PureCycle Technologies, Inc. (PCT) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning, everyone, and thank you for participating in today’s conference call. I would like to turn the call over to Mr. David Brenner as he reads the company’s Safe Harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995. That provides important cautions regarding forward-looking statements. David, please go ahead.
David Brenner: Thank you, and good morning, everyone. Welcome to PureCycle Technologies First Quarter 2021 Corporate Update Conference Call. I am on David Brenner, the Chief Commercial Officer here at PureCycle and joining me today are Mike Otworth, PureCycle’s Chairman and Chief Executive Officer; Michael Dee, Chief Financial Officer; Dustin Olson, Chief Manufacturing Officer; and Tamsin Ettefagh, Chief Sustainability Officer.
Mike Otworth: Thank you, David. Good morning. We appreciate everyone’s time who’s listening in. And we are going to be presenting a deck of slides here and I do realize that some people may not -- may just be calling in and don’t have access to visually the slides. So I’ll try to talk through them appropriately. This first slide really highlights the fact that, there was enormous global unmet need not being satisfied by existing technologies. The market generally once recycled plastic that can be used without compromise and by without compromise, I mean, can be used essentially interchangeably with virgin resin can be recovered, has the same physical properties, physical properties as virgin resin, has no odor. And historically, although, there have been a number of approaches that exist, most recycled polypropylene can only be used for lower value applications and so this needs to change. With less than 1% of polypropylene being recycled, it’s a wholly unacceptable situation and PureCycle endeavors to change that and we will change that.
Dustin Olson: All right. Thanks, Mike. Yeah. So the core of our -- really the core of our company is based on technology. And I want to make a point here that our technology is based on a very strong foundation. It’s obviously had many, many years of core R&D development. But the last three years to four years have been focused on operationally -- operationalizing those concepts through detailed engineering, scale up activities and proof-of-concepts. And, in a sense, what we’ve done is, we’ve taken the concepts, which were very good from a white piece of paper and turn them into the reality that’s in the field and operating today in Ironton. So as a function of this being a deep technically-based organization, for the last quarter, we have spent a tremendous amount of time deepening our internal technical bench and we’ve hired a lot of really good people, really domain subject matter experts, not just generalists, but domain specific experts and that continues. We’ve partnered, as Mike said, with some of the leading experts in the field and we really have a good relationship, cohesive collaborative relationship with all these people in order to bring to fruition what we’re talking about here. A key part of our success thus far has been the feedstock evaluation unit. It has been in operation since 2019 and really it helps us with three primary things. The first is that advises us on feedstock evaluations. Second, that helps us to provide samples to our customers for their own application evaluation. And then last, it’s been extremely critical in the development that design of the scale of activities for the engineering design package.
Tamsin Ettefagh: Good morning, everyone. As Dustin mentioned, I’m Tamsin Ettefagh, the Chief Sustainability Officer for PureCycle working with this team to build out our feedstock strategy. I have spent 32 years of my career in plastics recycling. But this is my most exciting chapter. Today there has been very little investment in sorting and washing the polypropylene from the other plastics in our waste stream simply because there has not been a value added market for recycled polypropylene at the quality by the consumer product companies to justify the investment. PureCycle completely changes that dynamic. This is key to the revolution we are creating, making it economically attractive together feedstock, process it through an ultra-pure state to meet the enormous growing demand. For our first pipeline in here , as mentioned, we have already engaged third-party suppliers to do this for us. Going forward, we are laser focused and are undertaking the development effort to add this value partners by collecting, storing and washing the polypropylene feedstock ourselves to supplement the supply. This will allow us to control our own destiny as -- in an economical way. Now for me this becomes the fun part creating those supply chains to feed the process well into the future. Today this feedstock strategy has four main streams that I am looking at. Our first, of course, comes from curbside collected plastics. So, multi-recycling facilities that some people hallmark has a material called plastic residue. Some call it as 3 to 7 bales. Historically, these 3 to 7 bales of plastic residue were shipped to China. Back in 2018, China stopped taking it and is now being predominantly landfill domestically, even after going to the market to be recycled, this is fact. The recycling partnership estimates that GBP1.8 billion of this 3 to 7 plastic residue ends up in the mass annually today, making this our largest opportunity to acquire feedstock. Our second stream is the post-consumer polypropylene scrap that is not collected at curbside, Carpeting is an example as all carpeting has a polypropylene vacuum and some of the carpeting has polypropylene fibers. PureCycle has already proven our ability to take this to an ultra-pure state. They anticipate extended producer responsibility policies and legislation will accelerate the supply of feedstock. This true also includes plastic waste from a wide range of retail stores, manufacturers where intended use has occurred. These items are things like produce boxes, fishing meat trays, oil tubs, deli buckets, super sacks, rail rack , takeout containers, tucson hangers and there are so much more to speak of. We are working on special events in use, such as sporting events, musical festivals and conventions which creates also a lot of single use polypropylene waste. PureCycle’s first treating is post-industrial polypropylene. Today mechanical recyclers are already covering close to 1 billion pounds of this type of waste coming out of manufacturing of making polypropylene items. This fact today goes to very limited low end applications because it’s not purified. We are the alternative solution for high value markets for manufacturers to create this waste, thus using their own scrap to create circularity. Furthermore, post-industrial scrap, it is landfill today can be purified and brought back to its original state to the purification process of beer cycle employees, we will open up new and deeper markets translating into more stable and consistent feedstock supply chains. We will meet the needs of the consumer product companies who have made sustainability commitments to use recycled polypropylene but had no access to the high quality that they must have. Mechanical recycling simply cannot meet this need alone. This is why we want to build out our capacity and production to 1 billion pounds as quickly as possible. So demand is already there and we’ve demonstrated this with the up take contracts we already have an Ironton. Finally, our fourth stream is Advocacy. We are creating a market where one didn’t exist before and it is huge. It’s because we have a proprietary technology. This is what is disruptive innovation is all about and what excites most of us here today. For 30 years the recycling industry is focused on the traditional number one and number two polyethylene care site and high density polyethylene plastic bottles only because of the clear in natural color in mainly food packaging that they come to the market. Polypropylene packaging as Dustin had mentioned, is very diversified and it mostly comes in the colored form. PureCycle can take all formats, not just follow and turn this back into pristine ultra-pure polypropylene that can go directly back into those formats, again, again and again. This is huge because the consumer, the consumer product companies, NGOs and government want more of their waste recycled and we bring that solution to the largest segment of plastic polypropylene today. Thank you. And now you will hear from Michael Dee, our Chief Financial Officer.
Michael Dee: Thank you, Tamsin. Let me try and run a few things. I want to give you an update on Q1 and then talk a little bit about going forward. First, as David mentioned, we hope to have the 10-Q out this week. As many of you are aware there has been tremendous confusion on the treatment of SPAC warrants. We have decided to update ours. It’s non-material. But that just the latest little bit. So we are working on that, should have that out shortly. Let me just say as an override, the things that I focus on mostly with the team are how can we do our build out strategy faster? How can we do it cheaper? And most importantly, how can we derisk it? Keeping in mind that derisking doesn’t always mean it’s faster and derisking doesn’t always mean it’s cheaper. But we are on an aggressive plan to build out up to 1 billion pounds and we want to make sure that we are doing everything today, which would derisk that scaling which will occur in the future. I’ll talk about that in a moment. There are three slides here, I’m actually not going to follow these slides. You can look at them and I’ll reference them as I go through my remarks. I would prefer to have you listen to my comments, rather than trying to read the slides. Let’s talk about quarter one for a moment. Number one, Ironton remains on track and on budget. This is very important. This is our number one priority. This is the flagship plant, GBP107 million being built in Ironton, Ohio. Now, there is a monthly report put out on the municipal bond system called EMMA. That is White House , who puts out that report. I’m not going to characterize it. But I’m going to encourage everyone to read that White House report and get a link and read it every single month. That is independent from us and it provides an update as to how our construction is coming. I think it’s very important for all our investors to understand whether you’re in the fixed income market or whether you’re in the equity markets that you have an independent report, which you can look at to see how that is coming. That’s number one. Number two, in the first quarter, we have really built out the team. We’ve made a lot of very critical hires, both at the corporate level and in terms of the team that Tamsin and Dustin are putting together on the manufacturing front. These are very key hires. Everyone who’s joining us comes with literally decades of experience and this is not, I’ve said many times, this is not a business built on 20-year olds. This is a business built on highly experienced professionals like Tamsin, Dustin and others. And we have been able to hire the people we need, and in fact, we have many, many people that understand the industry, understand the polypropylene market who want to come join us. That’s number two. Number three, our capital resources are now extremely strong. We’ve raised since Q4 and Q1 $732 million and we have $570 million on the balance sheet. The $244 million is at the trustee, it’s restricted cash set aside for the construction of Plant 1. In addition, there’s over $70 million of reserves, which are set up in order to support the build our plant. And then there’s over $250 million of unrestricted cash at the top-co level to help us sustain the corporate growth that we want and to provide the equity to do to build out in the future. In terms of some basic numbers, the net reported loss will be $30 million and the half of that is due to a warrant adjustments and non-cash charge. We do have debt of $310 million. That is the $250 million of the municipal bond deal, $220 million of senior debt, and $30 million of subordinated, plus an in the money $16 million convertible note. The burn rate per month approximates about $2 million per month. So while we are operating well within our parameters, we continue to look forward in terms of the build out strategy. Let me let me now pivot and talk a little bit about what I see as the important issues going forward and some of the new developments that we’re either working on or have to come. First is, as Dustin talked about, the build out, here the critical change in what we’ve done is to go from a GBP165 million plant to a GBP130 million. Why did we do that? We did that because that is absolutely consistent with our strategy to derisk. The engineering team that we brought in and our external partners we’ve worked very, very closely and this represents what we believe is the optimal size per plan to minimize the scale up risk and yet in order to keep the CapEx per pound comparable to what we had before. So this is an important development. Often I’ve likened it to the decision made by Southwest Airlines to focus on 737 rather than running a lot of multiple plants. By having a single plant engineer, we can get it done quicker and we could also have a single plant and this will help us in the future as we’re trying to do multiple plants of the same nature at the same time. Let me also just say that, we get a lot of questions about citing. We are getting much closer on that decision, but we’re not yet ready to say exactly where we’re going to put it. Let me move on to feedstock and just pivot a little bit to some of the things that Tamsin spoke about. First of all, bringing Tamsin on Board with Dustin was critical, because now we’re integrating the feedstock decisions into the site selection. But while there are many plant and manufacturing issues that relate to the site selection, we also want to make sure that in choosing a site, we’re making it easier to acquire feedstock from a catchment area, we’re not making it more difficult. So the fact that we are in effect crossing the screams between Tamsin’s group and Dustin’s group is proving to be a very positive and helping us work through that site selection decision. There is the feedstock, as Tamsin mentioned, we have already the feedstock committed for Plant 1. We have existing partners that we’re working with and we will continue to work with those partners, because they are very valued, they know what they do and they’re doing it very well for us. However, in parallel with that, as Tamsin mentioned, we are studying an initiative to move upstream. This is to control our own destiny. We believe that in the past, there has been a lack of investment in the sorting, the cleaning, the methodology to pull number 5 polypropylene out of the waste stream. And there’s been a very simple reason for that, it hasn’t been economical and there hasn’t been a financial reason really to do that. However, we are creating that reason to do that. And therefore, we think it actually can be economical and derisked the feedstock decisions for us by also having a parallel route, where we can then work to decrease our risk and bring the number 5 feedstock out and do some of that on our own. So it’s a very natural move to look at this, and will accelerate the investment in feedstock. So we think that’s a very good development and you will hear more about that as we move forward. But we want to make sure you’re aware of that as an initiative. Number three, the pricing model, there is a slide in there that looks at the pricing model. We have migrated and continue to migrate and learn from our experience and working with our customers. Our original model was to start with an indexed price and add a premium as a percentage to that. We then also were able to do fixed price models. And what we want to do and what we think is a natural evolution is to begin to discuss with our customers and with the market a model, which is a combination of a fixed price, plus a modifier, which is based on the feedstock price. This would serve to insulate us from movements in the feedstock price and protect what we believe are the important margins that we’re able to develop. Again, you will be hearing more about that in the future and that’s I believe a very, very important initiative for us. Number four, let’s talk about the financial model a little bit. We remain very comfortable with the financial model that we have, particularly as it pertains to our EBITDA projections, which are, of course, directly linked to our production. The production goals remain, having 1 billion pounds of capacity in 2024 and 1 billion pounds of production in 2025. We believe that based on the discussions that we’re having, the pricing model in terms of the third party prices per pound, which we’ve modeled in that range, if not a touch higher remain viable and we have no change to that. As Dustin mentioned, we want to be derisking and therefore we have decided to be more U.S. centric early on. This does that mean that Europe is not a major focus of ours, it is, as is Asia and other geographic locations. However, in the very short term, this remains in the U.S. our prime focus. We have a partner that we’re working on in Europe and we feel very confident of that and we will be talking more about that as time goes on. Let me just also say that our bonds are something that normally the equity investors don’t look at and it’s very important to understand what’s happening there. Following the closing of the SPAC transaction, the bonds traded up almost 15%. It is very unusual to see bond spreads tighten in 200 basis points to 300 basis points in a relative really rapid period of time since they were done. We thank our fixed income investors, many of whom we hope are on this call, they’ve been very supportive of us and they’ve done tremendous due diligence. Let me just say now that in looking at our business, we have been subject to some of the most excruciating due diligence that I’ve seen in my career and I have been -- and I was at Morgan Stanley for 26 years and then was an Investor after that. We have really had fixed income and equity investors our core investors in the PIPE, in the bond, et cetera, have done extensive due diligence. They talk to our customers, our partners, et cetera. Sometimes I do read an article or two here and there in the papers as I’m sure you’ve seen, and the one thing I noticed is that, they often don’t mention some of the things that I called the three Ls. The first is White House. There is an extensive report in our S4. I encourage you to read that report in fall. What I see an article that doesn’t mention that report or somehow mischaracterizes it that obviously bothers me. That was -- that is an excellent piece of work. I’m not going to characterize it here, but I believe must read that, which is why we included in the S4. The second L is the lock-up. This lock-up demonstrates the commitment of management. Over 60% of the 83.5 million shares that went to PureCycle shareholders are subject to a lock-up which only release -- which releases 50% of those shares not until Plant 1 in Ironton is commissioned, but that’s a very important. And only 20% of the shares are released after six months, whereas most transactions be there an IPO or as SPAC transaction would release a 100% of the shares after six months. This is the company and the management’s way of demonstrating to using our investors both in fixed income and equity that we are committed and we believe in what we’re doing. Roughly 25% of the shares are able to be released in six months. However, the important number is that almost 44% of all PCT shareholders are locked-up until Plant 1 is commissioned and that commissioning is done by an independent group, not done by us. Very important. The third L is long-term. I’d say to almost all our investors on all of our calls, we are in a marathon, we are not in a sprint, we understand that this is a long-term process and we understand that we have to demonstrate and meet milestones. And I encourage our investors to keep that in mind, people can may have different points of view of what they think is going to happen in the future. However, this is a marathon and we know we are in a long-term process. Finally, let me say that 117 million shares outstanding. PureCycle has 83.5 million shares. Those are remained locked up. The 2.2 million founder shares from the stack which only represented 1.8% are also locked up and that means only 26% of the shares outstanding are really free to trade. Let me conclude by saying we are achieving our milestones we take them seriously, we respect our investors and we will continue to keep you informed of how we do against those milestones. We are aware of the challenges. We’re prepared, we’re preparing and we have the talent to meet those milestones, because we have a very, very experienced team. We have seen some of the negative articles. Our key investors have done extensive due diligence, anyone who of the negative articles that I’ve seen. They have not contacted us and they have not talk to us. Best I can tell, they have not read the White House report. But most importantly, they’ve not gone to Ironton, many of the investors on this call have been to Ironton. We send investors out to Ironton to see the feedstock evaluation unit regularly. This is a critical part of the due diligence. It’s difficult to explain it unless you see it. We are going to likely set up somewhere in the end of June an open house, where we will invite everyone to come out. But you don’t have to wait to the end of June. If you want to come out and see Ironton and actually look at it, talk to the team there, we will set that up for you, as we have for many, many others. And I said personally, I would just say, I really don’t have time for those who write negative articles who have not made the effort to talk to us, to read the materials and to go out and actually see the facility. We are very committed to you as our investors, because we are in a capital-intensive business. We know that and we intend to deliver and we intend to meet the milestones and the aggressive milestones that we set for us. At this point, I will end my prepared comments and we will open it up for Q&A. Thank you very much.
Operator: Thank you. Our first question comes from the line of Noah Kaye from Oppenheimer. Your line is now open. You may ask your question.
Noah Kaye: Great. Good morning. Thank you for the update and for taking the questions. Maybe we could start with what you talked about in your prepared remarks about moving from GBP165 million target designed to GBP230 million. Can you just help us understand a little bit, what makes it easier to go from GBP107 million to GBP130 million versus GBP165 million. You talked a lot about modularity time to build. Can you -- without getting too technical, just give us some additional insight on why this is a more efficient way to go? And then the follow-up question to that would really be about CapEx efficiency, in your prior presentation for the cluster plant, I think you were targeting something around $30 plus per pound of CapEx. How do you think about to CapEx efficiency on a plant that’s a GBP130 million? Thanks.
Michael Otworth: Thanks, Noah. I am going to let -- I’m going to direct the first part of your question to Dustin to talk about the capacity decision and then I’ll let Michael address your CapEx question? Thanks.
Dustin Olson: Yeah. Thanks Noah. So, with respect to the GBP165 million versus GBP130 million, it really has to do with how much of the core equipment is changing inside of the system. And so what we’re doing is we’re starting with the Ironton design and looking at where the constraints to the -- that design will be based on our expectations for feedstock and operation and product slate and then fixing the edges of the design to relieve constraints. And so the reason that it makes sense is, it allows us to stay consistent on the core of the technology and only work on the edges. Additionally to that, anytime that you’re building something, the first time you build it will likely be the least efficient that you do it. You got to learn how to make the right jigs, the right equipment, you have to learn where the lay the equipment down to move it into the construction phase. The second plant that you build, if it is the same basic design is much more efficient. And so by doing what we’ve done on the GBP130 million or I like to call it the GBP107 million plus, it effectively allows us to gain construction efficiency, long lead efficiency, procurement efficiencies, and ultimately, it enabled us to accelerate the engineering phase substantially, because we’re not changing as much of the design.
Michael Dee: Yeah. Noah, it’s Michael. CapEx efficiency is very, very important to us. One of the metrics that we look at is CapEx per pound of capacity. The GBP165 were about $1.33. And based on what we’re looking at now it’s in a similar range. So it’s not costing us more in terms of building the capacity. The engineering timeframes are shortening and we’re also able to do it in such a way that it derisks that scale up factor. We’ve put a lot of effort into the scaling. We’ve heard it as a question for many, many people and that’s why we want to make sure that people understand that what we’re trying to find is that optimal size. Now building more capacity with smaller-sized plants, it means we need to build a few more plants…
Noah Kaye: Okay.
Michael Dee: … but once you have the similar size plant, it then is going to become much easier over time and we have actually not factored lower costs in the future or shorter timeframes into our modeling in order to be somewhat conservative. Thank you.
Noah Kaye: Yeah. Thank you. And I mean just to reflect back Plant 1 was -- feel free to correct my figures around $250 million budgeted CapEx here, it sounds like you’re going to be sub $200 million per plants with a good amount of higher output. So that’s a very helpful metrics for us to think about. Thank you. The last question I have is really around the feedstock and some of the strategic efforts that you mentioned, we look at the 3 to 7 price per pound versus recycled bale polypropylene there is just a huge spread right now. I mean, effectively the market seems to be saying, 3 to 7 not worth a lot of PP you can pull it out was the lot. And so I guess with that in mind, can you talk about how some of that spread dynamic factors and then really what is the type of potential investment you would need to make whether in sort of sortation or other equipment to be able to do this in separation and washing yourself?
Michael Otworth: Sure. I’ll let Tamsin, This is Michael. I’ll let Tamsin address this question, but I think it’s important to understand a couple of dynamics, anytime you’re talking about feedstock. One is that, because of the fact that our process will work with so many different types of feedstock. We don’t have to compete with the mechanical recyclers feedstock. So you hear opinions out there about our feedstock is going to be really difficult, et cetera. We take it very seriously, global feedstock strategy is top of mind for us on a daily basis. We’re building -- our whole team of people focused on feedstock strategy and execution. But one of the things that attracted me to this opportunity very early on was the fact that things that are wholly unacceptable to most people in the recycling game work perfectly well for us. So that makes the task certainly easier than it would be. Otherwise and so I’ll just -- I will stop there and let Tamsin finish answering your question.
Tamsin Ettefagh: Well, I would just say that, mechanical recyclers, when you take that material and take it straight their expect a quality product. Technically, we could get a quality side, but as I mentioned in my speech, we are planning to grind, sort and wash this material and because we have partnerships that we’re working with out there we will find other homes effectively and efficiently for the other materials. So basically will be able to mine a much higher cost polypropylene in a much lower cost format by doing what we’re doing with the 3 to 7. It doesn’t mean we won’t buy polypropylene bales where they’re available. It doesn’t mean we won’t buy other sources of post-consumer polypropylene. This is just a big opportunity. It’s a need for them to find a solution and we can help bring that to that.
Michael Dee: Yeah. Noah, it’s Michael. If I can just add one more sure thing to that. The differential you’re seeing in prices is largely due to shortages that occurred earlier this year and late last year because of maintenance on polypropylene production facilities, which drove prices up and created a shortage in the polypropylene market. However, looking forward, the pricing model that I discussed that we would like to migrate to which is somewhat of a pass-through will help protect us against that, number one. Number two, that differential, you correctly pointed out, means we can pull it out and create a lot of value. So therefore that also leads to the feedstock evaluation that we’re doing right now and looking it moving upstream and pulling some of that out and making an economic decision that way as well. Third, it’s very important for everyone to understand what we are not. We are not chemical recyclers and we are not mechanical recyclers. Keep in mind, mechanical recycling is creates a very low quality and a very low value-added output. That’s not what we’re doing. We’re creating a very high value output. That means we can pay more for the feedstock and that means ultimately that we will be more competitive. So if you see a mechanical recycler talking about us, keep in mind that they’re talking their own book as we say, and they’re focused on the fact that they will have a difficult time competing with us in terms of pricing for that feedstock. Thank you.
Noah Kaye: Thanks.
Operator: Thank you. Next question comes from the line of Eric Stine from Craig-Hallum. Your line is now open. You may ask a question.
Eric Stine: Yes. Good morning, everyone. So…
Mike Otworth: Hi, Eric.
Eric Stine: So, I mean, clearly, your customers are very invested in this process, what you’re doing in your a key part of their sustainability goals. Just curious how involved they are or what type of input and planning do they have in the site selection, in the supply chain analysis and everything that’s going into?
Mike Otworth: Yeah. Thanks for that question. It is -- so we look to all of our, almost all of our partners to give us their perspective on feedstock, right? And that’s when you’re talking about site selection, obviously feedstock and availability of feedstock, logistics associated with transportation of feedstock to a particular site. Those are all important elements that we consider. So we talk of those partners. And with regard to what we’re looking at in Europe, we will -- because of the complexity of regulatory considerations and other considerations that we yet to have experience with. We will most certainly endeavor on our first plan or possibly for several plants and executing them with a partner, either in a co-location and/or co-location joint venture. And of course, in that case, we would consult with our partner on a variety of fronts with regard to the site. And so we’re actively talking to partner for about multiple considerations with regard to kind of final sites in Europe and we’re doing a lot of analysis of comparative sites in North America, including analysis of all the logistics and involved in the transportation of feedstock to those sites. So Dustin is there anything additional you’d like to add on this question?
Dustin Olson: No. I don’t think so. I mean the supply chain analysis is very dynamic and whether you’re shipping product to your customers or your shipping feed into the plants, the analysis is complex. So we’re looking at a lot of different variables and conditions to make the right decision there.
Eric Stine: Got it. Very helpful. And then maybe just more of a, well, the demand question going forward, obviously, significant demand, when you think about your future plans, do you think that these are made up of your current customers the ones that are really underpinning Plant 1 or do you feel like, I mean, given that you are opening the ability or an avenue that’s really not been opened at this point in polypropylene that it will be current customers in addition to new customers?
Michael Otworth: Yeah. I think it most certainly will be current customers plus new customers. There are a number -- we’re getting a lot of interest from vertical markets that we haven’t even penetrated all in terms of our customer set for the first plant. And so -- and not trying to make the task any harder or any riskier than it needed to be for Plant 1. We largely settled on for a large percentage of the off-take for Plant 1. I would characterize as kind of a mid-line kind of SPAC for CPG packaging. But as we go the subsequent plans, we will continue to service those customers, but there are many other verticals automotive, aerospace and transportation in general, a whole host of others that we are talking to on a daily basis and so I think you’ll see a rapid expansion in terms of breadth of customer sets as we move to Plants 2 and beyond.
Eric Stine: Got it. And then maybe just a follow-up to that is, I mean, since this whole process started or since the planned merger was announced, I guess, would have been in October of any -- anything you can hear, just how that pipeline has expanded details would be great? Thanks.
David Brenner: This is David Brenner. Yeah. I would say, at this point, there are a series of concurrent discussions both with current and future partners. We’re not at a point this afternoon or this morning where will dive into details of those numbers, but we’ll be providing updates in the coming months.
Eric Stine: Thank you.
Operator: Next question we have from the line of Gerry Sweeney from ROTH Capital. Your lines now open. You may ask your question.
Gerry Sweeney: Good morning. Thanks for taking my call. I just wanted to touch back on feedstock and I know we talked about quite a bit, but do you find it has been a critical point of conversations I had. Can you just maybe explain a little bit more about the opportunity PureCycle brings in terms up cycling of use as polypropylene versus down cycling that is essentially prevalent in today’s market and all the levers that really provides PureCycle what the opportunity to expand this feedstock base?
Michael Dee: Thanks, Gerry. I’ll let Tamsin speak to this question. But I would I just say that, one of the things that was quite shocking to me when I first started to learn about how plastic recycling is separated and how it works is that, even though polypropylene is recycled at a shockingly low rate of less than 1%. Even for that 1% that’s recycled it’s kind of a use of the sports analogy one and done. Most of that is sorted by virtue of optical scanners who can’t discern between different resins if it’s black. So if it’s being recycled by mechanical recycling and it’s turned black, this is what typically happens. It can’t be recycled again. So it’s a bit of a recycling depth sense to be recycled even once, very obviously very poor situation and in our case with PureCycle, we can recycle polypropylene essentially indefinitely with an indefinite number of cycles, which changes the whole game significantly. So I think that’s an important thing to realize. But I’ll let Tamsin make any comments she thinks are relevant.
Tamsin Ettefagh: Hi. I think you made a good point about lot of this material goes into a black application. So we do see most polypropylene that’s recycled today mechanically very few use hot washes, they haven’t put the investment and because the end markets that could pay a higher price, which comes into the packaging forms, haven’t been able to buy that type of recycled polypropylene in the past, mainly because it’s grey and has an odor and so it’s the particularly add, they could possibly put in hot washes to get rid of some of the odor, some developed condition, which a couple have done to get rid of odor, but they’re still stuck with a grey product. Then you’ve got some mechanical recyclers who put in optical sorting to make specific colors. But all they can do is make a shade, a shade of blue, shade of green, shade of yellow and then quite often a large amount of color has to go back into that to color corrector to the color the consumer product companies need, if they’re going to use a recycle. So they’ve got variability that they have to deal with. The other thing is, the recyclers to do mechanical have been kind of focused on a specific format, as you’ve seen bottles are recycled and they don’t want thermal forms, bottles are recycled and they don’t want films. The difference that PureCycle has is that we can take all of those different formats and also removes the color and the odor. So we kind of got three little buckets that really put us ahead of the traditional mechanical recycling and that’s being able to take different formats in, being able to take different colors and they take it back to a natural, so they can be used in any type of application for color. We also by removing the odor we are also removing a lot of absorbed chemicals. So we bring it back to a food grade material. There isn’t that much in food grade LNO’s for mechanically recycled today. So this will be a huge accomplishment to bring to the market is to make it so that you can go back into the packages that we’re recycling to begin with really creating circularity is key.
Mike Otworth: And because the mechanical recyclers are generally limited in terms of their capability, they reject a lot of the recycled material that they do buy and I had a conversation recently with supplier feedstock who were selling to one of the larger players in recycling, who said, hey, when they buy from us, but they reject as much as 40% of what we shipped them, obviously, this is a big problem with regard to the whole efficiency of the recycling process in general and it’s obviously helpful when you’re process can successfully deal with a much broader spectrum of feedstocks and still make an extremely high quality product.
Gerry Sweeney: Got it. Super helpful.
Operator: Thank you. Next question comes from the line of Barry Haimes from Sage Asset Management. Your line is now open. You may ask your question.
Barry Haimes: Thanks very much. I had a couple of questions. One is, as you do the full scale plant at Ironton and think about the key parts of the process and where you could have some scale-up risk. Could you talk through that a little bit? And sort of related to that in terms of breaking ground on the second plan is it your intent to wait until the first one is up and running, and working or will you actually break ground before you have all that data from the first plant? And then I have one other financial question. Thanks.
Mike Otworth: Thank you for that question and I’ll let Dustin Olson to address your question.
Dustin Olson: Yeah. So thanks for the question. I think the first way to answer this is that, we do have a proof-of-concept up and running in Ironton today, we start feedstock evaluation unit, okay? So it is working. We make -- we bring traction of all shapes and sizes, and we make beautiful polypropylene on the back side. So many times when we talk about new scale technology, taking it from paper to the field is a -- is probably the biggest most critical steps, sometimes what you think will happen on the paper won’t happen in the field and you learn at that stage we’re past that, because we have the FEU up and running. When it comes to scale-up concerns, I mean there’s no doubt that as we started the FEU and we worked through the growing pains of getting that plant up and running. There were some, okay? There were some issues around the plant where we had some plugging that we had to heat trace better, there were some issues where we had to test the filtration and we’ve tried various mechanisms, but we work through those, okay? And so I would say that, for sure, there have been, let’s say, technical items that we have worked through the FEU and that has advised us on how to design the commercial plan, okay? In some ways, actually the commercial plant is going to be less prone to some of the problems with the FEU you had in the early stages because of its scale and of size. I guess the second portion of your question is really how unique is the technology that we’re using to build the plant. And what I’d say is, the magic of our process is not so much in the type of equipment that we’re buying as it is in the way that we are arranging it and the way that we are using it, okay? And so I have pretty high confidence that the pots and pans that we’re putting together are going to work properly, because it’s pretty well known technology, okay.
Mike Otworth: And there were outside engineering resources brought into opine on this process and its design even before we acquired the license. And I think it’s important to understand that there is no here to for unknown magic going on inside any of the unit operations that comprise the system in total. It is a unique assemblage of unit operations that have existed and manufacturing processes of different types in some cases for decades. So there were -- there was -- when you looked at the list of unknowns with regard to the technology and the system, it really wasn’t such that you would be so worried that you would want to go to every last step of detail to make sure, oh, well, let’s make sure that all of these unknowns are answered and this will work. We feel like we’ve answered enough that we’re quite confident and moving forward with starting to build subsequent plants, but this has been -- this decision has been made with a lot of careful consideration and with the advice of existing industry partner that deal with similar processes that involve temperature and pressure, and with some of the world’s best engineering resources that have opined early on in the development of PureCycle and continue to do so to this day.
Barry Haimes: Thanks. That’s extremely helpful. And again, maybe just the timing of Plant 2 and then my other question was, could you just remind us what the expected revenue and EBITDA would be added original Ironton plant at the GBP107 million level, but then even more importantly, the GBP130 million prototype or subsequent design? Thanks.
Dustin Olson: So just, just to answer your first question in completion, we do intend to break ground on the second facility before Ironton is up and running, and that’s because of the confidence that we have in the original design package based on the information that we’ve been able to agreeing from the FEU and the work that we’ve done with the experts around the world…
Mike Otworth: Plant 2 timing.
Michael Dee: And Plant 2 timing, Plat 2 is expected to be up and running in the first half of 2023.
Mike Otworth: Michael will answer the...
Operator: There are no further question at this time, please continue.
Michael Dee: I am sorry. I’m sorry, Operator. Just to answer Barry -- your other question, Barry. The revenue on the GBP130 million would be about GBP94 million and the EBITDA would be about GBP50 million. Sorry . Sorry, go ahead, Operator?
Operator: All right. So, there are no further questions at this time, please continue presenters. We have no more questions.
Mike Otworth: Okay. Thank you, everyone. We appreciate your time. And as Michael mentioned, we will be hosting an open house for investors that will be -- we will determine the date soon. It will be late June and we would welcome anyone who hasn’t seen our facility and how it operates, so come and see it. And we -- as we said, we’ve been open about making it available for people to see and hear and smell and we’ll continue to do so in the future. Thank you.
Operator: Thank you. Ladies and gentlemen that concludes today’s conference call. Thank you all for participating. You may now disconnect.
