to put too fine a point on it, but even for the portions that, you know, kind of, were cross-contaminated, it sounds like there are potential customers that are kind of willing to still trial or use that as the basis of then, you know, making some decisions longer term on using the final product. Is that correct?

Dustin Olson (CEO)

Yeah, 100% yes. I mean, so look, I mean, when you think about the options for mechanical supply, let's say, not mechanical, recycle supply into the market, they're, they're limited. And so there, there's a heavy appetite for recycled material in the market. And, so when you compare our material to what they're used to using, it's still a pretty good improvement. And so even when we're not making fully on-prime product, like the color is a little bit high or the opacity is a little bit off, it's still a very good product. It's still better than the gray and black material that is largely seen in the mechanical recycling market, and we're seeing really good interest in our material from the customer base.

You know, I mentioned that, you know, we, we've made, let's say, different qualities of product across the facility. I mean, you know, we have made prime material, okay? We have made good quality material that met both color and opacity throughout the process. But because we were up and down a bit, because we were a little bit of a learning curve on managing it on the back end, you know, we cross-contaminated quite a bit of that material. Now, having said all of that, we also learned a lot about capability that we have at the facility, and as we grow into it, we'll be able to expand our capability to move product more efficiently.

Thomas Boyes (Equity Research Analyst)

Got it. And then for my follow-up, just, you know, on the site visit, you had talked a lot about fiber and, you know, kind of the unique attributes that you have that make that a possibility. Is that kind of the same logic for film, where the impurities and different melting points kind of make that difficult to produce? Is that really kind of the same dynamic that's at play there?

Dustin Olson (CEO)

Yeah. So here, here's a good way to visualize it. When you're making fiber, it's a very thin stream of polypropylene, and if you have contaminants in your feedstock or in your product, then those little contaminants can have a big impact on the string. And when you have an impact on that string, then you end up breaking the string, and the producers of fiber have a very difficult time managing it consistently. They're up and down way too much. They don't like the product quality, so they can't do it reliably. And so that's why they have traditionally moved away from mechanically recycled product. Same is basically true for film as well.

As you make film, it's a, it's typically a long, wide sheet, very thin, of polypropylene, and if you have any inclusion of Co-Product 1 or Co-Product 2 in that film, then it can create an interference in the film and break the film or cause problems with the film. And so what we're doing and what we're seeing is that, you know, the better we are at removing Co-Product 1 and Co-Product 2 from the process, the better the product quality will be. The better the product quality is, the better we are at being able to make film and fiber. And we are really excited about this, okay?

Those are very big markets for the very big global markets, and if our product can prove technically and mechanically competent to run in those services, it gives us a pretty nice differential advantage to the market.

Thomas Boyes (Equity Research Analyst)

Great. Thanks for answering the questions. I'll hop back in queue.

Dustin Olson (CEO)

Thanks, Thomas.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from Eric Stein at Craig-Hallum Capital Group.

Eric Stine (Senior Research Analyst)

Hi, Dustin. Hi, Jaime.

Dustin Olson (CEO)

Hey, Eric.

Eric Stine (Senior Research Analyst)

Hey, so I'll sneak a few in here at the end. I'm just curious, any detail you can give on interest in those bonds and your ability to resell those bonds to give you a little bit longer runway? And then also, would love details on the warrants, if you're able to provide those, you know, pricing terms, et cetera.

Jaime Vasquez (CFO)

Yeah. Yeah, on the revenue bonds, you know, have to based on discussions we've had, we know Ironton has to run for a period of time. We do think there is an interest in it. We've got ongoing discussions. So, you know, my personal view is that if we can get Ironton to run for a couple of months, we'll have opportunity to sell additional bonds. With respect to the warrants, the warrants, the detail I can provide, I mean, they extend to December of 2030. They have a strike price at $11.50, and they're just basically at fair market value of those warrants.

Eric Stine (Senior Research Analyst)

Got it. And then maybe just last one, and I realize this is difficult, and, you know, look, I appreciate her. I can appreciate this is a new technology. You're ramping things up, you're learning a lot. But, I mean, any thoughts on, on when you envision that, you know, when you take down the plant, it is more of a proactive, you know, just part of regular maintenance versus taking it down, such as the outage that you just did. I mean, is this... Given what you know today, do you envision that this is a, you know, 3-2 event? Do you think it's more of a early 2025 event, where things are, where you ultimately want them to be from a production perspective? Any thoughts there would be helpful.

Jaime Vasquez (CFO)

Yeah, look, I mean, we're always going to do the evaluation to see if there's value in taking the plant down to do repairs or if there's value in continuing to run. In this case, there were numerous items that have been building up since November that we needed to address. We did a really good job during this outage, okay? We executed the outage very well. There were some discovery items which got in the way. I mean, honestly, you know, weather was a pretty significant impact on the overall, you know, timeline of this outage. But we implemented a number of improvements that will improve the reliability, okay? So we're very excited about that.

With respect to when will we do it again, you know, we do not have plans to take the plant down again in 2024. However, I will caveat it by saying, if we learn things as we run more consistently and reliably and with more pounds to the plant, that advises us that we need to do something again, then we will, okay? But at this point, we don't see a need to bring the plant down, quite frankly, because we did such a thorough job of planning this outage and completing the work that we had in front of us.

Dustin Olson (CEO)

And I think the other thing, Eric, is, look, I mean, we will continue to extend the time between outage over the life of the project, over the life of the site.

We will always be open to new ideas, new improvements, reliability, big, small, medium, whatever, to improve the site, okay? So, I don't think that, you know, even in traditional plants that have been running for 50, 60 years, they still implement reliability improvement projects on those plants every time they shut down. Now, the percentage of improvement versus the percentage of maintenance will change, and it will happen for us as well. But we're never gonna stop growing, learning, or getting better, and we'll continuously add things to this facility to help us operate more effectively. You should note that the majority of the projects that we did during this outage were very small dollar items.

But even those small dollar item issues, when an operator is in the field having to deal with something that's abnormal, it's not good for reliability of the plant. And so by some of these small improvements, we will help the operator quite a lot in the field, be more successful.

Eric Stine (Senior Research Analyst)

All right. Very helpful. Thanks.

Operator (participant)

Thank you. I'm showing no further live questions at this time. I will turn the call over to Christian.

Christian Bruey (Director of Corporate Communications)

We are gonna read one question that we received through [email protected]. This comes from Don Matthew. "Dustin, do you anticipate the need for continuing occasional plant stoppages to keep improving the process?

Dustin Olson (CEO)

Yeah. First of all, Don, you know, thanks for the question, and thanks for sending it in early. We very much appreciate that. I think that Eric asked that question just before. So we don't anticipate needing to take the plant down for any future outages in 2024. But we're gonna see how the plant runs, we're gonna see what the plant's telling us, and we'll make decisions throughout the year. But thank you for the question. So with that, I believe that's the end of the questions for this call. I'd like to close the meeting with a few short remarks. Look, I mean, the success of this company will depend on our team's resolve to solve problems and make improvements every single day.

You know, 1% every day is a, is a common thing that you hear out there. We execute that all the time. We opened our doors to you just a few weeks ago, and you got to see the culture and the energy behind everything we do with full transparency. We grind, we push through, we solve problems, and we improve every day. From the outside looking in, the plant might look the same to you, but for us, we removed so many reliability headaches that prevented us from consistent forward momentum. During this outage, we took the time to make those improvements that we believe will improve our operation. We couldn't be more excited to restart our facility and run this plant, and we look forward to talking to you all again next time. Thank you very much for your time today.

Operator (participant)

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.