PureCycle Technologies(US:PCT)2024-05-08 20:26PART I - Financial Information Financial Statements Net loss significantly increased to $85.6 million in Q1 2024, driven by higher operating costs, interest expense, and a $21.2 million debt extinguishment loss Condensed Consolidated Balance Sheets Total assets decreased to $734.0 million from $1.04 billion at year-end 2023, primarily due to reduced cash and debt extinguishment, impacting equity Condensed Consolidated Balance Sheets (in thousands) | (in thousands) | March 31, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | ASSETS | | | | Cash and cash equivalents | $25,021 | $73,411 | | Total current assets | $51,171 | $162,645 | | Property, plant and equipment, net | $642,017 | $638,746 | | TOTAL ASSETS | $734,015 | $1,039,373 | | LIABILITIES & EQUITY | | | | Total current liabilities | $43,570 | $55,610 | | Long-term debt, less current portion | $242,937 | $467,708 | | TOTAL LIABILITIES | $397,176 | $619,137 | | TOTAL STOCKHOLDERS' EQUITY | $336,839 | $420,236 | Condensed Consolidated Statements of Comprehensive Loss Net loss surged to $85.6 million in Q1 2024, driven by a $21.2 million debt extinguishment loss, higher operating costs, and increased interest expense Statements of Comprehensive Loss (in thousands, except per share data) | | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Operating costs | $21,194 | $7,372 | | Total operating costs and expenses | $38,982 | $21,821 | | Interest expense | $15,054 | $657 | | Change in fair value of warrants | $13,944 | $4,835 | | Loss on debt extinguishment | $21,214 | $— | | Net Loss | $(85,607) | $(25,842) | | Loss per share (Basic & Diluted) | $(0.52) | $(0.16) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased from $420.2 million to $336.8 million in Q1 2024, primarily due to the $85.6 million net loss - The company's accumulated deficit grew from $(344.2) million to $(429.8) million during the first quarter of 2024, reflecting the net loss of $85.6 million23 Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $39.2 million in Q1 2024, with $255.4 million used in financing, resulting in a $262.6 million net cash decrease Summary of Cash Flows (in thousands) | | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(39,178) | $(14,755) | | Net cash provided by investing activities | $32,027 | $52,739 | | Net cash used in financing activities | $(255,423) | $(1,632) | | Net (decrease) increase in cash and restricted cash | $(262,574) | $36,352 | | Cash and restricted cash, end of period | $39,940 | $263,875 | Notes to the Interim Condensed Consolidated Financial Statements Notes detail financial condition, debt, and legal matters, addressing going concern doubts and a major 99% Revenue Bond extinguishment - The company's financial statements have been prepared assuming it will continue as a going concern, but recurring losses and negative cash flows raise substantial doubt, which management believes its plans, including the ability to re-market purchased bonds, alleviate344243 - On March 5, 2024, a subsidiary purchased 99% of the outstanding Revenue Bonds, accounted for as a debt extinguishment, resulting in a $21.2 million loss67 - Subsequent to quarter-end, the company reached a tentative settlement in the Consolidated Theodore Lawsuit for $12 million and a separate MOU to settle derivative lawsuits for $3 million, both to be funded primarily by D&O insurance186187 - On May 7, 2024, the company agreed to sell approximately $94.3 million in par value of its repurchased bonds to Pure Plastic LLC, with consideration including full prepayment of a ~$45.5 million term loan and $30 million in cash191192 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Ironton Facility delays, Augusta facility plans, and Q1 2024 net loss of $85.6 million, addressing going concern doubts Overview of Operations The company's Ironton Facility faces mechanical challenges delaying full production, while Augusta facility plans proceed amid financing uncertainty - The Ironton Facility has commenced pellet production but is experiencing intermittent mechanical challenges that are delaying it from reaching consistent, sustainable production rates, with full operation expected later in 2024205208 - The Augusta, GA facility is planned to have up to eight production lines with a total capacity of 1 billion pounds per year, with approximately $88.0 million invested in pre-construction and long-lead equipment for Phase One as of March 31, 2024210211 - The company is pursuing project financing for the Augusta Facility but is limiting expenses and adjusting its timeline due to challenging market conditions and uncertainty216 - Future international expansion includes a planned facility in Antwerp, Belgium, and a joint venture with SK geo centric for a facility in Ulsan, South Korea225 Results of Operations Total operating costs and expenses increased 79% to $39.0 million in Q1 2024, driven by higher operating costs and a $21.2 million debt extinguishment loss Comparison of Operating Results (in thousands) | | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Operating costs | $21,194 | $7,372 | $13,822 | 187% | | Selling, general and administrative | $15,957 | $12,695 | $3,262 | 26% | | Total operating costs and expenses | $38,982 | $21,821 | $17,161 | 79% | | Interest expense | $15,054 | $657 | $14,397 | 2,192% | | Loss on debt extinguishment | $21,214 | $— | $21,214 | 100% | | Net loss | $(85,607) | $(25,842) | $(59,765) | 231% | - The increase in operating costs was primarily due to $7.9 million in higher depreciation as the Ironton Facility assets were placed in service, and $4.3 million in increased operational site costs232 - Interest expense surged due to new financing in 2023 (including $250M in green convertible notes) and the cessation of interest capitalization for the Ironton Facility235 Liquidity and Capital Resources The company had $25.0 million in cash as of March 31, 2024, with management addressing going concern doubts through bond re-marketing plans Liquidity Summary (in millions) | | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $25.0 | $73.4 | | Debt Securities Available for Sale | $2.2 | $48.2 | | Restricted Cash | $14.9 | $229.1 | | Gross Long-term Debt and Related Party Note Payable | $318.3 | $564.2 | - Management believes its current unrestricted liquidity is insufficient to fund operations and future growth, raising substantial doubt about its ability to continue as a going concern248 - To alleviate liquidity concerns, the company purchased 99% of its outstanding Revenue Bonds, reducing restricted cash and providing the ability to re-market these bonds for future liquidity needs249 Cash Flow Summary (in thousands) | | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(39,178) | $(14,755) | | Net cash provided by investing activities | $32,027 | $52,739 | | Net cash used in financing activities | $(255,423) | $(1,632) | Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures have occurred since the most recent Annual Report on Form 10-K - Information about market risks as of March 31, 2024, does not materially differ from that included in the company's most recent Annual Report on Form 10-K279 Controls and Procedures Disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting - The company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of March 31, 2024281 - No material changes to internal control over financial reporting occurred during the first quarter of 2024282 PART II - Other Information Legal Proceedings Legal proceedings are detailed in Note 11, with management not expecting a material adverse effect on financial position or results - For a description of legal proceedings, the report refers to Note 11, "Commitments and Contingencies," in the financial statements285 Risk Factors No material changes to risk factors have been reported since the most recent Annual Report on Form 10-K - No material changes from risk factors previously disclosed in the most recent Annual Report on Form 10-K have been reported288 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 98,651 common shares at an average price of $6.07 per share in Q1 2024 for tax withholding obligations Purchases of Equity Securities by the Issuer | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | January 1 to January 31 | — | $— | | February 1 to February 29 | — | $— | | March 1 to March 31 | 98,651 | $6.07 | | Total | 98,651 | $6.07 | Other Information PCT LLC agreed to sell $94.3 million in repurchased Revenue Bonds, repaying a $45.5 million loan and receiving $30 million cash - On May 7, 2024, PCT LLC agreed to sell ~$94.3 million in par value of its held Revenue Bonds to Pure Plastic LLC297 - The transaction will result in the full payoff of a ~$45.5 million term loan and provide PCT LLC with $30 million in cash298 - In connection with the deal, the company will issue Series B Warrants to Pure Plastic, allowing the purchase of ~3.1 million common shares at $11.50 per share302307